ASTA FUNDING, INC. Caution Regarding Forward Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21 E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objective of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," or "believes" or the negative thereof or any variation there on or similar terminology or expressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors which could materially affect our results and our future performance include, without limitation, the restatement of previously issued financial statements, the identified material weaknesses in our internal control over financial reporting and our ability to remediate those material weaknesses, our ability to purchase defaulted consumer receivables at appropriate prices, changes in government regulations that affect our ability to collect sufficient amounts on our defaulted consumer receivables, our ability to employ and retain qualified employees, changes in the credit or capital markets, changes in interest rates, deterioration in economic conditions, negative press regarding the debt collection industry which may have a negative impact on a debtor's willingness to pay the debt we acquire, and statements of assumption underlying any of the foregoing, as well as other factors set forth under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2019 . All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise any forward-looking statements. OverviewAsta Funding, Inc. , aDelaware Corporation (the "Company," "we" or "us"), together with our wholly owned significant operating subsidiariesPalisades Collection, LLC ,Palisades Acquisition XVI, LLC ("Palisades XVI"),Palisades Acquisition XIX, LLC ("Palisades XIX"),Palisades Acquisition XXIII, LLC ("Palisades XXIII"),VATIV Recovery Solutions LLC ("VATIV"),ASFI Pegasus Holdings, LLC ("APH"),Fund Pegasus, LLC ("Fund Pegasus"),GAR Disability Advocates, LLC ("GAR Disability Advocates"),Five Star Veterans Disability, LLC ("Five Star"),EMIRIC, LLC ("EMIRIC"),Simia Capital, LLC ("Simia"),Sylvave, LLC ("Sylvave") (formerly known asPegasus Funding, LLC ("Pegasus")),Arthur Funding LLC ("Arthur Funding") (formerly known asPractical Funding, LLC ("Practical Funding")), and other subsidiaries, which are not all wholly owned, are engaged in several business segments in the financial services industry including funding of personal injury claims, through our wholly owned subsidiaries Sylvave, Simia and Arthur Funding, social security disability advocacy through our wholly owned subsidiariesGAR Disability Advocates and Five Star and the business of purchasing, managing for our own account and servicing distressed consumer receivables, including charged off receivables, and semi-performing receivables.
We operate principally in
For a detailed description of our segments, please read Note 17 - Segment Reporting, in our notes to condensed consolidated financial statements.
OnOctober 30, 2019 ,Gary M. Stern , President and Chief Executive Officer, submitted a non-binding proposal (the "Proposal") to the Board of Directors of the Company to acquire all of the outstanding shares of common stock, par value$0.01 per share (the "Shares"), of the Company at a cash purchase price of$10.75 per Share, representing a premium of approximately 60% over the closing price onOctober 29, 2019 , and approximately 60% over the average closing price of the Company's common stock for the 30 trading days precedingOctober 30, 2019 .Mr. Stern plans only to acquire such Shares that are publicly held and the Proposal provides that he would do so through a merger of the Company with a newly formed acquisition vehicle that he would control. The Company's board of directors (the "Board of Directors") has established a special committee of independent directors with its own independent advisors to review the Proposal. 24
--------------------------------------------------------------------------------
Table of Contents
Financial Information About Operating Segments
The consumer receivables segment and the social security benefit advocacy segment each accounted for 10% or more of consolidated net revenue for the three months endedDecember 31, 2019 and 2018. The Company accounted for its investment in Sylvave under the equity method of accounting throughJanuary 12, 2018 , for subsequent periods we include the financial results of Sylvave in our consolidated statement of operations, while Simia and Arthur Funding are consolidated entities. The following table summarizes total revenues by percentage from our three lines of business for the three months endedDecember 31, 2019 and 2018: Three Months EndedDecember 31, 2019 2018
Finance income (consumer receivables) 72.6 % 63.9 % Personal injury claims income
8.7 % 13.0 %
Disability fee income 18.7 % 23.1 %
Total revenues 100.0 % 100.0 %
Information about the results of each of our reportable segments for the
three-month periods ended
Social
Security
Consumer Disability Personal Injury
(Dollars in millions) Receivables Advocacy Claims Corporate (2) Total
Three Months Ended December 31,
2019:
Revenues $ 3.1 $ 0.8 $ 0.4 $ - $ 4.3
Other income - - - 0.3 0.3
Segment profit (loss) 2.9 0.0 0.6 (2.1 ) 1.4
Segment Assets (1) 7.2 1.0 4.8 79.5 92.5
2018:
Revenues $ 3.5 $ 1.3 $ 0.7 $ - $ 5.5
Other income 0.1 - - 0.1 0.2
Segment profit (loss) 2.9 0.4 0.5 (2.1 ) 1.7
Segment Assets (1) 12.0 1.4 10.1 62.6 86.1
We do not have any intersegment revenue transactions.
