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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of Covenant Transportation Group, Inc., a holding company incorporated in the state of Nevada in

1994,

and its wholly owned subsidiaries: Covenant Transport, Inc., a Tennessee corporation; Southern Refrigerated Transport, Inc., an Arkansas corporation; Star Transportation, Inc., a Tennessee corporation; Covenant Transport Solutions, Inc., a Nevada corporation; Covenant Logistics, Inc., a Nevada corporation; Covenant Asset Management, LLC., a Nevada limited liability corporation; CTG Leasing Company, a Nevada corporation; IQS Insurance Retention Group, Inc., a Vermont corporation; Driven Analytic Solutions, LLC, a Nevada limited liability company; and Heritage Insurance, Inc., a Tennessee corporation.

References in this report to "it," "we," "us," "our," the "Company," and similar expressions refer to Covenant Transportation Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Equity Method Investments, Policy [Policy Text Block]

Investment in Transport Enterprise Leasing, LLC

Transport Enterprise Leasing, LLC ("TEL")

is a tractor and trailer equipment leasing company and used equipment reseller. We evaluated our investment in TEL to determine whether it should be recorded on a consolidated basis. Our percentage of ownership interest

(49%),

an evaluation of control, and whether a variable interest entity ("VIE") existed were all considered in our consolidation assessment. The analysis provided that we do not control TEL and that TEL is not deemed a VIE. We have accounted for our investment in TEL using the equity method of accounting given our

49%

ownership interest and ability to exercise significant influence over operating and financial policies. Under the equity method, the cost of our investment is adjusted for our share of equity in the earnings of TEL and reduced by distributions received and our proportionate share of TEL's net income is included in our earnings.

On a periodic basis, we assess whether there are any indicators that the fair value of our investment in TEL

may

be impaired. The investment is impaired only if the estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss would be measured as the excess of the carrying amount of the investment over the fair value of the investment. As a result of TEL's earnings, no impairment indicators were noted that would provide for impairment of our investment.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenue, drivers' wages, and other direct operating expenses generated by our Truckload reportable segment are recognized on the date shipments are delivered to the customer. Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.

Revenue generated by our Solutions subsidiary is recognized upon completion of the services provided. Revenue is recorded on a gross basis, without deducting

third

party purchased transportation costs, as we act as a principal with substantial risks as primary obligor, except for transactions whereby equipment from our Truckload segment perform the related services, which we record on a net basis in accordance with the related authoritative guidance. Solutions' revenue includes

$2.6

million,

$2.4

million, and

$2.3

million of revenue in

2016,

2015,

and

2014,

respectively, related to an accounts receivable factoring business started in

2013

to supplement several aspects of our non-asset operations. Revenue for this business is recognized on a net basis after giving effect to receivables payments we make to the factoring client, given we are acting as an agent and are not the primary generator of the factored receivables in these transactions.

Use of Estimates, Policy [Policy Text Block]

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances

may

affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of

three

months or less at acquisition to be cash equivalents. Additionally, we are also subject to concentrations of credit risk related to deposits in banks in excess of the Federal Deposit Insurance Corporation limits.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Accounts Receivable and Concentration of Credit Risk

We extend credit to our customers in the normal course of business. We perform ongoing credit evaluations and generally do not require collateral. Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts. We evaluate the adequacy of our allowance for doubtful accounts quarterly. Accounts outstanding longer than contractual payment terms are considered past due and are reviewed individually for collectability. We maintain reserves for potential credit losses based upon its loss history and specific receivables aging analysis. Receivable balances are written off when collection is deemed unlikely.

Accounts receivable are comprised of a diversified customer base that results in a lack of concentration of credit risk. During

2016,

2015,

and

2014,

our top

ten

customers generated

53%,

45%,

and

38%

of total revenue, respectively. In

2016

and

2015,

one

customer in each year accounted for more than

10%

of our consolidated revenue. Wal-Mart accounted for

$69.4

million of total revenue in

2016,

while UPS accounted for

$75.8

million and

$82.6

million of revenue in

2015

and

2014,

respectively. Both customers were serviced by both our Truckload segment and our Solutions subsidiary.

The carrying amount reported in the consolidated balance sheet for accounts receivable approximates fair value based on the fact that the receivables collection averaged approximately

and

days in

2016

and

2015,

respectively.

