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NEW ACCOUNTING PRONOUNCEMENTS | 12 Months Ended
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Oct. 31, 2019
NEW ACCOUNTING PRONOUNCEMENTS |
NEW ACCOUNTING PRONOUNCEMENTS | 16. NEW ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements: Between May 2014 and December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2014–09, Revenue from Contracts with Customers (Topic 606), and various related updates, establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This standard provides a five–step analysis in determining when and how revenue is recognized. The new model requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and supersedes most of the prior revenue recognition guidance, including industry specific guidance. We had the option of applying this new standard retrospectively to each prior period presented (“full retrospective approach”) or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption (“modified retrospective approach”). Topic 606 was effective for us beginning November 1, 2018 and we adopted it on that date using the modified retrospective approach. Prior to the adoption of ASC 606, our revenues were already recognized in the same manner as that required by ASC 606. Therefore, the adoption of ASC 606 did not have an effect on our beginning retained earnings or our overall financial statements as of and for the twelve months ended October 31, 2019. In January 2017, FASB issued ASU No. 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test (i.e., the requirement for an entity to calculate the implied fair value of goodwill in measuring a goodwill impairment loss). ASU 2017-04 provides that a company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and should recognize an impairment charge if the carrying value exceeds the fair value of the reporting unit, but only to the extent of the goodwill amount allocated to that reporting unit. Companies still have the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for our fiscal year 2021, including interim periods within the fiscal year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. We early adopted this standard in the fourth quarter of fiscal 2019. This standard did not have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures. Between February 2016 and February 2019, FASB issued ASU No. 2016-02, Leases (Topic 842), and various related updates, which establish a comprehensive new lease accounting model. Topic 842 clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. Under Topic 842, the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. Topic 842 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective application. We adopted Topic 842 on November 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information will not be adjusted for the effects of adopting Topic 842. No cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date. We have substantially completed an assessment of the new standard’s impact and determined the new standards will not have a material impact on our Condensed Consolidated Statements of Income or Cash Flows; however, the estimated impact of adopting Topic 842 will result in the recognition of a right-of-use (“ROU”) asset and lease liability on the Condensed Consolidated Balance Sheets subsequent to October 31, 2019 in the range of approximately $12-14 million, based on the lease portfolio existing as of this date. While the ROU asset will be classified as a noncurrent asset, approximately one-third of the lease liability amount is expected to be classified as a current liability, with the remainder being classified as noncurrent. We are also in the process of updating our systems, policies, and internal controls over financial reporting related to the adoption of this standard. Upon adoption of Topic 842, we utilized the following elections and practical expedients:
| · |  | We have elected to combine non-lease components with lease components.
| · |  | If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a purchase option that is reasonably certain to be exercised, we have elected not to apply Topic 842 recognition requirements. Nonetheless, we intend to include leases of less than 12 months within the updated footnote disclosures, if material.
| · |  | We have elected not to use the portfolio method if we enter into a large number of leases in the same month with the same terms and conditions.
| · |  | As we have applied the new transition method allowed per ASU 2018-11, we have elected to not reassess arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the lease classification applied or to separate initial direct costs.
| · |  | We have elected not to use hindsight in determining the lease term for lease contracts that have historically been renewed or amended.
We have no significant lease agreements in place for which we are a lessor, and substantially all of our leases for which we are a lessee are classified as operating leases under the guidance in Topic 840 as of October 31, 2019. As such, due to the practical expedient election to not reassess lease classification, substantially all our leases will continue to be classified as operating leases under Topic 842. When available, we will utilize the rate implicit in the lease as the discount rate to determine the lease liability in accordance with Topic 842. However, if this rate is not available, we will use our incremental borrowing rate as the discount rate, which is the rate, at inception of the lease, we would incur to borrow over a similar term the funds needed to purchase the leased asset. Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office space, vehicles, material handling equipment utilized in our production and assembly facilities, laptops and other information technology equipment, as well as other miscellaneous leased equipment. Most of the leased production and assembly facilities have lease terms ranging from two to five years, although the terms and conditions of our leases can vary significantly from lease to lease. We have assessed the specific terms and conditions of each lease to determine the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments are required plus any renewal options that are both within our control to exercise and reasonably certain of being exercised upon lease commencement. In determining whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain. There are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases to which we are a party. In determining the lease liability, we utilize our incremental borrowing rate to discount the future lease payments over the lease term to present value. As of October 31, 2019, the weighted-average remaining term of our lease portfolio was approximately 3.1 years. New Accounting Pronouncements: In February 2018, FASB issued ASU No. 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 the Tax Reform 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 the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 will be effective for our fiscal year 2020, with the option to early adopt at any time prior to the effective date. 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 Tax Reform Act is recognized. We are currently assessing the impact this new accounting guidance will have on our consolidated financial statements and disclosures. In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which simplifies the application of hedge accounting and enables companies to better portray the economics of their risk management activities in their financial statements. ASU 2017-12 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective application. Early adoption is permitted. We do not anticipate that the adoption of this new accounting guidance will have a material impact on our consolidated financial statements and disclosures. There have been no other significant changes in the Company’s critical accounting policies and estimates during the fiscal year ended October 31, 2019.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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