FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the securities laws, for which we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as "expect," "anticipate," "intend," "may," "plan," "will," "should," "could," "would," "assume," "believe," "estimate," "predict," "potential," "project," "continue," "seek," and similar expressions, as well as statements in the future tense. We have based these forward-looking statements on our current expectations and projections about future events, based on information currently available to us. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at which, or means by which, such performance or results will be achieved. Forward-looking statements are subject to risks, uncertainties, and assumptions, including those described in the section entitled "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Unforeseen developments could cause actual performance or results to differ substantially from those expressed in or suggested by the forward-looking statements. Management does not assume responsibility for the accuracy or completeness of these forward-looking statements. There is no regulation requiring an update of any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations. Our business activities are affected by many factors, including, without limitation, redemptions by mutual fund shareholders, taxes, general economic and financial conditions, movement of interest rates, competitive conditions, industry regulation, and fluctuations in the stock market, many of which are beyond the control of our management. Further, the business and regulatory environments in which we operate remain complex, uncertain, and subject to change. We expect that regulatory requirements and developments will cause us to incur additional administrative and compliance costs. In addition, while current domestic economic conditions are 35
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relatively stable, further increases in short-term interest rates, policy changes by the administration inWashington, D.C. , and developments in international financial markets could influence economic and financial conditions significantly. Notwithstanding the variability in our economic and regulatory environments, we remain focused on the investment performance of the Hennessy Funds and on providing high-quality customer service to investors. Our business strategy centers on (i) the identification, completion, and integration of future acquisitions and (ii) organic growth, through both the retention of the mutual fund assets we currently manage and the generation of inflows into the mutual funds we manage. The success of our business strategy may be influenced by the factors discussed in Item 1A, "Risk Factors." All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward-looking by their nature.
OVERVIEW
Our primary business activity is providing investment advisory services to a family of open-end mutual funds branded as the Hennessy Funds. We manage 10 of the 16 Hennessy Funds internally. For the remaining six funds, we have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight. We oversee the selection and continued employment of each sub-advisor, review each sub-advisor's investment performance, and monitor each sub-advisor's adherence to each applicable fund's investment objectives, policies, and restrictions. In addition, we conduct ongoing reviews of the compliance programs of sub-advisors and make on-site visits to sub-advisors. Our secondary business activity is providing shareholder services to shareholders of eachHennessy Fund . We derive our operating revenues from investment advisory fees and shareholder service fees paid to us by the Hennessy Funds. These fees are calculated as a percentage of the average daily net assets in eachHennessy Fund . The percentage amount of the investment advisory fees varies from fund to fund. The percentage amount of the shareholder service fees is consistent across all funds, but shareholder service fees are charged on Investor Class shares only. The dollar amount of the fees we receive fluctuates with changes in the average net asset value of eachHennessy Fund , which is affected by each fund's investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.U.S. equities had positive performance for the 12 months endedSeptember 30, 2019 , with the S&P 500® Index returning 4.25% and the Dow Jones Industrial Average returning 4.21% for the period (on a total return basis). During the recent quarter endedSeptember 30, 2019 , equity prices continued their advance with the S&P 500® Index up 1.70% and the Dow Jones Industrial Average up 1.8%. Investors appeared to shrug off global growth concerns, heightened geopolitical risk in theMiddle East , and persistent tension aroundU.S. /China trade negotiations. TheU.S. economy continued to post positive GDP growth, gains in employment, and wage growth. Perhaps more importantly, the market seems to believe that theFederal Reserve may lower interest rates again later this year, which should be supportive of equity prices. Long-termU.S. bonds rallied strongly during the 12 months endedSeptember 30, 2019 , as inflation remained benign and below theFederal Reserve's target of 2%. The unemployment rate inthe United States remained low at 3.5% with strong growth in average hourly earnings of 2.9% inSeptember 2019 compared to the year prior. The Japanese equity market fell 5.77% (inU.S. dollar terms) over the 12 months endedSeptember 30, 2019 , as measured by the Tokyo Stock Price Index. Despite strong earnings growth, a more progressive corporate governance environment, and impressive gains in corporate productivity, investors appear more focused on the uncertainty around aU.S. /China trade deal. We strive to provide positive returns for investors in the Hennessy Funds over market cycles. Seven of the Hennessy Funds achieved positive returns for the one-year period endedSeptember 30, 2019 , and 14 of the 16 Hennessy Funds achieved positive annualized returns for each of the three-year, five-year, and ten-year periods endedSeptember 30, 2019 . 36
