PARK AEROSPACE CORP - Quarter Report: 2018 August (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 26, 2018

 

OR

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to__________

 

Commission file number 1-4415

 

PARK ELECTROCHEMICAL CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

New York				11-1734643
(State or Other Jurisdiction of Incorporation or Organization)				(I.R.S. Employer Identification No.)

 

48 South Service Road, Melville, N.Y.	11747
(Address of Principal Executive Offices)	(Zip Code)

 

                  (631) 465-3600                    

(Registrant's Telephone Number, Including Area Code)

 

                  Not Applicable                    

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer [  ]   Accelerated Filer [X]   Non-Accelerated Filer [  ]   Smaller Reporting Company [  ]   Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 20,277,108 as of October 4, 2018.

 

 

 

PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES

 

TABLE OF CONTENTS

		Page Number
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets August 26, 2018 (Unaudited) and February 25, 2018	3
	Consolidated Statements of Operations 13 weeks and 26 weeks ended August 26, 2018 and August 27, 2017 (Unaudited)	4
	Consolidated Statements of Comprehensive Earnings 13 weeks and 26 weeks ended August 26, 2018 and August 27, 2017 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows 26 weeks ended August 26, 2018 and August 27, 2017 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Factors That May Affect Future Results	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION:
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	28
Item 6.	Exhibits	28
SIGNATURES		29
EXHIBIT INDEX		30

 

 

 

		August 26, 2018 (unaudited)				February 25, 2018*
ASSETS
Current assets:
Cash and cash equivalents		$	20,854			$	18,254
Marketable securities (Note 3)			87,456				89,977
Accounts receivable, less allowance for doubtful accounts of $32 and $32, respectively			5,878				6,961
Inventories (Note 4)			3,994				3,955
Prepaid expenses and other current assets			1,578				1,473
Current Assets - Discontinued Operations (Note 10)			22,624				20,648
Total current assets			142,384				141,268
Property, plant and equipment, net			9,111				9,805
Goodwill and other intangible assets			9,818				9,818
Other assets			377				370
Non-current Assets - Discontinued Operations (Note 10)			11,406				11,799
Total assets		$	173,096			$	173,060
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable			1,091				1,825
Accrued liabilities			1,108				1,022
Income taxes payable			1,467				1,456
Current Liabilities - Discontinued Operations (Note 10)			8,170				7,924
Total current liabilities			11,836				12,227
Non-current income taxes payable (Note 9)			18,594				20,364
Deferred income taxes (Note 9)			3,309				4,047
Other liabilities			314				314
Non-current Liabilities - Discontinued Operations (Note 10)			846				847
Total liabilities			34,899				37,799
Commitments and contingencies (Note 11)
Shareholders' equity (Note 8):
Common stock			2,096				2,096
Additional paid-in capital			169,304				169,011
Accumulated deficit			(19,278	)			(21,099	)
Accumulated other comprehensive earnings			222				131
			152,344				150,139
Less treasury stock, at cost			(14,147	)			(14,878	)
Total shareholders' equity			138,197				135,261
Total liabilities and shareholders' equity		$	173,096			$	173,060

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		13 Weeks Ended (Unaudited)								26 Weeks Ended (Unaudited)
		August 26,				August 27,				August 26,				August 27,
		2018				2017				2018				2017
Net sales		$	11,211			$	11,355			$	21,604			$	20,081
Cost of sales			8,066				8,147				15,607				14,576
Gross profit			3,145				3,208				5,997				5,505
Selling, general and administrative expenses			2,116				2,240				4,217				4,680
Earnings from continuing operations			1,029				968				1,780				825
Interest expense (Note 5)			-				603				-				1,113
Interest and other income			357				751				697				1,500
Earnings from continuing operations before income taxes			1,386				1,116				2,477				1,212
Income tax (benefit) provision (Note 9)			(438	)			257				(163	)			281
Net earnings from continuing operations			1,824				859				2,640				931
Earnings (Loss) from discontinued operations, net of tax (Note 10)			876				(339	)			3,228				983
Net Earnings		$	2,700			$	520			$	5,868			$	1,914
Earnings per share (Note 7):
Basic:
Continuing Operations		$	0.09			$	0.04			$	0.13			$	0.04
Discontinued Operations			0.04				(0.01	)			0.16				0.05
Basic earnings per share		$	0.13			$	0.03			$	0.29			$	0.09
Basic weighted average shares			20,253				20,236				20,248				20,236
Diluted:
Continuing Operations		$	0.09			$	0.04			$	0.13			$	0.04
Discontinued Operations			0.04				(0.01	)			0.16				0.05
Diluted earnings per share		$	0.13			$	0.03			$	0.29			$	0.09
Diluted weighted average shares			20,382				20,250				20,339				20,247
Dividends declared per share		$	0.10			$	0.10			$	0.20			$	0.20

