Accounting Policies and Standards Update

9 Months Ended

Sep. 30, 2018

Accounting Policies and Standards Update

Accounting Policies and Standards Update

2. Accounting Policies and Standards Update

Recently Issued Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance will not be material to our consolidated financial statements upon adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The new guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We will adopt the new standard as of January 1, 2020 on a prospective basis.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows companies to make a one-time reclassification of the stranded tax effects (as defined by ASU 2018-02) from accumulated other comprehensive income to retained earnings as a result of the tax legislation enacted in December 2017, commonly known as the “Tax Cuts and Jobs Act” (”TCJA”), and requires certain disclosures about stranded tax effects. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted. The amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effects of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. We are still evaluating the impact the adoption of ASU 2018-02 will have. We will adopt the new standard as of January 1, 2019.

In January 2017, the FASB issued ASU 2017-04, Goodwill — Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the second step in the goodwill impairment test whereby a company measures an impairment loss by calculating the implied fair value of goodwill of a reporting unit and comparing it against its carrying value. As a result, a goodwill impairment loss will be calculated by comparing the fair value of a reporting unit with its carrying amount. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.  The amendments in this update should be applied prospectively, with added disclosure regarding the nature of and reason for the change in accounting principal. We will early adopt this standard as of December 31, 2018 in conjunction with our fourth-quarter impairment analysis.

From February 2016 through July 2018, the FASB issued several ASUs on Leases (“ASC 842”), which would require the lessee to recognize the assets and liabilities on all leases that may have not been recognized in the past, specifically, leases classified as operating leases under current U.S. GAAP (“ASC 840”). The core principal of ASC 842 is that a lessee should recognize both a lease liability for its obligation to make lease payments to the lessor and a right-of-use asset reflecting its right to use the underlying asset during the term of the lease. Under ASC 842, a lessee recognizes either an operating or a finance lease, with the pattern of expense recognition in the income statement differing depending on classification of the lease. There are also additional disclosure requirements under ASC 842, including expanded quantitative disclosures regarding the location and amounts related to operating and finance leases included in the financial statements, as well as qualitative disclosures about the nature of an entity’s leases. Certain arrangements are outside the scope of ASC 842, including leases to explore for or use natural resources.

The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We will adopt the new standard effective January 1, 2019 and will elect the optional transition practical expedient, which allows us to adopt the standard on the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will not retrospectively adjust prior periods, which will continue to be reported under ASC 840. Further, disclosures related to prior periods will also be reported under ASC 840. We will also elect the transitional package of practical expedients available within the new standard, which, among other things, allows a lessee to carry forward existing lease classification. Lastly, ASC 842 includes an accounting policy election whereby a lessee may choose not to apply ASC 842 to leases with terms of one year or less. Instead, a lessee recognizes the lease payments in the statement of operations on a straight-line basis over the term of the lease. We have made this policy election and leases of this nature will not be included on our Unaudited Condensed Consolidated Balance Sheets.

During 2017 and throughout the third quarter of 2018, we have continued to evaluate our contracts with our vendors under ASC 842. Based upon this review, we do not expect the adoption of this standard to have a material impact on our results of operations, financial position, and cash flows. The impact of ASC 842 is not expected to be material to our results due to our ownership of substantially all of our equipment and the fact that we have entered into very few operating leases. Additionally, the result of our review of our contracts with vendors through the third quarter yielded no change to our initial conclusion that these contracts did not contain a lease, as there were either no identified assets, or we did not obtain the right to control the use of an identified asset over a period of time. The adoption of ASC 842 will not have an impact on our accounting for capital leases, which will be classified as finance leases under ASC 842.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurement. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted. The guidance allows an entity to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Certain amendments should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption, with all other amendments applied retrospectively to all periods presented upon adoption. We have early adopted the removed or modified disclosures as of September 30, 2018, which had little impact on our disclosures. We have evaluated the additional disclosures required and have concluded that they will not have an impact on our current disclosures. See Note 10 for our updated disclosure that reflects the early adoption of ASU 2018-13.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation – Scope of Modification Accounting (“ASU 2017-09”), which provides guidance about the types of changes to terms or conditions of a share-based payment award that would require an entity to apply modification accounting. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We adopted this standard on January 1, 2018.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost (“ASU 2017-07”), which requires separate presentation of service costs and all other components of net benefit costs on the income statement. Under ASU 2017-07, service cost is included in the same line item as other compensation costs arising from services rendered by employees during the period, with all other components of net benefit costs on the income statement outside of income from operations. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this standard on January 1, 2018. We retrospectively adopted the presentation of service costs separate from the other components of net periodic costs. The interest costs and amortization of prior service costs have been reclassified from Cost of product sold and Selling, general and administrative expenses to Net periodic postretirement benefit income (cost), excluding service cost.

