NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation and Description of
Business
Our consolidated financial statements include the accounts of John
B. Sanfilippo & Son, Inc., and our wholly-owned
subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last
Thursday of June each year, and typically consists
of fifty-two weeks
(four thirteen week quarters). However, the fiscal year ended
June 30, 2016 consisted of fifty-three weeks with our fourth
quarter containing fourteen weeks. The accompanying consolidated
financial statements and related footnotes are presented in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
We are one of the leading processors and distributors of peanuts,
pecans, cashews, walnuts, almonds and other nuts in the United
States. These nuts are sold under a variety of private brands and
under the Fisher, Orchard Valley
Harvest and Sunshine
Country brand names. We also market and
distribute, and in most cases, manufacture or process, a diverse
product line of food and snack products, including peanut butter,
almond butter, cashew butter, candy and confections, snacks and
trail mixes, snack bites, sunflower kernels, dried fruit, corn
snacks, sesame sticks and other sesame snack products under private
brands and brand names. Our products are sold through the major
distribution channels to significant buyers of nuts, including food
retailers, commercial ingredient users, and contract packaging
customers.
Management Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates include reserves for
customer deductions, the quantity of bulk inventories, the
evaluation of recoverability of long-lived assets, the assumptions
used in estimating the retirement plan liability and pension
expense, and the realizability of deferred tax assets. Actual
results could differ from those estimates.
Accounts Receivable
Accounts receivable are stated at the amounts charged to customers,
less allowances for doubtful accounts, and reserves for estimated
cash discounts and customer deductions. The allowance for doubtful
accounts is calculated by specifically identifying customers that
are credit risks and estimating the extent that
other non-specifically identified
customers will become credit risks. Account balances are charged
off against the allowance when we conclude that it is probable the
receivable will not be recovered. The reserve for estimated cash
discounts is based on historical experience. The reserve for
customer deductions represents known customer short payments and an
estimate of future credit memos that will be issued to customers
related to rebates and allowances for marketing and promotions
based on agreed upon programs and historical experience.
Inventories
Inventories, which consist principally of inshell bulk-stored nuts,
shelled nuts, dried fruit and processed and packaged nut products,
are stated at the lower of cost (first-in, first-out) or
market which approximates actual cost. Inventory costs are reviewed
at least quarterly. Fluctuations in the market price of pecans,
peanuts, walnuts, almonds, cashews and other nuts may affect the
value of inventory, gross profit and gross profit margin. When
expected market sales prices move below costs, we record
adjustments to write down the carrying values of inventories to the
lower of cost (first-in, first-out) or
market. The results of our shelling process can also result in
changes to inventory costs, such as adjustments made pursuant to
actual versus expected crop yields. We maintain significant
inventories of bulk-stored inshell pecans, peanuts and walnuts.
Quantities of inshell bulk-stored nuts are determined based on our
inventory systems and are subject to quarterly physical
verification techniques including observation, weighing and other
methods. The quantities of each crop year bulk-stored nut
inventories are generally shelled out over a ten to fifteen-month
period, at which time revisions to any estimates are also
recorded.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major
improvements that extend the useful life, add capacity or add
functionality are capitalized and charged to expense through
depreciation. Repairs and maintenance costs are charged to expense
as incurred. The cost and accumulated depreciation of assets sold
or retired are removed from the respective accounts, and any gain
or loss is recognized currently in operating income.
Depreciation expense for the last three fiscal years is as
follows:
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|
Year Ended
June 29,
2017 |
|
|
Year Ended
June 30,
2016 |
|
|
Year Ended
June 25,
2015 |
|
Depreciation expense
|
|
$ |
14,190 |
|
|
$ |
14,875 |
|
|
$ |
14,117 |
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|
Cost is depreciated using the straight-line method over the
following estimated useful lives:
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Classification
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|
Estimated Useful Lives
|
Buildings
|
|
10 to 40 years
|
Machinery and equipment
|
|
5 to 10 years
|
Furniture and leasehold improvements
|
|
5 to 10 years
|
Vehicles
|
|
3 to 5 years
|
Computers and software
|
|
3 to 5 years
|
No interest costs were capitalized for the last three fiscal years
due to the lack of any significant project requiring such
capitalization.
