Annual report pursuant to Section 13 and 15(d)

Nature Of Operations And Summary Of Significant Accounting Policies (Policy)

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Nature Of Operations And Summary Of Significant Accounting Policies (Policy)
12 Months Ended
Dec. 31, 2016
Nature Of Operations And Summary Of Significant Accounting Policies [Abstract]  
Basis Of Presentation And Organization

The accompanying audited consolidated financial statements of Black Diamond, Inc. and subsidiaries (which may be referred to as the “Company,” “we,” “our” or “us”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).



Nature Of Business

Nature of Business



Black Diamond, Inc., through its ownership of Black Diamond Equipment, Ltd., is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, backpacking, skiing, and a wide range of other year-round outdoor recreation activities.  Black Diamond Equipment and PIEPS™, are synonymous with performance, innovation, durability and safety in the outdoor consumer community. We are targeted not only to the demanding requirements of core climbers, skiers and alpinists, but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities.  Our Black Diamond® and PIEPS™ brands are iconic in the active outdoor and ski industries, and linked intrinsically with the modern history of these sports.  Headquartered in Salt Lake City at the base of the Wasatch Mountains, our products are designed and exhaustively tested by an engaged team of discerning entrepreneurs and engineers.



We offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.



Our consolidated financial statements for the year ended December 31, 2015 include a correction related to the carryback limitations of net operating losses and tax credits to 2014. The effect of the revision was to decrease income tax receivable and reduce other long-term liabilities by $1,801 and $230, as of December 31, 2015, respectively, with an offsetting increase of $1,571 of income tax expense for the year ended December 31, 2015.  We evaluated these changes and determined that the corrections are not material to the prior period.



On May 28, 2010, we acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, “Gregory” or “GMP”).  On January 20, 2011, the Company changed its name from Clarus Corporation to Black Diamond, Inc., which we believe more accurately reflects our current business.  In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, “POC”) and in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).



On July 23, 2014, the Company and Gregory Mountain Products, its wholly-owned subsidiary, completed the sale of certain assets to Samsonite LLC (“Samsonite”) comprising Gregory’s business of designing, manufacturing, marketing, distributing and selling technical, alpine, backpacking, hiking, mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags (the “Gregory Business”) pursuant to the terms of that certain Asset Purchase Agreement (the “GMP Purchase Agreement”), dated as of June 18, 2014, by and among the Company, Gregory and Samsonite. Under the terms of the GMP Purchase Agreement, Samsonite paid $84,135 in cash for Gregory’s assets comprising the Gregory Business and assumed certain specified liabilities (the “GMP Sale”). The activities of Gregory have been segregated and reported as discontinued operations for all periods presented. See Note 2. Discontinued Operations to the notes to consolidated financial statements.



On March 16, 2015, the Company announced that it was exploring a full range of strategic alternatives, including a sale of the entire Company and the potential sales of the Company’s Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.



On October 7, 2015, the Company and the Company’s wholly owned subsidiary, Ember Scandinavia AB (“Ember”), sold their respective equity interests in POC comprising POC’s business of designing, manufacturing, marketing, distributing and selling advanced-design helmets, body armor, goggles, eyewear, gloves, and apparel for action or “gravity sports,” such as skiing, snowboarding, and cycling pursuant to a Purchase Agreement (the “POC Purchase Agreement”), dated as of October 7, 2015, by and among the Company and Ember, as sellers, and Dainese S.p.A. and Dainese U.S.A., Inc. (collectively “Dainese”), as purchasers. Under the terms of the POC Purchase Agreement, Dainese paid $63,639 in cash for POC (the “POC Disposition”). The activities of POC have been segregated and reported as discontinued operations for all periods presented. See Note 2. Discontinued Operations to the notes to consolidated financial statements.



On October 8, 2015, the Company announced the completion of the POC Disposition resulting in the conclusion of the Company’s review of strategic alternatives.



On November 9, 2015, the Company announced that it is seeking to redeploy our significant cash balances to invest in high-quality, durable, cash flow-producing assets potentially unrelated to the outdoor industry in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy.  We intend to focus our search primarily in the United States, although we will also evaluate international investment opportunities should we find such opportunities attractive.



Use Of Estimates

Use of Estimates



The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  The more significant estimates relate to derivatives, revenue recognition, income taxes, and valuation of long-lived assets, goodwill, and other intangible assets.  We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from these estimates.



Principles Of Consolidation

Principles of Consolidation



The consolidated financial statements include the accounts of Black Diamond, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.



