Note 2 - Summary of Significant Accounting Policies

 

(a)        Basis of presentation

 

The consolidated financial statements of Adaptimmune Therapeutics plc and its subsidiaries and other financial information included in this Annual Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in U.S. dollars.  All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.

 

The Company undertook a reorganization that was completed in April 2015 and is described in Note 10.  As appropriate for a reorganization of entities under common control, the historical consolidated financial statements of Adaptimmune Limited and subsidiary prior to the reorganization became those of Adaptimmune Therapeutics plc.

 

On February 23, 2015 the Company undertook a one-for-100 share exchange. All share and per share information presented gives effect to the reorganization by dividing the loss for the period by the weighted average number of shares outstanding of Adaptimmune Therapeutics plc as if the one-for-100 share exchange had been in effect throughout the period.  The nominal value of the share capital has been increased to reflect the nominal share capital after the one-for-100 share exchange.

 

(b)         Use of estimates in financial statements

 

The preparation of financial statements, in conformity with U.S. GAAP and SEC regulations, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are primarily made in relation to the valuation of share options, valuation allowances relating to deferred tax assets, revenue recognition, estimating clinical trial expenses and estimating R&D tax and expenditure credits. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate.

 

(c)         Going concern

 

Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date the financial statements are issued. This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued, including:

 

a.The Company’s current financial condition, including its liquidity sources;

 

b.The Company’s conditional and unconditional obligations due or anticipated within one year;

 

c.The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and

 

d.Other conditions and events, when considered in conjunction with the above that may adversely affect the Company’s ability to meet its obligations.

 

(d)        Foreign currency

 

The reporting currency of the Company is the U.S. dollar.  The Company has determined the functional currency of the ultimate parent company, Adaptimmune Therapeutics plc, is U.S. dollars because it predominately raises finance and expends cash in U.S. dollars.  The functional currency of subsidiary operations is the applicable local currency.  Transactions in foreign currencies are translated into the functional currency of the subsidiary in which they occur at the foreign exchange rate in effect on at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency of the relevant subsidiary at the foreign exchange rate in effect on the balance sheet date. Foreign exchange differences arising on translation are recognized within other income (expense) in the consolidated statement of operations.

 

The results of operations for subsidiaries, whose functional currency is not the U.S. dollar, are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions and the balance sheet are translated at foreign exchange rates ruling at the balance sheet date. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income (loss).

 

Other income, net includes foreign exchange gains of $8,744,000, $1,002,000, $12,596,000 and $11,200,000 for the years ended December 31, 2017 and 2016, the six months ended December 31, 2015 and the year ended June 30, 2015, respectively.

 

(e)         Fair value measurements

 

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The hierarchy defines three levels of valuation inputs:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities

 

Level 2 — 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 that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

 

The carrying amounts of the Company’s cash and cash equivalents, short-term deposits, restricted cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments.  The fair value of marketable securities, which are measured at fair value on a recurring basis is detailed in Note 4, Fair value measurements.

 

(f)          Accumulated other comprehensive income (loss)

 

The following amounts were reclassified out of other comprehensive income during the year ended December 31, 2017 (in thousands):

 

 

(g)         Cash, cash equivalents and restricted cash

 

The Company considers all highly-liquid investments with a maturity at acquisition date of three months or less to be cash equivalents. Cash and cash equivalents comprise cash balances, commercial paper and corporate debt securities with maturities of three months or less at acquisition and short deposits with maturities of three months or less.

 

The Company’s restricted cash consists of cash providing security for letters of credit in respect of lease agreements.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows (in thousands).

 

 

(h)         Short-term deposits

 

Short-term deposits consist of bank deposits with a maturity at acquisition date of between three and twelve months.

 

(i)          Available-for-sale debt securities

 

As of December 31, 2017, the Company has the following investments in available-for-sale debt securities, which are categorized as cash equivalents or marketable securities — available-for-sale debt securities on the balance sheet depending on their maturity at acquisition (in thousands):

 

 

Management determines the appropriate classification of its investments in available-for-sale debt securities at the time of purchase and reevaluates such designation as of each reporting date. The securities are classified as current or non-current based on the maturity dates and management’s intentions.

