Note 2 - Accounting Policies | 6 Months Ended |
Jun. 30, 2014 |
Accounting Policies [Abstract] | ' |
Accounting Policies | ' |
ACCOUNTING POLICIES |
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 the first six months of 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. 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 maintenance contracts under multi-year long-term Master Service Agreements and alliance contracts, as well as engineering and construction-type 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. |
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 June 30, 2014 and 2013, the Company had $2.5 million and $6.0 million, respectively, related to currency translation adjustments, $(0.8) million and $(0.5) million, respectively, related to derivative transactions and $(0.2) million and $(0.2) million, respectively, related to pension activity in accumulated other comprehensive income. |
Investments in Affiliated Companies |
On March 31, 2014, the Company, through Bayou, sold its forty-nine percent (49%) interest in Bayou Coating to Stupp, the holder of the remaining fifty-one percent (51%) interest in Bayou Coating. Stupp purchased the interest by exercising an existing option to acquire the Company’s interest in Bayou Coating at a purchase price equal to $9.1 million. The Company had previously received an indication from Stupp of its intent to exercise such option and, in the second quarter of 2013 in connection with such indication, the Company recognized a non-cash charge of $2.7 million ($1.8 million post-tax) related to the goodwill allocated to the joint venture as part of the purchase price accounting associated with the 2009 acquisition of Bayou. The non-cash charge represented the Company’s then current estimate of the difference between the carrying value of the investment on the balance sheet and the amount the Company would receive in connection with the exercise. During the first quarter of 2014, the difference between the Company’s recorded gross equity in earnings of affiliated companies of approximately $1.2 million and the final equity distribution settlement of $0.7 million resulted in a loss of approximately $0.5 million that is recorded in other income (expense) on the consolidated statement of operations. |
Prior to March 2014, the Company held a fifty-nine (59%) equity interest in Bayou Delta through which the Company offers pipe jointing and other services for the steel-coated pipe industry. The remaining forty-one percent (41%) was held by Bayou Coating. On March 31, 2014, the Company acquired this forty-one percent (41%) interest from Bayou Coating by exercising its existing option at a purchase price equal to $0.6 million. As a result, Bayou Delta is now a wholly owned subsidiary of the Company. |
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 €14.0 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). 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. |
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, the investment in affiliated companies on the Company’s consolidated balance sheets was $9.1 million. Due to the sale of Bayou Coating, the balance was zero at June 30, 2014. |
Net income presented below for the quarters ended June 30, 2014 and 2013 includes Bayou Coating’s previously held forty-one percent (41%) interest in 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 for each of the six month periods ended June 30, 2014 and 2013 is summarized in the following table (in thousands): |
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| Six Months Ended June 30, |
Income statement data | 2014 | | 2013 (1) |
Revenue | $ | 9,088 | | | $ | 60,845 | |
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Gross profit | 3,489 | | | 14,699 | |
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Net income | 2,413 | | | 7,784 | |
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Equity in earnings of affiliated companies | 677 | | | 2,212 | |
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(1) Includes the financial data of Insituform-Germany. |
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 June 30, 2014, the Company consolidated any VIEs in which it was the primary beneficiary. |
Financial data for consolidated variable interest entities are summarized in the following table (in thousands): |
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Balance sheet data | June 30, | | December 31, |
2014 | 2013 |
Current assets | $ | 52,563 | | | $ | 55,960 | |
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Non-current assets | 46,203 | | | 47,606 | |
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Current liabilities | 23,964 | | | 27,335 | |
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Non-current liabilities | 34,761 | | | 36,761 | |
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| Six Months Ended June 30, |
Income statement data | 2014 | | 2013 |
Revenue | $ | 35,482 | | | $ | 38,429 | |
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Gross profit | 4,475 | | | 6,645 | |
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Net income | (341 | ) | | 467 | |
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Newly Issued Accounting Pronouncements |
In April 2014, the FASB issued guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results and is disposed of or classified as held for sale. The standard also introduces several new disclosures. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date and is effective for annual and interim periods beginning after December 15, 2014, with earlier adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on its financial statements. |
In May 2014, the FASB issued guidance that supersedes revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under the new guidance, entities are required to recognize revenue in order to depict 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. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. This new guidance is effective retroactively in fiscal years beginning after December 15, 2016. The Company is currently evaluating the effect the guidance will have on its financial condition and results of operations. |