MAUI LAND & PINEAPPLE CO INC - Quarter Report: 2020 June (Form 10-Q)

 

Table of Contents

---

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

☒

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

 

For the quarterly period ended June 30, 2020

 

OR

 

☐

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

 

Commission file number 001-06510

 

MAUI LAND & PINEAPPLE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

Hawaii		99-0107542
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

 

200 Village Road, Lahaina, Maui, Hawaii 96761

(Address of principal executive offices)

 

(808) 877-3351

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	MLP	NYSE

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒ Emerging growth company ☐

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at July 27, 2020
Common Stock, no par value		19,368,278 shares

 

---

---

 

 

 

 

		June 30,				December 31,
		2020				2019
		(unaudited)				(audited)
		(in thousands except share data)
ASSETS
CURRENT ASSETS
Cash		$	340			$	683
Accounts receivable, less allowance for doubtful accounts of $114 and $35, respectively			1,726				1,173
Prepaid expenses and other assets			146				101
Assets held for sale			7,615				7,597
Total current assets			9,827				9,554
PROPERTY			52,215				52,164
Accumulated depreciation			(33,091	)			(32,445	)
Property, net			19,124				19,719
OTHER ASSETS
Deferred development costs			8,504				8,504
Other noncurrent assets			1,253				1,342
Total other assets			9,757				9,846
TOTAL ASSETS		$	38,708			$	39,119
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	521			$	1,356
Payroll and employee benefits			559				928
Current portion of accrued retirement benefits			165				165
Deferred club membership revenue			312				35
Other current liabilities			633				468
Total current liabilities			2,190				2,952
LONG-TERM LIABILITIES
Long-term debt			-				1,035
Accrued retirement benefits, net of current portion			9,453				9,702
Deferred license fee revenue			1,834				-
Deposits			2,649				2,674
Other noncurrent liabilities			64				64
Total long-term liabilities			14,000				13,475
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock--no par value, 43,000,000 shares authorized, 19,291,102 and 19,238,081 shares issued and outstanding			81,251				80,606
Additional paid-in-capital			9,184				9,184
Accumulated deficit			(47,531	)			(46,300	)
Accumulated other comprehensive loss			(20,386	)			(20,798	)
Total stockholders' equity			22,518				22,692
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY		$	38,708			$	39,119

 

 

		Three Months Ended June 30,
		2020				2019
		(in thousands except
		per share amounts)
OPERATING REVENUES
Real estate		$	90			$	209
Leasing			1,436				2,038
Resort amenities and other			184				248
Total operating revenues			1,710				2,495
OPERATING COSTS AND EXPENSES
Real estate			192				255
Leasing			827				714
Resort amenities and other			169				208
General and administrative			559				510
Share-based compensation			402				374
Depreciation			323				360
Total operating costs and expenses			2,472				2,421
OPERATING INCOME (LOSS)			(762	)			74
Other income			894				-
Pension and other post-retirement expenses			(117	)			(256	)
Interest expense			(30	)			(63	)
LOSS FROM CONTINUING OPERATIONS		$	(15	)		$	(245	)
Income (Loss) from discontinued operations, net			(142	)			64
NET LOSS		$	(157	)		$	(181	)
Other comprehensive income - pension, net			206				211
COMPREHENSIVE INCOME		$	49			$	30
EARNINGS (LOSS) PER COMMON SHARE-BASIC AND DILUTED
Loss from Continuing Operations		$	-			$	(0.01	)
Income (Loss) from Discontinued Operations		$	(0.01	)		$	-
Net Loss		$	(0.01	)		$	(0.01	)

		Six Months Ended June 30,
		2020				2019
		(in thousands except
		per share amounts)
OPERATING REVENUES
Real estate		$	158			$	366
Leasing			3,172				3,954
Resort amenities and other			414				509
Total operating revenues			3,744				4,829
OPERATING COSTS AND EXPENSES
Real estate			367				521
Leasing			1,603				1,439
Resort amenities and other			740				533
General and administrative			1,318				1,350
Share-based compensation			827				972
Depreciation			645				722
Total operating costs and expenses			5,500				5,537
OPERATING LOSS			(1,756	)			(708	)
Other income			894				-
Pension and other post-retirement expenses			(234	)			(509	)
Interest expense			(76	)			(110	)
LOSS FROM CONTINUING OPERATIONS		$	(1,172	)		$	(1,327	)
Income (Loss) from discontinued operations, net			(59	)			52
NET LOSS		$	(1,231	)		$	(1,275	)
Other compreshensive income - pension, net			412				423
COMPREHENSIVE LOSS		$	(819	)		$	(852	)
EARNINGS (LOSS) PER COMMON SHARE-BASIC AND DILUTED
Loss from Continuing Operations		$	(0.06	)		$	(0.07	)
Income (Loss) from Discontinued Operations		$	-			$	-
Net Loss		$	(0.06	)		$	(0.07	)

