SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES

12 Months Ended

May 27, 2017

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES

3. SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management continuously evaluates its critical accounting policies and estimates, including the allowance for doubtful accounts, revenue recognition, inventory obsolescence, goodwill and other intangible assets, loss contingencies, and income taxes. Management bases the estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, however, actual results could differ from those estimates.

Fair Values of Financial Instruments: The fair values of financial instruments are determined based on quoted market prices and market interest rates as of the end of the reporting period. Our financial instruments include investments, accounts receivable, accounts payable, and accrued liabilities. The fair values of these financial instruments approximate carrying values at May 27, 2017, and May 28, 2016.

Cash and Cash Equivalents: We consider short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and that have a maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair market value of these assets.

Allowance for Doubtful Accounts: Our allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; a large number of customers which are widely dispersed across geographic areas; collectability and delinquency history by geographic area; and the fact that no single customer accounts for more than 10% of net sales. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable. The allowance for doubtful accounts was approximately $0.4 million as of both May 27, 2017, and as of May 28, 2016.

Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.

Revenue Recognition: Our product sales are recognized as revenue upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered, and when collectability is reasonably assured. We also record estimated discounts and returns based on our historical experience. Our products are often manufactured to meet the specific design needs of our customers’ applications. Our engineers work closely with customers to ensure that our products will meet their needs. Our customers are under no obligation to compensate us for designing the products we sell.

Foreign Currency Translation: The functional currency is the local currency at all foreign locations, with the exception of Hong Kong, which the functional currency is the US dollar. Balance sheet items for our foreign entities, included in our consolidated balance sheet are translated into U.S. dollars at end-of-period spot rates. Gains and losses resulting from translation of foreign subsidiary financial statements are credited or charged directly to accumulated other comprehensive income/(loss), a component of stockholders’ equity. Revenues and expenses are translated at the current rate on the date of the transaction. Gains and losses resulting from foreign currency transactions are included in income. Foreign currency translation reflected in our consolidated statements of comprehensive loss was a loss of $0.6 million during fiscal 2017, a loss of $0.2 million during fiscal 2016, and a gain of $0.2 million during fiscal 2015.

Shipping and Handling Fees and Costs: Shipping and handling costs billed to customers are reported as revenue and the related costs are reported as a component of cost of sales.

Inventories, net: Our worldwide inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Our net inventories include approximately $36.0 million of finished goods, $5.3 million of raw materials, and $1.4 million of work-in-progress as of May 27, 2017, as compared to approximately $40.0 million of finished goods, $4.4 million of raw materials, and $1.0 million of work-in-progress as of May 28, 2016. The inventory reserve as of May 27, 2017, was $3.5 million compared to $3.4 million as of May 28, 2016.

Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets, and assumptions about future demand and market conditions. If future demand, changes in the industry, or market conditions differ from management’s estimates, additional provisions may be necessary.

We recorded provisions to our inventory reserves of $0.5 million, $0.7 million, and $0.2 million during fiscal 2017, 2016, and 2015, respectively, which were included in cost of sales. The provisions were principally for obsolete and slow moving parts. The parts were written down to estimated realizable value.

Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.

Investments: As of May 27, 2017, we have invested in time deposits and certificates of deposit (“CD”) in the amount of $8.2 million. Of this, $6.4 million mature in less than twelve months and $1.8 million mature in greater than twelve months. As of May 28, 2016, we had approximately $9.5 million invested in time deposits and CD’s. Of this, $2.3 million mature in less than twelve months and $7.2 million mature in greater than twelve months. The fair value of these investments is the face value of each time deposit and CD.

We also have investments in equity securities, all of which are classified as available-for-sale and are carried at their fair value based on quoted market prices. Our investments, which are included in non-current assets, had a carrying amount of $0.6 million at May 27, 2017 and at May 28, 2016. Proceeds from the sale of securities were $0.3 million during fiscal 2017, $0.3 million during fiscal 2016 and $0.2 million during fiscal 2015. We reinvested proceeds from the sale of securities, and the cost of the equity securities sold was based on a specific identification method. Gross realized gains and losses on those sales were less than $0.1 million during fiscal 2017, 2016, and 2015. Net unrealized holding losses during fiscal 2017, 2016, and 2015, were less than $0.1 million and have been included in accumulated comprehensive loss during its respective fiscal year.