(1) Includes other amounts in other line items on the condensed consolidated
balance sheet. (2) Corporate is not part of our three reportable segments, as certain expenses
and assets are not earmarked to any specific operating segment
Consumer Receivables
The consumer receivable portfolios generally consist of one or more of the following types of consumer receivables:
• charged-off receivables - accounts that have been written-off by the
originators and may have been previously serviced by collection agencies; and
• semi-performing receivables - accounts where the debtor is making partial or
irregular monthly payments, but the accounts may have been written-off by the
originators.
We acquire these consumer receivable portfolios at a significant discount to
the amount actually owed by the borrowers. We acquire these portfolios after a
qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow offers us an
adequate return on our investment after servicing expenses. After purchasing a
portfolio, we actively monitor its performance and review and adjust our
collection and servicing strategies accordingly.
25--------------------------------------------------------------------------------
Table of Contents
We purchase receivables from credit grantors and others through privately
negotiated direct sales, brokered transactions and auctions in which sellers of
receivables seek bids from several pre-qualified debt purchasers. We pursue new
acquisitions of consumer receivable portfolios on an ongoing basis through:
• our relationships with industry participants, financial institutions,
collection agencies, investors and our financing sources;
• brokers who specialize in the sale of consumer receivable portfolios; and
• other sources. Personal Injury ClaimsThis Company's personal injury claims business segment is comprised of purchased interests in personal injury claims from claimants who are a party in personal injury litigation or claims. The Company advances to each claimant funds on a non-recourse basis at an agreed upon interest rate, in anticipation of a future settlement. The interest in each claim purchased consists of the right to receive, from such claimant, part of the proceeds or recoveries which such claimant receives by reason of a settlement, judgment or award with respect to such claimant's claim. The Company historically funded personal injury claims in Simia and Sylvave. The Company formed a new wholly owned subsidiary, Arthur Funding, onMarch 16, 2018 to continue in the personal injury claims funding business. Arthur Funding began funding advances on personal injury claims inMay 2019 . Arthur Funding, Simia and Sylvave conduct its businesses solely inthe United States and obtains business from external brokers and internal sales professionals soliciting attorneys and law firms who represent claimants who have personal injury claims. Business is also obtained from its website and through attorneys. Simia and Sylvave are not funding any new advances, but continue to collect on outstanding personal injury claim advances in the ordinary course.
Social Security Disability Advocacy Business
GAR Disability Advocates and Five Star are disability advocacy groups, which for a fee obtain and represent individuals throughoutthe United States in their claims for social security disability, supplemental security income benefits from theSocial Security Administration and veterans benefits with the Veteran's Administration.
Critical Accounting Policies
Income Recognition - Consumer Receivables
We account for certain of our investments in consumer receivables using the guidance ofFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 310, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310"). Under the guidance of ASC 310, static pools of accounts are established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Due to the substantial reduction of portfolios reported under the interest method, and the inability to reasonably estimate cash collections required to account for those portfolios under the interest method, we concluded the cost recovery method is the appropriate accounting method under the circumstances. Under the guidance of ASC 310, we must analyze a portfolio upon acquisition to ensure which method is appropriate, and once a static pool is established for a quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). We use the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. Under the cost recovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.
