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Aegion Reports 2014 Third Quarter Financial Results

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Aegion Corporation (Nasdaq Global Select Market: AEGN) today reported financial results for the third quarter and first nine months of 2014. For the third quarter, Aegion reported a loss from continuing operations of $16.9 million, or $0.45 per diluted share, compared to income from continuing operations of $14.5 million, or $0.37 per diluted share, in the third quarter of 2013. Pre-tax restructuring and impairment related charges totaled $40.0 million in the third quarter of 2014. Excluding the pre-tax restructuring and impairment related charges in the third quarter of 2014 and acquisition-related expenses in the prior year quarter, non-GAAP income from continuing operations was $16.1 million, or $0.43 per diluted share, for the third quarter of 2014 compared to $17.0 million, or $0.44 per diluted share, for the prior year quarter.

The results in the third quarter of 2013 included $2.8 million, or $0.07 per diluted share, of earnout reversals, and $1.7 million, or $0.04 per diluted share, from equity earnings of Bayou Coatings, L.L.C., Aegion’s pipeline coating joint venture, which was sold on March 31, 2014.

For the first nine months of 2014, Aegion reported GAAP income from continuing operations of $0.4 million, or $0.01 per diluted share, compared to income from continuing operations of $36.3 million, or $0.93 per diluted share, in the prior year period. Excluding pre-tax restructuring and impairment related charges and acquisition-related expenses, non-GAAP income from continuing operations for the first nine months of 2014 totaled $34.0 million, or $0.89 per diluted share, compared to $34.0 million, or $0.87 per diluted share, for the first nine months of 2013.

The results in the first nine months of 2013 included the earnout reversal mentioned above and $3.9 million, or $0.10 per diluted share, from equity earnings of affiliated companies related to Bayou Coatings, L.L.C.

Charles R. Gordon, Aegion’s President and Chief Executive Officer, commented, “Third quarter performance was in line with our updated 2014 outlook announced in early October. We have the necessary backlog to finish the year in line with revised earnings guidance of $1.27 to $1.37 per diluted share. The realignment effort currently underway will position Aegion to better serve our clients through a more integrated sales strategy, realize significant cost savings and allow management to focus more attention on areas with opportunities for sustainable growth. The diversity of our end markets buffers the effect of market cycles and periods of commodity price volatility. Our current view is that the expected demand for the maintenance services offered by Corrpro, United Pipeline Systems and Brinderson for midstream pipeline infrastructure and downstream refineries remains favorable. For a smaller part of the overall business, we are assessing the impact of lower oil prices on new pipeline infrastructure projects. We also are engaged in a comprehensive planning process for 2015 that is focused on assessing all of the end markets we serve, and further improving our project execution capabilities. Fundamentally, we believe Aegion has a solid foundation for organic growth, with significantly improved results expected across all three platforms in 2015.”

Realignment and Restructuring Plan

On October 6, 2014, the Company announced a strategic Realignment and Restructuring Plan consisting of the following:

  • Beginning in the fourth quarter of 2014, realign the reporting segments by combining Commercial and Structural and Water and Wastewater to form the Infrastructure Solution segment; form the Energy Services segment consisting of Brinderson; and create the Corrosion Protection segment with the remaining Energy and Mining businesses.
  • Exit Insituform’s contracting operations in France, Switzerland, India, Hong Kong, Malaysia and Singapore.
  • Optimize Bayou’s coating facilities in Louisiana, including the shutdown of under-utilized coating plants, to improve operating efficiencies and reduce costs.

In the third quarter of 2014, the Company recorded certain pre-tax charges of $40.0 million ($33.0 million after-tax, or $0.88 per diluted share) related to the strategic Realignment and Restructuring Plan. All of the charges recorded during the third quarter of 2014 were non-cash and consisted of the following:

  • $17.8 million associated with the write-down or write-off of tangible assets primarily related to Insituform’s contracting activities in France, Switzerland, India, Hong Kong, Malaysia and Singapore.
  • $11.3 million associated with the write-down of fixed assets and $10.9 million associated with the write-off of definite-lived intangibles as a result of impairment of certain assets at Bayou’s operations in Louisiana.

