Note 1 - General

3 Months Ended

Mar. 31, 2012

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

1.     GENERAL

The accompanying unaudited consolidated financial statements of Aegion Corporation and its subsidiaries (collectively, “Aegion” or the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of March 31, 2012 and the results of operations, comprehensive income, statements of equity and cash flows for the three months ended March 31, 2012 and 2011. 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2012. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation.

The results of operations for the quarter ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

Acquisitions/Strategic Initiatives

Energy and Mining Segment Expansion

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. 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 Companies (“Corrpro”) and United Pipeline Systems (“UPS”) operations in Asia and Australia through its joint venture, WCU Corrosion Technologies Pte. Ltd., located in Singapore (“WCU”). WCU offers the Company’s Tite Liner® process in the oil and gas sector and onshore corrosion services, in each of 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.

In June 2011, the Company created a joint venture in Saudi Arabia between Corrpro and Saudi Trading & Research Co., Ltd. (“STARC”). 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%) owned 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 commenced providing corrosion protections services in early 2012.

In June 2011, the Company acquired all of the outstanding stock of CRTS, Inc., an Oklahoma company (“CRTS”). CRTS delivers patented and proprietary internal and external coating services and equipment for new pipeline construction projects from offices in North America, the Middle East and South America. 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 purchase price paid at closing was funded by borrowings against the Company’s prior line of credit.

In August 2011, the Company purchased the assets of Hockway Limited and the capital stock of Hockway Middle East FZE, 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 products. 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.

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 fifty-one percent (51%) of the joint venture and APTec owns the remaining forty-nine percent (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 began in the fourth quarter of 2011 and is expected to be completed by early 2013.

In March 2012, the Company organized United Special Technical Services LLC (“USTS”), a joint venture located in the Sultanate of Oman between United Pipeline Systems and Special Technical Services LLC (“STS”) for the purpose of executing pipeline, piping and flowline high-density polyethylene lining services throughout the Middle East and Northern Africa. Pursuant to the agreement, the Company will hold a fifty-one percent (51%) equity interest in USTS and STS will hold the other forty-nine percent (49%) equity interest. USTS initiated operations in the second quarter of 2012.

The Company believes its recent acquisitions of CRTS and Hockway and the Bayou Wasco, WCU, Corrpower, UPS-APTec Limited and USTS joint ventures will accelerate the Company’s Energy and Mining group’s growth throughout the Middle East and Northern Africa and strengthen the technical resources of the Energy and Mining platform.

New Commercial and Structural Reportable Segment

On August 31, 2011, the Company purchased the North American business of Fyfe Group, LLC (“Fyfe NA”) for a purchase price at closing of $115.8 million (subject to working capital adjustments calculated from an agreed upon target), which was funded by borrowings under 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 has a comprehensive portfolio of patented and other proprietary technologies and products, including its Tyfo® Fibrwrap® System, the first and most comprehensive 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. This purchase resulted in a new reportable segment for the Company, the Commercial and Structural segment.

On January 4, 2012, the Company purchased Fyfe Group’s Latin American operations (“Fyfe LA”), which included all of the equity interests of Fyfe Latin America S.A., a Panamanian entity (and its interest in various joint ventures located in Peru, Costa Rica, Chile and Colombia), Fyfe – Latin America S.A. de C.V., an El Salvador entity, and Fibrwrap Construction Latin America S.A., a Panamanian entity. The cash purchase price at closing was $2.3 million. During the first quarter of 2012, we paid the sellers an additional $1.1 million based on the preliminary working capital adjustment. The sellers have the ability to earn up to an additional $0.8 million of proceeds based on reaching certain performance targets in the year ending December 31, 2012 and upon completion of 2011 and 2012 audited financials based upon a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”) calculation. The Company recorded $0.1 million as its fair value estimate of this liability. Additionally, an annual payout can be earned based on the achievement of certain performance targets over the three-year period ending December 31, 2014 (the “Fyfe LA earnout”). The Company recorded $0.7 million as its fair value estimate of the Fyfe LA earnout liability. Fyfe LA provides Fibrwrap installation services throughout Latin America, as well as provides product and engineering support to installers and applicators of the FRP systems in Latin America. The purchase price was funded out of the Company’s cash balances. Fyfe LA is included in the Company’s Commercial and Structural reportable segment.

On April 5, 2012, the Company purchased Fyfe Group’s Asian operations (“Fyfe Asia”), which is based in Singapore, including its operations in Singapore, Hong Kong, Malaysia, Japan, Indonesia and Brunei. Customers in India and China will be served through an exclusive product supply and license agreement. The purchase price was $40.7 million. The acquisition also includes the patent portfolio of Fyfe Asia. Fyfe Asia will continue to actively research and develop improved products and processes for the structural repair, strengthening and restoration of buildings, bridges and other infrastructure using advanced composites. The purchase price was funded out of the Company’s cash balances and by borrowing $18.0 million against the Company’s line of credit. The Company has not completed its initial assessment of purchase price accounting for this entity due to the timing of the acquisition.