Impairments - Consumer Receivables
We account for our impairments in accordance with ASC 310, which provides
guidance on how to account for differences between contractual and expected cash
flows from an investor's initial investment in loans or debt securities acquired
in a transfer if those differences are attributable, at least in part, to credit
quality. The recognition of income under ASC 310 is dependent on us having the
ability to develop reasonable expectations of both the timing and amount of cash
flows to be collected. In the event we cannot develop a reasonable expectation
as to both the timing and amount of cash flows expected to be collected. ASC 310
permits the change to the cost recovery method. We will recognize income only
after we have recovered our carrying value.
26--------------------------------------------------------------------------------
Table of Contents
If collection projections indicate the carrying value will not be recovered, an impairment is required. The impairment will be equal to the difference between the carrying value at the time of the forecast and the corresponding estimated remaining future collections. We believe we have significant experience in acquiring certain distressed consumer receivable portfolios at a significant discount to the amount actually owed by underlying customers. We invest in these portfolios only after both qualitative and quantitative analyses of the underlying receivables are performed and a calculated purchase price is paid so that it believes its estimated cash flow offers an adequate return on acquisition costs after servicing expenses. Additionally, when considering larger portfolio purchases of accounts, or portfolios from issuers with whom we have limited experience, it has the added benefit of soliciting its third party collection agencies and attorneys for their input on liquidation rates and, at times, incorporates such input into the estimates it uses for its expected cash flows, and our ability to recover our cost basis. For the three months endedDecember 31, 2019 , we recorded impairment of our international portfolios by$23,000 . For the three months endedDecember 31, 2018 , we did not record any impairments on our domestic or international portfolios.
Personal Injury Claim Advances and Impairments
We account for our investments in personal injury claims at an agreed upon interest rate, in anticipation of a future settlement. Our interest purchased in personal injury claim advances consists of the right to receive from a claimant part of the proceeds or recoveries which such claimant receives by reason of a settlement, judgment or reward with respect to such claimant's claim. Open case revenue is estimated, recognized and accrued at a rate based on the expected realization and underwriting guidelines and facts and circumstances for each individual case. These personal injury claims are non-recourse. When a case is closed and the cash is received for the advance provided to a claimant, revenue is recognized based upon the contractually agreed upon interest rate, and, if applicable, adjusted for any changes due to a settled amount and fees charged to the claimant. We assess the quality of the personal injury claims portfolio through an analysis of the underlying personal injury fundings on a case by case basis. Cases are reviewed through periodic updates with attorneys handling the cases, as well as with third party research tools which monitor public filings, such as motions or judgments rendered on specific cases. We specifically reserve for those fundings where the underlying cases are identified as uncollectible, due to anticipated non-favorable verdicts and/or settlements at levels where recovery of the advance outstanding is unlikely. For cases that have not exhibited any specific negative collection indicators, we establish reserves based on the historical collection rates of our fundings. Fee income on advances is reserved for on all cases where a specific reserve is established on the initially funded amount. In addition, we also monitor our historical collection rates on fee income and establish reserves on fee income consistent with the historically experienced collection rates. We regularly analyze and update the historical collection rates of our initially funded cases as well as our fee income.
Income Recognition - Social Security Disability Advocacy
In accordance with FASB ASC 606, Revenue from Contracts with Customers, we recognize disability fee income forGAR Disability Advocates and Five Star when disability claimant's cases close, when cash is received, or when we receive a notice of award from theSocial Security Administration ("SSA") that stipulates the amount of fee approved by the SSA to be paid to us. We establish a reserve for the differentials in amounts awarded by theSSA and Veterans Administration compared to the actual amounts received by us. Fees paid to us are withheld by theSSA and Veterans Administration against the claimant's disability claim award, and are remitted directly to us from theSSA and Veterans Administration .
In the following discussions, most percentages and dollar amounts have been rounded to aid in the presentation. As a result, all figures are approximations.