Impairment of Long-Lived Assets
We review held and used long-lived assets, including our rental
investment property and amortizable identifiable intangible assets,
to assess recoverability from projected undiscounted cash flows
whenever events or changes in facts and circumstances indicate that
the carrying value of the assets may not be recoverable. When such
events occur, we compare the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset or asset group to the carrying amount of the long-lived asset
or asset group. The cash flows are based on our best estimate of
future cash flows derived from the most recent business
projections. If this comparison indicates there is an impairment,
the carrying value of the asset is reduced to its estimated fair
value.
We did not record any impairment of long-lived assets for the last
three fiscal years.
Facility Consolidation Project/Real Estate Transactions
In April 2005, we acquired property to be used for the Elgin Site.
Two buildings are located on the Elgin Site, one of which is an
office building. Approximately 75% of the office building has
been built-out and 70% is
currently vacant. The other building, a warehouse, was expanded and
modified for use as our principal processing facility and
headquarters. The allocation of the purchase price to the two
buildings was determined through a third-party appraisal. The value
assigned to the office building is included in rental investment
property on the balance sheet. The value assigned to the warehouse
building is included in “Property, plant and
equipment”.
The net rental expense from the office building is included in the
caption “Rental and miscellaneous expense, net”. Gross
rental income and rental (expense), net for the last three fiscal
years are as follows:
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Year ended
June 29,
2017 |
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|
Year ended
June 30,
2016 |
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|
Year ended
June 25,
2015 |
|
Gross rental income
|
|
$ |
2,003 |
|
|
$ |
1,898 |
|
|
$ |
1,792 |
|
Rental (expense), net
|
|
|
(1,311 |
) |
|
|
(1,371 |
) |
|
|
(3,062 |
) |
Expected future gross rental income under operating leases within
the office building is as follows for the fiscal years ending:
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|
June 28, 2018
|
|
$ |
1,961 |
|
June 27, 2019
|
|
|
1,859 |
|
June 25, 2020
|
|
|
1,765 |
|
June 24, 2021
|
|
|
1,534 |
|
June 30, 2022
|
|
|
1,314 |
|
Thereafter
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|
3,096 |
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$ |
11,529 |
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Fair Value of Financial Instruments
Authoritative guidance issued by the Financial Accounting Standards
Board (“FASB”) defines fair value as the price that
would be received for an asset or paid to transfer a liability in
an orderly transaction between market participants on the
measurement date. The guidance establishes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure
fair value into three broad levels:
Level 1- Quoted prices in active markets that are accessible
at the measurement date for identical assets and liabilities.
Level 2- Observable inputs other than quoted prices in active
markets. For example, quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets
or liabilities in inactive markets.
Level 3- Unobservable inputs for which there is little or no
market data available.
The carrying values of cash, trade accounts receivable and accounts
payable approximate their fair values at June 29, 2017 and
June 30, 2016 because of the short-term maturities and nature
of these balances.
The carrying value of our Credit Facility (as defined in Note 4
– “Revolving Credit Facility” in the Notes to
Consolidated Financial Statements “Revolving Credit
Facility” below) borrowings approximates fair value at
June 29, 2017 and June 30, 2016 because interest rates on
this instrument approximate current market rates (Level 2
criteria), the short-term maturity and nature of this balance. In
addition, there has been no significant change in our inherent
credit risk.
The following table summarizes the carrying value and fair value
estimate of our current and long-term debt, excluding unamortized
debt issuance costs:
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June 29,
2017 |
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June 30,
2016 |
|
Carrying value of long-term debt:
|
|
$ |
28,808 |
|
|
$ |
32,290 |
|
Fair value of long-term debt:
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|
29,316 |
|
|
|
35,479 |
|
The estimated fair value of long-term debt was determined using a
market approach based upon Level 2 observable inputs, which
estimates fair value based on interest rates currently offered on
loans with similar terms to borrowers of similar credit quality or
broker quotes. In addition, there have been no significant changes
in the underlying assets securing our long-term debt.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement
exists, title has transferred (based upon terms of shipment), price
is fixed, delivery occurred and collection is reasonably assured.
