| The Company and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2016 |
| Accounting Policies [Abstract] | |
| The Company | The Company
EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) and
its subsidiaries (collectively the “Company,” or
“EVERTEC”) is a leading full-service transaction
processing business in Latin America and the Caribbean. The Company
is based in Puerto Rico and provides a broad range of merchant
acquiring, payment processing and business process management
services across 18 countries in the region. EVERTEC owns and
operates the ATH network, one of the leading automated teller
machine (“ATM”) and personal identification number
(“PIN”) debit networks in Latin America. In addition,
EVERTEC provides a comprehensive suite of services for core bank
processing, cash processing and technology outsourcing in the
regions the Company serves. EVERTEC serves a broad and diversified
customer base of leading financial institutions, merchants,
corporations and government agencies with solutions that are
essential to their operations, enabling them to issue, process and
accept transactions securely. |
| Initial Public Offering and Other Public Offerings | Initial Public Offering and Other Public Offerings
On April 17, 2013, the Company completed its initial public
offering of 28,789,943 shares of common stock at a price to the
public of $20.00 per share. On September 18, 2013 and
December 13, 2013, the Company completed public offerings of
23,000,000 and 15,233,273 shares, respectively, of the
Company’s common stock by Apollo Global Management, LLC
(“Apollo”), Popular, Inc. (“Popular”), and
current and former employees. After the completion of these
offerings, Popular owned approximately 11.7 million shares of
EVERTEC’s common stock, or 16.05% as of December 31,
2016, and Apollo no longer owns any of the Company’s common
stock. |
| Basis of Presentation | Basis of Presentation
The consolidated financial statements of EVERTEC have been prepared
in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). In the opinion of
management, the accompanying consolidated financial statements,
prepared in accordance with GAAP, contain all adjustments, all of
which are normal and recurring in nature, necessary for a fair
presentation.
A summary of the most significant accounting policies used in
preparing the accompanying consolidated financial statements is as
follows: |
| Principles of Consolidation | Principles of Consolidation
The accompanying consolidated financial statements include the
accounts and operations of the Company, which are presented in
accordance with GAAP. The Company consolidates all entities that
are controlled by ownership of a majority voting interest.
Intercompany accounts and transactions are eliminated in the
consolidated financial statements. |
| Use of Estimates | Use of Estimates
The preparation of the accompanying consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. |
| Revenue Recognition | Revenue Recognition
The Company’s revenue recognition policy follows the guidance
from Accounting Standards Codification (“ASC”) 605
Revenue Recognition Revenue
Recognition—Multiple Element Arrangements Software
The Company recognizes revenue when the following four criteria are
met: (i) persuasive evidence of an agreement exists,
(ii) delivery and acceptance has occurred or services have
been rendered, (iii) the selling price is fixed or
determinable, and (iv) collection is reasonably assured. For
multiple deliverable arrangements, EVERTEC evaluates each
arrangement to determine if the elements or deliverables within the
arrangement represent separate units of accounting pursuant to ASC
605-25. If the deliverables are determined to be separate units of
accounting, revenues are recognized as units of accounting are
delivered and the revenue recognition criteria are met. If the
deliverables are not determined to be separate units of accounting,
revenues for the delivered services are combined into one unit of
accounting and recognized (i) over the life of the arrangement
if all services are consistently delivered over such term, or if
otherwise, (ii) at the time that all services and deliverables
have been delivered. The selling price for each deliverable is
based on vendor specific objective evidence (“VSOE”) if
available, third party evidence (“TPE”) if VSOE is not
available, or management best estimate of selling price
(“BESP”) if neither VSOE nor TPE is available. EVERTEC
establishes VSOE of selling price using the price charged when the
same element is sold separately. EVERTEC bifurcates or allocates
the arrangement consideration to each of the deliverables based on
the relative selling price of each unit of accounting.
The Company has two main categories of revenues according to the
type of transactions EVERTEC enters into with the Company’s
customers: (a) transaction-based fees and (b) fixed fees
and time and material.
Transaction-based fees
The Company provides services that generate transaction-based fees.
Typically transaction-based fees depend on factors such as number
of accounts or transactions processed. These factors typically
consist of a fee per transaction or item processed, a percentage of
dollar volume processed or a fee per account on file, or some
combination thereof. Revenue derived from the transaction-based fee
contracts are recognized when the underlying transaction is
processed, which constitutes delivery of service.
Revenues from business contracts in the Company’s Merchant
Acquiring segment are primarily comprised of discount fees charged
to the merchants based on the sales amount of transactions
processed. Revenues include a discount fee and membership fees
charged to merchants and debit network fees as well as
point-of-sale (“POS”) rental fees. Pursuant to the
guidance from ASC 605-45-45, Revenue Recognition—Principal
Agent Considerations
Payment processing revenues are comprised of revenues related to
providing access to the ATH network and other card networks to
financial institutions, and related services. Payment processing
revenues also include revenues from card issuer processing services
(such as credit and debit card processing, authorization and
settlement, and fraud monitoring and control to debit or credit
card issuers), payment processing services (such as payment and
billing products for merchants, businesses and financial
institutions) and electronic benefit transfer (“EBT”)
(which principally consists of services to the Puerto Rico
government for the delivery of government benefits to
participants). Revenues in EVERTEC’s Payment Processing
segment are primarily comprised of fees per transaction processed
or per account on file, or a combination of both, and are
recognized at the time transactions are processed or on a monthly
basis for accounts on file.
Transaction-based fees within EVERTEC’s Business Solutions
segment consist of revenues from business process management
solutions including core bank processing, business process
outsourcing, item and cash processing, and fulfillment.
Transaction-based fee revenues generated by the Company’s
core bank processing services are derived from fees based on
various factors such as the number of accounts on file (e.g.
savings or checking accounts, loans, etc.), and the number of
transactions processed or registered users (e.g. for online banking
services). For services dependent on the number of transactions
processed, revenues are recognized as the underlying transactions
are processed. For services dependent on the number of users or
accounts on file, revenues are recognized on a monthly basis based
on the number of accounts on file each month. Item and cash
processing revenues are based upon the number of items (e.g.
checks) processed and revenues are recognized when the underlying
item is processed. Fulfillment services include technical and
operational resources for producing and distributing variable print
documents such as statements, bills, checks and benefits summaries.
Fulfillment revenues are based upon the number pages for printing
services and the number of envelopes processed for mailing
services. Revenues are recognized as services are delivered based
on a fee per page printed or envelope mailed, as applicable.
Fixed fees and time and material
The Company also provides services that generate a fixed fee per
month or fees based on time and expenses incurred. These services
are mostly provided in EVERTEC’s Business Solutions segment.
Revenues are generated from EVERTEC’s core bank solutions,
network hosting and management and IT consulting services.
In core bank solutions, the Company mostly provides access to
applications and services such as back-up or recovery, hosting and
maintenance that enable a bank to operate the related hosted
services accessing the Company’s IT infrastructure. These
contracts generally contain multiple elements or deliverables which
are evaluated by EVERTEC and revenues are recognized according to
the applicable guidance. Revenue is derived from fixed fees charged
for the use of hosted services and are recognized on a monthly
basis as delivered. Set-up fees are billed to the customer when the
service is rendered; however, they are deferred and recognized as
revenues over the term of the arrangement or the expected period of
the customer relationship, whichever is longer, as set-up services
rarely provide value to the customer on a stand-alone basis and are
interrelated with the service to be provided under the
contract.
In network hosting and management, EVERTEC provides hosting
services for network infrastructure at EVETEC’s facilities;
automated monitoring services; maintenance of call centers;
interactive voice response solutions, among other related services.
Revenues are primarily derived from monthly fees as services are
delivered. Set-up fees are billed up-front to the customer when the
set-up service is rendered; however, they are deferred and
recognized as revenues over the term of the arrangement or the
expected period of the customer relationship, whichever is longer,
as set-up services rarely provide value to the customer on a
stand-alone basis and are interrelated with the service under the
contract. There are some arrangements under this line of service
category that may contain undelivered elements. In such cases, the
undelivered elements are evaluated and recognized when the services
are delivered or at the time that all deliverables under the
contract have been delivered.
IT consulting services revenue primarily consists of time billings
based upon the number of hours dedicated to each client. Revenue
from time billings are recognized as services are delivered.
EVERTEC also charges members of the ATH network an annual
membership fee; however, these fees are deferred and recognized as
revenues on a straight-line basis over the year and recorded in the
Company’s Payment Processing segment. In addition,
occasionally EVERTEC is a reseller of hardware and software
products and revenues from these resale transactions are recognized
when such product is delivered and accepted by the client.
Service level arrangements
The Company’s service contracts may include service level
arrangements (“SLA”) generally allowing the customer to
receive a credit for part of the service fee when the Company has
not provided the agreed level of services. The SLA performance
obligation is committed on a monthly basis, thus SLA performance is
monitored and assessed for compliance with arrangements on a
monthly basis, including determination and accounting for its
economic impact, if any. |
| Investment in Equity Investee | Investment in Equity Investee
The Company accounts for investments using the equity method of
accounting if the investment provides the Company the ability to
exercise significant influence, but not control, over an investee.