 

At December 31 2017, the Company has classified all of its available-for-sale debt securities, including those with maturities beyond one year, as current assets on the accompanying consolidated balance sheets based on the highly-liquid nature of these investment securities and because these investment securities are considered available for use in current operations.

 

The investment in available-for-sale debt securities is measured at fair value at each reporting date.  Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. Realized gains and losses, interest income and amortization of premiums and discounts at acquisition are included in other income (expense), net.  In the year ended December 31, 2017, proceeds from the maturity or redemption of available-for-sale debt securities were $29,090,000.  There were realized losses of $646,000 recognized on the maturity of available-for-sale debt securities during the year ended December 31, 2017, primarily arising due to foreign exchange movements, and, as a result, the Company reclassified this amount out of accumulated other comprehensive loss for the same period.

 

At each reporting date, the Company assesses whether each individual investment is impaired, which occurs if the fair value is less than the amortized cost, adjusted for amortization of premiums and discounts at acquisition.  If the investment is impaired, the impairment is assessed to determine if it is other than temporary.  Impairments judged to be other than temporary are included in other income (expense), net when they are identified. As of December 31, 2017, the aggregate fair value of securities held by the Company in an unrealized loss position was $125,828,000, which consisted of 54 securities.  No securities have been in an unrealized loss position for more than one year. As of December 31, 2017, these securities are not considered to be other than temporarily impaired because the impairments are not severe, have been for a short duration and are due to normal market and exchange rate fluctuations. Furthermore, the Company does not intend to sell the debt securities in an unrealized loss position and it is unlikely that the Company will be required to sell these securities before the recovery of the amortized cost.

 

The cost of securities sold is based on the specific-identification method. Interest on debt securities is included in interest income.

 

Our investment in available-for-sale debt securities is subject to credit risk.  The Company’s investment policy limits investments to certain types of instruments, such as money market instruments and corporate debt securities, places restrictions on maturities and concentration by type and issuer and specifies the minimum credit ratings for all investments and the average credit quality of the portfolio.

 

(j)          Accounts receivable

 

Accounts receivable are amounts due from customers.  As of December 31, 2017 and 2016, the Company had one customer, which was GlaxoSmithKline, or GSK.

 

Management analyses current and past due accounts and determines if an allowance for uncollectible accounts is required based on collection experience and other relevant information.  As of December 31, 2017 and 2016, the allowance for doubtful accounts is $nil.   The process of estimating the uncollectible accounts involves assumptions and judgments and the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

 

(k)        Clinical materials

 

Clinical materials for use in research and development with alternative future use are capitalized as either other current assets or other non-current assets, depending on the timing of their expected consumption.

 

(l)         Property, plant and equipment

 

Property, plant and equipment is stated at cost, less any impairment losses, less accumulated depreciation.

 

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The following table provides the range of estimated useful lives used for each asset type:

 

 

Assets under construction are not depreciated until the asset is available and ready for its intended use.

 

The Company assesses property, plant and equipment for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable.

 

(m)       Intangibles

 

Intangibles includes intellectual property (“IP”) rights for licensed technology used in research and development with an alternative future use, which are recorded at cost and amortized over the estimated useful life of the related product.

 

The weighted-average amortization period for IP rights for licensed technology as of December 31, 2017 is seven years.

 

Intangibles also include acquired computer software licenses, which are recorded at cost and amortized over the estimated useful lives of approximately three years.

 

Intangibles are assessed for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable.

 

(n)         Segmental reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision maker (the “CODM”), its chief executive officer, manages the Company’s operations on an integrated basis for the purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews total revenues, total expenses and expenses by function and the CODM makes decisions using this information on a global basis. Accordingly, the Company has determined that it operates in one operating segment.

 

(o)         Revenue

 

Revenue is recognized when earned and realized or realizable, which is generally when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. Where applicable, all revenues are stated net of value added and similar taxes.

 

The Company’s revenue arises from a collaboration and license agreement with GSK entered into in May 2014 and amended in February 2016 and September 2017 (the “GSK Collaboration and License Agreement”), which requires the Company to provide multiple deliverables to GSK. The Company recognizes revenue for arrangements with multiple deliverables by identifying the separable deliverables within the arrangement, whereby a deliverable is considered separable if it has value to the customer on a standalone basis.  Contingent deliverables, such as the right to nominate further development targets, which represent a substantive option (i.e. the customer is not required or compelled to purchase the optional products or services) and not priced at a significant and incremental discount are not considered to be a deliverable at inception of the arrangement.