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To help drive inflows into the Hennessy Funds, we maintain a marketing database of over 100,000 financial advisors in addition to retail investors. We employ robust marketing and sales efforts consisting of content, digital, and traditional marketing initiatives and proactive phone and in-person meetings. In addition, we maintain an aggressive annual public relations campaign, which has resulted in the Hennessy brand name appearing on TV, radio, print, or online media on average once every two to three days. We provide service to nearly 250,000 mutual fund accounts nationwide comprising shareholders who employ financial advisors to assist them with investing and retail shareholders who invest directly with us. We serve approximately 18,500 financial advisors who utilize the Hennessy Funds on behalf of their clients. Approximately one in five of those advisors owns two or more Hennessy Funds, demonstrating strong brand loyalty. Total assets under management as of the end of fiscal year 2019 was$4.9 billion , a decrease of$1.3 billion , or 21.4%, compared to the end of fiscal year 2018. The decrease in total assets during fiscal year 2019 was attributable to net outflows from the Hennessy Funds, partially offset by market appreciation and the purchase of the assets related to the management of theBP Funds . The following table illustrates the changes in our assets under management over the past three years: Fiscal Years Ended September 30, 2019 2018 2017 (In thousands)
Beginning assets under management
6,698,519 Acquisition inflows 194,948 374,361 - Organic inflows 825,541 1,193,270 1,150,462 Redemptions (2,374,734 ) (2,376,180 ) (2,093,315 ) Market appreciation 30,467 393,354 857,146
Ending assets under management
6,612,812
The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of mutual funds. As of the end of fiscal year 2019, this asset had a net balance of$80.6 million compared to$78.2 million as of the end of fiscal year 2018. The increase was due to the purchase of the assets related to the management of theBP Funds . The principal liability on our balance sheet is the bank debt incurred in connection with the purchase of the assets related to the management of mutual funds and the repurchase of 1,500,000 shares of our common stock pursuant to the completion of our self-tender offer inSeptember 2015 . As of the end of fiscal year 2019, this liability had a gross balance of$17.5 million ($17.4 million net of reclassified debt issuance costs of$0.12 million , further discussed in Note 7 under Item 8, "Financial Statements and Supplementary Data"), compared to$21.9 million ($21.7 million net of reclassified debt issuance costs of$0.15 million ) as of the end of fiscal year 2018. The decrease was the result of making monthly loan payments on our bank debt. 37
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2017 CORPORATE TAX REFORM
OnDecember 22, 2017 , during our first fiscal quarter of 2018, the 2017 Tax Act was enacted into law. Among other changes to various corporate income tax provisions within the existing Internal Revenue Code, the 2017 Tax Act reduced the federal corporate income tax rate from 35% to 21%, effectiveJanuary 1, 2018 . Although the 2017 Tax Act did not become effective untilJanuary 1, 2018 , the start of our second fiscal quarter of 2018, we were required to recognize a reasonable estimate of the effect of the reduced federal corporate income tax rate on our deferred tax liability in the period of enactment. As a result, we recorded a one-time non-cash benefit to income tax expense of approximately$4 million , or$0.54 in diluted earnings per share, during our first fiscal quarter of 2018. We were also able to blend in the reduced federal corporate income tax rate beginningJanuary 1, 2018 , and received the full benefit of the reduced rate beginningOctober 1, 2018 .
RESULTS OF OPERATIONS
The following table sets forth items in our statements of income as dollar amounts and as percentages of total revenue:
Fiscal Years Ended September 30, 2019 2018 Percent of Percent of Total Total Amounts Revenue Amounts Revenue (In thousands, except percentages) Revenue: Investment advisory fees$ 39,357 92.1 %$ 50,235 92.0 % Shareholder service fees 3,358 7.9 4,355 8.0 Total revenue 42,715 100.0 54,590 100.0 Operating expenses: Compensation and benefits 10,933 25.6 13,035 23.9 General and administrative 5,796 13.6 5,864 10.7 Mutual fund distribution 512 1.2 524 1.0 Sub-advisory fees 9,228 21.6 10,461 19.2 Depreciation 225 0.5 231 0.4 Total operating expenses 26,694 62.5 30,115 55.2 Operating income 16,021 37.5 24,475 44.8 Interest expense 1,084 2.5 1,227 2.2 Other income (338 ) (0.8 ) (145 ) (0.3 ) Income before income tax expense 15,275 35.8 23,393 42.9 Income tax expense 4,244 10.0 2,778 5.1 Net income$ 11,031 25.8 %$ 20,615 37.8 %
Revenues - Investment Advisory Fees and Shareholder Service Fees
Total revenue comprises investment advisory fees and shareholder service fees. Comparing fiscal year 2019 to fiscal year 2018, total revenue decreased by 21.8%, from$54.6 million to$42.7 million , investment advisory fees decreased by 21.7%, from$50.2 million to$39.4 million , and shareholder service fees decreased by 22.9%, from$4.4 million to$3.4 million .
