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Note 1 - Organization, Basis of Presentation, and Summary of Significant Accounting Policies | 9 Months Ended
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Feb. 26, 2017
Notes to Financial Statements |
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] |
1. | Organization, Basis of Presentation , and Summary of Significant Accounting Policies
Organization Landec Corporation and its subsidiaries (“ Landec” or the “Company”) design, develop, manufacture , and sell differentiated products for food and biomaterials markets , and license technology applications to partners. The Company has two proprietary polymer technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”) biopolymers. The Company sells specialty packaged branded Eat Smart® and GreenLine® and private label fresh-cut vegetables and whole produce to retailers, club stores , and foodservice operators, primarily in the United States, Canada , and Asia through its Apio, Inc. (“Apio”) subsidiary , and sells HA-based and non-HA biomaterials through its Lifecore Biomedical, Inc. (“Lifecore”) subsidiary. The Company’s HA biopolymers and non-HA materials are proprietary in that they are specially formulated for specific customers to meet strict regulatory requirements. The Company’s technologies, along with its customer relationships and tradenames, are the foundation, and a key differentiating advantage upon which Landec has built its business. Basis of Presentation The accompanying unaudited conso lidated financial statements of Landec have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10 -Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at February 26, 2017 and the results of operations and cash flows for all periods presented. Although Landec believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. The accompanying financial data should be reviewed in conjunction with the audited financial statements and accompanying notes included in Landec's Annual Report on Form 10 -K for the fiscal year ended May 29, 2016 . Certain prior period data has been reclassified in the consolidated financial statements and accompanying footnotes to conform to current period presentation. The resu lts of operations for the nine months ended February 26, 2017 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Apio’s food business, particularly, Apio’s export business , and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’s quarterly results of operations. Basis of Consolidation The consolidated financial statements are presented on the accrual basis of accounting in accorda nce with GAAP and include the accounts of Landec Corporation and its subsidiaries, Apio and Lifecore. All intercompany transactions and balances have been eliminated. Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities , and operations of a VIE if it is determined to be the primary beneficiary of the VIE. An entity is a VIE and subject to consolidati on, if by design: a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any party, including equity holders , or b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that its partnership interest in Apio Cooling, LP and its equity investment in the non-public company are not VIEs. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies; sales returns and allowances; self-insurance liabilities; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets including intangible assets and inventory; the valuation of investments; and the valuation and recognition of stock-based compensation. These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future tr ends can require extended periods of time to resolve and are subject to change from period to period. The actual results may differ from management’s estimates. Cash and Cash Equivalents The Company records all highly liquid securities with three month s or less from date of purchase to maturity as cash equivalents. Cash equivalents consist mainly of money market funds. The market value of cash equivalents approximates their historical cost given their short-term nature. Debt Issuance Costs The Company records its line of credit debt issuance costs as an asset, and as such, $120,000 and $431 ,000 was recorded as prepaid expenses and other current assets and other assets, respectively, as of February 26, 2017. The Company records its term debt issuance costs as a contra-liability, and as such, $60,000 and $216,000 was recorded as current portion of long-term debt and long-term debt, respectively, as of February 26, 2017. See Note 7 – Debt of the Notes to Consolidated Financial Statements for further information. Financial Instruments The Company ’s financial instruments are primarily composed of commercial-term trade payables, grower advances, notes receivable , and debt instruments. For short-term instruments, the historical carrying amount approximates the fair value of the instrument. The fair value of long-term debt approximates its carrying value . Cash Flow Hedges The Company entered into an interest rate swap agreement to manage interest rate risk. This derivative instrument may offset a portion of the changes in interest expense. The Company designates this derivative instrument as a cash flow hedge. The Company accounts for its derivative instrument as either an asset or a liability and carries it at fair value in Other assets or Other non-current liabilities. The accounting for changes in the fair value of the derivative instrument depends on the intended use of the derivative instrument and the resulting designation. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized in earnings in the current period. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. For additional information refer to Note 10 – Comprehensive Income . Investment in Non-Public Company On February 15, 2011, Apio purchased 150,000 senior preferred shares for $15 million and 201 common shares for $201 that were issued by Windset Holdings 2010 Ltd., a Canadian corporation (“Windset”). On July 15, 2014, Apio increased its investment in Windset by purchasing an additional 68 common shares and 51,211 junior preferred shares of Windset for $11 million. On October 29, 2014, Apio purchased an additional 70,000 senior preferred shares of Windset for $7 million. These investments are reported as an investment in non-public company, fair value, in the accompanying Consolidated Balance Sheets as of February 26, 2017 and May 29, 2016. The Company has elected to account for its investment in Windset under the fair value option. See Note 2 – Investment in Non-public Company for further information . Intangible Assets The Company ’s intangible assets are comprised of customer relationships with a finite estimated useful life of twelve to thirteen years , and trademarks, tradenames and goodwill with indefinite lives. Finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset (or asset gr oup) may not be recoverable. Indefinite lived intangible assets are reviewed for impairment at least annually. For goodwill and other indefinite-lived intangible assets, the Company performs a qualitative impairment analysis in accordance with Accounting Standards Codification (“ASC”) 350 - 30 - 35. Fair Value Measurements The Company uses fair value measurement accounting for financial assets and liabilities and for financial instruments and certain other items measured at fair value. The Company has elected the fair value option for its investment in a non-public company. See Note 2 – Investment in Non-public Company for further information. The Company has not elected the fair value option for any of its other eligible financial assets or liabilities. The accounting guidance established a three -tier hierarchy for fair va lue measurements, which prioritizes the inputs used in measuring fair value as follows: Level 1 – observable inputs such as quoted prices for identical instruments in active markets. Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data. Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions. As of February 26, 2017 and May 29, 2016, the Company held certain assets that are required to be measured at fair value on a recurring basis, including its interest rate swap and its minority interest investment in Windset . The fair value of the Company ’s interest rate swap is determined based on model inputs that can be observed in a liquid market, including yield curves, and is categorized as a Level 2 measurement and is recorded as other assets in the Consolidated Balance Sheet. The Company has elected the fair value opti on of accounting for its investment in Windset. The calculation of fair value utilizes significant unobservable inputs, including projected cash flows, growth rates , and discount rates. As a result, the Company’s investment in Windset is considered to be a Level 3 measurement investment. The change in the fair value of the Company’s investment in Windset for the nine months ended February 26, 2017 was due to the Company’s 26.9% minority interest in the change in the fair market value of Windset during the period. In determining the fair value of the investment in Windset, the Company utilizes the following significant unobservable inputs in the discounted cash flow models:
|  | February 26, 2017 |  |  | May 29, 2016 |
Revenue growth rates |  |  | 4% |  |  |  | 4% |
Expense growth rates |  |  | 4% |  |  |  | 4% |
Income tax rates |  |  | 15% |  |  |  | 15% |
Discount rates |  |  | 12% |  |  |  | 12.5% |
The revenue growth, expense growth , and income tax rate assumptions are considered the Company's best estimate of the trends in those items over the discount period. The discount rate assumption takes into account the risk-free rate of return, the market equity risk premium , and the company’s specific risk premium and then applies an additional discount for lack of liquidity of the underlying securities. The discounted cash flow valuation model used by the Company has the following sensitivity to changes in inputs and assumptions (in thousands):
|  | Impact on value of investment in Windset as of February 26, 2017 |
10% increase in revenue growth rates |  | $ | 7,200 |
10% increase in expense growth rates |  | $ | (2,100 | )
10% increase in income tax rates |  | $ | (400 | )
10% increase in discount rates |  | $ | (4,300 | )
Imprecision in estimating unobservable market inputs can affect the amount of gain or loss recorded for a particular position. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|  | Fair Value at February 26, 2017 |  |  | Fair Value at May 29, 2016 |
Assets: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Interest rate swap (1) |  | $ | — |  |  | $ | 681 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Investment in non-public company |  |  | — |  |  |  | — |  |  |  | 63,400 |  |  |  | — |  |  |  | — |  |  |  | 62,700 |
Total |  | $ | — |  |  | $ | 681 |  |  | $ | 63,400 |  |  | $ | — |  |  | $ | — |  |  | $ | 62,700 |
| (1) | Recorded in Other assets.
