| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, valuation of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The condensed consolidated financial statements for 2015 include the accounts of CUI Global, Inc. and its wholly owned subsidiaries CUI, Inc., CUI-Canada, Inc., CUI Japan, CUI Properties, LLC, Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America, hereafter referred to as the “Company”. The condensed consolidated financial statements for 2014 include the accounts of CUI Global, Inc. and its wholly owned subsidiaries CUI, Inc., CUI Japan, CUI Properties, LLC, and Orbital Gas Systems, Ltd. Significant intercompany accounts and transactions have been eliminated in consolidation. Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the U.S., and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: Level 1 Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs are quoted for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. Level 3 Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, accounts receivable, costs in excess of billings, prepaid expense and other assets, accounts payable, accrued liabilities, billings in excess of costs, unearned revenue, and other liabilities reflected in the accompanying condensed consolidated balance sheets approximate fair value at June 30, 2015 and December 31, 2014 due to the relatively short-term nature of these instruments. Mortgage debt and related notes payable approximate fair value based on current market conditions. The Company measures its derivative liability on a recurring basis using significant observable inputs (Level 2). The Company’s derivative liability is valued using a LIBOR swap curve. Cash includes deposits at financial institutions with maturities of three months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. The Company considers all highly liquid marketable securities with maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit and commercial paper. At June 30, 2015, the Company had $ 5.2 819 215 The money market balance of $ 1.4 500 258 656 320 The Company considers all investments with maturities over 90 days that mature in less than one year from the balance sheet date to be short-term investments. Both short- and long-term investments primarily include money market funds, certificates of deposit, corporate notes, and commercial paper. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using a method that approximates the effective interest method. Under this method, dividend and interest income are recognized when earned. At June 30, 2015, CUI Global had $ 4.0 4.0 500 Accounts receivable consist of the receivables associated with revenue derived from product sales and from billings on percentage of completion contracts. An allowance for uncollectible accounts is recorded to allow for any amounts that may not be recoverable, based on an analysis of prior collection experience, customer credit worthiness and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts of $ 241 Included in accounts receivable are $ 52 Inventories consist of finished and un-finished products and are stated at the lower of cost or market; using the first-in, first-out (FIFO) method. At June 30, 2015, inventory is valued, net at approximately $ 11.2 6.7 3.5 1.5 0.4 Land is recorded at cost and includes expenditures made to ready it for use. Buildings and improvements are recorded at cost. Furniture, vehicles, and equipment are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives. Leasehold improvements are recorded at cost and are depreciated over the lesser of the lease term, estimated useful life, or 10 years. Maintenance, repairs and minor replacements are charged to expenses when incurred. When assets are sold or otherwise disposed of, the asset and related accumulated depreciation are removed from this account, and any gain or loss is included in the statement of operations. The cost of buildings and improvements, furniture, vehicles, and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line method for financial reporting purposes. Estimated Useful Life Buildings and improvements 5 39 Furniture and equipment 3 10 Vehicles 3 5 Long-lived assets including finite lived identifiable assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. In performing the review for recoverability, the future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized as the excess of the carrying amount over the fair value. Otherwise, an impairment loss is not recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment. Intangible assets are stated at cost net of accumulated amortization and impairment. The fair value for intangible assets acquired through acquisitions is measured at the time of acquisition utilizing the following inputs, as needed: 1. Inputs used to measure fair value are unadjusted quote prices available in active markets for the identical assets or liabilities if available. 2. Inputs used to measure fair value, other than quoted prices included in 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. This includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full life of the asset. 3. Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. 