The accompanying consolidated financial statements include those of the Company and its subsidiaries, after elimination of all intercompany accounts and transactions. The Company has prepared the accompanying consolidated financial statements in accordance with U.S generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).

The Company manages, monitors and reports its operating results and financial position as a single operating segment. The Company’s chief operating decision-maker (“CODM”) is its Chief Executive Officer who makes operating decisions, assesses financial performance and allocates resources based on consolidated financial information. As such, the Company has determined that it operates in one reportable segment.

The Company’s consolidated financial statements are prepared in accordance with GAAP, which require management to make certain estimates, judgments and assumptions. For example, management makes estimates, judgments, and assumptions in determining the recoverability of intangible assets and their useful lives, determination of performance obligations and standalone selling price (“SSP”) used in revenue recognition, the number of performance-based stock options and awards that the Company expects to vest, the realizability of deferred tax assets, uncertain tax positions, and the collectability of accounts receivable. Management believes the estimates, judgments, and assumptions upon which it relies are reasonable based on information available at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Any material differences between these estimates and actual results will impact the Company’s consolidated financial statements. The Company assesses these estimates on a regular basis, however actual results could differ from estimates due to risks and uncertainties.

The Company derives its revenue from sales of 1) cloud subscriptions, representing access to the Company’s software via Company-hosted cloud applications, 2) self-managed subscription licenses, representing a term license to self-managed software, 3) subscription support, representing support for self-managed subscription licenses, 4) on-premises perpetual software licenses, and 5) maintenance and professional services, consisting of maintenance on perpetual software licenses, and professional services, consisting of consulting and education services. The Company recognizes revenue net of applicable sales taxes, financing charges it has absorbed, and amounts retained by its partners (including resellers and distributors), if any. The Company does not act as an agent in any of its revenue arrangements.

Revenue is recognized and recorded in accordance with ASC 606, Revenue From Contracts with Customers (“ASC 606”) which generally requires the Company to recognize revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers and partners in exchange for those products. This process involves identifying the customer contract, determining the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

Performance obligations contained in a contract are identified based on the goods or services that will be transferred to the customer that are both (i) capable of being distinct, because the customer can benefit from the goods or services either on their own or together with other resources that are readily available from third parties or from the Company, and (ii) distinct in the context of the contract, and the transfer of the goods or services is separate from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company applies its judgment to determine whether the promised goods or services are capable of being distinct, and distinct in the context of the contract. The Company’s cloud subscription services include cloud functionalities and, for most products, also a secure agent that is installed on a customer’s premises. The secure agent performs tasks and enables secure communication behind a customer’s firewall with the cloud functionalities.

For these products, customers are not able to use either the cloud functionalities or secure agent for their intended purpose on their own without use of the other component. The cloud functionalities and secure agent are accounted for together as a single performance obligation because the Company has concluded that the cloud functionalities and secure agent are highly interdependent and interrelated based on the significant two-way dependency between the components.


Performance Obligation			When Performance Obligation is Typically Satisfied
Subscription:
Cloud services and subscription support			Over Time: Ratably over the contractual term; commencing upon the later of when access to the service is made available or the contractual term commences
Self-managed subscription license			Point in Time: Upon the later of when the software license is made available or the contractual term commences
Perpetual license			Point in Time: When the software license is made available
Maintenance			Over Time: Ratably over the contractual term
Professional Services			Over Time: As services are provided

Self-managed subscription license revenue primarily consists of revenue from customers and partners contracted to use software during a subscription term with terms ranging from one to three years. These arrangements are generally billed annually in advance during such multi-year terms.

Cloud services revenues include revenues from cloud services offerings, which deliver applications and infrastructure technologies via cloud-based deployment models for which we develop functionality, provide unspecified updates and enhancements, host, manage, upgrade, and support, and that customers access by entering into a subscription agreement with us for a stated period.