 

When the contract is amended, the amendment is assessed to determine if it should be accounted for as a separate contract or a modification to the existing arrangement.  If the amendment is a modification, the modified arrangement is assessed to identify the deliverables at the time of the modification and the non-contingent arrangement consideration is allocated between the separate deliverables using the Company’s best estimate of the relative selling price at the time of the modification.  The amendments to the GSK Collaboration and License Agreement in February 2016 and September 2017 were both accounted for as modifications to an existing arrangement.

 

The non-contingent arrangement consideration is allocated between the separate deliverables using the relative selling price.  The relative selling price is determined using vendor-specific objective evidence (“VSOE”), if available, third party evidence if VSOE is not available, or a best estimate of the standalone selling price if neither VSOE nor third party evidence is available.  The best estimate of the selling price is estimated after considering all reasonably available information, including market data and conditions, entity-specific factors such as the cost structure of the deliverable, internal profit and pricing objectives and the stage of development, if appropriate. Revenue allocated to each deliverable is recognized as it is delivered.  Where delivery occurs over time, revenue is systematically recognized over the period which the Company will be providing services.

 

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue in current liabilities. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current.

 

Milestone payments which are non-refundable, non-creditable and contingent on achieving clinical milestones are recognized as revenues either on achievement of such milestones if the milestones are considered substantive or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. When determining if a milestone is substantive, the Company considers the following factors:

 

 

 

 

 

 

(p)         Research and development expenditures

 

Research and development expenditures are expensed as incurred.

 

Expenses related to clinical trials are recognized as services are received. Nonrefundable advance payments for services are deferred and recognized in the consolidated statement of operations as the services are rendered.  This determination is based on an estimate of the services received and there may be instances when the payments to vendors exceed the level of services provided resulting in a prepayment of the clinical expense. If the actual timing of the performance of services varies from our estimate, the accrual or prepaid expense is adjusted accordingly.

 

Upfront and milestone payments to third parties for in-licensed products or technology which has not yet received regulatory approval and which does not have alternative future use in R&D projects or otherwise are expensed as incurred.  The Company expensed acquired in-process R&D of $1,003,000, $3,000,000, $2,500,000 and $- in the years ended December 31, 2017 and 2016, the six months ended December 31, 2015 and the year ended June 30, 2015, respectively.

 

Milestone payments made to third parties either on or subsequent to regulatory approval are capitalized as an intangible asset and amortized over the remaining useful life of the product.

 

Research and development expenditure is presented net of reimbursements from grants and R&D tax and expenditure credits from the U.K. government, which are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with any conditions attached and will receive the reimbursement.  Grant income was $150,000, $414,000, $905,000 and $613,000 in the years ended December 31, 2017 and 2016, the six months ended December 31, 2015 and the year ended June 30, 2015, respectively.  Reimbursable R&D tax and expenditure credits were $10,576,000, $6,891,000, $1,506,000 and $1,497,000 in the years ended December 31, 2017 and 2016, the six months ended December 31, 2015 and the year ended June 30, 2015, respectively.

 

(q)           Operating leases

 

Costs in respect of operating leases are charged to the consolidated statement of operations on a straight line basis over the lease term.  Rent holidays are recognized on a straight-line basis over the lease term (including any rent holiday period).  Lease incentives, including leasehold improvement incentives or allowances, are recorded as deferred rent and amortized as reductions to lease expense over the lease term.  Leasehold improvements made by a lessee that are funded by landlord incentives or allowances are recorded as leasehold improvement assets and amortized over the shorter of the useful life of the asset and the non-cancellable lease term.

 

In May 2017, the Company entered into an agreement for the lease of a building at Milton Park, Oxfordshire, U.K.  The term of the lease expires on October 23, 2041, with termination options exercisable by the Company on the fifth anniversary of the lease commencement date and at approximately five yearly intervals thereafter.

 

In September 2015, the Company entered into an agreement for a 25-year lease, with early termination options, for a research and development facility in Oxfordshire, U.K.  In October 2016, the Company entered into the lease for that facility following the completion of construction.

