|Business and Summary of Significant Accounting Policies
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Veritiv Corporation ("Veritiv" or the "Company") is a North American business-to-business full-service provider of value-added packaging products and services, as well as facility solutions, print and publishing products and services. Additionally, Veritiv provides logistics and supply chain management solutions to its customers. Veritiv was established on July 1, 2014 (the "Distribution Date"), following the merger (the "Merger") of International Paper Company's ("International Paper") xpedx distribution solutions business ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent company of Unisource Worldwide, Inc. ("Unisource"). On July 2, 2014, Veritiv's common stock began regular-way trading on the New York Stock Exchange under the ticker symbol "VRTV". Veritiv operates from 125 distribution centers primarily throughout the United States ("U.S."), Canada and Mexico.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include all of the Company's subsidiaries. All significant intercompany transactions between Veritiv's businesses have been eliminated. As a result of adopting Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326) on January 1, 2020, using the required modified retrospective basis, the accounting for credit losses for periods prior to 2020 has not been revised and results are reported in accordance with prior U.S. GAAP. See the adoption impact in the Recently Issued Accounting Standards section of this note. As a result of adopting ASU 2016-02, Leases (Topic 842) on January 1, 2019, applying the additional transition approach, which is a prospective approach, the accounting for operating leases for periods prior to 2019 has not been revised and results are reported in accordance with prior U.S. GAAP.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, revenue recognition, right-of-use ("ROU") asset and liability valuations, accounts and notes receivable valuations, inventory valuation, employee benefit plans, income tax contingency accruals and valuation allowances, multi-employer pension plan ("MEPP") withdrawal liabilities, contingency accruals and goodwill and other intangible asset valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
Primarily beginning in April 2020, unfavorable impacts from the COVID-19 pandemic have had a negative impact on the Company's financial results, including decreased sales activity across all segments. As a result of the COVID-19 pandemic, the Company could continue to experience impacts including, but not limited to, charges from potential adjustments of the carrying amount of accounts and notes receivables and inventory, asset impairment charges, including goodwill, and deferred tax valuation allowances. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations, access to sources of liquidity and financial condition will depend on future developments. These developments, which are highly uncertain and cannot be predicted, include, but are not limited to, the duration, spread and severity of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company's employees, customers, suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments, the availability, adoption and effectiveness of a vaccine and to what extent normal economic and operating conditions can resume and be sustained. Even after the COVID-19 pandemic has subsided, the Company may experience an impact to its business as a result of any economic recession, downturn, or volatility that has occurred or may occur in the future. Estimates are revised as additional information becomes available.
Summary of Significant Accounting Policies
Veritiv applies the five step model to assess its contracts with customers. The Company's revenue is reported as net sales and is measured as the determinable transaction price, net of any variable consideration (e.g., sales incentives and rights to return product) and any taxes collected from customers and remitted to governmental authorities. When the Company enters into a sales arrangement with a customer, it believes it is probable that it will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. When management cannot conclude collectability is probable for shipments to a particular customer, revenue associated with that customer is not recognized until cash is collected or management is otherwise able to establish that collectability is probable. As a normal business practice, Veritiv does not enter into contracts that require more than one year to complete or that contain significant financing components. See Note 2, Revenue Recognition, for additional information regarding the Company's revenue recognition practices.
Veritiv enters into agreements with suppliers that entitle Veritiv to receive rebates, allowances and other discounts based on the attainment of specified purchasing levels or sales to certain customers. Purchase incentives are recorded as a reduction to inventory and recognized in cost of products sold when the sale occurs. During the year ended December 31, 2020, approximately 30% of the Company's purchases were made from ten suppliers.
Distribution expenses consist of storage, handling and delivery costs including freight to the Company's customers' destinations. Handling and delivery costs were $273.6 million, $346.9 million and $398.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Integration and Acquisition Expenses
Integration and acquisition expenses are expensed as incurred. Integration and acquisition expenses include internally dedicated integration management resources, retention compensation, information technology conversion costs, professional services and other costs to integrate its businesses. See Note 4, Restructuring, Integration and Acquisition Charges, for additional information regarding the Company's integration and acquisition activities.