Foreign Currency Transactions And Translation

Foreign Currency Transactions and Translation



The accounts of the Company’s international subsidiaries’ financial statements which, have functional currencies other than the U.S. dollar, are translated into U.S. dollars using the exchange rate at the balance sheet dates for assets and liabilities and average exchange rates for the periods for revenues, expenses, gains and losses.  Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income.  Foreign currency transaction gains and losses are included in other (expense) income in the consolidated statements of comprehensive (loss) income.

Cash Equivalents

Cash Equivalents



The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.  At December 31, 2016 and 2015, the Company did not hold any amounts that were considered to be cash equivalents.

Marketable Securities

Marketable Securities



Marketable securities consisted of an exchange-traded fund. The Company accounts for its marketable securities as available-for-sale.  Available-for-sale securities are recorded at fair value and related unrealized gains and losses are excluded from earnings and are reported as a separate component of accumulated other comprehensive (loss) income until realized.  The cost basis of the exchange traded fund was $9,994 and the unrealized losses were $107 and $59, net of taxes of $63 and $33, as of December 31, 2015 and 2014, respectively.  The Company sold the exchange traded fund and recognized a gain of $241 in earnings during the twelve months ending December 31, 2016.

Accounts Receivable And Allowance For Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts



The Company records its trade receivables at sales value and establishes a non-specific allowance for estimated doubtful accounts based on a percentage of outstanding trade receivables.  In addition, specific allowances are established for customer accounts as known collection problems occur due to insolvency, disputes or other collection issues.  The amounts of these specific allowances are estimated by management based on the customer’s financial position, the age of the customer’s receivables and the reasons for any disputes.  The allowance for doubtful accounts is reduced by subsequent collections of the specific allowances or by any write-off of customer accounts that are deemed uncollectible.  The allowance for doubtful accounts was $399 and $184 at December 31, 2016 and 2015, respectively.  There were no significant write-offs of the Company’s accounts receivable during the years ended December 31, 2016, 2015, and 2014.

Inventories

Inventories



Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”) or market value.  Elements of cost in the Company’s manufactured inventories generally include raw materials, direct labor, manufacturing overhead and freight in.  The Company periodically reviews its inventories for excess, close-out, or slow moving items and makes provisions as necessary to properly reflect inventory values.



Property And Equipment

Property and Equipment



Property and equipment is stated at historical cost, less accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives.  The principal estimated useful lives are: building improvements, 20 years; computer hardware and software and machinery and equipment, 3-10 years; furniture and fixtures, 5 years.  Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement, or the life of the lease.  Equipment under capital leases are stated at the present value of minimum lease payments.  Major replacements, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life.  Normal maintenance and repair items are expensed as incurred.  Property and equipment are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable.



Goodwill

Goodwill



Goodwill represents the excess of the purchase price over the fair market value of identifiable net assets of acquired companies.  Goodwill is not amortized, but rather is tested at the reporting unit level at least annually for impairment or more frequently if triggering events or changes in circumstances indicate impairment.  A two-step quantitative impairment analysis is performed.  The first step involves estimating the fair value of the reporting unit based upon the market capitalization and reasonable control premium.  If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test is performed to measure the amount of the impairment loss.  In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit as determined in step one, less fair values of all other net tangible and intangible assets of the reporting unit determined in a manner similar to a purchase price allocation.  If the carrying amount of the goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.  For the year ended December 31, 2015, the Company recognized an entire goodwill impairment of $29,507.  No impairment was recorded during the years ended December 31, 2016 and 2014.



Intangible Assets

Intangible Assets



Intangible assets represent other intangible assets and indefinite-lived intangible assets acquired. Other intangible assets are amortized over their related useful lives. Other intangible assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable.



Indefinite-lived intangible assets are not amortized; however, they are tested at least annually for impairment or more frequently if events or changes in circumstances exist that may indicate impairment. Initially, qualitative factors are considered to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount, or the Company elects to bypass the qualitative assessment, a quantitative impairment analysis is performed by comparing the indefinite-lived intangible asset's book value to its estimated fair value.  The fair value for indefinite-lived intangible assets is determined through an income approach using the relief-from-royalty method. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. During the years ended December 31, 2016, 2015, and 2014, no impairment of indefinite-lived intangible assets was recorded.



Derivative Financial Instruments

Derivative Financial Instruments



The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated sales.  The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure.  These derivatives are carried at fair value on the Company’s consolidated balance sheets in prepaid and other current assets, other long-term assets, accounts payable and accrued liabilities, and other long-term liabilities.  Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income.  For derivative contracts designated as hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive loss and reclassified to sales in the period the underlying hedged item is recognized in earnings. 