 

																		Accumulated
										Additional								Other
		Common Stock								Paid in				Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit				Loss				Total
Balance, January 1, 2020			19,238			$	80,606			$	9,184			$	(46,300	)		$	(20,798	)		$	22,692
Share-based compensation			68				865				186												1,051
Vested restricted stock issued			17				186				(186	)											-
Shares cancelled to pay tax liability			(42	)			(522	)															(522	)
Other comprehensive income - pension																			206				206
Net loss															(1,074	)							(1,074	)
Balance, March 31, 2020			19,281				81,135				9,184				(47,374	)			(20,592	)			22,353
Share-based compensation											163												163
Vested restricted stock issued			14				163				(163	)											-
Shares cancelled to pay tax liability			(4	)			(47	)															(47	)
Other comprehensive income - pension																			206				206
Net loss															(157	)							(157	)
Balance, June 30, 2020			19,291			$	81,251			$	9,184			$	(47,531	)		$	(20,386	)		$	22,518
Balance, January 1, 2019			19,125			$	79,411			$	9,246			$	(35,934	)		$	(21,804	)		$	30,919
Share-based compensation			52				889				208												1,097
Vested restricted stock issued			16				208				(208	)											-
Stock option exercised			25				62				68												130
Shares cancelled to pay tax liability			(38	)			(400	)															(400	)
Other comprehensive income - pension																			212				212
Net loss															(1,094	)							(1,094	)
Balance, March 31, 2019			19,180				80,170				9,314				(37,028	)			(21,592	)			30,864
Share-based compensation											183												183
Vested restricted stock issued			17				183				(183	)											-
Shares cancelled to pay tax liability			(5	)			(56	)															(56	)
Other comprehensive income - pension																			211				211
Net loss															(181	)							(181	)
Balance, June 30, 2019			19,192			$	80,297			$	9,314			$	(37,209	)		$	(21,381	)		$	31,021

 

		Six Months Ended June 30,
		2020				2019
		(in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	435			$	(91	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investment			894				-
Payments for property and deferred development costs			(68	)			(256	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			826				(256	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt			947				1,500
Payments on long-term debt			(1,982	)			(700	)
Debt and common stock issuance costs and other			(569	)			(455	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(1,604	)			345
NET DECREASE IN CASH			(343	)			(2	)
CASH AT BEGINNING OF PERIOD			683				624
CASH AT END OF PERIOD		$	340			$	622
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest:		$	19			$	68

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

●

Common stock issued to certain members of the Company’s management totaled $865,000 and $951,000 for the six months ended June 30, 2020 and 2019, respectively.

 

See Notes to Condensed Consolidated Interim Financial Statements.

 

 

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the Three Months Ended and Six Months Ended June 30, 2020 and 2019

 

(UNAUDITED)

 

1.	BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated interim financial statements have been prepared by Maui Land & Pineapple Company, Inc. (together with its subsidiaries, the “Company”) in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information that are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes to the annual audited consolidated financial statements required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements contain all normal and recurring adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the interim periods ended June 30, 2020 and 2019. The unaudited condensed consolidated interim financial statements and notes should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2019.

 

2.	USE OF ESTIMATES AND RECLASSIFICATIONS

 

The Company’s reports for interim periods utilize numerous estimates of general and administrative expenses and other costs for the full year. Future actual amounts may differ from these estimates. Amounts reflected in interim statements are not necessarily indicative of results for a full year. Certain amounts in the June 30, 2019 condensed consolidated statements of operations and comprehensive loss were reclassified to conform to the current period’s presentation. Such amounts had no impact on net loss and comprehensive loss previously reported.

 

3.	SHARES – BASIC AND DILUTED

 

Basic and diluted weighted-average shares outstanding for the three and six months ended June 30, 2020 and 2019 were as follows:

 

 

 

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from share-based compensation arrangements had been issued.

