Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood

      In May 2017, the FASB amended ASC 718, Stock Compensation, to reduce diversity in practice and to clarify when a change to the terms or conditions of a share‐based payment award must be accounted for as a modification and will result in fewer changes to the terms of an award being accounted for as modifications. The new guidance was effective beginning in the first quarter of fiscal 2018 and will apply on a prospective basis. The adoption does not have a material impact on the Company's consolidated financial statements.

In January 2018, the FASB released guidance on the accounting for the global intangible low‐taxed income (“GILTI”) provisions of the tax bill H.R.1, commonly known as the U.S. Tax Cuts and Jobs Act (“U.S. tax reform”). The GILTI provisions impose a tax on foreign subsidiary earnings in excess of a deemed return on the foreign subsidiary's tangible assets. The Company has made an accounting policy election to treat the GILTI tax as an in period tax, which is consistent with the treatment prior to the accounting policy election.

      In February 2018, the FASB amended ASC 220, Income Statement—Reporting Comprehensive Income. ASC 740, Income Taxes, requires that the effect of a change in tax laws or rates on deferred tax assets and liabilities be included in income from continuing operations. In situations in which the tax effects of a transaction were initially recognized directly in other comprehensive income, this results in “stranded” amounts in accumulated other comprehensive income related to the income tax rate differential. The amendments to ASC 220 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the enactment of U.S. tax reform. As permitted by the ASU the Company early adopted the amendments to ASC 220, and made the policy election to not reclassify “stranded” amounts from accumulated other comprehensive income to retained earnings.

Example 7.50: Recently Issued Adopted Pronouncements In February 2016, the FASB issued ASC 842, Leases (“ASC 842”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right‐of‐use asset on the balance sheet. This guidance is effective for the Company beginning in its first quarter of fiscal 2019. The new guidance can be applied using a modified retrospective approach at the beginning of the earliest period presented, or at the beginning of the period in which it is adopted.

      The Company adopted ASC 842 on February 4, 2019 using the modified retrospective approach and will not be restating comparative periods.

      The Company has chosen to apply the transition package of three practical expedients that allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. The Company has also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight‐line basis over the lease term and will not recognize any right of use assets or lease liabilities for those leases.

      The Company has completed the implementation of new lease accounting software, and updated its internal controls to address the requirements of the new standard.

      The primary financial statement impact upon adoption will be the recognition, on a discounted basis, of the Company's minimum commitments under noncancellable operating leases as right of use assets and obligations on the consolidated balance sheets. The adoption of ASC 842 results in the recognition of lease‐related assets and liabilities of approximately $620.0 million and $650.0 million, respectively. Preexisting net lease‐related assets and liabilities of approximately $30.0 million have been reclassified as part of the adoption of the new standard, and there is no adjustment to opening retained earnings. The standard is not expected to have a material impact on the Company's net income or cash flows.

Risks and Uncertainties

Example 7.51: Risks and Uncertainties The Company's business, financial position, and results of operations may be influenced by the political, economic, and legal environments in the People's Republic of China (PRC), as well as by the general state of the PRC economy. The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti‐inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Moreover, the Company's ability to grow its business and maintain its profitability could be negatively affected by the nature and extent of services provided to its major customers, Guangzhou Investment Group Co., and Maoming Northwest Mining Co.

Stock‐Based Compensation

Example 7.52: Stock‐Based Compensation Valuations are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share‐ based payment awards was estimated using the Black‐Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk‐free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

Example 7.53: Stock‐Based Compensation The Company accounts for stock‐based payments in accordance with the provision of ASC 718, which requires that all share‐based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to share‐based awards is recognized over the requisite service period, which is generally the vesting period.

      The Company accounts for stock‐based compensation awards issued to nonemployees for services, as prescribed by ASC 718‐10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the guidelines in ASC 505‐50. The Company issues compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

Notes

      1 1 See KPMG LLP and Financial Executives Research Foundation, Inc., Disclosure overload and complexity: hidden in plain sight. Available at: http://www.kpmg.com/US.

      2 2 Note: This Codification Topic does not include a Subtopic 45 on presentation requirements.