In addition, the Company reviewed goodwill for impairment at the Bayou, Europe and Asia reporting units and determined that adjustments to the carrying value of these assets were not necessary based on the results of the impairment test.

The effective tax rate on all pre-tax restructuring and impairment related charges for the third quarter was 17.3 percent, which reflects the non-deductibility of certain charges, along with the impact of valuation allowances of deferred tax assets due to the likely inability to generate future taxable income to recover tax losses. Also included are the estimated tax impacts of write-downs of certain inter-company loans not expected to be recovered from the operations being restructured.

The Company expects cash charges of $15 million to $18 million to be incurred from the fourth quarter of 2014 through the third quarter of 2015 for employee severance, extension of benefits, employment assistance programs and other costs associated with the restructuring. Additional non-cash charges related to the various restructured operations could potentially be recorded between the fourth quarter of 2014 and the third quarter of 2015.

The strategic Realignment and Restructuring Plan is expected to generate annual savings of $8 to $11 million, or $0.15 to $0.20 per diluted share, on a GAAP basis, with $0.03 to $0.04 per diluted share expected to be recognized in the fourth quarter of 2014.

Management is currently conducting a further evaluation of certain legal matters, which may result in litigation reserves related to outstanding receivables. Any such litigation reserve would be outside of the Company’s current non-GAAP earnings per share guidance.

Consolidated Highlights

Third Quarter 2014 versus Third Quarter 2013

(Excluding pre-tax restructuring and impairment related charges in the current quarter and acquisition-related expenses in the prior year quarter)

Consolidated revenues increased $42.5 million, or 13.8 percent, to $350.1 million. Energy and Mining revenues increased 17.1 percent, or $28.8 million, to $197.5 million. Brinderson reported record billable hours in the downstream segment which resulted in a $29.4 million, or 61.3 percent, increase in revenue. Corrpro grew revenues double digits on the strength of its Canadian business and a record backlog position. Bayou increased revenues approximately 30 percent due to strong performance in Canada and the successful completion of several small projects at the Louisiana pipe coating facility. United Pipeline Systems and CRTS each reported revenue declines as a result of project delays and lower backlog in certain geographies. Water and Wastewater revenue increased 11.1 percent, or $13.5 million, to $135.6 million. Insituform’s North American business grew revenues mid-teens to a record quarterly high, offsetting a modest revenue decline from the Asia-Pacific business.

Consolidated gross profit increased $9.5 million, or 13.6 percent, to $78.9 million. Energy and Mining gross profit increased 9.7 percent, or $3.6 million, to $40.7 million. However, Energy and Mining gross margins contracted by 140 basis points to 20.6 percent. A greater mix of lower margin downstream revenues for Brinderson and cathodic protection construction installation activities for Corrpro were the primary reasons for the margin reduction. A revenue decline from the higher margin United Pipeline Systems and CRTS businesses was another contributing factor. Water and Wastewater increased gross profit by $3.8 million, or 14.5 percent, to $30.3 million due to strong revenue growth in North America, which resulted in the highest gross margin percentage since 2010. Commercial and Structural gross profit was $7.8 million, an increase of $2.0 million or 34.7 percent, primarily due to growth in the Asian business, along with improved project execution in the North American operation. Commercial and Structural gross margins were 46.2 percent in the quarter compared to 34.6 percent in the prior year quarter.

Consolidated operating expenses increased 10.2 percent, or $4.9 million, to $52.9 million. Energy and Mining operating expenses increased $3.4 million, or 13.8 percent, to $28.2 million due to investments made to enhance sales and business development activities and to expand in the Middle East market. Water and Wastewater reported a $1.7 million, or 10.1 percent, increase in operating expenses primarily due to project execution investments. Commercial and Structural operating expenses declined $0.2 million, or 2.5 percent, from cost management efforts after the investments were made to reestablish growth in the North American business. As a percentage of consolidated sales, operating expenses decreased 50 basis points to 15.1 percent. Water and Wastewater, Commercial and Structural and Energy and Mining segments reduced operating expense to sales by 10 basis points, 140 basis points and 40 basis points, respectively, as a result of strong revenue growth and cost management efforts.