 

Potentially dilutive shares arise from non-qualified stock options to purchase common stock. The treasury stock method is utilized to determine the number of potentially dilutive shares related to the outstanding non-qualified stock options.

 

 

 

4.

PROPERTY

 

Property at June 30, 2020 and December 31, 2019 consisted of the following:

 

 

Land

 

Most of the Company’s 22,800 acres of land were acquired between 1911 and 1932 and is carried in its consolidated balance sheets at cost. Approximately 20,700 acres of land are located in West Maui and comprise a largely contiguous parcel that extends from the sea to an elevation of approximately 5,700 feet. This parcel includes approximately 900 acres within the Kapalua Resort, a master-planned, destination resort and residential community located in West Maui encompassing approximately 3,000 acres. The Company’s remaining 2,100 acres of land are located in Upcountry Maui in an area commonly known as Hali’imaile and are mainly comprised of leased agricultural fields, including related processing and maintenance facilities.

  

Land Improvements

 

Land improvements are comprised primarily of roads, utilities, and landscaping infrastructure improvements at the Kapalua Resort. Also included is the Company’s potable and non-potable water systems in West Maui. The majority of the Company’s land improvements were constructed and placed in service in the mid-to-late 1970’s or conveyed in 2017. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

 

Buildings

 

Buildings are comprised of restaurant, retail and light industrial spaces located at the Kapalua Resort and Hali’imaile which are used in the Company’s leasing operations. The majority of the buildings were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

 

Machinery and Equipment

 

Machinery and equipment are mainly comprised of zipline course equipment installed in 2008 at the Kapalua Resort and used in the Company’s leasing operations.

 

5.	ASSETS HELD FOR SALE

 

Assets held for sale at June 30, 2020 and December 31, 2019 consisted of the following:

 

 

In February 2020, the Company entered into an agreement to sell the Kapalua Central Resort project for $43.9 million. The closing of the transaction is contingent upon, among other things, the satisfaction of certain customary closing conditions, including a due diligence period. Due to the State of Hawaii’s COVID-19 restrictions, such as a 14-day self-quarantine for transpacific travelers, the due diligence period was extended, ending four months after travel restrictions are lifted. The closing date of the sale is 30 days after the last day of the due diligence period.

 

 

In December 2019, the Company entered into an Asset Purchase Agreement to sell the PUC-regulated assets of Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd. located in the Kapalua Resort. The sale is subject to certain closing conditions, including completion of due diligence and PUC approval. These assets are used by Kapalua Water Company and Kapalua Waste Treatment Company to provide water and sewage transmission services for the Kapalua Resort. Results of discontinued operations related to the sale of the Kapalua Water Company and Kapalua Waste Treatment Company assets are reflected in Note 13.

 

The above assets held for sale have not been pledged as collateral under the Company’s credit facility.

 

6.	LONG-TERM DEBT

 

Long-term debt is comprised of amounts outstanding under the Company’s $15.0 million revolving line of credit facility with First Hawaiian Bank (Credit Facility). The Credit Facility matures on December 31, 2021. Interest accrued on borrowings is based on LIBOR plus 3.50%. At June 30, 2020 and December 31, 2019, the Credit Facility’s interest rates were 5.08% and 5.19%, respectively. The Company has pledged its 800-acre Kapalua Mauka project and approximately 30,000 square feet of commercial leased space in the Kapalua Resort as security for the Credit Facility. Net proceeds from the sale of any collateral are required to be repaid toward outstanding borrowings and will permanently reduce the Credit Facility’s revolving commitment amount. There are no commitment fees on the unused portion of the Credit Facility.

 

The terms of the Credit Facility include various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a minimum liquidity (as defined) of $2.0 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness.

 

The Company believes that it is in compliance with the covenants under the Credit Facility as of June 30, 2020.

 

In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law establishing the Paycheck Protection Program (PPP) administered by the United States Small Business Administration (SBA). The PPP authorized up to $349 billion in forgivable loans to small businesses. Loan amounts are forgiven to the extent proceeds are used to cover documented payroll, mortgage interest, rent, and utility costs. Loans have a maturity of 2 years and an interest rate of 1.0%.  Prepayments may be made without penalty. The Company received loan funding of $246,500. On April 23, 2020, the United States Department of the Treasury and the SBA issued revised guidance related to the PPP. As a result, the Company returned the entire amount of the loan to comply with the subsequent guidance.

