NOTE B – Revenue Recognition

Through the fiscal year ended May 31, 2018, in accordance with the Company’s historical accounting policies for revenue recognition, the Company recognized revenue upon transfer of title and risk of loss, or in the case of toll processing revenue, upon delivery of the goods, provided persuasive evidence of an arrangement existed, pricing was fixed or determinable and collectability was reasonably assured. We provided, through charges to net sales, for returns and allowances based on experience and current customer activities. We also provided, through charges to net sales, for customer rebates and sales discounts based on specific agreements and recent and anticipated levels of customer activity.

On June 1, 2018, the Company adopted new accounting guidance that replaces most existing revenue recognition guidance under U.S. GAAP, Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”). The new guidance was adopted using the modified retrospective approach as applied to customer contracts that were not complete at the date of adoption, with the cumulative effect recognized in retained earnings. Comparative financial information for reporting periods beginning prior to June 1, 2018, has not been restated and continues to be reported under the previous accounting guidance. The cumulative effect adjustment resulted from a change in the pattern of recognition for the Company’s toll processing and oil & gas equipment revenue streams, which previously were accounted for as point in time and now will be accounted for over time.

The following table outlines the cumulative effect of adopting the new revenue guidance:

(in thousands)	May 31, 2018 (As Reported)		Cumulative Effect of Topic 606 Adoption			June 1, 2018 (As Adjusted)
Consolidated Balance Sheet caption
Receivables	$	572,689	$	4,706		$	577,395
Total inventories		454,027		(3,452	)		450,575
Prepaid expenses and other current assets		60,134		944			61,078
Deferred income taxes, net		60,188		454			60,642
Retained earnings		637,757		1,174			638,931
Noncontrolling interests		117,606		570			118,176

Under the new guidance, the Company recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, including any variable consideration. Under the new revenue guidance, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when a performance obligation is satisfied.

Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both net sales and cost of goods sold at the time control is transferred to the customer. Due to the short term nature of our contracts with customers, we have elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less. When the Company satisfies (or partially satisfies) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional and a contract asset when the right to consideration is conditional. Unbilled receivables and contract assets are included in receivables and prepaid and other current assets, respectively, on the consolidated balance sheets. Additionally, we do not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. Payments from customers are generally due within 30 to 60 days of invoicing, which generally occurs upon shipment or delivery of the goods.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

The Company includes a warranty in connection with certain contracts with customers, which are not considered to be separate performance obligations. The Company provides its customers with a manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs.

With the exception of the toll processing and oil & gas equipment revenue streams, the Company recognizes revenue at the point in time the performance obligation is satisfied and control of the product is transferred to the customer upon shipment or delivery. Generally, the Company receives and acknowledges purchase orders from its customers, which define the quantity, pricing, payment and other applicable terms and conditions. In some cases, the Company receives a blanket purchase order from its customers, which includes pricing, payment and other terms and conditions, with quantities defined at the time each customer subsequently issues periodic releases against the blanket purchase order.

For the toll processing and oil & gas equipment revenue streams, the Company recognizes revenue over time. Revenue is primarily measured using the cost-to-cost method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Revenues are recorded proportionally as costs are incurred. Under Topic 606, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Certain contracts contain variable consideration, which is not constrained, and primarily include estimated sales returns, customer rebates, and sales discounts which are recorded on an expected value basis. These estimates are based on historical returns, analysis of credit memo data and other known factors. The Company accounts for rebates by recording reductions to revenue for rebates in the same period the related revenue is recorded. The amount of these reductions is based upon the terms agreed to with the customer. The Company does not exercise significant judgments in determining the timing of satisfaction of performance obligations or the transaction price.

The following table summarizes net sales disaggregated by product class and timing of revenue recognition for the period presented:

(in thousands)	Reportable Segments
Three months ended August 31, 2018	Steel Processing		Pressure Cylinders		Engineered Cabs		Other		Total
Product class:
Steel Processing
Direct	$	626,862	$	-	$	-	$	-	$	626,862
Toll		33,625		-		-		-		33,625
Pressure Cylinders
Industrial products		-		152,847		-		-		152,847
Consumer products		-		116,823		-		-		116,823
Oil & gas equipment		-		30,683		-		-		30,683
Engineered Cabs		-		-		27,252		-		27,252
Other		-		-		-		15		15
Total	$	660,487	$	300,353	$	27,252	$	15	$	988,107

Timing of revenue recognition:
Goods transferred at a point in time	$	626,862	$	289,034	$	27,252	$	15	$	943,163
Goods and services transferred over time		33,625		11,319		-		-		44,944
Total	$	660,487	$	300,353	$	27,252	$	15	$	988,107

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements as of and for the period ended August 31, 2018 as if the Company continued to follow its accounting policies under the previous revenue recognition guidance.

	August 31, 2018
(in thousands)	As Currently Reported		Topic 606 Adjustments			Balances Without Adoption of Topic 606
Consolidated Balance Sheet Assets
Receivables	$	564,612	$	(4,690	)	$	559,922
Total inventories		494,116		4,056			498,172
Prepaid expenses and other current assets		60,846		(1,823	)		59,023
Liabilities and Equity
Deferred income taxes, net		79,116		(450	)		78,666
Shareholders' equity - controlling interest		919,519		(1,413	)		918,106
Noncontrolling interests		117,855		(594	)		117,261

	Three months ended August 31, 2018
(in thousands)	As Currently Reported		Topic 606 Adjustments			Balances Without Adoption of Topic 606
Consolidated Statement of Earnings
Net sales	$	988,107	$	(863	)	$	987,244
Cost of goods sold		845,110		604			845,714
Income tax expense		14,498		(4	)		14,494
Net earnings		56,958		(263	)		56,695
Net earnings attributable to noncontrolling interests		2,016		(24	)		1,992
Net earnings attributable to controlling interest		54,942		(239	)		54,703