NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A.
|
Subsidiaries of the Registrant
|
The LGL Group, Inc. (the "Company"), incorporated in 1928 under the laws of the State of Indiana and reincorporated under the laws of the State of Delaware in 2007, is a holding company with subsidiaries engaged in the designing, manufacturing and marketing of highly-engineered,
high
reliability frequency and spectrum control products
used to control the frequency or timing of signals in electronic circuits, and in the design of high performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications.
As of September 30, 2017, the subsidiaries of the Company were as follows:
|
|
Owned By
The LGL
Group, Inc.
|
|
M-tron Industries, Inc.
|
|
|
100.0%
|
|
Piezo Technology, Inc.
|
|
|
100.0%
|
|
Piezo Technology India Private Ltd.
|
|
|
99.0%
|
|
M-tron Asia, LLC
|
|
|
100.0%
|
|
M-tron Industries, Ltd.
|
|
|
100.0%
|
|
GC Opportunities Ltd.
|
|
|
100.0%
|
|
M-tron Services, Ltd.
|
|
|
100.0%
|
|
Precise Time and Frequency, LLC
|
|
|
100.0%
|
|
Lynch Systems, Inc.
|
|
|
100.0%
|
|
The Company operates through its two principal subsidiaries, M-tron Industries, Inc. (“MtronPTI”), which includes the operations of Piezo Technology, Inc. ("PTI") and M-tron Asia, LLC ("Mtron"), and Precise Time and Frequency, LLC ("PTF"), a subsidiary formed to hold the assets of Precise Time and Frequency, Inc. acquired September 2, 2016. Additionally, the Company
operates in two identified segments. The first segment, the electronic components segment, is focused on the design and manufacture of highly-engineered, high reliability frequency and spectrum control products. These electronic components ensure reliability and security in aerospace and defense communications, low noise and base accuracy for laboratory instruments, and synchronous data transfers throughout the wireless and Internet infrastructure. The second segment, the electronic instruments segment, is focused on the design and manufacture of high performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications.
The Company has operations in Orlando, Florida, Yankton, South Dakota, Wakefield, Massachusetts and Noida, India and sales offices in Sacramento, California, Austin, Texas and Hong Kong.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017.
This interim information should be read in conjunction with the audited consolidated financial statements and related notes thereto set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the "SEC") on March 29, 2017, as amended. The accompanying unaudited condensed consolidated financial statements should also be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q.
Inventories are valued at the lower of cost or net realizable value using the FIFO (first-in, first-out) method. The Company reduces the value of its inventories to net realizable value when the net realizable value is believed to be less than the cost of the item. The inventory reserve for obsolescence as of September 30, 2017 and December 31, 2016 was $2,819,000 and $2,773,000, respectively.
6
Inventories are comprised of the following (in thousands):
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
1,501
|
|
|
$
|
1,408
|
|
Work in process
|
|
|
1,568
|
|
|
|
1,306
|
|
Finished goods
|
|
|
838
|
|
|
|
924
|
|
Total Inventories, net
|
|
$
|
3,907
|
|
|
$
|
3,638
|
|
Intangible assets are recorded at cost less accumulated amortization which is included in engineering, selling and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Amortization is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range up to 10 years. The intangible assets consist of intellectual property and goodwill. The net carrying value of the amortizable intangible assets was $532,000 and $588,000 as of September 30, 2017 and December 31, 2016, respectively. Goodwill, which is not amortizable, was $40,000 as of September 30, 2017 and December 31, 2016.
The estimated aggregate amortization expense for intangible assets, excluding goodwill, for the remaining portion of 2017 and each of the four succeeding years and thereafter is as follows (in thousands):
2017
|
$
|
19
|
|
2018
|
|
75
|
|
2019
|
|
75
|
|
2020
|
|
75
|
|
2021
|
|
75
|
|
Thereafter
|
|
213
|
|
Total
|
$
|
532
|
|
On September 30, 2016, MtronPTI renewed its Loan Agreement (the “CNB Loan Agreement”) with City National Bank of Florida (“City National”). The CNB Loan Agreement provides for a revolving line of credit in the amount of $3.0 million (the “CNB Revolver”), which bears interest at a variable rate equal to the 30-day London Interbank Offered Rate (“LIBOR”) plus 200 basis points to be set on the first day of each month, and expires on September 30, 2018. The CNB Loan Agreement also provides that MtronPTI will pay City National a fee equal to 0.75% per year on the daily unused amount. The Company's obligations under the CNB Loan Agreement are secured only by cash collateral and do not require any other liens.
