(1) Nature of Business and Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to SEC Form 10-Q and Article 10 of SEC Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.  For further information refer to the consolidated financial statements and footnotes thereto included in our 2015 Form 10-K.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us 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. Significant estimates affecting the financial statements include accruals for contract disallowance reserves, recoverability of goodwill and intangible assets, and earn-out obligations.

Reclassifications

Effective January 1, 2016, we elected to present amortization of purchased intangible assets as a separate line item and change the line item “Contract costs” to “Costs and operating expenses” on our consolidated statements of income.  For consistency, these amortization expenses have been reclassified in the consolidated statements of income for the three and six months ended June 30, 2015 to conform to the current period presentation. As a result, amortization expenses for the three months ended June 30, 2015 previously reflected as contract costs of $3.6 million in “Products” and $449 thousand in “Services” were reclassified to the “Amortization of intangible assets” line item within cost and operating expenses. Amortization expenses for the six months ended June 30, 2015 previously reflected as contract costs of $6.8 million in “Products” and $935 thousand in “Services” were reclassified to the “Amortization of intangible assets” line item within cost and operating expenses.

We adopted Accounting Standards Update ("ASU") 2015-17 and ASU 2015-03 on January 1, 2016 and prior period amounts have been reclassified to conform to the current period presentation. See Recently Issued Accounting Pronouncements in Note 10 for additional information.

These reclassifications have no effect on our reported financial condition, results of operations, or cash flows.