Revenue Recognition See Note 1 1 – Business Segment Reporting, for a discussion about the Company’s four business segments; namely, Packaged Fresh Vegetables, Food Export, Biomaterials, and Corporate. Revenue from product sales is recognized when there is persuasive evidence that an arrangement exists, title has transferred, the price is fixed and determinable, and collectability is reasonably assured. Allowances are established for estimated uncollect ible amounts, product returns, and discounts based on specific identification and historical losses. Apio ’s Packaged Fresh Vegetables revenues generally consist of revenues generated from the sale of specialty packaged fresh-cut and whole value-added vegetable products that are generally washed and packaged in Apio’s proprietary packaging and sold under Apio’s Eat Smart and GreenLine brands and various private labels. Revenue is generally recognized upon shipment of these products to customers. The Company takes title to all produce it trades and/or packages, and therefore, records revenues and cost of sales at gross amounts in the Consolidated Statements of Comprehensive Income. In addition, Packag ed Fresh Vegetables revenues include the revenues generated from Apio Cooling, LP, a vegetable cooling operation in which Apio is the general partner with a 60% ownership position , and from the sale of BreatheWay® packaging to license partners. Revenue is recognized on the vegetable cooling operations as cooling and storage services are provided to Apio’s customers. Sales of BreatheWay packaging are recognized when shipped to Apio’s customers. Apio ’s Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia through its subsidiary, Cal-Ex Trading Company (“Cal-Ex”). As most Cal-Ex customers are in countries outside of the U.S., title transfers and revenue is generally recognized upon arrival of the shipment in the foreign port. Apio records revenue equal to the sale price to third parties because it takes title to the product while in transit. Lifecore ’s Biomaterials business principally generates revenue through the sale of products containing HA. Lifecore primarily sells products to customers in three medical areas: (1) Ophthalmic, which represented approximately 55% of Lifecore’s revenues in fiscal year 2016, (2) Orthopedic, which represented approximately 20% of Lifecore’s revenues in fiscal year 2016 , and (3) Other/Non-HA products, which represented approximately 25% of Lifecore’s revenues in fiscal year 2016. The vast majority of Lifecore’s revenues are recognized upon shipment. Lifecore ’s business development revenues, a portion of which are included in all three medical areas, are related to contract research and development (“R&D”) services and multiple element arrangement services with customers where the Company provides products and/or services in a bundled arrangement. Contract R&D revenue is recorded as earned, based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations ex ist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payment is received or collection is assured. For sales arrangements that contain multiple elements, the Company splits the arrangement into separate un its of accounting if the individually delivered elements have value to the customer on a standalone basis. The Company also evaluates whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby the Company assesses, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. The Company then allocates revenue to each element based on a selling price hierarchy. The relative selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third -party evidence (“TPE”), if VSOE is not available, or estimated selling price, if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. The Company is not typically able to determine VSOE or TPE, and therefore, uses the estimated selling price to allocate revenue between the elements of an arrangement. The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent o n the future delivery of products or services or future performance obligations or subject to customer-specific cancellation rights. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value, and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by the Company. The Company considers a deliverable to have stand-alone value if the product or service is sold separately by the Company or another vendor or could be resold by the customer. Further, the revenue arrangements generally do not include a general right of return relative to delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. The Company allocates the total arrangement consideration to each separable element of an arrangement based upon the relative selling price of each element. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. In instances where the Company has not established fair value for any undelivered element, revenue for all elements is deferred until delivery of the final element is completed and all recognition criteria are met. For licensing revenue, the initial license fees are deferred and amortized to revenue over the period of the agreement when a contract exists, the fee is fixed and determinable, and collectability is reasonably assured. Noncancellable, nonrefundable license fees are recognized over the period of the agreement, including those governing research and development activities and any related supply agreement entered into concurrently with the license when the risk associated with commercialization of a product is non-substantive at the outset of the arrangement. From time to time, the Company offers customers sales incentives, which include volume r ebates and discounts. These amounts are estimated on a quarterly basis and recorded as a reduction of revenue. A summary of revenues by type of arrangement as described above is as follows (in thousands):
|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 26, 2017 |  |  | February 28, 2016 |  |  | February 26, 2017 |  |  | February 28, 2016 |
Recorded upon shipment |  | $ | 125,765 |  |  | $ | 118,789 |  |  | $ | 339,917 |  |  | $ | 341,914 |
Recorded upon acceptance in foreign port |  |  | 7,276 |  |  |  | 6,389 |  |  |  | 56,316 |  |  |  | 50,873 |
Revenue from multiple element arrangements |  |  | 2,624 |  |  |  | 4,025 |  |  |  | 5,892 |  |  |  | 9,672 |
Revenue from license fees, R&D contracts and royalties/profit sharing |  |  | 903 |  |  |  | 787 |  |  |  | 2,702 |  |  |  | 3,327 |
Total |  | $ | 136,568 |  |  | $ | 129,990 |  |  | $ | 404,827 |  |  | $ | 405,786 |
Legal Contingencies In the ordinary course of business, the Company is involved in various legal proceedings and claims. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred. Apio has been the target of a union organizing campaign which has included two unsuccessful attempts to unionize Apio's Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific H arvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio's plant labor contractors, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against Apio and Pacific Harvest. The Company has been a co-defendant in civil actions and administrative actions involving claims filed by current and past employees of Pacific Harvest. The legal actions consist of three main types of claims: (1) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board ("NLRB"), (2) discrimination/wrongful termination claims before state and federal agencies and in individual arbitrations, and (3) wage and hour claims as part of two Private Attorney General Act ("PAGA") cases in state court and in over 100 individual arbitrations. A settlement of the ULPs among a union, Apio, and Pacific Harvest that were pending before the NLRB was approved on December 27, 2016 for $310,000. Apio was responsible for half of this settlement, or $155,000. Concerning the discriminat ion/wrongful termination claims and the wage and hour claims, on February 23, 2017, the parties agreed in principle to a class action settlement which covers all non-exempt employees of Pacific Harvest working at Apio's Guadalupe, California processing facility. This settlement remains subject to all of the plaintiffs executing the settlement agreement, and the settlement agreement being approved by the Santa Barbara County Superior Court. Under the settlement agreement, the plaintiffs will be paid $6.0 million in three installments: $2.4 million in April 2017, $1.8 million in November 2017, and $1.8 million in July 2018. The Company and Pacific Harvest have each agreed to pay one half of the settlement. Based on the initial number of asserted claims and the initial length of time covered by the claims, Apio had recorded a legal settlement contingency accrual of $1.3 million as of November 27, 2016, which the Company believed at that time was sufficient to resolve its share of the costs of the legal actions prior to the broader settlement ultimately reached; which significantly increased the number of potential claims and the number of past years covered in the final settlement, thus resulting in the higher final settlement amount. During the three and nine months ended February 26, 2017, the Company recorded a legal settlement charge of $2.1 million and $2.6 million, respectively, relating to these actions. As of February 26, 2017, the Company had accrued $3.2 million relating to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheet. Recently Adopted Accounting Guidance Debt Extinguishment Costs In Augus t 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016 - 15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016 - 15”). ASU 2016 - 15 clarifies how entities should classify certain cash receipts and cash payments in the statement of cash flows and amends certain disclosure requirements of ASC 230. ASU 2016 - 15 is intended to reduce diversity in practice with respect to eight types of cash flows including debt prepayment or debt extinguishment costs; proceeds from settlement of insurance claims; classification of cash receipts and payments that have aspects of more than one class of cash; and contingent consideration payments made after a business combination. The guidance is effective for fiscal years beginning after 15 December 2017, and interim periods within those years. Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt ASU 2016 - 15 effective November 27, 2016 . The adoption had no impact on our consolidated financial statements or related disclosures. The Company paid $233,000 of early debt extinguishment penalties during the fiscal quarter ended November 27, 2016. Debt Issuance Costs In April 2015, the FASB issued ASU 2015 - 03, Interest - Imputation of Interest (Subtopic 835 - 30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015 - 03”). The new guidance requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as an asset , except in instances where proceeds from the related debt agreement have not been received. In August 2015, the FASB issued ASU 2015 - 15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements (“ASU 2015 - 15”). ASU 2015 - 15 amends Subtopic 835 - 30 to clarify that the Securities and Exchange Commission would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the arrangement. The Company adopted ASU 2015 - 03 and ASU 2015 - 15 during its