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Note 1 - Summary of Accounting Policies | 12 Months Ended
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Jun. 30, 2018
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | 1. Summary of Accounting Policies Basis of Presentation and Consolidation Standex International Corporation (“Standex” or the “Company”) is a diversified manufacturing company with operations in the United States, Europe, Asia, Africa, and Latin America. The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. We evaluated subsequent events through the date and time our consolidated financial statements were issued. Accounting Estimates The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less. These investments are carried at cost, which approximates fair value. At June 30, 2018 and 2017, the Company’s cash was comprised solely of cash on deposit. Trading Securities The Company purchases investments for its non-qualified defined contribution plan for employees who exceed certain thresholds under our traditional 401 (k) plan. These investments are classified as trading and reported at fair value. The investments generally consist of mutual funds, are included in other non-current assets and amounted to $2.4 million at June 30, 2018 and $2.4 million at June 30, 2017. Gains and losses on these investments are recorded as other non-operating income (expense), net in the Consolidated Statements of Operations. Accounts Receivable Allowances The Company has provided an allowance for doubtful accounts reserve which represents the best estimate of probable loss inherent in the Company’s account receivables portfolio. This estimate is derived from the Company’s knowledge of its end markets, customer base, products, and historical experience. The changes in the allowances for uncollectible accounts during 2018, 2017, and 2016 were as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Balance at beginning of year |  | $ | 2,406 |  |  | $ | 2,119 |  |  | $ | 2,226 |
Acquisitions and other |  |  | (169 | ) |  |  | 52 |  |  |  | 3 |
Provision charged to expense |  |  | 870 |  |  |  | 416 |  |  |  | 8 |
Write-offs, net of recoveries |  |  | (137 | ) |  |  | (181 | ) |  |  | (118 | )
Balance at end of year |  | $ | 2,970 |  |  | $ | 2,406 |  |  | $ | 2,119 |
Inventories Inventories are stated at the lower of ( first -in, first -out) cost or market. Inventory quantities on hand are reviewed regularly, and provisions are made for obsolete, slow moving, and non-saleable inventory, based primarily on management’s forecast of customer demand for those products in inventory. Long-Lived Assets Long-lived assets that are used in operations, excluding goodwill and identifiable intangible assets, are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Recognition and measurement of a potential impairment loss is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is the amount by which the carrying amount of a long-lived asset (asset group) exceeds its estimated fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Property, Plant and Equipment Property, plant and equipment are reported at cost less accumulated depreciation. Depreciation is recorded on assets over their estimated useful lives, generally using the straight-line method. Lives for property, plant and equipment are as follows:
Buildings (years) |  |  | 40 | to | 50 |
Leasehold improvements |  |  | Lesser of useful life or term, unless renewals are deemed to be reasonably assured |
Machinery and equipment (years) |  |  | 8 | to | 15 |
Furniture and Fixtures (years) |  |  | 3 | to | 10 |
Computer hardware and software (years) |  |  | 3 | to | 7 |
Routine maintenance costs are expensed as incurred. Major improvements are capitalized. Major improvements to leased buildings are capitalized as leasehold improvements and depreciated over the lesser of the lease term or the life of the improvement. Amortization of computer hardware and software of $1.4 million, $0.6 million, and $0.6 million is included as a component of depreciation expense for the years ended June 30, 2018, 2017, and 2016, respectively. Goodwill and Identifiable Intangible Assets All business combinations are accounted for using the acquisition method. Goodwill and identifiable intangible assets with indefinite lives, are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Identifiable intangible assets that are not deemed to have indefinite lives are amortized over the following useful lives:
Customer relationships (years) |  |  | 5 | to | 16 |
Patents (years) |  |  |  | 12 |  |
Non-compete agreements (years) |  |  | 5 | to | 10 |
Other (years) |  |  |  | 10 |  |
Developed technology (years) |  |  | 10 | - | 20 |
Trade names |  |  | Indefinite life |
