Note 1 - General | 9 Months Ended |
Sep. 30, 2013 |
General [Abstract] | ' |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | ' |
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 September 30, 2013 and the results of operations and statements of comprehensive income for the quarters and nine-month periods ended September 30, 2013 and 2012 and the statements of equity and cash flows for the nine-month periods ended September 30, 2013 and 2012. 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 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2013. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation. |
The results of operations for the quarter and nine-month period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year. |
Acquisitions/Strategic Initiatives/Divestitures |
Energy and Mining Segment |
On July 1, 2013, the Company acquired the equity interests of Brinderson, L.P., a California limited partnership, General Energy Services, a California corporation, and Brinderson Constructors, Inc., a California corporation (collectively, “Brinderson”). The cash purchase price at closing was $147.6 million (subject to working capital adjustments) and funded by borrowings under the Company’s new $650.0 million senior secured credit facility as discussed in Note 5 of this report. Brinderson is a leading integrated service provider of maintenance, construction, engineering and turnaround activities for the upstream and downstream oil and gas markets. Primarily focused on serving large oil and gas customers in California, Brinderson’s competitive advantages include its industry-leading safety record, a strong reputation for reliability and quality and comprehensive solutions needed for upstream oil field and downstream major refinery maintenance, repairs and retrofits. These core competencies position Brinderson to meet the growing demand for non-discretionary operating and maintenance expenditures. |
During the second quarter of 2013, the Company’s Board of Directors approved a plan of liquidation for its Bayou Welding Works (“BWW”) business in an effort to improve the Company’s overall financial performance and align the operations with its long-term strategic initiatives. BWW provided specialty welding and fabrication services from its facility in New Iberia, Louisiana. Financial results for BWW were part of the Company’s Energy and Mining segment for financial reporting purposes. BWW ceased bidding new work and substantially completed all ongoing projects during the second quarter of 2013. As a result of the closure of BWW, Aegion recognized a pre-tax, non-cash charge of approximately $3.9 million ($2.4 million after-tax, or $0.06 per diluted share) to reflect the impairment of goodwill and intangible assets. The Company also recognized additional non-cash impairment charges for equipment and other assets of approximately $1.1 million on a pre-tax basis ($0.7 million on an after-tax basis, or $0.02 per diluted share), which also was recorded in the second quarter of 2013. The Company expects the cash liquidation value to approximate net asset value. Net asset value is determined using recorded amounts for assets and liabilities, which are based on Level 3 inputs as defined in Note 10 of this report. The Company also incurred cash charges to exit the business of approximately $0.1 million on a pre-tax and post-tax basis, which included property, equipment and vehicle lease termination and buyout costs, employee termination benefits and retention incentives, among other ancillary shut-down expenses. |
In June 2011, the Company acquired all of the outstanding stock of CRTS, Inc. (“CRTS”). The purchase price at closing included a provision whereby CRTS shareholders would 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”). During the third quarter of 2013 and 2012, the Company reversed $2.8 million and $5.9 million, respectively, related to the CRTS earnout. In each year, operating results have been below the target amounts in the purchase agreement. As of September 30, 2013, the Company calculated the fair value of the contingent consideration arrangement to be $1.1 million, which is based on Level 3 inputs as defined in Note 10 of this report. |
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, an Omani company (“STS”), for the purpose of executing pipeline, piping and of flow line high-density polyethylene lining services throughout the Middle East and Northern Africa. The Company holds a fifty-one percent (51%) equity interest in USTS and STS holds the remaining forty-nine percent (49%) equity interest. USTS initiated operations in the second quarter of 2012. |
