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Summary of Significant Accounting Policies | 12 Months Ended
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Feb. 03, 2018
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Destination XL Group, Inc. (collectively with its subsidiaries referred to as the “Company”) is the largest specialty retailer in the United States of big & tall men’s apparel. The Company operates under the trade names of Destination XL® (DXL®), DXL Outlets®, Casual Male XL®, Casual Male XL Outlets, Rochester Clothing, ShoesXL® and LivingXL®. At February 3, 2018, the Company operated 212 DXL stores, 78 Casual Male XL, 33 Casual Male XL outlets, 14 DXL outlets and 5 Rochester Clothing stores located throughout the United States, including one store in London, England and two stores in Canada. The Company also operates an e-commerce site to support its brands and product extensions. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts, transactions and profits are eliminated. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates. Subsequent Events All appropriate subsequent event disclosures, if any, have been made in these Notes to the Consolidated Financial Statements. Prior Period Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. Impairment of assets, which was previously included in “Depreciation and Amortization” on the Consolidated Statement of Operations for fiscal 2016 has been reclassified to “Impairment of Assets” for comparability to fiscal 2017. There was no such impairment of assets in fiscal 2015. Segment Reporting The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct business. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment, consistent with its omni-channel business approach. The direct business operating segment includes the operating results and assets for LivingXL. Fiscal Year The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal 2017 was a 53-week period which ended on February 3, 2018. Fiscal 2016 and 2015 were 52-week periods which ended on January 28, 2017 and January 30, 2016, respectively. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days. Accounts Receivable Accounts receivable primarily includes amounts due for tenant allowances and rebates from certain vendors. For fiscal 2017, fiscal 2016 and fiscal 2015, the Company has not incurred any losses on its accounts receivable. Fair Value of Financial Instruments ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments. ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities. The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible. The fair value of long-term debt at February 3, 2018 approximates the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities. See Note C, “Debt Obligations”, for more discussion. The fair value of indefinite-lived assets, which consists of the Company’s “Rochester” trademark, is measured on a non-recurring basis in connection with the Company’s annual impairment test. The fair value of the trademark is determined using the relief from royalty method based on unobservable inputs and are classified within Level 3 of the valuation hierarchy. See Intangibles below. Retail stores that have indicators of impairment and fail the recoverability test (based on undiscounted cash flows) are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis and is classified within Level 3 of the valuation hierarchy. See Impairment of Long-Lived Assets below. Inventories All inventories are valued at the lower of cost or market, using a weighted-average cost method. Property and Equipment Property and equipment are stated at cost. Major additions and improvements are capitalized while repairs and maintenance are charged to expense as incurred. Upon retirement or other disposition, the cost and related depreciation of the assets are removed from the accounts and the resulting gain or loss, if any, is reflected in income. Depreciation is computed on the straight-line method over the assets’ estimated useful lives as follows:
Furniture and fixtures |  | Five to ten years
Equipment |  | Five to ten years
Leasehold improvements |  | Lesser of useful lives or related lease term
Hardware and software |  | Three to seven years
Intangibles ASC Topic 805, “Business Combinations,” requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria set forth in the statement. Under ASC Topic 350, “Intangibles Goodwill and Other,” goodwill and intangible assets with indefinite lives are tested at least annually for impairment. At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for its “Rochester” trademark continues to be valid. If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life. The Company’s “Casual Male” trademark is considered a finite-lived asset. Other intangible assets with defined lives are amortized over their useful lives. At least annually, as of the Company’s December month-end, the Company evaluates its “Rochester” trademark. The Company performs an impairment analysis and records an impairment charge for any intangible assets with a carrying value in excess of its fair value. In the fourth quarter of fiscal 2017, the “Rochester” trademark was tested for potential impairment, utilizing the relief from royalty method to determine the estimated fair value. The Company concluded that the “Rochester” trademark, with a carrying value of $1.5 million at February 3, 2018, was not impaired. Although some of the Rochester locations have closed as part of the DXL expansion, the Rochester Clothing stores that remain open as well as the Rochester brands that are sold in DXL stores and website are currently expected to generate more than sufficient cash flows to support the carrying value of $1.5 million for the “Rochester” trademark. During the fiscal 2011 annual evaluation of intangibles, the Company determined that its “Casual Male” trademark could no longer be considered an indefinite-lived asset. As the Company opens DXL stores, it is closing the majority of its Casual Male XL stores in those respective markets. The carrying value of the trademark is being amortized on an accelerated basis against projected cash flows through fiscal 2018, its estimated remaining useful life. Below is a table showing the changes in the carrying value of the Company’s intangible assets from January 28, 2017 to February 3, 2018:
(in thousands) |  | January 28, 2017 |  |  | Additions |  |  | Impairment |  |  | Amortization |  |  | February 3, 2018 |
"Rochester" trademark |  | $ | 1,500 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,500 |
"Casual Male" trademark |  |  | 599 |  |  |  | — |  |  |  | — |  |  |  | (307 | ) |  |  | 292 |
Other intangibles (1) |  |  | 129 |  |  |  | — |  |  |  | — |  |  |  | (100 | ) |  |  | 29 |
Total intangible assets |  | $ | 2,228 |  |  | $ | — |  |  | $ | — |  |  | $ | (407 | ) |  | $ | 1,821 |
(1) | Other intangibles consist of customer lists, which have a finite life of 16 years based on its estimated economic useful life. At February 3, 2018, customer lists have a remaining life of 3 months.
