Basis of Presentation and New Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2016

Basis Of Presentation And New Accounting Pronouncements [Abstract]

In January, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” ASU 2016-01 requires equity investments not accounted for under the equity method of accounting or which result in consolidation of an investee, that have readily determinable fair values, to be measured at fair value with changes in the fair value recognized in net income. The update simplifies the impairment assessment for equity investments without readily determinable fair values by requiring assessment for impairment qualitatively, similar to the impairment assessment currently used for long-lived assets, goodwill and indefinite-lived intangible assets. The amendments in this update also change the disclosure requirements for financial instruments, including eliminating the requirement to disclose the method and significant assumptions used to estimate the fair value for financial instruments measured at amortized costs on the balance sheet.

ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017 and early adoption of the amendments in this update are not permitted. ASU 2016-01 is not expected to significantly impact the Company.

Leases

In February, 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize on their balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. Payments to be made in optional periods should be included in the measurement of lease assets and liabilities if the lessee is reasonably certain it will exercise an option to extend the lease or not exercise an option to terminate the lease. While ASU 2016-02 continues to differentiate between finance or capital leases and operating leases, the principal change from current lease accounting guidance is that lease assets and liabilities arising from operating leases should be recognized on the balance sheet.

ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption of the amendments in this update are permitted. Lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach which includes a number of practical expedients, including the ability to use hindsight in evaluating lessee options to extend or terminate a lease. An entity that elects to apply the practical expedients will be required to recognize a right-of-use asset and lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payment that were tracked and disclosed under previous GAAP. We are currently in the process of determining the impact the implementation of ASU 2016-02 will have on the Company’s financial statements.

Stock Compensation

In March, 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.

ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption of the amendments in this update are permitted. The Company is currently evaluating the guidance to determine the Company's adoption method and the effect it will have on the Company's consolidated financial statements.

Statement of Cash Flows

In August, 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on the classification of eight specific cash receipt and cash payment transactions in the statement of cash flows. The Company is currently evaluating the following transactions to determine the effect ASU 2016-15 will have on the Company’s Consolidated Statements of Cash Flows:

Debt extinguishment payments and debt prepayments are to be shown as cash outflows for financing activities. Presently, Gentherm classifies debt extinguishment payments within operating activities.

Payments made to settle contingent consideration liabilities not made soon after the acquisition date of a business combination should be recognized as cash outflows for financing activities up to the amount of the liability recognized at the acquisition date. Payments, or the portion of a payment, to settle contingent consideration liabilities that exceed the amount of the liability recognized at the acquisition date will be recognized as cash outflows for operating activities.

Cash receipts from the settlement of insurance claims, excluding those related to corporate-owned life insurance policies shall be classified on the basis of the related insurance coverage. For example, proceeds received to cover claims issued under product recall liability insurance would be classified as cash inflows from operating activities.

Cash receipts from the settlement of corporate-owned life insurance policies shall be classified as cash inflows from investing activities.

The other cash receipt and cash payment transactions addressed by this update are not expected to impact the Company. For public companies, ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2017 and must be applied retrospectively to all periods presented. Early adoption of the amendments in this update are permitted.

Revenue from Contracts with Customers

In May, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 was developed to enable financial statement users to better understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The update’s core principal 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. Companies are to use a five-step contract review model to ensure revenue gets recognized, measured and disclosed in accordance with this principle. In April, 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing” to, amongst other things, reduce the cost and complexity it takes to identify performance obligations in a contract (step two in the five-step contract review model). As a result, entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract.

Note 2 – Basis of Presentation and New Accounting Pronouncements – Continued

In June, 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date.” As a result of this update, ASU 2014-09 and ASU 2016-10 will be effective for fiscal years and interim periods beginning after December 15, 2017. The amendments in these updates will be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect recognized at the date of initial application. Gentherm has developed a plan to complete the five-step contract review process for all existing contracts with customers. We are currently in the process of determining the impact the implementation of ASU 2014-09 and ASU 2016-10 will have on the Company’s financial statements.

Inventory - Simplifying the Measurement of Inventory

Inventory – Simplifying the Measurement of Inventory

In July, 2015, the FASB issued ASU 2015-11, “ Inventory (Topic 330) Simplifying the Measurement of Inventory.” The update requires that inventory measured using any method other than last-in, first-out (LIFO) or the retail inventory method shall be measured at the lower of cost and net realizable value.

ASU 2015-11 is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption of the amendments in this update are permitted. ASU 2015-11 is not expected to significantly impact the Company.

Balance Sheet Classification of Deferred Taxes

In November, 2015, the FASB issued ASU 2015-17, “ Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 no longer requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. Instead, for each tax paying component and within each tax jurisdiction all deferred tax liabilities and assets, as well as related valuation allowance, shall be offset and presented as a single noncurrent amount. Entities will continue to not offset deferred tax liabilities and assets attributable to different tax-paying components of the entity or to different tax jurisdictions.

ASU 2015-17 is effective for fiscal years and interim periods beginning after December 15, 2016, though earlier application is permitted. The update can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We anticipate adoption of ASU 2015-17 will impact our presentation of deferred tax liabilities and assets on the consolidated condensed balance sheets.

- Definition

Disclosure of accounting policy for leasing arrangements (both lessor and lessee). This disclosure may address (1) lease classification (that is, operating versus capital), (2) how the term of a lease is determined (for example, the circumstances in which a renewal option is considered part of the lease term), (3) how rental revenue or expense is recognized for a lease that contains rent escalations, (4) an entity's accounting treatment for deferred rent, including that which arises from lease incentives, rent abatements, rent holidays, or tenant allowances (5) an entity's accounting treatment for contingent rental payments and (6) an entity's policy for reviewing, at least annually, the residual values of sales-type and direct-finance leases. The disclosure also may indicate how the entity accounts for its capital leases, leveraged leases or sale-leaseback transactions.

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