Recent Accounting Pronouncements

9 Months Ended

Oct. 05, 2019

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02 Leases (ASC Topic 842, the “new standard”) that requires an entity to recognize lease liabilities and a right-of-use asset (“ROU assets” and “ROU liabilities”) for virtually all leases (other than those that meet the definition of a short-term lease) on the balance sheet and to disclose key information about the entity’s leasing arrangements. This new standard was effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods, with earlier adoption permitted.  The company adopted the new standard as of December 30, 2018 and applied the modified retrospective transition method.  The company also chose the optional transition relief provided in ASU No. 2018-11 which allows the company to apply the new standard in fiscal 2019 and to recognize a cumulative-effect adjustment to the adoption period opening balance of retained earnings. 

The company elected the package of transition practical expedients within the new standard. As required by the new standard, these expedients were elected as a package, and consistently applied across the company’s lease portfolio. Given this election, the company did not reassess the following:

• whether any expired or existing contracts are or contain leases;

• the lease classification for any expired or existing leases; or

• the treatment of initial direct costs relating to any existing leases.

We have chosen the option to not adjust prior comparative periods.  The company recognized a cumulative effect adjustment to the opening balance of retained earnings of $2.9 million, net of tax, at adoption.  

In applying the modified retrospective transition method to these leases, the company measured lease liabilities at the present value of the sum of remaining minimum rental payments. These lease liabilities have been measured using the company’s incremental borrowing rates at the later of (i) the earliest period presented or (ii) the commencement date of the applicable lease. The right-of-use assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any unamortized initial direct costs, prepaid/accrued rent, and unamortized lease incentives.

The adoption of this new standard and application of the modified retrospective transition approach resulted in the following additional impacts to the company’s Condensed Consolidated Balance Sheet at December 30, 2018: (1) assets increased by $387.3 million, primarily representing recognition of right-of-use assets for operating leases; and (2) liabilities increased by $391.9 million, primarily representing recognition of lease liabilities for operating leases.  In addition, the company previously recorded right-of-use assets and liabilities of $21.9 million as property, plant, and equipment.  At adoption, the company recorded right-of-use assets of $19.8 million and right-of-use liabilities of $23.6 million for these financing leases.

During the second quarter of fiscal 2019, the company adopted new guidance on accounting for a cloud computing arrangement that is hosted by a vendor.  The company has elected the prospective transition method at adoption.  The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements.  

Accounting pronouncements not yet adopted

In June 2016, the FASB issued guidance that effects loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  Additional guidance for this topic was issued in April 2019.  The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (the company’s fiscal 2020).  Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (the company’s fiscal 2019).  The company will adopt this standard in the first quarter of fiscal 2020.  The company is determining what the impact, if any, will be on the trade and notes receivables recorded in our Condensed Consolidated Financial Statements.  

In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment.  The guidance removed Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.  A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  Companies will still have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.  This guidance will be applied prospectively.  Companies are required to disclose the nature of and reason for the change in accounting principle upon transition.  That disclosure shall be provided in the first annual reporting period and in the interim period within the first annual reporting period when the company adopts this guidance.  This change to the guidance is effective for fiscal years beginning after December 15, 2019 (the company’s fiscal 2020).  Early adoption is permitted after January 1, 2017.  The company anticipates adopting this guidance in our fiscal 2020.  The company is currently evaluating the impact on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued guidance to modify the disclosure requirements on fair value measurements.  The guidance removes, modifies, and adds certain disclosures related to Level 1, Level 2, and Level 3 assets.   The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (the company’s fiscal 2020).  The company is currently evaluating when this guidance will be adopted and the impact on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 (the company’s fiscal 2021).  Disclosures were removed for the amounts in accumulated other comprehensive income (“AOCI”) expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of assets expected to be returned to the employer, certain related party disclosures, and the effects of a one-percentage-point change in the assumed health care cost trend rates.  Additional disclosures include the weighted average interest crediting rate for plans with promised crediting interest rates and an explanation of the reasons for significant gains and losses related to the benefit obligation for the period.  This guidance shall be applied on a retrospective basis and can be early adopted.  The company is currently evaluating when this guidance will be adopted and the impact on our Condensed Consolidated Financial Statements.

We have reviewed other recently issued accounting pronouncements and concluded that either they are not applicable to our business or no material effect is expected upon future adoption.