| Significant Accounting Policies | Note A - Significant Accounting Policies
Nature of Operations
Preformed Line Products Company and subsidiaries (the
“Company”) is a designer and manufacturer of products
and systems employed in the construction and maintenance of
overhead and underground networks for the energy,
telecommunication, cable operators, data communication and other
similar industries. The Company’s primary products support,
protect, connect, terminate and secure cables and wires. The
Company also provides solar hardware systems and mounting hardware
for a variety of solar power applications. The Company’s
customers include public and private energy utilities and
communication companies, cable operators, governmental agencies,
contractors and subcontractors, distributors and value-added
resellers. The Company serves its worldwide markets through
strategically located domestic and international manufacturing
facilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries for which it has a
controlling interest. All intercompany accounts and transactions
have been eliminated upon consolidation.
Investments in Foreign Joint Ventures
Investments in joint ventures, where the Company owns between 20%
and 50%, or where the Company does not have control but has the
ability to exercise significant influence over operations or
financial policies, are accounted for by the equity method. As of
December 31, 2015, the Company owns 25.93% in Proxisafe Ltd.
(“Proxisafe”), located in Calgary, Alberta. The Company
accounts for its joint venture interest in Proxisafe accounts using
the equity method.
Cash and Cash Equivalents
Cash equivalents are stated at fair value and consist of highly
liquid investments with original maturities of three months or less
at the time of acquisition.
Receivable Allowances
The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to
make required payments. The allowances for uncollectible accounts
receivable is based upon the number of days the accounts are past
due, the current business environment and specific information such
as bankruptcy or liquidity issues of customers. The Company
also maintains an allowance for future sales credits related to
sales recorded during the year. The estimated allowance is
based on historical sales credits issued in the subsequent year
related to the prior year and any significant, preapproved open
return good authorizations as of the balance sheet date.
Inventories
The Company uses the last-in, first-out (LIFO) method of
determining cost for the majority of its material portion of
inventories in PLP-USA. All other inventories are determined by the
first-in, first-out (FIFO) or average cost methods. Inventories are
carried at the lower of cost or market. Reserves are maintained for
estimated obsolescence or excess inventory based on past usage and
future demand.
Fair Value of Financial Instruments
Financial Accounting Standards Board’s (FASB) Accounting
Standards Codification (ASC) 825, Disclosures about Fair Value of
Financial Instruments, requires disclosures of the fair value of
financial instruments. The carrying value of the Company’s
current financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable and short-term
debt, approximates fair value because of the short-term maturity of
these instruments. At December 31, 2015, the fair value
of the Company’s long-term debt was estimated using
discounted cash flow analysis, based on the Company’s current
incremental borrowing rates for similar types of borrowing
arrangements, which is considered to be a level two input. Based on
the analysis performed, the carrying value of the Company’s
long-term debt approximates fair value at December 31,
2015.
Property, Plant and Equipment and Depreciation
Property, plant, and equipment is recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives. The estimated useful lives used, when purchased new, are:
land improvements, ten years; buildings, forty years; building
improvements, five to forty years; and machinery and equipment,
three to ten years. Appropriate reductions in estimated useful
lives are made for property, plant and equipment purchased in
connection with an acquisition of a business or in a used condition
when purchased.
Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the carrying
value of the assets are impaired and the discounted future cash
flows estimated to be generated by such assets are less than the
carrying value. The Company’s cash flows are based on
historical results adjusted to reflect the Company’s best
estimate of future market and operating conditions. The net
carrying value of assets not recoverable is then reduced to fair
value. The estimate of fair value represent the Company’s
best estimate based on industry trends and reference to market
rates and transactions. The Company did not record any impairment
to long-lived assets during the years ended December 31, 2015
and 2014.