The Company is in negotiations to acquire Fyfe Group’s European operations (“Fyfe Europe”) pursuant to the one-year exclusive negotiating right provided as part of the Fyfe NA transaction. The Company currently expects this transaction to close by September 30, 2012.

Purchase Price Accounting

The Company has substantially completed its accounting for the CRTS, Hockway and Fyfe NA acquisitions and completed its initial accounting for Fyfe LA 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. The goodwill associated with the CRTS, Hockway Limited and Fyfe LA acquisitions are not deductible for tax purposes. The goodwill associated with the Fyfe NA acquisition is deductible for tax purposes. Additionally, the Company recorded expenses of $0.6 million for costs incurred related to the acquisitions of Fyfe LA and Fyfe Asia in the quarter ended March 31, 2012.

The contingent consideration arrangements previously discussed require the Company to pay the former shareholders of CRTS, Hockway and Fyfe LA, respectively, additional payouts based on the achievement of certain performance targets over their respective three-year periods. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangements is between $0 and $17.3 million. As of March 31, 2012, the Company calculated the fair value of the contingent consideration arrangement to be $14.8 million for CRTS, $1.5 million for Hockway and $0.8 million in total for Fyfe LA. In accordance with FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), the Company determined that the CRTS earnout, Hockway earnout and Fyfe LA 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.

CRTS contributed $6.7 million and $1.2 million, respectively, of revenue and profits during for the quarter ended March 31, 2012. Hockway contributed $0.7 million and $0.1 million, respectively, of revenue and losses for the quarter ended March 31, 2012. Fyfe NA contributed $14.3 million and $1.0 million, respectively, of revenue and profits for the quarter ended March 31, 2012. Fyfe LA contributed $0.3 million and less than $0.1 million, respectively, of revenue and losses for the 87-day period ended March 31, 2012 (from date of acquisition). The following unaudited pro forma summary presents combined information of the Company as if these acquisitions had occurred on January 1, of the year preceding its acquisition (in thousands):

	Three Months Ended
	March 31,
	2012		2011
Revenues	$	230,593	$	221,470
Net income(1)		6,724		3,390

(1) Includes pro-forma adjustments for purchase price depreciation and amortization as if those intangibles were recorded as of January 1, of the year preceding its acquisition.

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

	CRTS		Hockway(1)		Fyfe NA(2)		Fyfe LA(3)		Total
Cash	$	24,000	$	3,552	$	118,118	$	3,349	$	149,019
Estimated fair value of earnout payments and final payments owed to shareholders		14,760		1,454		–		820		17,034
Total consideration recorded	$	38,760	$	5,006	$	118,118	$	4,169	$	166,053

(1) Includes the cash purchase price at closing of $4.6 million plus a final working capital adjustment of $1.0 million, which was returned to the Company in the first quarter of 2012.

(2) Includes the cash purchase price at closing of $115.8 million plus a preliminary working capital adjustment to the sellers of $2.3 million, of which $1.8 million was paid in 2011 and $0.5 million was paid in 2012.

(3) Includes the cash purchase price at closing of $2.3 million and an additional $1.1 million payment during the first quarter of 2012 based on a preliminary working capital adjustment to the sellers.

The Company has completed an initial purchase price accounting of the CRTS, Hockway, Fyfe NA and Fyfe LA 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			Fyfe LA
Cash	$	361		$	536		$	1,096		$	301
Receivables and cost and estimated earnings in excess of billings		2,365			2,341			16,019			576
Inventories		21			623			5,977			514
Prepaid expenses and other current assets		175			228			792			75
Property, plant and equipment		5,350			324			1,064			90
Identified intangible assets		26,220			2,200			53,768			1,402
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings		(2,830	)		(1,767	)		(3,642	)		(505	)
Deferred tax liabilities		(11,395	)		–			–			–
Total identifiable net assets	$	20,267		$	4,485		$	75,074		$	2,453
Total consideration recorded	$	38,760		$	5,006		$	118,118		$	4,169
Less: total identifiable net assets		20,267			4,485			75,074			2,453
Goodwill at March 31, 2012	$	18,493		$	521		$	43,044		$	1,716

The following adjustments were made during the quarter ended March 31, 2012, after the transactions’ respective acquisition dates as the Company continued its purchase price accounting:

	Hockway			Fyfe NA
Total identifiable net assets at December 31, 2011	$	4,078		$	75,074
Receivables and cost and estimated earnings in excess of billings		348			–
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings		59			–
Total identifiable net assets at March 31, 2012		4,485			75,074
Goodwill at December 31, 2011	$	1,982		$	43,239
Decrease in goodwill related to acquisitions		(1,461	)		(195	)
Goodwill at March 31, 2012	$	521		$	43,044