Starting in February 2014, and solely during the month of January in each calendar year thereafter, the Company’s equity partner in Bayou Coating, L.L.C. (“Bayou Coating”), Stupp Brothers Inc. (“Stupp”), has the option to acquire: (i) the assets of Bayou Coating at book value as of the end of the prior fiscal year, or (ii) the Company’s equity interests in Bayou Coating at forty-nine percent (49%) of the book 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. During 2013, the Company received an indication from Stupp that it intends to exercise the equity interest option in January 2014. In connection with this indication, in the second quarter of 2013, 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 Company’s 2009 acquisition of The Bayou Companies, LLC (“Bayou”). The non-cash charge represents the Company’s current estimate of the difference between the carrying value of the investment on the Company’s balance sheet and the amount the Company may receive in connection with the exercise. The Company is currently evaluating and gathering more information regarding additional potential financial impacts associated with the exercise of this option. The Company does not expect any additional material impacts to its consolidated balance sheet related to Stupp’s exercise of this option. |
Water and Wastewater Segment |
In June 2013, the Company sold its fifty percent (50%) interest in Insituform Rohrsanierungstechniken GmbH (“Insituform-Germany”), held through its indirect subsidiary, Insituform Technologies Limited (UK), to Per Aarsleff A/S, a Danish company (“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 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) recorded in other income (expense) on the consolidated statement of operations. 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. |
Commercial and Structural Segment |
In April 2012, the Company purchased Fyfe Group LLC’s Asian operations (“Fyfe Asia”), which included all of the equity interests of Fyfe Asia Pte. Ltd, a Singaporean entity (and its interest in two joint ventures located in Borneo and Indonesia), Fyfe (Hong Kong) Limited, Fibrwrap Construction (M) Sdn Bhd, a Malaysian entity, Fyfe Japan Co. Ltd and Fibrwrap Construction Pte. Ltd and Technologies & Art Pte. Ltd., Singaporean entities. Customers in India and China will be served through an exclusive product supply and license agreement. Fyfe Asia provides Fibrwrap® installation services throughout Asia, as well as provides product and engineering support to installers and applicators of fiber reinforced polymer systems in Asia. The cash purchase price at closing was $40.7 million. 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. |
In January 2012, the Company purchased Fyfe Group LLC’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 Salvadorian entity, and Fibrwrap Construction Latin America S.A., a Panamanian entity. Fyfe LA provides Fibrwrap® installation services throughout Latin America, as well as product and engineering support to installers and applicators of fiber reinforced polymer systems in Latin America. The cash purchase price at closing was $2.3 million and funded out of the Company’s cash balances. During the first quarter of 2012, the Company paid the sellers an additional $1.1 million based on a preliminary working capital adjustment. An annual payout can be earned based on the achievement of certain performance targets in each year over the three-year period ending December 31, 2014. No annual payout has been earned to date as the performance targets have not been met. As of September 30, 2013, the Company calculated the fair value of the contingent consideration arrangement to be $0.3 million, which is based on Level 3 inputs as defined in Note 10 of this report. |
Purchase Price Accounting |
The Company accounts for its acquisitions in accordance with FASB ASC 805, Business Combinations. The Company records finite-lived intangible assets at their determined fair value related to customer relationships, backlog, trade names and trademarks and patents and other acquired technologies. The acquisitions generally result in goodwill related to, among other things, growth opportunities and synergies. The goodwill associated with the Brinderson acquisition is deductible for tax purposes. The Company completed its accounting for Fyfe LA and Fyfe Asia during the quarters ended December 31, 2012 and March 31, 2013, respectively. During the third quarter of 2013, the Company included its preliminary accounting for Brinderson. |
