The Company and Summary of Significant Accounting Policies The Company and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jul. 01, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("United States" or "U.S.," and such accounting principles, "U.S. GAAP") and include the accounts of the Company, all of its subsidiaries and special purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been eliminated in consolidation. The assets of the special purpose entities that the Company establishes in connection with certain project financing arrangements for customers are not designed to be available to service the general liabilities and obligations of the Company.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes. In the first quarter of fiscal 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASC 606") as well as Accounting Standards Update No. 2017-05, Other income - Gain and Losses from the Derecognition of Nonfinancial Assets (Subtopic ASC 610-20, "ASU 2017-05"), such reclassifications are discussed in this Note 1.

Fiscal Years

The Company has a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Both fiscal 2018 and 2017 are 52-week fiscal years. The second quarter of fiscal 2018 ended on July 1, 2018, while the second quarter of fiscal 2017 ended on July 2, 2017. The second quarters of fiscal 2018 and 2017 were both 13-week quarters. The first halves of fiscal 2018 and 2017 were both 26-week periods.

Management Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements include revenue recognition, specifically the nature and timing of satisfaction of performance obligations, standalone selling price of performance obligations and variable consideration; allowances for doubtful accounts receivable; recoverability of financing receivables related to residential leases, inventory and project asset write-downs; stock-based compensation; long-lived asset impairment, specifically estimates for valuation assumptions including discount rates and future cash flows, economic useful lives of property, plant and equipment, intangible assets, and investments; fair value and residual value of solar power systems, including those subject to residential operating leases; fair value of financial instruments; valuation of contingencies such as accrued warranty; the fair value of indemnities provided to customers and other parties, and income taxes and tax valuation allowances. Actual results could materially differ from those estimates.

Property, Plant and Equipment

Long-Lived Assets

The Company evaluates its long-lived assets, including property, plant and equipment, solar power systems leased and to be leased, and other intangible assets with finite lives, for impairment whenever events or changes in circumstances arise, including consideration of technology obsolescence, that may indicate that the carrying value of such assets may not be recoverable, and these assessments require significant judgment in determining whether such events or changes have occurred. Factors considered important that could result in an impairment review include significant changes in the manner of use of a long-lived asset or in its physical condition, a significant adverse change in the business climate or economic trends that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset, significant under-performance relative to expected historical or projected future operating results, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

For purposes of the impairment evaluation, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, and the Company must exercise judgment in assessing such groupings and levels. The Company then compares the estimated future undiscounted net cash flows expected to be generated by the asset group, including the eventual disposition of the asset group at residual value, to the asset group’s carrying value to determine if the asset group is recoverable. If the Company's estimate of future undiscounted net cash flows is insufficient to recover the carrying value of the asset group, the Company records an impairment loss in the amount by which the carrying value of the asset group exceeds the fair value. Fair value is generally measured based on (i) internally developed discounted cash flows for the asset group, (ii) third-party valuations, as well as (iii) quoted market prices, if available. If the fair value of an asset group is determined to be less than its carrying value, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs. Estimating future cash flows requires significant judgment, and such projections may vary from the cash flows eventually realized. For additional information on the impairment charge recorded in the three and six months ended July 1, 2018, see "Note 5. Balance Sheet Components-Impairment of Property, Plant and Equipment" and "Note 6. Leasing-Impairment of Residential Lease Assets."

Revenue Recognition

Effective January 1, 2018, the Company adopted ASC 606. For additional information on the new standard and the impact to the Company's financial results, refer to Impacts to Previously Reported Results below.

Module and Component Sales

The Company sells its solar panels and balance of system components primarily to dealers, system integrators and distributors, and recognizes revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. There are no rights of return, and other than standard warranty obligations, there are no significant post-shipment obligations, including installation, training or customer acceptance clauses with any of the Company's customers that could have an impact on revenue recognition. The Company's revenue recognition policy is consistent across all geographic areas.

