Note 2 - Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Consolidation, Policy [Policy Text Block] | ' |
Principles of Consolidation |
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and majority-owned subsidiaries in which the Company is deemed to be the primary beneficiary. All significant intercompany transactions and balances have been eliminated. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation. |
Use of Estimates, Policy [Policy Text Block] | ' |
Accounting Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 those estimates. |
Foreign Currency Transactions and Translations Policy [Policy Text Block] | ' |
Foreign Currency Translation |
For the Company’s international subsidiaries, the local currency is generally the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in total stockholders’ equity. Net foreign exchange transaction gains (losses) are included in other income (expense) in the consolidated statements of operations. |
The Company’s accumulated other comprehensive income is comprised of three main components: (i) currency translation; (ii) derivatives; and (iii) gains and losses associated with the Company’s defined benefit plan in the United Kingdom. |
As of December 31, 2013 and 2012, the Company had $0.6 million and $14.3 million, respectively, related to currency translation adjustments, $1.2 million and $0.8 million, respectively, related to derivative transactions and $0.2 million and $0.2 million, respectively, related to pension activity in accumulated other comprehensive income. |
Research and Development Expense, Policy [Policy Text Block] | ' |
Research and Development |
The Company expenses research and development costs as incurred. Research and development costs of $2.6 million, $1.8 million and $2.2 million for the years ended December 31, 2013, 2012 and 2011, respectively, are included in operating expenses in the accompanying consolidated statements of income. |
Income Tax, Policy [Policy Text Block] | ' |
Taxation |
The Company provides for estimated income taxes payable or refundable on current year income tax returns as well as the estimated future tax effects attributable to temporary differences and carryforwards, based upon enacted tax laws and tax rates, and in accordance with FASB ASC 740, Income Taxes (“FASB ASC 740”). FASB ASC 740 also requires that a valuation allowance be recorded against any deferred tax assets that are not likely to be realized in the future. Refer to Note 8 for additional information regarding taxes on income. |
Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | ' |
Equity-Based Compensation |
The Company records expense for equity-based compensation awards, including restricted shares of common stock, performance awards, stock options and stock units based on the fair value recognition provisions contained in FASB ASC 718, Compensation – Stock Compensation (“FASB ASC 718”). The Company records the expense using a straight-line basis over the vesting period of the award. Fair value of stock option awards is determined using an option pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free rate are required for valuation of stock option awards. Volatility and expected term assumptions are based on the Company’s historical experience. The risk-free rate is based on a U.S. Treasury note with a maturity similar to the option award’s expected term. Fair value of restricted stock, restricted stock unit and deferred stock unit awards is determined using the Company’s closing stock price on the award date. The shares of restricted stock and restricted stock units that are awarded are subject to performance and/or service restrictions. The Company makes forfeiture rate assumptions in connection with the valuation of restricted stock and restricted stock unit awards that could be different than actual experience. During 2012, the Company introduced three-year performance based stock unit awards for a number of its key employees. These awards are subject to performance and service restrictions. The awards contain financial targets for each year in the three-year performance period as well as cumulative totals. These awards have a threshold, target and maximum amount of shares that can be awarded based on the Company’s financial results for each year and cumulative three-year period. The awards allow an employee to earn back a portion of the shares that were unearned in a prior year, if cumulative performance targets are met. Discussion of the Company’s application of FASB ASC 718 is described in Note 7. |
Revenue Recognition, Policy [Policy Text Block] | ' |
Revenues |
Revenues include construction, engineering and installation revenues that are recognized using the percentage-of-completion method of accounting in the ratio of costs incurred to estimated final costs. Revenues from change orders, extra work and variations in the scope of work are recognized when it is probable that they will result in additional contract revenue and when the amount can be reliably estimated. During 2013, the Company recorded revenue related to claims in its discontinued operations, which has been determined to be probable and reasonably estimated. The amount of this revenue is immaterial to the Company’s consolidated financial statements. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and equipment costs. The Company expenses all pre-contract costs in the period these costs are incurred. Since the financial reporting of these contracts depends on estimates, which are assessed continually during the term of these contracts, recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. If material, the effects of any changes in estimates are disclosed in the notes to the consolidated financial statements. When estimates indicate that a loss will be incurred on a contract, a provision for the expected loss is recorded in the period in which the loss becomes evident. Revenues from change orders, extra work and variations in the scope of work are recognized when it is probable that they will result in additional contract revenue and when the amount can be reliably estimated. Any revenue recognized is only to the extent costs have been recognized in the period. Additionally, the Company expenses all costs for unpriced change orders in the period in which they are incurred. |
Revenues from Brinderson are derived mainly from multiple engineering and construction type contracts, as well as maintenance contracts, under multi-year long-term Master Service Agreements and alliance contracts. Brinderson enters into contracts with its customers that contain three principal types of pricing provisions: time and materials, cost plus fixed fee and fixed price. Although the terms of these contracts vary, most are made pursuant to cost reimbursable contracts on a time and materials basis under which revenues are recorded based on costs incurred at agreed upon contractual rates. Brinderson also performs services on a cost plus fixed fee basis under which revenues are recorded based upon costs incurred at agreed upon rates and a proportionate amount of the fixed fee or percentage stipulated in the contract. |
Earnings Per Share, Policy [Policy Text Block] | ' |
Earnings per Share |
Earnings per share have been calculated using the following share information: |
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| | 2013 | | 2012 | | 2011 | | |
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Weighted average number of common shares used for basic EPS | | 38,692,658 | | | 39,222,737 | | | 39,362,138 | | | |
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Effect of dilutive stock options and restricted and deferred stock unit awards | | 389,684 | | | 313,654 | | | 336,317 | | | |
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Weighted average number of common shares and dilutive potential common stock used in dilutive EPS | | 39,082,342 | | | 39,536,391 | | | 39,698,455 | | | |
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The Company excluded 318,026, 223,536 and 189,202 stock options in 2013, 2012 and 2011, respectively, from the diluted earnings per share calculations for the Company’s common stock because they were anti-dilutive as their exercise prices were greater than the average market price of common shares for each period. |
Classification of Current Assets and Current Liabilities [Policy Text Block] | ' |
Classification of Current Assets and Current Liabilities |
The Company includes in current assets and current liabilities certain amounts realizable and payable under construction contracts that may extend beyond one year. The construction periods on projects undertaken by the Company generally range from less than one month to 24 months. |
Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash, Cash Equivalents and Restricted Cash |
The Company classifies highly liquid investments with original maturities of 90 days or less as cash equivalents. Recorded book values are reasonable estimates of fair value for cash and cash equivalents. Restricted cash consists of payments from certain customers placed in escrow in lieu of retention in case of potential issues regarding future job performance by the Company or advance customer payments and compensating balances for bank undertakings in Europe. Restricted cash is similar to retainage and is therefore classified as a current asset, consistent with the Company’s policy on retainage. |
Inventory, Policy [Policy Text Block] | ' |
Inventories |
Inventories are stated at the lower of cost (first-in, first-out) or market. Actual cost is used to value raw materials and supplies. Standard cost, which approximates actual cost, is used to value work-in-process, finished goods and construction materials. Standard cost includes direct labor, raw materials and manufacturing overhead based on normal capacity. For certain businesses within our Energy and Mining segment, the Company uses actual costs or average costs for all classes of inventory. |
Retainage [Policy Text Block] | ' |
Retainage |
Many of the contracts under which the Company performs work contain retainage provisions. Retainage refers to that portion of revenue earned by the Company but held for payment by the customer pending satisfactory completion of the project. The Company generally invoices its customers periodically as work is completed. Under ordinary circumstances, collection from municipalities is made within 60 to 90 days of billing. In most cases, 5% to 15% of the contract value is withheld by the municipal owner pending satisfactory completion of the project. Collections from other customers are generally made within 30 to 45 days of billing. Unless reserved, the Company believes that all amounts retained by customers under such provisions are fully collectible. Retainage on active contracts is classified as a current asset regardless of the term of the contract. Retainage is generally collected within one year of the completion of a contract, although collection can extend beyond one year from time to time. As of December 31, 2013, retainage receivables aged greater than 365 days approximated 12% of the total retainage balance and collectibility was assessed as described in the allowance for doubtful accounts section below. |
Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block] | ' |
Allowance for Doubtful Accounts |
Management makes estimates of the uncollectibility of accounts receivable and retainage. The Company records an allowance based on specific accounts to reduce receivables, including retainage, to the amount that is expected to be collected. The specific allowances are reevaluated and adjusted as additional information is received. After all reasonable attempts to collect the receivable or retainage have been explored, the account is written off against the allowance. |
Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Long-Lived Assets |
