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Accounting Policies | 12 Months Ended
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Dec. 31, 2016
Accounting Policies |
Accounting Policies | (2) Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. Cash Equivalents Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of certificates of deposit and money market funds, for which the carrying amount is a reasonable estimate of fair value. Allowance for Doubtful Accounts Allowance for doubtful accounts includes reserves for bad debts, sales returns and allowances and cash discounts. The Company analyzes the aging of accounts receivable, individual accounts receivable, historical bad debts, concentration of receivables by customer, customer credit worthiness, current economic trends, and changes in customer payment terms. The Company specifically analyzes individual accounts receivable and establishes specific reserves against financially troubled customers. In addition, factors are developed in certain regions utilizing historical trends of sales and returns and allowances and cash discount activities to derive a reserve for returns and allowances and cash discounts. Concentration of Credit The Company sells products to a diversified customer base and, therefore, has no significant concentrations of credit risk. In 2016, 2015, and 2014, no customer accounted for 10% or more of the Company’s total sales. Inventories Inventories are stated at the lower of cost or market, using primarily the first‑in, first‑out method. Market value is determined by replacement cost or net realizable value. Historical usage is used as the basis for determining the reserve for excess or obsolete inventories. Goodwill and Other Intangible Assets Goodwill is recorded when the consideration paid for acquisitions exceeds the fair value of net tangible and intangible assets acquired. Goodwill and other intangible assets with indefinite useful lives are not amortized, but rather are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. There were no triggering events identified during the year ended December 31, 2016. The Company performs its annual goodwill and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year. In 2016, the Company had eight reporting units. One of these reporting units, Water Quality, had no goodwill. The Company performed a qualitative analysis for the remaining reporting units, which include Blücher, Dormont, US Drains, AERCO, EMEA, Residential and Commercial, and Asia-Pacific. As of the October 30, 2016 testing date, the Company had approximately $493.4 million of goodwill on its balance sheet. As a result of the qualitative analyses, the Company determined that the fair values of the reporting units were more likely than not greater than the carrying amounts. In 2016, the Company did not need to proceed beyond the qualitative analysis, and no goodwill impairments were recorded. In the fourth quarter of 2015, the Company performed a quantitative impairment analysis for the EMEA reporting unit in connection with the annual strategic plan and due to the underperformance to budget, primarily caused by the continued challenging European macroeconomic environment. The Company estimated the fair value of the reporting unit using a weighted calculation of the income approach and the market approach. The income approach calculated the present value of expected future cash flows and included the impact of recent underperformance of the reporting unit due to the continued challenging macroeconomic environment in Europe and the Company’s lowered expectations for the reporting unit included in the strategic plan. The guideline public company method (market approach) calculated estimated fair values based on valuation multiples derived from stock prices and enterprise values of publicly traded companies that are comparable to the Company. In the second step of the impairment test, the carrying value of the goodwill exceeded the implied fair value of goodwill, resulting in a pre-tax impairment charge of $129.7 million. There was a tax benefit associated with the impairment of $3.4 million, resulting in a net impairment charge of $126.3 million. Goodwill The changes in the carrying amount of goodwill by geographic segment are as follows:
|  | Year Ended December 31,2016 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  |  |  | Acquired |  | Foreign |  |  |  |  |  |  |  |  |  |  |  |
|  | Balance |  | During |  | Currency |  | Balance |  | Balance |  | Impairment |  | Balance |  |  |
|  | January 1, |  | the |  | Translation |  | December 31, |  | January 1, |  | Loss During |  | December 31, |  | December 31, |
|  | 2016 |  | Period (1) |  | and Other |  | 2016 |  | 2016 |  | the Period |  | 2016 |  | 2016 |
|  | (in millions) |
Americas |  | $ | 391.2 |  |  | 43.3 |  |  | 0.2 |  |  | 434.7 |  | $ | (24.5) |  |  | — |  |  | (24.5) |  |  | 410.2 |
EMEA |  |  | 238.6 |  |  | — |  |  | (3.7) |  |  | 234.9 |  |  | (129.7) |  |  | — |  |  | (129.7) |  |  | 105.2 |
Asia - Pacific |  |  | 26.3 |  |  | 3.7 |  |  | 0.2 |  |  | 30.2 |  |  | (12.9) |  |  | — |  |  | (12.9) |  |  | 17.3 |
Total |  | $ | 656.1 |  |  | 47.0 |  |  | (3.3) |  |  | 699.8 |  | $ | (167.1) |  |  | — |  |  | (167.1) |  |  | 532.7 |
| (1) |  | Americas goodwill additions during 2016 include $4.2 million of goodwill resulting from an insignificant acquisition.