27
--------------------------------------------------------------------------------
Table of Contents Results of Operations
Three Months Ended
Finance income. For the three months endedDecember 31, 2019 , finance income decreased$0.4 million , or 10.4%, to$3.1 million from$3.5 million for the three months endedDecember 31, 2018 . The decrease in finance income was due to reduction in the collections on portfolios during the three months endedDecember 31, 2019 compared to the three months endedDecember 31, 2018 and the overall age of the portfolios. During the three months endedDecember 31, 2019 and 2018, the Company did not purchase any consumer portfolios. Net collections for the three months endedDecember 31, 2019 decreased 16.1% to$3.4 million from$4.0 million for the three months endedDecember 31, 2018 . For the three months endedDecember 31, 2019 gross collections decreased 20.3%, or$1.7 million , to$6.5 million from$8.2 million for the three months endedDecember 31, 2018 . For the three months endedDecember 31, 2019 commissions and fees associated with gross collections from our third-party collection agencies and attorneys decreased 24.3% or$1.0 million to$3.2 million from$4.2 million for the three months endedDecember 31, 2018 . Commissions and fees amounted to 48.5% of gross collections for the three months endedDecember 31, 2019 , compared to 51.0% for the three months endedDecember 31, 2018 resulting from lower percentage of commissionable collections in the current year period. Management's outlook for our Consumer Receivables business segment is that we expect that Finance income may continue to decline due to the continued aging of our existing credit card portfolios. Although we may purchase new portfolios in future periods, we may not be able to purchase consumer receivable portfolios domestically at favorable prices or on sufficient terms. The expected decline in our future Finance income may have a negative impact on our Consumer Receivables business segment and our consolidated pre-tax profits in fiscal 2020 and future periods. Personal Injury Claims income. Personal injury claims income decreased 47.3% or$0.3 million to$0.4 million for the three months endedDecember 31, 2019 from$0.7 million for the three months endedDecember 31, 2018 as a result of lower new advances in Arthur Funding and continued collections on historical personal injury claims. Social security benefit advocacy fee income. Disability fee income decreased$0.5 million , or 35.9%, to$0.8 million for the three months endedDecember 31, 2019 from$1.3 million for the three months endedDecember 31, 2018 , due to decrease in average fees per case earned for the disability claimants' cases closed with theSocial Security andVeterans Administration during the current quarter. Management's outlook for our Social Security Disability Advocacy business segment is that revenue and segment profitability may be lower for the full year of fiscal 2020 as compared with the full year of fiscal 2019. This full year outlook for fiscal 2020 is attributable to the decline in our first quarter revenue and segment profit in the first quarter of fiscal 2020 as compared with the first quarter of fiscal 2019 and the fourth quarter of fiscal 2019. Earnings (loss) from equity method investee. Earnings from equity method investment increased by$26,000 to a loss of$4,000 for the three months endedDecember 31, 2019 from a loss of$30,000 during the three months endedDecember 31, 2018 . Interest and dividend income. Interest and dividend income increased$0.1 million , or 65% to$0.3 million for the three months endedDecember 31, 2019 from$0.2 million for the three months endedDecember 31, 2018 , due to higher balances inU.S. Treasury securities.
Other income, net. The following table summarizes other income for the three
months ended
December 31,
2019 2018
Realized gain $ - $ 25,000
Unrealized gain (loss) 10,000 (29,000 )
Other 1,000 39,000
$ 11,000 $ 35,000
General and administrative expenses. For the three months ended December 31,
2019 , general and administrative expense decreased $0.7 million , or 18.7%, to
$3.2 million from $3.9 million for the three months ended December 31, 2018 ,
primarily due to a decrease in bad debt expense of $0.5 million and a favorable
foreign exchange variance of $0.5 million offset by increase in outside services
of $0.3 million .
Segment profit - Consumer Receivables. Segment profit remained flat at $2.9
million for the three months ended December 31, 2019 and 2018. The revenue
decreased by $0.4 million for the three months ended December 31, 2019 to $3.1
million from $3.5 million for the three months ended December 31, 2018 but
offset by favorable foreign exchange variance of $0.5 million and an increase in
collection expenses of $0.1 million .
