Recent Accounting Pronouncements |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 29, 2017 | |||||||||||||||||||||||||||||||||||||||||
| New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Recent Accounting Pronouncements | RECENT ACCOUNTING PRONOUNCEMENTS Accounting Standards Issued But Not Yet Effective In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). In addition, the FASB issued related revenue recognition guidance in five ASUs: principal versus agent considerations (ASU 2016-08), identifying performance obligations and licensing (ASU 2016-10), a revision of certain SEC staff observer comments (ASU 2016-11), implementation guidance (ASU 2016-12), and technical corrections and improvements (ASU 2016-20). ASU 2014-09 is a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP, provides enhancements to the quality and consistency of how revenue is reported, and improves comparability in financial statements presented under GAAP and International Financial Reporting Standards. The guidance in this standard is principles-based, and consequently, entities will be required to use more judgment and make more estimates than under prior guidance. The core principle of this standard is that entities should recognize revenue to depict the transfer of 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 and services. This standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017, which for us is our first quarter 2018. We will apply new revenue recognition guidance to new contracts and existing contracts with remaining performance obligations as of January 1, 2018 and recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Upon adopting the new standard, we will provide additional disclosures in the notes to the consolidated financial statements, specifically related to disaggregated revenue, contract balances and performance obligations. ASU 2014-09 allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to the most current period presented in the financial statements, with certain additional required footnote disclosures). We will adopt the standard using the “modified retrospective method”. In preparation for the adoption of the new standard, we have made progress against a detailed implementation plan we developed in the following areas:
Our revenue is derived from long-term contracts, with revenue recognized using the percentage-of-completion method for a large majority of our contracts and the completed contract method for the remainder. The completed contact method is no longer allowed under ASU 2014-09. We expect to recognize revenue on an “over time” basis for all contracts by using cost inputs to measure progress toward the completion of our performance obligations. We believe the most significant impact of the new guidance relates to our accounting for firm-fixed-price contracts, which accounted for 25% of our revenue for the nine months ended September 29, 2017. Our firm-fixed-price contracts will continue to recognize revenue and earnings over time because of the continuous transfer of services to the customer. However, for firm-fixed-price contracts, we will be precluded from recognizing adjustments in estimated costs at completion as costs incurred in excess of billings or billings in excess of cost on the balance sheet. Adjustments in contract estimates for firm-fixed-price contracts will result in more variability to revenue from period to period depending on when costs are incurred. Despite this variability, a firm-fixed-price contract’s cash flows and overall profitability at completion are the same. The total impact of an adjustment in estimated profit recorded to date on a contract will continue to be recognized in the period it is identified through cumulative catch-up adjustments. Anticipated losses on contracts will continue to be recognized in the quarter in which they are identified. In 2017, we are developing new internal controls in connection with our pending adoption of the new revenue recognition standard. These internal controls include development of new policies based on the five-step model provided in the new revenue standard; providing Company-wide training to affected employees, including accounting, finance, contracts, and program operations; ongoing contract review requirements; gathering of information provided for disclosures; and holding regular meetings with management and the Audit Committee to review implementation plan progress. Upon adoption, we expect to implement new internal controls related to our accounting policies and procedures. We will require new internal controls to address risks associated with applying the five-step model. Additionally, we will establish monitoring controls to identify new contractual arrangements, modifications to existing contractual arrangements, and changes in our business environment that could impact our current accounting assessment. We are in the process of redesigning impacted processes, policies and controls. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The objective of ASU 2016-02 is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires lessees to account for leases as finance leases or operating leases. Both finance and operating leases will result in the lessee recognizing a right-of-use asset and corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of use asset and, for operating leases, the lessee would recognize a straight-line lease expense. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. We have begun analyzing our operating lease agreements, and management anticipates our assets and liabilities will increase proportionally after the adoption of ASU 2016-02. As of September 29, 2017, there are approximately $5.5 million in future minimum rental payments for operating leases that are not currently on our balance sheet; therefore, this standard is not expected to have a material impact on our consolidated balance sheet and related disclosures. In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16). The objective of ASU 2016-16 is to require companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. Prior to the implementation of this standard, companies are required to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized (e.g., depreciated, amortized, or impaired). Companies will still be required to defer the income tax effects of intercompany sales and transfers of inventory in an exception to the income tax accounting guidance. The standard is effective in annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted as of the beginning of an annual period. We are evaluating the impact of adopting ASU 2016-16; however, the standard is not expected to have a material impact on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (ASU 2017-01). The objective of ASU 2017-01 is to add guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or of businesses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted for interim and annual periods in which the financial statements have not been issued or made available for issuance. We are evaluating the impact of adopting ASU 2017-01; however, the standard is not expected to have a material impact on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill by entities performing their annual goodwill impairment tests by comparing the fair value of a reporting unit, including income tax effects from any tax-deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds fair value. ASU 2017-04 is effective for fiscal years beginning after December 31, 2021, and interim periods within those fiscal years. Early adoption of ASU 2017-04 is permitted on goodwill impairment tests performed after January 1, 2017. ASU 2017-04 should be applied on a prospective basis. We are evaluating the impact of adopting ASU 2017-04; however, the standard is not expected to have a material impact on our consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The objective of ASU 2017-12 is to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities, and to reduce the complexity of and simplify the application of hedge accounting by preparers. The standard is effective in annual periods beginning after December 15, 2018, and interim periods within those periods. Early adoption is permitted as of the beginning of the annual period. We are evaluating the impact of adopting ASU 2017-12; however, the standard is not expected to have a material impact on our consolidated financial statements. Other new pronouncements issued but not effective until after September 29, 2017 are not expected to have a material impact on our financial position, results of operations or cash flows. Accounting Standards That Were Adopted In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The objective of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including recording all excess tax benefits and tax deficiencies through income tax on the statement of earnings and eliminating the requirement that excess tax benefits be realized before they can be recognized. ASU 2016-09 also simplifies several other aspects of the accounting for employee share-based payments, including forfeitures, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We adopted this standard in the first quarter of 2017. The adoption of ASU 2016-09 did not have a material impact on our financial statements but did impact the following:
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