Quarterly report pursuant to Section 13 or 15(d)

Significant Accounting Policies (Policies)

v3.10.0.1
Significant Accounting Policies (Policies)
9 Months Ended
Dec. 30, 2018
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
Basis of Presentation
:
The accompanying unaudited consolidated financial statements include the accounts of Crown Crafts, Inc. (the “Company”) and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”). Accordingly, they do
not
include all of the information and disclosures required by GAAP for complete financial statements. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which has been established by the FASB as the authoritative source for GAAP to be applied by nongovernmental entities.
 
In the opinion of management, the interim unaudited consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of
December 30, 2018
and the results of its operations and cash flows for the period presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the
three
and
nine
-month periods ended
December 30, 2018
are
not
necessarily indicative of the results that
may
be expected by the Company for its fiscal year ending
March 31, 2019.
For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form
10
-K for the fiscal year ended
April 1, 2018.
Fiscal Period, Policy [Policy Text Block]
Fiscal Year:
The Company’s fiscal year ends on the Sunday that is nearest to or on
March 31.
References herein to “fiscal year
2019”
or
“2019”
represent the
52
-week period ending
March 31, 2019
and references herein to “fiscal year
2018”
or
“2018”
represent the
52
-week period ended
April 1, 2018.
Use of Estimates, Policy [Policy Text Block]
Use of Estimates
:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the accompanying unaudited consolidated statements of income and cash flows. Significant estimates are made with respect to the allowances related to accounts receivable for customer deductions for returns, allowances and disputes. The Company also has a certain amount of discontinued finished products which necessitates the establishment of inventory reserves and allocates indirect costs to inventory based on an estimated percentage of the supplier purchase price, each of which is highly subjective. The Company has also established estimated reserves in connection with the uncertainty concerning the amount of income tax recognized. Actual results could differ from those estimates.
Cash and Cash Equivalents, Policy [Policy Text Block]
Cash and Cash Equivalents:
The Company considers highly-liquid investments, if any, purchased with original maturities of
three
months or less to be cash equivalents.
 
The Company’s credit facility consists of a revolving line of credit under a certain Financing Agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group, Inc. (the “CIT Financing Agreement”). The Company classifies a negative balance outstanding under the revolving line of credit as cash, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are
no
compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.
Fair Value of Financial Instruments, Policy [Policy Text Block]
Financial Instruments
:
For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of the fair value.
Advertising Costs, Policy [Policy Text Block]
Advertising Cost
s
:
The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for those customers, with periodic adjustments to the actual amounts of authorized agreements. Costs associated with advertising on websites such as Facebook and Google and which are related to the Company’s online business are recorded as incurred. Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to
$295,000
and
$534,000
for the
three
months ended
December 30, 2018
and
December 31, 2017,
respectively, and amounted to
$968,000
and
$1.1
million for the
nine
months ended
December 30, 2018
and
December 31, 2017,
respectively.
Revenue Recognition, Policy [Policy Text Block]
Revenue Recognition:
Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.
 
A provision for anticipated returns, which are based upon historical returns and claims, is provided through a reduction of net sales and cost of products sold in the reporting period within which the related sales are recorded. Actual returns and claims experienced in a future period
may
differ from historical experience, and thus, the Company’s provision for anticipated returns at any given point in time
may
be over-funded or under-funded.
 
The Company recognizes revenue associated with unredeemed store credits and gift certificates at the earlier of their redemption by customers, their expiration or when their likelihood of redemption becomes remote, which is generally
two
years from the date of issuance.
 
Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are
no
longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally,
60
days of being invoiced) for sales made to retailers. A disaggregation of the Company’s revenue is set forth below under the heading
Segment and Related Information
in this Note
1
disclosure.
Receivables, Policy [Policy Text Block]
Allowances Against Accounts Receivable
:  Revenue from sales made to retailers is reported net of allowances for anticipated returns and other allowances, including cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons and discounts. Such allowances are recorded commensurate with sales activity or using the straight-line method, as appropriate, and the cost of such allowances is netted against sales in reporting the results of operations. The provision for the majority of the Company’s allowances occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. The timing of funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period. The timing of such funding requests should have
no
impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method, as appropriate.
 