Segment profit - Personal Injury Claims. Segment profit increased $0.1 million
to $0.6 million for the three months ended December 31, 2019 , from $0.5 million
for the three months ended December 31, 2018 . This increase in profitability is
a result of decreased revenue of $0.3 million and increase in various operating
expenses of $0.1 million offset by a decrease in bad debt expense of $0.5
million .
Segment loss - Social Security Disability Advocates. The Segment profit was
Income tax expense. Income tax expense, consisting of federal and state
components, for three months ended
28--------------------------------------------------------------------------------
Table of Contents
Net income. As a result of the above, we generated net income for the three
months ended
Liquidity and Capital Resources
Our primary source of cash from operations is collections on the receivable portfolios we have acquired and the funds generated from the liquidation of our personal injury claim portfolios. Our primary uses of cash include costs involved in the collection of consumer receivables, the liquidation of our personal injury portfolio, and the costs to run our disability advocacy business.
Receivables Financing Agreement
InMarch 2007 , Palisades XVI borrowed approximately$227 million under the Receivables Financing Agreement, as amended inJuly 2007 ,December 2007 ,May 2008 ,February 2009 ,October 2010 andAugust 2013 (the "RFA") from BMO, in order to finance the Portfolio Purchase which had a purchase price of$300 million . The original term of the agreement was three years. This term was extended by each of the Second, Third, Fourth, Fifth Amendments and the most recent agreement signed inAugust 2013 . Financing Agreement.August 7, 2013 , Palisades XVI, a 100% owned bankruptcy remote subsidiary, entered into a Settlement Agreement (the "BMO Settlement Agreement") with BMO as an amendment to the RFA. In consideration for a$15 million prepayment funded by the Company, BMO has agreed to significantly reduce minimum monthly collection requirements and the interest rate. If and when BMO were to receive the next$15 million of collections from the Portfolio Purchase, (the "Remaining Amount") less certain credits for payments made prior to the consummation of the BMO Settlement Agreement, Palisades XVI would be entitled to recover from future net collections the$15 million prepayment that it funded. Thereafter, BMO would have the right to receive 30% of future net collections. Upon repayment of the Remaining Amount to BMO, Palisades XVI would be released from the remaining contractual obligation of the RFA. OnJune 3, 2014 , Palisades XVI finished paying the Remaining Amount. The final principal payment of$2.9 million included a voluntary prepayment of$1.9 million provided from funds of the Company. Accordingly, Palisades XVI was entitled to receive$16.9 million of future collections from the Portfolio Purchase before BMO is entitled to receive any payments with respect to its Income Interest. During the month ofJune 2016 , we received the balance of the$16.9 million , and, as ofDecember 31, 2019 , we recorded a liability to BMO of approximately$0.1 million . The funds were subsequently remitted to BMO onJanuary 10, 2020 . The liability to BMO is recorded when actual collections are received. Cash Flow AtDecember 31, 2019 , our cash decreased$1.1 million to$3.2 million from$4.3 million atSeptember 30, 2019 . Our cash balance remained consistent, due to the fact we invested all excess cash inUS Treasury bills, which are accounted for as available for sale debt securities on our condensed consolidated balance sheet. Net cash provided by operating activities was$1.8 million during the three months endedDecember 31, 2019 , as compared to$1.9 million for the three months endedDecember 31, 2018 , primarily resulting from the decrease in net income of$0.3 million in the current period compared to$1.3 million in the prior year period, decrease in provision for bad debts for personal injury claims of$0.5 million offset by increase in other assets and liabilities of$0.6 million . Net cash used in investing activities was$2.9 million during the three month period endedDecember 31, 2019 , as compared to$2.2 million during the three month period endedDecember 31, 2018 . The change in cash used in investing activities is primarily due to the decrease in the personal injury claims receipts of$0.7 million and lower principal collected on receivables acquired for liquidation of$0.3 million in the current period compared to the prior period, proceeds from notes receivable of$0.5 million in the prior year period offset by lower net investment in available for sale securities of$0.8 million in the current year compared to the prior year period. There was no cash provided by financing activities during the three months endedDecember 31, 2019 and in the same prior year period. Our cash requirements have been and will continue to be significant to operate our various lines of business. Significant requirements include costs involved in the collections of consumer receivables, investment in consumer receivable portfolios and investment in personal injury claims. In addition, dividends could be declared and paid if and when approved by the Board of Directors. Acquisitions recently have been financed through cash flows from operating activities. We believe we will not be dependent on a credit facility in the short-term, as our cash balances will be sufficient to invest in personal injury claims, purchase portfolios and finance the disability advocacy business. We believe our available cash resources and expected cash flows from operations will be sufficient to fund operations for at least the next twelve months. We do not expect to incur any material capital expenditures during the next twelve months. 29