The effect of the retrospective presentation change related to the net periodic cost of our other postretirement employee benefits (“OPEB”) plan on our Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30,2017 was as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2017						September 30, 2017
	Previously Reported		Adjustment		As Revised		Previously Reported		Adjustment		As Revised
Cost of product sold	$	204,301	$	1,330	$	205,631	$	567,610	$	3,990	$	571,600
Selling, general and administrative
expenses	$	12,798	$	261	$	13,059	$	33,077	$	784	$	33,861
Operating income (loss)	$	11,848	$	(1,591)	$	10,257	$	7,380	$	(4,774)	$	2,606
Net periodic postretirement benefit
income (cost), excluding service cost	$	―	$	1,591	$	1,591	$	―	$	4,774	$	4,774
Total other income (expense)	$	(9,524)	$	1,591	$	(7,933)	$	(32,593)	$	4,774	$	(27,819)

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows — Restricted Cash (“ASU 2016-18”), which requires the statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The amendments in this update should be applied using a retrospective transition method to each period presented. We adopted this standard on January 1, 2018. Refer to Note 19, as well as the Unaudited Condensed Consolidated Statements of Cash Flows, for further information regarding the reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents.

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes — Intra-Entity Asset Transfers of Assets other than Inventory (“ASU 2016-16”), which would require the recognition of the tax expense from the sale of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party or otherwise recovered through use. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We adopted this standard on January 1, 2018. We completed a review of our intra-entity transfers as of December 31, 2017, and determined that ASU 2016-16 does not have an impact on our Unaudited Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which standardizes cash flow statement classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements, and distributions received from equity method investments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this update should be applied using a retrospective transition method to each period presented. If impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. We adopted this standard on January 1, 2018, with no impact on our Unaudited Condensed Consolidated Statements of Cash Flows.

From May 2014 through December 2016, the FASB issued several ASUs related to Revenue from Contracts with Customers (“ASC 606”).  These ASUs are intended to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts.  The core principle of the new standard is that a company should recognize revenue to depict the transfer of 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. The new guidance is effective for interim and annual periods beginning after December 15, 2017.  The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have adopted the new standard as of January 1, 2018 and utilized the modified retrospective method. This approach allowed us to apply the new standard to (1) all new contracts entered into after January 1, 2018 and (2) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance as of January 1, 2018 through a cumulative adjustment to equity. Consolidated revenue presented in our comparative financial statements for periods prior to January 1, 2018 has not been revised and continues to be reported under legacy revenue recognition guidance.

The following table reflects the adoption of ASC 606 on our Unaudited Condensed Consolidated Balance Sheets as of January 1, 2018 (in thousands):

	Balance as of December 31, 2017		Adjustment Due to ASC 606		Balance as of January 1, 2018
Assets
Accounts receivable	$	50,075	$	781	$	50,856
Inventories, net	$	72,904	$	(660)	$	72,244
Equity
Retained Earnings	$	347,046	$	121	$	347,167

As part of the adoption of ASC 606, we also will not recognize approximately 64,400 tons that were delivered in January 2018 in our tons sold figure for 2018. These tons were delivered on a contract where title transferred to the customer upon delivery, while risk of loss transferred at the shipping point, or the mine. Under legacy revenue recognition guidance, the revenue related to these tons was recognized upon delivery. However, under ASC 606, revenue is now recognized at the shipping point, as this is when control passes to the customer. As of December 31, 2017, these tons were appropriately placed back into inventory in accordance with legacy revenue recognition guidance. The revenue recognition process was complete upon adoption of ASC 606 on January 1, 2018.