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, Squirrel Brand,
Southern Style Nuts, 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) 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. 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 net realizable values move below costs, we record
adjustments to write down the carrying values of inventories to the
lower of cost (first-in,
first-out) and net
realizable value. 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 28, 2018 |
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Year Ended
June 29, 2017 |
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|
Year Ended
June 30, 2016 |
|
Depreciation expense
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|
$ |
13,414 |
|
|
$ |
14,190 |
|
|
$ |
14,875 |
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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 |
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Buildings
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10 to 40 years |
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Machinery and equipment
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5 to 10 years |
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Furniture and leasehold improvements
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|
5 to 10 years |
|
Vehicles
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|
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.
Business Combinations
We use the acquisition method in accounting for acquired
businesses. Under the acquisition method, our financial statements
reflect the operations of an acquired business starting from the
completion of the acquisition. The assets acquired and liabilities
assumed are recorded at their respective estimated fair values at
the date of the acquisition. Any excess of the purchase price over
the estimated fair values of the identifiable net assets acquired
is recorded as goodwill.
Segment Reporting
We operate in a single reporting unit and operating segment that
consists of selling various nut and nut related products through
multiple distribution channels.
Impairment of Long-Lived Assets
We review held and used long-lived assets, including our rental
investment property and amortizable identifiable intangible assets
(e.g., customer relationships and brand names), 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.
Goodwill
Goodwill currently represents the excess of the purchase price over
the fair value of the net assets from our acquisition of Squirrel
Brand, L.P. which closed in November 2017.
Goodwill is not amortized, but is tested annually as of the last
day of each fiscal year for impairment, or whenever events or
changes in circumstances indicate it is more likely than not that
the carrying amount of the reporting unit is greater than its fair
value. A significant amount of judgment is involved in determining
if an indicator of impairment has occurred. Such indicators may
include deterioration in general economic conditions, adverse
changes in the markets in which we operate, increases in input
costs that have negative effects on earnings and cash flows, or a
trend of negative or declining cash flows over multiple periods,
among others. The fair value that could be realized in an actual
transaction may differ from that used to evaluate the impairment of
goodwill.
In testing goodwill for impairment, we have the option to first
assess qualitative factors to determine whether the existence of
events or circumstances leads to a determination that it is more
likely than not (more than 50%) that the estimated fair value of
our single reporting unit is less than its carrying amount. If we
elect to perform a qualitative assessment and determine that an
impairment is more likely than not, we are then required to perform
a quantitative impairment test, otherwise no further analysis is
required. We also may elect not to perform the qualitative
assessment and, instead, proceed directly to the quantitative
impairment test.
Under the goodwill qualitative assessment, various events and
circumstances that would affect the estimated fair value of our
single reporting unit are identified (similar to impairment
indicators above). During fiscal 2018 we
elected to perform qualitative impairment test which indicated no
indicators of goodwill impairment.
Under the goodwill quantitative impairment test, the evaluation of
impairment involves comparing the current fair value of our single
reporting unit to its carrying value, including goodwill. We
estimate the fair value using level 3 inputs as defined by the fair
value hierarchy. The inputs used to calculate the fair value
include several subjective factors, such as estimates of future
cash flows, estimates of our future cost structure, discount rates
for our estimated cash flows, required level of working capital,
assumed terminal value, and time horizon of cash flow forecasts. If
the carrying value of our single reporting unit exceeds its fair
value, we recognize an impairment loss equal to the difference
between the carrying value and estimated fair value.
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 63% of the rentable area in the
office building is currently vacant, of which approximately 29% has
not been built-out. 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 28, 2018 |
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Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
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Gross rental income
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$ |
1,988 |
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$ |
2,003 |
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$ |
1,898 |
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Rental (expense), net (1)
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(1,420 |
) |
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(1,311 |
) |
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(1,371 |
) |
(1) |
Includes annual depreciation expense of approximately
$800.