See discussion of the Company’s assessment of impairment in Note 5 – Goodwill and Note 6 – Intangible Assets. Fair Value of Financial Instruments The financial instruments, shown below, are presented at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. When observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows: Level 1 – Quoted prices in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan, investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates. For pension assets (see Note 16 – Employee Benefit Plans), securities are valued based on quoted market prices for securities held directly by the trust. Level 2 – Inputs, other than quoted prices in an active market, that are observable either directly or indirectly through correlation with market data. For foreign exchange forward contracts and interest rate swaps, the Company values the instruments based on the market price of instruments with similar terms, which are based on spot and forward rates as of the balance sheet dates. For pension assets held in commingled funds (see Note 16 – Employee Benefit Plans), the Company values investments based on the net asset value of the funds, which are derived from the quoted market prices of the underlying fund holdings. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities. Level 3 – Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability. We did not have any transfers of assets and liabilities among Levels of the fair value measurement hierarchy during the years ended June 30, 2018 or 2017. Cash and cash equivalents, accounts receivable, accounts payable and debt are carried at cost, which approximates fair value. The fair values of our financial instruments at June 30, 2018 and 2017 were (in thousands):
|  | 201 8 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities - deferred compensation plan |  | $ | 2,362 |  |  | $ | 2,362 |  |  | $ | - |  |  | $ | - |
Foreign exchange contracts |  |  | 1,357 |  |  |  | - |  |  |  | 1,357 |  |  |  | - |
Interest rate swaps |  |  | 1,325 |  |  |  | - |  |  |  | 1,325 |  |  |  | - |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | 4,204 |  |  | $ | - |  |  | $ | 4,204 |  |  | $ | - |
Interest rate swaps |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Contingent acquisition payments (a) |  |  | 7,535 |  |  |  | - |  |  |  | - |  |  |  | 7,535 |
|  | 201 7 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities - deferred compensation plan |  | $ | 2,397 |  |  | $ | 2,397 |  |  | $ | - |  |  | $ | - |
Foreign exchange contracts |  |  | 399 |  |  |  | - |  |  |  | 399 |  |  |  | - |
Interest rate swaps |  |  | 3,777 |  |  |  | - |  |  |  | 3,777 |  |  |  | - |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | 3,232 |  |  | $ | - |  |  | $ | 3,232 |  |  | $ | - |
Interest rate swaps |  |  | 3,958 |  |  |  | - |  |  |  | 3,958 |  |  |  | - |
Contingent acquisition payments (a) |  |  | 2,108 |  |  |  | - |  |  |  | - |  |  |  | 2,108 |
| (a) | The fair value of our contingent consideration arrangement is determined based on our evaluation as to the probability and amount of any deferred compensation that has been earned to date.
Our financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to our acquisition of Horizon Scientific or Piazza Rosa. We are contractually obligated to pay contingent consideration payments to the Sellers of these businesses based on the achievement of certain criteria. Contingent consideration payable to the Horizon seller is based on continued employment of the seller on the second and third anniversary of the closing date of the acquisition. Contingent acquisition payment liabilities are scheduled to be paid in periods through fiscal year 2020. As of June 30, 2018, we could be required to pay up to $8.0 million for contingent consideration arrangements if specific criteria are achieved. Contingent consideration payable to the Piazza Rosa sellers is based on the achievement of certain revenue targets of each of the first three years following the acquisition. Contingent acquisition payments are payable in euros and can be paid in periods through fiscal year 2021. As of June 30, 2018, we could be required to pay up to $1.7 million for contingent consideration arrangements if the revenue targets are met. We have determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments was based on several factors, the most significant of which are continued employment of the seller and the risk-adjusted discount rate for the fair value measurement. As of June 30, 2018, neither the amount recognized for the contingent consideration arrangement, nor the range of outcomes or the assumptions used to develop the estimate had changed. Concentration of Credit Risk The Company is subject to credit risk through trade receivables and short-term cash investments. Concentration of risk with respect to trade receivables is minimized because of the diversification of our operations, as well as our large customer base and our geographical dispersion. No individual customer accounts for more than 5% of revenues or accounts receivable in the periods presented. Short-term cash investments are placed with high credit-quality financial institutions. The Company monitors the amount of credit exposure in any one institution or type of investment instrument. Revenue Recognition The Company’s product sales are recorded when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete. Revenues under certain fixed price contracts are generally recorded when deliveries are made. Sales and estimated profits under certain long-term contracts are recognized under the percentage-of-completion methods of accounting, whereby profits are recorded pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known. Any excess of the billings over cost and estimated earnings on long-term contracts is included in deferred revenue. Cost of Goods Sold and Selling, General and Administrative Expenses The