Solar Power System Sales and Engineering, Procurement, and Construction Services

The Company designs, manufactures, and sells rooftop and ground-mounted solar power systems under construction and development agreements. EPC projects governed by customer contracts that require the Company to deliver functioning solar power systems are generally completed within three to twelve months from commencement of construction. Construction on large projects may be completed within eighteen to thirty-six months, depending on the size and location. The Company recognizes revenue from EPC services over time as our performance creates or enhances an energy generation asset controlled by the customer. The Company uses an input method based on cost incurred as it faithfully depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed-price construction contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. Project material costs are included in incurred costs when the project materials have been installed by being permanently attached or fitted to the solar power system as required by the project’s engineering design. Cost-based input methods of revenue recognition require the Company to make estimates of net contract revenues and costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete the projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

For sales of solar power systems in which the Company sells a controlling interest in the project to a customer, the Company recognizes all of the revenue for the consideration received, including the fair value of the noncontrolling interest obtained or retained, and defers any profit associated with the Company’s retained equity stake through “Equity in earnings of unconsolidated investees.” The deferred profit is subsequently recognized on a straight-line basis over the useful life of the underlying system. The Company estimates the fair value of the noncontrolling interest using an income approach based on the valuation of the entire solar project. Further, in situations where the Company sells membership interests in its project entities to third-party tax equity investors in return for tax benefits, such as investment tax credits and accelerated depreciation, the Company views the sale of tax credits as a distinct performance obligation which is recognized at a point in time when the customers are eligible to claim the benefits, generally at substantial completion of the solar power projects. The fair value of the tax attributes generally begins with an independent third-party appraisal which supports the eligible cost basis for the qualifying solar energy property. In certain circumstances, the Company has provided indemnification to customers and investors under which the Company is contractually obligated to compensate these parties for losses they may suffer as a result of reduction in tax benefits received under the investment tax credit and U.S. Treasury Department cash grant programs. Refer to "Note 9. Commitments and Contingencies" for further details.

The Company's arrangements may contain clauses such as contingent repurchase options, delay liquidated damages or early performance bonus, most favorable pricing, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics or milestones. The Company estimates variable consideration at which the Company expects to be entitled and it is probable that a significant reversal of cumulative revenue recognized will not occur.

Operations and Maintenance

The Company offers its customers various levels of post-installation O&M services with the objective of optimizing our customers' electrical energy production over the life of the system. The Company determines if the post-installation systems monitoring and maintenance qualifies as separate performance obligation. Such post-installation monitoring and maintenance are deferred at the time the contract is executed based on the estimate of selling price on a standalone basis and are recognized to revenue over time as customers receive and consume benefits of such services. The non-cancellable term of the O&M contracts are typically 90 days for commercial and residential customers and 180 days for power plant customers.

The Company typically provides a system output performance warranty, separate from its standard solar panel product warranty, to customers that have subscribed to its post-installation O&M services. In connection with system output performance warranties, the Company agrees to pay liquidated damages in the event the system does not perform to the stated specifications, with certain exclusions. The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance warranty, the warranty provides that SunPower will pay the customer an amount based on the value of the shortfall of energy produced relative to the applicable warrantied performance level. Such liquidated damages represent a form of variable consideration and are estimated at contract inception and recognized over time as customers receive and consume the benefits of the O&M services.

Shipping and Handling Costs

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill its promise to transfer goods and, accordingly, records such costs in cost of revenue.

Taxes Collected from Customers and Remitted to Governmental Authorities

The Company excludes from its measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.

Financing Receivables

Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines. Financing receivables are generated by solar power systems leased to residential customers under sales-type leases. Financing receivables are initially recorded based on the expected gross minimum lease payments to be received from customers over a period commensurate with the remaining lease term of up to 20 years and the systems estimated residual value, net of unearned income and allowance for estimated losses. Initial direct costs for sales-type leases are recognized as cost of sales when the solar power systems are placed in service.

Due to the homogeneous nature of its leasing transactions, SunPower manages its financing receivables on an aggregate basis when assessing credit risk. SunPower also considers the credit risk profile for its lease customers to be homogeneous due to the criteria the Company uses to approve customers for its residential leasing program, which among other things, requires a minimum "fair" FICO credit quality. Accordingly, the Company does not regularly categorize its financing receivables by credit risk.