Uncollectible Accounts:
To reduce the exposure to credit losses and to enhance the predictability of its cash flows, the Company assigns the majority of its trade accounts receivable under factoring agreements with CIT. In the event a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. For reporting periods beginning on or after
April 2, 2018,
the Company recognizes revenue net of the amount of its non-factored accounts receivable that is expected to be uncollectible, which is estimated by specifically analyzing accounts receivable, historical trends of uncollected accounts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms. For reporting periods that ended prior to
April 2, 2018,
the Company instead recorded a provision for its expected uncollectible accounts in the form of a bad debt expense, which was included in marketing and administrative expenses in the unaudited condensed consolidated statements of income. During the
nine
-month period ended
December 31, 2017,
the Company recorded such charges for bad debt expense of
$25,000.
Concentration Risk, Credit Risk, Policy [Policy Text Block]
Credit Concentration:
The Company’s accounts receivable as of
December 30, 2018
was
$15.0
million, net of allowances of
$614,000.
Of this amount,
$14.1
million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations thereunder.
Other Accrued Liabilities [Policy Text Block]
Other Accrued Liabilities:
An amount of
$381,000
was recorded as other accrued liabilities as of
December 30, 2018.
Of this amount,
$202,000
reflected unearned revenue recorded for payments from customers that were received before products were shipped. Other accrued liabilities as of
December 30, 2018
also includes a reserve for anticipated returns of
$22,000
and unredeemed store credits and gift certificates totaling
$9,000.
Segment Reporting, Policy [Policy Text Block]
Segment and Related Information:
The Company operates primarily in
one
principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding, bibs, soft bath products, disposable products and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath, developmental toy, feeding, baby care and disposable products for the
three
and
nine
-month periods ended
December 30, 2018
and
December 31, 2017
are as follows (in thousands):
 
   
Three-Month Periods Ended
   
Nine-Month Periods Ended
 
   
December 30, 2018
   
December 31, 2017
   
December 30, 2018
   
December 31, 2017
 
Bedding, blankets and accessories
  $
9,817
    $
11,558
    $
29,873
    $
30,414
 
Bibs, bath, developmental toy, feeding, baby care and disposable products
   
8,851
     
5,918
     
24,791
     
17,170
 
Total net sales
  $
18,668
    $
17,476
    $
54,664
    $
47,584
 
Inventory, Policy [Policy Text Block]
Inventory Valuation:
The preparation of the Company's financial statements requires careful determination of the appropriate value of the Company's inventory balances. Such amounts are presented as a current asset in the accompanying condensed consolidated balance sheets and are a direct determinant of cost of products sold in the accompanying unaudited consolidated statements of income and, therefore, have a significant impact on the amount of net income in the accounting periods reported. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs incurred to design, develop, source and store the products until they are sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or net realizable value, with cost determined using the
first
-in,
first
-out ("FIFO") method, which assumes that inventory quantities are sold in the order in which they are acquired, and the average cost method for a portion of the Company’s inventory.
 
The indirect charges and their allocation to the Company’s finished goods inventory are determined as a percentage of projected annual supplier purchases and can impact the Company’s results of operations as purchase volumes fluctuate from quarter to quarter and year to year. The difference between indirect costs incurred and the indirect costs allocated to inventory creates a burden variance, which is generally favorable when actual inventory purchases exceed planned inventory purchases, and is generally unfavorable when actual inventory purchases are lower than planned inventory purchases.
 
