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. As a result of adoption, the Company reclassified $3.7 million of proceeds received from the settlement of corporate owned life insurance (COLI) policies from operating activities to investing activities on the Consolidated Statement of Cash Flows for the six months ended December 31, 2017. During the six months ended December 31, 2018, $1.9 million of COLI proceeds are presented as investing activities.

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 superseded nearly all existing revenue recognition guidance under 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 were required under previous GAAP. In addition, ASU 2014-09 added ASC 340-40 to codify guidance on other assets and deferred costs for contracts with customers.

Effective July 1, 2018, we adopted 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 now 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 using a cost-to-cost input method to measure our progress towards the complete satisfaction of the performance obligation. The cumulative effect of these changes in the pattern of revenue recognition resulted in an increase to accounts receivable, net with an offset to retained earnings.

In addition, ASC 606 changed the timing of revenue recognition for license renewal performance obligations. Under prior GAAP, license renewals were generally recognized in the period the renewal contract was executed. However, upon adoption of ASC 606, the consideration received for a license renewal may not be recognized until the start of the term of the renewal. The cumulative effect of this change resulted in an increase to contract liabilities with an offset to retained earnings.

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. The cumulative effect of this change resulted in an increase to contract assets with an offset to retained earnings. These capitalized costs are 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 and six months ended December 31, 2018 (in thousands):

	Three Months Ended							Six Months Ended
	December 31, 2018							December 31, 2018
	As Adjusted Under ASC 605		Effect of ASC 606			As Reported Under ASC 606		As Adjusted Under ASC 605		Effect of ASC 606			As Reported Under ASC 606
Revenue	$	1,177,635	$	4,006		$	1,181,641	$	2,336,337	$	11,168		$	2,347,505
Costs of revenue:
Direct costs		790,849		—			790,849		1,573,609		—			1,573,609
Indirect costs and selling expenses		270,997		(1,320	)		269,677		535,697		(1,263	)		534,434
Depreciation and amortization		18,852		—			18,852		37,599		—			37,599
Total costs of revenue		1,080,698		(1,320	)		1,079,378		2,146,905		(1,263	)		2,145,642
Income from operations		96,937		5,326			102,263		189,432		12,431			201,863
Interest expense and other, net		9,421		—			9,421		18,307		—			18,307
Income before taxes		87,516		5,326			92,842		171,125		12,431			183,556
Income tax expense		22,858		1,388			24,246		32,945		3,182			36,127
Net income	$	64,658	$	3,938		$	68,596	$	138,180	$	9,249		$	147,429
Basic earnings per share	$	2.60	$	0.16		$	2.76	$	5.57	$	0.37		$	5.95
Diluted earnings per share	$	2.55	$	0.16		$	2.71	$	5.44	$	0.36		$	5.81

For the three and six months ended December 31, 2018, the effect of ASC 606 was primarily related to the timing of award and incentive fee revenue recognition.

The table below presents the impact of adoption of ASC 606 on our consolidated balance sheet as of December 31, 2018 (in thousands):

	As Adjusted Under ASC 605		Effect of ASC 606		As Reported Under ASC 606
Assets:
Accounts receivable, net	$	987,494	$	29,474	$	1,016,968
Prepaid expenses and other current assets		67,077		2,640		69,717
Other long-term assets		34,109		4,888		38,997
Liabilities and Shareholders' Equity:
Other accrued expenses and current liabilities		156,538		3,823		160,361
Deferred income taxes		209,291		6,160		215,451
Other long-term liabilities		84,526		—		84,526
Retained earnings		2,264,970		27,019		2,291,989