| Summary of Significant Accounting Policies | Note 3 – Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Third-party interests in our majority-owned subsidiaries are presented as noncontrolling interest owners.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not affect our consolidated financial results.
Investment in Petrodelta
Through December 31, 2014, we included the results of Petrodelta in our financial statements under the equity method. We ceased recording earnings from Petrodelta in the second quarter 2014 due to the expected sales price of the second closing purchase agreement approximating the recorded value of our investment in Petrodelta. The Company was not able to obtain approval from the government of Venezuela during 2014 and on January 1, 2015 we terminated the SPA. Due to our failed sales attempts, lack of management influence, and actions and inactions by the majority owner, PDVSA, we believe we no longer exercise significant influence in Petrodelta and in accordance with Accounting Standards Codification “ASC 323 – Investments – Equity Method and Joint Ventures”, we are accounting for our investment in Petrodelta under the cost method (“ASC 325 – Investments – Other”), effective December 31, 2014. Under the cost method we will not recognize any equity in earnings from our investment in Petrodelta in our results of operations, but will recognize any cash dividends in the period they are received.
We evaluate our investment in Petrodelta for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may be impaired. A loss is recorded in earnings in the current period if a decline in the value of the investment is determined to be other than temporary. Impairment is calculated as the difference between the carrying value of the investment and its fair value. We recorded pre-tax impairment charges against the carrying value of our investment in Petrodelta of $164.7 million and $355.7 million during the years ended December 31, 2015 and 2014, respectively. See Note 6 – Investment in Affiliate for further information.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Other important significant estimates are those included in the valuation of our assets and liabilities that are recorded at fair value on a recurring and non-recurring basis. Actual results could differ from those estimates.
Reporting and Functional Currency
The United States Dollar (“USD”) is the reporting and functional currency for all of our controlled subsidiaries and Petrodelta. Amounts denominated in non-USD currencies are re-measured into USD, and all currency gains or losses are recorded in the consolidated statements of operations and comprehensive loss. There are many factors that affect foreign exchange rates and the resulting exchange gains and losses, many of which are beyond our influence.
See Note 6 – Investment in Affiliate and Note 7 – Venezuela - Other for a discussion of currency exchange rates and currency exchange risk on Petrodelta’s and Harvest Vinccler’s businesses.
Cash and Cash Equivalents
Cash equivalents include money market funds and short term certificates of deposit with original maturity dates of less than three months.
Restricted Cash
Restricted cash is classified as current or non-current based on the terms of the agreement. Restricted cash at December 31, 2014 represented $25,000 held in a U.S. bank as collateral for our foreign credit card program. There was no restricted cash as of December 31, 2015.
Financial Instruments
Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, accounts receivable, notes payable and derivative financial instruments. We maintain cash and cash equivalents in bank deposit accounts with commercial banks with high credit ratings, which, at times may exceed the federally insured limits. We have not experienced any losses from such investments. Concentrations of credit risk with respect to accounts receivable are limited due the nature of our receivables, which include primarily joint venture partner’s receivable, and income tax receivable. In the normal course of business, collateral is not required for financial instruments with credit risk.
Oil and Natural Gas Properties
The major components of property and equipment are as follows:
As of December 31,
2015
2014
(in thousands)
Unproved property costs - Dussafu PSC
$ 28,000
$ 50,324
Oilfield inventories
3,006
3,966
Other administrative property
2,937
2,670
Total property and equipment
33,943
56,960
Accumulated depreciation
(2,482)
(2,453)
Total property and equipment, net
$ 31,461
$ 54,507
Property and equipment are stated at cost less accumulated depreciation. Costs of improvements that appreciably improve the efficiency or productive capacity of existing properties or extend their lives are capitalized. Maintenance and repairs are expensed as incurred. Upon retirement or sale, the cost of property and equipment, net of the related accumulated depreciation is removed and, if appropriate, gains or losses are recognized in investment earnings and other. We did not record any depletion expense in the years ended December 31, 2015, 2014 and 2013 as there was no production related to proved oil and natural gas properties.
