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Business And Summary Of Significant Accounting Policies | 12 Months Ended
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Sep. 02, 2017
Business And Summary Of Significant Accounting Policies [Abstract] |
Business And Summary Of Significant Accounting Policies | 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ﻿ Business ﻿ MSC Industrial Direct Co., Inc. (together with its subsidiaries, the “Company” or “MSC”) is a distributor of metalworking and maintenance, repair and operations (“MRO”) supplies with co-located headquarters in Melville, New York and Davidson, North Carolina. The Company has an additional office support center in Southfield, Michigan and serves primarily domestic markets through its distribution network of 93 branch offices and 12 customer fulfillment centers. ﻿ Principles of Consolidation ﻿ The accompanying consolidated financial statements include the accounts of MSC and its subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated in consolidation. ﻿ Fiscal Year ﻿ The Company’s fiscal year is on a 52 or 53 week basis, ending on the Saturday closest to August 31 st of each year. The financial statements for fiscal year s 2017 and 2015 contain activity for 52 weeks while fiscal year 2016 contains activity for 53 weeks. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. ﻿ Use of Estimates ﻿ The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, 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. Actual results could differ from those estimates and assumptions used in preparing the accompanying consolidated financial statements. ﻿ Cash and Cash Equivalents ﻿ The Company considers all short-term, highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. ﻿ Concentrations of Credit Risk ﻿ The Company’s mix of receivables is diverse, selling its products primarily to end-users. The Company’s customer base represents many diverse industries primarily concentrated in the United States. The Company performs periodic credit evaluations of its customers’ financial condition and collateral is generally not required. Our standard receivable terms generally provide for payment of invoices within 30 days. The Company evaluates the collectability of accounts receivable based on numerous factors, including past transaction history with customers and their credit worthiness and provides a reserve for accounts that are potentially uncollectible. ﻿ The Co mpany’s cash include s deposits with commercial banks. The terms of these deposits and investments provide that all monies are available to the Company upon demand. The Company main tains the majority of its cash with high quality financial institutions. Deposits held with banks may exceed insurance limits. While MSC monitors the creditworthiness of these commercial banks and financial institutions, a crisis in the United States financial systems could limit access to funds and/or result in a loss of principal. ﻿ Allowance for Doubtful Accounts ﻿ The Company establishes reserves for customer accounts that are deemed uncollectible. The method used to estimate the allowances is based on several factors, including the age of the receivables and the historical ratio of actual write-offs to the age of the receivables. These analyses also take into consideration economic conditions that may have an impact on a specific industry, group of customers or a specific customer. While the Company has a broad customer base, representing many diverse industries primarily in all regions of the United States, a general economic downturn could result i n higher than expected defaults and, therefore, the need to revise estimates for bad debts. ﻿ Inventory Valuation ﻿ Inventories consist of merchandise held for resale and are stated at the lower of weighted average cost or market. The Company eva luates the recoverability of its slow-moving or obsolete inventories quarterly. The Company estimates the recoverable cost of such inventory by product type while considering such factors as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand. The Company’s ability to recover its cost for slow-moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand, and relationships with suppliers. Substantially all of the Company’s inventories have demonstrated long shelf lives and are not highly susceptible to obsolescence. In addition, many of the Company’s inventories are eligible for return under various supplier rebate programs. ﻿ Property, Plant and Equipment ﻿ Property, plant and equipment and capitalized computer software are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred; costs of major renewals and improvements are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income. ﻿ Depreciation and amortization of property, plant and equipment are computed for financial reporting purposes on the straight-line method based on the estimated useful lives of the assets. Leasehold improvements are amortized over either their respective lease terms or their estimated lives, whichever is shorter. Estimated useful lives range from three to forty years for leasehold improvements and buildings and three to twenty years for furniture, fixtures, and equipment. ﻿ Capitalized computer software costs are amortized using the straight-line method over the estimated useful life. These costs include purchased software packages, payments to vendors and consultants for the development, implementation or modification of purchased software packages for Company use, and payroll and related costs for employees associated with internal-use software projects. Capitalized computer software costs are included within property, plant and equipment on the Company’s consolidated balance sheets. ﻿ Goodwill and Other Indefinite-Lived Intangible Assets ﻿ The Company’s business acquisitions typically result in the recording of goodwill and other intangible assets, which affect the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods. Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. The Company annually reviews goodwill and intangible assets that have indefinite lives for impairment in its fiscal fourth quarter and when events or changes in circumstances indicate the carrying values of these assets might exceed their current fair values. Goodwill and indefinite-lived intangible assets are tested for impairment by first evaluating qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived int angible assets are less than their carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. Based on the qualitative assessment of goodwill performed by the Company in its respective fiscal fourth quarters, there was no indicator of impairment of goodwill for fiscal years 2017, 2016 and 2015. Based on the qualitative assessment of intangible assets that have indefinite lives performed by the Company in its fiscal fourth quarters of 2017 and 2016 and the quantitative assessment performed by the Company in its fiscal fourth quarter of 2015, there were no indicators of impairment of intangible assets that have indefinite lives. ﻿ The balances and changes in the carrying amount of goodwill are as follows: ﻿
﻿ |  |  |
﻿Balance as of August 29, 2015 |  | $ | 623,626
﻿Foreign currency translation adjustments |  |  | 455
﻿Balance as of September 3, 2016 |  |  | 624,081
﻿Acquisition(1) |  |  | 8,318
﻿Foreign currency translation adjustments |  |  | 1,329
﻿Balance as of September 2, 2017 |  | $ | 633,728
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| (1) |  | Acquired DECO Tool Supply Co. (“DECO”) in July 2017. See Note 4 “Business Combination” for further discussion on this transaction.
