| Significant Accounting Policies and Disclosures | 3.
SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make significant 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. Management continuously evaluates its critical accounting policies and estimates, including the allowance for doubtful accounts, revenue recognition, inventory obsolescence, goodwill and other intangible assets, loss contingencies and income taxes. Management bases the estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, however, actual results could differ from those estimates. Fair Values of Financial Instruments: The fair values of financial instruments are determined based on quoted market prices and market interest rates as of the end of the reporting period. Our financial instruments include investments, accounts receivable, accounts payable and accrued liabilities. The fair values of these financial instruments approximate carrying values at June 1, 2019 and June 2, 2018. Cash and Cash Equivalents: We consider short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and that have a maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair market value of these assets. Allowance for Doubtful Accounts: Our allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; a large number of customers which are widely dispersed across geographic areas; and collectability and delinquency history by geographic area. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable. The allowance for doubtful accounts was approximately $0.3 million as of both June 1, 2019 and June 2, 2018. Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency. Revenue Recognition: Our product sales are recognized as revenue upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered and when collectability is reasonably assured. We also record estimated discounts and returns based on our historical experience. Our products are often manufactured to meet the specific design needs of our customers’ applications. Our engineers work closely with customers to ensure that our products will meet their needs. Our customers are under no obligation to compensate us for designing the products we sell. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which amends guidance for revenue recognition. ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities 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 and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016 and 2017, the FASB issued four additional updates which further clarify the guidance provided in ASU 2014-09. Effective June 3, 2018, the Company adopted the standard using the modified retrospective method to all contracts. As a result, financial information for the reporting period beginning June 3, 2018 was reported under the new standard, while comparative financial information has not been adjusted and continues to be reported in accordance with the previous standard. The adoption of this standard did not impact the timing of revenue recognition for our customer sales. The adoption did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on the consolidated financial statements. For the Company, the most significant impact of the new standard is the addition of required disclosures within the notes to the financial statements. See Note 4 “Revenue Recognition” of the notes to our consolidated financial statements. Foreign Currency Translation: The functional currency is the local currency at all foreign locations, with the exception of Hong Kong, which the functional currency is the U.S. dollar. Balance sheet items for our foreign entities, included in our consolidated balance sheets, are translated into U.S. dollars at end-of-period spot rates. Gains and losses resulting from translation of foreign subsidiary financial statements are credited or charged directly to accumulated other comprehensive (loss) income, a component of stockholders’ equity. Revenues and expenses are translated at the current rate on the date of the transaction. Gains and losses resulting from foreign currency transactions are included in income. Foreign exchange losses reflected in our consolidated statements of comprehensive (loss) income were a loss of less than $0.1 million during fiscal 2019, a loss of $0.2 million during fiscal 2018 and a loss of $0.6 million during fiscal 2017. Shipping and Handling Fees and Costs: Shipping and handling costs billed to customers are reported as revenue and the related costs are reported as a component of cost of sales. Inventories, net: Our consolidated inventories are stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include approximately $47.2 million of finished goods, $4.2 million of raw materials and $1.8 million of work-in-progress as of June 1, 2019 as compared to approximately $42.6 million of finished goods, $5.7 million of raw materials and $2.4 million of work-in-progress as of June 2, 2018. The inventory reserve as of June 1, 2019 was $4.6 million compared to $4.0 million as of June 2, 2018. Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in the industry or market conditions differ from management’s estimates, additional provisions may be necessary. We recorded provisions to our inventory reserves of $1.1 million, $0.8 million and $0.5 million during fiscal 2019, fiscal 2018 and fiscal 2017, respectively, which were included in cost of sales. The provisions were primarily for obsolete and slow moving parts. The parts were written down to estimated realizable value. Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. Investments: As of June 1, 2019, we have invested in time deposits and certificates of deposit (“CDs”) in the amount of $8.0 million, which mature in less than twelve months. As of June 2, 2018, we had no investments. We liquidated our investments in equity securities in fiscal 2018. Proceeds from the liquidation were $0.9 million with gross realized gains of $0.2 million for fiscal 2018. Prior to the liquidation of our investment in equity securities, our investments in equity securities were classified as available-for-sale and were carried at their fair value based on quoted market prices. Proceeds from the sale of securities were $0.3 million during fiscal 2017. Prior to liquidation of the equity securities, we reinvested proceeds from the sale of securities, and the cost of the equity securities sold was based on a specific identification method. Gross realized gains and losses on those sales were less than $0.1 million during fiscal 2017. Net unrealized holding gain (loss) during fiscal 2017 was less than $0.1 million and have been included in accumulated comprehensive (loss) income. Discontinued Operations: On September 12, 2017, the Company received an income tax refund from the State of Illinois of approximately $2.0 million, which included interest earned. The refund was a result of the conclusion of the Illinois amended return related to the sale of the RF, Wireless and Power Division (“RFPD”) in 2011. A net benefit of $1.5 million, which included $0.5 million of professional fee costs incurred to pursue the refund, was recognized in the second quarter of fiscal 2018 in discontinued operations. During fiscal 2017, the Company disposed of, by sale, the PACS Display business in the Healthcare segment. Based on our assessment of the criteria that must be met to qualify a disposal transaction as a discontinued operation set forth in Accounting Standards Update 2014-08, the disposal of the PACS Display business does not qualify as a discontinued operation. Goodwill and Intangible Assets: Goodwill is not subject to amortization and is reviewed at least annually in the fourth quarter of each year for impairment or whenever events or circumstances indicate an impairment may have occurred, such as a significant adverse change in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel or a decision to sell or dispose of a reporting unit. In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step 2 from the goodwill impairment test as defined in ASU 2011-08. As amended, the goodwill impairment test will consist of one-step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. ASU 2017-04 will be effective for fiscal years and interim periods beginning after December 15, 2019. ASU 2017-04 is required to be applied prospectively and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt ASU 2017-04 beginning with our fiscal 2018 annual impairment test. During the fourth quarter of each fiscal year, our goodwill balances are reviewed for impairment using the first day of our fourth quarter as the measurement date. If after reviewing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we test for impairment through a quantitative impairment test. This quantitative impairment test uses the income method, which is based on a discounted future cash flow approach that uses the significant assumptions of projected revenue, projected operational profit, terminal growth rates and the cost of capital. The Company also considers the Guideline Public Company Method in the goodwill impairment assessment. Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances occur that indicate possible impairment. Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with the acquisitions. Property, Plant and Equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. Provisions for depreciation are computed using the straight-line method over the estimated useful life of the asset. Depreciation expense was approximately $2.9 million, $2.6 million and $2.4 million during fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Property, plant and equipment consist of the following ( in thousands