Goodwill and Other Intangibles
Goodwill and other intangible assets generally result from business
acquisitions. Goodwill and intangible assets with indefinite lives
are not subject to amortization, but are subject to annual
impairment testing. Intangible assets with definite lives,
consisting primarily of purchased customer relationships, patents,
technology, customer backlogs, trademarks and land use rights, are
generally amortized over periods from less than one year to twenty
years. The Company’s intangible assets with finite lives
are generally amortized using a projected cash flow basis method
over their useful lives unless another method was demonstrated to
be more appropriate. Customer relationships, technology and
trademark intangibles acquired in 2014 and 2012 are amortized using
a projected cash flow basis method over the period in which the
economic benefits of the intangibles are consumed. Customer
relationships, technology and trademarks acquired in July 2010 are
being amortized using the straight-line method over their useful
lives. This straight-line method was more appropriate because
it better reflected the pattern in which the economic benefits of
the intangible asset are consumed or otherwise expire compared to
using a projected cash flow basis method. An evaluation of the
remaining useful life of intangible assets with a determinable life
is performed on a periodic basis and when events and circumstances
warrant an evaluation. The Company assesses intangible assets with
a determinable life for impairment consistent with its policy for
assessing other long-lived assets. Goodwill and intangible
assets are also reviewed for impairment annually or more frequently
when changes in circumstances indicate the carrying amount may be
impaired, or in the case of finite-lived intangible assets, when
the carrying amount may not be recoverable. Events or
circumstances that would result in an impairment review primarily
include operations reporting losses or a significant change in the
use of an asset. Impairment charges are recognized pursuant to
FASB ASC 350-20, Goodwill.
The Company performs the annual impairment test for goodwill
utilizing a combination of discounted cash flow methodology, market
comparables, and an overall market capitalization reasonableness
test in computing fair value by reporting unit. The Company
compares the fair value of the reporting unit with its carrying
value to assess if goodwill has been impaired. Based on the
assumptions as to growth, discount rates and the weighting used for
each respective valuation methodology, results of the valuations
could be significantly changed. However, the Company believes that
the methodologies and weightings used are reasonable and result in
appropriate fair values of the reporting units.
The Company performed its annual impairment test for goodwill as of
October 1, 2015 and 2014 and determined that no adjustment to
the carrying value was required for the years ended
December 31, 2015 and 2014.
Revenue Recognition
Sales are recognized when title passes to the customer either when
goods are shipped or when they are delivered and based on the terms
of the sale, there is persuasive evidence of an agreement, the
price is fixed or determinable and collectability is reasonably
assured. Revenue related to shipping and handling costs billed to
customers is included in net sales and the related shipping and
handling costs are included in cost of products sold.
Research and Development
Research and development costs for new products are expensed as
incurred and totaled $2.9 million in 2015, $2.7 million in 2014 and
$2.3 million in 2013.
Income Taxes
Income taxes are computed in accordance with the provisions of ASC
740, Income Taxes. In the Consolidated Financial Statements, the
benefits of a consolidated return have been reflected where such
returns have or could be filed based on the entities and
jurisdictions included in the financial statements. Deferred tax
liabilities and assets are recognized for the expected future tax
consequences of events that have been reflected on the Consolidated
Financial Statements. Deferred tax liabilities and assets are
determined based on the differences between the book and tax basis
of particular assets and liabilities and operating loss
carryforwards using tax rates in effect for the years in which the
differences are expected to reverse.
Net deferred tax assets are recognized to the extent that the
Company believes these assets are more likely than not to be
realized. In making such a determination, the Company considers all
available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies and results of
recent operations. If the Company determines that it would be able
to realize its deferred tax assets in the future in excess of their
net recorded amount, the Company would make an adjustment to the
deferred tax asset valuation allowance, which would reduce the
provision for income taxes.
Uncertain tax positions are recorded in accordance with ASC 740 on
the basis of a two-step process whereby (1) the Company
determines whether it is more likely than not that the tax
positions will be sustained on the basis of the technical merits of
the position and (2) for those tax positions that meet the
more-likely-than-not recognition threshold, the Company recognizes
the largest amount of tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax
authority.