The decrease in investment advisory fees was mainly due to decreased average daily net assets of the Hennessy Funds.
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The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Funds. Assets held in Investor Class shares of the Hennessy Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Funds are not subject to a service fee. We collect investment advisory fees from eachHennessy Fund at differing annual rates. These annual rates range between 0.40% and 1.25% of average daily net assets.The Hennessy Fund with the largest average daily net assets for fiscal year 2019 was theHennessy Focus Fund , with$1.9 billion . We collect an investment advisory fee from theHennessy Focus Fund at an annual rate of 0.90% of average daily net assets. However, we pay a sub-advisory fee at an annual rate of 0.29% to the fund's sub-advisor,which reduces the net operating profit contribution of the fund to our financial operations.The Hennessy Fund with the second largest average daily assets for fiscal year 2019 was theHennessy Gas Utility Fund , with$0.9 billion . We collect an investment advisory fee from theHennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. Total assets under management as of the end of fiscal year 2019 was$4.9 billion , a decrease of$1.3 billion , or 21.4%, compared to the end of fiscal year 2018. The decrease was attributable to aggregate net outflows from the Hennessy Funds, partially offset by market appreciation and the purchase of the assets related to the management of theBP Funds . The Hennessy Funds, like many actively managedU.S. mutual funds, experienced net outflows this year. However, one fund had net inflows for fiscal year 2019 as follows: Largest Net Inflows FundName Net InflowsHennessy Japan Fund $ 146 million The Hennessy Funds with the three largest amounts of net outflows for fiscal year 2019 were as follows: Largest Net Outflows FundName Net OutflowsHennessy Focus Fund $ (768) million Hennessy Mid Cap 30 Fund$ (390) million Hennessy Gas Utility Fund $ (192) million Redemptions as a percentage of assets under management increased from an average of 3.0% per month during fiscal year 2018 to an average of 3.7% per month during fiscal year 2019. Operating Expenses Comparing fiscal year 2018 to fiscal year 2019, total operating expenses decreased by 11.4%, from$30.1 million to$26.7 million . Although the dollar value of operating expenses decreased, as a percentage of total revenue, operating expenses increased 7.3 percentage points to 62.5%. The dollar value decrease was due to decreases in all expense categories. Compensation and Benefits Expense: Comparing fiscal year 2018 to fiscal year 2019, compensation and benefits expense decreased by 16.1%, from$13.0 million to$10.9 million . Although the dollar value of compensation and benefits expense decreased, as a percentage of total revenue, compensation and benefits expense increased 1.7 percentage points to 25.6%. The dollar value decrease was due primarily to a decrease in incentive-based compensation. General and Administrative Expense: Comparing fiscal year 2018 to fiscal year 2019, general and administrative expense decreased by 1.2%, from$5.9 million to$5.8 million . Although the dollar value of general and administrative expense decreased, as a percentage of total revenue, general and administrative expense increased 2.9 percentage points to 13.6%. The dollar value decrease resulted primarily from decreased professional service fees and business development-related expenses. 39
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Mutual Fund Distribution Expense: Mutual fund distribution expense consists of fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients. When the Hennessy Funds are purchased through one of these financial institutions, the institution typically charges an asset-based fee, which is recorded in "mutual fund distribution expense" in our statement of operations to the extent paid by us. When the Hennessy Funds are purchased directly, we do not incur any such expense. These fees generally increase or decrease in line with the net assets of the Hennessy Funds held through these financial institutions, which are affected by inflows, outflows, and fund performance. Comparing fiscal year 2018 to fiscal year 2019, mutual fund distribution expense decreased by 2.3%, from$0.52 million to$0.51 million . Although the dollar value of mutual fund distribution expense decreased, as a percentage of total revenue, mutual fund distribution expense increased 0.2 percentage points to 1.2%. The dollar value decrease was due to lower average daily net assets held by financial institutions. Sub-Advisory Fees Expense: Comparing fiscal year 2018 to fiscal year 2019, sub-advisory fees expense decreased by 11.8%, from$10.5 million to$9.2 million . Although the dollar value of sub-advisory fees expense decreased, as a percentage of total revenue, sub-advisory fees expense increased 2.4 percentage points to 21.6%. The dollar value decrease resulted from decreased average daily net assets of the sub-advised Hennessy Funds, partially offset by fee increases resulting from the amendment to the sub-advisoryagreement for theJapan Fund and theJapan Small Cap Fund that became effectiveFebruary 28, 2018 , and the new sub-advisory relationship withBP Capital for the BP Funds that became effectiveOctober 26, 2018 .