The Company recognizes an allowance for losses on financing receivables in an amount equal to the probable losses net of recoveries. SunPower maintains reserve percentages on past-due receivable aging buckets and bases such percentages on several factors, including consideration of historical credit losses and information derived from industry benchmarking. The Company also places doubtful financing receivables on nonaccrual status and discontinues recognition of interest revenue.

For the six months ended July 1, 2018, events and circumstances continued to indicate that the Company might not be able to collect all amounts due according to the contractual terms of the underlying lease agreements given its decision to sell or refinance its interest in its residential lease portfolio. The Company determined it was necessary to evaluate the potential for allowances in its ability to collect these receivables. Estimates and judgments about future cash flows were made using an income approach defined as Level 3 inputs under fair value measurement standards. The income approach, specifically a discounted cash flow analysis, included assumptions for, among others, forecasted lease income, expenses, default rates, residual value of these lease assets and long-term discount rates, all of which require significant judgment by the Company. In accordance with such evaluation, the Company recognized an allowance for losses on the consolidated statement of operations. For additional information on the related impairment charge, see "Note 6. Leasing—Impairment of Residential Lease Assets."

See "Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 1. The Company and Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for a summary of our other significant accounting policies.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) to target improvements to accounting for hedging activities. The improvements include (i) alignment of risk management activities and financial reporting, and (ii) other simplifications in the application of hedge accounting guidance. The new guidance is effective for the Company no later than the first quarter of fiscal 2019 and requires a modified retrospective approach to adoption. The Company elected early adoption of the updated accounting standard on a modified retrospective basis in the first quarter of fiscal 2018. The adoption of this updated accounting standard did not result in a significant impact to the Company’s consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718) to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the updated accounting standard in the first quarter of fiscal 2018 which did not result in a significant impact to the Company's consolidated financial statements.

In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715) to provide final guidance on the presentation of net periodic pension and postretirement benefit cost. The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with other employee compensation costs in operating income or capitalized in assets. The other components will be recorded separately outside of operations and will not be eligible for capitalization. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. The Company adopted the updated accounting standard in the first quarter of fiscal 2018 which did not result in a significant impact to the Company's consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05 to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also to define what constitutes an “in substance nonfinancial asset” which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. The Company adopted the updated accounting standard in the first quarter of fiscal 2018 which did not result in a significant impact to the Company's consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805) to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for the Company no later than the first quarter of fiscal 2018 and requires a prospective approach to adoption. The Company adopted the updated accounting standard in the first quarter of fiscal 2018 which did not result in a significant impact to the Company’s consolidated financial statements.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) ("ASU 2016-01") to require equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). In February 2018, the FASB issued Accounting Standards Update No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10), which provided clarifications to ASU 2016-01. The Company adopted the updated accounting standard in the first quarter of fiscal 2018 by electing the allowed measurement alternative to use cost, impairment (if any), and observable price changes in orderly transactions for the identical or similar investment of the same issuer (referred to as the measurement alternative method). The adoption did not result in a significant impact to the Company's consolidated financial statements.

In May 2014, the FASB issued ASC 606. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted ASC 606 on January 1, 2018, using the full retrospective method, which required the Company to restate each prior period presented. The Company implemented key system functionality and internal controls to enable the preparation of financial information upon adoption.