We follow the successful efforts method of accounting for our oil and natural gas properties. Under this method, exploration costs such as exploratory geological and geophysical costs, delay rentals and exploration overhead are charged against earnings as incurred. Costs of drilling exploratory wells are capitalized pending determination of whether proved reserves can be attributed to the area as a result of drilling the well. If management determines that proved reserves, as that term is defined in Securities and Exchange Commission (“SEC”) regulations, have not been discovered, capitalized costs associated with the drilling of the exploratory well are charged to expense. Costs of drilling successful exploratory wells, all development wells, and related production equipment and facilities are capitalized and depleted or depreciated using the unit-of-production method as oil and natural gas is produced. During the years ended December 31, 2015, 2014 and 2013, we expensed no dry hole costs.
Leasehold acquisition costs are initially capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period. Costs of maintaining and retaining unproved leaseholds are included in exploration expense. Costs of impairment of unsuccessful leases are included in impairment expense. We assess our unproved property costs for impairment when events or circumstances indicate a possible decline in the recoverability of the carrying value of the projects. The estimated value of our unproved projects is determined using quantitative and qualitative assessments and the carrying value of the projects is adjusted if the carrying value exceeds the assessed value of the projects.
Impairment is based on specific identification of the lease. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and natural gas properties.
Proved oil and natural gas properties are reviewed for impairment at a level for which identifiable cash flows are independent of cash flows of other assets when facts and circumstances indicate that their carrying amounts may not be recoverable. In performing this review, future net cash flows are determined based on estimated future oil and natural gas sales revenues less future expenditures necessary to develop and produce the reserves. If the sum of these undiscounted estimated future net cash flows is less than the carrying amount of the property, an impairment loss is recognized for the excess of the property’s carrying amount over its estimated fair value, which is generally based on discounted future net cash flows. We did not have any proved oil and natural gas properties in 2015 , 2014 or 2013 .
Costs of drilling and equipping successful exploratory wells, development wells, asset retirement liabilities and costs to construct or acquire offshore platforms and other facilities, are depleted using the unit-of-production method based on total estimated proved developed reserves. Costs of acquiring proved properties, including leasehold acquisition costs transferred from unproved leaseholds, are depleted using the unit-of-production method based on total estimated proved reserves. All other properties are stated at historical acquisition cost, net of impairment, and depreciated using the straight-line method over the useful lives of the assets.
During the year ended December 31, 2015 , we recorded impairment expense related to our Dussafu Project in Gabon of $ 24.2 million (including $1.0 million of oilfield inventories). During the year ended December 31, 2014 , we recorded impairment expense related to our Budong Project in Indonesia of $7.7 million and our Dussafu Project of $50.3 million. During the year ended December 31, 2013, we recorded impairment expense related to our Budong Project in Indonesia of $0.6 million and our project in Colombia of $3.2 million, which is reflected in discontinued operations.
Other Administrative Property
Furniture, fixtures and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are recorded at cost and amortized using the straight-line method over the life of the applicable lease. For the year ended December 31, 2015 , depreciation expense was $ 0.1 million ($ 0.2 million and $ 0.3 million for the years ended December 31, 2014 and 2013 , respectively).
Other Assets
Other Assets at December 31, 2015 and 2014 include deposits, prepaid expenses which are expected to be realized in the next 12 to 24 months. During 2015 we fully reserved the blocked payment related to our drilling operations in Gabon in accordance with the U.S. sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011, and administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) See Note 13 – Commitments and Contingencies . We recorded an allowance for doubtful accounts of $0.7 million and the remaining balance of the blocked payment was reclassified to a receivable from our joint venture partners for $0.4 million. Other assets at December 31, 2014 also consisted of deferred financing costs. Deferred financing costs relate to specific financings and are amortized over the life of the financings to which the costs relate using the interest rate method.
As of December 31,
2015
2014
(in thousands)
Deposits and long-term prepaid expenses
$ 142
$ 101
Deferred financing costs
—
283
Gabon – blocked payment
—
1,100
$ 142
$ 1,484
Reserves
We measure and disclose oil and natural gas reserves in accordance with the provisions of the SEC’s Modernization of Oil and Gas Reporting and ASC 932, “Extractive Activities – Oil and Gas” (“ASC 932”). All of our reserves are owned through our investment in Petrodelta. We are accounting for our investment in Petrodelta under the cost method (“ASC 325 – Investments – Other”), effective December 31, 2014. Under the cost method, we do not have any reserves at December 31, 2015 and 2014.
