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Advances to and Investments in Foreign Joint Ventures' Operations | 12 Months Ended
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Dec. 31, 2013
Advances to and Investments in Foreign Joint Ventures' Operations |
(6) | Advances to and Investments in Foreign Joint Ventures’ Operations
The Company has a foreign joint venture agreement and holds a 40% interest in a Chinese company, BOMAY, which builds electrical systems for sale in China. The majority partner in this foreign joint venture is a subsidiary of a major Chinese oil company. M&I made an initial investment of $1.0 million in 2006 and made an additional $1.0 million investment in 2007. The Company’s equity in the income of the foreign joint venture was $2.1 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $325,000 and $415,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from BOMAY were $119,000 and $73,000 at December 31, 2013 and 2012. The Company owns a 41% interest in MIEFE which provides additional sales and technical support in Asia. The Company’s equity in the income of the foreign joint venture was $115,000 and $16,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $225,000 and $65,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from MIEFE was none and $25,000 at December 31, 2013 and 2012, respectively. The company owns a 49% interest in AAG, a Brazilian Limited Liability Company, formed in 2010. The Company’s equity in the income of the foreign joint venture was $843,000 and $503,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $4,000 and $49,000 for the years ended December 31, 2013 and 2012. Accounts receivable from AAG was $8,000 at December 31, 2013 and 2012. The Company’s equity in income of the foreign joint ventures before our foreign operations expenses, totaled $3.0 million and $3.1 million for the years ended December 31, 2013 and 2012, respectively. During 2013 and 2012, the Company also recognized approximately $267,000 and $343,000, respectively, for employee related expenses directly attributable to the foreign joint ventures. Sales to foreign joint ventures’ operations are made on an arm’s length basis and intercompany profits, if any, are eliminated in consolidation. Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2013 and 2012:
| BOMAY |  |  | MIEFE |  |  | AAG |
| 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
| (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total current assets | $ | 94,220 |  |  | $ | 91,926 |  |  | $ | 3,855 |  |  | $ | 3,894 |  |  | $ | 2,572 |  |  | $ | 2,241 |
Total non-current assets |  | 5,122 |  |  |  | 5,116 |  |  |  | 114 |  |  |  | 116 |  |  |  | 1,550 |  |  |  | 776 |
Total assets | $ | 99,342 |  |  | $ | 97,042 |  |  | $ | 3,969 |  |  | $ | 4,010 |  |  | $ | 4,122 |  |  | $ | 3,017 |
Liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total liabilities | $ | 72,644 |  |  | $ | 73,293 |  |  | $ | 1,197 |  |  | $ | 1,422 |  |  | $ | 1,291 |  |  | $ | 1,511 |
Total joint ventures equity |  | 26,698 |  |  |  | 23,749 |  |  |  | 2,772 |  |  |  | 2,588 |  |  |  | 2,831 |  |  |  | 1,505 |
Total liabilities and equity | $ | 99,342 |  |  | $ | 97,042 |  |  | $ | 3,969 |  |  | $ | 4,010 |  |  | $ | 4,122 |  |  | $ | 3,016 |
Gross sales | $ | 86,332 |  |  | $ | 84,639 |  |  | $ | 7,997 |  |  | $ | 6,996 |  |  | $ | 10,658 |  |  | $ | 7,625 |
Gross profit |  | 12,130 |  |  |  | 14,348 |  |  |  | 2,066 |  |  |  | 1,547 |  |  |  | 4,282 |  |  |  | 2,965 |
Net income |  | 5,165 |  |  |  | 6,422 |  |  |  | 279 |  |  |  | 39 |  |  |  | 1,721 |  |  |  | 1,104 |
The Company’s investments in and advances to its foreign joint ventures’ operations were as follows as of December 31, 2013 and 2012:
| 2013 |  |  | 2012 |
| BOMAY* |  |  | MEIFE |  |  | AAG |  |  | **TOTAL |  |  | BOMAY* |  |  | MIEFE |  |  | AAG |  |  | TOTAL |
| (in thousands) |  |  | (in thousands) |
Investment in joint ventures: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year | $ | 2,033 |  |  | $ | 14 |  |  | $ | 234 |  |  | $ | 2,281 |  |  | $ | 2,033 |  |  | $ | 14 |  |  | $ | 284 |  |  | $ | 2,331 |
Additional amounts invested and advanced |  | — |  |  |  | — |  |  |  | (180 | ) |  |  | (180 | ) |  |  | — |  |  |  | — |  |  |  | (50 | ) |  |  | (50 | )
Balance, end of year |  | 2,033 |  |  |  | 14 |  |  |  | 54 |  |  |  | 2,101 |  |  |  | 2,033 |  |  |  | 14 |  |  |  | 234 |  |  |  | 2,281 |
Undistributed earnings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year | $ | 6,400 |  |  | $ | 755 |  |  | $ | 661 |  |  | $ | 7,816 |  |  | $ | 4,839 |  |  | $ | 739 |  |  | $ | 158 |  |  | $ | 5,736 |
Equity in earnings (loss) |  | 2,066 |  |  |  | 115 |  |  |  | 843 |  |  |  | 3,024 |  |  |  | 2,569 |  |  |  | 16 |  |  |  | 503 |  |  |  | 3,088 |
Dividend distributions |  | (1,321 | ) |  |  | — |  |  |  | (23 | ) |  |  | (1,344 | ) |  |  | (1,008 | ) |  |  | — |  |  |  | — |  |  |  | (1,008 | )
Balance, end of year |  | 7,145 |  |  |  | 870 |  |  |  | 1,481 |  |  |  | 9,496 |  |  |  | 6,400 |  |  |  | 755 |  |  |  | 661 |  |  |  | 7,816 |
Foreign currency translation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of year | $ | 1,098 |  |  | $ | 294 |  |  | $ | (81 | ) |  | $ | 1,311 |  |  | $ | 1,040 |  |  | $ | 233 |  |  | $ | (32 | ) |  | $ | 1,240 |
Change during the year |  | 333 |  |  |  | (40 | ) |  |  | (168 | ) |  |  | 125 |  |  |  | 58 |  |  |  | 61 |  |  |  | (49 | ) |  |  | 70 |
Balance, end of year |  | 1,431 |  |  |  | 254 |  |  |  | (249 | ) |  |  | 1,436 |  |  |  | 1,098 |  |  |  | 294 |  |  |  | (81 | ) |  |  | 1,311 |
Investments, end of year | $ | 10,609 |  |  | $ | 1,138 |  |  | $ | 1,286 |  |  | $ | 13,033 |  |  | $ | 9,531 |  |  | $ | 1,063 |  |  | $ | 814 |  |  | $ | 11,408 |
* | Accumulated statutory reserves in equity method investments of $1,857,000 and $1,620,000 at December 31, 2013 and 2012, are included in AETI’s consolidated retained earnings. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
The Company accounts for its investments in foreign joint ventures’ operations using the equity method of accounting. Under the equity method, the Company’s share of the joint ventures’ operations’ earnings or loss is recognized in the consolidated statements of operations as equity income (loss) from foreign joint ventures’ operations. Joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value. Dividends received from the joint ventures reduce the carrying value. Each reporting period, the Company evaluates the carrying value of these equity method investments as to whether an impairment adjustment may be necessary. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary.
** | See Note 17 for dividends from AAG in 2014.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6382943&loc=d3e33918-111571 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=7658923&loc=d3e32847-111569 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=7658923&loc=d3e32787-111569 + Details
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