2.	Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs associated with internal-use software (Subtopic 350-40). ASU 2018-15 becomes effective for the Company in the first quarter of FY2021 and may be adopted either retrospectively or prospectively. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes the presentation of net periodic pension and postretirement cost (net benefit cost) on the consolidated statements of operations. The service cost component of net benefit cost will continue to be part of operating income while all other components of net benefit cost (interest costs, actuarial gains and losses and amortization of prior service cost) will be shown outside of operating income. The Company adopted this standard on July 1, 2018 and applied the standard retrospectively. The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified on the statement of cash flows to reduce diversity in practice. The Company adopted this standard on July 1, 2018 and applied the standard retrospectively. The adoption of this standard did not impact the Company’s consolidated statement of cash flows for the three months ended September 30, 2018 or 2017, respectively. However, adoption of this standard will require the reclassification of proceeds received from the settlement of COLI policies from operating activities to investing activities on the consolidated statements of cash flows for the six, nine and twelve month periods ended June 30, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing guidance on accounting for leases. The new standard requires lessees to put virtually all leases on the balance sheet by recognizing lease assets and lease liabilities. Lessor accounting is largely unchanged from that applied under previous guidance. The amended guidance is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2018, and requires a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. The Company plans to adopt this standard on July 1, 2019 and is currently in the process of accumulating data required to measure its existing leases, reviewing lease contracts, implementing a new lease accounting solution and evaluating accounting policy and internal control changes. We expect that upon adoption we will recognize a material right-of-use asset and lease liability on our balance sheet. We do not expect the standard to have a material impact on our cash flows or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (ASC 606), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In addition, ASU 2014-09 added Accounting Standard Codification (ASC) 340-40 to codify guidance on other assets and deferred costs for contracts with customers.

Effective July 1, 2018, we adopted the new revenue standard (ASC 606) using the modified retrospective method, whereby the cumulative effect of applying the standard was recognized through shareholders’ equity on the date of adoption. In addition, for our fiscal year ending June 30, 2019 and the interim reporting periods therein, the Company is required to disclose the amount by which each financial statement line item was affected by the new standard. The Company’s comparative information, for prior periods presented before July 1, 2018, has not been restated and continues to be reported under ASC 605.

The impact of adoption on our consolidated balance sheet is as follows (in thousands):

	June 30, 2018 As Reported Under ASC 605		Adjustments Due to ASC 606		July 1, 2018 Balance Under ASC 606
Assets:
Accounts receivable, net	$	806,871	$	20,454	$	827,325
Prepaid expenses and other current assets		58,126		2,342		60,468
Other long-term assets		39,175		3,923		43,098
Liabilities and Shareholders' Equity:
Other accrued expenses and current liabilities		150,602		2,212		152,814
Deferred income taxes		200,880		6,639		207,519
Other long-term liabilities		85,187		98		85,285
Retained earnings		2,126,790		17,770		2,144,560

ASC 606 changed the pattern of revenue recognition for some of our contracts with customers. For our award and incentive fee contracts, we recognize a constrained amount of variable consideration throughout the performance period rather than defer recognition of the relevant portion of fee until customer notification of the amount earned. Some of our fixed price services-type contracts in which revenue was previously recognized on a straight-line basis over the performance period converted to recognition of revenue over time using a cost-to-cost input method to measure our progress towards the complete satisfaction of the performance obligation.

The adoption of ASC 606 did not have a material impact on the Company’s revenue recognition for cost-plus-fee, fixed price/level-of-effort, time-and-materials (T&M), fixed price contracts previously recognized under ASC 605-35, and fixed price product revenue arrangements.

Under ASC 340-40, the Company capitalizes certain costs to fulfill and obtain a contract. These capitalized costs will be amortized over the period of contract performance as revenue is recognized from the transfer of goods or services and the underlying performance obligation is satisfied.

The table below presents the impact of adoption of ASC 606 on our consolidated statement of operations for the three months ended September 30, 2018 (in thousands):

	As Adjusted Under ASC 605		Effect of ASC 606		As Reported Under ASC 606
Revenue	$	1,158,702	$	7,162	$	1,165,864
Costs of revenue:
Direct costs		782,760		—		782,760
Indirect costs and selling expenses		264,700		57		264,757
Depreciation and amortization		18,747		—		18,747
Total costs of revenue		1,066,207		57		1,066,264
Income from operations		92,495		7,105		99,600
Interest expense and other, net		8,886		—		8,886
Income before taxes		83,609		7,105		90,714
Income tax expense (benefit)		10,087		1,794		11,881
Net income	$	73,522	$	5,311	$	78,833
Basic earnings per share	$	2.97	$	0.21	$	3.19
Diluted earnings per share	$	2.89	$	0.21	$	3.10

The table below presents the impact of adoption of ASC 606 on our consolidated balance sheet as of September 30, 2018 (in thousands):

	As Adjusted Under ASC 605		Effect of ASC 606		As Reported Under ASC 606
Assets:
Accounts receivable, net	$	919,394	$	26,170	$	945,564
Prepaid expenses and other current assets		70,767		2,307		73,074
Other long-term assets		39,495		3,900		43,395
Liabilities and Shareholders' Equity:
Other accrued expenses and current liabilities		183,350		2,825		186,175
Deferred income taxes		211,307		6,471		217,778
Other long-term liabilities		82,139		—		82,139
Retained earnings		2,200,312		23,081		2,223,393