Included in accounts receivable is

$25.8

million and

$18.9

million of factoring receivables at

December

31,

2016

and

2015,

respectively, net of a

$0.2

million allowance for bad debts for each respective year. We advance approximately

85%

95%

of each receivable factored and retain the remainder as collateral for collection issues that might arise. The retained amounts are returned to the clients after the related receivable has been collected. At

December

31,

2016,

the retained amounts related to factored receivables totaled

$0.3

million and were included in accounts payable in the consolidated balance sheet. Our clients are smaller trucking companies that factor their receivables to us for a fee to facilitate faster cash flow. We evaluate each client'

s customer base under predefined criteria. The carrying value of the factored receivables approximates the fair value, as the receivables are generally repaid directly to us by the client'

s customer within

days due to the combination of the short-term nature of the financing transaction and the underlying quality of the receivables.

The following table provides a summary (in thousands) of the activity in the accounts for

2016,

2015,

and

2014:

Years ended December 31:	Beginning balance January 1,		Additional provisions to (reversal of) allowance			Write-offs and other deductions			Ending balance December 31,

2016	$	1,857	$	(241	)	$	(271	)	$	1,345

2015	$	1,767	$	1,100		$	(1,010	)	$	1,857

2014	$	1,736	$	774		$	(743	)	$	1,767

Inventory, Policy [Policy Text Block]

Inventories and Supplies

Inventories and supplies consist of parts, tires, fuel, and supplies. Tires on new revenue equipment are capitalized as a component of the related equipment cost when the tractor or trailer is placed in service and recovered through depreciation over the life of the vehicle. Replacement tires and parts on hand at year end are recorded at the lower of cost or market with cost determined using the

first

-in,

first

-out (FIFO) method. Replacement tires are expensed when placed in service.

Assets Held for Sale Policy [Policy Text Block]

Assets Held for Sale

Assets held for sale include property and revenue equipment no longer utilized in continuing operations which are available and held for sale. Assets held for sale are no longer subject to depreciation, and are recorded at the lower of depreciated book value or fair market value less selling costs. We periodically review the carrying value of these assets for possible impairment. We expect to sell these assets within

twelve

months.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation for book purposes is determined using the straight-line method over the estimated useful lives of the assets, while depreciation for tax purposes is generally recorded using an accelerated method. Depreciation of revenue equipment is

our largest item of depreciation. We generally depreciate new tractors (excluding day cabs) over

five

years to salvage values of approximately

15%

of their cost. We generally depreciate new trailers over

seven

years for refrigerated trailers and

ten

years for dry van trailers to salvage values of approximately

25%

of their cost. As a result of the progressive decline in the value of used tractors and our expectations that used tractor prices will not rebound in the near term, effective

July

2016

we reduced the salvage values on our tractors and, thus, prospectively increased depreciation expense. Estimates around the salvage values and useful lives for trailers remain unchanged. The depreciation schedules described above reflect the reduction in salvage values. The impact in the

third

and

fourth

quarters of

2016

and in future quarters is approximately

$2.0

million of additional depreciation expense per quarter or approximately

$1.2

million per quarter net of tax, which represents approximately

$0.06

per common or diluted share.

We annually review the reasonableness of

our estimates regarding useful lives and salvage values of

our revenue equipment and other long-lived assets based upon, among other things,

our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in

the useful life or salvage value estimates, or fluctuations in market values that are not reflected in

our estimates, could have a material effect on

our results of operations. Gains and losses on the disposal of revenue equipment are included in depreciation expense in

the consolidated statements of operations.

We lease certain revenue equipment under capital leases with terms of approximately

months. Amortization of leased assets is included in depreciation and amortization expense.

Although a portion of our tractors are protected by non-binding indicative trade-in values or binding trade-back agreements with the manufacturers, substantially all of our owned trailers are subject to fluctuations in market prices for used revenue equipment. Moreover, our trade-back agreements are contingent upon reaching acceptable terms for the purchase of new equipment. Declines in the price of used revenue equipment or failure to reach agreement for the purchase of new tractors with the manufacturers issuing trade-back agreements could result in impairment of, or losses on the sale of, revenue equipment.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets

Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates an impairment

may

exist. Expected future cash flows are used to analyze whether an impairment has occurred. If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Other Intangible Assets

We classify intangible assets into

two

categories: (i) intangible assets with definite lives subject to amortization and (ii) goodwill. We have no goodwill on our consolidated balance sheet for the years ended

December

31,

2016

and

2015.