We sell our products under some arrangements which include customer
contracts which fix the sales price for periods, which typically
can be up to one year, for some commercial ingredient customers and
through specific programs consisting of promotion allowances,
volume and customer rebates and marketing allowances, among others,
to consumer customers and commercial ingredient users. Reserves for
these programs are established based upon the terms of specific
arrangements. Revenues are recorded net of rebates and promotion
and marketing allowances. Revenues are also recorded net of
expected customer deductions which are provided for based upon past
experiences. While customers do have the right to return products,
past experience has demonstrated that product returns have
generally been insignificant. Provisions for returns are reflected
as a reduction in net sales and are estimated based upon customer
specific circumstances. Billings for shipping and handling costs
are included in revenues.
Segment Reporting
We operate in a single reportable and operating segment that
consists of selling various nut and nut related products through
multiple distribution channels.
Significant Customers and Concentration of Credit Risk
The highly competitive nature of our business provides an
environment for the loss of customers and the opportunity to gain
new customers. We are subject to concentrations of credit risk,
primarily in trade accounts receivable, and we attempt to mitigate
this risk through our credit evaluation process, collection terms
and through geographical dispersion of sales. Sales to three
customers each exceeded 10% of net sales during fiscal 2017 and
fiscal 2016. In fiscal 2015 two customers each exceeded 10% of net
sales. Sales to these customers represented approximately 53%, 50%
and 39% of our net sales in fiscal 2017, fiscal 2016 and fiscal
2015, respectively. Net accounts receivable from these customers
were 56% and 51% of net accounts receivable at June 29, 2017
and June 30, 2016, respectively.
Promotion, Marketing and Advertising Costs
Promotions, allowances and customer rebates are recorded at the
time revenue is recognized and are reflected as reductions in
sales. Annual volume rebates are estimated based upon projected
volumes for the year, while promotions and allowances are recorded
based upon terms of the actual arrangements. Coupon incentive costs
are accrued based on an estimate of redemptions to occur.
Marketing and advertising costs are incurred to promote and support
branded products in the consumer distribution channel. These costs
are generally expensed as incurred, recorded in selling expenses,
and were as follows for the last three fiscal years:
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Year ended
June 29,
2017 |
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Year ended
June 30,
2016 |
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|
Year ended
June 25,
2015 |
|
Marketing and advertising expense
|
|
$ |
10,064 |
|
|
$ |
11,569 |
|
|
$ |
11,069 |
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Shipping and Handling Costs
Shipping and handling costs, which include freight and other
expenses to prepare finished goods for shipment, are included in
selling expenses. Shipping and handling costs for the last three
fiscal years were as follows:
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Year ended
June 29,
2017 |
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Year ended
June 30,
2016 |
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Year ended
June 25,
2015 |
|
Shipping and handling costs
|
|
$ |
17,682 |
|
|
$ |
16,686 |
|
|
$ |
17,699 |
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Research and Development Expenses
Research and development expense represents the cost of our
research and development personnel and their related expenses and
is charged to selling expenses as incurred. Research and
development expenses for the last three fiscal years were as
follows:
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Year ended
June 29,
2017 |
|
|
Year ended
June 30,
2016 |
|
|
Year ended
June 25,
2015 |
|
Research and development expense
|
|
$ |
658 |
|
|
$ |
653 |
|
|
$ |
979 |
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Stock-Based Compensation
We account for stock-based employee compensation arrangements in
accordance with the provisions of ASC 718, as amended by
Accounting Standard Update
(“ASU”) 2016-09, by
calculating compensation cost based on the grant date fair value.