The gross carrying amount and accumulated amortization of the customer lists and “Casual Male” trademark, subject to amortization, were $7.7 million and $7.4 million, respectively, at February 3, 2018 and $7.7 million and $7.0 million, respectively, at January 28, 2017. Amortization expense for fiscal 2017, 2016 and 2015 was $0.4 million, $0.4 million and $0.6 million, respectively. Expected amortization expense for the Company’s “Casual Male” trademark and customer lists, for the next five fiscal years is as follows:
FISCAL YEAR |  | (in thousands) |
2018 |  | $ | 321 |
2019 |  |  | — |
2020 |  |  | — |
2021 |  |  | — |
2022 |  |  | — |
Pre-opening Costs The Company expenses all pre-opening costs for its stores as incurred. Advertising Costs The Company expenses in-store advertising costs as incurred. Television advertising costs are expensed in the period in which the advertising is first aired. Direct response advertising costs, if any, are deferred and amortized over the period of expected direct marketing revenues, which is less than one year. There were no deferred direct response costs at February 3, 2018 and January 28, 2017. Advertising expense, which is included in selling, general and administrative expenses, was $29.5 million, $18.2 million and $23.6 million for fiscal 2017, 2016 and 2015, respectively. Revenue Recognition Revenue from the Company’s retail store operations is recorded upon purchase of merchandise by customers, net of an allowance for sales returns. Revenue from the Company’s e-commerce operations is recognized at the time a customer order is delivered, net of an allowance for sales returns. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. E-commerce sales are defined as sales that originate online, including those initiated online at the store level. Sales tax collected from customers is excluded from revenue and is included as part of accrued expenses on the Company’s Consolidated Balance Sheets. Accumulated Other Comprehensive Income (Loss) – (“AOCI”) Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for fiscal 2017, fiscal 2016 and fiscal 2015 are as follows:
| Fiscal 2017 |  |  | Fiscal 2016 |  |  | Fiscal 2015 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pension Plans |  |  | Foreign Currency |  |  | Total |  |  | Pension Plans |  |  | Foreign Currency |  |  | Total |  |  | Pension Plans |  |  | Foreign Currency |  |  | Total |
Balance at beginning of fiscal year | $ | (5,237 | ) |  | $ | (781 | ) |  | $ | (6,018 | ) |  | $ | (6,113 | ) |  | $ | (539 | ) |  | $ | (6,652 | ) |  | $ | (7,795 | ) |  | $ | (443 | ) |  | $ | (8,238 | )
Other comprehensive income (loss) before reclassifications, net of taxes |  | 820 |  |  |  | 393 |  |  |  | 1,213 |  |  |  | 171 |  |  |  | (242 | ) |  |  | (71 | ) |  |  | 1,035 |  |  |  | (96 | ) |  |  | 939 |
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes (1) |  | 670 |  |  |  | — |  |  |  | 670 |  |  |  | 705 |  |  |  | — |  |  |  | 705 |  |  |  | 647 |  |  |  | — |  |  |  | 647 |
Other comprehensive income (loss) for the period |  | 1,490 |  |  |  | 393 |  |  |  | 1,883 |  |  |  | 876 |  |  |  | (242 | ) |  |  | 634 |  |  |  | 1,682 |  |  |  | (96 | ) |  |  | 1,586 |
Adjustment to reclassify intraperiod tax allocation to accumulated deficit (Note D) |  | (2,093 | ) |  |  | (15 | ) |  |  | (2,108 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at end of fiscal year | $ | (5,840 | ) |  | $ | (403 | ) |  | $ | (6,243 | ) |  | $ | (5,237 | ) |  | $ | (781 | ) |  | $ | (6,018 | ) |  | $ | (6,113 | ) |  | $ | (539 | ) |  | $ | (6,652 | )
(1) | Includes the amortization of the unrecognized (gain)/loss on pension plans which was charged to Selling, General and Administrative expense on the Consolidated Statements of Operations for all periods presented. The amortization of the unrecognized loss, before tax, was $670,000, $705,000 and $647,000 for fiscal 2017, fiscal 2016 and fiscal 2015, respectively. There was no corresponding tax benefit.