Self-managed subscription license support revenues are generated through the sale of license support contracts sold together with the self-managed subscription license purchased by our customer. Subscription license support contracts provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period and include internet access to technical content, as well as internet and telephone access to technical support personnel. Our subscription software licenses have significant standalone functionalities and capabilities. Accordingly, these subscription software licenses are distinct from the support services as the customer can benefit from the software without the services and the services are separately identifiable within the contract.

Perpetual license revenue consists of revenue from customers and partners for sales of perpetual software licenses, are generally billed upfront along with the associated maintenance. The maintenance associated with perpetual licenses is classified within maintenance and professional services.

Maintenance and professional services are comprised of maintenance, consulting, and education services. Maintenance contracts, which consist of ongoing support and software updates, if and when available, under perpetual software license arrangements, are typically one year in duration. Our perpetual software licenses have significant standalone functionalities and capabilities. Accordingly, these perpetual software licenses are distinct

from the support services as the customer can benefit from the software without the services and the services are separately identifiable within the contract. Maintenance contracts are generally billed annually in advance. Nearly all of our customers elect to renew their maintenance contracts annually.

Consulting services are primarily related to configuration, installation, and implementation of the Company’s products, and are generally performed on a time-and-materials basis. Revenue for fixed fee contracts is generally recognized as services are performed, applying input methods to estimate progress to completion. If uncertainty exists about the Company’s ability to complete the project, its ability to collect the amounts due, or in the case of fixed-fee consulting arrangements, its ability to estimate the remaining costs to be incurred to complete the project, revenue is deferred until the uncertainty is resolved. Consulting services are generally either billed in advance or monthly as services are rendered. Consulting services, if included as part of the software arrangement, generally do not entail significant modification or customization of the software and hence, such services are not considered essential to the functionality of the software.

Education services consist of classes offered at the Company’s headquarters, sales and training offices, customer locations, and on-line. Revenue is recognized as the classes are delivered. Education services are generally either billed in advance or as services are rendered.

Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis and revenue is recognized when (or as) the Company satisfies each performance obligation by transferring control of the promised goods or services to the customer.

The determination of SSP requires judgment and is established for performance obligations that are routinely sold separately, such as support and maintenance on the Company’s core offerings. In connection with its cloud services, self-managed subscription licenses, and perpetual licenses, the Company is unable to establish SSP based on observable prices given the products are sold for a broad range of amounts (that is, the price is highly variable), and a representative SSP is not discernible from past transactions or other observable evidence. As a result, the SSP for cloud services offerings, self-managed subscription licenses, and perpetual licenses, included in a contract with multiple performance obligations, is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs, with any residual amount of transaction price allocated to cloud services, self-managed subscription licenses, and perpetual licenses.

Some contracts offer price discounts on future purchases. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. In circumstances involving a material right, revenue is allocated to these rights and deferred; subsequently the revenue is recognized when those future goods or services are transferred, or when the option expires. Generally, such discount mechanisms have not resulted in material rights.

The timing of revenue recognition, billings, and cash collections results in contract assets (both billed accounts receivable, where the Company has an unconditional right to contract consideration subject only to the passage of time, and unbilled receivables), and contract liabilities (deferred revenue and customer deposit liabilities) on the Company’s accompanying consolidated balance sheets.

The timing of revenue recognition may differ from the timing of invoicing customers. Accounts receivables as reported on the accompanying consolidated balance sheets, includes the unconditional amounts owed from customers comprising amounts invoiced, net of an allowance for credit loss. A receivable is recognized in the period products are delivered or services are provided, or when the right to payment is unconditional. Payment terms on invoiced amounts are typically between 30 and 60 days, therefore the contracts do not include a significant financing component. Also, they typically do not involve a significant amount of variable consideration as they represent stated prices.

Contract assets represent reported revenues attributable to performance obligations that have been satisfied, but such amounts remain unbilled due to certain remaining conditions under the contract not yet being met. Contract assets are primarily driven by sales of self-managed subscription licenses with 2-3 year subscription terms, but the related fees are generally invoiced annually. There were immaterial credit losses associated with contracts with customers for the years ended December 31, 2022 and 2021.