On a periodic basis, management reviews the Company’s inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which
may
not
reasonably be expected to be sold within the normal operating cycle of the Company's operations. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise
no
longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company's consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed of is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management's estimates or these estimates and judgments are revised in future periods, the Company
may
not
fully realize the carrying value of its inventory or
may
need to establish additional allowances, either of which could materially impact the Company's financial position and results of operations.
Royalty Payments [Policy Text Block]
Royalty Payments:
The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalties are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to
$1.3
million and
$1.8
million for the
three
months ended
December 30, 2018
and
December 31, 2017,
respectively, and amounted to
$3.7
million and
$5.0
million for the
nine
months ended
December 30, 2018
and
December 31, 2017,
respectively.
Depreciation, Depletion, and Amortization [Policy Text Block]
Depreciation and Amortization:
The accompanying condensed consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are
three
to
eight
years for property, plant and equipment, and
five
to
twenty
years for amortizable intangible assets. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.
Goodwill and Intangible Assets, Policy [Policy Text Block]
Valuation of Long-Lived Assets
and
Identifiable Intangible Assets:
In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset
may
not
be recoverable. In the event of impairment, the asset is written down to its fair market value.
Intangible Assets, Finite-Lived, Policy [Policy Text Block]
Patent Costs:
The Company incurs certain legal and associated costs in connection with applications for patents, which are classified within other finite-lived intangible assets in the accompanying condensed consolidated balance sheets. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use for the underlying product is available to the Company. The Company also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents to the extent that it is believed that the future economic benefit of the patent will be maintained or increased and a successful outcome of the litigation is probable. Capitalized patent protection or defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of the future economic benefit of its patents involves considerable management judgment, and a different conclusion could result in a material impairment charge up to the carrying value of these assets.
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]
Purchase Price Allocations and the Resulting Goodwill:
The Company’s strategy includes, when appropriate, entering into transactions accounted for as business combinations. In connection with a business combination, the Company prepares an allocation of the cost of the acquisition to the identifiable assets acquired and liabilities assumed, based on estimated fair values as of the acquisition date. The excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill.
 
The amount of goodwill recorded in a business combination can vary significantly depending upon the values attributed to the assets acquired and liabilities assumed. Although goodwill has
no
useful life and is
not
subject to a systematic annual amortization against earnings, the Company performs a measurement for impairment of the carrying value of its goodwill annually on the
first
day of the Company’s fiscal year. An additional impairment test is performed during the year whenever an event or change in circumstances suggest that the fair value of the goodwill of either of the reporting units of the Company has more likely than
not
fallen below its carrying value. The annual or interim measurement for impairment of goodwill is performed at the reporting unit level. A reporting unit is either an operating segment or
one
level below an operating segment. In its annual or interim measurement for impairment of goodwill, the Company conducts a qualitative assessment by examining relevant events and circumstances which could have a negative impact on the Company’s goodwill, which includes macroeconomic conditions, industry and market conditions, commodity prices, cost factors, overall financial performance, reporting unit dispositions and acquisitions, the market capitalization of the Company and other relevant events specific to the Company.
 
If, after assessing the totality of events or circumstances described above, the Company determines that it is more likely than
not
that the fair value of either of the Company’s reporting units is less than its carrying amount, then a quantitative goodwill test is performed. The quantitative goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value
may
not
be recoverable. If, after performing the quantitative goodwill test, it is determined that the carrying value of goodwill is impaired, the amount of goodwill is reduced and a corresponding charge is made to earnings in the period in which the goodwill is determined to be impaired.
Income Tax, Policy [Policy Text Block]
Provision for Income Taxes:
The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s estimated annual effective tax rate (“ETR”), which is based on the Company’s forecasted annual pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates. The Company’s provisions for income taxes for the
nine
-month periods ended
December 30, 2018
and
December 31, 2017
are based upon an estimated annual ETR from continuing operations of
24.2%
and
33.0%,
respectively.
 
The Company files income tax returns in the many jurisdictions within which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations for the Company’s filed income tax returns varies by jurisdiction; tax years open to federal or state audit or other adjustment as of
December 30, 2018
were the fiscal years ended
April 1, 2018,
April 2, 2017,
April 3, 2016,
March 29, 2015,
March 30, 2014,
March 31, 2013,
April 1, 2012
and
April 3, 2011.
 