June 1, 2019
June 2, 2018
Land and improvements
$
1,301
$
1,301
Buildings and improvements
22,986
21,673
Computer, communications equipment and software
9,943
9,652
Construction in progress
979
1,582
Machinery and other equipment
13,884
12,004
$
49,093
$
46,212
Accumulated depreciation
(29,982
)
(27,980
)
Property, plant, and equipment, net
$
19,111
$
18,232
Construction in progress at June 1, 2019 includes $0.3 million related to our Healthcare growth initiatives. All projects are expected to be completed before the end of fiscal 2020. Supplemental disclosure information of the estimated useful life of the assets:
Land improvements
10 years
Buildings and improvements
10 - 30 years
Computer, communications equipment and software
3 - 10 years
Machinery and other equipment
3 - 20 years We review property and equipment, definite-lived intangible assets and other long-lived assets for impairment whenever adverse events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates. We conduct annual reviews for idle and underutilized equipment and review business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value. Additionally, we also evaluate the remaining useful life of each reporting period to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life. Accrued Liabilities: Accrued liabilities consist of the following ( in thousands ):
June 1, 2019
June 2, 2018
Compensation and payroll taxes
$
2,846
$
3,449
Accrued severance
520
454
Professional fees
471
527
Deferred revenue
2,260
1,888
Other accrued expenses
5,176
4,025
Accrued Liabilities
$
11,273
$
10,343
Warranties: We offer warranties for the limited number of specific products we manufacture. Our warranty terms generally range from one to three years. We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive (loss) income. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products and warranty experience. Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence. Changes in the warranty reserve during fiscal 2019 and fiscal 2018 were as follows ( in thousands
Warranty Reserve
Balance at May 27, 2017
$
106
Accruals for products sold
65
Utilization
(22
)
Balance at June 2, 2018
$
149
Accruals for products sold
185
Utilization
(39
)
Balance at June 1, 2019
$
295
Other Non-Current Liabilities: Other non-current liabilities of $0.8 million at June 1, 2019 and $0.9 million at June 2, 2018, primarily represent employee-benefits obligations in various non-US locations. Share-Based Compensation: We measure and recognize share-based compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. We estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life and dividends. Compensation cost is recognized using a graded-vesting schedule over the applicable vesting period. Share-based compensation expense totaled approximately $0.7 million during fiscal 2019, $0.5 million during fiscal 2018 and $0.4 million during fiscal 2017. Stock options granted generally vest over a period of five years and have contractual terms to exercise of 10 years. A summary of stock option activity is as follows ( in thousands, except option prices and years):
Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life
Aggregate Intrinsic Value
Options Outstanding at May 28, 2016
1,019
$
9.93
Granted
190
6.90
Exercised
(5
)
5.61
Forfeited
(43
)
8.39
Cancelled
(88
)
11.17
Options Outstanding at May 27, 2017
1,073
$
9.38
Granted
200
6.08
Exercised
(16
)
5.85
Forfeited
(11
)
8.05
Cancelled
(51
)
9.36
Options Outstanding at June 2, 2018
1,195
$
8.89
Granted
279
9.02
Exercised
(46
)
5.61
Forfeited
(58
)
8.10
Cancelled
(6
)
5.03
Options Outstanding at June 1, 2019
1,364
$
9.08
5.6
$
—
Options Vested at June 1, 2019
888
$
9.79
4.2
$
—
There were 46,000 stock options exercised during fiscal 2019, with cash received of $0.3 million. The total intrinsic value of options exercised totaled less than $0.1 million during fiscal 2019, fiscal 2018 and fiscal 2017. The weighted average fair value of stock option grants was $1.71 during fiscal 2019, $0.85 during fiscal 2018 and $1.14 during fiscal 2017. As of June 1, 2019, total unrecognized compensation costs related to unvested stock options and restricted stock awards was approximately $1.2 million, which is expected to be recognized over the remaining weighted average period of approximately two to four years. The total grant date fair value of stock options vested during fiscal 2019 was $0.4 million. The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Fiscal Year Ended
