ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements Adopted

The Company’s significant accounting policies are detailed in “Note

Nature of Business and Significant Accounting Policies” of the Company’s Annual Report on Form

-K for the year ended

August 31, 2018.

May 2014,

the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (ASC) Section

606,

Revenue from Contracts with Customers

(ASC

606

), which establishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized 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 or services.

September 1, 2018,

the Company adopted ASC

606

for all customer contracts using the modified retrospective method. To determine revenue recognition for arrangements within the scope of ASC

606,

the Company performs the following

five

steps: (

) identify the contracts with a customer; (

) identify the performance obligations in the contract; (

) determine the transaction price; (

) allocate the transaction price to the performance obligations in the contract; and (

) recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the

five

-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to, or services it performs for, the customer.

The adoption of ASC

606

neither impacted the previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. Therefore, the adoption of the standard did

not

impact the Company’s revenue recognition process. Generally, the Company’s performance obligations are satisfied when the customers take possession of the products, which normally occurs at the shipping point or destination depending on the terms of the contracts. The Company’s services are generally sold based upon quotes or contracts with customers that include a fixed or determinable price, and sales arrangements do

not

contain any significant financing component for its customers. The Company does

not

recognize revenue related to product warranties, nor does the Company incur significant contract costs. Customer arrangements do

not

generate contract assets or liabilities.

Changes to the Company’s significant accounting policies as a result of adopting ASC

606

are discussed below:

Revenue Recognition

- Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to customers, and significant financing components. While most of the Company’s revenue is contracted with customers through

one

-time purchase orders and short-term contracts, the Company does have long-term arrangements with certain customers. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer.

Individually promised goods and services in a contract are considered a distinct performance obligation and accounted for separately if the customer can benefit from the individual good or service on its own or with other resources that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement. When an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations in proportion to their estimated standalone selling price. Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs are met. Costs of revenues consist primarily of direct labor, manufacturing overhead, materials, and components. The Company does

not

incur significant upfront costs to obtain a contract. If costs to obtain a contract were to become material, the costs would be recorded as an asset and amortized to expense in a manner consistent with the related recognition of revenue.

The Company excludes government assessed and imposed taxes on revenue generating transactions that are invoiced to customers from revenue. The Company includes freight billed to customers in revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

The timing of revenue recognition, billings, and cash collections results in accounts receivable on the balance sheet.

Performance Obligations

- A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation in proportion to its standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s various performance obligations and the timing or method of revenue recognition are discussed below.

The Company sells its products to both distributors and end-users. Each unit of product delivered under a customer order represents a distinct and separate performance obligation, as the customer can benefit from each unit on its own or with other resources that are readily available to the customer, and each unit of product is separately identifiable from other products in the arrangement.

The transaction price for the Company’s products is the invoiced amount. The Company does

not

have variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives, or other items impacting transaction price. The purchase order pricing in arrangements with customers is deemed to approximate standalone selling price; therefore, the Company does

not

need to allocate proceeds on a relative standalone selling price allocation between performance obligations. The Company applies the practical expedient in paragraph

606

and does

not

disclose information about remaining performance obligations that have original expected durations of

one

year or less. There are

material obligations that extend beyond

one

year.

Revenue is recognized when transfer of control occurs as defined by the terms in the customer agreement. The Company immediately recognizes incidental items that are immaterial in the context of the contract. The Company has applied the practical expedient in paragraph

606

16A

and does

not

assess if immaterial items are promised goods or services. The Company has also applied the practical expedient in paragraph

606

regarding the adjustment of the promised amount of consideration for the effects of a significant financing component when the customer pays for that good or service within

one

year or less, as the Company does

not

have any significant financing components in its customer arrangements since payment is received at or shortly after the point of sale, generally

thirty

ninety

days.

The Company estimates returns based on an analysis of historical experience if the right to return products is granted to its customers. The Company does

not

record a return asset, as non-conforming products are generally

not

returned. The Company’s return policy does

not

vary by geography. The customer has

rotation or price protection rights, and the Company is

not

under a warranty obligation.

Trade Receivables

- Trade receivables include amounts invoiced and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company records an allowance for doubtful accounts to provide for the estimated amount of receivables that will

not

be collected. The allowance is based on a review of all outstanding amounts on an on-going basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considers a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible and have been historically insignificant. Recoveries of trade receivables previously written off are recorded when received. Accounts are considered past due if payment is

not

received according to agreed-upon terms.

Sales Commissions

- Sales commissions paid to sales representatives are eligible for capitalization, as they are incremental costs that would

not

have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company has elected to apply the practical expedient provided by ASC

340

and recognize the incremental costs of obtaining contracts as an expense when incurred, as the amortization period of the assets that would have otherwise been recognized is

one

year or less. The Company records these costs as a selling expense.

Product Warranty

- The Company offers warranties on various products and services. These warranties are assurance type warranties that are

not

sold on a standalone basis; therefore, they are

not

considered distinct performance obligations. The Company estimates the costs that

may

be incurred under its warranties and records a liability in the amount of such costs at the time the revenue is recognized for the product sale.

International Revenue

- The Company markets its products to numerous countries in North America, Europe, Latin America, Asia, and other parts of the world. See Note

11,

Segment and Geographical Information, for information regarding revenue disaggregation by geography.

Recently Issued Accounting Pronouncements

During

February 2016,

the FASB issued Accounting Standards Update (ASU)

No.

2016

02,

Leases

. ASU

No.

2016

was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of

months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU

No.

2016

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The guidance will be effective for the Company’s

first

quarter of fiscal year

2020.

The Company is currently assessing the effect that ASU

No.

2016

will have on its consolidated financial statements.

February 2018,

the 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 Cuts and Jobs Act (Tax Reform Act) that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU

No.

2018

02,

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

No.

2018

will be effective for the Company’s fiscal year

2020,

with the option for early adoption 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. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements.