Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

The consolidated financial statements include the accounts of the Company, including entities which are not wholly-owned, over which the Company has control. Non-controlling interests result from current and former management members owning 3.3% of the outstanding, non-voting shares of US Holdings and a 20.0% investment in Lankhorst Euronete - Indústria e Comércio Itda in Brazil, both indirect subsidiaries of the Company. Non-controlling interests are presented as a component of the consolidated statements of operations, comprehensive loss and stockholders' equity (deficit) for the periods presented. All intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements have been prepared in United States ("U.S.") dollars and in accordance with U.S. generally accepted accounting principles (“GAAP”).

Management Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenue and expenses. Actual results could differ from those estimates.

Comparability of Prior Year Financial Data

Certain reclassifications have been made to prior year amounts on the consolidated balance sheets to conform to the current year presentation

Cash, Cash Equivalents and Restricted Cash

Cash and all highly liquid investments with an original maturity of three months or less are classified as cash and cash equivalents. Cash balances are recorded net of book overdrafts when a bank right-of-offset exists. All other book overdrafts are recorded in accounts payable. The change in book overdrafts is reported as a component of cash flows from operating activities. Book overdrafts are checks issued, but not presented to banks in excess of cash balances.

The Company maintains restricted cash deposits to support performance guarantees issued to certain customers. These restricted cash deposits are included in a separate financial statement line item in the consolidated balance sheets.

Accounts Receivable, net

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The allowance is based on the specific identification of receivables the Company considers at risk, and for all other receivables, management considers historical losses, current aging of receivables and existing economic conditions. Account balances are written off against the allowance when it becomes evident that collection will not occur.

Below is a rollforward of the allowance for doubtful accounts for the periods indicated:



	Years ended December 31,
	2015			2014			2013
Balance at beginning of year	$	2,223		$	3,458		$	3,119
Charged to operations	682			786			395
Deductions from allowance	(566		)	(1,737		)	(170		)
Effect of foreign exchange rate changes	(159		)	(284		)	114
Balance at end of year	$	2,180		$	2,223		$	3,458

Inventories, net

Inventories are stated at the lower of cost or market, determined using the first-in, first-out (“FIFO”) method, net of allowance for excess, slow-moving and obsolete inventory. Inventory costs include raw materials, labor and allocated manufacturing overhead.

Property, Plant and Equipment, net

Property, plant and equipment are stated at historical cost, less accumulated depreciation. Additions and improvements that extend the lives of assets or significantly increase capacity are capitalized, while expenditures for minor tools and equipment and repairs and maintenance are expensed as incurred. The Company capitalizes interest on qualified construction projects.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective classes of assets as follows:



Asset category	Useful life
Buildings and improvements	10	-	40 years
Machinery and equipment	5	-	20 years
Capitalized software	2	-	7 years
Furniture, fixtures and office equipment	2	-	5 years

Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset group may not be fully recoverable. For purposes of this test, long-lived assets are grouped at the lowest level of identifiable cash flows. Recoverability of an asset group considered to be held-and-used is determined by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows expected to be generated by the use of the asset. If the carrying amount exceeds its estimated undiscounted net cash flows, the asset group’s carrying amount is reduced to its estimated fair value.

Intangible Assets and Goodwill

Intangible assets with finite lives, recognized in connection with business combinations, are amortized on a straight-line basis over the estimated useful lives of the respective classes of assets as follows:



Asset category	Useful life
Customer relationships	5	-	20 years
Patented and unpatented technology	5	-	20 years
Other	7 years

Finite-lived intangible assets are evaluated for impairment in accordance with the Company’s policy for long-lived assets as discussed above for property, plant and equipment.

Indefinite-lived intangible assets and goodwill, recognized in connection with business combinations, are not amortized. The Company reviews the carrying amount of indefinite-lived intangible assets and goodwill annually on October 1^st, or upon the occurrence of events or changes in circumstances that indicate that the carrying amount of the goodwill or intangible assets may not be recoverable. Qualitative factors may be assessed to determine whether it is "more likely than not" that the fair value of the intangible asset/reporting unit is less than its carrying amount. If an election is made not to perform the qualitative assessment or the qualitative assessment indicates it is "more likely than not" that the fair value of the intangible asset/reporting unit is less than the carrying amount, the Company is required to calculate the fair value of the intangible asset/reporting unit. For goodwill, if the fair value of the reporting unit is less than its carrying amount, an indication of impairment exists for the reporting unit and the entity must perform step two of the goodwill impairment test. An impairment loss is recognized for any excess of the carrying amount over the implied fair value.

Debt Issuance Costs

For revolving credit agreements, all costs are capitalized and amortized using the straight-line method over the term of the debt instrument as additional interest expense. All fees associated with the incurrence of other indebtedness are capitalized and amortized using the effective interest method over the term of the debt instrument. For non-substantial debt modifications to debt agreements other than revolving credit agreements, only fees paid directly to the lender are capitalized and amortized using the effective interest method over the term of the debt as additional interest expense. Third-party fees associated with non-substantial debt modifications (e.g. attorney fees) are expensed as incurred in either Administrative expenses or Loss on Extinguishment of Debt in the consolidated statements of operations, depending on the facts and circumstances. Original issuance discounts are recorded as a direct deduction from the face amount of the debt and amortized using the effective-interest method over the term of the debt instrument as additional interest expense. Premiums are recorded as an accretion to the face amount of the debt and amortized using the effective-interest method over the term as a reduction to interest expense.