﻿ The components of the Company’s other intangible assets for the fiscal years ended September 2, 2017 and September 3, 2016 are as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  | For the Fiscal Years Ended
﻿ |  |  |  |  |  | September 2, 2017 |  | September 3, 2016
﻿ |  | Weighted Average Useful Life (in years) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Gross Carrying Amount |  | Accumulated Amortization
﻿Customer Relationships |  | 5 | - | 18 |  | $ | 187,260 |  | $ | (92,381) |  | $ | 175,160 |  | $ | (85,316)
﻿Contract Rights |  |  | 10 |  |  |  | 23,100 |  |  | (23,100) |  |  | 23,100 |  |  | (23,100)
﻿Trademark |  | 1 | - | 5 |  |  | 4,403 |  |  | (3,058) |  |  | 3,613 |  |  | (2,282)
﻿Trademarks |  | Indefinite |  |  | 14,205 |  |  | — |  |  | 14,132 |  |  | —
﻿Total |  |  |  |  |  | $ | 228,968 |  | $ | (118,539) |  | $ | 216,005 |  | $ | (110,698)
﻿ For fiscal years 2017 and 2016, the Company recorded approximately $12,980 and $112 of intangible assets, respect ively, consisting of intangible assets acquired through the DECO acquisition and from the registration and application of new trademarks. See N ote 4 “Business Combination” for further discussion. Approximately $17 and $397 in gross intangible assets, and any related accumulated amortization, were written off related to trademarks that are no longer being utilized during fiscal years 2017 and 2016, respectively. The Company’s amortizable intangible assets are recorded on a straight-line basis, including customer relationships, as it approximates customer attrition patterns and best estimates the use pattern of the asset. Amortization expense of the Company’s intangible assets was $8,223, $14,478, and $16,580 during fiscal years 2017, 2016, and 2015, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows: ﻿
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﻿ |  |
﻿Fiscal Year |  |
﻿2018 |  | $9,737
﻿2019 |  | 8,559
﻿2020 |  | 7,685
﻿2021 |  | 7,001
﻿2022 |  | 6,986
﻿ Impairment of Long-Lived Assets ﻿ The Company periodically evaluates the net realizable value of long-l ived assets, including definite-lived intangible assets and property and equipment, relying on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flows. Impairment is assessed by evaluating the estimated undiscounted cash flows over the asset’s remaining life. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized. No impairment loss was required to be recorded by the Company during fiscal years 2017, 2016 and 2015. ﻿ Deferred Catalog Costs ﻿ The costs of producing and distributing the Company’s principal catalogs are deferred ($4,778 and $5,174 at September 2, 2017 and September 3, 2016, respectively) and included in other assets in the Company’s consolidated balance sheets. These costs are charged to expense over the period that the catalogs remain the most current source of sales, which is typically one year or less from the date the catalogs are mailed. The costs associated with brochures and catalog supplements are charged to expense as distributed. The total amount of advertising costs, net of co-operative advertising income from vendor-sponsored programs, included in operating expenses in the co nsolidated statements of income was approximately $16,289, $19,242 and $24,101 during the fiscal years 2017, 2016, and 2015, respectively. ﻿ Revenue Recognition ﻿ The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. In most cases, these conditions are met when the product is shipped to the customer or services have been rendered. In cases where the product is shipped directly to the customer, the Company recognizes revenue at the time of shipment primarily on a gross basis. The Company’s standard shipping terms are FOB shipping point. Sales made through the Company’s eCommerce platforms, which accounted for 60.1% of our fiscal 2017 revenues, are recognized on the same terms as revenues through other channels. The Company reports its sales net of the amount of actual sales returns and the amount of reserves established for anticipated sales returns based upon historical return rates. Sales tax collected from customers is excluded from net sales in the accompanying consolidated statements of income. ﻿ Gross Profit ﻿ Gross profit primarily represents the difference between the sale price to our customers and the product cost from our suppliers (net of earned rebates and discounts) including the cost of inbound freight. The cost of outbound freight (including internal transfers), purchasing, receiving and warehousing are inc luded in operating expenses. The Company’s gross profit may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in cost of sales. ﻿ Vendor Consideration ﻿ The Company records cash consideration received for advertising costs incurred to sell the vendor’s products as a reduction of the Company’s advertising costs and is reflected in operating expenses in the consolidated statements of income. In addition, the Company receives volume rebates from certain vendors based on contractual arrangements with such vendors. Rebates received from these vendors are recognized as a reduction to the cost of goods sold in the consolidated statements of income when the inventory is sold. ﻿ Product Warranties ﻿ The Company generally offers a maximum one-year warranty, including parts and labor, for some of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. The Company may be able to recoup some of these costs through product warranties it holds