As of September 30, 2017 and December 31, 2016, there was no balance outstanding under the CNB Revolver and no associated restricted cash.
F.
|
Stock-Based Compensation
|
The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period.
The Company estimates the fair value of stock options on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the expected volatility assumption as the Company believes that the historical volatility is indicative of expected volatility over the life of the option. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option.
Restricted stock awards are made at a value equal to the market price of the Company's common stock on the date of the grant.
Compensation expense related to share-based compensation is recognized over the applicable vesting periods. As of September 30, 2017, there was approximately $43,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements that will be recognized over a weighted average period of 1.9 years.
7
G.
|
Net Income (Loss) Per Share
|
The Company computes net income (loss) per share in accordance with Accounting Standards Codification ("ASC") 260,
Earnings Per Share
("ASC 260"). Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share adjusts basic income (loss) per share for the effects of stock options, non-participating restricted common stock, and other potentially dilutive financial instruments, only in the periods in which the effects are dilutive. Shares of restricted stock granted to members of the Company’s board of directors (the “Board”) as a portion of their director fees are deemed to be participating as defined by ASC 260 and therefore are included in the computation of basic income (loss) per share.
For the three and nine months ended September 30, 2017, there were options to purchase 60,135 shares and 105,135 shares, respectively, of the Company's common stock and warrants to purchase 519,241 shares of common stock that were excluded from the diluted income (loss) per share computation because the impact of the assumed exercise of such stock options would have been anti-dilutive during the respective periods. For the three and nine months ended September 30, 2016, there were options to purchase 130,554 shares and 139,902 shares, respectively, of the Company’s common stock and warrants to purchase 519,241 shares of common stock that were excluded from the diluted income (loss) per share computation because the impact of the assumed exercise of such stock options and warrants would have been anti-dilutive.
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding for the three and nine months ended September 30, 2017 and 2016:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted average shares outstanding - basic
|
|
|
2,675,465
|
|
|
|
2,665,189
|
|
|
|
2,675,465
|
|
|
|
2,665,352
|
|
Effect of diluted securities
|
|
|
14,446
|
|
|
|
642
|
|
|
|
13,079
|
|
|
|
—
|
|
Weighted average shares outstanding - diluted
|
|
|
2,689,911
|
|
|
|
2,665,831
|
|
|
|
2,688,544
|
|
|
|
2,665,352
|
|
Share Repurchase Program
On August 29, 2011, the Board authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company's existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. As of September 30, 2017, the Company had repurchased a total of 81,584 shares of common stock at a cost of $580,000, which shares are currently held in treasury.
Rights Offering
Pursuant to a Registration Statement on Form S-1 (Registration No. 333-218901) under the
Securities Act of 1933, as amended (the "Securities Act"), and declared effective by the SEC on September 5, 2017
, the Company distributed, at no charge, to the holders of the Company’s common stock, as of September 5, 2017 three transferable subscription rights for each share of common stock then owned (the “Rights Offering”). Each subscription right entitles the holder to purchase one-fourth of a share of common stock at a subscription price of $5.50 per whole share of common stock.
The Rights Offering also includes an over-subscription right, which entitles a stockholder who exercises all of their basic subscription rights in full the right to purchase additional shares of common stock that remain unsubscribed at the expiration of the Rights Offering, subject to availability, at the same $5.50 per whole share subscription price. If the number of unsubscribed shares is not sufficient to satisfy all of the properly exercised over-subscription rights requests, the available shares will be prorated among those who properly exercised over-subscription rights in proportion to their respective basic subscription rights.
The initial subscription period for stockholders to exercise their subscription rights was to expire on October 10, 2017. On October 5, 2017, the Company extended the expiration of the offering period to October 25, 2017, and on October 23, 2017, the Company further extended the expiration of the offering period to November 13, 2017.
The Company estimated the fair value of the subscription rights using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the
8
expected volatility assumption. The risk-free interest rate is based on the U.S. Treasury zer
o-coupon rates with a remaining term comparable to the expected term of the subscription rights.
The Company
estimated
the fair value of the subscription rights to be
approximately
$
10
,000 and
,
because retained earnings
were
in a deficit position
for the t
hree and nine months ending September 30, 2017
,
it has been recorded as a
debit and credit
to
additional paid in capital
with a net impact of $0
.
The shares issued in connection with the Rights Offering will be listed on the NYSE American, and the subscription rights are expected to trade on the NYSE American until the day before the expiration of the subscription period.