Derivative Financial Instruments

Derivative financial instruments are measured at fair value and recorded on the balance sheet as either assets or liabilities. The notional value is marked-to-market each reporting period based on various factors, but typically the current spot rate for most of the Company's contracts. For derivative financial instruments that do not qualify for hedge accounting, gains and losses associated with these changes in the fair value are recorded to earnings, as opposed to other comprehensive income/loss, in the period of change. None of the Company's current contracts qualify for hedge accounting.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are within a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability.

Revenue Recognition

Revenues from the sale of inventories are recognized when the customer takes ownership and assumes the risk of loss, collection of the revenue is probable, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. An allowance for sales returns is recorded as a reduction to revenue. The Company uses the percentage-of-completion method of accounting to recognize revenues and associated costs as work progresses for certain long-term synthetic rope manufacturing contracts. The Company measures the extent of progress towards completion based on the units produced.

Shipping and handling amounts charged to customers to deliver product are included in net sales and the associated shipping and handling costs are included in cost of sales. Sales taxes collected from customers and remitted to government authorities are recorded on a net basis and therefore are excluded from net sales in the consolidated statements of operations.

Share-based Compensation

Share-based compensation expense is measured at the grant date based on the fair value of the award and recognized on a straight-line basis over the vesting period in which the awards are earned. The Company uses the Black-Scholes valuation method to determine the fair value of stock options. The Company's stock price as of the grant date is the fair value of the restricted stock. The incremental compensation cost related to an award modification, which is calculated as the difference in the fair value of the options immediately before and immediately after the modification using the Black-Scholes option pricing model, is recognized immediately. Share-based compensation expense previously recognized is reversed when the employee fails to provide the requisite service and forfeits awards. The Company adjusts the expense when actual forfeitures are different from the Company's estimates.

Pension Obligations

The Company provides defined benefit pension plans to certain active and former employees. Determination of pension obligations is based on assumptions, such as discount rates and rate of increase in compensation levels, made by management in consultation with independent actuaries. Any translational asset/liability, prior service cost/credit or actuarial gain/loss is recognized in other comprehensive income (loss) and expensed in future periods using the corridor approach. As of December 31, 2015 and 2014, the fair value of pension plan assets was $0 and the fair value of projected benefit obligations in aggregate was $2,472 and $2,961, respectively. As a result, the Company's defined benefit pension plans were underfunded by approximately $2,472 and $2,961 at December 31, 2015 and 2014, respectively, and were recorded as a net liability in the consolidated balance sheets.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. Deferred taxes are determined separately for each tax-paying component within each tax jurisdiction based on provisions of enacted tax law. A valuation allowance is established or maintained when, based on currently available information and other factors, it is "more likely than not" that all or a portion of a deferred tax asset will not be realized. The Company considers all positive and negative evidences in making this assessment, including: (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carryforwards, (iii) taxable income in prior carryback years and (iv) tax planning strategies that would, if necessary, be implemented.

The Company recognizes benefit of a tax return position under the threshold that only if a position is "more likely than not" to be sustained solely based on technical merits. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than fifty percent likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties as a component of income tax expense.

Research and Development Costs

Research and development costs are charged to Administrative expenses as incurred and totaled $4,781, $5,289 and $4,001 in 2015, 2014 and 2013, respectively.

Foreign Currency Translation and Transactions

Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period. Translation adjustments are included in other comprehensive income (loss).

Due to their short-term nature, gains and losses on the Company's intercompany loans are included in Foreign currency exchange gains (losses), net in the consolidated statements of operations along with all other gains and losses on foreign currency transactions.

Recently Issued Accounting Standards

Accounting Standards Adopted During 2015

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, Balance Sheet Classification of Deferred Taxes, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The standard is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. The Company early adopted the new guidance in the fourth quarter of 2015 and applied it retrospectively. The adoption of this standard only affected presentation on the consolidated balance sheet; there was no impact on the Company's operating results.

(s)Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP. As a result of a deferral of the effective date enacted in July 2015, the new standard would be effective for public entities on January 1, 2018. ASU 2014-09 allows the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect of ASU 2014-09 and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the financial statements are issued, and to provide the related footnote disclosures when applicable. This ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, to reduce complexity in accounting standards and make the presentation of debt issuance costs consistent with the presentation of debt discounts. This ASU requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, rather than as an asset. ASU 2015-03 is limited to simplifying the presentation of debt issuance costs and there will be no effect on the income statement. This ASU requires retrospective adoption and is effective for the Company during the first quarter of 2016, with early adoption permitted. Upon adoption, the Company will present its remaining unamortized debt issuance costs as a direct deduction from the carrying amount of the related debt liability.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This ASU requires prospective adoption and is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures.

Contingencies Policy

In accordance with Accounting Standards Codification Topic 450, Contingencies, the Company establishes accruals for litigation matters when the Company believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the Company has not accrued an amount because the litigation does not meet the criteria for accrual as set forth above, the Company discloses the matter if a material loss is reasonably possible and the Company is able to estimate a range of possible losses.

WireCo WorldGroup Inc. 10-K