We then amortize compensation expense over the vesting period. We
estimate the fair value of each stock option on the date of the
grant using the Black-Scholes option pricing model (using the
risk-free interest rate, expected term, expected volatility, and
dividend yield variables). The grant date fair value of restricted
stock units (“RSUs”) is generally determined based on
the market price of our Common Stock on the date of grant.
Beginning in fiscal 2017, forfeitures are recognized as they occur
and excess tax benefits or tax deficiencies are recognized as a
component of income tax expense.
Income Taxes
We account for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been reported in our financial statements or tax returns. Such
items give rise to differences in the financial reporting and tax
basis of assets and liabilities. A valuation allowance is recorded
to reduce the carrying amount of deferred tax assets if it is more
likely than not that all or a portion of the asset will not be
realized. In estimating future tax consequences, we consider all
expected future events other than changes in tax law or rates.
We record liabilities for uncertain income tax positions based on
a two-step process.
The first step is recognition, where we evaluate whether an
individual tax position has a likelihood of greater than 50% of
being sustained upon examination based on the technical merits of
the position, including resolution of any related appeals or
litigation processes. For tax positions that are currently
estimated to have a less than 50% likelihood of being sustained, no
tax benefit is recorded. For tax positions that have met the
recognition threshold in the first step, we perform the second step
of measuring the benefit to be recorded. The actual benefits
ultimately realized may differ from our estimates. In future
periods, changes in facts, circumstances, and new information may
require us to change the recognition and measurement estimates with
regard to individual tax positions. Changes in recognition and
measurement estimates are recorded in results of operations and
financial position in the period in which such changes occur.
We recognize interest and penalties accrued related to unrecognized
tax benefits in the Income tax expense caption in the Consolidated
Statement of Comprehensive Income.
We evaluate the realization of deferred tax assets by considering
our historical taxable income and future taxable income based upon
the reversal of deferred tax liabilities. As of June 29, 2017,
we believe that our deferred tax assets are fully realizable,
except for $171 of net basis differences for which we have provided
a valuation allowance.
Earnings per Share
Basic earnings per common share are calculated using the weighted
average number of shares of Common Stock and Class A Stock
outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into
Common Stock or resulted in the issuance of Common Stock.
The following table presents the reconciliation of the weighted
average shares outstanding used in computing basic and diluted
earnings per share:
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|
Year ended
June 29,
2017 |
|
|
Year ended
June 30,
2016 |
|
|
Year ended
June 25,
2015 |
|
Weighted average number of shares outstanding — basic
|
|
|
11,317,149 |
|
|
|
11,233,975 |
|
|
|
11,150,658 |
|
Effect of dilutive securities:
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|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
86,456 |
|
|
|
98,949 |
|
|
|
97,601 |
|
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|
|
|
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|
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|
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|
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|
Weighted average number of shares outstanding — diluted
|
|
|
11,403,605 |
|
|
|
11,332,924 |
|
|
|
11,248,259 |
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|
The following table presents a summary of anti-dilutive awards
excluded from the computation of diluted earnings per share:
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|
Year ended
June 29,
2017 |
|
|
Year ended
June 30,
2016 |
|
|
Year ended
June 25,
2015 |
|
Weighted average number of anti-dilutive shares:
|
|
|
1,068 |
|
|
|
— |
|
|
|
— |
|
Weighted average exercise price per share:
|
|
$ |
65.35 |
|
|
$ |
— |
|
|
$ |
— |
|
Comprehensive Income
We account for comprehensive income in accordance with ASC Topic
220, Comprehensive Income. This topic
establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose
financial statements. The topic requires that all components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
This topic also requires all non-owner changes in
stockholders’ equity be presented in either a single
continuous statement of comprehensive income or in two separate but
consecutive statements. This guidance also requires presentation by
the respective line items of net income, either on the face of the
statement where net income is presented or in the notes and
information about significant amounts required under U.S. GAAP to
be reclassified out of accumulated other comprehensive income in
their entirety. For amounts not required to be reclassified in
their entirety to net income, we provide a cross-reference to other
disclosures that offer additional details about those amounts.