On
December 22, 2017,
the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which included a provision to lower the federal corporate income tax rate to
21%
effective as of
January 1, 2018.
As the Company’s fiscal year
2018
ended on
April 1, 2018,
the lower corporate income tax rate was phased in, resulting in a blended federal statutory rate of
30.75%
for fiscal year
2018.
 
The Company provides for deferred income taxes based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. The Company’s policy is to recognize the effect that a change in enacted tax rates would have on net deferred income tax assets and liabilities in the period in which the tax rates are changed. The Company recognized the effect of the TCJA on the Company’s net deferred income tax assets, which had previously been recorded based upon the pre-TCJA enacted composite federal, state and foreign income tax rate of approximately
37.5%
that would have been applied as the financial statement and tax differences began to reverse. Because most of these differences are now expected to reverse at a composite rate of approximately
23.5%,
the Company was required to revalue its net deferred income tax assets. This revaluation resulted in a discrete charge to income tax expense of
$409,000
during the
three
and
nine
-month periods ended
December 31, 2017.
 
Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than
not
to be sustained. The Company applies the provisions of FASB ASC Sub-topic
740
-
10
-
25,
which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than
50%
likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
 
In evaluating the process regarding the calculation of the state portion of its income tax provision, the Company has taken a tax position that reflects opportunities for more favorable state apportionment percentages, which were then applied to several prior fiscal years and to succeeding fiscal years. After considering all relevant information, the Company believes that the technical merits of this tax position would more likely than
not
be sustained. However, the Company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount realized through the application of the more favorable state apportionment percentages. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages has resulted in the Company recording a reserve for unrecognized tax benefits of
$7,000
and
$31,000
during the
three
-month periods ended
December 30, 2018
and
December 31, 2017,
respectively, and
$66,000
and
$60,000
during the
nine
-month periods ended
December 30, 2018
and
December 31, 2017,
respectively, in the accompanying unaudited condensed consolidated statements of income.
 
Because the tax impact of the revised state apportionment percentages are measured net of federal income taxes, the provision in the TCJA that lowered the federal corporate income tax rate to
21%
required the Company to revalue its reserve for unrecognized tax benefits. This revaluation resulted in a net discrete charge to income tax expense of
$132,000
during the
three
and
nine
-month periods ended
December 31, 2017.
 
The Company’s policy is to accrue interest expense and penalties as appropriate on estimated unrecognized tax benefits as a charge to interest expense in the Company’s consolidated statements of income. Interest expense and penalties are
not
accrued with respect to estimated unrecognized tax benefits that are associated with claims for income tax refunds as long as the overpayments are receivable. The Company accrued interest and penalties associated with its reserve for unrecognized tax benefits of
$22,000
and
$16,000
during the
three
-month periods ended
December 30, 2018
and
December 31, 2017,
respectively, and
$68,000
and
$52,000
during the
nine
-month periods ended
December 30, 2018
and
December 31, 2017,
respectively, in the accompanying unaudited condensed consolidated statements of income. The revaluation the Company’s reserve for unrecognized tax benefits set forth in the preceding paragraph resulted in an additional accrual for interest and penalties with respect to the revalued reserve for unrecognized tax benefits of
$25,000
during the
three
and
nine
-month periods ended
December 31, 2017.
 
During the
nine
-month periods ended
December 30, 2018
and
December 31, 2017,
the Company recorded a discrete income tax charge of
$12,000
and a discrete income tax benefit of
$23,000,
respectively, to reflect the net effects of the tax shortfalls and the excess tax benefits arising from the vesting of non-vested stock during the periods.
 