Contract liabilities consist of deferred revenue and customer deposit liabilities and represent cash payments received or due in advance of fulfilling our performance obligations. In arrangements whereby the Company has an obligation to transfer goods or services to the customer and fees are invoiced or amounts are received ahead of revenue being recognized under non-cancelable contracts, deferred revenue is recorded. Customer deposits represent cash payments received under cancelable contracts. Deferred revenue and customer deposit liabilities will be recognized as revenue in future periods. As of December 31, 2022, deferred revenue and customer deposit liabilities were $697.5 million and $2.0 million, respectively. As of December 31, 2021, deferred revenue and customer deposit liabilities were $635.6 million and $6.4 million, respectively.

The current portion of contract liabilities represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date. Contract liabilities were approximately $699.5 million as of December 31, 2022, of which the Company expects to recognize $676.5 million over the next 12 months, and the remainder thereafter. The amount of revenues recognized during the years ended December 31, 2022 and 2021 that were included in the opening contract liabilities balance was approximately $606.2 million and $541.2 million, respectively. Revenues recognized from performance obligations satisfied in prior periods were immaterial during each of the years ended December 31, 2022 and 2021.

Remaining performance obligations represent contracted revenues that have not yet been recognized (including contract liabilities) and amounts that will be invoiced and recognized as revenues in future periods. The volumes and amounts of customer contracts that the Company records and total revenues that it recognizes are impacted by a variety of seasonal factors. In each year, the amounts and volumes of contracting activity and associated revenues are typically highest in its fourth fiscal quarter and lowest in the first fiscal quarter. These seasonal impacts influence how the Company's remaining performance obligations change over time, and, combined with foreign exchange rate fluctuations and other factors, influence the amount of remaining performance obligations that the Company reports at a point in time. As of December 31, 2022, the Company’s remaining performance obligations was $1.34 billion, which does not include customer deposit liabilities. The Company expects to recognize approximately 69% of its remaining performance obligations at December 31, 2022, as revenues over the next twelve months and the remainder over the next two to three years.

Costs to obtain a contract include sales commissions earned as well as payroll taxes and other costs associated with and directly attributable to the contract obtained. These costs are considered incremental and recoverable costs of obtaining a contract, and therefore, are capitalized when certain customer contracts are

Accordingly, costs to obtain a contract paid upon the initial acquisition of the contract are amortized over the estimated period of benefit of five years, which may exceed the term of the initial contract. The Company determines the estimated period of benefit based on the duration of relationships with its customers, which includes the expected renewals of customer contracts, customer retention data, its technology development lifecycle, and other factors. The Company amortizes these commissions consistent with the pattern of satisfaction of the performance obligation to which the asset relates. Costs to obtain a contract paid upon multi-year renewal are amortized over the renewal contract term. Amortization expense is included in Sales and Marketing expenses in the consolidated statements of operations.

The Company tests goodwill for impairment annually during the fourth quarter of each year and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable in accordance with ASC 350, Intangibles—Goodwill and Other. The Company has one operating segment and reporting unit, and therefore goodwill is tested for impairment at the entity level.

Goodwill impairment is recognized when the quantitative assessment results in the carrying value of the reporting unit exceeding its estimated fair value, in which case an impairment charge is recorded to goodwill to the extent the carrying value exceeds the estimated fair value, limited to the amount of goodwill. The Company did not recognize any impairment of goodwill during the years ended December 31, 2022, 2021 and 2020.

The Company evaluates long-lived assets, which includes amortized intangible assets and tangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of an asset to the future undiscounted cash flows attributable to that asset. The Company measures any amount of impairment based on the difference between the carrying value and the estimated fair value of the impaired asset. There were no impairments of long-lived assets during the years ended December 31, 2022, 2021 and 2020.