Company includes expenses in either cost of goods sold or selling, general and administrative categories based upon the natural classification of the expenses. Cost of goods sold includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process. These costs include inbound freight charges, purchasing and receiving costs, inspection costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process. Selling, general and administrative includes expenses associated with the distribution of our products, sales effort, administration costs and other costs that are not incurred to support the manufacturing process. The Company records distribution costs associated with the sale of inventory as a component of selling, general and administrative expenses in the Consolidated Statements of Operations. These expenses include warehousing costs, outbound freight charges and costs associated with distribution personnel. Our gross profit margins may not be comparable to those of other entities due to different classifications of costs and expenses. The Company purchased $2.4 million, $2.4 million, and $3.3 million from a 20% owned equity interest during the years ended June 30, 2018, 2017, and 2016 respectively. The inventory was purchased under customary terms and conditions and sold to customers in the ordinary course of business. Earnings from this investment are not material and are accounted for under the equity method. Our total advertising expenses, which are classified under selling, general, and administrative expenses are primarily related to trade shows, and totaled $4.3 million, $5.1 million, and $4.3 million for the years ended June 30, 2018, 2017, and 2016, respectively. Research and Development Research and development expenditures are expensed as incurred. Total research and development costs, which are classified under selling, general, and administrative expenses, were $6.1 million, $5.5 million, and $4.9 million for the years ended June 30, 2018, 2017, and 2016, respectively. Warranties The expected cost associated with warranty obligations on our products is recorded when the revenue is recognized. The Company’s estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Since warranty estimates are forecasts based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable. The changes in continuing operations warranty reserve, which are recorded as accrued liabilities, during 2018, 2017, and 2016 were as follows (in thousands):
|  | 201 8 |  |  | 201 7 |  |  | 201 6 |
Balance at beginning of year |  | $ | 9,243 |  |  | $ | 9,085 |  |  | $ | 7,436 |
Acquisitions and other charges |  |  | (138 | ) |  |  | 301 |  |  |  | (5 | )
Warranty expense |  |  | 9,223 |  |  |  | 9,203 |  |  |  | 13,503 |
Warranty claims |  |  | (8,972 | ) |  |  | (9,346 | ) |  |  | (11,849 | )
Balance at end of year |  | $ | 9,356 |  |  | $ | 9,243 |  |  | $ | 9,085 |
The decrease in warranty expense during 2017 compared to 2016 is primarily due to the conclusion of the warranty period for potential claims arising from production and manufacturing issues experienced in the Cooking Solutions business when the Company transitioned from the Cheyenne plant to Nogales in fiscal year 2015. Additional warranty expense changes were due to the decline in sales volume for warrantable products which reduced the potential for future claims. Stock-Based Compensation Plans Restricted stock awards generally vest over a three -year period. Compensation expense associated with these awards is recorded based on their grant-date fair values and is generally recognized on a straight-line basis over the vesting period except for awards with performance conditions, which are recognized on a graded vesting schedule. Compensation cost for an award with a performance condition is based on the probable outcome of that performance condition. The stated vesting period is considered non-substantive for retirement eligible participants. Accordingly, the Company recognizes any remaining unrecognized compensation expense upon participant reaching retirement eligibility. Foreign Currency Translation The functional currency of our non-U.S. operations is generally the local currency. Assets and liabilities of non-U.S. operations are translated into U.S. Dollars on a monthly basis using period-end exchange rates. Revenues and expenses of these operations are translated using average exchange rates. The resulting translation adjustment is reported as a component of comprehensive income (loss) in the consolidated statements of stockholders’ equity and comprehensive income. Gains and losses from foreign currency transactions are included in results of operations and were not material for any period presented. Derivative Instruments and Hedging Activities The Company recognizes all derivatives on its balance sheet at fair value. Forward foreign currency exchange contracts are periodically used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as foreign purchases of materials and loan payments from subsidiaries. The Company enters into such contracts for hedging purposes only. The Company has designated certain of these currency contracts as hedges, and changes in the fair value of these contracts are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with these contracts will be reported in net income. The Company also uses interest rate swaps to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company values the swaps based on contract prices in the derivatives market for similar instruments. The Company has designated its interest rate swap agreements, including those that are forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense. The Company does not hold or issue derivative instruments for trading purposes. Income Taxes The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2018 was $40.6 million, or an effective rate of 52.6%, compared to $15.4 million, or an effective rate of 24.8% for the year ended June 30, 2017, and $16.3 million, or an effective rate of 23.8% for the year ended June 30, 2016. Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, the amount of the Company's income or loss, the mix of income earned in the US versus outside the US, the effective tax rate in each of the countries in which we earn income, and any one -time tax issues which occur during the period. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2018 was impacted by the following items: (i) a tax provision related to the impact of the Sec. 965 toll tax of $11.7 million, (ii) a tax provision related to a revaluation of deferred taxes due to the federal rate reduction of $1.3 million, and (iii) a tax provision related to expected foreign withholding taxes on cash repatriation of $7.8 million. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2017 was impacted by the following items: (i) a provision of $0.4 million related to non-deductible transaction costs, (ii) a benefit of $0.6 million related to the R&D tax credit, and (iii) a benefit of $5.3 million due to the mix of income earned in jurisdictions with beneficial tax rates. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2016 was impacted by the following items: (i) a net benefit of $0.9 million related to a bargain-sale of idle property to a charitable organization, and (ii) a benefit of $0.7 million related to the R&D tax credit, and (iii) a benefit of $4.9 million due to the mix of income earned in jurisdictions with beneficial tax rates. Earnings Per Share
(share amounts in thousands) |  | 201 8 |  |  | 201 7 |  |  | 201 6 |
Basic – Average Shares Outstanding |  |  | 12,698 |  |  |  | 12,666 |  |  |  | 12,682 |
Effect of Dilutive Securities – Stock Options and |  |  |  |  |  |  |  |  |
Restricted Stock Awards |  |  | 90 |  |  |  | 102 |  |  |  | 102 |
Diluted – Average Shares Outstanding |  |  | 12,788 |  |  |  | 12,768 |  |  |  | 12,784 |
Both basic and dilutive income is the same for computing earnings per share. There were no outstanding instruments that had an anti-dilutive effect at June 30, 2018, 2017 and 2016. Recently Issued Accounting Pronouncements In May 2014, the Financial Accounts Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014 - 09, “Revenue from Contracts with Customers (Topic 606 ),” which amends most of the existing revenue recognition guidance, including industry-specific guidance. ASU 2014 - 09 establishes a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers. Under ASU No. 2014 - 09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In early 2016, the FASB issued additional updates: ASU No. 2016 - 10, 2016 - 11 and 2016 - 12. These updates provide further guidance and clarification on specific items within the previously issued update. The Company will adopt Topic 606 under the modified retrospective method and will only apply this method to contracts that are not completed as of the date of adoption. Application of this method will result in a cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at the date of initial application for any open contracts as of the adoption date. The Company established a global steering committee with a project plan to analyze the impact of this standard. The assessment phase of the project plan, which included identifying the various revenue streams, initiating contract reviews and reviewing current accounting policies and practices to identify potential differences that would result from the application of the standard is complete. This assessment included ( 1 ) utilizing questionnaires to assist with the identification of revenue streams, ( 2 ) performing sample contract analyses for each revenue stream identified, ( 3 ) assessing the noted differences in recognition and measurement that may result from adopting this new standard, ( 4 ) performing detailed analyses of contracts with larger customers, and ( 5 ) developing plans to test transactions for consistency with contract provisions that affect revenue recognition. As part of the analysis phase, the committee analyzed the impact of the standard on its contract portfolio by reviewing a sample of its contracts to identify potential differences that would result from applying the requirements of the new standard. The committee also analyzed the impact of requirements for identifying contracts, performance obligations, and variable consideration. Based on procedures performed, the committee has identified two areas that will be impacted by application of the new revenue standard. In the Food Service Equipment segment, the Company bases volume-related rebate accruals on the achievement of certain pre-defined tiers. The new guidance requires the Company to calculate the rebate accrual on anticipated sales