---

 

		13 Weeks Ended (Unaudited)								26 Weeks Ended (Unaudited)
		August 26,				August 27,				August 26,				August 27,
		2018				2017				2018				2017
Net earnings		$	2,700			$	520			$	5,868			$	1,914
Other comprehensive earnings (loss), net of tax:
Foreign currency translation			18				72				(1	)			41
Unrealized gains on marketable securities:
Unrealized holding gains arising during the period			-				21				-				24
Less: reclassification adjustment for gains included in net earnings			-				(27	)			-				(96	)
Unrealized losses on marketable securities:
Unrealized holding losses arising during the period			(1	)			-				(18	)			(117	)
Less: reclassification adjustment for losses included in net earnings			109				22				110				46
Other comprehensive earnings (loss)			126				88				91				(102	)
Total comprehensive earnings		$	2,826			$	608			$	5,959			$	1,812

---

 

		26 Weeks Ended (Unaudited)
		August 26,				August 27,
		2018				2017
Cash flows from operating activities:
Net earnings from continuing operations		$	2,640			$	931
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			865				905
Stock-based compensation			400				475
Deferred income taxes			(738	)			(304	)
Amortization of bond premium			24				125
Changes in operating assets and liabilities			(1,554	)			(1,113	)
Net cash provided by operating activities - continuing operations			1,637				1,019
Net cash provided by operating activities - discontinued operations			1,845				483
Net cash provided by operating activities			3,482				1,502
Cash flows from investing activities:
Purchase of property, plant and equipment			(170	)			(365	)
Purchases of marketable securities			(7,411	)			(141,881	)
Proceeds from sales and maturities of marketable securities			10,080				74,205
Net cash provided by (used in) investing activities - continuing operations			2,499				(68,041	)
Net cash used in investing activities - discontinued operations			(23	)			(135	)
Net cash provided by (used in) investing activities			2,476				(68,176	)
Cash flows from financing activities:
Dividends paid			(4,048	)			(4,047	)
Proceeds from exercise of stock options			624				39
Payments of long-term debt			-				(1,750	)
Net cash used in financing activities - continuing operations			(3,424	)			(5,758	)
Net cash used in financing activities - discontinued operations			-				-
Net cash used in financing activities			(3,424	)			(5,758	)
Increase (decrease) in cash and cash equivalents before effect of exchange rate changes - continuing operations			712				(72,780	)
Increase in cash and cash equivalents before effect of exchange rate changes - discontinued operations			1,822				348
Increase (decrease) in cash and cash equivalents before effect of exchange rate changes			2,534				(72,432	)
Effect of exchange rate changes on cash and cash equivalents - continuing operations			(152	)			29
Effect of exchange rate changes on cash and cash equivalents - discontinued operations			218				156
Effect of exchange rate changes on cash and cash equivalents			66				185
Increase (decrease) in cash and cash equivalents			2,600				(72,247	)
Cash and cash equivalents, beginning of period			18,254				102,438
Cash and cash equivalents, end of period		$	20,854			$	30,191
Supplemental cash flow information:
Cash paid during the period for income taxes, net of refunds		$	2,332			$	1,534
Cash paid during the period for interest		$	-			$	1,007