 

7.	SHARE-BASED COMPENSATION

 

The Company’s directors, officers and certain members of management receive a portion of their compensation in shares of the Company’s common stock granted under the Company’s 2017 Equity and Incentive Award Plan (Equity Plan). Share-based compensation is valued based on the average of the high and low share price on the date of grant. Shares are issued upon execution of agreements reflecting the grantee’s acceptance of the respective shares subject to the terms and conditions of the Equity Plan. Restricted shares issued under the Equity Plan vest quarterly and have voting and regular dividend rights but cannot be disposed of until such time as they are vested. All unvested restricted shares are forfeited upon the grantee’s termination of directorship or employment from the Company.

 

Share-based compensation is determined and awarded annually to the Company’s officers and certain members of management based on their achievement of certain predefined performance goals and objectives under the Equity Plan. Such share-based compensation is comprised of an annual incentive paid in shares of common stock and a long-term incentive paid in restricted shares vesting quarterly over a period of three years.

 

Share-based compensation totaled $827,000 and $972,000 for the six months ended June 30, 2020 and 2019, respectively. Included in these amounts were $349,000 and $328,000 of restricted shares of common stock which vested during the first six months of 2020 and 2019, respectively.

 

 

8.	ACCRUED RETIREMENT BENEFITS

 

Accrued retirement benefits at June 30, 2020 and December 31, 2019 consisted of the following:

 

 

 

The Company has a defined benefit pension plan which covers substantially all of its former bargaining and non-bargaining full-time, part-time and intermittent employees. In 2011, pension benefits under the plan were frozen. The Company also has unfunded non-qualified retirement plans covering nine of its former executives. The non-qualified retirement plans were frozen in 2009 and future vesting of additional benefits was discontinued.

 

The net periodic benefit costs for pension and post-retirement benefits for the six months ended June 30, 2020 and 2019 were as follows:

 

 

9.	DEFERRED REVENUE

 

Deferred club membership revenue

 

The Company manages the operations of the Kapalua Club, a private, non-equity club program providing members special programs, access and other privileges at certain of the amenities within the Kapalua Resort. Deferred revenues from dues received from the private club membership program are recognized on a straight-line basis over one year.

 

Deferred license fee revenue

 

The Company entered into a trademark license agreement with the owner of the Kapalua Plantation and Bay golf courses, effective April 1, 2020. Under the terms and conditions set forth in the agreement, the licensee is granted a perpetual, terminable on default, transferable, non-exclusive license to use the Company’s trademarks and service marks to promote its golf courses and to sell its licensed products. The Company received a single payment royalty of $2.0 million in March 2020. Revenue from the license agreement is recognized on a straight-line basis over its estimated economic useful life.

 

10.	INCOME TAXES

 

The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company’s provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and income tax bases of assets and liabilities using tax rates enacted by law or regulation. A full valuation allowance continues to be established for deferred income tax assets as of June 30, 2020 and December 31, 2019, respectively.

 

 

 

11.	REPORTABLE OPERATING SEGMENTS

 

The Company’s reportable operating segments are comprised of the discrete business units whose operating results are regularly reviewed by the Company’s Chief Executive Officer – its chief decision maker – in assessing performance and determining the allocation of resources. Reportable operating segments are as follows:

 

•

Real Estate includes the development and sale of real estate inventory and the operations of Kapalua Realty Company, a general brokerage real estate company located within the Kapalua Resort.

 

•

Leasing primarily includes revenues and expenses from real property leasing activities, license fees and royalties for the use of certain of the Company’s trademarks and brand names by third parties, and the cost of maintaining the Company’s real estate assets, including conservation activities. The operating segment also includes the management of ditch, reservoir and well systems that provide non-potable irrigation water to West and Upcountry Maui areas.

  

•

Resort Amenities include a membership program that provides certain benefits and privileges within the Kapalua Resort for its members.

 

 

The Company’s reportable operating segment results are measured based on operating income (loss), exclusive of interest, depreciation, general and administrative, share-based compensation, pension and other postretirement expenses.