|  | Year Ended December 31,2015 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  |  |  | Acquired |  | Foreign |  |  |  |  |  |  |  |  |  |  |
|  | Balance |  | During |  | Currency |  | Balance |  | Balance |  | Impairment |  | Balance |  |  |
|  | January 1, |  | the |  | Translation |  | December 31, |  | January 1, |  | Loss During |  | December 31, |  | December 31, |
|  | 2015 |  | Period |  | and Other |  | 2015 |  | 2015 |  | the Period |  | 2015 |  | 2015 |
|  | (in millions) |
Americas |  | $ | 398.0 |  |  | — |  |  | (6.8) |  |  | 391.2 |  | $ | (24.5) |  |  | — |  |  | (24.5) |  |  | 366.7 |
EMEA |  |  | 265.5 |  |  | — |  |  | (26.9) |  |  | 238.6 |  |  | — |  |  | (129.7) |  |  | (129.7) |  |  | 108.9 |
Asia - Pacific |  |  | 12.9 |  |  | 12.9 |  |  | 0.5 |  |  | 26.3 |  |  | (12.9) |  |  | — |  |  | (12.9) |  |  | 13.4 |
Total |  | $ | 676.4 |  |  | 12.9 |  |  | (33.2) |  |  | 656.1 |  | $ | (37.4) |  |  | (129.7) |  |  | (167.1) |  |  | 489.0 |
On November 2, 2016, the Company acquired 100% of the shares of PVI Riverside Holdings, Inc., the parent company of PVI Industries, LLC (“PVI”). The aggregate purchase price recorded, including an estimated working capital adjustment, was approximately $79.2 million. The Company accounted for the transaction as a purchased business combination. The Company completed a preliminary purchase price allocation that resulted in the recognition of $39.1 million in goodwill and $31.0 million in intangible assets as of December 31, 2016. On February 26, 2016, the Company acquired an additional 50% of the outstanding shares of AERCO Korea Co., Ltd., (“AERCO Korea”) for an aggregate purchase price of approximately $4 million. Prior to February 26, 2016, the Company held a 40% interest in AERCO Korea, which operated as a joint venture. On December 30, 2016, the Company acquired the remaining 10% of the outstanding shares of AERCO Korea for $0.8 million. The Company completed a valuation of the assets and liabilities acquired that resulted in the recognition of $3.7 million in goodwill and $1.6 million in intangible assets. On November 30, 2015, the Company completed the acquisition of 80% of the outstanding shares of Apex Valves Limited (“Apex”), a New Zealand company, with a commitment to purchase the remaining 20% ownership within three years of closing. The aggregate purchase price was approximately $20.4 million and the Company recorded a liability of $5.5 million as the estimate of the acquisition date fair value on the contractual call option to purchase the remaining 20%. The Company accounted for the transaction as a business combination. The Company completed a purchase price allocation that resulted in the recognition of $12.9 million in goodwill and $10.1 million in intangible assets. Long-Lived Assets Indefinite‑lived intangibles are tested for impairment at least annually or more frequently if events or circumstances, such as a change in business conditions, indicate that it is “more likely than not” that an intangible asset might be impaired. The Company performs its annual indefinite‑lived intangibles impairment assessment in the fourth quarter of each year. For the 2016, 2015 and 2014 impairment assessments, the Company performed quantitative assessments for all indefinite‑lived intangible assets. The methodology employed was the relief from royalty method, a subset of the income approach. Based on the results of the assessment, the Company recognized non‑cash pre‑tax impairment charges in 2016, 2015 and 2014 of approximately $0.4 million, $0.6 million and $1.3 million, respectively. The impairment charge of $0.4 million in 2016 consists of an impairment charge for a trade name in the EMEA segment. The $0.6 million in 2015 consists of a $0.5 million impairment charge for a trade name in the Americas segment and a $0.1 million impairment charge for a trade name in the EMEA segment. The impairment charge of $1.3 million in 2014 consists of a $0.5 million impairment charge for a trade name in the Americas segment and a $0.8 million impairment charge for a trade name in the EMEA segment. The gross carrying amount in the table below reflects the impairment charges. Intangible assets with estimable lives and other long‑lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long‑ lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital using the market and guideline public companies for the related businesses and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows. Intangible assets include the following:
|  | December 31, |
|  | 2016 |  | 2015 |
|  | Gross |  |  |  |  | Net |  | Gross |  |  |  |  | Net |
|  | Carrying |  | Accumulated |  | Carrying |  | Carrying |  | Accumulated |  | Carrying |
|  | Amount |  | Amortization |  | Amount |  | Amount |  | Amortization |  | Amount |
|  | (in millions) |
Patents |  | $ | 16.1 |  | $ | (14.9) |  | $ | 1.2 |  | $ | 16.1 |  | $ | (14.1) |  | $ | 2.0 |
Customer relationships |  |  | 231.5 |  |  | (117.3) |  |  | 114.2 |  |  | 212.5 |  |  | (102.1) |  |  | 110.4 |