The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Stock Compensation. The Company measures and recognizes compensation expense for all stock-based awards, including stock options, restricted stock units ("RSUs") granted to employees and directors, performance stock units ("PSUs") granted to employees and stock purchase rights granted under the Company's 2021 Employee Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of the awards on the date of grant.

The Company grants stock options with only service conditions (“service-based options”) which may also include one-year cliff vesting provisions, as well as those with both service and performance or market conditions. The Company uses the Black-Scholes Merton or Monte Carlo model to value the stock options granted under its equity plans. For purchase rights granted under the ESPP, the fair value is estimated using the Black-Scholes Merton model. Both models require the input of certain assumptions on the grant date, including fair value of the underlying stock and exercise price, expected term, volatility over an expected term, risk-free interest rate for an expected term, and dividend yield. The fair value of each RSU granted after the Company's IPO is determined by the closing price of the Company's common stock on the date of grant.

Compensation expense is recognized for time-based options and RSUs on a straight-line basis over the vesting period. Compensation expense for options containing performance conditions and PSUs is based on the estimated number of the performance-based stock options/units expected to vest using the graded vesting attribution method. Compensation expense for options containing market condition vesting criteria is based on the estimated number of the stock options expected to vest on attainment of the condition. Compensation expense is recognized for shares issued pursuant to the ESPP on a straight-line basis over the offering period. The Company recognizes forfeitures as they occur, and cash flows related to excess tax benefits are presented as an operating activity in the accompanying consolidated statements of cash flows.

Prior to the IPO, the fair value of the common stock underlying the options had historically been determined by the Company’s Compensation Committee of the Board of Directors given the absence of a public trading market. The Compensation Committee of the Board of Directors determined the fair value of the common stock by considering a number of objective and subjective factors, including: (i) third-party valuations of common stock; (ii) the lack of marketability of the common stock; (iii) the Company's actual operating and financial results; (iv) the Company’s current business conditions and projections; and (v) the likelihood of various potential liquidity events, such as an initial public offering or sale of the Company, given prevailing market conditions. After the IPO, the fair value of the common stock was determined based on the Company’s closing stock price as quoted on the New York Stock Exchange on the grant date.

The Company utilizes the treasury method when calculating basic and diluted net loss per share. The rights of the holders of Class A common stock and Class B-1 common stock are identical in all respects, except that Class B-1 common stock will not vote on the election or removal of directors. The holders of Class B-2 common stock have no participating rights (voting or otherwise), except for the right to vote on the election or removal of directors and will be entitled to a nominal annual dividend of CAD $15,000 in the aggregate. As Class B-2 common stock have no participating economic rights, the Company is not required to use the two-class method.

Basic net loss per share is computed using the weighted average number of shares outstanding for the period, excluding unvested service and performance-based stock options and awards. Diluted net loss per share is computed using the weighted average shares outstanding for the period plus dilutive potential shares, including unvested stock options and awards using the treasury stock method.

The Company considers highly liquid investment securities with maturities of 90 days or less at the date of purchase to be cash equivalents. Investments not considered cash equivalents with maturities of greater than 90 days but less than one year from the consolidated balance sheet date are classified as short-term investments. Investments with maturities greater than one year from the consolidated balance sheet date are classified as long-term investments. The Company’s cash equivalents and investments include time deposits, money market funds, and debt securities. The Company’s restricted cash was primarily associated with securing credit facilities.

The Company's debt securities consist primarily of commercial paper, corporate debt securities, U.S. government securities, U.S. government agency securities, and non-U.S. government securities. The Company's debt securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, reported as a separate component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains or losses and permanent declines in value, if any, on available-for-sale debt securities are reported in other income (expense), net as incurred. The Company recognizes realized gains and losses upon sales of the investment and reclassifies unrealized gains and losses out of accumulated other comprehensive income (loss) into earnings using the specific identification method. Purchase premiums and discounts are amortized or accreted using the effective interest method over the life of the related security and such amortization and accretion are included in interest income in the consolidated statements of operations.