June 1, 2019
June 2, 2018
May 27, 2017
Expected volatility
22.24
%
21.92
%
25.41
%
Risk-free interest rate
2.82
%
2.22
%
1.46
%
Expected lives (years)
6.36
6.31
6.50
Annual cash dividend
$
0.24
$
0.24
$
0.24
The expected volatility assumptions are based on historical experience commensurate with the expected term. The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of the stock option. The expected stock option life assumption is based on the Securities and Exchange Commission’s (“SEC”) guidance in Staff Accounting Bulletin (“SAB”) No. 107 (“SAB No. 107”). For stock options granted during fiscal 2019, fiscal 2018 and fiscal 2017, we believe that our historical stock option experience does not provide a reasonable basis upon which to estimate expected term. We utilized the Safe Harbor option, or Simplified Method, to determine the expected term of these options in accordance with SAB No. 107 for options granted. We intend to continue to utilize the Simplified Method for future grants in accordance with SAB No. 110 until such time that we believe that our historical stock option experience will provide a reasonable basis to estimate an expected term. The following table summarizes information about stock options outstanding at June 1, 2019 ( in thousands, except option prices and years
Outstanding
Vested
Exercise Price Range
Shares
Weighted Average Exercise Price
Weighted Average Life
Aggregate Intrinsic Value
Shares
Weighted Average Exercise Price
Weighted Average Life
Aggregate Intrinsic Value
$5.49 to $6.90
482
$
6.16
6.2
$
—
255
$
6.05
5.0
$
—
$7.98 to $10.85
455
$
9.38
7.2
$
—
206
$
9.70
5.2
$
—
$11.14 to $13.76
427
$
12.05
3.1
$
—
427
$
12.05
3.1
$
—
Total
1,364
$
9.08
5.6
$
—
888
$
9.79
4.2
$
—
As of June 1, 2019, a summary of restricted stock award transactions was as follows (in thousands):
Unvested Restricted Shares
Unvested at May 27, 2017
—
Granted
78
Vested
—
Unvested at June 2, 2018
78
Granted
69
Vested
(26
)
Canceled
(5
)
Unvested at June 1, 2019
116
Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-in-capital in the consolidated statements of stockholders’ equity during fiscal 2019, fiscal 2018 and fiscal 2017. The Employees’ 2011 Long-Term Incentive Compensation Plan authorizes the issuance of up to 1,500,000 shares as incentive stock options, non-qualified stock options or stock awards. Under this plan, 1,173,000 shares are reserved for future issuance. The Plan authorizes the granting of stock options at the fair market value at the date of grant. Generally, these options become exercisable over five years and expire up to 10 years from the date of grant. Earnings per Share: We have authorized 17,000,000 shares of common stock, and 3,000,000 shares of Class B common stock. The Class B common stock has 10 votes per share and has transferability restrictions; however, Class B common stock may be converted into common stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of common stock and Class B common stock rank equally and have the same rights, except that Class B common stock cash dividends are limited to 90% of the amount of Class A common stock cash dividends. In accordance with ASC 260-10, Earnings Per Share The earnings per share (“EPS”) presented in our consolidated statements of comprehensive (loss) income are based on the following ( in thousands, except per share amounts
For the Fiscal Year Ended
June 1, 2019
June 2, 2018
May 27, 2017
Basic
Diluted
Basic
Diluted
Basic
Diluted
Numerator for Basic and Diluted EPS:
(Loss) income from continuing operations
$
(7,328
)
$
(7,328
)
$
2,326
$
2,326
$
(6,928
)
$
(6,928
)
Less dividends:
Common stock
2,621
2,621
2,586
2,586
2,567
2,567
Class B common stock
455
455
462
462
464
464
Undistributed losses
$
(10,404
)
$
(10,404
)
$
(722
)
$
(722
)
$
(9,959
)
$
(9,959
)
Common stock undistributed losses
$
(8,866
)
$
(8,866
)
$
(613
)
$
(613
)
$
(8,440
)
$
(8,440
)
Class B common stock undistributed losses
(1,538
)
(1,538
)
(109
)
(109
)
(1,519
)
(1,519
)
Total undistributed losses
$
(10,404
)
$
(10,404
)
$
(722
)
$
(722
)
$
(9,959
)
$
(9,959
)
Income from discontinued operations
$
—
$
—
$
1,496
$
1,496
$
—
$
—
Less dividends:
Common stock
2,621
2,621
2,586
2,586
2,567
2,567
Class B common stock
455
455
462
462
