Note 1 - General

9 Months Ended

Sep. 30, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. GENERAL

On October 25, 2011, Insituform Technologies, Inc. (“Insituform”) reorganized by creating a new holding company structure (the “Corporate Reorganization”). The new parent company, Aegion Corporation (“Aegion”), includes Insituform as a wholly owned direct subsidiary. As part of the Corporate Reorganization, Insituform’s outstanding shares of common stock (and associated attached preferred stock right) were automatically converted, on a share for share basis, into identical shares of Aegion common stock (and associated attached preferred stock right).

Upon effectiveness of the Corporate Reorganization, Aegion’s certificate of incorporation, bylaws, executive officers and board of directors were identical to Insituform’s in effect immediately prior to the Corporate Reorganization, and the rights, privileges and interests of Insituform’s former stockholders remain the same with respect to the new holding company. Additionally, as a result of the Corporate Reorganization, Aegion is deemed the successor registrant to Insituform under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shares of Aegion common stock are deemed registered under Section 12(g) of the Exchange Act.

The accompanying unaudited consolidated financial statements of Aegion and its subsidiaries (collectively, the “Company” and, for periods prior to October 25, 2011, the term the “Company” refers to Insituform, the predecessor registrant to Aegion, and its subsidiaries) reflect all adjustments (consisting only of normal recurring adjustments, with the exception of the foreign currency translation adjustment as discussed in Note 2) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of September 30, 2011 and the results of operations for the three and nine months ended September 30, 2011 and 2010 and the statements of equity and cash flows for the nine months ended September 30, 2011 and 2010. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the requirements of Form 10-Q and Article 10 of Regulation S-X and, consequently, do not include all information or footnotes required by GAAP for complete financial statements or all the disclosures normally made in an Annual Report on Form 10-K. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission under the name of Insituform Technologies, Inc. on February 28, 2011. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation.

The results of operations for the three- and nine-month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

Acquisitions/Strategic Initiatives

On August 31, 2011, the Company purchased the North American business of Fyfe Group, LLC (“Fyfe NA”) for a purchase price of $115.8 million, which was funded by borrowings from the Company’s new credit facility (as discussed in Note 5). The Company also was granted a one-year exclusive negotiating right to acquire Fyfe Group’s Asian, European and Latin American operations at a purchase price to be agreed upon by the parties at the time of exercise of the right.

Fyfe NA, based in San Diego, California, is a pioneer and industry leader in the development, manufacture and installation of fiber reinforced polymer (FRP) systems for the structural repair, strengthening and restoration of pipelines (water, wastewater, oil and gas), buildings (commercial, federal, municipal, residential and parking structures), bridges and tunnels, and waterfront structures.  Fyfe NA will be included as part of the Company’s Commercial and Structural reportable segment.  Fyfe NA has a comprehensive portfolio of patented and other proprietary technologies and products, including its Tyfo® Fibrwrap® System, the only carbon fiber solution on the market that complies with 2009 International Building Code requirements. Fyfe NA’s product and service offering also includes pipeline rehabilitation, concrete repair, epoxy injection, corrosion mitigation and specialty coatings services.

On August 2, 2011, the Company purchased the assets of Hockway Limited and the capital stock of Hockway Middle East FZC, based in the United Kingdom and United Arab Emirates, respectively (collectively, “Hockway”). Hockway was established in the United Kingdom in 1975 to service the cathodic protection requirements of British engineers working in the Middle East. In 2009, Hockway established operations in Dubai, United Arab Emirates. Hockway provides both onshore and offshore cathodic protection services in addition to manufacturing a wide array of cathodic protection components and will be included as part of the Company’s Energy and Mining reportable segment. The purchase price was $4.6 million in cash at closing with Hockway shareholders able to earn up to an additional $1.5 million upon the achievement of certain performance targets over the three-year period ending December 31, 2013 (the “Hockway earnout”). The purchase price was funded out of the Company’s cash balances.

