New Accounting Pronouncements

9 Months Ended

Feb. 28, 2018

New Accounting Pronouncements

New Accounting Pronouncements

Note 2 — New Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition.  This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets.  This ASU will supersede the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, and most industry-specific guidance.  This ASU will also supersede certain cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts.  In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of the new standard by one year so that it will be effective for us beginning June 1, 2018.

We will adopt this ASU as of June 1, 2018, using the modified retrospective transition method.  Under this method, we will be required to recognize the cumulative effect of adopting this ASU as of June 1, 2018 in our first quarter ending August 31, 2018.  We expect to estimate the cumulative effect upon adoption of the new ASU in the fourth quarter of fiscal 2018 based on expected contracts in process at May 31, 2018.  Our implementation effort continues to progress as we assess the anticipated impact of the new ASU on our consolidated financial statements.

To date, we have preliminarily identified three significant areas where the new ASU will impact revenue recognition.  First, we have certain contracts under which we manufacture products with no alternative use and the Company has an enforceable right to payment from the customer.  As a result, the Company will be required to record revenue for these contracts over time as opposed to at the time of shipment which is our current policy today.  Second, we also perform repair services on customer-owned assets which will also transition to an over time approach compared to our current policy of recognizing revenue at time of shipment.  Third, we have certain contracts in which revenue is recognized using percentage of completion over the expected term of the contract.  The new ASU will likely result in the reduction of the contract term used for percentage of completion as certain contracts include unexercised customer option years or include customer rights to terminate the contract without significant penalty.

Other New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases.  This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets, including those classified as operating leases under the current accounting guidance.  In addition, this ASU will require new qualitative and quantitative disclosures about the Company’s leasing activities.  This new standard will be effective for us beginning June 1, 2019 with early adoption permitted.  This ASU requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.  We are in the preliminary phases of assessing the effect of this ASU on our portfolio of leases. While this assessment continues, we have not yet selected a transition date nor have we determined the effect of this ASU on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation — Stock Compensation.  This ASU requires excess tax benefits or deficiencies for share-based payments to be recorded in the period shares vest as income tax expense or benefit, rather than within equity.  Cash flows related to excess tax benefits are now included in operating activities and are no longer classified as a financing activity. We adopted this ASU on June 1, 2017 and recognized excess tax benefits of $0.8 and $2.4 million as an income tax benefit during the three- and nine-month periods ended February 28, 2018, respectively.  We have also presented the excess tax benefits within operating activities in the condensed consolidated statement of cash flows for the nine-month period ended February 28, 2018.  As permitted, we adopted the statement of cash flow presentation guidance on a prospective basis with no adjustments to the previously reported amounts.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  This ASU requires restricted cash to be included within beginning and ending total cash amounts reported in the consolidated statements of cash flows as well as increased disclosure requirements.  As permitted, we have early adopted this ASU in fiscal 2018.  The ASU is required to be adopted on a retroactive basis; however, we did not have restricted cash in our prior periods reported.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  This ASU permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act (the “Tax Reform Act”).  This new standard will be effective for us beginning June 1, 2019 with early adoption permitted.  We are currently evaluating the impact of this new standard on our consolidated financial statements.