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Expected future gross rental income under operating leases within
the office building is as follows for the fiscal years ending:
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June 27, 2019
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$ |
1,940 |
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June 25, 2020
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1,875 |
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June 24, 2021
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1,647 |
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June 30, 2022
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1,431 |
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June 29, 2023
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1,450 |
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Thereafter
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1,950 |
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$ |
10,293 |
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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:
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Level 1- |
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Quoted prices in active markets that are
accessible at the measurement date for identical assets and
liabilities. |
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Level 2- |
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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. |
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Level 3- |
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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 28, 2018 and
June 29, 2017 because of the short-term maturities and nature
of these balances.
The carrying value of our Credit Facility (as defined in Note 5
– “Revolving Credit Facility” in the Notes to
Consolidated Financial Statements “Revolving Credit
Facility” below) borrowings approximates fair value at
June 28, 2018 and June 29, 2017 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 28, 2018 |
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June 29, 2017 |
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Carrying value of long-term debt:
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$ |
34,649 |
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$ |
28,808 |
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Fair value of long-term debt:
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33,482 |
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29,316 |
|
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 has 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.
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 exceeded 10% of net sales during each of fiscal 2018,
fiscal 2017 and fiscal 2016. Sales to these customers represented
approximately 54%, 53% and 50% of our net sales in fiscal 2018,
fiscal 2017 and fiscal 2016, respectively. Net accounts receivable
from these customers were 62% and 56% of net accounts receivable at
June 28, 2018 and June 29, 2017, 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 28, 2018 |
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Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
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Marketing and advertising expense
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$ |
11,290 |
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$ |
10,064 |
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$ |
11,569 |
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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 28, 2018 |
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Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
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Shipping and handling costs
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$ |
20,418 |
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$ |
17,682 |
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$ |
16,686 |
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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 28, 2018 |
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Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
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Research and development expense
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$ |
701 |
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$ |
658 |
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$ |
653 |
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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. 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 28, 2018,
we believe that our deferred tax assets are fully realizable,
except for $112 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 28, 2018 |
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|
Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
|
Weighted average number of shares outstanding — basic
|
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11,383,080 |
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|
11,317,149 |
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11,233,975 |
|
Effect of dilutive securities:
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Stock options and restricted stock units
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|
66,306 |
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86,456 |
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98,949 |
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Weighted average number of shares outstanding — diluted
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11,449,386 |
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11,403,605 |
|
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11,332,924 |
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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 28, 2018 |
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Year ended
June 29, 2017 |
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Year ended
June 30, 2016 |
|
Weighted average number of anti-dilutive shares:
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— |
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1,068 |
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— |
|
Weighted average exercise price per share:
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$ |
— |
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$ |
65.35 |
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$ |
— |
|
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 2018, the FASB issued ASU No. 2018-05 “Income
Taxes (Topic 741) Amendments to SEC Paragraphs Pursuant to SEC
Staff Accounting Bulletin No. 118”. These
amendments add SEC guidance to the FASB Accounting Standards
Codification regarding the Tax Cuts and Jobs Act pursuant to
the issuance of SAB 118 which was issued by the SEC in December
2018 to provide immediate guidance for accounting implications of
U.S. tax reform which became effective for the Company on
January 1, 2018. The amendments are effective upon addition to
the FASB Codification. Disclosures related to the effect of the
Tax Cuts and Jobs Act appear in Note 7 – “Income
Taxes”.
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 (interest cost, amortization of prior service cost and
amortization of unrecognized loss) must be presented in the income
statement separately from the service cost component and outside a
subtotal of income from operations. The amendments in this update
also allow only the service cost component to be eligible for
capitalization when applicable (for example, as a cost of
internally manufactured inventory or a self-constructed asset).
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 adopted ASU 2017-07 in the first quarter of fiscal
2018. Service cost continues to be presented as a component of
Administrative expense while the remaining components of net
periodic benefit cost (interest cost, amortization of prior service
cost and amortization of unrecognized loss) are now presented below
the caption Other expense on the Consolidated Statements of
Comprehensive Income. Adoption of this update required a
reclassification of $2,133 and $1,850 for fiscal years 2017 and
2016, respectively, from Administrative expense to Other
expense.
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
amends 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 is effective for
the Company in fiscal 2018 and requires retrospective application.
The adoption of ASU 2016-17 did not have any impact to our
Consolidated Financial Statements.