Foreign Currency Translation At February 3, 2018, the Company had one Rochester Clothing store located in London, England and two stores located in Toronto, Canada. Assets and liabilities for these stores are translated into U.S. dollars at the exchange rates in effect at each balance sheet date. Stockholders’ equity is translated at applicable historical exchange rates. Income, expense and cash flow items are translated at average exchange rates during the period. Resulting translation adjustments are reported as a separate component of stockholders’ equity. Shipping and Handling Costs Shipping and handling costs are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in net sales, and the related costs are recorded in Cost of Goods Sold, Including Occupancy Costs, in the Consolidated Statements of Operations. Income Taxes Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial statement reporting. Such taxes are provided for using enacted tax rates expected to be in place when such temporary differences are realized. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that the full deferred tax asset would not be realized. If it is subsequently determined that a deferred tax asset will more likely than not be realized, a credit to earnings is recorded to reduce the allowance. ASC Topic 740, Income Taxes (“ASC 740”) clarifies a company’s accounting for uncertain income tax positions that are recognized in its financial statements and also provides guidance on a company’s de-recognition of uncertain positions, financial statement classification, accounting for interest and penalties, accounting for interim periods, and disclosure requirements. In accordance with ASC 740, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense in its Consolidated Statement of Operations. The Company has not accrued or paid interest or penalties which were material to its results of operations for fiscal 2017, fiscal 2016 and fiscal 2015. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 2002, with remaining fiscal years subject to income tax examination by federal tax authorities. Net Loss Per Share Basic earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share is determined by giving effect to unvested shares of restricted stock and the exercise of stock options using the treasury stock method. The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
|  | FISCAL YEARS ENDED |
|  | February 3, 2018 |  |  | January 28, 2017 |  |  | January 30, 2016 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Common stock outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted average common shares outstanding |  |  | 48,888 |  |  |  | 49,544 |  |  |  | 49,089 |
Common stock equivalents – stock options, restricted stock and restricted stock units (RSUs) (1) |  |  | — |  |  |  | — |  |  |  | — |
Diluted weighted average common shares outstanding |  |  | 48,888 |  |  |  | 49,544 |  |  |  | 49,089 |
(1) | Common stock equivalents, in thousands, of 134 shares, 439 shares and 583 shares for February 3, 2018, January 28, 2017 and January 30, 2016, respectively, were excluded due to the net loss.
The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each year because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with either stock options, RSUs, restricted or deferred stock had an anti-dilutive effect.
|  | FISCAL YEARS ENDED |
|  | February 3, 2018 |  |  | January 28, 2017 |  |  | January 30, 2016 |
(in thousands, except exercise prices) |  |  |  |  |  |  |  |  |  |  |  |
Stock options (time-vested) |  |  | 1,196 |  |  |  | 1,162 |  |  |  | 1,244 |
RSUs (time-vested) |  |  | 732 |  |  |  | 370 |  |  |  | — |
Restricted and deferred stock |  |  | 63 |  |  |  | 8 |  |  |  | 22 |
Range of exercise prices of such options |  | $1.85-$7.52 |  |  | $4.49-$7.52 |  |  | $4.96-$7.52 |
Excluded from the computation of basic earnings per shares in fiscal 2017 were 36,666 shares of unvested time-based restricted shares and 115,457 shares of deferred stock until such shares vest. Although the shares of restricted stock are not considered outstanding for basic earnings per share purposes until vested, all shares of restricted stock were considered issued and outstanding at February 3, 2018. Each share of restricted stock has all of the rights of a holder of the Company’s common stock, including, but not limited to, the right to vote and the right to receive dividends, which rights are forfeited if the restricted stock is forfeited. Outstanding shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period. Stock-based Compensation ASC Topic 718, Compensation – Stock Compensation, requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the vesting period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates. The Company recognized total stock-based compensation expense, with no tax effect, of $1.6 million, $1.3 million and $2.2 million for fiscal 2017, fiscal 2016 and fiscal 2015, respectively. The total stock-based compensation cost related to time-vested awards not yet recognized as of February 3, 2018 was approximately $1.8 million and will be expensed over a weighted average remaining life of approximately 20 months. The total grant-date fair value of awards vested was $1.8 million, $2.9 million and $1.0 million for fiscal 2017, 2016 and 2015, respectively. Any excess tax benefits resulting from the exercise of stock options or the release of restricted shares are recognized as a component of income tax expense. Prior to the adoption of ASU 2016-09 in fiscal 2017, any excess tax benefits were recognized as additional paid-in capital. Valuation Assumptions for Stock Options The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2017, 2016 and 2015:
Fiscal years ended: |  | February 3, 2018 |  |  | January 28, 2017 |  |  | January 30, 2016 |
Expected volatility |  | 49.9% |  |  | 39.3%-42.7% |  |  | 37.0%-39.0% |
Risk-free interest rate |  | 1.44% |  |  | 0.78%-1.23% |  |  | 0.75%-1.25% |
Expected life (in years) |  | 3.0 |  |  | 2.0 |  |  | 1.8-4.0 |