Depreciation Expense: Comparing fiscal year 2018 to fiscal year 2019,
depreciation expense remained the same at
Interest Expense
Comparing fiscal year 2018 to fiscal year 2019, interest expense decreased by 11.7%, from$1.2 million to$1.1 million . The decrease was due primarily to a decrease in our principal loan balance.
Income Tax Expense
Comparing fiscal year 2018 to fiscal year 2019, income tax expense increased by 52.8%, from$2.8 million to$4.2 million and our effective income tax rate increased 133.6%, from 11.9% to 27.8%. These increases reflect the significant impact of the 2017 Tax Act on our income tax expense and effective income tax rate for fiscal year 2018. During fiscal year 2018, the 2017 Tax Act required us to record a one-time non-cashbenefit to income tax expense for the accounting remeasurement of our deferred tax liability based on the reduced federal corporate income tax rate. The resulting income tax expense was reduced by approximately$4 million . Excluding the impact of this one-time benefit, our income tax expense would have decreased for fiscal year 2019 compared to fiscal year 2018, due primarily to the decrease in our net operating income and secondarily to the decrease in the federal corporate income tax rate. Our effective income tax rate also would have decreased if the impact of the one-time benefit were excluded because we only benefited from the reduced federal income tax rate, which was effectiveJanuary 1, 2018 , for nine of the 12 months in fiscal year 2018. Net Income Comparing fiscal year 2018 to fiscal year 2019, net income decreased by 46.5%, from$20.6 million to$11.0 million , due primarily to the decrease in our net operating income and secondarily as a result of the increase in income tax expense discussed above. 40
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OFF-BALANCE SHEET ARRANGEMENTS
We do not have, and have not had, any off-balance sheet arrangements.
LIQUIDITY AND CAPITAL RESOURCES
We continually review our capital requirements to ensure that we have funding available to support our business model. Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2019 will be sufficient to meet our capital requirements for at least one year from the issuance date of this report. To the extent that liquid resources and cash provided by operations are not adequate to meet long-term capital requirements, management plans to raise additional capital by either, or both, seeking to increase our borrowing capacity or accessing the capital markets. There can be no assurance that we will be able to raise additional capital. Our total assets under management as of the end of fiscal year 2019 was$4.9 billion , a decrease of$1.3 billion , or 21.4%, from the end of fiscal year 2018. The primary sources of our revenues, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under management. Our average assets under management for fiscal year 2019 was$5.2 billion . As of the end of fiscal year 2019, we had cash and cash equivalents of$24.7 million . The following table summarizes key financial data relating to our liquidity and use of cash: Fiscal Years Ended September 30, 2019 2018 (In thousands) Net cash provided by operating activities$ 14,392 $ 21,531 Net cash used in investing activities (1,974 ) (3,895 ) Net cash used in financing activities (13,126 ) (7,941 )
Net (decrease) increase in cash and cash equivalents $ (708 )
$ 9,695
The decrease in cash provided by operating activities of
The decrease in cash used for investing activities of$1.9 million was due to the purchase of the assets related to the management of the Rainier Funds in fiscal year 2018, which was larger than the purchase of the assets related to the management of theBP Funds in fiscal year 2019. The increase in cash used for financing activities of$5.2 million from fiscal year 2018 compared to fiscal year 2019 was due to shares repurchased in May, August, andSeptember 2019 under our stock buyback program, as well as an increased dividend rate. Dividend Payments. We have consistently paid dividends each year since 2005. During fiscal year 2019, our Board of Directors increased the quarterly dividend rate twice, (i) from$0.10 per share to$0.11 per share inOctober 2018 and (ii) from$0.11 per share to$0.1375 per share inAugust 2019 . Dividend payments for fiscal year 2019 totaled$3.6 million . During fiscal year 2018, our Board of Directors increased the quarterly dividend rate from$0.075 per share to$0.10 per share inJanuary 2018 . Dividend payments for fiscal year 2018 totaled$2.9 million . 41
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Our
(1) the sum of (a) a margin that ranges from 2.25% to 2.75%, depending on our ratio of consolidated debt to consolidated EBITDA, plus (b) the LIBOR rate; or
(2) the sum of (a) a margin that ranges from 0.25% to 0.75%, depending on our ratio of consolidated debt to consolidated EBITDA, plus (b) the highest rate out of the following three rates: (i) the prime rate set byU.S. Bank from time to time; (ii) the Federal Funds Rate plus 0.50%; or (iii) the one-month LIBOR rate plus 1.00%. We currently use a one-month LIBOR rate contract, which must be renewed monthly. As of the end of fiscal year 2019, the effective rate was 4.350%, which comprised the LIBOR rate of 2.10% as ofSeptember 1, 2019 , plus a margin of 2.25% based on our ratio of consolidated debt to consolidated EBITDA as ofJune 30, 2019 . We intend to continue renewing the LIBOR rate contract on a monthly basis as long as it remains the most favorable option. We have amended the term loan agreement to address possible LIBOR changes (see further discussion in Item 1A, "Risk Factors"). All borrowings under the term loan agreement are secured by substantially all of our assets. The final installment of the then-outstanding principal of$5.8 million plus accrued interest is dueMay 9, 2022 . As of the end of fiscal year 2019, we had$17.5 million outstanding under our term loan agreement ($17.4 million net of debt issuance costs).
