Note 4 - Recent Accounting Pronouncements

9 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

Note

4:

Recent Accounting Pronouncements

The Company adopted, prospectively, Accounting Standards Codification

842,

Leases ("ASC

842"

)

July 1, 2019.

As a result, the Company updated its significant accounting policies for leases below. Refer to Note

5

Commitments and Contingencies for additional information related to the Company's lease arrangements and the impact of the adoption of ASC

842

on the Company's Consolidated Financial Statements.

The Company has leased buildings, manufacturing equipment and autos that are classified as operating lease right-of use "ROU" assets and operating lease liabilities in the Company's Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding

12

months. Minimum lease payments include only the fixed lease component of the agreement.

The Company estimates its incremental borrowing rate for its leases using a portfolio approach based on the respective weighted average term of the agreements. The estimation considers the market rates of the Company's outstanding borrowings and rates of external outstanding borrowings including market comparisons. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of goods sold and sales, general and administrative expenses.

The Company adopted the standard beginning this fiscal year. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are

not

included in the ROU assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating lease ROU assets and operating lease liabilities are stated separately in the Consolidated Balance Sheet.

In preparation for adoption of the standard, the Company has implemented internal controls such as updated accounting policies and expanded data gathering procedures to comply with the additional disclosure requirements. The adoption had a material impact on the Company’s Consolidated Balance Sheets, but did

not

have a material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows (unaudited). The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

Adoption of this standard resulted in the recognition of additional ROU assets and lease liabilities for operating leases and had the following impact to the reported results as of

June 30, 2019

on our Consolidated Financial Statements (in thousands):

Consolidated Balance Sheet	As Reported June 30, 2019		New Lease Standard Adjustment		Adjusted July 1, 2019
Right-of-Use Asset		-	$	6,149	$	6,149
Current portion of operating lease obligations		-	$	1,798	$	1,798
Operating long-term lease obligations		-	$	4,351	$	4,351

The Company adopted ASU

No.

2017

-

07,

Compensation-Retirement Benefits (Topic

715

) in

FY19:

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost “NPBC”. This update requires that an employer disaggregate the service cost component from the other components of NPBC. In addition, only the service cost component will be eligible for capitalization. The Company amended the U.S. defined benefit pension plan “U.S. Plan” to freeze benefit accruals effective

December 31, 2016.

Consequently, the U.S. Plan is closed to new participants and current participants

no

longer earn additional benefits. The amendments in this update are required to be applied retrospectively for the presentation of the service cost component and the other components of NPBC in the Consolidated Statement of Operations and prospectively. The Consolidated Statement of Operations and related disclosure are recorded accordingly.

The retrospective reclassification to FY

2019

by quarter follows (in thousands):

	Increase (Decrease) to Net Income
	Q1 FY19			Q2 FY19			Q3 FY19			Q4 FY19			FY2019
Cost of goods sold	$	127		$	127		$	127		$	329		$	710
Selling, general and administrative		41			41			41			97			220
Other income (expense) net		(168	)		(168	)		(168	)		(426	)		(930	)
	$	-		$	-		$	-		$	-		$	-

In

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”. For deferred tax items recognized in Accumulated Other Comprehensive Income (AOCI), changes in tax rates can leave amounts “stranded” in AOCI. Under ASU

2018

-

02,

FASB has given companies an option to reclassify the stranded tax effects resulting from the tax law and tax rate changes under the Tax Cuts and Jobs Act of

2017

from AOCI to retained earnings. The Company declined the reclassification option upon adopting this standard

July 1, 2019.

The new standard did

not

have a material impact on the Company’s financial position and results of operations upon adoption.

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU

2018

-

19

in

November 2018.

The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are

not

measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets

not

excluded from the scope that have the contractual right to receive cash. ASU

2018

-

19

clarifies that receivables arising from operating leases are accounted for using lease guidance and

not

as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after

December 15, 2019,

and interim periods therein. Early adoption is permitted for annual periods beginning after

December 15, 2018,

and interim periods therein. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

"Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment." Under the new guidance, if a reporting unit's carrying value amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate goodwill impairment using Step

2,

which calculates an impairment charge by comparing the implied fair value of goodwill with it carrying amount. The standard does

not

change the guidance on completing Step

1

of the goodwill impairment test. The amendments in this ASU are effective for annual reporting periods and interim periods within those annual periods beginning after

December 15, 2019

and should be applied prospectively for annual and any interim goodwill impairment tests. Early adoption is permitted for entities for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company is currently evaluating the impact of the update on our consolidated financial statements.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

"Fair Value Measurement ('Topic

820'

): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The ASU modifies the disclosure requirements in Topic

820,

Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

3

fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after

December 15, 2019.

The Company is currently evaluating the effect, if any, that ASU

2018

-

13

will have on its consolidated financial statements.

In

August 2018,

the FASB issued ASU

No.

2018

-

14,

"Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic

715

-

20

): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU

2018

-

14

removes certain disclosures that are

not

considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after

December 15, 2020.

The amendments in ASU

2018

-

14

must be applied on a retrospective basis. The Company is currently assessing the effect, if any, that ASU

2018

-

14

will have on its consolidated financial statements.