Significant influence is generally deemed to exist if the Company
has an ownership interest in the voting stock of an investor of
between 20 percent and 50 percent, although other factors are
considered in determining whether the equity method of accounting
is appropriate. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company’s
share of net income or losses as they occur. The Company’s
share of investee earnings or losses is recorded, net of taxes,
within earnings of equity method investment caption in the
consolidated statements of income and comprehensive income. The
Company’s consolidated revenues include fees for services
provided to an investee accounted for under the equity method.
Additionally, the Company’s interest in the net asset of its
equity method investee is reflected in the consolidated balance
sheets. On the acquisition of the investment any difference between
the cost of the investment and the amount of the underlying equity
in net assets of an investee is required to be accounted as if the
investee were a consolidated subsidiary. If the difference is
assigned to depreciable or amortizable assets or liabilities, then
the difference should be amortized or accreted in connection with
the equity earnings based on the Company’s proportionate
share of the investee’s net income or loss. If the investor
is unable to relate the difference to specific accounts of the
investee, the difference should be considered to be goodwill.
The Company considers whether the fair value of its equity method
investment has declined below their carrying value whenever adverse
events or changes in circumstances indicate that recorded values
may not be recoverable. If the Company considered any such decline
to be other than temporary (based on various factors, including
historical financial results, product development activities and
the overall health of the investee’s industry), then the
Company would record a write-down to estimated fair value. |
| Property and Equipment | Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation of property and
equipment is computed using the straight-line method and expensed
over their estimated useful lives. Amortization of leasehold
improvements is computed over the terms of the respective leases,
including renewal options considered by management to be reasonably
assured of being exercised, or the estimated useful lives of the
improvements, whichever is shorter. Costs of maintenance and
repairs which do not improve or extend the life of the respective
assets are expensed as incurred. |
| Impairment on Long-lived Assets | Impairment on Long-lived Assets
Long-lived assets to be held and used, and long-lived assets to be
disposed of, are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. |
| Capitalization of Software | Capitalization of Software
EVERTEC Group LLC’s (“EVERTEC Group”),
EVERTEC’s main operating subsidiary, develops software that
is used in providing processing services to customers. Capitalized
software includes purchased software and internally-developed
software and is recognized as software packages within the other
intangible assets line item in the consolidated balance sheets.
Capitalization of internally developed software occurs only after
the preliminary project stage is complete and technological
feasibility has been achieved, and management’s estimation
that the likelihood of successful development and implementation
reaches a provable level. Tasks that are generally capitalized are
as follows: (a) system design of a chosen path including
software configuration and software interfaces; (b) employee
costs directly associated with the internal-use computer software
project; (c) software development (coding) and software and
system testing and verification; (d) system installation; and
(e) enhancements that add function and are considered
permanent. These tasks are capitalized and amortized using the
straight line method over its estimated useful life, which range
from three to ten years and is included in depreciation and
amortization in the consolidated statements of income and
comprehensive income.
The Company capitalizes interest costs incurred in the development
of software. The amount of interest capitalized is an allocation of
the interest cost incurred during the period required to
substantially complete the asset. The interest rate for
capitalization purposes is based on a weighted average rate on the
Company’s outstanding borrowing. For the years ended
December 31, 2016, 2015 and 2014, interest cost capitalized
amounted to approximately $0.4 million, $0.3 million and $0.3
million, respectively. |
| Software and Maintenance Contracts | Software and Maintenance Contracts
Software and maintenance contracts are recorded at cost.
Amortization of software and maintenance contracts is computed
using the straight-line method and expensed over their estimated
useful lives which range from one to five years and are recognized
in cost of revenues in the consolidated statements of income and
comprehensive income.
Software and maintenance contracts are recognized as prepaid
expenses and other assets or within other long-term assets
depending on their remaining useful lives. |
| Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price and related
costs over the value assigned to net assets acquired. Goodwill is
not amortized, but is tested for impairment at least annually, or
more often if events or circumstances indicate there may be
impairment.
For 2016, the Company used a “qualitative assessment”
option or “step zero” for the goodwill impairment test
for all of its reporting units. With this process, the Company
first assesses whether it is “more likely than not”
that the fair value of a reporting unit is less than its carrying
amount. If the answer is no, then the fair value of the reporting
unit does not need to be measured, and step one and step two, as
explained below, are bypassed. In assessing the fair value of a
reporting unit, which is based on the nature of the business and
reporting unit’s current and expected financial performance,
the Company uses a combination of factors such as industry and
market conditions, overall financial performance and the entity and
reporting unit specific events.