Technology |  |  | 53.1 |  |  | (19.2) |  |  | 33.9 |  |  | 41.3 |  |  | (16.1) |  |  | 25.2 |
Trade names |  |  | 25.1 |  |  | (8.1) |  |  | 17.0 |  |  | 21.9 |  |  | (6.4) |  |  | 15.5 |
Other |  |  | 6.8 |  |  | (5.9) |  |  | 0.9 |  |  | 9.4 |  |  | (5.9) |  |  | 3.5 |
Total amortizable intangibles |  |  | 332.6 |  |  | (165.4) |  |  | 167.2 |  |  | 301.2 |  |  | (144.6) |  |  | 156.6 |
Indefinite-lived intangible assets |  |  | 35.3 |  |  | — |  |  | 35.3 |  |  | 36.2 |  |  | — |  |  | 36.2 |
|  | $ | 367.9 |  | $ | (165.4) |  | $ | 202.5 |  | $ | 337.4 |  | $ | (144.6) |  | $ | 192.8 |
The Company acquired $31.0 million in intangible assets as part of the PVI acquisition in 2016, consisting of customer relationships valued at $17.6 million, technology of $10.2 million, and the trade name of $3.2 million. The weighted-average amortization period in total and by asset category of customer relationships, technology, and the trade name is 16.1 years, 15 years, 10 years, and 20 years, respectively. The Company acquired $1.6 million in intangible assets as part of the AERCO Korea acquisition in 2016, consisting entirely of customer relationships. The weighted-average amortization period for the customer relationships acquired in 10 years. The Company acquired $10.1 million in intangible assets as part of the APEX acquisition in 2015, consisting primarily of customer relationships valued at $8.4 million and the trade name of $1.7 million. The weighted-average amortization period in total and by asset category of customer relationships and the trade name is 13 years, 10 years and 15 years, respectively. Aggregate amortization expense for amortized intangible assets for 2016, 2015 and 2014 was $20.8 million, $20.9 million and $15.2 million, respectively. Additionally, future amortization expense on amortizable intangible assets is expected to be $21.6 million for 2017, $18.4 million for 2018, $14.8 million for 2019, $14.4 million for 2020, and $12.7 million for 2021. Amortization expense is provided on a straight‑line basis over the estimated useful lives of the intangible assets. The weighted‑average remaining life of total amortizable intangible assets is 11.5 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted‑average remaining lives of 3.6 years, 11.7 years, 9.1 years, 15.1 years and 19.7 years, respectively. Indefinite‑lived intangible assets primarily include trade names and trademarks. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is provided on a straight‑line basis over the estimated useful lives of the assets, which range from 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment. Leasehold improvements are depreciated over the lesser of the economic useful life of the asset or the remaining lease term. Taxes, Other than Income Taxes Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales in the Company’s consolidated statements of operations. Income Taxes Income taxes are accounted for under the asset and liability method. 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 bases and operating loss and tax credit carry forwards. 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. The Company recognizes tax benefits when the item in question meets the more–likely–than‑not (greater than 50% likelihood of being sustained upon examination by the taxing authorities) threshold. During 2016, unrecognized tax benefits of the Company increased by a net amount of $0.9 million. Unrecognized tax benefits increased by approximately $1.1 million which was mainly related to European tax positions. Unrecognized tax benefits decreased by $0.2 million, whereby approximately $0.2 million was primarily related to a settlement from the completion of a Massachusetts audit and various statue expirations. As of December 31, 2016, the Company had gross unrecognized tax benefits of approximately $5.1 million, approximately $2.4 million of which, if recognized, would affect the effective tax rate. The difference between the amount of unrecognized tax benefits and the amount that would affect the effective tax rate consists of the federal tax benefit of state income tax items and allowable correlative adjustments that are available for certain jurisdictions. A reconciliation of the beginning and ending amount of unrecognized tax is as follows:
|  | (in millions) |
Balance at January 1, 2016 |  | $ | 4.2 |
Increases related to prior year tax positions |  |  | 1.1 |
Decreases related to statute expirations |  |  | (0.1) |
Settlements |  |  | (0.2) |
Currency movement |  |  | 0.1 |
Balance at December 31, 2016 |  | $ | 5.1 |