Capitalized Interest
We capitalize interest costs for qualifying oil and natural gas properties. The capitalization period begins when expenditures are incurred on qualified properties, activities begin which are necessary to prepare the property for production and interest costs have been incurred. The capitalization period continues as long as these events occur. The average additions for the period are used in the interest capitalization calculation. During the year ended December 31, 2015 , we capitalized interest costs for qualifying oil and natural gas property additions related to Gabon of $0.0 million ( $0.5 million and $8.3 million during the years ended December 31, 2014 and 2013 , respectively).
Fair Value Measurements
We measure and disclose our fair values in accordance with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:
·
Level 1 – Inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities.
·
Level 2 – Inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly.
·
Level 3 – Inputs to the valuation techniques that are unobservable for the assets or liabilities.
Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, accounts receivable, SARs, RSUs, debt, embedded derivatives and warrant derivative liabilities. We maintain cash and cash equivalents in bank deposit accounts with commercial banks with high credit ratings, which, at times may exceed the federally insured limits. We have not experienced any losses from such investments. Concentrations of credit risk with respect to accounts receivable are limited due to the nature of our receivables. In the normal course of business, collateral is not required for financial instruments with credit risk. The estimated fair value of cash and cash equivalents and accounts receivable approximates their carrying value due to their short-term nature (Level 1). The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value as of December 31, 2015 and December 31, 2014 . During the year ended December 31, 2015, we impaired the carrying value of our Dussafu project in Gabon by $ 23.2 million and our investment in affiliate by $164.7 million. See Note 6 – Investment in Affiliate and Note 8 – Gabon for more information.
As of December 31, 2015
Level 1
Level 2
Level 3
Total
(in thousands)
Non recurring
Assets:
Investment in affiliate
$
—
$
—
$
—
$
—
Dussafu PSC
—
—
28,000
28,000
$
—
$
—
$ 28,000
$ 28,000
Recurring
Assets:
Embedded derivative asset
$
—
$
—
$ 5,010
$ 5,010
$
—
$
—
$ 5,010
$ 5,010
Liabilities:
SARs liability
$
—
$ 46
$ 50
$ 96
RSUs liability
—
174
—
174
Warrant derivative liability
—
—
5,503
5,503
$
—
$ 220
$ 5,553
$ 5,773
As of December 31, 2014
Level 1
Level 2
Level 3
Total
(in thousands)
Non recurring
Assets:
Investment in affiliate
$
—
$
—
$ 164,700
$ 164,700
Dussafu PSC
—
—
50,324
50,324
$
—
$
—
$ 215,024
$ 215,024
Recurring
Liabilities:
SARs liability
$
—
$ 356
$
—
$ 356
RSUs liability
—
652
—
652
$
—
$ 1,008
$
—
$ 1,008
As of December 31, 2015 , the fair value of our liability awards included $ 0.1 million for our SARs and $ 0.2 million for the RSUs which were recorded in accrued expenses and other long-term liabilities, respectively. As of December 31, 2014 , the fair value of our liability awards of $0.8 million was included in accrued liabilities ($ 0.4 million for our SARs and $ 0.4 million for our RSUs) with the remaining $0.2 million fair value of our RSU liability being included in long-term liabilities.
Derivative Financial Instruments
As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value liabilities and their placement within the fair value hierarchy levels. See Note 12 – Warrant Derivative Liability for a description and discussion of our warrant derivative liability as well as a description of the valuation models and inputs used to calculate the fair value. See Note 11 – Debt and Financing for a description and discussion of our embedded derivatives related to our 9% Note and 15% Note as well as a description of the valuation models and inputs used to calculate the fair value. All of our embedded derivatives and warrants are classified as Level 3 within the fair value hierarchy.