Consolidated operating income increased $1.7 million, or 7.1 percent, to $26.0 million. Water and Wastewater and Commercial and Structural segments each increased operating income by $2.2 million to $12.3 million and $1.3 million, respectively. Operating income for Energy and Mining declined $2.7 million to $12.5 million.

Cash Flow

Net cash flow provided by continuing operations for the first nine months of 2014 was $8.7 million compared to $41.6 million provided in the first nine months of 2013. The reduction in operating cash flow compared to 2013 was primarily due to a significant increase in revenues booked in September, which increased trade receivable by over $38 million compared to the second quarter of 2014. The Company expects to collect a significant portion of these receivables in the fourth quarter, which is typically the largest for cash collections.

Net cash flow used by investing activities in the first nine months of 2014 was $16.9 million, compared to $144.2 million in the first nine months of 2013, as a result of the $150 million acquisition of Brinderson on July 1, 2013. Capital expenditures in the first nine months of 2014 were $25.1 million compared to $20.1 million in the first nine months of 2013. The increase was due to the addition of Brinderson and more maintenance capital to support Insituform’s growing North American business. On March 31, 2014, the Company sold 49% ownership interest in Bayou Coating, L.L.C. for $9.1 million following the majority partner’s exercise of its buy-out right. On June 30, 2013, the Company received $18.3 million in connection with the sale of the Company’s 50 percent interest in its German joint venture.

Net cash flows from financing activities used $27.2 million during the first nine months of 2014 compared to $112.7 million provided in the first nine months of 2013. During the first nine months of 2014, the Company used $31.1 million to repurchase 1,333,690 shares of common stock through open market purchases and in connection with the Company’s equity compensation programs, as compared to $19.0 million to repurchase 833,552 shares of common stock in the first nine months of 2013. During the first nine months of 2014, the Company made scheduled principal payments on its long-term debt of $15.5 million. During the first nine months of 2013, the Company entered into a new credit facility and borrowed $147.6 million to fund the purchase of Brinderson and used $5.0 million for facility financing fees. Additionally, the Company used cash of $16.9 million to pay down the principal balance of the term loans associated with the credit facility.

Net cash flow for the first nine months of 2014 was an outflow of $42.1 million compared to an outflow of $7.0 million in the first nine months of 2013.

Consolidated Backlog

AEGION CORPORATION AND SUBSIDIARIES

CONTRACT BACKLOG

(Unaudited, in millions)

September 30,

2014

June 30,
2014
December 31,

2013

September 30,

2013

Energy and Mining (1) $ 419.7 $ 463.5 $ 429.1 $ 384.7
Water and Wastewater 292.0 317.3 280.1 284.7
Commercial and Structural 40.2 48.4 49.8 48.2
Total backlog $ 751.9 $ 829.2 $ 759.0 $ 717.6

(1) September 30, 2014, June 30, 2014, December 31, 2013 and September 30, 2013 included backlog from Brinderson of $219.3 million, $248.1 million, $268.3 million and $209.2 million, respectively. Brinderson backlog represents expected revenues to be realized under long-term Master Service Agreements (“MSAs”) and other signed contracts. If the remaining term of these arrangements exceeds 12 months, the unrecognized revenues attributable to such arrangements included in backlog are limited to only the next 12 months of expected revenues.