For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions.  The Company uses operating budgets and cash flow forecasts to estimate future foreign currency cash flow exposures and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies. The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge.  The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments.



Stock-Based Compensation

Stock-Based Compensation



The Company records compensation expense for all share-based awards granted based on the fair value of the award at the time of the grant.  The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable.  Stock-based compensation costs for stock awards and restricted stock awards is measured based on the closing market value of the Company’s common stock on the date of the grant.  For restricted stock awards subject to market conditions, the fair value of each restricted stock award has been estimated as of the date of grant using the Monte-Carlo pricing model.  The Company recognizes the cost of the share-based awards on a straight-line basis over the requisite service period of the award.

Revenue Recognition

Revenue Recognition



The Company sells its products pursuant to customer orders and agreements entered into with its customers.  Revenue is recognized when persuasive evidence of an arrangement exists, title and risk of loss pass to the customer, the price is fixed and determinable, and collectability is reasonably assured.  Charges for shipping and handling fees billed to customers are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of comprehensive (loss) income.



At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues.  The estimates are based on historical rates of product returns and claims.  However, actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates.  If actual or expected future returns and claims are significantly greater or lower than the allowances that we have established, we will record a reduction or increase to sales in the period in which we make such a determination.  Over the three-year period ended December 31, 2016, our actual annual sales returns have been less than three percent (3%) of net sales.  The allowance for outstanding sales returns from customers is not material to the consolidated financial statements.



Cost Of Sales

Cost of Sales



The expenses that are included in cost of sales include all direct product costs and costs related to shipping, handling, duties and importation fees.  Product warranty costs and specific provisions for excess, close-out, or slow moving inventory are also included in cost of sales. 



Selling, General And Administrative Expense

Selling, General and Administrative Expense



Selling, general and administrative expense includes personnel-related costs, product development, selling, advertising, depreciation and amortization, and other general operating expenses.  Advertising costs are expensed in the period incurred.  Total advertising expense for continuing operations, including cooperative advertising costs, were $2,605, $3,220, and $2,807 for the years ended December 31, 2016, 2015, and 2014, respectively.



Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products based on various criteria, including the value of purchases from the Company and various advertising specifications. Cooperative advertising costs were $741,  $1,037, and $649 for the years ended December 31, 2016, 2015, and 2014, respectively, and were included in selling, general, and administrative expense because the Company receives an identifiable benefit in exchange for the cost, the advertising may be obtained from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated.



Product Warranty

Product Warranty



Some of the Company’s products carry warranty provisions for defects in quality and workmanship.  Warranty repairs and replacements are recorded in cost of sales and a warranty liability is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements.  The Company recorded a liability for product warranties totaling $892 and $854 as of December 31, 2016 and 2015, respectively.  For the years ended December 31, 2016, 2015, and 2014, the Company experienced warranty claims on its products of $1,051,  $813, and $879, respectively.



Reporting Of Taxes Collected

Reporting of Taxes Collected



Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales.



Research And Development

Research and Development



Research and development costs are charged to expense as incurred, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.  Total research and development costs for continuing operations were $6,598, $7,469, and $7,335 for the years ended December 31, 2016, 2015, and 2014, respectively.



Income Taxes

Income Taxes



Income Taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns.  As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases.  Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on enacted tax rates expected to be in effect for years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions.  Valuation allowances are used to reduce deferred tax assets to amounts considered more-likely-than-not to be realized.  U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently invested.



The Company recognizes interest expense and penalties related to income tax matters in income tax expense.



The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward, are presented as a reduction to deferred income taxes. 



Concentration Of Credit Risk And Sales

Concentration of Credit Risk and Sales



Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, accounts receivable, and aggregate unrealized gains on derivative contracts.  Risks associated with cash within the United States are mitigated by banking with federally insured, creditworthy institutions; however, there are balances with these institutions that are greater than the Federal Deposit Insurance Corporation insurance limit.  The Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses as considered necessary by management.



During the years ended December 31, 2016, 2015 and 2014, Recreational Equipment, Inc. (“REI”) accounted for approximately 16%, 17% and 13%, respectively, of the Company’s sales from continuing operations.







Fair Value Measurements

Fair Value Measurements



The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments.  Marketable securities are recorded at fair value based on quoted market prices.  Derivative financial instruments are recorded at fair value based on current market pricing models.  The Company estimates that, based on current market conditions, the fair value of its long-term debt obligations under its revolving credit facility and senior subordinated notes payable approximate the carrying values at December 31, 2016 and 2015.



Segment Information

Segment Information



The Company has determined that during 2016, 2015, and 2014, the Company operated in one principal business segment.