For available-for-sale debt securities in an unrealized loss position, the Company determines whether a credit loss exists. In this assessment, among other factors, the Company considers the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If factors indicate a credit loss exists, an allowance for credit loss is recorded to other income (expense), net, limited by the amount that the fair value is less than the amortized cost basis. The amount of fair value change relating to all other factors will be recognized in other comprehensive income (loss).

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, investments, derivatives and trade receivables. The Company’s cash and cash equivalents are generally held with large, diverse financial institutions worldwide to reduce the amount of exposure to any single financial institution. The majority of cash equivalents consists of money market funds that primarily invest in U.S. government securities. The Company's investments consist of time deposits and fixed income debt securities. Management believes that the financial institutions that hold the Company’s time deposits and the issuers of debt securities are financially sound and, accordingly, are subject to minimal credit risk.

The Company’s derivative contracts are transacted with various financial institutions with high credit ratings. The Company evaluates its counterparties associated with the Company’s foreign exchange forward contracts and interest rate swap contracts at least quarterly. Since all of these counterparties are large credit-worthy commercial banking institutions, the Company does not consider counterparty non-performance to be a material risk. The Company may enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company makes judgments as to its ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Further, the Company maintains an allowance for expected credit losses. It estimates expected credit trends for the allowance for credit losses for receivables and contract assets based upon its assessment of various factors, including historical experience, the age of the receivable balances, credit rating of its customers, current economic conditions, and other factors that may affect its ability to collect from customers. Expected credit losses are recorded as general and administrative expense.

The Company estimates the overall collectability of accounts receivable and other contract assets and provides an allowance for credit losses for those considered uncollectible. The Company makes estimates of expected credit losses by specifically analyzing its accounts receivable and other contract assets based on historical experience, customer concentrations, customer credit-worthiness, the age of the receivable, current economic trends, and changes in its customer payment terms. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. The Company records the expected credit losses in general and administrative expense. On December 31, 2022 and 2021, the Company’s allowance for credit losses were $4.6 million and $4.6 million, respectively.

The Company uses the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes. Under this method, income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of currently enacted tax laws. The effects of future changes in tax laws or rates are not contemplated.

A two-step approach is applied pursuant to ASC 740 in the recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties related to uncertain tax positions in its income tax provision line of its consolidated statements of operations.

The Company evaluates the realization of deferred tax assets based on all available evidence, including projected results of operations and the scheduled reversal of temporary differences. The Company establishes a valuation allowance to reduce deferred tax assets when it is more likely than not that they will not be realized.

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Building, building improvements and site improvements are amortized over the estimated useful life of 25 years, 10-15 years and 15 years, respectively. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset, which range from one to ten years. Computers, equipment, and software, and furniture and fixtures are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets, generally one to five years.

Debt issuance costs are initially deferred and amortized to interest expense using the effective interest method over the expected term of the related debt. Unamortized debt issuance costs related to the dollar and euro term loan facilities are considered long-term and presented as a direct reduction to long-term debt, net in the consolidated balance sheets. Unamortized debt issuance costs related to the revolving facility are also considered long-term and are included in other assets in the consolidated balance sheets.

The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustments included in accumulated other comprehensive income (loss), a component of consolidated stockholders’ equity.

Gains or losses related to the remeasurement of certain foreign currency denominated assets and liabilities into their functional currency are recorded in net income (loss), unless such assets or liabilities are designated by management to be of a long-term investment nature, in which case such gains or losses are recorded in consolidated accumulated other comprehensive income (loss), a component of consolidated stockholders’ equity.

The Company is responsible for estimating its exposure for claims incurred but not paid at the end of each reporting period and uses historical claims data supplied by a third party to estimate its self-funded insurance liability. Actual claims may differ from the Company’s estimates, but such differences have not been material for any period presented.