In the past, the goodwill impairment test used was a two-step
process at each reporting unit level. The first step used to
identify potential impairment, compares the fair value of a
reporting unit with its carrying amount, including goodwill. If the
fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not considered impaired and the
second step of the impairment test is not necessary. If the
carrying amount of the reporting unit exceeds the fair value, there
is an indication of potential impairment and the second step of the
goodwill impairment analysis is required. The second step consists
of comparing the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill.
For the years ended December 31, 2016, 2015 and 2014, no
impairment losses associated with goodwill were recognized.
Other identifiable intangible assets with a definitive useful life
are amortized using the straight-line method or an accelerated
method. These intangibles are evaluated periodically for impairment
when events or changes in circumstances indicate that the carrying
amount may not be recoverable.
Other identifiable intangible assets with a definitive useful life
include a customer relationship, trademark, software packages and a
non-compete agreement acquired during September 2010 when Apollo
acquired a 51% indirect ownership interest in EVERTEC as part of a
merger (the “Merger”); a customer relationship asset
acquired in 2015 from a local bank in Puerto Rico, and customer
relationship assets acquired as part of business combination
transactions in 2016.
The customer relationship assets were valued using the excess
earnings method under the income approach. Trademark assets were
valued using the relief-from-royalty method under the income
approach. Software packages, which include capitalized software
development costs, were recorded at cost. The non-compete agreement
was valued based on the estimated impact that theoretical
competition would have on revenues and expenses. |
| Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments to enhance its
ability to manage its exposure to certain financial and market
risks, primarily those related to changes in interest rates. On the
date the derivative instrument contract is entered into, the
Company may designate the derivative as (1) a hedge of the
fair value of a recognized asset or liability or an unrecognized
firm commitment (“fair value” hedge), (2) a hedge
of a forecasted transaction or of the variability of cash flows to
be received or paid related to a recognized asset or liability
(“cash flow” hedge), or (3) as a
“standalone” derivative instrument, including economic
hedges that the Company has not formally documented as a fair value
or cash flow hedge. Changes in the fair value of a derivative that
qualifies for cash flow hedge accounting are recognized in Other
Comprehensive Income (Loss). Amounts accumulated in other
comprehensive income (loss) are reclassified to earnings when the
related cash outflow affects earnings. Changes in the fair value of
a derivative instrument that is highly effective and that is
designated and qualifies as a fair value hedge, along with changes
in the fair value of the hedged asset or liability that is
attributable to the hedged risk (including gains or losses on firm
commitments), are recorded in current-period earnings. Similarly,
the changes in the fair value of stand-alone derivative instruments
or derivatives not qualifying or designated for hedge accounting
are reported in current-period earnings. The Company recognizes all
derivative financial instruments in the Consolidated Balance Sheets
as assets or liabilities at fair value. The Company does not enter
into derivative financial instruments for speculative purposes. |
| Income Tax | Income Tax
Income taxes are accounted for under the asset and liability
method. A temporary difference refers to a difference between the
tax basis of an asset or liability, determined based on recognition
and measurement requirements for tax positions, and its reported
amount in the financial statements that will result in taxable or
deductible amounts in future years when the reported amount of the
asset or liability is recovered or settled, respectively. Deferred
tax assets and liabilities represent the future effects on income
taxes that result from temporary differences and carryforwards that
exist at the end of a period. Deferred tax assets and liabilities
are measured using enacted tax rates and provisions of the enacted
tax law and are not discounted to reflect the time-value of money.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the consolidated statements of income
and comprehensive income in the period that includes the enactment
date. A deferred tax valuation allowance is established if it is
considered more likely than not that all or a portion of the
deferred tax asset will not be realized.
The Company recognizes the benefit of uncertain tax positions only
if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based on
the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement or
disposition of the underlying issue with the taxing authority.
Accordingly, the amount of benefit recognized in the consolidated
financial statements may differ from the amount taken or expected
to be taken in the tax return resulting in unrecognized tax
benefits (“UTBs”). The Company recognizes the interest
and penalties associated with UTBs as part of the provision for
income taxes on its consolidated statements of income and
comprehensive income. Accrued interest and penalties are included
on the related tax liability line in the consolidated balance
sheets.