Discontinued Operations: During fiscal 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of our RF, Wireless, and Power Division (“RFPD”), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. (“Arrow”) in exchange for $238.8 million, (“the Transaction”). In accordance with Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), we reported the financial results of RFPD as a discontinued operation.

During fiscal 2017, the Company disposed of, by sale, the PACS Display business. Based on our assessment of the criteria that must be met to qualify a disposal transaction as a discontinued operation set forth in Accounting Standards Update 2014-08, the disposal of the PACS Display business does not qualify as a discontinued operation.  

Goodwill and Other Intangible Assets: We test goodwill for impairment annually and whenever events or circumstances indicate an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit.

During the fourth quarter of each fiscal year, our goodwill balances are reviewed for impairment using the first day of our fourth quarter as the measurement date. If after reviewing the totality of events or circumstances as provided in ASU 2011-08 we determine that it is not likely that the fair value of a reporting unit exceeds its carrying amount, then we test for impairment through the application of a fair value based test. We estimate the fair value of each of our reporting units based on projected future operating results, market approach, and discounted cash flows.

Our goodwill impairment testing follows the two-step process as defined in ASC 350. The first step in the process compares the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss to be recognized. In the second step, the fair value of the reporting unit resulting from the first step of the evaluation is allocated to the fair value of all of the assets and liabilities of the reporting unit in order to determine an implied goodwill value. This allocation is similar to the purchase price allocation performed in purchase accounting. If the carrying amount of the goodwill reported exceeds the implied goodwill value, an impairment loss should be recognized in an amount equal to that excess.

Intangible assets are initially recorded at their fair market values determined on quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized on a straight-line basis over their useful lives. Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements, and technology acquired in connection with the acquisitions.

Property, Plant and Equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. Provisions for depreciation are computed using the straight-line method over the estimated useful life of the asset. Depreciation expense was approximately $2.4 million, $2.0 million, and $1.7 million during fiscal 2017, 2016, and 2015, respectively. Property, plant and equipment consist of the following (in thousands): 

	May 27,  2017			May 28,  2016
Land and improvements	$	1,301		$	1,301
Buildings and improvements		19,885			19,023
Computer and communications equipment		8,551			6,810
Construction in progress		2,063			2,721
Machinery and other equipment		10,387			8,080
	$	42,187		$	37,935
Accumulated depreciation		(26,374	)		(24,949	)
Property, plant, and equipment, net	$	15,813		$	12,986

Construction in progress includes $1.9 million related to our Healthcare growth initiatives. All projects are expected to be completed before the end of fiscal 2018.

Supplemental disclosure information of the estimated useful life of the assets:

Land improvements	10 years
Buildings and improvements	10 - 30 years
Computer and communications equipment	3 - 10 years
Machinery and other equipment	3 - 10 years

We review all property, plant, and equipment for impairment when events or changes in circumstances occur which indicate a possible impairment may exist. We have concluded that our property, plant, and equipment as of May 27, 2017, were not impaired.

Accrued Liabilities: Accrued liabilities consist of the following (in thousands):

	May 27, 2017		May 28, 2016
Compensation and payroll taxes	$	3,250	$	3,404
Accrued severance (1)		706		650
Professional fees		535		775
Deferred revenue		1,460		1,879
Other accrued expenses		2,360		2,427
Accrued Liabilities	$	8,311	$	9,135

(1)  In the second quarter of fiscal year 2017, the Company executed a reduction in headcount to streamline operations and reduce costs and recorded $1.3 million of expense included in selling, general and administrative expenses for employee termination costs payable to terminated employees with employment and/or separation agreements with the Company. The changes in the severance accrual for fiscal year 2017 included provisions and payments of $1.3 million and $1.2 million, respectively. 

Warranties: We offer warranties for the limited number of specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. Our warranty terms generally range from one to three years.

We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive loss. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products, the extended warranty period, and warranty experience.

Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience, and other available evidence.