Our term loan agreement includes certain reporting requirements and loan covenants requiring the maintenance of certain financial ratios. We were in compliance with our loan covenants for fiscal year 2019.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"), which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These accounting policies, methods, and estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to the financial statements and because future events affecting them may differ markedly from management's current judgment. Described below are the accounting policies that we believe are most critical to understanding our results of operations and financial position. Our operating revenues consist of contractual investment advisory and shareholder service fees. We earn our investment advisory fees through portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in purchases, sales, distribution, and customer service. These fee revenues are earned and calculated daily by the Hennessy Funds' accountants. In accordance withFinancial Accounting Standards Board ("FASB") guidance on revenue recognition, we recognize fee revenues monthly. Our contractual agreements provide persuasive evidence that an arrangement exists with fixed and determinable fees, and the services are rendered daily. The collectability is probable as the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided. The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in accordance with Accounting Standards Update ("ASU") No. 2012-02, "Intangibles -Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," as amended. Pursuant to ASU No. 2012-02, an entity first assesses qualitative factors to determine whether it 42
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is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test in accordance with Subtopic 350-30, "Intangibles -Goodwill and Other - General Intangibles Other thanGoodwill ." The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If an entity determines that it is more likely than not that an indefinite-lived intangible asset is impaired, then it must conduct an impairment analysis. We were able to forego the annual impairment analysis for fiscal year 2019 as the more-likely-than-not threshold was met as of the end of fiscal year 2019. The costs related to our purchase of the assets related to the management of mutual funds are capitalized as incurred. The costs are defined as an "intangible asset" per the FASB standard "Intangibles -Goodwill and Other." The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts. The amounts are included in the management contract asset, totaling$80.6 million as of the end of fiscal year 2019.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
InMay 2014 , the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers." In addition, the FASB issued related revenue recognition guidance in five ASUs: principal versus agent considerations (ASU 2016-08), identifying performance obligations and licensing (ASU 2016-10), a revision of certainSEC staff observer comments (ASU 2016-11), implementation guidance (ASU 2016-12), and technical corrections and improvements (ASU 2016-20). ASU 2014-09 is a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP, provides enhancements to the quality and consistency of how revenue is reported, and improves comparability in financial statements presented under GAAP and International Financial Reporting Standards. This new standard is effective for fiscal years and interim periods within those years beginning afterDecember 15, 2017 (our fiscal year 2019). The adoption of this update did not have a material impact on our financial condition, results of operations, or cash flows. InFebruary 2016 , the FASB issued ASU No. 2016-02, "Leases (Topic 842)," as amended inJuly 2018 by ASU No. 2018-10, "Codification Improvements to Topic 842, Leases," and ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements," that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition on the statement of income. These ASUs are effective for fiscal years beginning afterDecember 15, 2018 (our fiscal year 2020). We are currently evaluating the impact of these updates and anticipate the recognition of additional assets and corresponding liabilities relating to these leases on our balance sheet, but do not expect the adjustments to be material assuming no changes in lease activity. InJanuary 2017 , the FASB issued ASU No. 2017-04, "Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This update eliminates a step from impairment testing to simplify the process, particularly for entities with a zero or negative carrying amount for an intangible asset, and is effective for annual reporting periods beginning afterDecember 15, 2019 (our fiscal year 2021). The adoption of this update is not expected to have a material impact on our financial condition, results of operations, or cash flows.
In
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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." This update eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and adds new disclosure requirements for Level 3 measurements. It is effective for fiscal years beginning afterDecember 15, 2019 (our fiscal year 2021), with early adoption permitted for any eliminated or modified disclosures. We are currently evaluating the impact of adopting this update, but do not expect it to have a material impact on our financial condition, results of operations, cash flows, or related disclosures.
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2019.
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