(3) New Accounting Pronouncements

(a) Recently issued accounting standards not yet adopted

ASU No. 2016-02, “Leases”

In February 2016, the FASB issued Accounting Standard Update ASU No. 2016-02, “Leases” (Topic 842). Under the new guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all leases, other than those that meet the definition of a short-term lease. This update will establish a lease asset and lease liability by lessees for those leases classified as operating under current GAAP. Leases will be classified as either operating or finance under the new guidance. Operating leases will result in straight-line expense in the income statement, similar to current operating leases, and finance leases will result in more expense being recognized in the earlier years of the lease term, similar to current capital leases. For lessors, the update will more closely align lease accounting to comparable guidance in the new revenue standards described.

The new standard is effective for us beginning in the first quarter of the fiscal year ending June 30, 2020 and early application is permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We will make an accounting policy election to not recognize on our consolidated balance sheet right-of-use assets and lease liabilities arising from short-term leases.

In preparation for the adoption of this guidance, we have designed and operated internal controls over its implementation as well as established a system solution for lease administration as well as the preparation and disclosure of financial information surrounding our leasing arrangements. We have substantially completed the work related to our implementation project except for finalization of discount rates as of the adoption date, evaluation as to whether we are ‘reasonably certain’ to extend certain leases, and evaluation of several contracts to determine whether they contain an embedded lease.

We estimate that the adoption of the guidance will result in the recognition of additional right-of-use assets and lease liabilities for operating leases of approximately $60.0 million to $70.0 million as of July 1, 2019, excluding the impact of our evaluation of lease terms and several contracts that may contain an embedded lease. As we are yet to finalize our work in relation to discount rates, we have used a preliminary rate of 3.5% when calculating this range. We do not believe the guidance will have a material impact on our consolidated statements of income.

(b) Recently adopted accounting pronouncements

ASU No. 2014-09, “Revenue from Contracts with Customers”

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Since its initial release, the FASB has issued several amendments to the standard, which include clarification of accounting guidance related to identification of performance obligations, intellectual property licenses, and principal vs. agent considerations. ASU 2014-09 and all subsequent amendments (collectively, the “new revenue recognition standards”) replaced most existing revenue recognition guidance in U.S. GAAP during the current quarter when it became effective. The guidance also requires improved disclosures on the nature, amount, timing, and uncertainty of revenue that is recognized.

Effective July 1, 2018, we adopted the new revenue recognition standards and applied its provisions to all contracts using the modified retrospective method. Application of the new provisions did not have a material impact on our financial statements and no cumulative-effect adjustment was calculated or recognized. The comparative information has not been restated; however, if it were there would be no change in the accounting treatment. Refer to the “Revenue Recognition” section above for further details about our revenue recognition following adoption of the new revenue recognition standards.

ASU No. 2016-01, "Financial Instruments - Overall"

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall" (Topic 825-10). The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments, and require equity investments, other than equity-method investments, to be measured at fair value with changes in fair value recognized through net income. The amendments also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment for impairment quarterly at each reporting period. We adopted ASU 2016-01 during the quarter ended September 30, 2018 and elected to apply the practical expedient for measuring equity investments that do not have readily determinable fair market. Based on our elections, our strategic equity investments that do not have readily determinable fair values are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. The measurement alternative was applied prospectively and the adoption of ASU 2016-01 did not result in an adjustment to retained earnings.

ASU No. 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory”

In October 2016, the FASB issued Accounting Standard Update ASU No. 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory” (Topic 740). Under the new guidance, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 became effective during the first quarter of the year ended June 30, 2019 and was required to be adopted on a modified retrospective basis, with a cumulative-effect adjustment recorded directly to retained earnings for intra-entity transfers that occur before the adoption date. Accordingly, we recognized the following reclassifications upon adoption (in thousands):



Balance Sheet Caption	As reported balance June 30, 2018		Adoption of ASU 2016-16 Increase/(Decrease)		Revised balance July 1, 2018
Assets
Prepaid expenses and other current assets	$	124,634	$	(28,947)	$	95,687
Prepaid taxes and other non-current assets		273,710		(156,406)		117,304
Deferred income taxes		53,818		(3,445)		50,373
Equity
Retained Earnings		2,432,328		(188,798)		2,243,530