All companies within EVERTEC are legal entities which file separate
income tax returns. |
| Cash | Cash
Cash includes cash on hand and in banks. |
| Restricted Cash | Restricted Cash
Restricted cash represents cash received on deposits from
participating institutions of the ATH network that has been
segregated for the development of the ATH brand and cash maintained
as collateral for a credit facility with Popular. Also, restricted
cash includes certain cash collected from the Ticketpop business
and a reserve account for payment and transaction processing
services to merchants. The restrictions of these accounts are based
on contractual provisions entered into with third parties. This
cash is maintained in separate accounts at a financial institution
in Puerto Rico. |
| Allowance for Doubtful Accounts | Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided for based on the
estimated uncollectible amounts of the related receivables. The
estimate is primarily based on a review of the current status of
specific accounts receivable. Receivables are considered past due
if full payment is not received by the contractual date. Past due
accounts are generally written off against the allowance for
doubtful accounts only after all collection attempts have been
exhausted. |
| Foreign Currency Translation | Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are
translated to U.S. dollars using prevailing rates of exchange at
the end of the period. Revenues, expenses, gains and losses are
translated using weighted average rates for the period. The
resulting foreign currency translation adjustment from operations
for which the functional currency is other than the U.S. dollar is
reported in accumulated other comprehensive loss. Gains and losses
on transactions denominated in currencies other than the functional
currencies are included in determining net income for the period in
which exchange rates change. |
| Share-based Compensation | Share-based Compensation
The Company estimates the fair value of stock-based awards, on a
contemporaneous basis, at the date they are granted using the
Black-Scholes-Merton option pricing model for Tranche A options and
the Monte Carlo simulation analysis for Tranche B and Tranche C
options and market based restricted stock units
(“RSUs”) using the following assumptions:
(1) stock price; (2) risk-free rate; (3) expected
volatility; (4) expected annual dividend yield and
(5) expected term. The risk-free rate is based on the U.S.
Constant Maturities Treasury Interest Rate as of the grant date or
the yield of a 2-year or 3-year Treasury bond, as applicable. The
expected volatility is based on a combination of historical
volatility and implied volatility from publicly traded companies in
the Company’s industry. The expected annual dividend yield is
based on management’s expectations of future dividends as of
the grant date and, in certain cases, assumes that those dividends
will be reinvested over the performance period. The expected term
for stock options granted under the 2010 Plan was based on the
vesting time of the options. For the stock options granted under
the 2013 Plan, the simplified method was used to estimate the
expected term, given that the Company did not have appropriate
exercise data on which to base the estimate nor is exercise data
relating to employees of comparable companies easily obtainable.
Performance and time based RSUs and restricted stock are valued
based on the market price of the Company’s stock at the grant
date.
Upon option exercise or restricted stock or RSUs release,
participants may elect to “net share
settle”. Rather than requiring the participant to
deliver cash to satisfy the exercise price, for options exercise,
and statutory minimum tax withholdings, the Company withholds a
sufficient number of shares to cover these amounts and delivers the
net shares to the participant. The Company recognizes the
associated tax withholding obligation as a reduction of additional
paid-in capital.
As compensation expense is recognized, a deferred tax asset is
established. At the time stock options are exercised,
restricted stock or RSUs are released, a current tax deduction
arises based on the value at the time of exercise or
release. This deduction may exceed the associated deferred tax
asset, resulting in a “windfall tax benefit”. The
windfall is recognized in the consolidated balance sheets as an
increase to additional paid-in capital, and is included in the
consolidated statements of cash flows as a financing inflow.
In determining the amount of cash tax savings realized from the
excess share-based compensation deductions, the Company follows the
tax law ordering approach. Under this approach, the utilization of
excess tax deductions associated with share-based awards is
dictated by provision in the tax law that identify the sequence in
which such benefits are utilized for tax purposes. |
| Net Income Per Common Share | Net Income per Common Share
Basic net income per common share is determined by dividing net
income by the weighted-average number of common shares outstanding
during the period.
Diluted net income per common share assumes the issuance of all
potentially dilutive share equivalents using the treasury stock
method. For stock options and RSUs it is assumed that the proceeds
will be used to buy back shares. For stock options, such proceeds
equal the average unrecognized compensation plus exercise price and
windfall tax benefits. For unvested restricted share units, the
proceeds equal the average unrecognized compensation plus windfall
tax benefits. |
| Recent Accounting Pronouncements | Recently adopted accounting pronouncements
In April, 2015, the Financial Accounting Standards Board
(“FASB”) issued updated guidance for accounting for
fees paid in a cloud computing arrangement. The amendments in this
Update provide guidance to customers about whether a cloud
computing arrangement includes a software license. If a cloud
computing arrangement includes a software license, then the
customer should account for the software license element of the
arrangement consistent with the acquisition of other software
licenses. If a cloud computing arrangement does not include a
software license, the customer should account for the arrangement
as a service contract. The guidance will not change GAAP for a
customer’s accounting for service contracts. For public
companies, the amendments in this Update were effective for annual
periods, including interim periods within those annual periods,
beginning after December 15, 2015. The Company adopted this
guidance on January 1, 2016. Its adoption did not have a
material impact on our results from operations or financial
position.