The most significant impact of the standard relates to the sales of solar power systems that include the sale or lease of related real estate previously accounted for under the guidance for real estate sales ASC 360-20 "Property, Plant, and Equipment." ASC 360-20 required the Company to evaluate whether such arrangements had any forms of continuing involvement that may have affected the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing involvement requiring the Company to reduce the potential profit on a project sale by its maximum exposure to loss. The adoption of ASC 606, which supersedes the real estate sales guidance under ASC 360-20, generally results in the earlier recognition of revenue and profit than the Company's historical practice under ASC 360-20. For sales arrangements in which the Company obtains or retains an interest in the project sold to the customer, the Company recognizes all the revenue for the consideration received, including the fair value of the noncontrolling interests obtained or retained, and defers any profits associated with the interest retained through "Equity in earnings (loss) of unconsolidated investees." The Company then recognizes any deferred profit on a straight-line basis over the useful life of the underlying system, with any remaining amount recognized upon the sale of the noncontrolling interest to a third party. Following the adoption of ASC 606, the revenue recognition for the Company's other sales arrangements, including the sales of components, sales and construction of solar systems, and O&M services, remained materially consistent. The revenue recognition for residential leasing and sale-leaseback arrangements remained consistent as they follow other U.S. GAAP guidance.

As part of the Company's adoption of ASC 606 in the first quarter of fiscal 2018, the Company elected to apply the following practical expedients:


•	The Company has not restated contracts that begin and are completed within the same annual reporting period;


•	For completed contracts that have variable consideration, the Company used the transaction price at the date upon which the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods;


•	The Company has excluded disclosures of transaction prices allocated to remaining performance obligations and when the Company expects to recognize such revenue for all periods prior to the date of initial application;


•	The Company has not retrospectively restated its contracts to account for those modifications that were entered into before January 3, 2016, the earliest reporting period impacted by ASC 606;


•	The Company has expensed costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. These costs are included in selling, general, and administrative expenses; and


•	The Company has not assessed a contract asset or contract liability for a significant financing component if the period between the customer's payment and the Company's transfer of goods or services is one year or less.

Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard on the condensed consolidated financial statements as of December 31, 2017 and for the three and six months ended July 2, 2017.

Impact to Previously Reported Results

Adoption of ASC 606 impacted our previously reported results as follows:



	December 31, 2017
(In thousands)	As Reported			Adoption of ASC 606			As Adjusted
Accounts receivable, net	$	215,479		$	(10,513	)	$	204,966
Costs and estimated earnings in excess of billings	18,203			(18,203		)	—
Contract assets	—			35,074			35,074
Prepaid expenses and other current assets	152,444			(6,235		)	146,209
Property, plant and equipment, net	1,148,042			(197		)	1,147,845
Solar power systems leased and to be leased, net	428,149			(58,931		)	369,218
Long-term financing receivables, net	338,877			(8,205		)	330,672
Other long-term assets	80,146			466,552			546,698
Accrued liabilities	267,760			(38,552		)	229,208
Billings in excess of costs and estimated earnings	8,708			(8,708		)	—
Contract liabilities, current portion	—			104,286			104,286
Customer advances, current portion	54,999			(54,999		)	—
Customer advances, net of current portion	69,062			(69,062		)	—
Contract liabilities, net of current portion	—			171,610			171,610
Other long-term liabilities	954,646			(150,524		)	804,122
Accumulated deficit	(2,115,188		)	445,291			(1,669,897		)



	Three Months Ended July 2, 2017
(In thousands)	As Reported			Adoption of ASC 606			As Adjusted

Revenue
Solar power systems, components, and other	$	286,724		$	(8,146	)	$	278,578
Residential leasing	50,722			(1,319		)	49,403
Cost of revenue
Solar power systems, components, and other	288,022			(9,553		)	278,469
Residential leasing	34,189			(844		)	33,345
Gross margin	15,235			932			16,167
Interest expense	(22,370		)	(135		)	(22,505		)
Other, net	(15,744		)	1,060			(14,684		)
Other expense, net	(37,727		)	925			(36,802		)
Loss before income taxes and equity in earnings of unconsolidated investees	(115,918		)	1,857			(114,061		)
Provision for income taxes	(2,353		)	—			(2,353		)
Equity in earnings of unconsolidated investees	5,449			1,388			6,837
Net loss	(112,822		)	3,245			(109,577		)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	19,062			—			19,062
Net loss attributable to stockholders	$	(93,760	)	$	3,245		$	(90,515	)

Net loss per share attributable to stockholders:
Basic	$	(0.67	)	$	0.02		$	(0.65	)
Diluted	$	(0.67	)	$	0.02		$	(0.65	)