We test intangible assets with definite lives for impairment if conditions exist that indicate the carrying value

may

not be recoverable. Such conditions

may

include an economic downturn in a geographic market or a change in the assessment of future operations. We record an impairment charge when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset.

We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement, the history of the asset, our long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from

years. We have no identifiable intangible assets on our consolidated balance sheet at

December

31,

2016,

and

$0.2

million of intangible assets, which was recorded in other assets, at

December

31,

2015.

Insurance And Other Claims [Policy Text Block]

Insurance and Other Claims

The primary claims arising against us consist of auto liability (personal injury and property damage), workers' compensation, cargo, commercial liability, and employee medical expenses. Our insurance program involves self-insurance with the following risk retention levels (before giving effect to any commutation of an auto liability policy):

●	auto liability - $1.0 million
●	workers' compensation - $1.3 million
●	cargo - $0.3 million
●	employee medical - $0.4 million
●	physical damage - 100%

Due to our significant self-insured retention amounts, we have exposure to fluctuations in the number and severity of claims and to variations between our estimated and actual ultimate payouts. We accrue the estimated cost of the uninsured portion of pending claims and an estimate for allocated loss adjustment expenses including legal and other direct costs associated with a claim. Estimates require judgments concerning the nature and severity of the claim, historical trends, advice from

third

-party administrators and insurers, the size of any potential damage award based on factors such as the specific facts of individual cases, the jurisdictions involved, the prospect of punitive damages, future medical costs, and inflation estimates of future claims development, and the legal and other costs to settle or defend the claims. We have significant exposure to fluctuations in the number and severity of claims. If there is an increase in the frequency and severity of claims, or we are required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed, or any of the claims would exceed the limits of our insurance coverage, our profitability could be adversely affected.

In addition to estimates within our self-insured retention layers, we also must make judgments concerning claims where we have

third

party insurance and for claims outside our coverage limits. Upon settling claims and expenses associated with claims where we have

third

party coverage, we are generally required to initially fund payment to the claimant and seek reimbursement from the insurer. Receivables from insurers for claims and expenses we have paid on behalf of insurers were

$0.7

million and

$0.1

million at

December

31,

2016

and

2015,

respectively, and are included in drivers'

advances and other receivables on our consolidated balance sheet. Additionally, we accrue claims above our self-insured retention and record a corresponding receivable for amounts we expect to collect from insurers upon settlement of such claims. We have less than

$0.1

million and

$0.6

million at

December

31,

2016

and

2015,

respectively, as a receivable in other assets and as a corresponding accrual in the long-term portion of insurance and claims accruals on our consolidated balance sheet for claims above our self-insured retention for which we believe it is reasonably assured that the insurers will provide their portion of such claims. We evaluate collectability of the receivables based on the credit worthiness and surplus of the insurers, along with our prior experience and contractual terms with each. If any claim occurrence were to exceed our aggregate coverage limits, we would have to accrue for the excess amount. Our critical estimates include evaluating whether a claim

may

exceed such limits and, if so, by how much. If

one

or more claims were to exceed our then effective coverage limits, our financial condition and results of operations could be materially and adversely affected.

We also make judgments regarding the ultimate benefit versus risk of commuting certain periods within our auto liability policy. If we commute a policy, we assume

100%

risk for covered claims in exchange for a policy refund. In

April

2015,

we commuted

two

liability policies for the period from

April

2013

through

September

30,

2014,

such that we are now responsible for any claim that occurred during that period up to

$20.0

million, should such a claim develop. We recorded a

$3.6

million reduction in insurance and claims expense in the

second

quarter of

2015

related to the commutation. The insurer did not remit the premium refund directly to the Company, but rather applied a credit to the current auto liability insurance policy, such that we recorded the policy release premium refund as a prepaid asset at

June

30,

2015.

Effective

April

2015,

we entered into new auto liability policies with a

three

-year term. As a result of the commutation and the Company’s improved safety statistics over the prior policy, the Company received favorable premium pricing for the policy period, which we expect will reduce the fixed portion of insurance expense during such period. The policy includes a limit for a single loss of

$9.0

million, an aggregate of

$18.0

million for each policy year, and a

$30.0

million aggregate for the

three

-year period ended

March

31,

2018.

