Investment in Joint Venture
Southwood uses the equity method of accounting for its investment in a joint venture in which it
does not have a controlling interest. Under this method, Southwood records its proportionate
share of losses under “Other, net” in the accompanying Consolidated Statements of Income
(Loss) with a corresponding decrease in the carrying value of the investment.
Income Taxes
Income taxes are recorded using the accrual method and the provision for federal and state
income taxes is based on income reported in the consolidated financial statements, adjusted
for items not recognized for income tax purposes. Provisions for deferred income taxes
are recognized for accelerated depreciation and other temporary differences. A valuation
allowance is provided to offset any net deferred tax assets if, based upon available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
Investment tax credits previously realized for income tax purposes are amortized for financial
statement purposes over the life of the property, giving rise to the credit.
Change in Accounting Principles
Effective January 1, 2017, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Update (ASU) 2015-07, Fair Value Measurement (Topic
820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent). Under the amendments in this ASU, investments for which fair
value is measured at net asset value per share (or its equivalent) using the practical expedient
are not categorized in the fair value hierarchy. The amendments are to be applied
retrospectively. The changes are reflected in the fair value leveling tables in Note 5.
Effective January 1, 2017, the Company adopted FASB ASU 2015-1 1, Inventory (Topic 330):
Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of
inventory by replacing the lower of cost or market test with a lower of cost or net realizable
value test. Net realizable value is defined as estimated selling price in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. Prior
to 2017, the Company reported inventory at the lower of cost or market. This guidance is
applied prospectively as determined by the standard. There is no prior year or current year
effect to the financial statements as a result of this change.
New Accounting Standards to be Adopted in the Future
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The
standard’s core principle is that a company will recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. This standard also
includes expanded disclosure requirements that result in an entity providing users of financial
statements with comprehensive information about the nature, amount, timing, and uncertainty of
revenue and cash flows arising from the entity’s contracts with customers. This standard will
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