Advertising
Advertising costs are expensed as incurred and totaled $1.7 million
in 2015, $2.0 million in 2014 and 2013.
Foreign Currency Translation
Asset and liability accounts are translated into U.S. dollars using
exchange rates in effect at the date of the Consolidated Balance
Sheet. The translation adjustments are recorded in Accumulated
other comprehensive income (loss). Revenues and expenses are
translated at weighted average exchange rates in effect during the
period. Transaction gains and losses arising from exchange rate
changes on transactions denominated in a currency other than the
functional currency are included in income and expense as incurred.
Aggregate transaction losses for the year ended December 31,
2015, 2014 and 2013 were $7.4 million, $2.9 million and $3.8
million, respectively. Upon sale or substantially complete
liquidation of an investment in a foreign entity, the cumulative
translation adjustment for that entity is reclassified from
Accumulated other comprehensive income (loss) to earnings.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and 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 these
estimates.
Business Combinations
The Company accounts for acquisitions in accordance with ASC
805.
Derivative Financial Instruments
The Company does not hold derivatives for trading purposes.
Reclassifications
Certain prior year amounts have been reclassified to conform to
current year presentation.
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, “Presentation of
Financial Statements (Topic 205) and Property, Plant, and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity,” or ASU 2014-08. ASU
2014-08 changes the criteria for reporting a discontinued
operation. Under the new pronouncement, a disposal of a part of an
organization that has a major effect on its operations and
financial results is a discontinued operation. The Company is
required to adopt ASU 2014-08 prospectively for all disposals or
components of the business classified as held for sale during the
fiscal period beginning after December 15, 2014. The Company
adopted the guidance in the first quarter of 2015 and it did not
have an effect on the Company’s results of operations,
financial condition or cash flows.
New Accounting Standards To Be Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842).” The amendments in this Update require the recognition
of assets and liabilities arising from lease transactions on the
balance sheet and the disclosure of key information about leasing
arrangements. Accordingly, a lessee will recognize a lease asset
for its right to use the underlying asset and a lease liability for
the corresponding lease obligation. Both the asset and liability
will initially be measured at the present value of the future
minimum lease payments over the lease term. Subsequent measurement,
including the presentation of expenses and cash flows, will depend
on the classification of the lease as either a finance or an
operating lease. Initial costs directly attributable to negotiating
and arranging the lease will be included in the asset. For leases
with a term of 12 months or less, a lessee can make an accounting
policy election by class of underlying asset to not recognize an
asset and corresponding liability. Lessees will also be required to
provide additional qualitative and quantitative disclosures
regarding the amount, timing and uncertainty of cash flows arising
from leases. These disclosures are intended to supplement the
amounts recorded in the financial statements and provide additional
information about the nature of an organization’s leasing
activities. The amendments in this Update are effective for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2018, with early adoption permitted. The
Company is currently evaluating what impact, if any, its adoption
will have to the presentation of the Company’s consolidated
financial statements.
In November 2015, the FASB issued Accounting Standards Update
2015-17, “Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes.” To simplify the
presentation of deferred income taxes, the amendments in this
Update require that deferred tax liabilities and assets be
classified as noncurrent in a classified statement of financial
position. The amendments in this Update apply to all entities that
present a classified statement of financial position. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as a
single amount is not affected by the amendments in this Update. The
amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning after
December 15, 2016. Earlier application is permitted as of the
beginning of an interim or annual reporting period. The amendments
in this Update may be applied either prospectively to all deferred
tax liabilities and assets or retrospectively to all periods
presented. The Company is currently evaluating what impact, if any,
its adoption will have to the presentation of the Company’s
consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11,
“Inventory (Topic 330): Simplifying the Measurement of
Inventory.” The amendments in this Update more closely align
the measurement of inventory in GAAP with the measurement of
inventory in International Financial Reporting Standards (IFRS). An
entity should measure inventory within the scope of this Update at
the lower of cost and net realizable value. Net realizable value is
defined as the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion,
disposal, and transportation. Subsequent measurement is unchanged
for inventory measured using LIFO or the retail inventory method.