Cash and Cash Equivalents
The Company considers all highly liquid, unrestricted investments with original maturities to the Company of three months or less to be cash equivalents, including investments in money market funds with no restrictions on withdrawals. As of December 31, 2020, the Company's cash and cash equivalents included a $75.0 million investment in a money market fund that is highly liquid and qualifies as a cash equivalent.
Trade Accounts Receivable, Notes Receivable and Related Allowances
The Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) on January 1, 2020, using the required modified retrospective approach. Accordingly, prior periods have not been adjusted to conform to the new guidance. Upon adoption, the Company recorded a $0.3 million decrease to retained earnings as the cumulative effect adjustment from applying the standard.
Under Topic 326
The Company performs an assessment of its financial assets which consist primarily of accounts receivable and identifies pools (i.e., groups of similar assets within the accounts receivable portfolio) based on the Company’s internal risk ratings, geographical locations and historical loss information. The Company’s pools are classified by reportable segment, risk level and the geographical location of the Company’s customers. The risk characteristics of each segment are determined by the impact of economic and structural fluctuations that are specific to the industry sectors served by the Company, competition from other suppliers and the nature of the products and services provided to the Company’s
customers. The Print and Publishing segments are faced with industry-wide decreases in demand for products and services due to the increasing use of e-commerce and other on-line product substitutions. The risk characteristics of the Facility Solutions segment include revenue declines and delinquency rates attributable to changes in the travel industry and back-to-school activities. The risk characteristics of the Packaging segment include changes in customer buying habits and product preferences. The Company considered the Packaging and Facility Solutions segments to be a single pool as they share similar risk characteristics.
The Company’s allowance for credit losses reflects the best estimate of expected losses to the Company's accounts receivable portfolio determined on the basis of historical experience, current conditions, reasonable and supportable forecasts and specific allowances for known troubled accounts. In developing the allowance for credit losses, the Company utilizes internal risk ratings that are determined based on a number of factors including a periodic evaluation of each customer’s financial condition where possible. In addition to leveraging the internally developed risk ratings and historical experience, the expected credit loss estimates are developed using quantitative analyses, where meaningful, and qualitative analyses to forecast the impact that external factors and economic indicators may have on the amount that the Company expects to collect.
Under prior guidance
Accounts receivable are recognized net of allowances. The allowance for doubtful accounts reflects the best estimate of losses inherent in the Company's accounts receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other available evidence.
Additional accounts and notes receivable information:
The components of the accounts receivable allowances were as follows:
|As of December 31,|
|Allowance for credit losses and doubtful accounts, respectively||$||31.4 ||$||30.4 |
Other allowances (1)
|10.2 ||13.4 |
|Total accounts receivable allowances||$||41.6 ||$||43.8 |
(1) Includes amounts reserved for credit memos, customer discounts, customer short pays and other miscellaneous items.
Below is a rollforward of the Company's accounts receivable allowances for the years ended December 31, 2020, 2019 and 2018. Accounts receivable are written-off when management determines they are uncollectible.
|Year Ended December 31,|
|Balance at January 1,||$||43.8 ||$||62.0 ||$||44.0 |
|Add / (Deduct):|
Provision for expected credit losses and doubtful accounts, respectively
|7.3 ||13.8 ||26.5 |
Net write-offs and recoveries
|Balance at December 31,||$||41.6 ||$||43.8 ||$||62.0 |
(1) Other adjustments represent amounts reserved for returns and discounts, foreign currency translation adjustments and reserves for certain customer
accounts where revenue is not recognized because collectability is not probable, and may include accounts receivable allowances recorded in connection
with acquisitions. The 2020 amount includes the impact of the Company's adoption of ASU 2016-13 on January 1, 2020.