---

 

1.  CONSOLIDATED FINANCIAL STATEMENTS

 

The Condensed Consolidated Balance Sheet as of August 26, 2018, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings for the 13 weeks and 26 weeks ended August 26, 2018 and August 27, 2017 and the Condensed Consolidated Statements of Cash Flows for the 26 weeks then ended have been prepared by Park Electrochemical Corp. (the “Company”), without audit. In the opinion of management, these unaudited consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at August 26, 2018 and the results of operations and cash flows for all periods presented. The Consolidated Statements of Operations are not necessarily indicative of the results to be expected for the full fiscal year or any subsequent interim period.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2018. There have been no significant changes to such accounting policies during the 26 weeks ended August 26, 2018.

 

On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business for $145,000 in cash. The Company expects this transaction to be completed in the fourth quarter of the 2019 fiscal year.

 

The Company has classified the operating results of its Electronics Business, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statement of Operations, in accordance with Accounting Standards Codification (“ASC”) 205-20 Discontinued Operations.

 

 

2.  FAIR VALUE MEASUREMENTS

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

Fair value measurements are broken down into three levels based on the reliability of inputs as follows:

 

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market), and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

 

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

 

 

The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to their short-term nature. Due to the variable interest rates’ periodically adjusting with the current LIBOR, the carrying value of outstanding borrowings under the Company’s long-term debt approximates its fair value. (See Note 5). Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs. (See Note 3).

 

The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and any long-lived assets written down to fair value. To measure the fair value of such assets, the Company uses Level 3 inputs consisting of techniques including an income approach and a market approach. The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis require the exercise of significant judgment, including judgment about appropriate discount rates, terminal values, growth rates and the amount and timing of expected future cash flows. There were no transfers between levels within the fair value hierarchy during the 26 weeks ended August 26, 2018 and August 27, 2017. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that fair value is less than carrying value. If, based on that assessment, the Company believes it is more likely than not that fair value is less than carrying value, a goodwill impairment test is performed. There have been no changes in events or circumstances which required impairment charges to be recorded during the 13 or 26 weeks ended August 26, 2018.

 

 

3.  MARKETABLE SECURITIES

 

All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive earnings. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in interest and other income in the Consolidated Statements of Operations. The costs of securities sold are based on the specific identification method.

 

The following is a summary of available-for-sale securities:

 

 

 

 

 

The following table shows the amortized cost basis of, and gross unrealized gains and losses on, the Company’s available-for-sale securities:

 

 

The estimated fair values of such securities at August 26, 2018 by contractual maturity are shown below:

 

 

 

 

4.  INVENTORIES

 

Inventories from continuing operations are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions.  Inventories from continuing operations consisted of the following:

 

 

 

 

5.  LONG-TERM DEBT

 

On January 15, 2016, the Company entered into a three-year revolving credit facility agreement (the “Credit Agreement”) with HSBC Bank USA, National Association (“HSBC Bank”). The Credit Agreement provided for loans up to $75,000 and letters of credit up to $2,000.

 

 

On January 3, 2018, in connection with the Company’s voluntary prepayment of the entire loan balance, the Company terminated the Credit Agreement. The prepayment was made with the Company’s cash and cash equivalents, marketable securities and restricted cash.

 

Interest expense recorded under the Credit Agreement was $0 during the 13-week and 26-week periods ended August 26, 2018 and $603 and $1,113 during the 13-week and 26-week periods ended August 27, 2017, respectively.

 

 

6.  STOCK-BASED COMPENSATION

 

As of August 26, 2018, the Company had a 2002 Stock Option Plan (the “Plan”), and no other stock-based compensation plan. The Plan was approved by the Company’s shareholders and provided for the grant of stock options to directors and key employees of the Company. All options granted under the Plan have exercise prices equal to the fair market value of the underlying common stock of the Company at the time of grant, which, pursuant to the terms of the Plan, is the reported closing price of the common stock on the New York Stock Exchange on the date preceding the date the option is granted. Options granted under the Plan become exercisable 25% one year after the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant, and expire 10 years after the date of grant.