464
464
Undistributed losses
$
(3,076
)
$
(3,076
)
$
(1,552
)
$
(1,552
)
$
(3,031
)
$
(3,031
)
Common stock undistributed losses
$
(2,621
)
$
(2,621
)
$
(1,317
)
$
(1,318
)
$
(2,567
)
$
(2,567
)
Class B common stock undistributed losses
(455
)
(455
)
(235
)
(234
)
(464
)
(464
)
Total undistributed losses
$
(3,076
)
$
(3,076
)
$
(1,552
)
$
(1,552
)
$
(3,031
)
$
(3,031
)
Net (loss) income
$
(7,328
)
$
(7,328
)
$
3,822
$
3,822
$
(6,928
)
$
(6,928
)
Less dividends:
Common stock
2,621
2,621
2,586
2,586
2,567
2,567
Class B common stock
455
455
462
462
464
464
Undistributed (losses) income
$
(10,404
)
$
(10,404
)
$
774
$
774
$
(9,959
)
$
(9,959
)
Common stock undistributed (losses) income
$
(8,866
)
$
(8,866
)
$
657
$
657
$
(8,440
)
$
(8,440
)
Class B common stock undistributed (losses) income
(1,538
)
(1,538
)
117
117
(1,519
)
(1,519
)
Total undistributed (losses) income
$
(10,404
)
$
(10,404
)
$
774
$
774
$
(9,959
)
$
(9,959
)
Denominator for Basic and Diluted EPS:
Common stock weighted average shares
10,923
10,923
10,765
10,765
10,705
10,705
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS
2,106
2,106
2,137
2,137
2,140
2,140
Effect of dilutive securities
Dilutive stock options
—
59
—
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions
13,029
12,961
12,845
(Loss) income from continuing operations per share:
Common stock
$
(0.57
)
$
(0.57
)
$
0.18
$
0.18
$
(0.55
)
$
(0.55
)
Class B common stock
$
(0.51
)
$
(0.51
)
$
0.16
$
0.16
$
(0.49
)
$
(0.49
)
Income from discontinued operations per share:
Common stock
$
—
$
—
$
0.12
$
0.12
$
—
$
—
Class B common stock
$
—
$
—
$
0.11
$
0.11
$
—
$
—
Net (loss) income per share:
Common stock
$
(0.57
)
$
(0.57
)
$
0.30
$
0.30
$
(0.55
)
$
(0.55
)
Class B common stock
$
(0.51
)
$
(0.51
)
$
0.27
$
0.27
$
(0.49
)
$
(0.49
) Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for fiscal 2019, fiscal 2018 and fiscal 2017 were 882, 0 and 848, respectively. New Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which amends guidance for revenue recognition. ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities 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 and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016, 2017 and 2018 the FASB issued additional updates which further clarify the guidance provided in ASU 2014-09. Effective June 3, 2018, the Company adopted the standard using the modified retrospective method to all contracts. As a result, financial information for the reporting period beginning June 3, 2018 was reported under the new standard, while comparative financial information has not been adjusted and continues to be reported in accordance with the previous standard. The adoption of this standard did not impact the timing of revenue recognition for our customer sales. The adoption did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on the consolidated financial statements. For the Company, the most significant impact of the new standard is the addition of required disclosures within the notes to the financial statements. In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company elects the practical expedients (which must be elected as a package and applied consistently to all of our leases) for which we will not reassess: (1) whether any expired or existing contracts are or contains leases, (2) the lease classification for any expired or existing leases and (3) the initial indirect costs for any existing leases. We have also elected the practical expedient to combine lease and non-lease components for all of our leases. We have adopted an accounting policy to not apply the requirements of Topic 842 to leases with a term of 12 months or less, which the Company has within our facility leases. Short-term leases will be reassessed if events occur that disqualify them from short-term status. The new standard is effective for the Company on June 2, 2019. The FASB issued ASU 2018-11, targeted improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition. We will adopt the new standard on the effective date applying the new transition method allowed under ASU 2018-11. We are in the process of evaluating the impact that the new standard will have on the consolidated financial statements. We have begun evaluating and planning for adoption and implementation of this ASU, including reviewing all material leases, the ASU practical expedient guidelines and current accounting policy elections, and assessing the overall financial statement impact. While we continue to assess all of the effects of adoption, we are unable to quantify the impact at this time. he most significant |