The Company intends to use the net proceeds from the Rights Offering as additional capital for general corporate purposes and for acquisitions and new business development broadly, including industries and businesses outside the scope of existing operations, although it has not identified any specific acquisitions or business development opportunities at this time.
The Company reserves the right to modify, extend, postpone or cancel the Rights Offering at any time prior to the settlement of the sale of the shares in the Rights Offering.
Warrants
On August 6, 2013, the Company distributed warrants to purchase shares of the Company's common stock as a dividend to holders of the Company's common stock as of July 29, 2013, the record date for the dividend. Stockholders received five warrants for each share of the Company's common stock owned on the record date. When exercisable, 25 warrants will entitle the holder to purchase one share of the Company's common stock at an exercise price of $7.50 per share (subject to adjustment).
The warrants are "European style warrants" and will only become exercisable on the earlier of (i) their expiration date, August 6, 2018, and (ii) such date that the 30-day volume weighted average price per share, or VWAP, of the Company's common stock is greater than or equal to $15.00 (subject to adjustment). Once the warrants become exercisable, they may be exercised in accordance with the terms of the warrant agreement between the Company and the warrant agent until their expiration at 5:00 p.m., Eastern Time, on the expiration date.
The warrants are quoted on the over-the-counter market under the symbol "LGLPW."
9
I.
|
Fair Value Measurements
|
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1
- Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2
- 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; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3
- Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
Assets
To estimate the market value of its marketable securities, the Company obtains current market pricing from quoted market sources or uses pricing for identical securities. Assets measured at fair value on a recurring basis are summarized below (in thousands).
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
September 30,
2017
|
|
Marketable Securities (equity securities)
|
|
$
|
3,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,787
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
December 31,
2016
|
|
Marketable Securities (equity securities)
|
|
$
|
2,770
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,770
|
|
U.S. Treasury securities (cash equivalents)
|
|
$
|
1,002
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,002
|
|
There were no transfers from level 2 to level 3 during the periods presented. There were no level 2 or 3 assets as of September 30, 2017 or December 31, 2016. The Company also has assets that may be subject to measurement at fair value on a non-recurring basis, including goodwill and intangible assets, and other long-lived assets. There were no liabilities subject to fair value on a non-recurring or recurring basis as of September 30, 2017 and December 31, 2016.
The Company reviews goodwill and the carrying value of long-lived assets at least annually or whenever events and circumstances indicate that the carrying amounts of the assets may not be recoverable. If it is determined that the assets are impaired, the carrying value would be reduced to estimated fair value.
10
The Company has two reportable business segments from operations: electronic components, which includes all products manufactured and sold by MtronPTI, and electronic instruments, which includes all products manufactured and sold by PTF. The Company's foreign operations in Hong Kong and India are subsidiaries of MtronPTI.
Operating income (loss) is equal to revenues less cost of sales and operating expenses, excluding investment income, interest expense, and income taxes.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Revenues from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic components
|
|
$
|
5,080
|
|
|
$
|
5,114
|
|
|
$
|
16,097
|
|
|
$
|
15,101
|
|
Electronic instruments
|
|
|
182
|
|
|
|
14
|
|
|
|
648
|
|
|
|
14
|
|
Total consolidated revenues
|
|
$
|
5,262
|
|
|
|
5,128
|
|
|
$
|
16,745
|
|
|
|
15,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic components
|
|
$
|
321
|
|
|
$
|
279
|
|
|
$
|
1,127
|
|
|
$
|
617
|
|
Electronic instruments
|
|
|
(9
|
)
|
|
|
(54
|
)
|
|
|
39
|
|
|
|
(54
|
)
|
Unallocated corporate expense
|
|
|
(311
|
)
|
|
|
(253
|
)
|
|
|
(1,013
|
)
|
|
|
(727
|
)
|
Consolidated operating income (loss)
|
|
|
1
|
|
|
|
(28
|
)
|
|
|
153
|
|
|
|
(164
|
)
|
Interest expense, net
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(17
|
)
|
|
|
(20
|
)
|
Other income, net
|
|
|
24
|
|
|
|
67
|
|
|
|
42
|
|
|
|
105
|
|
Total other income
|
|
|
18
|
|
|
|
60
|
|
|
|
25
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
$
|
19
|
|
|
$
|
32
|
|
|
$
|
178
|
|
|
$
|
(79
|
)
|
K.