In April 2015, the FASB issued guidance requiring that debt
issuance costs related to a recognized debt liability be presented
in the balance sheet as a direct reduction of the carrying amount
of the debt liability, consistent with debt discounts. This
guidance was effective for fiscal years beginning after
December 15, 2015 and interim periods within those fiscal
years. The Company adopted the guidance on January 1, 2016 and
applied the standard retrospectively. The balance sheet presented
has been adjusted to reflect the period specific effects of the
adoption of the guidance. Specifically, debt issue costs of
$6.0 million and $6.4 million for March 31, 2016, the adoption
date, and December 31, 2015, respectively, were reclassified
from other long-term assets to long-term debt within our unaudited
Consolidated Condensed Balance Sheets.
In September 2015, the FASB issued updated guidance for Business
Combinations and eliminated the requirement to retrospectively
adjust the financial statements for measurement-period adjustments
that occur in periods after a business combination is
consummated. This guidance was effective for annual periods
and interim periods within that period beginning after
December 15, 2015. The Company adopted this guidance on
January 1, 2016 with no impact.
In November 2015, the FASB issued updated guidance to simplify the
classification of deferred income taxes. The amendments in this
Update require that deferred tax liabilities and assets be
classified as noncurrent in a classified statement of financial
position. The amendments in this Update apply to all entities that
present a classified statement of financial position. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as a
single amount is not affected by the amendments in this Update. The
amendments in this Update are effective for financial statements
issued for annual periods beginning after December 15, 2016,
and interim periods within those annual periods. Earlier
application is permitted for all entities as of the beginning of an
interim or annual reporting period. The amendments in this Update
may be applied either prospectively to all deferred tax liabilities
and assets or retrospectively to all periods presented. If an
entity applies the guidance prospectively, the entity should
disclose in the first interim and first annual period of change,
the nature of and reason for the change in accounting principle and
a statement that prior periods were not retrospectively adjusted.
If an entity applies the guidance retrospectively, the entity
should disclose in the first interim and first annual period of
change the nature of and reason for the change in accounting
principle and quantitative information about the effects of the
accounting change on prior periods. The Company adopted this
guidance on its balance sheet at June 30, 2016. The Company
applied this guidance prospectively and the guidance was not
retrospectively adjusted on the December 31, 2015 balance
sheets. This guidance was adopted to simplify the presentation of
deferred tax assets and liabilities.
Recently issued accounting pronouncements
The FASB has issued the following accounting pronouncements and
guidance relevant to the Company’s operations:
In February 2016, the FASB issued updated guidance for financial
reporting about leasing transactions. The amendments in this Update
require a lessee to recognize assets and liabilities for leases
with lease terms of more than 12 months. The recognition,
measurement, and presentation of expenses and cash flows arising
from a lease by a lessee primarily will depend on its
classification as a finance or operating lease. In addition, the
Update requires that both financing and operating leases be
recognized on the balance sheet. The guidance also requires
disclosures to help investors and other financial statement users
better understand the amount, timing, and uncertainty of cash flows
arising from leases. These disclosures include qualitative and
quantitative requirements, providing additional information about
the amounts recorded in the financial statements. The amendments in
this Update are effective for public companies for fiscal years
beginning after December 15, 2018, including interim periods
within those fiscal years. Early application is permitted. The
Company is currently evaluating the impact of the adoption of this
guidance on its consolidated financial statements.
In March 2016, the FASB issued updated guidance for the effect of
derivative contract novations on existing hedge accounting
relationships. This Update clarifies that a change in the
counterparty to a derivative instrument that has been designated as
the hedging instrument under Topic 815 does not, in and of itself,
require designation of that hedging relationship provided that all
other hedge accounting criteria (including those in paragraphs
815-20-35-14 through 35-18) continue to be met. For public business
entities, the amendments in this Update are effective for financial
statements issued for fiscal years beginning after
December 15, 2016, and interim periods within those fiscal
years. The Company expects to adopt this guidance with no impact on
the consolidated financial statements.