Recent Accounting Pronouncements

Recent Accounting Pronouncements



Accounting Pronouncements adopted During 2016



During the first quarter of 2016, the Company adopted Accounting Standards Updated (“ASU”) 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition of the award. A reporting entity should apply existing guidance in Accounting Standards Codification Topic 718, Compensation-Stock Compensation, as it relates to such awards. Adoption of this guidance was applied prospectively and did not impact the Company’s consolidated statements and related disclosures.



During the first quarter of 2016, the Company adopted ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), which eliminates the concept of extraordinary items from U.S. GAAP as part of its simplification initiative. This guidance does not affect disclosure guidance for events or transactions that are unusual in nature or infrequent in their occurrence. Adoption of this guidance was applied prospectively and did not impact the Company’s consolidated statements and related disclosures.

 

During the first quarter of 2016, the Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Adoption of this guidance was applied retrospectively and did not result in a material change to the Company’s prior period consolidated statements and related disclosures.



During the fourth quarter of 2016, the Company adopted ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern which requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances. Adoption of this guidance was applied prospectively and did not impact on the Company’s consolidated statements and related disclosures.



Accounting Pronouncements Not Yet Adopted



In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers that replaces the existing accounting standards for revenue recognition with a single comprehensive five-step model. The core principle is to recognize revenue upon the transfer of goods or services to customers at an amount that reflects the consideration expected to be received. The FASB also issued ASU 2015-14, Deferral of Effective Date that deferred the effective date for the new guidance until the annual reporting period beginning after December 15, 2017, and interim periods within those annual periods.  Early adoption is permitted, but not before the original effective date (periods beginning after December 15, 2016).  The standard permits the use of either the retrospective (restating all years presented in the Company’s financial statements) or cumulative effect (recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption) transition method.  Since its issuance, the FASB has also amended several aspects of the new guidance, including; ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) which clarifies the Topic 606 guidance on principal versus agent considerations, ASU 2016-10 Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing that clarifies identification of a performance obligation and address revenue recognition associated with the licensing of intellectual property, ASU 2016-12 Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and Practical Expedients clarifying assessment of collectability criterion, non-cash consideration and other technical corrections and ASU 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers is the result of the FASB Board decision to issue a separate Update for technical corrections and improvements.  The Company intends to adopt this guidance effective January 1, 2018 using the cumulative effect method.  The Company has reviewed its current customer agreements and believes that all current open agreements as of December 31, 2016 will be settled prior to adoption of this guidance on January 1, 2018.  The Company does not anticipate significant changes to our current revenue recognition policy resulting from adoption of the new guidance. 



In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method.  The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.  The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years.  The ASU requires prospective adoption and permits early adoption.  The Company believes that adoption of this ASU will not have a material impact on the Company’s consolidated financial statements and related disclosures.



In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset (“ROU”) for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with certain practical expedients available. Early adoption is permitted. Since the effective date will not be until January 1, 2019, there is no immediate impact on the financial statements.  Leases previously defined as capital leases will continue to be defined as a capital lease with no material changes to the accounting methodology; however, the Company does not have capital leases.  However, the Company is performing an assessment of its leases and has begun preparations for implementation and restrospective application to the earliest reporting period. Under the new guidance, leases previously defined as operating leases will be defined as financing leases and capitalized if the term is greater than one year. As a result, financing lease will be recorded as an asset and a corresponding liability at the present value of the total lease payments.  The asset will be decremented over the life of the lease on a pro-rata basis resulting in lease expense while the liability will be decremented using the interest method (ie. principal and interest). As such, the Company expects the new guidance will materially impact the asset and liability balances of the Company’s consolidated financial statements and related disclosures at the time of adoption. The majority of our current operating leases will expire prior to the adoption date.  The Company anticipates renegotiating these operating leases; however, the terms which may exist at the adoption date are currently unknown.  Consequently, the Company is unable to estimate the impact that these leases will have on the financial statements on the date of adoption.  For the remaining leases with terms that go beyond the adoption date, the amounts we expect to recognize as additional liabilities and corresponding ROU assets based upon the present value of the remaining rental payments, are considered immaterial.



In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  The ASU changes several aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes.  The ASU is effective for annual and interim reporting periods beginning after December 15, 2016 with early adoption permitted.  The Company has evaluated the impact of adoption of this ASU. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related disclosures.



In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies the treatment of several cash flow categories. In addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use.  The ASU is effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted.  The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related disclosures.



In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) Restricted Cash requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective for fiscal years beginning January 1, 2018, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented.  The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related disclosures.