Below is a rollforward of the Company’s allowance for credit losses for the year ended December 31, 2020:
|Packaging and Facility Solutions||Print - High Risk||Print - Medium/Low Risk|
|Rest of world|
Corporate & Other(1)
|Balance at December 31, 2019||$||13.3 ||$||1.0 ||$||11.9 ||$||0.4 ||$||0.9 ||$||0.1 ||$||1.3 ||$||0.6 ||$||0.9 ||$||30.4 |
|Add / (Deduct):|
|Adoption impact - ASU 2016-13||1.0||(0.3)||(0.2)||0.0||0.1||(0.1)||(0.1)||—||0.0||0.4|
|Provision for expected credit losses||2.8||0.1||2.3||0.3||0.1||0.0||1.3||0.4||0.0||7.3|
|Write-offs charged against the allowance||(3.0)||(0.3)||(2.4)||0.0||(0.1)||—||(0.9)||—||(0.1)||(6.8)|
|Recoveries of amounts previously written off||0.3||—||0.0||0.0||0.0||—||0.0||—||0.0||0.3|
|Balance at December 31, 2020||$||14.4 ||$||0.5 ||$||10.2 ||$||0.7 ||$||2.2 ||$||0.0 ||$||1.6 ||$||1.0 ||$||0.8 ||$||31.4 |
(1) Publishing and Corporate & Other have only U.S. Operations.
(2) Other adjustments represent amounts reserved for foreign currency translation adjustments and reserves for certain customer accounts where revenue is not recognized because collectability is not probable, and may include accounts receivable allowances recorded in connection with acquisitions.
The Company has, under certain circumstances, entered into a note receivable agreement with a customer. Expected credit losses are recognized when collectability is uncertain; these losses are included in selling and administrative expenses on the Consolidated Statements of Operations. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $5.1 million, $1.1 million and $0.6 million, respectively, in the provision for credit losses related to these notes receivable. At December 31, 2020 and 2019, the Company held $2.2 million and $6.7 million, respectively, in notes receivable within other current assets on the Consolidated Balance Sheets.
The Company's inventories are primarily comprised of finished goods and predominantly valued at cost as determined by the last-in first-out ("LIFO") method. Such valuations are not in excess of market. Elements of cost in inventories include the purchase price invoiced by a supplier, plus inbound freight and related costs and reduced by estimated volume-based discounts and early pay discounts available from certain suppliers. Approximately 76% and 81% of inventories were valued using the LIFO method as of December 31, 2020 and 2019, respectively. If the first-in, first-out method had been used, total inventory balances would be increased by approximately $93.2 million and $93.8 million at December 31, 2020 and 2019, respectively.
The Company reduces the value of obsolete inventory based on the difference between the LIFO cost of the inventory and the estimated market value using assumptions of future demand and market conditions. To estimate the net realizable value, the Company considers factors such as the age of the inventory, the nature of the products, the quantity of items on-hand relative to sales trends, current market prices and trends in pricing, its ability to use excess supply in another channel, historical write-offs and expected residual values or other recoveries.
Veritiv maintains some of its inventory on a consignment basis in which the inventory is physically located at the customer's premises or a third-party distribution center. Veritiv had $20.5 million and $30.7 million of consigned inventory as of December 31, 2020 and 2019, respectively, valued on a LIFO basis, net of reserves.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for replacements and major improvements are capitalized, whereas repair and maintenance costs that do not improve service potential or extend economic life are expensed as incurred. The Company capitalizes certain computer software and development costs incurred in connection with developing or obtaining software for internal use. Costs related to the development of internal use software, other than those incurred during the application development stage, are expensed as incurred.
The components of property and equipment were as follows:
|(in millions)||As of December 31,|
|Land, buildings and improvements||$||100.7 ||$||96.4 |
|Machinery and equipment||164.9 ||167.9 |
|111.8 ||99.5 |
|Internal use software||188.6 ||178.5 |
|Construction-in-progress||4.6 ||17.2 |
|Less: Accumulated depreciation and amortization||(375.9)||(342.6)|
|Property and equipment (net of accumulated depreciation and amortization)||$||194.7 ||$||216.9 |
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Land is not depreciated, and construction-in-progress ("CIP") is not depreciated until ready for service. Leased property and leasehold improvements are amortized on a straight-line basis over the lease term or useful life of the asset, whichever is less.