--------------------------------------------------------------------------------
Table of Contents
We are cognizant of the current market fundamentals in the debt purchase and company acquisition markets which, because of significant supply and tight capital availability, could result in increased buying opportunities. The outcome of any future transaction(s) is subject to market conditions. In addition, due to these opportunities, we may seek opportunities with banking organizations and others on a possible financing loan facility.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Additional Supplementary Information:
We do not anticipate collecting the majority of the purchased principal amounts of our various portfolios. Accordingly, the difference between the carrying value of the portfolios and the gross receivables is not indicative of future revenues from these accounts acquired for liquidation. Since we purchased these accounts at significant discounts, we anticipate collecting only a portion of the face amounts. For additional information regarding our methods of accounting for our investment in finance receivables, the qualitative and quantitative factors we use to determine estimated cash flows, and our performance expectations of our portfolios, see " Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies " above.
Recent Accounting Pronouncements
Adopted During The Three Months Ended
InFebruary 2016 , the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02") which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. For a lease with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right-of-use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option or not exercise an option to terminate the lease. InJanuary 2018 , the FASB issued ASU 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 ("ASU 2018-01"). ASU 2018-01 was issued to address concerns about the cost and complexity of complying with the transition provisions of ASU 2016- 02. Additionally, inJuly 2018 , the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an alternative transition method that permits an entity to use the effective date of ASU 2016-02 as the date of initial application through the recognition of a cumulative effect adjustment to the opening balance of retained earnings upon adoption. The standard became effective in for fiscal years beginning afterDecember 15, 2018 and interim periods within those years, and early adoption is permitted (see Note 7 - Right of Use Assets and Liabilities). The Company adopted the lease accounting standard using the modified retrospective transition option on adoption onOctober 1, 2019 , which had an immaterial impact to the Company's condensed consolidated balance sheet. Upon adoption, the Company recorded additional lease liabilities of approximately$636,000 attributable to the Company's operating leases based on the present value of the remaining minimum lease payments with an increase to right-of-use assets of approximately$636,000 . The Company used 3.5% as its incremental borrowing rate to calculate the net present value of its leases atOctober 1, 2019 , based on the Company's estimated borrowing rate for a collateralized loan. The Company had no debt outstanding as ofOctober 1, 2019 . InFebruary 2018 , the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted onDecember 22, 2017 , and requires certain disclosures about stranded tax effects. ASU 2018-02 was effective for the Company's fiscal year beginningOctober 1, 2019 , with early adoption permitted, and were applied in the period of adoption in which the effect of the change in theU.S. federal corporate income tax rate in the Act was recognized. The adoption of this accounting update did not have a material impact on the Company's condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this update will be effective for interim periods and annual periods beginning afterDecember 15, 2022 . Upon adoption, the Company will accelerate the recording of its credit losses and is continuing to assess the impact on its consolidated financial statements. 30
--------------------------------------------------------------------------------
Table of Contents
InJanuary 2017 , the FASB issued ASU 2017-04 Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in ASU 2017-04 are effective for annual periods beginning afterDecember 15, 2019 , and interim periods within those fiscal years. We do not believe ASU 2017-04 will have a material impact on its consolidated financial statements. InAugust 2018 , the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . The Company is currently evaluating the impact ASU 2018-13 will have on our consolidated financial statements. InDecember 2019 , the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in fiscal 2022. The Company is evaluating the impact of the adoption of ASU 2019-12 on its financial statements, but does not expect such adoption to have a material impact.
© Edgar Online, source