Restructuring charges primarily consist of severance, facilities, transition and other related costs. Severance costs generally include severance payments, notice-period payments, outplacement services, health insurance coverage, and relocation costs. Facilities costs generally include rent, variable lease operating expenses and lease termination costs. Transition and other related costs primarily consist of legal costs and consulting charges associated with business process improvements and strategy.

One-time employee severance costs are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing employee termination benefits are recognized as a liability when it is probable that a liability exists and the amount is reasonably estimable. Other transactions related costs are recognized as incurred. Restructuring charges are recognized as an operating expense within the consolidated statements of operations and related liabilities are recorded within accrued compensation and related expenses and in accrued liabilities on the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.

The Company amortizes its right-of-use assets, as operating lease expense on a straight-line basis over the lease term and classifies both the lease amortization and imputed interest as rent expense. Additionally, taxes, insurance and maintenance are excluded from minimum lease payments and are included in the determination of lease cost when it is probable that the expense has been incurred and the amount can be reasonably estimated.

The Company determines if an arrangement is or contains a lease at contract inception. In certain of its lease arrangements, primarily those related to data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement involves an identified asset that is physically distinct or whether the Company has the right to substantially all of the capacity of an

identified asset that is not physically distinct. In arrangements that involve an identified asset, there is also judgment in evaluating if the Company has the right to direct the use of that asset. The Company did not have any material finance leases for any periods presented.

Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company generally uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use assets related to its operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. The lease terms that are used in determining its operating lease liabilities at lease inception include options to extend or terminate the leases when it is reasonably certain that the Company will exercise such options.

The Company does not separate non-lease components from lease components for all leases. The Company does not recognize right-of-use assets and lease liabilities for short-term leases, which generally have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term.

In addition, the Company subleases certain of its unoccupied facilities to third parties. Any impairment to the associated right-of-use assets, leasehold improvements, or other assets as a result of a sublease is recognized in the period the sublease is executed and recorded in the consolidated statements of operations. The Company recognizes sublease income on a straight-line basis over the sublease term.

The Company enters into foreign exchange forward contracts in an attempt to reduce the impact of foreign currency exchange rate fluctuations on forecasted cash flows and expenses and designates these contracts as cash flow hedges at inception. The Company is currently using foreign exchange forward contracts to hedge the anticipated foreign currency expenses of its subsidiary in India denominated in Indian rupee. The Company recognizes in earnings amounts related to its designated cash flow hedges accumulated in other comprehensive income during the same period in which the corresponding underlying hedged transaction affects earnings.

The Company may enter into interest rate swap agreements to offset the variability of cash flows associated with the floating rate interest payments related to its Term Loan Facilities. See Note 9. Borrowings in the Notes to Consolidated Financial Statements of this Report for further discussion of the credit facilities. These swaps are generally designated as cash flow hedges of floating rate interest payments. All cash flows relating to swaps that are considered to have an other than insignificant financing component at the inception date are included in cash flow from financing activities in the consolidated statements of cash flows. The Company records any change in the fair value of cash flow designated interest rate swaps in other comprehensive income (loss), until the hedged cash flow occurs, at which point any gain (loss) is reclassified into earnings or losses and any change in fair value of non-designated swaps in interest expense. The other comprehensive loss at de-designation is amortized to interest expense over the original hedge period and future gains and losses on the de-designated swap are recognized as interest expense.

Balance sheet hedges consist of cash flow hedge contracts that have been de-designated and non-designated balance sheet hedges. These foreign exchange contracts are carried at fair value and do not otherwise qualify for hedge accounting treatment and, therefore, are not designated as hedging instruments. Changes in the value of the foreign exchange contracts are recognized in other income (expense), net and offset the foreign currency gain or loss on the underlying net monetary assets or liabilities. The Company recognizes derivative assets and derivative liabilities at gross fair values in its consolidated balance sheets. The Company evaluates prospectively, as well as retrospectively, the effectiveness of its hedge programs using statistical analysis. Prospective testing is performed at the inception of the hedge relationship, and quarterly thereafter. Retrospective testing is performed on a quarterly basis.