Changes in the warranty reserve during fiscal 2017 and 2016 were as follows (in thousands):

	Warranty Reserve
Balance at May 30, 2015	$	188
Accruals for products sold		108
Utilization		(86	)
Balance at May 28, 2016	$	210
Accruals for products sold		89
Utilization		(78	)
Recovery		(115	)
Balance at May 27, 2017	$	106

Other Non-Current Liabilities: Other non-current liabilities of $0.7 million at May 27, 2017, and $1.0 million at May 28, 2016, primarily represent employee-benefits obligations in various non-US locations.

Share-Based Compensation: We measure and recognize compensation cost at fair value for all share-based payments, including stock options. We estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life, and dividends. Compensation cost is recognized using a graded-vesting schedule over the applicable vesting period. Share-based compensation expense totaled approximately $0.4 million during fiscal 2017, $0.5 million during fiscal 2016, and $0.7 million during fiscal 2015.

Stock options granted generally vest over a period of five years and have contractual terms to exercise of 10 years. A summary of stock option activity is as follows (in thousands, except option prices and years):

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Options Outstanding at May 31, 2014		1,065		$	10.37
Granted		225			9.92
Exercised		(47	)		6.53
Forfeited		(34	)		11.42
Cancelled		(72	)		11.19
Options Outstanding at May 30, 2015		1,137		$	10.35
Granted		122			5.88
Exercised		(28	)		5.18
Forfeited		(105	)		10.98
Cancelled		(107	)		9.97
Options Outstanding at May 28, 2016		1,019		$	9.93
Granted		190			6.90
Exercised		(5	)		5.61
Forfeited		(43	)		8.39
Cancelled		(88	)		11.17
Options Outstanding at May 27, 2017		1,073		$	9.38		6.0	$	85
Options Vested at May 27, 2017		628		$	10.21		4.4	$	68

There were 5,000 stock options exercised during fiscal 2017, with cash received of less than $0.1 million. The total intrinsic value of options exercised totaled less than $0.1 million during fiscal 2017 and 2016 and $0.2 million during fiscal 2015. The weighted average fair value of stock option grants was $1.14 during fiscal 2017, $1.21 during fiscal 2016, and $3.71 during fiscal 2015. As of May 27, 2017, total unrecognized compensation costs related to unvested stock options was approximately $0.9 million which is expected to be recognized over the remaining weighted average period of approximately three to four years. The total grant date fair value of stock options vested during fiscal 2017 was $0.5 million.

The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Fiscal Year Ended
	May 27,  2017			May 28,  2016			May 30,  2015
Expected volatility		25.41	%		32.21	%		46.12	%
Risk-free interest rate		1.46	%		1.78	%		2.12	%
Expected lives (years)		6.50			6.50			6.47
Annual cash dividend	$	0.24		$	0.24		$	0.24

The expected volatility assumptions are based on historical experience commensurate with the expected term. The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of the stock option.

The expected stock option life assumption is based on the Securities and Exchange Commission’s (“SEC”) guidance in Staff Accounting Bulletin (“SAB”) No. 107 (“SAB No. 107”). On December 21, 2007, the SEC issued SAB No. 110 stating that they will continue to accept SAB No. 107, past the original expiration date of December 31, 2007. For stock options granted during fiscal years 2017, 2016, and 2015, we believe that our historical stock option experience does not provide a reasonable basis upon which to estimate expected term. We utilized the Safe Harbor option, or Simplified Method, to determine the expected term of these options in accordance with SAB No. 107 for options granted. We intend to continue to utilize the Simplified Method for future grants in accordance with SAB No. 110 until such time that we believe that our historical stock option experience will provide a reasonable basis to estimate an expected term.

The following table summarizes information about stock options outstanding at May 27, 2017 (in thousands, except option prices and years):

	Outstanding								Vested
Exercise Price Range	Shares		Weighted Average Exercise Price		Weighted Average Life		Aggregate Intrinsic Value		Shares		Weighted Average Exercise Price		Weighted Average Life		Aggregate Intrinsic Value
$5.03 to $8.58		429	$	6.28		6.5	$	85		168	$	5.84		2.6	$	68
$9.48 to $11.14		350	$	10.50		6.7	$	—		184	$	10.62		6.5	$	—
$11.50 to $13.76		294	$	12.55		4.3	$	—		276	$	12.60		4.2	$	—
Total		1,073	$	9.38		6.0	$	85		628	$	10.21		4.4	$	68

As of May 27, 2017, we did not have any unvested restricted shares.

Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-in-capital in the consolidated statements of stockholder’s equity during fiscal 2017, 2016, and 2015.

The Employees’ 2011 Long-Term Incentive Compensation Plan authorizes the issuance of up to 1,500,000 shares as incentive stock options, non-qualified stock options, or stock awards. Under this plan, 850,000 shares are reserved for future issuance. The Plan authorizes the granting of stock options at the fair market value at the date of grant. Generally, these options become exercisable over five years and expire up to 10 years from the date of grant.

Earnings per Share: We have authorized 17,000,000 shares of common stock, and 3,000,000 shares of Class B common stock. The Class B common stock has 10 votes per share and has transferability restrictions; however, Class B common stock may be converted into common stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of common stock and Class B common stock rank equally and have the same rights, except that Class B common stock cash dividends are limited to 90% of the amount of Class A common stock cash dividends.

In accordance with ASC 260-10, Earnings Per Share (“ASC 260”), our Class B common stock is considered a participating security requiring the use of the two-class method for the computation of basic and diluted earnings per share. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method as prescribed in ASC 260. The shares of Class B common stock are considered to be participating convertible securities since the shares of Class B common stock are convertible on a share-for-share basis into shares of common stock and may participate in dividends with common stock according to a predetermined formula which is 90% of the amount of Class A common stock cash dividends.

The per share amounts presented in the consolidated statements of comprehensive loss are based on the following (amounts in thousands, except per share amounts):

	For the Fiscal Year Ended
	May 27, 2017						May 28, 2016						May 30, 2015
	Basic			Diluted			Basic			Diluted			Basic			Diluted
Numerator for Basic and Diluted EPS:
Loss from continuing operations	$	(6,928	)	$	(6,928	)	$	(6,766	)	$	(6,766	)	$	(5,528	)	$	(5,528	)
Less dividends:
Common stock		2,567			2,567			2,615			2,615			2,794			2,794
Class B common stock		464			464			464			464			466			466
Undistributed losses	$	(9,959	)	$	(9,959	)	$	(9,845	)	$	(9,845	)	$	(8,788	)	$	(8,788	)
Common stock undistributed losses	$	(8,440	)	$	(8,440	)	$	(8,367	)	$	(8,367	)	$	(7,539	)	$	(7,539	)
Class B common stock undistributed losses		(1,519	)		(1,519	)		(1,478	)		(1,478	)		(1,249	)		(1,249	)
Total undistributed losses	$	(9,959	)	$	(9,959	)	$	(9,845	)	$	(9,845	)	$	(8,788	)	$	(8,788	)
Loss from discontinued operations	$	—		$	—		$	—		$	—		$	(31	)	$	(31	)
Less dividends:
Common stock		2,567			2,567			2,615			2,615			2,794			2,794
Class B common stock		464			464			464			464			466			466
Undistributed losses	$	(3,031	)	$	(3,031	)	$	(3,079	)	$	(3,079	)	$	(3,291	)	$	(3,291	)
Common stock undistributed losses	$	(2,567	)	$	(2,567	)	$	(2,615	)	$	(2,615	)	$	(2,823	)	$	(2,823	)
Class B common stock undistributed losses		(464	)		(464	)		(464	)		(464	)		(468	)		(468	)
Total undistributed losses	$	(3,031	)	$	(3,031	)	$	(3,079	)	$	(3,079	)	$	(3,291	)	$	(3,291	)
Net loss	$	(6,928	)	$	(6,928	)	$	(6,766	)	$	(6,766	)	$	(5,559	)	$	(5,559	)
Less dividends:
Common stock		2,567			2,567			2,615			2,615			2,794			2,794
Class B common stock		464			464			464			464			466			466
Undistributed losses	$	(9,959	)	$	(9,959	)	$	(9,845	)	$	(9,845	)	$	(8,819	)	$	(8,819	)
Common stock undistributed losses	$	(8,440	)	$	(8,440	)	$	(8,367	)	$	(8,367	)	$	(7,565	)	$	(7,565	)
Class B common stock undistributed losses		(1,519	)		(1,519	)		(1,478	)		(1,478	)		(1,254	)		(1,254	)
Total undistributed losses	$	(9,959	)	$	(9,959	)	$	(9,845	)	$	(9,845	)	$	(8,819	)	$	(8,819	)
Denominator for Basic and Diluted EPS:
Common stock weighted average shares		10,705			10,705			10,908			10,908			11,682			11,682
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS		2,140			2,140			2,141			2,141			2,151			2,151
Effect of dilutive stock options					—						—						—
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions					12,845						13,049						13,833
Loss from continuing operations per share:
Common stock	$	(0.55	)	$	(0.55	)	$	(0.53	)	$	(0.53	)	$	(0.41	)	$	(0.41	)
Class B common stock	$	(0.49	)	$	(0.49	)	$	(0.47	)	$	(0.47	)	$	(0.36	)	$	(0.36	)
Income from discontinued operations per share:
Common stock	$	—		$	—		$	—		$	—		$	—		$	—
Class B common stock	$	—		$	—		$	—		$	—		$	—		$	—
Net loss per share:
Common stock	$	(0.55	)	$	(0.55	)	$	(0.53	)	$	(0.53	)	$	(0.41	)	$	(0.41	)
Class B common stock	$	(0.49	)	$	(0.49	)	$	(0.47	)	$	(0.47	)	$	(0.36	)	$	(0.36	)

Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for fiscal 2017, fiscal 2016, and fiscal 2015 were 848; 890; and 881 respectively.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which amends guidance for revenue recognition. ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016 and 2017, the FASB issued four additional updates which further clarify the guidance provided in ASU 2014-09.

We are evaluating the impact of the new standard on our financial statements using a three-phase approach (assessment, conversion and implementation). We are in our primary assessment stage, which included identifying revenue streams, contracts and responsible parties who create and manage those accounts, quantifying the impact of identified contracts on the financial statements and identifying internal control changes. We are in the initial stage of our assessment phase and therefore further evaluation is needed to determine the impact on our financial statements, related disclosures and controls upon adoption. We expect to finalize the primary assessment phase in the first quarter of fiscal 2018. We will complete the conversion and implementation phases during fiscal 2018 in conjunction with future interpretative guidance.

In July 2015, the FASB issued ASU No. 2015-11 (“ASU 2015-11”), Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory within the scope of the ASU (e.g., first-in, first-out (“FIFO”) or average cost) to be measured using the lower of cost and net realizable value. Inventory excluded from the scope of the ASU (i.e., last-in, first-out (“LIFO”) or the retail inventory method) will continue to be measured at the lower of cost or market. The ASU also amends some of the other guidance in Topic 330, “Inventory,” to more clearly articulate the requirements for the measurement and disclosure of inventory. However, those amendments are not intended to result in any changes to current practice. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect adoption of ASU 2015-11 to have a material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the prior US GAAP guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. The amendments in ASU 2015-17 require that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. In order to simplify presentation of deferred tax balances, the Company adopted this standard prospectively in the quarter ended August 27, 2016, which did not have a material impact on the Company’s results of operations, cash flows or stockholders’ equity. Periods prior to August 27, 2016 were not retrospectively adjusted.

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the potential impact of the adoption of ASU 2016-02 on the Company’s consolidated financial statements. Upon adoption, the Company expects that the amounts recognized for the ROU asset and lease liability in the balance sheets may be material. 

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 introduces targeted amendments intended to simplify the accounting for stock compensation. ASU 2016-09 will directly impact the tax administration of equity plans. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company expects to adopt ASU 2016-09 in the first quarter of fiscal 2018, at which time we will evaluate the potential impact of the adoption of this standard on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. ASU 2017-04 will be effective for fiscal years and interim periods beginning after December 15, 2019. ASU 2017-04 is required to be applied prospectively and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.