 

During the 26 weeks ended August 26, 2018, the Company granted options to purchase a total of 2,650 shares of common stock to certain of its employees. The future compensation expense to be recognized in earnings before income taxes was $10 and will be recorded on a straight-line basis over the requisite service period. The fair value of the granted options was $3.66 per share using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.83%; expected volatility factor of 24.7%; expected dividend yield of 2.32%; and estimated option term of 5.2 years.

 

The risk-free interest rates were based on U.S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated terms of the options at the date of the grant. Volatility factors were based on historical volatility of the Company’s common stock. The expected dividend yields were based on the regular quarterly cash dividend per share most recently declared by the Company and on the exercise price of the options granted during the 26 weeks ended August 26, 2018. The estimated term of the options was based on evaluations of the historical and expected future employee exercise behavior.

 

The Plan terminated on May 21, 2018, and authority to grant additional options under the Plan expired on that date. All options granted under the Plan will expire in April 2028 or earlier. The Board of Directors of the Company has adopted a 2018 Stock Option Plan which was approved by the shareholders of the Company at the Annual Meeting of Shareholders of the Company on July 24, 2018. No options have been granted under the 2018 Stock Option Plan.

 

 

The following is a summary of option activity for the 26 weeks ended August 26, 2018:

 

 

 

7.     EARNINGS PER SHARE

 

Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are the only potentially dilutive securities that have been issued by the Company; and the number of dilutive options is computed using the treasury stock method.

 

The following table sets forth the calculation of basic and diluted earnings per share:

 

 

Potentially dilutive securities, which were not included in the computation of diluted earnings per share because either the effect would have been anti-dilutive or the options’ exercise prices were greater than the average market price of the common stock, were 146,000 and 713,000 for the 13 weeks ended August 26, 2018 and August 27, 2017, respectively, and 345,000 and 793,000 for the 26 weeks ended August 26, 2018 and August 27, 2017, respectively.

 

 

 

8.   SHAREHOLDERS’ EQUITY

 

During the 26 weeks ended August 26, 2018, the Company sold 35,537 shares of the Company’s treasury stock pursuant to the exercises of employee stock options and received proceeds of $624 from such exercises. The Company recognized stock-based compensation expense, net of tax benefits, of $400.

 

On January 8, 2015, the Company announced that its Board of Directors authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,250,000 shares of its common stock, representing approximately 6% of the Company’s 20,945,634 total outstanding shares as of the close of business on January 7, 2015. This authorization superseded all prior Board of Directors’ authorizations to purchase shares of the Company’s common stock.

 

On March 10, 2016, the Company announced that its Board of Directors authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,000,000 additional shares of its common stock, in addition to the unused prior authorization to purchase shares of the Company’s common stock announced on January 8, 2015. As a result, the Company is authorized to purchase up to a total of 1,531,412 shares of its common stock, representing approximately 7.6% of the Company’s 20,277,446 total outstanding shares as of the close of business on October 4, 2018.

 

The Company did not purchase any shares of its common stock during the 26 weeks ended August 26, 2018 or during the 26 weeks ended August 27, 2017.

 

 

9.   INCOME TAXES

 

The Company’s effective tax rates for the 13 weeks and 26 weeks ended August 26, 2018 were negative 31.6% and negative 6.6%, respectively, compared to 23.0% and 23.2%, respectively, for the 13 weeks and 26 weeks ended August 27, 2017. The negative effective tax rates were due to a tax benefit of $788 related to clarifying regulations pertaining to the Tax Cuts and Job Act enacted in December 2017.

 

The Company continuously evaluates the liquidity and capital requirements of its operations in the United States and of its foreign operations. As a result of such evaluations, the Company repatriated $6,250, $135,300 and $6,800 in cash from the Company’s subsidiary in Singapore in the 2019, 2018 and 2017 fiscal years, respectively.