The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2016 may decrease by approximately $0.3 million in the next twelve months, as a result of lapses in statutes of limitations. In January of 2017, the United States Internal Revenue Service commenced an audit of the Company’s 2015 tax year. The Company does not anticipate any material adjustments to arise as a result of the audit. The Company conducts business in a variety of locations throughout the world resulting in tax filings in numerous domestic and foreign jurisdictions. The Company is subject to tax examinations regularly as part of the normal course of business. The Company’s major jurisdictions are the U.S., France, Germany, Canada, and the Netherlands. The statute of limitations in the U.S. is subject to tax examination for 2013 and later; France, Germany, Canada and the Netherlands are subject to tax examination for 2011-2013 and later. All other jurisdictions, with few exceptions, are no longer subject to tax examinations in state and local, or international jurisdictions for tax years before 2011. The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax expense. Foreign Currency Translation The financial statements of subsidiaries located outside the United States generally are measured using the local currency as the functional currency. Balance sheet accounts, including goodwill, of foreign subsidiaries are translated into United States dollars at year‑end exchange rates. Income and expense items are translated at weighted average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders’ equity. The Company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings. Stock‑Based Compensation The Company records compensation expense in the financial statements for share‑based awards based on the grant date fair value of those awards. Stock‑based compensation expense includes an estimate for pre‑vesting forfeitures and is recognized over the requisite service periods of the awards on a straight‑line basis, which is generally commensurate with the vesting term. The benefits associated with tax deductions in excess of recognized compensation cost are reported as a financing cash flow. At December 31, 2016, the Company had one stock‑based compensation plan with total unrecognized compensation costs related to unvested stock‑based compensation arrangements of approximately $16.2 million and a total weighted average remaining term of 1.62 years. For 2016, 2015 and 2014, the Company recognized compensation costs related to stock‑based programs of approximately $13.4 million, $10.9 million and $8.6 million, respectively. In 2014, the Company began recognizing certain stock compensation costs in cost of goods sold based on the allocation of costs to its three operating segments. For 2016 and 2015, stock compensation expense, $0.9 million and $0.4 million, respectively, was recorded in cost of goods sold and $12.5 million and $10.5 million, respectively, was recorded in selling, general and administrative expenses. For 2016, 2015 and 2014, the Company recorded approximately $0.8 million, $0.3 million and $0.7 million, respectively, of tax benefits for the compensation expense relating to its stock options. For 2016, 2015 and 2014, the Company recorded approximately $2.8 million, $2.0 million and $1.6 million, respectively, of tax benefit for its other stock‑based plans. For 2016, 2015 and 2014, the recognition of total stock‑based compensation expense impacted both basic and diluted net income per common share by $0.29, $0.25 and $0.10, respectively. Net Income (Loss) Per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The calculation of diluted net income (loss) per share assumes the conversion of all dilutive securities (see Note 11). Net income (loss) and number of shares used to compute net income (loss) per share, basic and assuming full dilution, are reconciled below:
|  | Year Ended December 31, |
|  | 2016 |  | 2015 |  | 2014 |
|  |  |  |  |  |  | Per |  |  |  |  |  |  | Per |  |  |  |  |  |  | Per |
|  | Net |  |  |  | Share |  | Net |  |  |  | Share |  | Net |  |  |  | Share |
|  | Income |  | Shares |  | Amount |  | Loss |  | Shares |  | Amount |  | Income |  | Shares |  | Amount |
|  | (Amounts in millions, except per share information) |
Basic EPS |  | $ | 84.2 |  | 34.4 |  | $ | 2.45 |  | $ | (112.9) |  | 34.9 |  | $ | (3.24) |  | $ | 50.3 |  | 35.3 |  | $ | 1.42 |
Dilutive securities, principally common stock options |  |  | — |  | 0.1 |  |  | (0.01) |  |  | — |  | — |  |  | — |  |  | — |  | 0.1 |  |  | — |
Diluted EPS |  | $ | 84.2 |  | 34.5 |  | $ | 2.44 |  | $ | (112.9) |  | 34.9 |  | $ | (3.24) |  | $ | 50.3 |  | 35.4 |  | $ | 1.42 |