The policy includes a policy release premium refund of up to

$13.6

million, less any future amounts paid on claims by the insurer, from

October

2014

through

March

31,

2018,

if we were to commute the policy for the entire

three

years. A decision with respect to commutation of the policy cannot be made before

April

2018,

unless both we and the insurance carrier agree to a commutation prior to the end of the policy term. Management cannot predict whether or not future claims or the development of existing claims will justify a commutation, and accordingly, no related amounts were recorded at

December

31,

2016.

Interest Capitalization, Policy [Policy Text Block]

Interest

We capitalize interest on major projects during construction. Interest is capitalized based on the average interest rate on related debt. Capitalized interest was less than

$0.1

million in

2016,

2015,

and

2014.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, commodity contracts, accounts payable, debt, and interest rate swaps. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and current debt approximates their fair value because of the short-term maturity of these instruments.

The carrying value of the factored receivables approximates the fair value, as the receivables are generally repaid directly to us by the client's customer within

days due to the combination of the short-term nature of the financing transaction and the underlying quality of the receivables.

Interest rates that are currently available to us for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue equipment installment notes. The fair value of our revenue equipment installment notes approximated the carrying value at

December

31,

2016,

as the weighted average interest rate on these notes approximates the market rate for similar debt. Borrowings under our revolving Credit Facility approximate fair value due to the variable interest rate on the facility. Additionally, commodity contracts, which are accounted for as hedge derivatives, as discussed in Note

13,

are valued based on the forward rate of the specific indices upon which the contract is being settled and adjusted for counterparty credit risk using available market information and valuation methodologies. The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.

Income Tax, Policy [Policy Text Block]

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have reflected the net liability after offsetting our deferred tax assets and liabilities in the deferred income taxes line in the accompanying consolidated balance sheets in accordance with our retrospective early adoption of Financial Accounting Standards Board ("

FASB") Accounting Standards Update ("ASU")

No.

2015

17,

Income Taxes: Balance Sheet Classification of Deferred Taxes

, as discussed below. We believe the future tax deductions will be realized principally through future reversals of existing taxable temporary differences and future taxable income, except for when a valuation allowance has been provided as discussed in Note

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than

50%

likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

Our policy is to recognize income tax benefit arising from the exercise of stock options and restricted share vesting based on the ordering provisions of the tax law as prescribed by the Internal Revenue Code, including indirect tax effects, if any.

Lease, Policy [Policy Text Block]

Lease Accounting and Off-Balance Sheet Transactions

We issue residual value guarantees in connection with the operating leases we enter into for certain of our revenue equipment. These leases provide that if we do not purchase the leased equipment from the lessor at the end of the lease term, then we are liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value. To the extent the expected value at the lease termination date is lower than the residual value guarantee, we would accrue for the difference over the remaining lease term. We believe that proceeds from the sale of equipment under operating leases would equal or exceed the payment obligation on substantially all operating leases. The estimated values at lease termination involve management judgments. As leases are entered into, determination as to the classification as an operating or capital lease involves management judgments on residual values and useful lives.

Stockholders' Equity, Policy [Policy Text Block]

Capital Structure

The shares of Class A and B common stock are substantially identical except that the Class B shares are entitled to

two

votes per share and immediately convert to Class A shares if beneficially owned by anyone other than our Chief Executive Officer or certain members of his immediate family, while Class A shares are entitled to

one

vote per share. The terms of any future issuances of preferred shares will be set by our Board of Directors.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

Comprehensive income generally includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income for

2016,

2015,

and

2014

was comprised of the net income plus the unrealized gain or loss on the effective portion of cash flow hedges and the reclassified cash flow hedge gains or losses into earnings.

Earnings Per Share, Policy [Policy Text Block]

Income Per Share

Basic income per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. The calculation of diluted earnings per share includes

0.1

million unvested shares. A de minimus number of unvested shares have been excluded from the calculation of diluted earnings per share since the effect of any assumed exercise of the related awards would be anti-dilutive for the years ended

December

31,

2016,

2015,

and

2014,

respectively

Income per share is the same for both Class A and Class B shares.