Recent Accounting Pronouncements
The following recent accounting pronouncements were adopted in the
current fiscal year:
In March 2016, the FASB issued ASU No. 2016-09 “Compensation-Stock
Compensation (Topic 718)”. This ASU is part of the
FASB’s simplification initiative. The areas for
simplification in this update involve several aspects of the
accounting for share-based payment transactions, including the
income tax consequences, forfeitures, classification of awards as
either equity or liabilities, statutory withholding requirements,
and classification on the statement of cash flows. The Company
early adopted this guidance during the first quarter of fiscal
2017. The cumulative adjustment for the impact of this change in
accounting principle was immaterial. Cash flows related to excess
tax benefits will be classified prospectively as operating
activities in the Consolidated Statements of Cash Flows. Prior
periods have not been adjusted. The Company anticipates increased
volatility in income tax expense, mainly in the second quarter of
each fiscal year, since historically most equity compensation
granted in prior periods vests during that quarter.
In April 2015, the FASB issued ASU No. 2015-05 “Intangibles
— Goodwill and Other — Internal-Use Software
(Subtopic 350-40): Customer’s
Accounting for Fees Paid in a Cloud Computing Arrangement”.
This update provides guidance to customers about whether a cloud
computing arrangement includes a software license or service
contract. This update became effective for the Company beginning
the first quarter of fiscal 2017. The adoption of
ASU 2015-05 did not have
a material impact to the Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03 “Interest-Imputation
of Interest (Subtopic 835-30) Simplifying
the Presentation of Debt Issuance Costs”. This update
requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct reduction
from the carrying amount of that debt liability, consistent with
debt discounts. ASU 2015-03 was
effective for the Company beginning with the first quarter of
fiscal 2017. The adoption of this standard required retrospective
adjustment to our Consolidated Balance Sheets. As a result, Other
assets decreased approximately $244 as of June 30, 2016 and
this amount was allocated within Current maturities of long term
debt and Long term debt. Adoption of
ASU 2015-03 did not have
an effect on the Company’s stockholders’ equity,
results of operations or cash flows.
In February 2015, the FASB issued
ASU No. 2015-02 “Consolidation
(Topic 810): Amendments to the Consolidation Analysis”. This
update focuses on a reporting company’s consolidation
evaluation to determine whether it should consolidate certain legal
entities. The guidance ASU 2015-02 became
effective for the Company beginning with the first quarter of
fiscal 2017. The adoption of ASU 2015-02 did not have
any impact to the Consolidated Financial Statements.
In August 2014, the FASB issued ASU No. 2014-15 “Presentation
of Financial Statements—Going Concern
(Topic 205-40)”. The
guidance requires management to perform interim and annual
assessments of an entity’s ability to continue as a going
concern within one year of the date the financial statements are
issued. An entity must provide certain disclosures if conditions or
events raise substantial doubt about the entity’s ability to
continue as a going concern. ASU 2014-15 was
effective for the Company beginning with the first quarter of
fiscal 2017. The adoption of this guidance had no impact on our
Consolidated Financial Statements.
The following recent accounting pronouncements have not yet been
adopted:
In May 2017, the FASB issued ASU No. 2017-09 “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting”.
The amendments in this update provide guidance about which changes
to terms or conditions of a share-based payment award require an
entity to apply modification accounting in Topic 718.
ASU 2017-09 will be
effective for the Company in fiscal 2019 and should be applied
prospectively to an award modified on or after the adoption date.
The Company does not expect ASU 2017-09 to have a
material impact to the Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-07 “Compensation—Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost”.
The amendments in this update require the service cost component of
pension expense to be disaggregated from the other components of
net periodic benefit cost and be presented in the same line items
as other employee compensation costs. All other components of net
periodic benefit cost must be presented in the income statement
separately from the service cost component and outside a subtotal
of income from operations. This update is effective for public
business entities for annual periods beginning after
December 15, 2017, including interim periods within those
annual periods. Early adoption is permitted as long as it is early
adopted in the first interim period of an annual year and financial
statements have not been issued or made available for issuance
prior to adoption. The amendments in this update should be applied
using a retrospective transition method, however, a practical
expedient is offered with regard to the prior comparative periods.