In March 2016, the FASB issued updated guidance to simplify the
transition to the equity method of accounting. The amendments in
this Update affect all entities that have an investment that
becomes qualified for the equity method of accounting as it
eliminates the requirement that an investor adjust the investment,
results of operations, and retained earnings retroactively on a
step-by-step basis as if the equity method had been in effect
during all previous periods that the investment had been held. The
amendments require that the equity method investor add the cost of
acquiring the additional interest in the investee to the current
basis of the investor’s previously held interest and adopt
the equity method of accounting as of the date the investment
becomes qualified for equity method accounting. Therefore, upon
qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required. The amendments in this
Update are effective for all entities for fiscal years, and interim
periods within those fiscal years, beginning after
December 15, 2016. The amendments should be applied
prospectively upon their effective date to increases in the level
of ownership interest or degree of influence that result in the
adoption of the equity method. Earlier application is permitted.
The Company expects to adopt this guidance if and when an
investment becomes qualified for the equity method of
accounting.
In March 2016, the FASB issued updated guidance for revenue from
contracts with customers’ principal versus agent
considerations (reporting gross versus net). The amendments clarify
the implementation guidance on principal versus agent
considerations and are intended to improve the operability and
understandability of the implementation guidance. The amendments in
this Update affect the guidance in Accounting Standards Update
2014-09, Revenue from Contracts with Customers (Topic 606)
In March 2016, the FASB issued updated guidance for accounting for
employee share based payments. The areas for simplification in this
Update involve several aspects of the accounting for share-based
payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public business
entities, the amendments in this Update are effective for annual
periods beginning after December 15, 2016, and interim periods
within those annual periods. Early adoption is permitted for any
entity in any interim or annual period. If an entity early adopts
the amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all
of the amendments in the same period. The Company is currently
evaluating the impact of the adoption of this guidance on its
consolidated financial statements.
In June 2016, the FASB issued updated guidance for the measurement
of credit losses on financial instruments. The amendments in this
Update require a financial asset (or a group of financial assets)
measured at amortized cost basis to be presented at the net amount
expected to be collected. The allowance for credit losses is a
valuation account that is deducted from the amortized cost basis of
the financial asset or assets to present the net carrying value at
the amount expected to be collected on the financial asset. The
measurement of expected credit losses is based on relevant
information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that
affect the collectibility of the reported amount. An entity must
use judgment in determining the relevant information and estimation
methods that are appropriate in its circumstances. The amendments
in this Update are effective for fiscal years beginning after
December 15, 2019, including interim periods within those
fiscal years. All entities may adopt the amendments in this Update
earlier as of the fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. An
entity will apply the amendments in this Update through a
cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is
effective (that is, a modified-retrospective approach). The Company
is currently evaluating the impact of the adoption of this guidance
on its consolidated financial statements, if any.
In August 2016, the FASB issued updated guidance for the
classification of certain cash receipts and cash payments on the
statement of cash flows. The amendments in this update provide
specific guidance for the classification of eight issues: debt
prepayment or extinguishment costs; settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate
of the borrowing; contingent consideration payments made after a
business combination; proceeds from the settlement of an insurance
claim; proceeds from the settlement of corporate-owned life
insurance policies, including bank-owned life insurance policies;
distributions received from equity method investees; beneficial
interests in securitization transactions; and separately
identifiable cash flows and applications of the predominance
principle. The amendments in this Update are effective for public
business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments
in the same period. The amendments in this Update should be applied
using a retrospective transition method to each period presented.
If it is impracticable to apply the amendments retrospectively for
some of the issues, the amendments for those issues would be
applied prospectively as of the earliest date practicable. The
Company is currently evaluating the impact of the adoption of this
guidance on its consolidated financial statements, if any.
In October 2016, the FASB issued updated guidance for tax treatment
of intra-entity transfers of assets other than inventory. Current
GAAP prohibits the recognition of current and deferred income taxes
for an intra-entity asset transfer until the asset has been sold to
an outside party. The Board decided that an entity should recognize
the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. Consequently, the
amendments in this Update eliminate the exception for an
intra-entity transfer of an asset other than inventory. The
amendments in this Update do not include new disclosure
requirements; however, existing disclosure requirements might be
applicable when accounting for the current and deferred income
taxes for an intra-entity transfer of an asset other than
inventory. For public business entities, the amendments in this
Update are effective for annual reporting periods beginning after
December 15, 2017, including interim reporting periods within
those annual reporting periods. Early adoption is permitted for all
entities as of the beginning of an annual reporting period for
which financial statements (interim or annual) have not been issued
or made available for issuance. The amendments in this Update
should be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of
the beginning of the period of adoption. The Company is currently
evaluating the impact of the adoption of this guidance on its
consolidated financial statements.
