Significant Accounting Policies (Policies) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 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
July 1, 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 -month period ended July 1, 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.
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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.
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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. |
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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 between the Company, its wholly-owned subsidiaries (together with the Company, the “Borrowers”) and CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group, Inc. (as amended from time to time, 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. |
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Fair Value of Financial Instruments, Policy [Policy Text Block] |
Financial Instruments
:
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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 $325,000 and $219,000 for the three -month periods ended July 1, 2018 and July 2, 2017, respectively. |
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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. A disaggregation of the Company’s revenue is set forth below under the heading “
Segment and Related Information
” in this Note 1 disclosure. |
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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. However, the Company did not record such a charge for bad debt expense during the three -month period ended July 2, 2017.
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Concentration Risk, Credit Risk, Policy [Policy Text Block] |
Credit Concentration: The Company’s accounts receivable as of July 1, 2018 was $14.5 million, net of allowances of $543,000. Of this amount, $10.7 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. |
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Other Accrued Liabilities [Policy Text Block] |
Other Accrued Liabilities
: An amount of $516,000 was recorded as other accrued liabilities as of July 1, 2018. Of this amount, $293,000 reflected unearned revenue recorded for payments from customers that were received before products were shipped. Other accrued liabilities as of July 1, 2018 also includes a reserve for anticipated returns of $9,000 and unredeemed store credits and gift certificates totaling $19,000.
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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 -month periods ended July 1, 2018 and July 2, 2017 are as follows (in thousands):
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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. |
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Revenue Recognition, Services, Royalty Fees [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 $974,000 and $1.3 million for the three -month periods ended July 1, 2018 and July 2, 2017, respectively. |
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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. |
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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. |
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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. |
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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, the two -step goodwill test is performed. The two -step 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 two -step 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. |
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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 three -month periods ended July 1, 2018 and July 2, 2017 are based upon an estimated annual ETR from continuing operations of 24.0% and 35.0%, respectively. 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 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 examination or other adjustment as of July 1, 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.
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.During fiscal year 2016, an evaluation was made of the Company’s process regarding the calculation of the state portion of its income tax provision. This evaluation resulted in the Company taking a tax position that reflected opportunities for the application of more favorable state apportionment percentages for several prior 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 being sought. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording a reserve for unrecognized tax benefits during the three -month periods ended July 1, 2018 and July 2, 2017 of $3,000 and $11,000, respectively, in the accompanying unaudited condensed consolidated statements of income.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 during the three -month periods ended July 1, 2018 and July 2, 2017 of $25,000 and $20,000, respectively, in the accompanying unaudited condensed consolidated statements of income.During the three -month periods ended July 1, 2018 and July 2, 2017, the Company recorded discrete income tax benefits of $5,000 and $60,000, respectively, to reflect the effect of 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
23.3% and 28.2% for the three -month periods ended July 1, 2018 and July 2, 2017, respectively. |
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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. |
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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 , which has replaced most previous GAAP guidance on revenue recognition, and which now requires the use of more estimates and judgments. When issued, ASU 606 )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 , 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 842 )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 , which will allow an alternative optional transition method with which to adopt ASU 842 ): Targeted ImprovementsNo. 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 , 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 326 ): Measurement of Credit Losses on Financial Instrumentsnot 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.On June 20, 2018, the FASB issued ASU No. 2018 -07, Compensation – Stock Compensation (Topic , the objective of which is to expand the scope of Topic 718 ): Improvements to Nonemployee Share-Based Payment Accounting718 to clarify the accounting treatment to be applied for share-based payments made to acquire goods and services from nonemployees. Under existing GAAP guidance, such nonemployee share-based payment awards are to be measured at the fair value of the goods or services provided by the nonemployee, or the fair value of the equity instruments issued, whichever can be more easily measured. ASU No. 2018 -07 will simplify this accounting to require that nonemployee share-based payment awards are to be measured at the grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered. The Company routinely awards grants of non-vested stock to its nonemployee directors and measures such awards in a manner consistent with the provisions of ASU No. 2018 -07.
ASU No. 2018 -07 will become effective for the first interim period of the fiscal year beginning after December 15, 2018. Thus, the Company intends to adopt ASU No. 2018 -07 effective as of April 1, 2019 and does not believe that its adoption of the ASU 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
July 1, 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. |