Depreciation and amortization for property and equipment, other than land, finance leases and CIP, is based upon the following estimated useful lives:
|Machinery and equipment||3||to||15||years|
|Internal use software||3||to||5||years|
Additional property and equipment information is as follows:
|Year Ended December 31,|
Depreciation expense (1)
|$||36.8 ||$||33.5 ||$||33.2 |
|Amortization expense - internal use software||16.1 ||15.0 ||13.4 |
|Depreciation and amortization expense related to property and equipment||$||52.9 ||$||48.5 ||$||46.6 |
(1) Includes depreciation expense for finance leases, capital leases and assets related to financing obligations (including financing obligations with related party).
|As of December 31,|
|Unamortized internal use software costs, including amounts recorded in CIP||$||24.6 ||$||32.6 |
Upon retirement or other disposal of property and equipment, the cost and related amount of accumulated depreciation or accumulated amortization are eliminated from the asset and accumulated depreciation or accumulated amortization accounts, respectively. The difference, if any, between the net asset value and the proceeds is included in net income (loss) on the Consolidated Statements of Operations.
The Company determines if an arrangement is a lease at lease inception and reviews lease arrangements for finance or operating lease classification at their commencement date. Operating leases are reported as part of other non-current assets, other accrued liabilities and other non-current liabilities on the Consolidated Balance Sheets. Finance leases are reported as part of property and equipment and debt obligations on the Consolidated Balance Sheets. The Company does not include leases with a term of twelve months or less on the Consolidated Balance Sheets. In order to value the assets and related liabilities, the Company makes certain estimates and assumptions related to establishing the lease term, discount rates and variable lease payments (e.g., rent escalations tied to changes in the Consumer Price Index ("CPI")). The exercise of any lease renewal or asset purchase option is at the Company's sole discretion. The lease term for all of the Company's leases includes the noncancelable period of the lease and any periods covered by renewal options that the Company is reasonably certain to exercise. Certain leases include rent escalations pre-set in the agreements, which are factored into the lease payment stream. Similar to a variable lease payment, certain delivery equipment leases include a provision for an amount the Company may be required to pay at the end of the lease for any residual value deficiency incurred by the lessor upon resale of the underlying asset. The Company uses the implicit rate of interest when it is available; however, as most of the Company's leases do not provide an implicit rate of interest, the Company uses its incremental borrowing rate based on information available at the lease commencement date in determining the discounted value of the lease payments. Lease expense and depreciation expense are recognized on a straight-line basis over the lease term, or for a finance lease, over the shorter of the life of the underlying asset or the lease term. The Company’s decisions to cease operations in certain warehouse facilities and retail locations leads to different accounting treatment depending upon whether the leased properties are considered abandoned versus properties that the Company has the intent and ability to sublease. See Note 3, Leases, for additional information related to the Company's leases.
Goodwill and Other Intangible Assets
Goodwill relating to a single business reporting unit is included as an asset of the applicable segment. Goodwill arising from major acquisitions that involve multiple reportable segments is allocated to the reporting units based on the relative fair value of the reporting unit. Goodwill is reviewed by Veritiv for impairment on a reporting unit basis annually on October 1st or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The testing of goodwill for possible impairment is performed by completing a Step 0 test or electing to by-pass the Step 0 test and comparing the fair value of a reporting unit with its carrying value, including goodwill. The Step 0 test utilizes qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors include: macroeconomic conditions; industry and market considerations; overall financial performance and cost factors to determine whether a reporting unit is at risk for goodwill impairment. In the event a reporting unit fails the Step 0 goodwill impairment test, it is necessary to move forward with a comparison of the fair value of the reporting unit with its carrying value, including goodwill. If the fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a reporting unit is below the carrying value, a goodwill impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to the reporting unit.