The amendments in this Update are effective for fiscal years
beginning after December 15, 2016 and interim periods within
fiscal years beginning after December 15, 2017. The amendments
in this Update should be applied prospectively with earlier
application permitted as of the beginning of an interim or annual
reporting period. The Company is currently evaluating what impact,
if any, its adoption will have to the presentation of the
Company’s consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-05,
“Intangibles – Goodwill and Other – Internal-Use
Software (Topic 350-40): Customer’s Accounting for Fees Paid
in a Cloud Computing Arrangement.” The amendments in this
Update provide guidance to customers about whether a cloud
computing arrangement includes a software license. If a cloud
computing arrangement includes a software license, then the
customer should account for the software license element of the
arrangement consistent with the acquisition of other software
licenses. If a cloud computing arrangement does not include a
software license, the customer should account for the arrangement
as a service contract. The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Earlier application is
permitted. Amendments in this Update can be applied retrospectively
or prospectively. The Company is currently not engaged in a cloud
computing arrangement; however, it is evaluating what impact, if
any, its adoption will have to the presentation of the
Company’s consolidated financial statements if it enters such
an arrangement.
In April 2015, the FASB issued Accounting Standards Update 2015-04,
“Compensation – Retirement Benefits (Topic 715):
Practical Expedient for the Measurement Date of an Employer’s
Defined Benefit Obligation and Plan Assets.” For an entity
that has a significant event in an interim period that calls for a
re-measurement of defined benefit plan assets and obligations, the
amendments in this Update provide a practical expedient that
permits the entity to re-measure defined benefit plan assets and
obligations using the month-end that is closest to the date of the
significant event. The amendments in this Update are effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Earlier application is
permitted. Amendments in this Update should be applied
prospectively. The Company is currently evaluating what impact, if
any, its adoption will have to the presentation of the
Company’s consolidated financial statements.
In January 2015, the FASB issued Accounting Standards Update
2015-01, “Income Statement-Extraordinary and Unusual Items
(Subtopic 225-20): Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items.” This Update
eliminates from GAAP the concept of extraordinary items. A material
event or transaction that an entity considers to be of an unusual
nature or of a type that indicates infrequency of occurrence or
both shall be reported as a separate component of income from
continuing operations. The nature and financial effects of each
event or transaction shall be presented as a separate component of
income from continuing operations or, alternatively, disclosed in
notes to financial statements. The amendments in this Update are
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. A reporting entity
may apply the amendments prospectively. A reporting entity also may
apply the amendments retrospectively to all prior periods presented
in the financial statements. Early adoption is permitted provided
that the guidance is applied from the beginning of the fiscal year
of adoption. The Company is currently evaluating what impact, if
any, its adoption will have to the presentation of the
Company’s consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15 “Presentation of
Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.” ASU 2014-15 provides guidance
in GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to
continue as a going concern and to provide related footnote
disclosures. The Company is required to adopt ASU 2014-15
prospectively for the annual period ending after December 15,
2016, and for annual periods and interim periods thereafter. Early
application is permitted. The Company is currently evaluating what
impact, if any, its adoption will have to the presentation of the
Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606),” or ASU 2014-09.
ASU 2014-09 requires an entity to recognize revenue in a matter
that depicts 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. To achieve that core principle, the amendment provides
five steps that an entity should apply when recognizing revenue.
The amendment also specifies the accounting of some costs to obtain
or fulfill a contract with a customer and expands the disclosure
requirements around contracts with customers. An entity can either
adopt this amendment retrospectively to each prior reporting period
presented or retrospectively with cumulative effect of initially
applying the update recognized at the date of initial application.
In August 2015, the FASB issued ASU No. 2015-14 deferring the
effective date of the amendment to annual reporting periods
beginning after December 15, 2017. Early adoption is not
permitted. The Company is currently evaluating what impact, if any,
its adoption will have to the presentation of the Company’s
consolidated financial statements. |