September 30, 2014 versus September 30, 2013

Energy and Mining segment contract backlog increased 9.1 percent to $419.7 million. Corrpro achieved record backlog. CRTS was awarded $30 million for projects in Chile and the Middle East. Backlog for Bayou increased significantly, despite the third quarter cancellation of a $34 million onshore pipe coating project in the United States included in June 30, 2014 backlog, because of increased project activity in Canada. Backlog for United Pipeline Systems declined due to the completion of the large Moroccan project in late 2013, a slowdown in the international mining market and delays in typical work releases in the United States that are anticipated to be awarded in the fourth quarter. The decline was partially offset by increased project activity in the Canadian market. Brinderson’s backlog increased 4.9 percent to $219.3 million as a result of new multi-year maintenance contracts awarded at the end of 2013. This added $70 million of incremental annual revenues, offset by $70 to $80 million in pending maintenance contract renewals that are not included in September 30, 2014 backlog that will likely be determined in the fourth quarter (such contracts were included in September 30, 2013 reported backlog). Energy and Mining backlog as of September 30, 2014 compared to June 30, 2014 declined $43.8 million, or 9.4 percent, because of the large Bayou pipe coating contract cancellation and pending awards for Brinderson.

Contract backlog for Water and Wastewater increased $7.3 million, or 2.6 percent, to $292.0 million. The North American market continues to benefit from solid municipal spending as backlog increased 7.1 percent. As expected, backlog in the international markets declined compared to the prior year and the second quarter of 2014 as Aegion proceeds with the strategic Realignment and Restructuring Plan, which includes exiting contract markets in France, Switzerland, India, Hong Kong, Malaysia and Singapore. Compared to June 30, 2014, backlog declined $25.3 million, or 8.0 percent, because of strong North America revenue growth resulting in higher book-to-bill in the third quarter and the decline in the international contracting backlog.

Commercial and Structural contract backlog declined $8.0 million, or 16.6 percent, to $40.2 million. The decline in backlog reflects improved project activity and the inherent quick book-to-bill aspect of the business. In Asia, backlog remains at a high level primarily from strong activity in Hong Kong and Singapore.

Segment Reporting

Energy and Mining

($ in thousands) Quarter Ended September 30, 2014 Quarter Ended September 30, 2013
As

Reported

(GAAP)

Adjustments (1) As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

Adjustments (2) As

Adjusted

(Non-GAAP)

Revenues $ 197,510 $ $ 197,510 $ 168,708 $ $ 168,708
Cost of revenues 168,130 (11,338 ) 156,792 131,590 131,590
Gross profit 29,380 11,338 40,718 37,118 37,118
Gross profit margin 14.9 % 20.6 % 22.0 % 22.0 %
Operating expenses 28,241 28,241 24,821 24,821
Definite-lived intangible asset impairment 10,896 (10,896 )
Earnout reversal (2,844 ) (2,844 )
Acquisition-related expenses 2,267 (2,267 )
Operating income/(loss) (9,757 ) 22,234 12,477 12,874 2,267 15,141
Operating margin (4.9 )% 6.3 % 7.6 % 9.0 %

(1) Includes pre-tax restructuring and impairment related charges for Bayou’s operation of $11,338 for the write-down of long-lived assets and $10,896 related to the write-off of definite-lived intangible assets (non-GAAP).

(2) Includes expenses incurred in conjunction with the acquisition of Brinderson, L.P. in July 2013 and other acquisition activity pursued by the Company during the quarter (non-GAAP).

($ in thousands) Nine Months Ended September 30, 2014 Nine Months Ended September 30, 2013
As

Reported

(GAAP)

Adjustments (1) As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

Adjustments (2) As

Adjusted

(Non-GAAP)

Revenues $ 557,028 $ $ 557,028 $ 385,991 $ $ 385,991
Cost of revenues 456,172 (11,338 ) 444,834 298,313 298,313
Gross profit 100,856 11,338 112,194 87,678 87,678
Gross profit margin 18.1 % 20.1 % 22.7 % 22.7 %
Operating expenses 83,760 (539 ) 83,221 61,866 61,866
Definite-lived intangible asset impairment 10,896 (10,896 )
Earnout reversal (2,844 ) (2,844 )
Acquisition-related expenses 539 539 4,175 (4,175 )
Operating income 5,661 22,773 28,434 24,481 4,175 28,656
Operating margin 1.0 % 5.1 % 6.3 % 7.4 %

(1) Includes pre-tax restructuring and impairment related charges for Bayou’s operation of $11,338 for the write-down of long-lived assets and $10,896 related to the write-off of definite-lived intangible assets (non-GAAP).