Dividend rate |  |  | — |  |  |  | — |  |  |  | — |
Weighted average fair value of options granted |  | $ | 0.65 |  |  | $1.02 |  |  | $1.44 |
Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Impairment of Long-Lived Assets The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds. For fiscal 2017 and fiscal 2016, the Company recorded impairment charges of $4.1 million and $0.4 million, respectively, for the write-down of property and equipment. Impairment charges related to stores where the carrying value exceeded fair value. The fair value of these assets, based on Level 3 inputs, was determined using estimated discounted cash flows. Also included in the charge for fiscal 2017 was the write-off of certain costs of $1.9 million associated with technology projects that were abandoned. The impairment charge for fiscal 2016 was reclassified from “Depreciation and amortization” to “Impairment of assets” on the Consolidated Statement of Operations, for comparability with fiscal 2017. There was no material impairment of assets in fiscal 2015. Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as "breakage". Breakage is recognized over two years in proportion to historical redemption trends and is recorded as net sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $2.2 million and $2.4 million at February 3, 2018 and January 28, 2017, respectively. Recently Adopted Accounting Pronouncements In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this pronouncement as of January 29, 2017. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard during the first quarter of fiscal 2017. The adoption of this standard did not have a material impact on the Company’s provision for income taxes or diluted earnings per share. The Company has elected to adopt the guidance related to the presentation of excess tax benefits in its Consolidated Statements of Cash Flows on a prospective transition method. Since there were no excess tax benefits for fiscal 2017, 2016 or 2015 this election did not result in a change in presentation on the Consolidated Statement of Cash Flows. In addition, the Company has elected to continue to estimate forfeitures at each grant. Recent Accounting Pronouncements The Company has reviewed accounting pronouncements and interpretations thereof that have effective dates during the periods reported and in future periods. The Company believes that the following impending standards may have an impact on its future filings. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the accounting guidance on revenue recognition. The amendments in this ASU are intended to provide a framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. To assess the impact of ASU 2014-09, the Company reviewed its current accounting policies and practices, identified all material revenue streams, assessed the impact of the ASU on its material revenue streams and identified potential differences with current policies and practices. The Company plans to adopt this standard in the first quarter of fiscal 2018, with no significant impact, using the modified retrospective approach. Generally, the Company’s performance obligations are satisfied the same day that contracts with customers are initiated. As such, the adoption of the new standard will not have a material impact on the Company’s Consolidated Financial Statements, business processes, controls or systems, but the Company expects to have enhanced disclosures related to disaggregation of revenue sources and accounting policies. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases under current GAAP. The ASU retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those years; earlier adoption is permitted. While there is an exposure draft to amend Topic 842 to provide entities with an additional transition method, presently the Company would be required to adopt this ASU using the modified retrospective approach. The Company has selected its leasing software solution and is in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard in fiscal 2019. The Company is evaluating the impact that the new standard will have on the consolidated financial statements. While the Company is still in the process of quantifying the impact, it expects the adoption of the new standard to result in a material gross-up of its Consolidated Balance Sheets as a result of recognizing lease liabilities and right of use assets. In March 2016, the FASB issued ASU 2016-04, “Liabilities—Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products,” which amends exempting gift cards and other prepaid stored-value products from the guidance on extinguishing financial liabilities. Rather, they will be subject to breakage accounting consistent with the new revenue guidance in Topic 606. However, the exemption only applies to breakage liabilities that are not subject to unclaimed property laws or that are attached to segregated bank accounts (e.g., consumer debit cards). The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt ASU 2016-04 in the first quarter of fiscal 2018 and does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which reduces the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will adopt ASU 2016-15 in the first quarter of fiscal 2018 and does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements. In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory,” which reduces the existing diversity in practice in how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. The amendments in ASU 2016-16 require an entity to recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements. In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718)”which provides clarity in order to reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt ASU 2017-09 in the first quarter of fiscal 2018 and does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements. No other new accounting pronouncements, issued or effective during fiscal 2017, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

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