Intangible assets acquired in a business combination are recorded at fair value. The Company's intangible assets may include customer relationships, trademarks and trade names and non-compete agreements. Intangible assets with finite useful lives are subsequently amortized using the straight-line method over the estimated useful lives of the assets. See the Impairment of Long-Lived Assets section below for the accounting policy related to the periodic review of long-lived intangible assets for impairment.
Impairment of Long-Lived Assets
Long-lived assets, including finite lived intangible assets, are tested for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. The Company assesses the recoverability of long-lived assets based on the undiscounted future cash flow the assets are expected to generate and recognizes an impairment loss when the estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, the Company
reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. The calculation of lease impairment charges requires significant judgments and estimates, including estimated sublease rentals, discount rates and future cash flows based on the Company's experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and an assessment of current market conditions.
Employee Benefit Plans
The Company sponsors and/or contributes to defined contribution plans, defined benefit pension plans and MEPPs in the U.S. Except for certain union employees who continue to accrue benefits under the U.S. defined benefit pension plan in accordance with their collective bargaining agreements, as discussed below, the defined benefit pension plans are frozen. In addition, the Company and its subsidiaries have various pension plans and other forms of retirement arrangements outside the U.S. See Note 9, Employee Benefit Plans, for additional information related to these plans and arrangements.
The determination of defined benefit pension and postretirement plan obligations and their associated costs requires the use of actuarial computations to estimate participant plan benefits to which the employees will be entitled. The Company's significant assumptions in this regard include discount rates, rate of future compensation increases, expected long-term rates of return on plan assets, mortality rates and other factors. Each assumption is developed using relevant company experience in conjunction with market-related data in the U.S. and Canada. All actuarial assumptions are reviewed annually with third-party consultants and adjusted as necessary.
For the recognition of net periodic postretirement cost, the calculation of the expected long-term rate of return on plan assets is derived using the fair value of plan assets at the measurement date. Actual results that differ from the Company's assumptions are accumulated and amortized on a straight-line basis only to the extent they exceed 10% of the higher of the fair value of plan assets or the projected benefit obligation, over the estimated remaining service period of active participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date.
The Company also makes contributions to MEPPs for its union employees covered by such plans. For these plans, the Company recognizes a liability only for any required contributions to the plans or surcharges imposed by the plans that are accrued and unpaid at the balance sheet date. The Company does not record an asset or liability to recognize the funded status of the plans. The Company records an estimated undiscounted charge when it becomes probable that it has incurred a withdrawal liability, as the final amount and timing is not assured. When a final determination of the withdrawal liability is received from the plan, the estimated charge is adjusted to the final amount determined by the plan.
Long-Term Incentive Compensation Plans
The Company measures and records compensation expense for all long-term incentive compensation awards based on the grant date fair values over the vesting periods of the awards. Forfeitures are recognized when they occur. See Note 14, Long-Term Incentive Compensation Plans, for additional information.
Veritiv's income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. Veritiv records its global tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where treatment of a position is uncertain, liabilities are recorded based upon an evaluation of the more likely than not outcome considering technical merits of the position. Changes to recorded liabilities are made only when an identifiable event occurs that alters the likely outcome, such as settlement with the relevant tax authority or the expiration of statutes of limitation for the subject tax year. Significant judgments and estimates are required in determining the consolidated income tax expense.
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law on December 22, 2017 and makes broad and complex changes to the U.S. tax code. Veritiv recognized provisional estimates of the impact of the Tax Act in the year ended December 31, 2017 and as of the year ended December 31, 2018, the Company recorded additional tax expense. Although the Company considers these items complete, the determination of the Tax Act's income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of U.S. Treasury regulations and
guidance from the Internal Revenue Service ("IRS") and state tax authorities. Additionally, the Company has concluded the applicable accounting policy election associated with Global Intangible Low Tax Income ("GILTI") will be treated as a period cost. See Note 7, Income Taxes, for additional details regarding the Tax Act.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and amount of valuation allowances against deferred tax assets. The realization of these assets is dependent on generating sufficient future taxable income.
While Veritiv believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.
Fair Value Measurements
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
|Level 1 –||Quoted market prices in active markets for identical assets or liabilities.|
|Level 2 –||Observable market-based inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.|
|Level 3 –||Unobservable inputs for the asset or liability reflecting the reporting entity's own assumptions or external inputs from inactive markets.|
The assets and liabilities of the foreign subsidiaries are translated from their respective local currencies to the U.S. dollars at the appropriate spot rates as of the balance sheet date. Changes in the carrying values of these assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive loss ("AOCL"). See Note 13, Shareholders' Equity, for the impacts of foreign currency translation adjustments on AOCL. The revenues and expenses of the foreign subsidiaries are translated using the monthly average exchange rates during the year. The gains or losses from foreign currency transactions are included in other (income) expense, net on the Consolidated Statements of Operations.
Common stock purchased for treasury is recorded at cost. Costs incurred by the Company that are associated with the acquisition of treasury stock are treated in a manner similar to stock issue costs and are added to the cost of the treasury stock. See Note 13, Shareholders' Equity, for additional information regarding the Company's treasury stock transactions.
Accounting for Derivative Instruments
The Company holds one interest rate cap agreement which is subject to Accounting Standards Codification ("ASC") 815, Derivatives and Hedging. For those instruments that are designated and qualify as hedging instruments, a company must designate the instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge or a hedge of a net investment in a foreign operation. A cash flow hedge refers to hedging the exposure to variability in expected future cash flows attributable to a particular risk. For derivative instruments that are designated and qualify as a cash flow hedge, the gains and losses resulting from changes in the fair value of the derivative instrument are reported as a component of AOCL in the Company's Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income (Loss), until reclassified into the same Consolidated Statements of Operations line item in the same period the hedged transaction affects earnings. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. See Note 6, Debt and Note 13, Shareholders' Equity, for additional information regarding the Company's derivative instrument.
Recently Issued Accounting Standards
Recently Adopted Accounting Standards
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). The standard replaces the previously required incurred loss impairment methodology with guidance that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to be considered in making credit loss estimates. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The standard requires application on a modified retrospective basis; accordingly, prior periods have not been adjusted to conform to the new guidance. Upon adoption, the Company recorded a $0.3 million decrease to retained earnings as the cumulative effect adjustment from applying the standard.
Effective January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820). The standard modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption did not materially impact the Company's financial statement disclosures.
Effective January 1, 2020, the Company adopted ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update also require companies to expense capitalized implementation costs over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The amendments also stipulate presentation requirements for the Statement of Operations, Balance Sheet and Statement of Cash Flows. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this ASU on a prospective basis. Capitalized amounts are reported on the Consolidated Balance Sheet as other non-current assets, pursuant to the standard which requires presentation in the same line item that a prepayment of the fees for the associated hosting arrangement would be presented. The related periodic expense is reported as part of operating expenses on the Consolidated Statement of Operations and the corresponding cash flow impact is reported as part of operating activities on the Consolidated Statement of Cash Flows. The adoption did not materially impact the Consolidated Financial Statements. The Company does not expect the adoption of this standard to have a material impact on its future consolidated financial statements and related disclosures.
Recently Issued Accounting Standards Not Yet Adopted
Effective January 1, 2021, the Company will adopt ASU 2019-12, Income Taxes (Topic 740). The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The update also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this update related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The adoption will not have a material impact on future consolidated financial statements and related disclosures.ASU 2020-04, Reference Rate Reform (Topic 848) - This standard provides temporary optional expedients and exceptions to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. The guidance is available for prospective application upon its issuance and can generally be applied to contract modifications and hedging relationships entered into March 12, 2020 through December 31, 2022. The Company has an interest rate cap arrangement and long-term debt as described in Note 6, Debt for which existing payments are based on LIBOR. The Company is currently evaluating the timing of adoption and the related impact on its consolidated financial statements. Currently, the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.