with its original equipment manufacturers, which typically range from thirty to ninety days. In general, many of the Company’s general merchandise products are covered by third-party original equipment manufacturers’ warranties. The Company’s warranty expense has been minimal. ﻿ Shipping and Handling Costs ﻿ The Company includes shipping and handling fees billed to customers in net sales and shipping and handling costs associated with outbound freight in operating expenses in the accompanying consolidated statements of income. The shipping and handling costs in operating expenses were approximately $119,979, $118,174, and $123,900 during fiscal years 2017, 2016, and 2015, respectively. ﻿ Stock-Based Compensation ﻿ In accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), the Company estimates the fair value of share-based payment awards on the date of grant. The value of awards that are ultimately expected to vest is recognized as an expense over the requisite service periods. The fair value of the Company’s restricted stock awards and units is based on the closing market price of the Company’s common stock on the date of grant. The Company estimated the fair value of stock options granted using a Black-Scholes option-pricing model. This model requires the Company to make estimates and assumptions with respect to the expected term of the option, the expected volatility of the price of the Company’s common stock and the expected forfeiture rate. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. ﻿ The expected term is based on the historical exercise behavior of grantees, as well as the contractual life of the option grants. The expected volatility factor is based on the volatility of the Company's common stock for a period equal to the expected term of the stock option. In addition, forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses his torical data to estimate pre-vesting option and restricted stock award and unit forfeitures and record stock-based compensation expense only for those awards that are expected to vest. ﻿ In fiscal 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ﻿ Treasury Stock ﻿ The Company accounts for treasury stock under the cost method, using the first-in, first-out flow assumption, and is included in “Class A treasury stock, at cost” on the accompanying consolidated balance sheets. When the Company reissues treasury stock, the gains are recorded in additional paid-in capital (“APIC”), while the losses are recorded to APIC to the extent that the previous net gains on the reissuance of treasury stock are available to offset the losses. If the loss is larger than the previous gains available, then the loss is recorded to retained earnings. When treasury stock is retired, the par value of the repurchased shares is deducted from common stock and the excess repurchase price over par is deducted by allocation to both APIC and retained earnings. The amount allocated to APIC is calculated as the original cost of APIC per share outstanding using the first-in, first-out flow assumption and is applied to the number of shares repurchased. Any remaining amount is allocated to retained earnings. ﻿ Related Party Transactions ﻿ Atlanta CFC Purchase ﻿ In August 201 6, the Company’s subsidiary, Sid Tool Co., Inc. (“Sid Tool”) completed a transaction with Mitchmar Atlanta Properties, I nc. (“Mitchmar”) to purchase the Atlanta Customer Fulfillment Center (“CFC”) and the real property on which the Atlanta CFC is situated for a purchase price of $33,650. Sid Tool had leased the Atlanta CFC from Mitchmar since 1989. Mitchmar is owned by Mitchell Jacobson, the Company’s Chairman, and his sister, Marjorie Gershwind Fiverson, and two family-related trusts, and the beneficiaries of one of such trusts include the children of Erik Gershwind, the Company’s Chief Executive Officer. The purchase price was determined by an independent appraisal process, as provided in the lease agreement for the Atlanta facility. ﻿ The transaction was approved by the Company’s Board of Directors upon the recommendation of a special committee of independent directors which was responsible for evaluating the terms of the transaction. Both the Company’s Board of Directors and the special committee determined that the transaction was in the best interests of the Company and its shareholders. The special committee was advised by independent counsel in connection with its evaluation and negotiation of the terms of the transaction and the purchase agreement. ﻿ The Company paid rent under an operating lease to Mitchmar of approximately $2,110 and $2,318, respectively, for fiscal years 2016 and 2015 in connection with our occupancy of our Atlanta CFC. ﻿ Stock Purchase Agreement ﻿ In connection with a “modified Dutch auction” tender offer commenced on July 7, 2016, the Company purchased an aggregate of 1,152 shares of its Class A common stock from Mitchell Jacobson, the Company’s Chairman, his sister, Marjorie Gershwind Fiverson, Erik Gershwind, the Company’s President and Chief Executive Officer, and two other beneficial owners (collectively, the “Sellers”) of the Company’s Class B common stock at a purchase price of $72.50 per share, for an aggregate purchase price of approximately $83,524. The purcha se price per share paid to the S ellers pursuant to the Stock Purchase Agreement was equal to the purchase price per share paid to shareholders whose shares were purchased in the Company’s tender offer. ﻿ Fair Value of Financial Instruments ﻿ The carrying values of the Company’s financial instruments, including cash, receivables, accounts payable and accrued liabilities, approximate fair value because of the short maturity of these instruments. In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s capital lease obligations also approximate fair value. The fair value of the Company’s taxable bonds is estimated based on observable inputs in non-active markets. Under this method, the Company’s fair value of the taxable bonds was not significantly different than the carrying value at September 2, 2017 and September 3, 2016. The fair value s of the Company’s long-term debt, including current maturities, are estimated based on quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. Under this method, the Company’s fair value of any long-term obligations was not significantly different than the carrying values at September 2, 2017 and September 3, 2016. ﻿ Foreign Currency ﻿ The local currency is the functional currency for all of MSC’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive income within shareholders’ equity. Gains and losses from foreign currency transactions are included in net income for the period. ﻿ Income Taxes ﻿ The Company has established deferred income tax assets and liabilities for temporary differences between the financial reporting bases and the income tax bases of its assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled pursuant to the provisions of ASC Topic 740, “Income Taxes”, which prescribes a comprehensive model for the financial statement recognition, measurement, classification, and disclosure of uncertain tax positions. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In fiscal 2017, the Company adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, and reclassified all current deferred taxes and the related valuation allowances to noncurrent positions on the Consolidated Balance Sheets. The amounts of unrecognized tax benefits, exclusive of interest and penalties that would affect the effective tax rate, were $5,689 and $4,432 as of September 2, 2017 and September 3, 2016, respectively. ﻿ Comprehensive Income ﻿ Comprehensive income consists of consolidated net income and foreign currency translation adjustments. Foreign currency translation adjustments included in co mprehensive income were not tax-effected as investments in international affiliates are deemed to be permanent. ﻿ Geographic Regions ﻿ The Company’s sales and assets are predominantly generated from United States locations. Sales and assets related to the United Kingdom (the “U.K.”) and Canada branches are not significant to the Company’s total operations. For fiscal 2017, U.K. and Canadian operations represented approximately 3% of the C ompany’s consolidated net sales. ﻿ Segment Reporting ﻿ The Company utilizes the management approach for segment disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reportable segments. We operate in one operating and reportable segment as a distributor of metalworking and MRO products and services. The Company’s chief opera ting decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for purposes of allocating resources. Substantially all of the Company’s revenues and long-lived assets are in the United States. We do not disclose revenue information by product category as it is impracticable to do so as a result of our numerous product offerings and the way our business is managed. ﻿ Business Combinations ﻿ The Company accounts for business combinations in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). A SC 805 established principles and requirements for recognizing the total consideration transferred to and the assets acquired, liabilities assumed and any non-controlling interest in the acquired target in a business combination. ASC 805 also provides guidance for recognizing and measuring goodwill acquired in a business combination and requires the acquirer to disclose information that users may need to evaluate and understand the financial impact of the bu siness combination. See Note 4 “Business Combination” for fur ther discussion. ﻿ Recently Adopted Accounting Pronouncements ﻿ Share-based Payments ﻿ In March 201 6, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The Company early adopted ASU 2016-09 in the second quarter of fiscal 2017, which required us to reflect any adjustments as of September 4, 2016, the beginning of the annual period that includes the interim period of adoption. Prior fiscal year periods were not retrospectively adjusted. ﻿ The new standard requires that excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises be recognized in the income statement. Previously, these amounts were recognized in additional paid-in capital. In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be excluded from the assumed future proceeds in the calculation of diluted shares. ﻿ Furthermore, the Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur. The standard also requires that excess tax benefits from share-based compensation awards be reported as operating activities in the consolidated statements of cash flows. Previously, these cash flows were included in financing activities. The Company elected to apply this change on a prospective basis. Additionally, ASU 2016-09 requires that employee taxes paid when an em ployer withholds shares for tax withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these. Finally, the new guidance will allow an employer with a statutory income tax withholding obligation to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate in the employee’s applicable jurisdiction. The Company will continue to withhold the minimum statutory withholding obligation for outstanding awards. ﻿ Adoption of the new standard affected our previously reported fiscal first quarter of 2017 net income per share as follows: ﻿