	Six Months Ended July 2, 2017
(In thousands)	As Reported			Adoption of ASC 606			As Adjusted

Revenue
Solar power systems, components, and other	$	636,573		$	(76,790	)	$	559,783
Residential leasing	99,949			(2,656		)	97,293
Cost of revenue
Solar power systems, components, and other	685,113			(64,045		)	621,068
Residential leasing	67,106			(1,681		)	65,425
Gross margin	(15,697		)	(13,720		)	(29,417		)
Interest expense	(43,139		)	(268		)	(43,407		)
Other, net	(17,934		)	(70,838		)	(88,772		)
Other expense, net	(59,748		)	(71,106		)	(130,854		)
Loss before income taxes and equity in earnings of unconsolidated investees	(266,579		)	(84,826		)	(351,405		)
Provision for income taxes	(4,384		)	—			(4,384		)
Equity in earnings of unconsolidated investees	6,501			2,824			9,325
Net loss	(264,462		)	(82,002		)	(346,464		)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	36,223			—			36,223
Net loss attributable to stockholders	$	(228,239	)	$	(82,002	)	$	(310,241	)

Net loss per share attributable to stockholders:
Basic	$	(1.64	)	$	(0.59	)	$	(2.23	)
Diluted	$	(1.64	)	$	(0.59	)	$	(2.23	)



	Six Months Ended July 2, 2017
(In thousands)	As Reported			Adoption of ASC 606			As Adjusted

Net loss	$	(264,462	)	$	(82,002	)	$	(346,464	)
Adjustments to reconcile net loss to net cash used in operating activities, net of effect of acquisitions:
Depreciation and amortization	87,353			(1,682		)	85,671
Impairment of equity method investment	8,607			72,964			81,571
Equity in earnings of unconsolidated investees	(6,501		)	(2,824		)	(9,325		)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	24,445			3,037			27,482
Costs and estimated earnings in excess of billings	13,157			(13,157		)	—
Contract assets	—			10,181			10,181
Project assets	(59,830		)	(13,867		)	(73,697		)
Prepaid expenses and other assets	139,103			(53,738		)	85,365
Long-term financing receivables, net	(62,515		)	110			(62,405		)
Accounts payable and other accrued liabilities	(207,873		)	14,261			(193,612		)
Billings in excess of costs and estimated earnings	(65,433		)	65,433			—
Customer advances	105,157			(105,157		)	—
Contract liabilities	—			106,441			106,441
Net cash used in operating activities	(288,692		)	—			(288,692		)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents	(113,189		)	—			(113,189		)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	514,212			—			514,212
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	401,023		$	—		$	401,023

Recent Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) to permit companies to reclassify disproportionate tax effects in accumulated other comprehensive income ("AOCI") caused by the Tax Cuts and Jobs Act of 2017 (the "Tax Cuts and Jobs Act") to retained earnings. Companies may adopt the new guidance using one of two transition methods: retrospective to each period in which the income tax effects of the Tax Cuts and Jobs Act related to items remaining in AOCI are recognized or at the beginning of the period of adoption. The new guidance is effective for the Company no later than the first quarter of fiscal 2019 with early adoption permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350) to simplify the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation to measure goodwill impairment. Goodwill impairment loss is now measured at the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for the Company no later than the first quarter of fiscal 2020. Early adoption is permitted beginning in the first quarter of fiscal 2017. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02") to require all lessees to recognize a right-of-use asset and a liability for the obligation to make payments for all leases (except for short-term leases) on their balance sheet. All leases in scope will be classified as either operating or financing. Operating and financing leases will require the recognition of an asset and liability to be measured at the present value of the lease payments. ASU 2016-02 also makes a distinction between operating and financing leases for purposes of reporting expenses on the income statement. This guidance will be effective for the Company in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019. The Company is currently assessing the impact of adopting this standard and the effect on the consolidated financial statements will depend on the volume and nature of the Company's lease portfolio and transactions that are impacted by ASU 2016-02 as of the adoption date.