The Fyfe LA, Fyfe Asia and Brinderson acquisitions made the following contributions to the Company’s revenues and profits during the quarters and nine months ended September 30, 2013 and 2012 (in thousands): |
|
| | | | | | | | | | | | | | | |
| Quarters Ended | | Quarters Ended |
30-Sep-13 | 30-Sep-12 |
| Brinderson | | Fyfe Asia/ | | Brinderson | | Fyfe Asia/ |
Fyfe LA | Fyfe LA |
Revenues | $ | 47,948 | | | $ | 4,574 | | | $ | — | | | $ | 3,985 | |
|
Net income (1) | 1,225 | | | 149 | | | — | | | 179 | |
|
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
30-Sep-13 | 30-Sep-12 |
| Brinderson | | Fyfe Asia/ | | Brinderson | | Fyfe Asia/ |
Fyfe LA | Fyfe LA |
Revenues | $ | 47,948 | | | $ | 12,530 | | | $ | — | | | $ | 8,457 | |
|
Net income (1) | 1,225 | | | 519 | | | — | | | 135 | |
|
_____________________ |
| | | | | | | | | | | | | | | |
(1) | Net income includes an allocation of corporate expenses that is not necessarily an indication of the entity’s operations on a stand alone basis. | | | | | | | | | | | | | | |
The following unaudited pro forma summary presents combined information of the Company as if the Fyfe LA, Fyfe Asia and Brinderson acquisitions had occurred on January 1, 2012 (in thousands): |
| | |
| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended | | |
September 30, | September 30, | | |
| 2013 | | 2012 | | 2013 | | 2012 | | |
Revenues | n/a (1) | | $ | 316,984 | | | $ | 885,842 | | | $ | 905,282 | | | |
| |
Net income (2) | n/a (1) | | 22,401 | | | 40,889 | | | 44,758 | | | |
| |
_____________________ |
| | | | | | | | | | | | | | | |
(1) | Amounts are presented in the unaudited consolidated statement of operations for the quarter ended September 30, 2013. | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(2) | Includes pro-forma adjustments for purchase price depreciation and amortization as if those intangibles were recorded as of January 1 of the year preceding the respective acquisition date. | | | | | | | | | | | | | | |
Total cash consideration recorded to acquire Fyfe Asia was $40.1 million. This amount included purchase price at closing of $40.7 million less a final working capital adjustment of $0.6 million. Total cash consideration recorded to acquire Brinderson at its acquisition date was $147.6 million (subject to working capital adjustments). |
The following table summarizes the fair value of identified assets and liabilities of the Brinderson and Fyfe Asia acquisitions at their respective acquisition dates (in thousands): |
| | | | | | | | |
| | | | | | | | | | | | | | | |
| Brinderson | | Fyfe Asia | | | | | | | | |
| | | | | | | |
Cash | $ | 3,842 | | | $ | 1,303 | | | | | | | | | |
| | | | | | | |
Receivables and cost and estimated earnings in excess of billings | 28,353 | | | 9,022 | | | | | | | | | |
| | | | | | | |
Prepaid expenses and other current assets | 655 | | | 1,262 | | | | | | | | | |
| | | | | | | |
Property, plant and equipment | 6,848 | | | 938 | | | | | | | | | |
| | | | | | | |
Identified intangible assets | 60,210 | | | 14,130 | | | | | | | | | |
| | | | | | | |
Other assets | 1,071 | | | — | | | | | | | | | |
| | | | | | | |
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings | (16,072 | ) | | (4,109 | ) | | | | | | | | |
Deferred tax liabilities | — | | | (2,410 | ) | | | | | | | | |
| | | | | | | |
Total identifiable net assets | $ | 84,907 | | | $ | 20,136 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | |
Total consideration recorded | 147,605 | | | 40,144 | | | | | | | | | |
| | | | | | | |
Less: total identifiable net assets | 84,907 | | | 20,136 | | | | | | | | | |
| | | | | | | |
Goodwill at September 30, 2013 | $ | 62,698 | | | $ | 20,008 | | | | | | | | | |
| | | | | | | |
The following adjustments were made during the first quarter of 2013 relative to the acquisition of Fyfe Asia as the Company finalized its purchase price accounting (in thousands): |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total identifiable net assets at December 31, 2012 | $ | 20,342 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings | 206 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Total identifiable net assets at September 30, 2013 | $ | 20,136 | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | |
Goodwill at December 31, 2012 | $ | 19,802 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Increase in goodwill related to acquisition | 206 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Goodwill at September 30, 2013 | $ | 20,008 | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | |