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ACCOUNTING POLICIES | 12 Months Ended
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Dec. 29, 2018
ACCOUNTING POLICIES [Abstract] |
ACCOUNTING POLICIES | 2. Accounting Policies Fiscal Year The Company's year ends on the Saturday nearest to December 31. Fiscal Years, 2018 and 2017, were 52 week each. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions are eliminated. Reclassification Commencing with the first quarter of 2018, pension service costs have been broken out and reclassified from the gains and losses associated with the pension assets. Additionally, for 2017 $193,943 of gains associated with pensions assets have been reclassified from cost of goods sold to other income for comparability between the two periods. The reclassification of these expenses does not affect the net income reported. Commencing with the third quarter of 2017, product development expenses have been separately identified for all periods presented. These expenses have been reclassified from cost of products sold and selling and administrative expenses. Product development expense is not necessarily a cost of product sold. Rather, these expenses are related to product development. The reclassification of these expenses does not affect the net income reported. 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 the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis the Company evaluates its estimates, including those related to product returns, bad debts, carrying value of inventories, intangible and other long-lived assets, income taxes, pensions and other postretirement benefits. Actual results could differ from those estimates. Foreign Currency For foreign operations asset and liability accounts are translated with an exchange rate at the respective balance sheet dates; income statement accounts are translated at the average exchange rate for the years. Resulting translation adjustments are made directly to a separate component of shareholders' equity – "Accumulated other comprehensive income (loss) – Foreign currency translation". Foreign currency exchange transaction gains and losses are not material in any year. Cash Equivalents Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. The Company has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution. Approximately 60% of available cash is located outside of the United States in our foreign subsidiaries. Accounts Receivable Accounts receivable are stated at their net realizable value. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews the collectability of its receivables on an ongoing basis taking into account a combination of factors. The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer's financial condition, to ensure the Company is adequately accrued for potential loss. Accounts are considered past due based on when payment was originally due. If a customer's situation changes, such as a bankruptcy or creditworthiness, or there is a change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible. No one customer exceeded 10% of total accounts receivable at year end 2018 or 2017. Inventories Inventories are valued at the lower of cost or market or net realizable value. Cost is determined by the last-in, first-out (LIFO) method in the U.S. ($30,151,679 for U.S. inventories at December 29, 2018, excluding Velvac) and by the first-in, first-out (FIFO) method for inventories outside the U.S. ($8,175,339 for inventories outside the U.S. at December 29, 2018). Cost exceeds the LIFO carrying value by approximately $6,957,972 at December 29, 2018 and $6,476,073 at December 30, 2017. There was no material LIFO quantity liquidation in 2018 or 2017. In addition, as of the balance sheet dates, the Company has recorded reserves for excess/obsolete inventory. Property, Plant and Equipment and Related Depreciation Property, plant and equipment (including equipment under capital lease) are stated at cost. Depreciation ($4,329,136 in 2018, $3,948,728 in 2017) is computed generally using the straight-line method based on the following estimated useful lives of the assets: Buildings 10 to 39.5 years; Machinery and equipment 3 to 10 years. Goodwill The Company performed qualitative assessments of goodwill as of the end of fiscal 2018 and fiscal 2017 and determined it is more likely than not that no impairment of goodwill existed at the end of 2018 or 2017. The Company will perform annual qualitative assessments in subsequent years as of the end of each fiscal year. Additionally, the Company will perform interim analysis whenever conditions warrant. Goodwill would be considered impaired whenever the historical carrying amount exceeds the fair value. Pursuant to the qualitative assessment performed, goodwill was not impaired in 2018 or 2017. Should we reach a different conclusion in the future, additional work would be performed to determine the amount of the non-cash impairment charge to be recognized. The maximum future impairment of goodwill that could occur is the amount recognized on our balance sheet. Intangible Assets Patents are recorded at cost and are amortized using the straight-line method over the lives of the patents. Technology and licenses are recorded at cost and are generally amortized on a straight-line basis over periods ranging from 5 to 17 years. Generally, non-compete agreements and customer relationships are being amortized using the straight-line method over a period of 5 years. Amortization expense in 2018 and 2017 was $1,452,084 and $770,457, respectively. In the event that facts and circumstances indicate that the carrying value of the intangible assets, including definite life intangible assets, may be impaired, an evaluation is performed to determine if a write-down is required. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 | Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
The Company's financial instruments are primarily investments in pension assets, see footnote 11, and consists of an interest rate swap. The Company's interest rate swap is not an exchange-traded instrument. However, it is valued based on observable inputs for similar liabilities and accordingly is classified as Level 2. The amount of the interest rate swap is included in other accrued liabilities. The carrying amounts of other financial instruments (cash and cash equivalents, accounts receivable, accounts payable and debt) as of December 29, 2018 and December 30, 2017, approximate fair value based on the expected future cash flows of the related instruments. Revenue Recognition The Company recognizes revenue in accordance with ASC 606 when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates wholesale revenues primarily from the sale of products to original equipment manufacturers and distributers in the United States. The Company recognizes revenue upon shipment or transfer of title to the customer as that is when the customer obtains control of the promised goods. The Company typically extends credit terms to its customers based on their creditworthiness and generally does not receive advance payments. As such, the Company records accounts receivable at the time of shipment, when the Company's right to the consideration becomes unconditional. Accounts receivable from the Company's customers are typically due within 30 days of invoicing. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends and the Company's assessment of the customer's credit worthiness. As of December 29, 2018 and December 30, 2017, the Company's allowance for doubtful accounts total was $680,000 and $470,000, respectively. As of December 29, 2018 and December 30, 2017, the Company's bad debt expense was $220,000 and $87,000, respectively. The Company considers several factors in determining that control transfers to the customer upon shipment of products. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risk and rewards of ownership at the time of shipment. Based on historical experience, the Company does not accrue a reserve for product returns. For the years ended December 29, 2018 and December 30, 2017, the Company recorded sales returns of $725,000 and $565,000, respectively, as a reduction of revenue. Greenwald Industries generates subscription services revenue from access provided to customers to the division's specific online databases. For the years ended December 29, 2018 and December 30, 2017, Greenwald Industries subscription services revenue was $448,000 and $317,000, respectively. Sales and similar taxes that are imposed on the Company's sales and collected from the customer are excluded from revenues. Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. The Company does not have any significant deferred revenue. For the years ended December 29, 2018 and December 30, 2017, the Company recorded no revenues related to performance obligations satisfied in prior periods. As part of the Company's adoption of the new revenue standard, the Company has elected to use the practical expedient to exclude disclosure of transaction prices allocated to remaining performance obligations, and when the Company expects to recognize such revenue, for all periods prior to the date of initial application of the standard. Subscription services revenue from remaining performance obligations as of December 29, 2018 was $0.1 million. No one customer accounted for 10% of net sales during 2018 or 2017. See footnote 13 regarding the Company's revenue disaggregated by reporting segment, intersegment sales by reporting segment and geography. Cost of Goods Sold Cost of goods sold reflects the cost of purchasing, manufacturing and preparing a product for sale. These costs generally represent the expenses to acquire or manufacture products for sale (including an allocation of depreciation and amortization) and are primarily comprised of direct materials, direct labor, and overhead, which includes indirect labor, facility and equipment costs, inbound freight, receiving, inspection, purchasing, warehousing and any other costs related to the purchasing, manufacturing or preparation of a product for sale. Shipping and Handling Costs Shipping and handling costs are included in cost of goods sold. Product Development Costs Product development costs, charged to expense as incurred, were $6,950,969 in 2018, $5,622,829 in 2017. Selling and Administrative Expenses Selling and administrative expenses include all operating costs of the Company that are not directly related to the cost of purchasing, manufacturing and preparing a product for sale. These expenses generally represent administrative expenses for support functions and related overhead. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs were $501,615 in 2018, $526,651 in 2017. Software Development Costs Software development costs, are primarily costs to develop software sold, leased, or otherwise marketed, that are incurred subsequent to the establishment of technological feasibility are capitalized if significant. Capitalized software development costs are amortized using the straight-line amortization method over the estimated useful life of the applicable software. For the year ended December 29, 2018 capitalized software development costs were $1,813,973. There were no capitalized software development costs in the 2017. Stock Based Compensation The Company accounts for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation ("ASC 718-10"), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and Directors, including employee stock options and restricted stock awards. The Company estimates the fair value of granted stock options using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, without limitation, estimates regarding the length of time an employee will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price and the number of options that will be forfeited prior to vesting. 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. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company's consolidated statements of operations. For the year ended December 29, 2018, there were 51,000 SARs granted under the 2010 Plan. Under the terms of the Director's Fee Program, the directors can elect to receive their Director's fees in cash or in common shares of the Company. This election is made at the beginning of each fiscal year and remains in effect for the entire year. Income Taxes The Company and its U.S. subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. On December, 22, 2017, SAB 118 was issued due to the complexities involved in accounting for the enacted Tax Act. SAB 118 requires the company to include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such estimate has been determined. Accordingly, the U.S. provision for income tax for 2017 was based on the reasonable estimate guidance provided by SAB 118. The company has assessed the impact from the Tax Act and recorded the impact in the fourth quarter of 2018. The Company accounts for uncertain tax positions pursuant to the provisions of FASB Accounting Standards Codification ("ASC") 740 which clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. These provisions detail how companies should recognize, measure, present and disclose uncertain tax positions that have or are expected to be taken. As such, the financial statements will reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities' full knowledge of the position and all relevant facts. See Note 7 Income Taxes.

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