 

Reportable operating segment revenues and income for the three and six months ended June 30, 2020 and 2019 were as follows:

 

 

12.	LEASING ARRANGEMENTS

 

The Company leases land primarily to agriculture operators and space in commercial buildings, primarily to restaurant and retail tenants through 2048. In addition, the Company provides potable and non-potable water to West and Upcountry Maui areas. These operating leases generally provide for minimum rents and, in some cases, licensing fees, percentage rentals based on tenant revenues, and reimbursement of common area maintenance and other expenses. Certain leases allow the lessee an option to extend or terminate the agreement. There are no leases allowing a lessee an option to purchase the underlying asset. Total leasing income for the three and six months ended June 30, 2020 and 2019 were as follows:

 

 

 

 

13.	DISCONTINUED OPERATIONS

 

The results of discontinued operations related to the sale of the Kapalua Water Company and Kapalua Waste Treatment Company assets for the three and six months ended June 30, 2020 and 2019 were as follows:

 

 

14.	COMMITMENTS AND CONTINGENCIES

 

On December 31, 2018, the State of Hawaii Department of Health (DOH) issued a Notice and Finding of Violation and Order (Order) for alleged wastewater effluent violations related to the Company’s Upcountry Maui wastewater treatment facility. The DOH has agreed to defer the Order without a hearing date while the Company continues working on a previously approved corrective action plan to resolve and remediate the facility’s wastewater effluent issues. A new design plan for additional disposal leach fields has been approved by the DOH. Construction of the additional leach fields is expected to be completed by December 31, 2020.

 

The Company is presently unable to estimate the amount, or range of amounts, of any probable liability, if any, related to the Order and no provision has been made in the accompanying interim unaudited condensed consolidated financial statements.

 

There are various other claims and legal actions pending against the Company. The resolution of these other matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations after consultation with legal counsel.

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. As a result, public health measures were taken to minimize exposure to the virus. Quarantine, travel restrictions, and other governmental restrictions and guidelines to reduce the spread of COVID-19 has caused and is likely to continue to have an adverse impact on economic activity, including business closures, increased unemployment, financial market instability, and reduced tourism to Maui. The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time. However, should the existence of the COVID-19 pandemic continue for an extended period, the Company’s future business operations, including the results of operations, cash flows and financial position will be significantly affected.

 

15.	FAIR VALUE MEASUREMENTS

 

GAAP establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements to enable the reader of the interim unaudited condensed consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. GAAP requires that financial assets and liabilities be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

 

Level 3: Unobservable inputs that are not corroborated by market data.

 

The Company considers all cash on hand to be unrestricted cash for the purposes of the interim unaudited condensed consolidated balance sheets and interim unaudited condensed consolidated statements of cash flows. The fair value of receivables and payables approximate their carrying value due to the short-term nature of the instruments. The fair value of income tax receivables approximate their carrying value due to the certainty of collection or short-term nature of the instruments. The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are generally settled at or near cost. The fair value of debt was estimated based on borrowing rates currently available to the Company for debt with similar terms and maturities. The carrying amount of debt, which approximated fair value, was approximately $1.0 million at December 31, 2019. The fair value of debt was measured using the level 2 inputs, noted above.

 

 

 

16.	RECENT ACCOUNTING PRONOUCEMENTS

 

In June 2016, the FASB issued ASU 2016-13 to update the methodology used to measure current expected credit losses (CECL). This ASU apples to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet exposures, such as loan commitments. This ASU requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(accumulated deficit) in the period of adoption. ASU 2019-10 was subsequently issued delaying the effective date to the first quarter of 2023. The Company is in the process of assessing the impact of the ASU on its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13 related to fair value measurement disclosures. This ASU removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. Additionally, this ASU modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of investee assets (by removing the timing requirements in certain instances). The guidance also requires new disclosures for Level 3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income/(loss) and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. This ASU was effective beginning in 2020 and did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

 

In August, 2018, the FASB issued ASU 2018-14 which amends ASC Topic 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU’s changes related to disclosures are part of the FASB’s disclosure framework project which aimed to improve the effectiveness of disclosures in notes to financial statements. This ASU is effective for public business entities for annual reporting periods ending after December 15, 2020, with early adoption permitted. The Company expects to adopt the new disclosure requirements on January 1, 2021.

 

In August 2018, the FASB issued ASU 2018-15 related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. The ASU was effective beginning in the first quarter of 2020 and did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

 

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC Topic 740, Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other areas of ASC Topic 740. This ASU will be effective beginning in the first quarter of 2021. Early adoption is permitted. Certain adjustments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(accumulated deficit) in the period of adoption. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements and related disclosures.

 

In March 2020, the FASB issued ASU 2020-04 as an update to provide optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform (ASC Topic 848) on financial reporting. The amendments in the ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is effective through December 31, 2022. Management is evaluating its impact on the Company’s consolidated financial statements and related disclosures, if elected.