4. Expert appraisal and fair value measurement as completed by third party experts. Estimated Finite-lived Intangible Assets Useful Life Order backlog - Orbital 2 Trade name - Orbital 10 Trade name - CUI - Canada 3 Trade name - V-Infinity 5 Customer list - Orbital 10 Customer list - CUI Canada 7 Technology rights 20* Technology - Based Asset - Know How 12 Technology - Based Asset - Software 10 Technology - Based Asset - Power 7 Patents ** Software 3 to 5*** Other intangible assets **** Indefinite-lived Intangible Assets Trade name - CUI ***** Customer list - CUI ***** Patents pending technology ***** * Technology rights are amortized over a twenty year life or the term of the rights agreement. ** Patents are amortized over the life of the patent. Any patents not approved will be expensed at that time. *** Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives. **** Other intangible assets are amortized over their estimated useful life. ***** Indefinite-lived intangible assets are reviewed annually for impairment and when circumstances suggest. The Company tests for goodwill impairment in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. For the year ended December 31, 2014, the Company determined there was no impairment of goodwill. In accordance with its policies, the Company performed a qualitative assessment of goodwill at May 31, 2015, and determined there was no impairment of goodwill. As detailed in ASC 350-20-35-3A, in performing its testing for goodwill, management completes a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. To complete this review, management follows the steps in ASC 350-20-35-3C to evaluate the fair values of the intangibles and goodwill and considers all known events and circumstances that might trigger an impairment of goodwill. Through these reviews, management concluded that there were no events or circumstances that triggered an impairment (and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year), therefore, no further analysis was necessary to prepare for goodwill impairment beyond the steps in ASC 350-20-35-3C in accordance with ASU 2011-08. The Company owns 352,589 8.94 8.50 Current assets $ 6,248,974 Non-current assets 556,229 Total Assets $ 6,805,203 Current liabilities $ 1,707,654 Non-current liabilities 685,588 Stockholders' equity 4,411,961 Total Liabilities and Stockholders' Equity $ 6,805,203 Revenues $ 6,734,119 Operating income 241,831 Net profit 278,995 Other comprehensive profit (loss): Foreign currency translation adjustment - Comprehensive net profit $ 278,995 Company share of Net Profit $ 23,715 Equity investment in affiliate $ 356,144 The Company estimates the patents it has filed have a future beneficial value; therefore it capitalizes the costs associated with filing for its patents. At the time the patent is approved, the patent costs associated with the patent are amortized over the useful life of the patent. If the patent is not approved, at that time the costs will be expensed. During the three and six months ended June 30, 2015, the Company recorded an impairment of $ 0 2,500 The Company uses various derivative instruments including forward currency contracts, and interest rate swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are not for speculative trading purposes. The Company recognizes all derivatives as either assets or liabilities in the condensed consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives are recognized in earnings. The Company has limited involvement with derivative instruments and does not trade them. From time to time, the Company may enter into foreign currency exchange contracts to minimize the risk associated with foreign currency exchange rate exposure from expected future cash flows. The Company has entered into one interest rate swap which has a maturity date of ten years from the date of inception, and is used to minimize the interest rate risk on the variable rate mortgage. During the three and six months ended June 30, 2015, the Company had $ 107 47 The Company evaluates embedded conversion features pursuant to FASB Accounting Standards Codification No. 815 (“FASB ASC 815”), “Derivatives and Hedging”, which requires a periodic valuation of the fair value of derivative instruments and a corresponding recognition of liabilities associated with such derivatives. The Company records its stock-based compensation expense under our stock option plans and also issues stock for services. A detailed description of the awards under these plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2014. The Company recorded stock-based compensation expense of $ 249 534 Product revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred to the customer, the price is fixed or determinable, and collection is reasonably assured. The Company sells to distributors pursuant to distribution agreements that have certain terms and conditions such as the right of return and price protection which inhibit revenue recognition unless they can be reasonably estimated as we cannot assert the price is fixed and determinable and estimate returns. For one distributor that comprises 20 Revenues and related costs on production type contracts, are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts 2.1 3.7 Production type contracts that do not qualify for use of the percentage of completion method are accounted for using the “completed contract method” of accounting in accordance with ASC 605-35-25-57. Under this method, contract costs are accumulated as deferred assets, and billings and/or cash received is recorded to a deferred revenue liability account, during the periods of construction, but no revenues, costs, or profits are recognized in operations until the period within which completion of the contract occurs. A contract is considered complete when all costs except insignificant items have been incurred; the equipment is operating according to specifications and has been accepted by the customer. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period and the unrecognized portion is recorded as deferred revenue. Amounts billed to customers in sales transactions related to shipping and handling represent revenues earned for the goods provided and are included in sales. The Company expenses inbound shipping and handling costs as cost of revenues. A warranty reserve liability is recorded based on estimates of future costs on sales recognized. There was no warranty reserve recorded at June 30, 2015 or 2014. The financial statements of the Company's foreign offices have been translated into U.S. dollars in accordance with FASB ASC 830, “Foreign Currency Matters” (FASB ASC 830). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during 2015 and 2014 have been reported in accumulated other comprehensive income (loss), except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period. Operating segments are defined in accordance with ASC 280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Management has identified six operating segments based on the activities of the company in accordance with the ASC 280-10. These operating segments have been aggregated into three reportable segments. The three reportable segments are Power and Electro-Mechanical, Gas and Other. The Power and Electro-Mechanical segment is focused on the operations of CUI, Inc., CUI-Canada, Inc. and CUI Japan for the sale of internal and external power supplies and related components, industrial controls and test and measurement devices. The Gas segment is focused on the operations of Orbital Gas Systems Limited and Orbital Gas Systems, North America which includes gas related test and measurement systems, including the GasPT2. The Other segment represents the remaining activities that are not included as part of the other reportable segments and represent primarily corporate activity. Power and Gas Other Totals Revenues from external customers $ 27,337,458 $ 12,487,859 $ - $ 39,825,317 Depreciation and amortization 599,525 1,152,578 1,688 1,753,791 Earnings from equity investment 23,715 - - 23,715 Interest expense 111,068 3,539 94,682 209,289 Income (loss) from operations 632,152 (3,198,234) (2,226,815) (4,792,897) Segment assets 51,417,594 35,802,189 6,101,916 93,321,699 Intangible assets 9,423,025 10,358,500 6,375 19,787,900 Goodwill 13,082,361 8,972,018 - 22,054,379 *Expenditures for segment assets 434,869 2,104,221 - 2,539,090 The following information represents segment activity for the three months ended June 30, 2015: Power and Gas Other Totals Revenues from external customers $ 16,648,012 $ 6,324,185 $ - $ 22,972,197 Depreciation and amortization 333,424 367,001 844 701,269 Earnings from equity investment 10,014 - - 10,014 Interest expense 56,598 1,750 38,018 96,366 Income (loss) from operations 1,162,904 (1,012,802) (965,091) (814,989) Segment assets 51,417,594 35,802,189 6,101,916 93,321,699 Intangible assets 9,423,025 10,358,500 6,375 19,787,900 Goodwill 13,082,361 8,972,018 - 22,054,379 *Expenditures for segment assets 103,961 1,383,354 - 1,487,315 The following information represents segment activity for the six months ended June 30, 2014: Power and Gas Other Totals Revenue from external customers $ 24,405,201 $ 11,708,901 $ - $ 36,114,102 Depreciation and amortization 487,536 1,766,827 1,688 2,256,051 Earnings from equity investment 42,110 - - 42,110 Interest expense 115,402 5,280 132,592 253,274 Income (loss) from operations 2,557,877 (908,725) (2,283,877) (634,725) Segment assets 44,606,077 40,824,559 14,930,091 100,360,727 Intangible assets 8,264,018 14,021,007 9,750 22,294,775 Goodwill 13,041,280 9,720,399 - 22,761,679 Expenditures from segment assets 334,827 148,435 - 483,262 The following information represents segment activity for the three months ended June 30, 2014: Power and Gas Other Totals Revenue from external customers $ 13,574,894 $ 5,639,299 $ - $ 19,214,193 Depreciation and amortization 244,794 891,970 844 1,137,608 Earnings from equity investment 26,740 - - 26,740 Interest expense 57,892 3,595 66,296 127,783 Income (loss) from operations 1,519,487 (624,837) (1,117,032) (222,382) Segment assets 44,606,077 40,824,559 14,930,091 100,360,727 Intangible assets 8,264,018 14,021,007 9,750 22,294,775 Goodwill 13,041,280 9,720,399 - 22,761,679 Expenditures from segment assets 65,329 61,510 - 126,839 * Excludes amounts for acquisition. USA United Kingdom China All Others Totals 2015 $ 21,072,497 $ 10,742,703 $ 3,008,726 $ 5,001,391 $ 39,825,317 2014 19,172,161 10,309,930 2,206,897 4,425,114 36,114,102 The following represents revenue by country for the three months ended June 30, 2015 and 2014: USA United Kingdom China All Others Totals 2015 $ 12,974,163 $ 4,814,932 $ 2,061,662 $ 3,121,440 $ 22,972,197 2014 10,532,786 5,205,771 1,355,212 2,120,424 19,214,193 Reclassification Certain amounts from the prior periods have been reclassified to the current period presentation including, for the year ended December 31, 2014, $ 1.9 88 25 10 In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Compensation Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” In January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement Extraordinary and Unusual Items (Subtopic 225-20) - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” |