On June 30, 2011, the Company acquired all of the outstanding stock of CRTS, Inc., an Oklahoma company (“CRTS”). CRTS delivers patented and other proprietary internal and external coating services and equipment for new pipeline construction projects from offices in North America, the Middle East and Brazil. CRTS will be included as part of the Company’s Energy and Mining reportable segment. The purchase price was $24.0 million in cash at closing with CRTS shareholders able to earn up to an additional $15.0 million upon the achievement of certain performance targets over the three-year period ending December 31, 2013 (the “CRTS earnout”). The Company has recorded its estimate of the fair value of the CRTS earnout at $14.7 million as part of the preliminary acquisition accounting. The purchase price paid at closing was funded by borrowings against the Company’s prior line of credit, as discussed in Note 5.

The Company has completed its initial accounting for these acquisitions in accordance with the guidance included in FASB ASC 805, Business Combinations (“FASB ASC 805”). The Company has recorded finite-lived intangible assets at their preliminarily determined fair value related to non-compete agreements, customer relationships, backlog, trade names and trademarks and patents and other acquired technologies. The acquisitions resulted in goodwill related to, among other things, growth opportunities and unidentified intangible assets. The goodwill associated with the CRTS acquisition is not deductible for tax purposes. The $0.4 million of goodwill associated with the purchase of the assets of Hockway Limited is deductible for tax purposes. The goodwill associated with the Fyfe NA acquisition is deductible for tax purposes. Additionally, the Company recorded expenses of $5.4 million and $5.8 million for the three- and nine-month periods ended September 30, 2011, respectively, for the Company’s 2011 acquisitions and for acquisitions targets that are no longer being pursued.

The contingent consideration arrangements discussed above require the Company to pay the former shareholders of CRTS and Hockway, respectively, additional payouts based on the achievement of certain performance targets over a three-year period. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $16.5 million. As of September 30, 2011, the Company calculated the fair value of the contingent consideration arrangement to be $14.7 million for CRTS and $1.5 million for Hockway. In accordance with FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), the Company determined that the CRTS earnout and Hockway earnout are derived from significant unobservable inputs (“Level 3 inputs”). Key assumptions include the use of a discount rate and a probability-adjusted level of profit derived from each entity.

The following table summarizes the consideration recorded to acquire each business at its respective acquisition date (in thousands):

	CRTS		Hockway		Fyfe NA		Total
Cash	$	24,000	$	4,606	$	115,786	$	144,392
Estimated fair value of earnout payments to shareholders		14,700		1,469		–		16,169
Total consideration recorded	$	38,700	$	6,075	$	115,786	$	160,561

CRTS contributed $2.0 million and $(1.2) million, respectively, of revenue and earnings during the three-month period ended September 30, 2011, as the acquisition occurred on June 30, 2011. Hockway contributed $0.7 million and less than $0.1 million, respectively, of revenue and earnings for the 59-day period ended September 30, 2011, as the acquisition was completed on August 2, 2011. Fyfe NA contributed $3.7 million and $0.1 million, respectively, of revenue and earnings for the 30-day period ended September 30, 2011, as the acquisition was completed on August 31, 2011. The following unaudited pro forma summary presents combined information of the Company as if these acquisitions had occurred on January 1, 2010 (in thousands, except share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues	$	256,000	$	262,678	$	719,826	$	720,605
Net income		3,128		26,656		18,527		57,059
Diluted earnings per share		0.08		0.68		0.47		1.45
Diluted shares		39,711,383		39,419,038		39,706,751		39,387,915

The Company has completed an initial purchase price accounting of the acquisitions due to the timing of the acquisitions. As the Company completes its final accounting for these acquisitions, there may be changes, some of which may be material, to this initial accounting. The following table summarizes the preliminary fair value of identified assets and liabilities of the acquisitions at their respective acquisition dates based on the initial analyses (in thousands):

	CRTS			Hockway			Fyfe NA
Cash	$	361		$	536		$	1,096
Receivables and cost and estimated earnings in excess of billings		2,365			2,402			16,019
Inventories		21			687			5,977
Prepaid expenses and other current assets		175			228			54
Property, plant and equipment		4,361			324			1,149
Identified intangible assets		26,750			2,200			48,135
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings		(2,830	)		(1,737	)		(2,726	)
Other long-term liabilities		–			(89	)		–
Deferred tax liabilities		(11,221	)		–			–
Total identifiable net assets	$	19,982		$	4,551		$	69,704
Total consideration recorded	$	38,700		$	6,075		$	115,786
Less:  total identifiable net assets		19,982			4,551			69,704
Goodwill at acquisition date	$	18,718		$	1,524		$	46,082