 

 

10.  DISCONTINUED OPERATIONS

 

On July 25, 2018, the Company entered into a definitive agreement to sell its Electronics Business for $145,000 in cash.  The Company expects this transaction to be completed in the fourth quarter of the 2019 fiscal year.

 

The Company has classified the operating results of its Electronics Business, together with certain costs related to the transaction, as discontinued operations, net of tax, in the Consolidated Statement of Operations.

 

 

The following table shows the summary operating results of the discontinued operations:

 

 

 

The following table shows the summary assets and liabilities of the discontinued operations:

 

 

During the 2018 fiscal year, the Company consolidated its Nelco Products, Inc. Business Unit located in Fullerton, California and its Neltec, Inc. Business Unit located in Tempe, Arizona. The Company estimates the remaining pre-tax charge in connection with the consolidation to be approximately $1,020, which the Company expects to incur primarily during the fiscal year ending February 28, 2021.

 

The restructuring expenses were $117 and $169 during the 13-week and 26-week periods ended August 26, 2018, respectively, and $2,813 and $4,063 during the 13-week and 26-week periods ended August 27, 2017, respectively.

 

 

The following table sets forth the charges and accruals related to the consolidation:

 

 

 

The Company recorded additional restructuring charges of $77 and $208 during the 13-week and 26-week periods ended August 26, 2018, respectively, and $89 and $200 during the 13-week and 26-week periods ended August 27, 2017, respectively, related to the closure in the 2009 fiscal year of the Company’s New England Laminates Co., Inc. Business Unit located in Newburgh, New York. The New England Laminates Co., Inc. building in Newburgh, New York is held for sale. In the 2004 fiscal year, the Company reduced the book value of the building to zero, and the Company intends to sell it during the 2019 fiscal year.

 

 

11.   CONTINGENCIES

 

Litigation 

 

The Company is subject to a number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. The Company believes that the ultimate disposition of such proceedings, lawsuits and claims will not have a material adverse effect on the Company’s liquidity, capital resources or business or its consolidated results of operations, cash flows or financial position.

 

Environmental Contingencies 

 

The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the “EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the “Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at three sites.

 

Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company’s subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program.

 

The insurance carriers which provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company’s subsidiaries’ waste was disposed at these sites have in the past reimbursed the Company and its subsidiaries for 100% of their legal defense and remediation costs associated with two of these sites.

 

 

The Company does not record environmental liabilities and related legal expenses for which the Company believes that it and its subsidiaries have general liability insurance coverage for the years during which the Company’s subsidiaries’ waste was disposed at two sites for which certain subsidiaries of the Company have been named as potentially responsible parties. Pursuant to such general liability insurance coverage, three insurance carriers reimburse the Company and its subsidiaries for 100% of the legal defense and remediation costs associated with the two sites.

 

Included in selling, general and administrative expenses are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.

 

 

12.  ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted

 

In November 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, to reduce the diversity that exists in the classification and presentation of changes in restricted cash in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and the interim periods within those fiscal years. The Company has adopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position or disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and the interim periods within those fiscal years. The Company has adopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position or disclosures.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, intended to improve the recognition and measurement of financial instruments, effective for public business entities for fiscal years beginning after December 15, 2017, and the interim periods within those fiscal years.  The Company has adopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position or disclosures.

 

 

In May 2014, the FASB issued Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This guidance requires that an entity 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 or services, and expands the related disclosure requirements. The new standard was originally scheduled to be effective for fiscal years beginning after December 15, 2016, including interim reporting periods within those fiscal years. In August 2015, the FASB delayed the effective date of this guidance for one year. With the delay, the new standard is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with an option to adopt the standard on the originally scheduled effective date. The Company has adopted the guidance effective February 26, 2018, the first day of the 2019 fiscal year, and the adoption of this guidance did not impact its consolidated results of operations, cash flows, financial position or disclosures.

 

Recently Issued

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), intended to increase transparency and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements, effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact that this new guidance may have on its consolidated results of operations, cash flows, financial position and disclosures.

 

 

 

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