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis
The following table provides a reconciliation of financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Year Ended December 31,
2015
2014
2013
(in thousands)
Financial assets - embedded derivative asset
Beginning balance
$
—
$
—
$
—
Additions - fair value at issuance
2,504
—
—
Change in fair value
2,506
—
—
Ending balance
$ 5,010
$
—
$
—
Year Ended December 31,
2015
2014
2013
(in thousands)
Financial liabilities - embedded derivative liability
Beginning balance
$
—
$
—
$
—
Additions - fair value at issuance
13,449
—
—
Change in fair value
(2,307)
—
—
Conversion of debt
(11,142)
—
—
Ending balance
$
—
$
—
$
—
Year Ended December 31,
2015
2014
2013
(in thousands)
Financial liabilities - warrant derivative liabilities:
Beginning balance
$
—
$ 1,953
$ 5,470
Additions - fair value at issuance
40,013
—
—
Change in fair value
(34,510)
(1,953)
(3,517)
Ending balance
$ 5,503
$
—
$ 1,953
Year Ended December 31,
2015
2014
2013
(in thousands)
Financial liabilities - stock appreciation rights
Beginning balance
$
—
$
—
$
—
Additions - fair value at issuance
—
—
—
Change in fair value
50
—
—
Ending balance
$ 50
$
—
$
—
During the year ended December 31, 2015, 2014 and 2013, no transfers were made between Level 1, Level 2 and Level 3 liabilities or assets.
Share-Based Compensation
We use the fair value based method of accounting for share-based compensation. In prior years, we utilized the Black-Scholes option pricing model to measure the fair value of stock options and SARs. Restricted stock and RSUs were measured at their fair values. During 2015, we issued options, SARs, and RSUs with an additional market condition. To fair value these awards, a Monte Carlo simulation was utilized. For more information about our share-based compensation, the fair value of these awards, and the additional market condition. See Note 15 – Stock-Based Compensations and Stock Purchase Plans .
Income Taxes
Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns, and (b) operating loss and tax credit carryforwards. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
We classify interest related to income tax liabilities and penalties as applicable, as interest expense.
Since December of 2013 we have provided deferred income taxes on undistributed earnings of our foreign subsidiaries where we are not able to assert that such earnings were permanently reinvested, or otherwise could be repatriated in a tax free manner, as part of our ongoing business. As of December 31, 2015, the deferred tax liability provided on such earnings has been reduced to zero due to the impairment of the underlying book investment in Petrodelta.
As the conversion feature of the 9% Note was reasonably expected to be exercised at the time of the note’s issuance due to the conversion price being in-the-money, the interest on the 9% Note paid upon its conversion is non-deductible to the Company under Internal Revenue Code (“IRC”) Section 163(l). The 15% Note was issued, for income tax purposes, with original issue discount (“OID”). OID generally is deductible for income tax purposes. However, if the debt instrument constitutes an “applicable high-yield discount obligation” (“AHYDO”) within the meaning of IRC Section 163(i)(1), then a portion of the OID likely would be non-deductible pursuant to IRC Section 163(e)(5). Our analysis of the 15% Note is that the note may be an AHYDO; consequently, a portion or all of the OID likely may be non-deductible for income tax purposes.