The computation of diluted net income (loss) per share for the years ended December 31, 2016, 2015 and 2014 excludes the effect of the potential exercise of options to purchase approximately 0.1 million, 0.3 million and 0.3 million shares, respectively, because the exercise price of the option was greater than the average market price of the Class A common stock and the effect would have been anti‑dilutive. Financial Instruments In the normal course of business, the Company manages risks associated with commodity prices, foreign exchange rates and interest rates through a variety of strategies, including the use of hedging transactions, executed in accordance with the Company’s policies. The Company’s hedging transactions include, but are not limited to, the use of various derivative financial and commodity instruments. As a matter of policy, the Company does not use derivative instruments unless there is an underlying exposure. Any change in value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. The Company does not use derivative instruments for trading or speculative purposes. Derivative instruments may be designated and accounted for as either a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). For a fair value hedge, both the effective and ineffective portions of the change in fair value of the derivative instrument, along with an adjustment to the carrying amount of the hedged item for fair value changes attributable to the hedged risk, are recognized in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument that are highly effective are deferred in accumulated other comprehensive income or loss until the underlying hedged item is recognized in earnings. The Company has two interest rate swaps designated as cash flow hedges and one foreign currency swap which is a non-designated cash flow hedge as of December 31, 2016. The Company did not have any cash flow hedges at December 31, 2015. Refer to Note 15 for further details. If a fair value or cash flow hedge were to cease to qualify for hedge accounting or be terminated, it would continue to be carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If a forecasted transaction were no longer probable of occurring, amounts previously deferred in accumulated other comprehensive income would be recognized immediately in earnings. On occasion, the Company may enter into a derivative instrument that does not qualify for hedge accounting because it is entered into to offset changes in the fair value of an underlying transaction which is required to be recognized in earnings (natural hedge). These instruments are reflected in the Consolidated Balance Sheets at fair value with changes in fair value recognized in earnings. The Company’s foreign currency derivative includes a forward foreign exchange contract related to the current rate exposure between the Hong Kong Dollar and the euro regarding an intercompany loan. Portions of the Company’s outstanding debt are exposed to interest rate risks. The Company monitors its interest rate exposures on an ongoing basis to maximize the overall effectiveness of its interest rates. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and certain nonfinancial assets and liabilities that may be measured at fair value on a nonrecurring basis. The fair value disclosures of these assets and liabilities are based on a three‑level hierarchy, which is defined as follows:
Level 1 | Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities subject to this hierarchy are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Refer to Note 15 for further details. Shipping and Handling Shipping and handling costs included in selling, general and administrative expense amounted to $47.9 million, $53.5 million and $61.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. Research and Development Research and development costs included in selling, general, and administrative expense amounted to $26.5 million, $23.5 million and $22.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Revenue Recognition The Company recognizes revenue when all of the following criteria have been met: the Company has entered into a binding agreement, the product has been shipped and title passes, the sales price to the customer is fixed or is determinable, and collectability is reasonably assured. Provisions for estimated returns and allowances are made at the time of sale, and are recorded as a reduction of sales and included in the allowance for doubtful accounts in the Consolidated Balance Sheets. The Company records provisions for sales incentives (primarily volume rebates), as an adjustment to net sales, at the time of sale based on estimated purchase targets. Basis of Presentation Certain amounts in the 2015 and 2014 consolidated financial statements have been reclassified to permit comparison with the 2016 presentation. These reclassifications had no effect on reported results of operations or stockholders' equity. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The revised guidance will be applied prospectively and is effective for calendar year-end SEC filers in 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. The new guidance is not expected to have a material impact on the Company's financial statements. In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805)-Clarifying the Definition of a Business”, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In October 2016, the FASB issued ASU 2016-16 “Intra-Entity Transfers of Assets Other than Inventory.” ASU 2016-16 provides guidance on the timing of recognition of tax consequences of an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for public companies with fiscal years beginning after December 15, 2017, with early adoption permitted. The ASU requires modified retrospective application through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016‑15 provides guidance on the classification of specific types of cash receipts and cash payments within the Statement of Cash Flows. ASU 2016-15 is effective for public companies with fiscal years beginning after December 15, 2017, with early adoption permitted. The ASU requires retrospective application to all prior periods presented in the financial statements. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers-Identifying Performance Obligations and Licensing.” ASU 2016‑10 clarifies the guidance on identifying performance obligations and licensing implementation guidance determined in ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” which is not yet effective. The adoption of ASU 2016-10 is not expected to have a material impact on the Company’s financial statements. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” ASU 2016‑09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as equity or liabilities, forfeitures, and classification on the statement of cash flows. The Company will adopt the new standard in the first quarter of 2017. Although the impact of adopting this update to the Company’s Consolidated Financial Statements is not expected to have a material effect, the impact will depend on market factors and the timing and intrinsic value of future share-based compensation award vests and exercises. The Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change will be recognized as an adjustment to retained earnings as of January 1, 2017. Subsequent to adoption, the Company notes the potential for volatility in its effective tax rate as any windfall or shortfall tax benefits related to its stock-based compensation plans will be recorded directly into results of operations. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers-Principal versus Agent Consideration.” ASU 2016‑08 clarifies the guidance on principal versus agent considerations determined in ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” which is not yet effective. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016‑02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term for both finance and operating leases. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018 and all interim periods thereafter. Earlier application is permitted for all entities. The Company is assessing the impact of this standard on the Company’s financial statements. In November 2015, the FASB issued ASU 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016 and all interim periods thereafter. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and can be applied either prospectively or retrospectively to all periods presented. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In July 2015, the FASB issued ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory.” This new standard changes inventory measurement from lower of cost or market to lower of cost and net realizable value. The standard eliminates the requirement to consider replacement cost or net realizable value less a normal profit margin when measuring inventory. ASU 2015-11 is effective in the first quarter of 2017 for public companies with calendar year ends, and should be applied prospectively with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. The FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” effective for public companies beginning with the first interim period after December 15, 2015. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts as opposed to an asset. This is considered a change in accounting principle, and the Company applied the new guidance as of April 3, 2016 and on a retrospective basis. Therefore, the Company has restated its long-term debt and other asset balances in the Balance Sheet for December 31, 2015 for comparative purposes. Refer to Note 10 below for further details. In May 2014, FASB issued ASU 2014-09, "Revenue from Contracts with Customers". ASU 2014-09 converges revenue recognition under U.S. GAAP and International Financial Reporting Standards ("IFRS"). For U.S. GAAP, the standard generally eliminates transaction and industry-specific revenue recognition guidance. This includes current guidance on long-term construction-type contracts, software arrangements, real estate sales, telecommunication arrangements, and franchise sales. Under the new standard, revenue is recognized based on a five-step model. The FASB issued ASU 2015-14 in August 2015 which deferred the effective date of ASU 2014-09 for public companies to periods beginning after December 15, 2017, with early adoption permitted. The Company plans to adopt the new standard effective January 1, 2018. The Company is currently reviewing its revenue arrangements in order to evaluate the impact of this standard on the Company’s financial statements and its method of adoption.

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