|Component: (Network and Table)|
020 - Disclosure - Accounting Policies, by Policy (Policies)
|Reporting Entity [Axis]||0000353020 (http://www.sec.gov/CIK)|
|Scenario [Axis]||Scenario, Unspecified [Domain]|
|Statement [Line Items]||Period [Axis]|
2012-01-01 - 2012-12-31
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]
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. The significant majority of the activity during any given period is related to the currency translation adjustment.
As of December 31, 2012 and 2011, respectively, the Company had $16.3 million and $6.9 million related to currency translation adjustments, $(0.8) million and $(0.6) million related to derivative transactions and $(0.2) million and $(0.4) million related to pension activity in accumulated other comprehensive income (loss).
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 $1.8 million, $2.2 million and $2.7 million for the years ended December 31, 2012, 2011 and 2010, respectively, are included in operating expenses in the accompanying consolidated statements of income.
Income Tax, Policy [Policy Text Block]
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]
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. These awards are subject to both a quantitative and qualitative review by the Compensation Committee of the Board of Directors. 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 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. 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. 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 and in the Management’s Discussion and Analysis section of this report. 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. At December 31, 2012, 2011 and 2010, the Company had provided $0.6 million, $0.9 million and $0.8 million, respectively, for expected losses on contracts. 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.
Earnings Per Share, Policy [Policy Text Block]
Earnings per Share
Earnings per share have been calculated using the following share information:
The Company excluded 223,536, 189,202 and 265,268 stock options in 2012, 2011 and 2010, 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.
Construction Contractors, Operating Cycle, Policy [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 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.
Trade and Other Accounts Receivable, Policy [Policy Text Block]
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, 2012, retainage receivables aged greater than 365 days approximated 9% 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
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.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
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 2012, 2011 or 2010.
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]
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, 2012. 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):
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 was any indication of goodwill impairment. The Company’s reporting units for purposes of assessing goodwill are North American Water and Wastewater, European Water and Wastewater, Asia-Pacific Water and Wastewater, United Pipeline Systems, Bayou, Corrpro, CRTS, Fyfe NA, Fyfe LA and Fyfe Asia.
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 projections, which are used to project 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 EBITDA multiples for comparable publicly-traded companies with similar characteristics of the reporting unit. The EBITDA multiples for comparable companies is 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 projected 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 projections, 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. An impairment charge will be recognized to the extent that the implied fair value of a reporting unit is less than the related carrying value.
Significant assumptions used in the Company’s October 2012 goodwill review included: (i) compounding annual growth rates generally ranging from 3% to 15%; (ii) sustained or slightly increased gross margins; (iii) peer group EBITDA multiples; (iv) terminal values for each reporting unit using a long-term growth rate of 1% to 3.5%; and (v) discount rates ranging from 13.0% to 17.5%. If actual results differ from estimates used in these calculations, the Company could incur future impairment charges. For purposes of the goodwill review, the Company has ten reporting units. During the assessment of its ten reporting units’ fair values in relation to their respective carrying values, five had a fair value in excess of 35% of their carrying value and five were within 15% percent of their carrying value. The total value of goodwill recorded at the impairment testing date for the latter five was $139.0 million. Included in these five was Fyfe NA, Fyfe LA and Fyfe Asia, all of which were acquired within thirteen months of the goodwill test date. Accordingly, it is expected that their fair values would approximate their carrying values. In addition, the Company’s European Water and Wastewater’s fair value exceeded its carrying value by just 2.6%. Due to the recent macroeconomic issues throughout Europe, the fair value of this reporting unit decreased $17.2 million, or 17.4%, from the prior year analysis. As with all of its reporting units, the Company continuously monitors potential trigger events that may cause an interim impairment valuation.
Equity Method Investments, Policy [Policy Text Block]
Investments in Affiliated Companies
The Company holds one-half of the equity interests in Insituform Rohrsanierungstechniken GmbH (“Insituform-Germany”), through its indirect subsidiary, Insituform Technologies Limited (UK). The Company, through its subsidiary, Insituform Technologies Netherlands BV, owns a forty-nine percent (49%) equity interest in WCU Corrosion Technologies Pte. Ltd. The Company, through its subsidiary, Bayou, owns a forty-nine percent (49%) equity interest in Bayou Coating. Starting in January 2014, and solely during the month of January in each calendar year thereafter, the Company’s equity partner in Bayou Coating, the Stupp Brothers, Inc. (“Stupp”), has the option to acquire (i) the assets of Bayou Coating at their book value as of the end of the prior fiscal year, or (ii) the equity interest of Bayou in Bayou Coating at forty-nine percent (49%) of the value of Bayou Coating, as of the end of the prior fiscal year, with such book value to be determined on the basis of Bayou Coating’s federal information tax return for such fiscal year. At this point, the Company does not have any indication of Stupp’s intent to exercise the call option.
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 and has the ability to exert significant influence are accounted for by the equity method. At December 31, 2012 and 2011, the investments in affiliated companies on the Company’s consolidated balance sheet were $19.2 million and $19.3 million, respectively.
Net income presented below for 2012 includes Bayou Coating’s 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 subsidiary. The Company’s equity in earnings of affiliated companies for all periods presented below include acquisition-related depreciation and amortization expense and are net of income taxes associated with these earnings. Financial data for these investments in affiliated companies at December 31, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012 are summarized in the following tables below (in thousands):
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 (“FASB ASC 810”).
The Company’s overall methodology for evaluating transactions and relationships under the VIE requirements includes the following two steps:
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:
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:
Based on its evaluation of the above factors and judgments, as of December 31, 2012, the Company consolidated any VIEs in which it was the primary beneficiary. Also, as of December 31, 2012, the Company had significant interests in certain VIEs primarily through its joint venture arrangements for which the Company was not the primary beneficiary. During 2012, the Company acquired interests in certain VIE’s in connection with the purchase of Fyfe LA and Fyfe Asia. For each of these VIE’s, the Company determined that it is the primary beneficiary of the entity. Additionally, due to the Company’s purchase of the remaining equity interests of its joint venture in India, the Company no longer maintains a variable interest in the entity as it is now a wholly-owned subsidiary. There have been no changes in the status of the Company’s remaining VIE’s or primary beneficiary designations.
Financial data for the consolidated variable interest entities at December 31, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012 are summarized in the following tables (in thousands):
The Company’s non-consolidated variable interest entities are accounted for under the equity method of accounting and discussed further in the “Investments in Affiliated Companies” section of this Note 2.
Description of New Accounting Pronouncements Not yet Adopted [Text Block]
Newly Adopted Accounting Pronouncements
ASU No. 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 was effective for interim and annual periods beginning on or after December 15, 2011. The adoption of this update did not have a material impact on the Company in 2012.
ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement (statement of comprehensive income), or (2) in two separate but consecutive financial statements (consisting of an income statement followed by a separate statement of other comprehensive income). Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements; however, this portion of the guidance has been deferred. ASU No. 2011-05 requires retrospective application, and was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this update on January 1, 2012 and added a separate statement of comprehensive income, but the adoption did not have an impact on the Company’s results of operations.
ASU No. 2011-08, which updates the guidance in ASC Topic 350, Intangibles – Goodwill & Other, affects all entities that have goodwill reported in their financial statements. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is necessary. Under the amendments in this update, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year as previously permitted under ASC Topic 350. This guidance became effective for interim and annual goodwill impairment tests performed for fiscal year 2012 with early adoption permitted. The Company adopted this update as of January 1, 2012 and the adoption of this update did not have a material impact on the Company.