|
Domestic and Foreign Revenues
|
For the three months ended September 30, 2017 and 2016, domestic revenues were $3,979,000 and $3,779,000, respectively, and foreign revenues were $1,283,000 and $1,349,000, respectively. For the nine months ended September 30, 2017 and 2016, domestic revenues were $11,845,000 and $11,033,000, respectively, and foreign revenues were $4,900,000 and $4,082,000, respectively. Significant foreign revenues from operations (10% or more of foreign sales) were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
Malaysia
|
|
$
|
696
|
|
|
$
|
694
|
|
|
$
|
2,284
|
|
|
$
|
2,202
|
|
All other foreign countries
|
|
|
587
|
|
|
|
655
|
|
|
|
2,616
|
|
|
|
1,880
|
|
Total foreign revenues
|
|
$
|
1,283
|
|
|
$
|
1,349
|
|
|
$
|
4,900
|
|
|
$
|
4,082
|
|
Total domestic revenue
|
|
$
|
3,979
|
|
|
$
|
3,779
|
|
|
$
|
11,845
|
|
|
$
|
11,033
|
|
The Company allocates its foreign revenue based on the customer's ship-to location.
L.
|
Commitments and Contingencies
|
In the ordinary course of business, the Company and its subsidiaries may become defendants in certain product liability, patent infringement, worker claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.
11
M.
|
Related Party Transaction
s
|
As of September 30, 2017 and December 31, 2016, approximately $3,778,000 and $2,714,000, respectively, was invested in a market neutral mutual fund which is included in marketable securities on the accompanying balance sheet. As of December 31, 2016, approximately $1,002,000 was also invested in a United States Treasury money market fund which is included in cash and cash equivalents on the accompanying balance sheet. Both the market neutral mutual fund and the United States Treasury money market fund are managed by a related entity (the "Fund Manager"), which is related through a common director. One of the Company's directors, who is also a 10% stockholder, currently serves as an executive officer of the Fund Manager. The fund transactions for the nine months ended September 30, 2017 and for the year-ended December 31, 2016 were directed solely at the discretion of the Company’s management.
N.
Recently Issued Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows – (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. Early application is permitted. The Company is currently evaluating the potential effect of ASU 2016-15 on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share–Based Payment Accounting" ("ASU 2016-09"). ASU 2016-9 simplifies the accounting for share–based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The adoption of ASU 2016–09 did not
have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016–02, "Leases (Topic 842)" (“ASU 2016-02”). The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company does not expect this standard to have a material impact on its consolidated financial statements because there are no material operating leases.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
(Topic 825)" ("ASU 2016-01"). ASU 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adopting ASU 2016-01 may result in a cumulative effect adjustment to the Company's retained earnings as of the beginning of the year of adoption. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-01.
In November 2015, the FASB issued ASU No. 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" (ASU 2015-17”) which simplifies the presentation of deferred income taxes. Under the new accounting standard, deferred tax assets and liabilities are required to be classified as noncurrent, eliminating the prior requirement to separate deferred tax assets and liabilities into current and noncurrent. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern" ("ASU 2014-15"), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company has adopted ASU 2014-15 as of December 31, 2016 and it did not have a material impact on the Company’s financial statements.
12
In May 2014, the FASB issued ASU No. 2014
-
09, "Revenue from Contracts with Customers
”
("ASU 2014-09"), also known as the "New Revenue Standard
.
" This update is the result of a collaborative effort by the FASB and the International Ac
counting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital marke
ts. The core principle of the guidance is that an entity 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 receive for those goods or serv
ices. The New Revenue Standard is applied through the following five-step process:
1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
For a public entity, this update is effective for annual and interim reporting periods beginning after December 15, 2017
with early adoption permitted
. This standard can be applied on either a retrospective or modified retrospective approach. Through the course of 2016, a number of ASU's had been issued which further refine the original guidance issued under ASU 2014-09 and are effective in conjunction with this original standard.
We have established an implementation approach to assess the impact of the new revenue guidance on our operations, consolidated financial statements and related disclosures. To date, this assessment has included (1) performing contract analyses for each revenue stream identified, (2) assessing the noted differences in recognition and measurement that may result from adopting this new standard, (3) performing detailed analyses of contracts with large customers, and (4) performing transaction level testing for consistency with contract provisions that affect revenue recognition. Based on the preliminary results of the evaluation, which is still in process, nothing has come to our attention that would indicate that adoption of the new standard will have a material impact on our consolidated financial statements.
Further, we are in the process of evaluating and designing the necessary changes to our business processes, policies, systems and controls to support recognition and disclosure under the new standard. Further, we are continuing to assess what incremental disaggregated revenue disclosures will be required in our consolidated financial statements.
No other new accounting pronouncements issued or effective during the nine months ended September 30, 2017 have had or are expected to have a material impact on the Company's consolidated financial statements.
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