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﻿ |  | Thirteen Weeks Ended
﻿ |  | December 3, 2016
﻿ |  | (unaudited)
﻿ |  | As Reported |  | As Adjusted
﻿Condensed Consolidated Statements of Income: |  | (in thousands, except per share data)
﻿Provision for income taxes |  | $ | 33,442 |  | $ | 33,257
﻿Net income |  | $ | 54,103 |  | $ | 54,288
﻿Per share information: |  |  |  |  |  |
﻿Net income per common share: |  |  |  |  |  |
﻿ Basic |  | $ | 0.96 |  | $ | 0.96
﻿ Diluted |  | $ | 0.95 |  | $ | 0.96
﻿Weighted average shares used in computing net income per common share: |  |  |  |  |  |
﻿ Basic |  |  | 56,381 |  |  | 56,381
﻿ Diluted |  |  | 56,572 |  |  | 56,608
﻿ Deferred Taxes ﻿ In November 201 5, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This update requires an entity to classify deferred tax liabilities and assets as non-current within a classified balance sheet. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The FASB allowed early adoption of this standard and, therefore, the Company prospectively adopted ASU 2015-17 during its first quarter of fiscal 2017. As a result of adopting this standard, $46,627 of deferred income taxes that were previously presented as a current asset are now included within long-term liabilities, as the Company was in a net deferred tax liability position in its first quarter of fiscal 2017 which was the time of adoption. Prior periods were not retrospectively adjusted. ﻿ Presentation of Debt Issuance Costs ﻿ In April 201 5, the FASB issued ASU No. 201 5-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. F or public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The FASB allowed early adoption of this standard and, therefore, the Company adopted ASU 2015-03 during the fourth quarter of fiscal 2016. As a result of adopting this standard on a retrospective basis, $1,020 of debt issuance costs that were previously presented in long-term other assets as of August 29, 2015 are now included within current maturities of long-term debt and long-term debt, net of current maturities. ﻿ Accounting Pronouncements Not Yet Adopted ﻿ Goodwill Impairment ﻿ In January 201 7, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 in the goodwill impairment test that required an entity to calculate the implied fair value of goodwill. An entity will now apply a one-step quantitative test and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019. The new standard is effective for the Company for its fiscal 2021 fourth quarter goodwill impairment test. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements. ﻿ Business Combinations ﻿ In January 201 7, the FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard is effective for the Company for its fiscal 2019 first quarter, with early adoption permitted. The amendments are to be applied prospectively to business combinations that occur after the effective date. ﻿ Leases ﻿ In February 201 6, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. ASU 2016-02 requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. ASU 2016-02 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. The new standard is effective for the Company for its fiscal 2020 first quarter. The guidance will be applied on a modified retrospective basis beginning with the earliest period presented. The Company is currently evaluating this standard to determine the impact of adoption on its consolidated financial statements. ﻿ Simplifying the Measurement of Inventory ﻿ In July 2015, the FASB issued ASU No. 201 5-11, Simplifying the Measurement of Inventory (Topic 330), which requires an entity to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. For public entities, the updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The guidance is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The new standard is effective for the Company for its fiscal 2018 first quarter. The Company does not expect adoption of ASU 2015-11 to have a material impact on its financial position, results of operations or cash flows. ﻿ Revenue from Contracts with Customers ﻿ In May 201 4, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company for its fiscal 2019 first quarter. Early application is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. To date, the Company has performed a preliminary detailed review of key contracts and compared historical accounting policies and practices to the new standard. While the Company is still evaluating this standard, it is not expected that this standard will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate ASU 2014-09 and other amendments and related interpretive guidance through the date of adoption. The Company expects to adopt ASU 2014-09 under the modified retrospective approach in the first quarter of fiscal 2019. Reclassifications ﻿ The Company combined the revolving credit note and current maturities of long-term debt into short-term debt for the prior year in the Consolidated Balance Sheets in order to conform to the current period’s presentation.

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