Noncontrolling Interests
Changes in noncontrolling interest owners were as follows:
Year Ended December 31,
2015
2014
2013
(in thousands)
Balance at beginning of period
$ 79,152
$ 243,167
$ 97,101
Contributions by noncontrolling interest owners
3,382
1,208
—
Increase in equity held by noncontrolling interest owner
—
—
144,796
Dividend to noncontrolling interest owner
—
—
(10,370)
Net income (loss) attributable to noncontrolling interest owners
(82,087)
(165,223)
11,640
Balance at end of period
$ 447
$ 79,152
$ 243,167
Valuation and Qualifying Accounts
Our valuation and qualifying accounts are comprised of the deferred tax valuation allowance, investment valuation allowance and Value-Added Tax (“VAT”) receivable valuation allowance. Balances and changes in these accounts are, in thousands:
Additions
Balance at Beginning of Year
Charged to Income
Other
Deductions From Reserves Credited to Income
Balance at End of Period
(in thousands)
At December 31, 2015
Amounts deducted from applicable assets
Deferred tax valuation allowance
$ 181,906
$
—
$ 44,014
$
—
$ 225,920
Investment valuation allowance
1,350
—
—
—
1,350
VAT valuation allowance
2,792
—
(2,792)
(b)
—
—
Long-term receivable - investment in affiliate
13,753
—
—
—
13,753
At December 31, 2014
Amounts deducted from applicable assets
Deferred tax valuation allowance
$ 59,576
$ 129,480
$ (7,150)
(a)
$
—
$ 181,906
Investment valuation allowance
1,350
—
—
—
1,350
Long-term receivable - investment in affiliate
—
13,753
(c)
—
—
13,753
VAT valuation allowance
2,792
—
—
—
2,792
At December 31, 2013
Amounts deducted from applicable assets
Deferred tax valuation allowance
$ 68,419
$
—
$
—
$ (8,843)
$ 59,576
Investment valuation allowance
1,350
—
—
—
1,350
VAT valuation allowance
—
2,792
—
—
2,792
(a)
Attributable to reversal of temporary differences related to discontinued operations.
(b)
Valuation allowance for the VAT receivable associated with Harvest Budong. On May 4, 2015, the Company sold the shares of Harvest Budong-Budong B.V. to Stockbridge Capital Limited and the rights to the VAT receivable went with the entity to the buyer.
(c)
During the year ended December 31, 2014, we fully reserved a dividend receivable of $12.2 million and $1.6 million of long-term receivable due from our investment in affiliate.
New Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In June 2015 the FASB issued ASU No. 2015-15 as an amendment to this guidance to address the absence of authoritative guidance for debt issuance costs related to line-of-credit arrangements. The SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance is effective for interim periods and annual period beginning after December 15, 2015; however early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our financial position and will not have an impact on our results of operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, “ Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ” ASU No. 2014-15. ASU No. 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the provisions of ASU No. 2014-15 and assessing the impact, if any, it may have on our consolidated financial statements.
In April 2014, FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers” which is included in ASC 606, a new topic under the same name. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance supersedes the previous revenue recognition requirements and most industry-specific guidance. Additionally, the update supersedes some cost guidance related to construction type and production-type contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this update.
The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The new guidance also provides for additional qualitative and quantitative disclosures related to: (1) contracts with customers, including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations); (2) significant judgments and changes in judgments which impact the determination of the timing of satisfaction of performance obligations (over time or at a point in time), the transaction price and amounts allocated to performance obligations; and (3) assets recognized from the costs to obtain or fulfill a contract.
In July 2015, the FASB issued a decision to delay related to ASU No. 2014-09 for the effective date by one year. The new guidance is effective for annual and interim periods beginning after December 15, 2017. An entity should apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application. We are currently evaluating the impact of this guidance.
In November 2015, the FASB issued ASC No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. ASU No. 2015-17 simplifies the balance sheet presentation of deferred income taxes by requiring all deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The standard may be applied either prospectively or retrospectively to all periods presented. The Company has decided to adopt the accounting change in its current financial statements and has adopted the change retrospectively.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” . It is expected to be effective for periods beginning after December 15, 2018 for public entities, and for periods beginning after December 15, 2019 for nonpublic entities. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (1) Financing leases, similar to capital leases, will require the recognition of an asset and liability, measured at the present value of the lease payments. Interest on the liability will be recognized separately from amortization of the asset. Principal repayments will be classified as financing outflows and payments of interest as operating outflows on the statement of cash flows. (2) Operating leases will also require the recognition of an asset and liability measured at the present value of the lease payments. A single lease cost, consisting of interest on the obligation and amortization of the asset, calculated such that the amortization of the asset will increase as the interest amount decreases resulting in a straight-line recognition of lease expense. All cash outflows will be classified as operating on the statement of cash flows. We do not believe the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.
In March 2016, the FASB issued ASU No. 2016-07, “Investments — Equity Method and Joint Ventures (Topic 323)”. This amendment simplifies the accounting for equity method of investments, the amendment in the update eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendment requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendment in this update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendment should be applied prospectively upon the effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. We are currently evaluating the impact of this guidance. |