 

In July 2015, the Company entered into a 15 year lease agreement, with an early termination option at 123 months, for offices and research facilities in Philadelphia, U.S.  The lease commenced upon completion of construction in October 2016.

 

(r)           Share-based compensation

 

The Company awards certain employees and nonemployees options over the ordinary shares of the parent company.  The cost of share-based awards issued to employees are measured at the grant-date fair value of the award and recognized as an expense over the requisite service period.  The fair value of the options is determined using the Black-Scholes option-pricing model.  Share options with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.  The Company has elected to account for forfeitures of stock options when they occur by reversing compensation cost previously recognized, in the period the award is forfeited, for an award that is forfeited before completion of the requisite service period.

 

The Company has awarded share options to nonemployees for consultancy services.  These share options are measured at the fair value of the goods/services received or the fair value of the equity instrument issued, whichever is more reliably measured, and then remeasured at the then-current fair values at each reporting date until the share options have vested and recognized as an expense over the requisite service period.

 

(s)         Retirement benefits

 

The Company operates defined contribution pension schemes for its directors and employees. The contributions to this scheme are expensed to the consolidated statement of operations as they fall due.  The pension contributions for the years ended December 31, 2017 and 2016, six months ended December 31, 2015 and the year ended June 30, 2015 were $1,264,000, $976,000, $122,000 and $240,000, respectively.

 

(t)          Income taxes

 

Income taxes for the period comprise current and deferred tax.  Income tax is recognized in the consolidated statement of operations except to the extent that it relates to items occurring during the year recognized either in other comprehensive income or directly in equity, in which case it is recognized in other comprehensive income or equity.

 

Current tax is the expected tax payable or receivable on the taxable income or loss for the current or prior periods using tax rates enacted at the balance sheet date.

 

Deferred tax is accounted for using the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax bases of assets and liabilities at the applicable tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include the Company’s forecast of future taxable income, carryback availability, reversing taxable temporary differences and available tax-planning strategies that could be implemented to realize the deferred tax assets.

 

Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized.  We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statement of operations as income tax expense.

 

In interim periods, the income tax expense (benefit) related to income (loss) from continuing operations before income tax expense (benefit) excluding significant unusual or infrequently occurring items is computed at an estimated annual effective tax rate and the income tax expense (benefit) related to all other items is individually computed and recognized when the items occur.

 

(u)         Preferred shares

 

In September 2014, Adaptimmune Limited issued 1,758,418 Series A Preferred Shares for net consideration of $98,872,000 after the deduction of fees of $4,949,000. On February 23, 2015, 1,758,418 Series A Preferred Shares were exchanged for newly issued Series A Preferred Shares of Adaptimmune Therapeutics Limited on a one-for-100 basis. The Series A Preferred Shares were convertible into ordinary shares at the option of the holder at an initial rate of 1:1 reducing to 2:1 on the third anniversary of the issuance, or on the occurrence of an initial public offering at a rate of 1:1 reducing from 1:1 on the first anniversary of the issuance to 2:1 on the third anniversary of the issuance.

 

The Series A Preferred Shares contained a beneficial conversion feature, which is recognized within additional paid-in capital and accreted over the minimum period in which the investor can recognize that return.  The beneficial conversion feature was accreted through a deemed dividend of $14,735,000 in the year ended June 30, 2015.  The Series A Preferred Shares were converted into ordinary shares at a rate of 1:1 immediately prior to the Company’s initial public offering on NASDAQ in May 2015.  Upon conversion the Company reclassified the carrying amount of the Series A Preferred Shares to common stock and additional paid-in capital.

 

(v)         Loss per share

 

Basic loss per share is determined by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.  Diluted loss per share is determined by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, adjusted for the dilutive effect of all potential ordinary shares that were outstanding during the period.  Potentially dilutive shares are excluded when the effect would be to increase diluted earnings per share or reduce diluted loss per share.

 

The following table reconciles the numerator and denominator in the basic and diluted loss per share computation (in thousands):

 

The effects of the following potentially dilutive equity instruments have been excluded from the diluted loss per share calculation because they would have an antidilutive effect on the loss per share for the period:

 

 

 

(1)   From January 1, 2018 through to February 28, 2018, the Company granted 9,994,656 options over ordinary shares with an exercise price determined by reference to the market value of an ADS at the date of grant, and 6,555,900 options over ordinary shares with an exercise price equal to the nominal value of the ordinary shares (£0.001 per share).