Property, plant and equipment and other identified intangibles (primarily customer relationships, patents and acquired technologies, trademarks, licenses, contract backlog and non-compete agreements) are recorded at cost and, except for goodwill and certain trademarks, are depreciated or amortized on a straight-line basis over their estimated useful lives. Changes in circumstances such as technological advances, changes to the Company’s business model or changes in the Company’s capital strategy can result in the actual useful lives differing from the Company’s estimates. If the Company determines that the useful life of its property, plant and equipment or its identified intangible assets should be changed, the Company would depreciate or amortize the net book value in excess of the salvage value over its revised remaining useful life, thereby increasing or decreasing depreciation or amortization expense. |
Long-lived assets, including property, plant and equipment and other intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. The estimate of cash flow is based upon, among other things, assumptions about expected future operating performance. The Company’s estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The Company did not identify any long-lived assets of its continuing operations as being impaired during 2013, 2012 or 2011. |
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | ' |
Goodwill |
Under FASB ASC 350, Intangibles – Goodwill and Other (“FASB ASC 350”), the Company assesses recoverability of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The annual assessment was last completed as of October 1, 2013. See Note 4 for additional information regarding goodwill by operating segment. Factors that could potentially trigger an interim impairment review include (but are not limited to): |
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• | significant underperformance of a reporting unit relative to expected, historical or forecasted future operating results; | | | | | | | | | | |
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• | significant negative industry or economic trends; | | | | | | | | | | |
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• | significant changes in the strategy for a reporting unit including extended slowdowns in a segment’s market; | | | | | | | | | | |
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• | a decrease in the Company’s market capitalization below its book value; and | | | | | | | | | | |
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• | a significant change in regulations. | | | | | | | | | | |
In accordance with the provisions of FASB ASC 350, the Company determined the fair value of its reporting units at the annual impairment assessment date and compared such fair value to the carrying value of those reporting units to determine if there were any indications of goodwill impairment. For 2013, the Company’s reporting units for purposes of assessing goodwill were North American Water and Wastewater, European Water and Wastewater, Asia-Pacific Water and Wastewater, United Pipeline Systems, Bayou, Corrpro, CRTS, Brinderson and the Commercial and Structural group. For purposes of its goodwill testing in 2013, the Company had nine reporting units; however, it aggregated Fyfe North America, Fyfe Asia and Fyfe Latin America, which are all part of the Commercial and Structural reporting segment, to form a single reporting unit. During the Company’s annual impairment testing in 2013, it tested goodwill for impairment for all three Fyfe reporting units individually and in the aggregate, in addition to testing the goodwill associated with the other eight reporting units. There were no indications of impairment of goodwill noted during this testing. Going forward, the Company’s annual impairment test will be performed at the Commercial and Structural reporting unit level. |
Fair value of reporting units is determined using a combination of two valuation methods: a market approach and an income approach with each method given equal weight in determining the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, the Company believes the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic outlooks, which are used to forecast future revenues, earnings and after-tax cash flows for each reporting unit. These assumptions are applied consistently for both methods. |
The market approach estimates fair value by first determining earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples for comparable publicly-traded companies with similar characteristics of the reporting unit. The EBITDA multiples for comparable companies are based upon current enterprise value. The enterprise value is based upon current market capitalization and includes a control premium. Management believes this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to the Company’s reporting units. |
The income approach is based on forecasted future (debt-free) cash flows that are discounted to present value using factors that consider timing and risk of future cash flows. Management believes this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on financial forecasts developed from operating plans and economic outlooks, growth rates, estimates of future expected changes in operating margins, terminal value growth rates, future capital expenditures and changes in working capital requirements. Estimates of discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to business models, changes in the Company’s weighted average cost of capital or changes in operating performance. |
The discount rate applied to the estimated future cash flows is one of the most significant assumptions utilized under the income approach. Management determines the appropriate discount rate for each of the Company’s reporting units based on the Weighted Average Cost of Capital (“WACC”) for each individual reporting unit. The WACC takes into account both the pre-tax cost of debt and cost of equity (a major component of the cost of equity is the current risk-free rate on twenty year U.S. Treasury bonds). As each reporting unit has a different risk profile based on the nature of its operations, including market-based factors, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company specific risk premiums. The discount rates used for calculating the fair values in our October 2013 goodwill review were commensurate with the risks associated with each reporting unit and ranged from 13.0% to 16.5%. |
Other significant assumptions used in the Company’s October 2013 goodwill review included: (i) annual revenue growth rates generally ranging from 2% to 17%; (ii) sustained or slightly increased gross margins; (iii) peer group EBITDA multiples; and (iv) terminal values for each reporting unit using a long-term growth rate of 1% to 3.5%. If actual results differ from estimates used in these calculations, we could incur future impairment charges. |
During the assessment of its reporting units’ fair values in relation to their respective carrying values, at the high end, five had a fair value in excess of 30% of their carrying value and, at the low end, two were within 10% percent of their carrying value. These two reporting units were Bayou and Fyfe North America, whose fair value exceeded their carrying value by 2.8% and 5.4%, respectively. Due to a lack of project activity available in the Gulf of Mexico market, customer-driven project delays and discontinued operations, the fair value of the Bayou reporting unit decreased $32.3 million, or 17.2%, from the prior year analysis. The impairment analysis includes an annual revenue growth rate of 10%; however, only a modest increase in revenue is contemplated in year one, but at a level that is still below our five-year average, and higher growth rates thereafter due to visibility of larger bidding opportunities in the Gulf of Mexico. The analysis also assumes a weighted average cost of capital of 13.5% and a long-term growth rate of 3%. For Fyfe North America, the values derived from both the income approach and market approach decreased from the prior year analysis; however, the overall fair value of the reporting unit increased 2.7% from the prior year due to a difference in working capital levels as of the valuation dates. The assumptions used in the impairment analysis include an annual revenue growth rate of 17%, due to the low revenue levels achieved in 2013, a weighted average cost of capital of 16.0% and a long-term growth rate of 3.5%. The total value of goodwill recorded at the impairment testing date for these two reporting units was $72.9 million. |
As with all of its reporting units, the Company continuously monitors potential triggering events that may cause an interim impairment valuation. |
Equity Method Investments, Policy [Policy Text Block] | ' |
Investments in Affiliated Companies |
In June 2013, the Company sold its fifty percent (50%) interest in Insituform-Germany to Aarsleff. Insituform-Germany, a company that was jointly owned by Aegion and Aarsleff, is active in the business of no-dig pipe rehabilitation in Germany, Slovakia and Hungary. The sale price was €14 million, approximately $18.3 million. The sale resulted in a gain on the sale of approximately $11.3 million (net of $0.5 million of transaction expenses) recorded in other income (expense) on the consolidated statement of operations. In connection with the sale, Insituform-Germany also entered into a tube supply agreement with the Company whereby Insituform-Germany will purchase on an annual basis at least GBP 2.3 million, approximately $3.6 million, of felt cured-in-place pipe (“CIPP”) liners during the two-year period from June 26, 2013 to June 30, 2015. |
The Company, through its subsidiary, Insituform Technologies Netherlands BV, owns a forty-nine percent (49%) equity interest in WCU Corrosion Technologies Pte. Ltd. (“WCU”). WCU offers the Company’s Tite Liner® process in the oil and gas sector and onshore corrosion services in Asia and Australia. |
The Company, through its subsidiary, Bayou, owns a forty-nine percent (49%) equity interest in Bayou Coating. Bayou Coating provides pipe coating services from its facility in Baton Rouge, Louisiana, and is adjacent to and services the Stupp pipe mill in Baton Rouge. See discussion of Bayou Coating in Note 1. |
Investments in entities in which the Company does not have control or is not the primary beneficiary of a variable interest entity, and for which the Company has 20% to 50% ownership or has the ability to exert significant influence, are accounted for by the equity method. At December 31, 2013 and 2012, the investments in affiliated companies on the Company’s consolidated balance sheets were $9.1 million and $19.2 million, respectively. |
Net income presented below for the years ended December 31, 2013 and 2012 includes Bayou Coating’s forty-one percent (41%) interest in Delta Double Jointing, LLC (“Bayou Delta”), which is eliminated for purposes of determining the Company’s equity in earnings of affiliated companies because Bayou Delta is consolidated in the Company’s financial statements as a result of its additional ownership through another Company subsidiary. |
The Company’s equity in earnings of affiliated companies for all periods presented below includes acquisition-related depreciation and amortization expense and is net of income taxes associated with these earnings. Financial data for these investments in affiliated companies at December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013 are summarized in the following tables (in thousands): |
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| December 31, | | | | |
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Balance sheet data | 2013 | | 2012(1) | | | | |
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Current assets | $ | 10,220 | | | $ | 32,752 | | | | | |
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Non-current assets | 10,022 | | | 22,495 | | | | | |
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Current liabilities | 1,743 | | | 16,006 | | | | | |
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Non-current liabilities | — | | | 484 | | | | | |
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Income statement data | 2013 (1) | | 2012 | | 2011 |
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Revenue | $ | 89,157 | | | $ | 141,233 | | | $ | 134,716 | |
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Gross profit | 27,336 | | | 40,342 | | | 29,651 | |
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Net income | 17,946 | | | 22,009 | | | 12,512 | |
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Equity in earnings of affiliated companies | 5,159 | | | 6,359 | | | 3,471 | |
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(1) Includes the financial data of Insituform-Germany through the date of its sale in June 2013. |
Consolidation, Variable Interest Entity, Policy [Policy Text Block] | ' |
Investments in Variable Interest Entities |
The Company evaluates all transactions and relationships with variable interest entities (“VIE”) to determine whether the Company is the primary beneficiary of the entities in accordance with FASB ASC 810, Consolidation. |
The Company’s overall methodology for evaluating transactions and relationships under the VIE requirements includes the following two steps: |
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• | determine whether the entity meets the criteria to qualify as a VIE; and | | | | | | | | | | |
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• | determine whether the Company is the primary beneficiary of the VIE. | | | | | | | | | | |
In performing the first step, the significant factors and judgments that the Company considers in making the determination as to whether an entity is a VIE include: |
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• | the design of the entity, including the nature of its risks and the purpose for which the entity was created, to determine the variability that the entity was designed to create and distribute to its interest holders; | | | | | | | | | | |
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• | the nature of the Company’s involvement with the entity; | | | | | | | | | | |
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• | whether control of the entity may be achieved through arrangements that do not involve voting equity; | | | | | | | | | | |
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• | whether there is sufficient equity investment at risk to finance the activities of the entity; and | | | | | | | | | | |
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• | whether parties other than the equity holders have the obligation to absorb expected losses or the right to receive residual returns. | | | | | | | | | | |
If the Company identifies a VIE based on the above considerations, it then performs the second step and evaluates whether it is the primary beneficiary of the VIE by considering the following significant factors and judgments: |
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• | whether the entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance; and | | | | | | | | | | |
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• | whether the entity has the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. | | | | | | | | | | |
Based on its evaluation of the above factors and judgments, as of December 31, 2013, the Company consolidated any VIEs in which it was the primary beneficiary. Also, as of December 31, 2013, the Company had significant interests in certain VIEs primarily through its joint venture arrangements for which the Company was not the primary beneficiary. Other than the sale of Insituform-Germany discussed in Note 1, there have been no changes in the status of the Company’s VIE or primary beneficiary designations during 2013. |
Financial data for consolidated variable interest entities at December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013 are summarized in the following tables (in thousands): |
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| December 31, | | | | |
Balance sheet data | 2013 | | 2012 | | | | |
Current assets | $ | 55,651 | | | $ | 65,251 | | | | | |
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Non-current assets | 47,606 | | | 47,086 | | | | | |
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Current liabilities | 33,886 | | | 45,604 | | | | | |
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Non-current liabilities | 25,020 | | | 23,169 | | | | | |
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Income statement data | 2013 | | 2012 | | 2011 |
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Revenue | $ | 85,908 | | | $ | 107,821 | | | $ | 55,792 | |
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Gross profit | 12,998 | | | 19,625 | | | 12,005 | |
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Net income | 1,892 | | | 3,622 | | | 1,959 | |
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The Company’s non-consolidated variable interest entities are accounted for using the equity method of accounting and discussed further under “Investments in Affiliated Companies” above. |
New Accounting Pronouncements, Policy [Policy Text Block] | ' |
Newly Adopted Accounting Pronouncements |
ASU No. 2013-1 updates standard ASU No. 2011-11 and provides guidance to implement the balance sheet offsetting disclosures that require the presentation of gross and net information about transactions that are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement, regardless of whether the transactions are actually offset in the statement of financial position. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Refer to Note 10 for discussion of the new accounting pronouncement. |
ASU No. 2013-2 generally provides guidance to improve the reporting of reclassifications out of accumulated other comprehensive income to various components in the income statement. This standard requires an entity to present either parenthetically on the face of the financial statements or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. ASU 2013-2 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company evaluated this pronouncement effective January 1, 2013 and determined reclassifications out of accumulated other comprehensive income to various components in the income statement is immaterial to the financial statements to the Company. Refer to Note 10 for discussion of the new accounting pronouncement. |