The following adjustments were made during the third quarter of 2011 as the Company continued its purchase price accounting:

	CRTS
Total identifiable net assets at June 30, 2011	$	19,883
Property, plant and equipment		3,044
Identifiable intangible assets		(2,575	)
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings		(300	)
Deferred tax liabilities		(70	)
Total identifiable net assets at September 30, 2011		19,982
Goodwill at June 30, 2011		18,017
Increase in goodwill		701
Goodwill at September 30, 2011	$	18,718

During the third quarter of 2011, the fair value of the CRTS earnout liability was increased by $0.8 million due to a change in the preliminary valuation. The adjustments to the CRTS purchase price allocated to property, plant and equipment, intangible assets and changes to working capital resulted from a change in the preliminary valuation and purchase price allocation.

In October 2011, the Company organized UPS-Aptec Limited, a joint venture in the United Kingdom between United Pipeline Systems International, Inc., a subsidiary of the Company (“UPS-International”), and Allied Pipeline Technologies, SA (“APTec”).  UPS-International owns 51% of the joint venture and APTec owns the remaining 49%.   On October 21, 2011, the joint venture was awarded a $67.3 million contract for the installation of high-density polyethylene (HDPE) liners in approximately 135 miles of slurry pipelines located in Morocco.  The project is expected to begin in the fourth quarter of 2011 and be completed by year-end 2012.

On June 27, 2011, the Company created a joint venture in Saudi Arabia between Saudi Trading & Research Co., Ltd. (“STARC”) and Corrpro Companies, Inc. (“Corrpro”), a subsidiary of the Company. Based in Al-Khobar, Saudi Arabia since 1992, STARC delivers a wide range of products and services for its clients in the oil, gas, power and desalination industries. The joint venture, Corrpower International Limited (“Corrpower”), which is seventy percent (70%) owned by Corrpro and thirty percent (30%) by STARC, will provide a fully integrated corrosion protection product and service offering to government and private sector clients throughout the Kingdom of Saudi Arabia, including engineering, product and material sales, construction, installation, inspection, monitoring and maintenance. The joint venture will serve as a platform for the continued expansion of the Company’s Energy and Mining group in the Middle East. Corrpower is expected to commence providing corrosion protections services by early 2012.

In April 2011, the Company organized a joint venture, Bayou Wasco Insulation, LLC (“Bayou Wasco”) to provide insulation services primarily for projects located in the United States, Central America, the Gulf of Mexico and the Caribbean Sea. The Company holds a fifty-one percent (51%) majority interest in Bayou Wasco, while Wasco Energy Ltd., a subsidiary of Wah Seong Corporation Berhad (“Wasco Energy”), owns the remaining interest. Bayou Wasco is expected to commence providing insulation services by late 2012.

In April 2011, the Company also expanded its Corrpro and United Pipeline Systems (“UPS”) operations in Asia and Australia through its joint venture, WCU Corrosion Technologies Pte. Ltd. (“WCU”), located in Singapore. WCU will offer the Company’s Tite Liner® process in the oil and gas sector and onshore corrosion services, each in Asia and Australia. The Company holds a forty-nine percent (49%) ownership interest in WCU, while Wasco Energy owns the remaining interest. WCU immediately began marketing its products and services (see “Investments in Affiliated Companies” for additional detail).

In February 2010, the Company expanded its pipe coating services through the formation of Delta Double Jointing LLC (“Bayou Delta”) through which the Company offers pipe jointing and other services for the steel-coated pipe industry. The Company, through its Bayou subsidiary, owns a fifty-nine percent (59%) ownership interest in Bayou Delta with the remaining forty-one percent (41%) ownership belonging to Bayou Coating, L.L.C. (“Bayou Coating”), which the Company, through its Bayou subsidiary, holds a forty-nine percent (49%) equity interest.

On January 29, 2010, the Company acquired its Singapore licensee, Insitu Envirotech (S.E. Asia) Pte. Ltd. (“Insituform-Singapore”), in order to expand its Singapore operations. The purchase price was $1.3 million. This entity is now a wholly-owned subsidiary.