The Company plans to early adopt this update beginning in fiscal
2018 and does not expect the impact of this new guidance to have a
significant impact on its financial position, results of operations
and disclosures.
In October 2016, the FASB issued ASU No. 2016-17 “Consolidation
(Topic 810): Interests Held Through Related Parties That Are Under
Common Control”. This update is amending
ASU 2015-02 and affects
reporting entities that are required to evaluate whether they
should consolidate a variable interest entity in certain situations
involving entities under common control.
ASU 2016-17 will be
effective for the Company in fiscal 2018 and will require
retrospective application. The Company does not expect
ASU 2016-17 to have any
impact to the Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15 “Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments”. This update addresses eight specific cash
flow issues with the objective of reducing the perceived diversity
in practice. The amendments in this update are effective for public
business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments
in the same period. The amendments in this update should be applied
using a retrospective transition method to each period presented.
The Company does not expect a material impact to our statement of
cash flows once ASU 2016-15 is adopted
in fiscal 2019.
In June 2016, the FASB issued ASU No. 2016-13 “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments”. The main objective of this
update is to provide financial statement users with more
decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held
by a reporting entity at each reporting date. The amendments in
this update replace the incurred loss impairment methodology in
current GAAP with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable
and supportable information to inform credit loss estimates. The
amendments in this update are effective for public business
entities for fiscal years beginning after December 15, 2019,
and interim periods within those fiscal years. A
modified-retrospective approach is required in the first reporting
period in which the guidance is effective through a
cumulative-effect adjustment to retained earnings. We do not expect
ASU 2013-13 will have a
significant impact on the Consolidated Financial Statements once
adopted in fiscal 2021.
In February 2016, the FASB issued
ASU No. 2016-02 “Leases
(Topic 842)”. The primary goal of this update is to require
the lessee to recognize all lease commitments, both operating and
finance, by initially recording a lease asset and liability on the
balance sheet at the lease commencement date. Additionally,
enhanced qualitative and quantitative disclosures will be required.
ASU 2016-02 is effective
for public business entities for annual periods, including interim
periods within those annual periods, beginning after
December 15, 2018. This new guidance will be effective for the
Company beginning in fiscal year 2020 and we do not expect to early
adopt. This guidance must be adopted using a modified retrospective
approach. The Company expects this new guidance to have a
significant impact on its total assets and total liabilities, and
lead to increased financial statement disclosures.
In July 2015, the FASB issued ASU No. 2015-11 “Inventory
(Topic 330) Simplifying the Measurement of Inventory”.
This update applies to inventory measured
using first-in, first-out or
average cost and requires inventory be measured at the lower of
cost and net realizable value. Net realizable value is defined as
estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal and
transportation. This update will be effective for the Company
beginning in fiscal year 2018 with prospective application
required. The Company does not anticipate this guidance will have a
material impact to its Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09 “Revenue
from Contracts with Customers (Topic 606)” and created a new
ASC Topic 606, Revenue from Contracts with Customers, and added ASC
Subtopic 340-40, Other Assets
and Deferred Costs — Contracts with Customers. The guidance
in this update supersedes the revenue recognition requirements in
ASC Topic 605, Revenue Recognition, and most industry-specific
guidance throughout the industry topics of the codification. Under
the new guidance, an entity 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 or services. Several other
amendments have been subsequently released, each of which provide
additional narrow scope clarifications or improvements. In August
2015, the FASB issued ASU No. 2015-14 “Revenue
from Contracts with Customers, Deferral of the Effective
Date” which deferred the effective date of
ASU 2014-09 for one
year. Consequently, this new revenue recognition guidance will be
effective for the Company beginning in fiscal year 2019, which is
our anticipated adoption date. We have completed our initial
analysis of this accounting standard update which included a review
of all material customer contracts and currently do not anticipate
any material changes to our revenue recognition compared to current
GAAP. We are currently evaluating the method of adoption.