 

(w)        Related parties

 

The Company has historically entered into several agreements with Immunocore Limited (“Immunocore”). During the year ended December 31, 2017, Immunocore has invoiced the Company in respect of: (i) services provided under a target collaboration agreement (which terminated on March 1, 2017); (ii) costs relating to prosecution of jointly owned patents; and (iii) property rents (effective until June 1, 2017).

 

During the year ended December 31, 2017, all of the Company’s U.K-based research and development and corporate staff moved into the Company’s new building at Milton Park, Oxfordshire, which comprises laboratory and office space. Consequently, the Company’s lease from Immunocore of premises formerly used for research and development terminated on June 1, 2017 and the Company received $550,000 in relation to leasehold improvements, as provided for under the lease. The lease of the Company’s former corporate office premises was assigned to Immunocore effective from July 1, 2017 in a transaction on arms-length terms.

 

As of the closing of the Company’s registered direct offering of its American Depositary Shares on April 10, 2017, Immunocore held less than 5% of the Company’s shares.  Due to several factors including the decrease in share ownership, the termination of the target collaboration agreement and our lack of common directors, the Company no longer considers Immunocore to be a related party with effect from January 1, 2018.

 

(x)        New accounting pronouncements

 

Adopted in the period

 

Intra-Entity Transfers of Assets Other Than Inventory

 

The Company adopted Accounting Standards Update (“ASU”) ASU 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory issued by the Financial Accounting Standards Board (“FASB”) in October 2016, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance has been adopted on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption prospectively to all arrangements entered into or materially modified after January 1, 2017.  The adoption of this guidance did not have any impact on the financial position, results of operations or cash flows.

 

To be adopted in future periods

 

Revenue from Contracts with Customers

 

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (“ASU 2014-09”) which requires a new approach to revenue recognition and, in March, April, May and December 2016, the FASB issued additional clarification related to this guidance. This guidance has been codified within Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the 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:

 

Step 1: Identify the contract(s) with a customer.

 

Step 2: Identify the performance obligations in the contract.

 

Step 3: Determine the transaction price.

 

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Company intends to adopt the guidance using the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized at the date of initial application, with effect from January 1, 2018.  The Company’s assessment of the impact of the guidance is complete and the adoption of ASC 606 will have a material impact on the Company’s financial statements due to the following:

 

 

 

Due to these factors, the cumulative effect of adopting the guidance on our financial statements at January 1, 2018 is estimated to be a credit to opening accumulated losses and corresponding decrease in deferred revenue of approximately $9 million.

 

ASC 606 requires an entity to provide financial statement users with sufficient information to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To help achieve this objective, ASC 606 requires certain quantitative and qualitative disclosures, which will be more extensive than our current revenue disclosures.

 

Accounting for Leases

 

In February 2016, the FASB issued ASU 2016-02 - Leases.  The guidance requires that lessees recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term at the commencement date.  The guidance also makes targeted improvements to align lessor accounting with the lessee accounting model and guidance on revenue from contracts with customers.  The guidance is effective for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Early application is permitted.  The guidance must be adopted on a modified retrospective transition approach for leases existing, or entered into after, the beginning of the earliest comparative period presented in the financial statements.  The Company is currently evaluating the impact of the guidance on the consolidated financial statements.

 

Measurement of Credit Losses on Financial Instruments

 

In June 2016, the FASB issued ASC 2016-13 — Financial Instruments — Credit losses, which replaces the incurred loss impairment methodology for financial instruments in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year.  Early application is permitted for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The guidance must be adopted using a modified-retrospective approach and a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently evaluating the impact of the guidance on the consolidated financial statements.

 

Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the guidance on the recognition and measurement of financial assets and financial liabilities.  The new guidance requires that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) are measured at fair value with changes in fair value recognized in net income.  The guidance also requires the use of an exit price when measuring the fair value of financial instruments for disclosure purposes, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset.  The guidance is effective for the fiscal year beginning January 1, 2018, including interim periods within that fiscal year.  The Company does not believe the adoption of the guidance will have a material impact on the consolidated financial statements.