The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of
25.8%
and
49.7%
for the
nine
-month periods ended
December 30, 2018
and
December 31, 2017,
respectively.
Earnings Per Share, Policy [Policy Text Block]
E
arnings Per Share:
The Company calculates basic earnings per share by using a weighted average of the number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents the potentially dilutive effect of the options, which are added to basic shares to arrive at diluted shares.
New Accounting Pronouncements, Policy [Policy Text Block]
Recently-Issued Accounting Standards
:
In
2014,
the FASB issued Accounting Standards Update (“ASU”)
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which has replaced most previous GAAP guidance on revenue recognition, and which now requires the use of more estimates and judgments. When issued, ASU
No.
2014
-
09
was to become effective in the fiscal year beginning after
December 15, 2016,
but on
August 12, 2015
the FASB issued ASU
No.
2015
-
14,
Revenue from Contrac
ts with Customers (Topic
606
):
Deferral of the Effective Date
, which provided for a
one
-year deferral of the effective date to apply the guidance of ASU
No.
2014
-
09.
Thus, the Company adopted ASU
No.
2014
-
09
effective as of
April 2, 2018
on a modified retrospective basis.
 
ASU
No.
2014
-
09
requires that revenue be recognized by an entity when a customer obtains control of promised products in an amount that reflects the consideration that the entity expects to receive in exchange for those products. A further description of the GAAP guidance in effect subsequent to the Company’s adoption of ASU
No.
2014
-
09
is set forth above under the headings
“Revenue Recognition,” “Allowances Against Accounts Receivable”
and
“Uncollectible Accounts”
in this Note
1
disclosure. The Company performed an evaluation of its revenue contract arrangements and determined that, although the disclosures related to the Company’s accounting policies and practices associated with the amount and timing of revenue recognition have been enhanced, the adoption of ASU
No.
2014
-
09
did
not
have a material effect on the Company’s financial position or results of operations.
 
On
February 25, 2016,
the FASB issued ASU
No.
2016
-
02,
Leases (Topic
842
)
, which will increase transparency and comparability by requiring an entity to recognize lease assets and lease liabilities on its balance sheet and by requiring the disclosure of key information about leasing arrangements. Under the provisions of ASU
No.
2016
-
02,
the Company will be required to capitalize most of its current operating lease obligations as right-of-use assets with corresponding liabilities based upon the present value of the future cash outflows associated with such operating lease obligations. ASU
No.
2016
-
02
will become effective for the
first
interim period of the fiscal year beginning after
December 15, 2018.
 
When issued, ASU
No.
2016
-
02
was to have been applied using a modified retrospective approach, but on
July 30, 2018
the FASB issued ASU
No.
2018
-
11,
Leases (Topic
842
): Targeted Improvements
, which will allow an alternative optional transition method with which to adopt ASU
No.
2016
-
02.
Upon adoption, in lieu of the modified retrospective approach, an entity will be allowed to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
 
Although early adoption of ASU
No.
2016
-
02
(as modified by ASU
No.
2018
-
11
) is permitted, the Company intends to adopt ASU
No.
2016
-
02
effective as of
April 1, 2019.
The Company has
not
yet decided whether it will use the modified retrospective approach or the cumulative-effect adjustment approach and is currently evaluating the effect that the adoption of ASU
No.
2016
-
02
will have on its financial position, results of operations and related disclosures.
 
On
June 16, 2016,
the FASB issued ASU
No.
2016
-
13,
Financial Instruments – Credit Losses (Topic
326
): Measurement of Credit Losses on Financial Instruments
, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did
not
yet meet the “probable” threshhold, ASU
No.
2016
-
13
was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU will become effective for the
first
interim period of the fiscal year beginning after
December 15, 2019.
The ASU is to be applied using a modified retrospective approach, and the ASU
may
be early-adopted as of the
first
interim period of the fiscal year beginning after
December 15, 2018.
 
Although the Company has
not
yet decided whether to adopt ASU
No.
2016
-
13
early or determined the full impact of the adoption of the ASU, because the Company assigns the majority of its trade accounts receivable under factoring agreements with CIT, the Company does
not
believe that its adoption of ASU
No.
2016
-
13
will have a material impact on the Company’s financial position, results of operations and related disclosures.
 
The Company has determined that all other ASUs which had become effective as of
December 30, 2018,
or which will become effective at some future date, are
not
expected to have a material impact on the Company’s consolidated financial statements.