Adoption of Updated Accounting Standards

We adopted the following Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) as of May 1, 2016:

•

ASU 2016-09: Improvements to Employee Share-Based Payment Accounting. This new guidance amends certain aspects of the accounting for stock-based compensation, including the income tax consequences. Under the new guidance, we recognize all tax benefits related to stock-based compensation as an income tax benefit in our statement of operations, and include all income tax cash flows within operating activities in our statement of cash flows. Under the previous accounting guidance, we recognized some of those tax benefits (excess tax benefits) as additional paid-in capital and classified that amount as a financing activity in our statement of cash flows. We adopted these provisions of the new guidance on a prospective basis.

Also, under the new guidance, we recognize the excess tax benefits during the period in which the related awards vest or are exercised. Under the previous accounting guidance, we recognized those benefits during the period in which they reduced taxes payable. We adopted this provision of the new guidance on a modified retrospective basis through a cumulative-effect adjustment that increased retained earnings as of May 1, 2016, by $10.

We adopted the following ASUs as of May 1, 2018:

•

ASU 2014-09: Revenue from Contracts with Customers. This update, codified along with various amendments as Accounting Standards Codification Topic 606 (ASC 606), replaces previous revenue recognition guidance. The core principle of ASC 606 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. ASC 606 also requires more financial statement disclosures than were required by previous revenue recognition standards.

We adopted ASC 606 using the modified retrospective method. As a result, we recorded an adjustment that decreased retained earnings as of May 1, 2018, by $25 (net of tax). The adjustment reflects the cumulative effect on that date of applying our updated revenue recognition policy, under which we recognize the cost of certain customer incentives earlier than we did before adopting ASC 606. Although this change in timing did not have a significant impact on a full-year basis, there was some change in the timing of recognition across periods. Additionally, some payments to customers that we classified as expenses before adopting the new standard are classified as reductions of net sales under our new policy.

The following table shows how the adoption of ASC 606 impacted our consolidated statement of operations for the year ended April 30, 2019:



	Year Ended April 30, 2019
	Under Prior Guidance			As Reported Under ASC 606			Effect of Adoption
Sales	$	4,299		$	4,276		$	(23	)
Excise taxes	952			952			—
Net sales	3,347			3,324			(23		)
Cost of sales	1,157			1,158			1
Gross profit	2,190			2,166			(24		)
Advertising expenses	410			396			(14		)
Selling, general, and administrative expenses	649			641			(8		)
Other expense (income), net	(15		)	(15		)	—
Operating income	1,146			1,144			(2		)
Non-operating postretirement expense	22			22			—
Interest income	(8		)	(8		)	—
Interest expense	88			88			—
Income before income taxes	1,044			1,042			(2		)
Income taxes	208			207			(1		)
Net income	$	836		$	835		$	(1	)
Earnings per share:
Basic	$	1.74		$	1.74		$	—
Diluted	$	1.73		$	1.73		$	—

The following table shows how the adoption of ASC 606 impacted our consolidated balance sheet as of April 30, 2019:



	As of April 30, 2019
	Under Prior Guidance		As Reported Under ASC 606		Effect of Adoption
Assets:
Other current assets	$	284	$	283	$	(1	)
Deferred tax assets	15		16		1
Total assets	5,139		5,139		—

Liabilities:
Accounts payable and accrued expenses	$	511	$	544	$	33
Accrued income taxes	8		9		1
Deferred tax liabilities	153		145		(8		)
Total liabilities	3,466		3,492		26

Stockholders’ Equity:
Retained earnings	$	2,264	$	2,238	$	(26	)
Total stockholders’ equity	1,673		1,647		(26		)

•

ASU 2016-15: Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific issues related to the classification of certain cash receipts and cash payments on the statement of cash flows. The impact of adopting the new guidance was limited to a change in our classification of cash payments for premiums on corporate-owned life insurance policies, which we previously reflected in operating activities. Under the new guidance, we classify those payments as investing activities. We retrospectively adjusted prior year cash flow statements to conform to the new classification. As a result, we reclassified payments (from operating activities to investing activities) of $17 and $21 for fiscal 2017 and 2018, respectively.

•

ASU 2016-16: Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. This revised guidance requires the recognition of the income tax consequences (expense or benefit) of an intercompany transfer of assets other than inventory when the transfer occurs. It maintains the existing requirement to defer the recognition of the income tax consequences of an intercompany transfer of inventory until the inventory is sold to an outside party. We applied the guidance on a modified retrospective basis through a cumulative-effect adjustment that increased retained earnings as of May 1, 2018, by $20. This includes $27 related to the intercompany transfer of assets described in Note 12. The $7 offset is related to deferred taxes established for other intercompany transfers of assets.

•

ASU 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This new guidance addresses the presentation of the net periodic cost (NPC) associated with pension and other postretirement benefit plans. The guidance requires the service cost component of the NPC to be reported in the statement of operations in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of the NPC are to be presented separately from the service cost and outside of income from operations. In addition, the guidance allows only the service cost component of NPC to be eligible for capitalization when applicable. We applied the guidance retrospectively for the presentation in the statement of operations and prospectively for the capitalization of service cost. The retrospective application increased previously-reported operating income for fiscal 2017 and fiscal 2018 by $21 and $9, respectively. As the retrospective application merely reclassified amounts from operating income to non-operating expense, there was no effect on previously-reported net income or earnings per share.

We will adopt the following ASUs as of May 1, 2019:

•

ASU 2016-02: Leases. This update, codified along with various amendments as Accounting Standards Codification Topic 842 (ASC 842), replaces existing lease accounting guidance. Under ASC 842, a lessee should recognize on its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. ASC 842 permits an entity to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12 months or less. It also requires additional quantitative and qualitative disclosures about leasing arrangements.

We will adopt ASC 842 as of May 1, 2019, using a modified retrospective transition approach for leases existing at that date. For the transition, we plan to elect to use the package of practical expedients to not reassess (a) whether existing contracts are or contain leases, (b) the classification of existing leases, and (c) initial direct costs for existing leases.

We are in the final stages of the project to implement the new standard, which has included collecting and evaluating data about our lease arrangements (including potential embedded leases), assessing policy elections, implementing a new lease accounting system, and identifying and making other changes to our processes and controls to meet the requirements of the new standard. Although subject to change as we complete the implementation of the new standard, we currently expect to record lease liabilities and right-of use assets of approximately $55 upon adoption. We do not currently expect adoption to have a material impact on our results of operations, stockholders’ equity, or cash flows.

•

ASU 2018-02: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This new guidance would allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S. government in December 2017. We currently plan to make the reclassification, which we estimate will increase retained earnings and decrease accumulated other comprehensive income as of May 1, 2019, by approximately $40.

There are no other new accounting standards or updates to be adopted that we currently believe might have a significant impact on our consolidated financial statements.