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. When evidence
exists that the net realizable value of inventory is lower than its
cost, the difference shall be recognized as a loss in earnings in
the period in which it occurs. That loss may be required, for
example, due to damage, physical deterioration, obsolescence,
changes in price levels, or other causes. This update became
effective for the Company beginning in fiscal year 2018 with
prospective application required. The adoption of ASU 2015-11 did not have any impact to our
Consolidated Financial Statements.
The following recent accounting pronouncements have not yet been
adopted:
In June 2018 the FASB issued ASU 2018-07 “Compensation- Stock
Compensation (Topic 718) Improvements to Nonemployee Share-Based
Payment Accounting” The amendments in this Update expand
the scope of Topic 718 to include share-based payment transactions
for acquiring goods and services from nonemployees. An entity
should apply the requirements of Topic 718 to nonemployee awards
except for specific guidance on inputs to an option pricing model
and the attribution of cost (that is, the period of time over which
share-based payment awards vest and the pattern of cost recognition
over that period). The amendments specify that Topic 718 applies to
all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or
(2) awards granted in conjunction with selling goods or
services to customers as part of a contract accounted for under
Topic 606, Revenue from Contracts with Customers. The amendments in
this Update are effective for public business entities for fiscal
years beginning after December 15, 2018, including interim
periods within that fiscal year. Early adoption is permitted, but
no earlier than an entity’s adoption date of Topic 606. This
update is effective beginning in fiscal 2020 and, based on our
historical use of share-based payment awards, we do not expect this
update to have a material impact on our Consolidated Financial
Statements.
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”. The amendments in this Update
allow a reclassification from accumulated other comprehensive
income (loss) to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. The amendments in this
Update also require certain disclosures about stranded tax effects.
The amendments in this Update are effective for all entities for
fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption of the amendments
in this Update is permitted, including adoption in any interim
period for public business entities for reporting periods for which
financial statements have not yet been issued. The amendments in
this Update should be applied either in the period of adoption or
retrospectively to each period (or periods) in which the effect of
the change in the U.S. federal corporate income tax rate in the Tax
Cuts and Jobs Act is recognized. This update is effective beginning
in fiscal 2020 and we do not expect this update to have a material
impact on our Consolidated Financial Statements.
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 on our Consolidated Financial Statements.
In January 2017, the FASB issued ASC Update No. 2017-04
“Intangibles—Goodwill and Other Topics (Topic 350):
Simplifying the Test for Goodwill Impairment”. The
purpose of this update is to reduce the cost and complexity of
evaluating goodwill for impairment. It eliminates the need for
entities to calculate the implied fair value of goodwill by
assigning the fair value of a reporting unit to all of its assets
and liabilities as if that reporting unit had been acquired in a
business combination, commonly referred to as “Step 2”.
Under this amendment, an entity will perform its goodwill
impairment test by comparing the fair value of a reporting unit
with its carrying amount. An impairment charge is recognized for
the amount by which the carrying value exceeds the reporting
unit’s fair value. This update is effective beginning in
fiscal 2021. We do not expect this update to have a material impact
on our 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 our 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. Under ASU
No. 2016-02 the
guidance was be adopted using a modified retrospective approach,
with elective reliefs, with application of the new guidance for all
periods presented. In July 2018, the FASB issued ASU No. 2018-11 “Leases
(Topic 842): Targeted Improvements” which provides for
another transition method by allowing entities to initially apply
the new leases standard at the adoption date and recognize a
cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. The amendments in this update
also provide lessors with a practical expedient, by class of
underlying asset, to not separate non-lease components from the
associated lease component, similar to the expedient provided for
lessees. In July 2018, the FASB also issued ASU No. 2018-10
“Codification Improvements to Topic 842, Leases”
which affects narrow aspects of the guidance issued in ASU
No. 2016-02. Based on
our current portfolio of leases, the Company expects the impact of
these new standards to significantly increase total assets and
total liabilities, and lead to increased financial statement
disclosures.
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 analysis of
this accounting standard update which included a review of all
material customer contracts and sales incentives. On June 29,
2018 we adopted the new standard utilizing the full retrospective
method. The Company’s adoption of ASU 2014-09 in fiscal 2019 is not expected
to have a material impact on our revenue recognition compared to
previous GAAP.