The following table sets forth the calculation of net income per share included in

the consolidated statements of operations for each of the

three

years ended

December

31:

(in thousands except per share data)
	2016		2015		2014
Numerator:

Net income	$	16,835	$	42,085	$	17,808

Denominator:

Denominator for basic income per share – weighted-average shares		18,182		18,145		15,250
Effect of dilutive securities:
Equivalent shares issuable upon conversion of unvested restricted shares		84		161		266
Equivalent shares issuable upon conversion of unvested employee stock options		-		5		1
Denominator for diluted income per share adjusted weighted-average shares and assumed conversions	$	18,266	$	18,311	$	15,517

Net income per share:
Basic income per share	$	0.93	$	2.32	$	1.17
Diluted income per share	$	0.92	$	2.30	$	1.15

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Employee Compensation

We issue several types of stock-based compensation, including awards that vest based on service and performance conditions or a combination of the conditions. Performance-based awards vest contingent upon meeting certain performance criteria established by the Compensation Committee. All awards require future service and thus forfeitures are estimated based on historical forfeitures and the remaining term until the related award vests. For performance-based awards, determining the appropriate amount to expense in each period is based on likelihood and timing of achieving the stated targets for performance-based awards and requires judgment, including forecasting future financial results. The estimates are revised periodically based on the probability and timing of achieving the required performance and adjustments are made as appropriate. Awards that are only subject to time vesting provisions are amortized using the straight-line method.

Derivatives, Policy [Policy Text Block]

Derivative Instruments and Hedging Activities

We periodically utilize derivative instruments to manage exposure to changes in fuel prices and interest rates. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. We record derivative financial instruments in the balance sheet as either an asset or liability at fair value. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively. The effective portion of changes in the fair value of derivatives are recorded in other comprehensive income, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The ineffective portion is recorded in other income or expense.

Reclassification, Policy [Policy Text Block]

Reclassifications

As a result of adopting ASU

2015

15,

discussed more below,

$0.7

million was reclassified from other assets to notes payable as of

December

31,

2015

to present debt issuance as a direct deduction from the carrying amount of the debt.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Accounting Standards adopted

April

2015,

the Financial Accounting Standards Board ("FASB") issued ASU

2015

03,

and in

August

2015,

issued ASU

2015

15.

These ASUs require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt consistent with debt discounts. The presentation and subsequent measurement of debt issuance costs associated with lines of credit,

may

be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The recognition and measurement guidance for debt issuance costs are not affected by these ASUs. These ASUs are effective for financial statements issued for fiscal years beginning after

December

15,

2015

and interim periods within those years with early adoption permitted. We have adopted this standard for the fiscal year

2016.

March

2016,

the FASB issued ASU

2016

09,

which changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in-capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance is effective in

2017

with early adoption permitted. We have adopted this standard effective for the fiscal year

2016

resulting in the recording of

$2.2

million to retained earnings as of the beginning of

2016,

and

$1.1

million of additional income tax benefit in

2016

as a result of previously unrecognized tax benefits resulting from our net operating loss carryovers. The statement of cash flows has not been adjusted for prior periods, as we have adopted the statement of cash flow guidance prospectively.

Accounting Standards not yet adopted

April

2015,

the FASB issued ASU

2015

14,

which defers the effective date of ASU

2014

09.

The new standard introduces a

five

-step model to determine when and how revenue is recognized. The premise of the new model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will be effective for the Company for its annual reporting period beginning

January

2018,

including interim periods within that reporting period. Early application is permitted for annual periods beginning

January

2017.

Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. We are in the process of evaluating the new standard, but we believe our revenue recognized under the new standard will generally approximate revenue under current standards and, while we expect an impact to both revenue and certain variable expenses as a result of the adoption, we expect that the net impact to equity or earnings on a prospective basis will not be material. We plan to complete our evaluation in

2017,

including an assessment of the new expanded disclosure requirements and a final determination of the transition method we will use to adopt the new standard.

February

2016,

the FASB issued ASU

2016

02,

which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of

twelve

months or less. Lessor accounting under the new standard is substantially unchanged. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. This new standard will become effective for us in our annual reporting period beginning

January

2019,

including interim periods within that reporting period and requires a modified retrospective transition approach. We are currently evaluating the impacts the adoption of this standard will have on the consolidated financial statements.