(2) Recent Accounting Standards

Revenue from contracts with customers

The Company adopted ASU 2014-09 effective as of January 1, 2018 and adjusted prior period consolidated financial statements to reflect full retrospective adoption. In adopting ASU 2014-09, the Company has made the following significant changes in accounting principles:

(i)

Timing of revenue recognition for term license sales. Under ASU 2014-09, the Company now recognizes product licenses revenue from term licenses upon delivery of the software. Previously, this revenue was recognized over the term of the arrangement.

(ii)

Timing of revenue recognition for sales to channel partners. Under ASU 2014-09, the Company now recognizes revenue from sales made to OEMs when control of the products transfers to the OEM, less adjustments for returns or price protection. Previously, this revenue was not recognized until the product was sold by the OEM to the end user. Revenue from sales made to resellers continues to be recognized when control of the product has transferred to the end user.

(iii)

Allocating the transaction price to the performance obligations in the contract. Under ASU 2014-09, the Company will allocate the transaction price to the various performance obligations in the contract based on their relative SSP. Except for SSP of product support, the Company’s methodologies for estimating SSP of its various performance obligations are generally consistent with the Company’s previous methodologies used to establish vendor specific objective evidence of fair value on multiple element arrangements. The SSP of product support will result in a difference in the allocation of the transaction price between product support and product license performance obligations. The impact from SSP-based allocations was not material to the Company’s prior or current period financial statements and is not expected to be material in future periods.

(iv)

Material rights. The Company’s contracts with customers may include options to acquire additional goods and services at a discount. Under ASU 2014-09, certain of these options may be considered material rights if sold below SSP and would be treated as separate performance obligations and included in the allocation of the transaction price. Previously, none of the Company’s options were considered material rights. The impact from material rights was not material to the Company’s prior or current period financial statements and is not expected to be material in future periods.

(v)

Presentation of accounts receivable, contract assets, and contract liabilities (deferred revenue). Under ASU 2014-09, the Company’s rights to consideration are presented separately depending on whether those rights are conditional (“contract assets”) or unconditional (“accounts receivable”). See Note 4, Contract Balances, to the Consolidated Financial Statements for further discussion on balance sheet presentation. Under ASU 2014-09, the Company cannot net accounts receivable with contract liabilities (“deferred revenue”) and the Company no longer offsets its accounts receivable and deferred revenue balances for unpaid items that are included in the deferred revenue balance. Previously, this offsetting of accounts receivable and deferred revenue balances for unpaid amounts was applied in the Company’s prior period financial statements.

(vi)

Deferral of incremental direct costs to obtaining a contract with a customer. Under ASU 2014-09, the Company now capitalizes certain variable compensation payable to its sales force and subsequently amortizes the capitalized costs over a period of time that is consistent with the transfer of the related good or service to the customer, which the Company has determined to be three years. Previously, the Company elected to expense these incremental direct costs as incurred.

Upon adoption of ASU 2014-09, the Company recorded a cumulative $13.0 million increase to its 2016 beginning retained earnings balance, offset by a $12.9 million decrease in gross deferred revenues, a $5.2 million decrease in deferred tax assets, net of deferred tax liabilities, a $4.4 million increase in other non-current assets, and a $0.9 million increase in other current assets.

The following line items as of December 31, 2017 and for the three months ended March 31, 2017 have been adjusted in the Consolidated Financial Statements to reflect the adoption of ASU 2014-09:

	December 31, 2017
Consolidated Balance Sheet	As Reported (audited)			Effect of the Adoption of ASU 2014-09 (unaudited)			As Adjusted (unaudited)
Accounts receivable, net	$	69,500		$	95,864		$	165,364
Prepaid expenses and other current assets		18,002			1,178			19,180
Deposits and other assets		2,868			4,543			7,411
Deferred tax assets, net		13,391			(4,094	)		9,297
Deferred revenue and advance payments		112,649			86,085			198,734
Deferred revenue and advance payments, non-current		10,181			(3,781	)		6,400
Accumulated other comprehensive loss		(5,968	)		309			(5,659	)
Retained earnings		511,755			14,878			526,633

	Three Months Ended March 31, 2017
Consolidated Statement of Operations:	As Reported (unaudited)		Effect of the Adoption of ASU 2014-09 (unaudited)		As Adjusted (unaudited)
Product licenses revenue	$	21,012	$	1,634	$	22,646
Product support revenues		70,490		22		70,512
Sales and marketing expenses		39,410		172		39,582
Provision for income taxes		3,465		794		4,259
Net income		14,867		690		15,557
Diluted earnings per share		1.28		0.06		1.34

	Three Months Ended March 31, 2017
Consolidated Statement of Comprehensive Income:	As Reported (unaudited)		Effect of the Adoption of ASU 2014-09 (unaudited)		As Adjusted (unaudited)
Net income	$	14,867	$	690	$	15,557
Foreign currency translation adjustment		812		236		1,048
Comprehensive income		15,649		926		16,575

	Three Months Ended March 31, 2017
Consolidated Statement of Cash Flows:	As Reported (unaudited)			Effect of the Adoption of ASU 2014-09 (unaudited)			As Adjusted (unaudited)
Net income	$	14,867		$	690		$	15,557
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,818			673			4,491
Deferred taxes		(1,812	)		844			(968	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(58	)		(212	)		(270	)
Deposits and other assets		75			23			98
Accrued compensation and employee benefits		(10,795	)		(501	)		(11,296	)
Deferred revenue and advance payments		23,811			(1,517	)		22,294

Intra-entity asset transfers

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), to improve the accounting for income tax effects of intra-entity transfers of assets other than inventory. Under ASU 2016-16, the deferral of the income tax consequences of intra-entity transfers of assets other than inventory is eliminated. Entities will be required to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfers occur. The standard requires a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption using a modified retrospective approach. The Company adopted this guidance effective as of January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. No cumulative-effect adjustment to retained earnings was made.

Lease accounting

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lease assets and lease liabilities be recognized for all leases, in addition to the disclosure of key information to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from an entity’s leasing arrangements. ASU 2016-02 defines a lease as a contract, or part of a contract, that conveys both (i) the right to obtain economic benefits from and (ii) direct the use of an identified asset for a period of time in exchange for consideration. Under ASU 2016-02, leases are classified as either finance or operating leases. For finance leases, a lessee shall recognize in profit or loss the amortization of the lease asset and interest on the lease liability. For operating leases, a lessee shall recognize in profit or loss a single lease cost, calculated so that the remaining cost of the lease is allocated over the remaining lease term, generally on a straight-line basis. ASU 2016-02 requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach and is effective for interim and annual periods beginning January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows and has compiled an initial inventory of its leases. These leases are primarily related to office space in the United States and foreign locations and are currently classified as operating leases under generally accepted accounting principles.