In October 2016, the FASB issued updated guidance for the
consolidation of variable interest entities (“VIEs”)
for which interests are held through related parties that are under
common control. The amendments in this Update affect reporting
entities that are required to evaluate whether they should
consolidate a VIE within the Variable Interest Entities Subsections
of Subtopic 810-10, Consolidation—Overall, in certain
situations involving entities under common control. Specifically,
the amendments change the evaluation of whether a reporting entity
is the primary beneficiary of a VIE by changing how a reporting
entity that is a single decision maker of a VIE treats indirect
interests in the entity held through related parties that are under
common control with the reporting entity. The amendments in this
Update are effective for public business entities for fiscal years
beginning after December 15, 2016, including interim periods
within those fiscal years. Early adoption is permitted, including
adoption in an interim period. If an entity early adopts the
amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. The Company is currently evaluating the impact of
the adoption of this guidance on its consolidated financial
statements, if any.
In November 2016, the FASB issued guidance regarding the
classification of transactions involving restricted cash on the
statement of cash flows. The amendments in this Update require that
a statement of cash flows explain the change during the period in
the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and
restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period
In January 2017, the FASB issued guidance clarifying the definition
of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. The
definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The
amendments in this Update provide a screen to determine when a set
is not a business. The screen requires that when substantially all
of the fair value of the gross assets acquired (or disposed of) is
concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. This screen reduces
the number of transactions that need to be further evaluated. The
amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The amendments
in this Update should be applied prospectively on or after the
effective date. Early application of the amendments in this Update
is allowed in specific circumstances. The Company will adopt this
guidance on future acquisitions.
In January 2017, the FASB issued updated guidance to simplify the
test for goodwill impairment. The amendments in this Update modify
the concept of impairment from the condition that exists when the
carrying amount of goodwill exceeds its implied fair value to the
condition that exists when the carrying amount of a reporting unit
exceeds its fair value. An entity no longer will determine goodwill
impairment by calculating the implied fair value of goodwill by
assigning the fair value of a reporting unit to all of its assets
and liabilities as if that reporting unit had been acquired in a
business combination. Because these amendments eliminate Step 2
from the goodwill impairment test, they should reduce the cost and
complexity of evaluating goodwill for impairment. The amendments in
this Update are effective for annual and interim goodwill
impairment tests performed in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company is evaluating the impact of the
adoption of this guidance on future goodwill impairment tests.
Accounting pronouncements issued prior to 2016 and not yet
adopted
During 2014, the FASB issued new guidance for revenue from
contracts with customers ,
Management is currently in the process of evaluating the potential
impact this new guidance will have on the Company’s financial
statements. Management has not completed this evaluation and
therefore, cannot conclude whether the guidance will have a
significant impact on the financial statements at this time.
However, based on preliminary work completed at this time,
Management is considering the implications that the new standard
may have in the following areas:
• Under the new standards, certain
implementation costs and other fulfilment costs, such as direct
labor for contract set-up activities, that are expensed as incurred
under current policies, will be capitalized and amortized over the
contract term and anticipated renewal periods.
• The period of amortization of
contract acquisition costs (e.g., sales commissions) may change.
Under current policies, sales commissions are expensed over the
initial term of a contract. Under the new standards, these are
required to be amortized over the initial contract term plus any
anticipated renewal periods if there is no commensurate commission
paid for the renewal periods.
• Under current policies, upfront
activities (such as setup activities) are not generally analyzed to
determine whether they have standalone value because the contingent
revenue cap under the existing revenue guidance would prohibit
allocation of hosting revenue to that upfront activity. Under the
new standards, the contingent revenue cap no longer exists, so
certain upfront activities included in the implementation process
will need to be evaluated to determine whether they qualify as
separate units of accounting. If they are separate units of
accounting, then revenue would be allocated to the upfront
activity, recognized as those activities are performed, rather than
over the hosting period.
• Where the Company charges upfront
fees for implementation or set-up activities, including fees
charged in pre-production periods, the period over which these fees
will be recognized may in some cases be shorter than our current
practice.
• For certain software license
arrangements, the Company currently uses a ratable, or over time,
revenue recognition method for software licensing arrangements
where vendor specific objective evidence (VSOE) of the maintenance
portion of the arrangement does not exist. Under the new standards,
Management expects the timing of revenue recognition to be
accelerated because Management anticipates that the license revenue
portion will be recognized at a point in time upon software license
delivery.
At this time, Management is not able to reasonably estimate the
impact that adoption is expected to have.
The Company’s implementation process is ongoing. Significant
activities that are in process are the calculation of the
transition adjustment, drafting and approval of new accounting
policies, and design and implementation of new processes and
systems to accommodate the new policies and to compile the
information for the enhanced disclosures under the new
standards. |