first fiscal quarter ended August 28, 2016 with retrospective application to its May 29, 2016 consolidated balance sheet. The effect of the adoption of ASU 2015 - 03 was to reclassify total debt issuance costs of $817,000 as of May 29, 2016 as a deduction from the related debt liabilities. Accordingly, the May 29, 2016 consolidated balance sheet was adjusted as follows: (1) prepaid expenses and other current assets and total current assets were reduced by $175 ,000 and current portion of long-term debt and total current liabilities were reduced by the same; (2) other assets were reduced by $642,000 and long-term debt was reduced by the same; and (3) total assets were reduced by $817,000 and total liabilities were reduced by the same. There was no effect related to the adoption of ASU 2015 - 15 given the Company has historically presented line of credit debt issuance costs as an asset, and as such, $120,00 0 and $431 ,000 remain as prepaid expenses and other current assets and other assets, respectively, as of February 26, 2017 . ASU 2015 - 03 and ASU 2015 - 15 do not impact the income statement accounting for debt issuance costs; therefore, these costs will continue to be amortized to interest expense over the term of the related debt instruments. There was no effect on net income. Stock-Based Compensation In March 2016, the FASB issued ASU 2016 - 09 , Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016 - 09”). The new guidance changes the accounting for certain aspects of stock-based payments to employees and requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity in the Company’s consolidated statements of cash flows and provides an accounting policy election to account for forfeitures as they occur. Finally, the new guidance eliminates the requirement to delay the recognition of excess tax benefits until it reduces current taxes payable. The new standard is effective for the Company beginning May 29, 2017, with early adoption permitted. The C ompany elected to early adopt the new guidance in the quarter beginning May 30, 2016 . Accordingly, the primary effects of the adoption are as follows: (1) using a modified retrospective application, the Company recorded unrecognized excess tax benefits of $549 ,000 as a cumulative-effect adjustment, which increased retained earnings , and reduced deferred taxes by the same, (2) using a modified retrospective application, the Company has elected to recognize forfeitures as they occur and recorded a $200,000 increase to additional paid-in capital , a $126,000 reduction to retained earnings, and a $74,000 reduction to deferred taxes to reflect the incremental stock-based compensation expense, net of the related tax impacts, that would have been recognized in prior years under the modified guidance, and (3) $90,000 in excess tax benefits from stock-based compensation was reclassified from cash flows from financing activities to cash flows from operating activities for the nine months ended February 26, 2017 in the consolidated statements of cash flows. See Note 5 – Income Taxes for further information regarding additional effects related to the prospective application of excess tax benefits and tax deficiencies related to stock-based compensation on the Company’s financial statements. Recent Accounting Guidance Not Yet Adopted Leases In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842) (“ASU 2016 - 02”), which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use-assets. ASU 2016 - 02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2020 on a modified retrospective basis, with early adoption permitted. Management is currently evaluating the effect ASU 2016 - 02 will have on the Company's Consolidated Financial Statements and disclosures. Revenue Recognition In May 2014, the FASB issued ASU 2014 - 09, which creates FASB ASC Topic 606 , Revenue from Contracts with Customers and supersedes ASC Topic 605, Revenue Recognition (“ASU 2014 - 09”). The guidance replaces industry-specific guidance and establishes a single five -step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. The effective date of ASU 2014 - 09 was deferred by the issuance of ASU 2015 - 14, Revenue from Contracts with Customers: Deferral of the Effective Date , (Topic 606) by one year to make the guidance of ASU 2014 - 09 effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted, but not prior to the original effective date, which was for annual reporting periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016 - 08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net ), which clarifies how to apply the implementation guidance on principal versus agent considerations related to the sale of goods or services to a customer as updated by ASU 2014 - 09. In April 2016, the FASB issued ASU 2016 - 10, Revenue from Contracts with Customers ( Topic 606 ) Identifying Performance Obligations and Licensing, which clarifies two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas, as updated by ASU 2014 - 09. In May 2016, the FASB issued ASU 2016 - 12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients , which makes narrow scope amendments to Topic 606 including implementation issues on collectability, non-cash consideration and completed contracts at transition. The Company is currently assessing the future impact of this guidance on its consolidated financial statements and related disclosures and expects to adopt these updates beginning with the first quarter of its fiscal year 2019.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64851502&loc=d3e6003-108592 + Details
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