for the rebate period, rather than measurement of actual achievement of specific tiers. The Company expects to record a one -time catch up adjustment for this change, upon adoption of the new standard during the quarter ending September 30, 2018, of $1.5 million. In Engineering Technologies, the committee analyzed certain long-term contracts, currently recognizing revenue utilizing the point-in-time method, to determine if any of the three criteria in ASC 606 - 10 - 25 - 27 are being met which would require revenue to be recognized over time under the new standard. It was determined that $0.7 million in net sales will be moved from point in time to overtime. The net change for Engineering Technologies will be approximately $0.1 million after cost of sales of $0.6 million. The net impact will be reflected as a reduction to retained earnings in our quarterly report for the quarter ending September 30, 2018. The Company is also evaluating the disclosure requirements under the new standard that are effective in the first quarter of fiscal year 2019. The Company will continue to evaluate these disclosure requirements and incorporate the collection of relevant data into its reporting process in the first quarter of fiscal year 2019. During the first quarter of fiscal year 2019, the Company will continue to analyze the adoption impact and disclose the final impact in our September 30 2018 10Q. In November 2015, the FASB issued ASC Update 2015 - 17, Income Taxes (Topic 740 ): Balance Sheet Classification of Deferred Taxes , as part of its simplification initiatives. This update requires deferred tax liabilities and assets to be classified as non-current on the consolidated condensed balance sheet for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. An entity can elect adoption prospectively or retrospectively to all periods presented. We have adopted ASU 2015 - 17 prospectively. As a result, we have presented all deferred tax assets and liabilities as noncurrent on our consolidated balance sheet as of June 30, 2018, but have not reclassified current deferred assets and liabilities on our consolidated balance sheet as of June 30, 2017. There was no impact on our results of operations as a result of the adoption of ASU 2015 - 17. In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842 ) . ASU 2016 - 02 increases transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. ASU 2016 - 02 is effective for fiscal years beginning after December 15, 2018. While we are continuing to assess the effect of the adoption, we currently believe the most significant potential changes relate to (i) recognition of right-of-use assets and lease liabilities on our balance sheet for equipment and real estate operating leases, and (ii) the derecognition of existing assets and liabilities for certain sale-leaseback transactions that currently do not qualify for sale accounting. The Company anticipates the adoption will have a material impact on the Company’s consolidated financial statements due to the materiality of the underlying leases subject to the new guidance, however are unable to quantify that effect until our analysis is complete. In January 2017, the FASB issued ASU 2017 - 04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017 - 04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment. It further clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017 - 04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the potential impact of the adoption of ASU 2017 - 04 on our consolidated financial statements. In March 2017, the FASB issued ASU 2017 - 07, Compensation-Retirement Benefits (Topic 715 ): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are to be stated separately from service cost and outside of operating income. This guidance is effective for fiscal years beginning after December 15, 2017 ( fiscal 2019 for the Company) and interim periods within those annual periods. The amendment is to be applied retrospectively. The provisions of the new standard will impact the classification of pension expense in the Statement of Operations and will impact both current and historical operating income and Other Expense – Non Operating beginning in the first quarter of fiscal year 2019. In August 2017, the FASB issued ASU 2017 - 12, Derivatives and Hedging (Topic 815 ); Targeting Improvements to Accounting for Hedging Activities , which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance. The new guidance requires additional disclosures including cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. This guidance is effective for fiscal years beginning after December 15, 2018 ( fiscal 2020 for the Company), and interim periods within those fiscal years. The amendment is to be applied prospectively. The Company is in the preliminary stages of assessing the potential impact of the adoption of ASU 2017 - 12 on our consolidated financial statements. 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 , which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (the "Act") that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018 - 02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. We elected to early adopt this ASU during the fiscal third quarter of 2018. The amount of the reclassification was $17.2 million.

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