(2) Includes expenses incurred in conjunction with the acquisition of Brinderson, L.P. in July 2013 and other acquisition activity pursued by the Company during the quarter (non-GAAP).

Third Quarter 2014 versus Third Quarter 2013

(Excluding pre-tax restructuring and impairment related charges in the current quarter and acquisition-related expenses in the prior year quarter)

Energy and Mining operating income decreased $2.7 million, or 17.6 percent, to $12.5 million largely attributable to soft market conditions in several of United Pipeline System’s international markets, delayed work releases in the United States and the completion of the large Morocco project in 2013 with no comparable contribution during the third quarter of 2014. Corrpro experienced lower gross margins as a result of a higher proportion of construction-related cathodic protection installation activities. Production on the CRTS/Wasit project proceeded more slowly than during the prior year period. Offsetting these decreases were operating income growth from Brinderson and a small profit from Bayou’s operations in Canada and Louisiana.

Water and Wastewater

($ in thousands) Quarter Ended September 30, 2014 Quarter Ended September 30, 2013
As

Reported

(GAAP)

Adjustments (1) As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

Adjustments As

Adjusted

(Non-GAAP)

Revenues $ 135,649 $ $ 135,649 $ 122,149 $ $ 122,149
Cost of revenues 108,930 (3,602 ) 105,328 95,676 95,676
Gross profit 26,719 3,602 30,321 26,473 26,473
Gross profit margin 19.7 % 22.4 % 21.7 % 21.7 %
Operating expenses 32,169 (14,117 ) 18,052 16,402 16,402
Operating income/(loss) (5,450 ) 17,719 12,269 10,071 10,071
Operating margin (4.0 )% 9.0 % 8.2 % 8.2 %

(1) Includes pre-tax restructuring and impairment related charges of: $3,602 which are associated with inventory obsolescence and the write-down of long-lived assets; as $14,117 related to bad debt expenses, write-off of certain other assets and accrued expenses.

($ in thousands) Nine Months Ended September 30, 2014 Nine Months Ended September 30, 2013
As

Reported

(GAAP)

Adjustments (1) As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

Adjustments As

Adjusted

(Non-GAAP)

Revenues $ 371,493 $ $ 371,493 $ 341,680 $ $ 341,680
Cost of revenues 295,415 (3,602 ) 291,813 270,470 270,470
Gross profit 76,078 3,602 79,680 71,210 71,210
Gross profit margin 20.5 % 21.4 % 20.8 % 20.8 %
Operating expenses 65,854 (14,117 ) 51,737 49,538 49,538
Operating income 10,224 17,719 27,943 21,672 21,672
Operating margin 2.8 % 7.5 % 6.3 % 6.3 %

(1) Includes pre-tax restructuring and impairment related charges of: $3,602 which are associated with inventory obsolescence and the write-down of long-lived assets; as $14,117 is related to bad debt expenses, write-off of certain other assets and accrued expenses.

Third Quarter 2014 versus Third Quarter 2013

(Excluding pre-tax restructuring and impairment related charges in the current quarter)

Water and Wastewater grew operating income by $2.2 million, or 21.8 percent, to $12.3 million. This success is the product of greater workable backlog, improved gross margins and project cost estimating, improved bidding discipline and a continued focus on overall project management.

Commercial and Structural

($ in thousands) Quarters Ended September 30, Increase (Decrease)
2014 2013 $ %
Revenues $ 16,979 $ 16,808 $ 171 1.0 %
Gross profit 7,840 5,820 2,020 34.7
Gross profit margin 46.2 % 34.6 % n/a 1,160 bp
Operating expenses 6,567 6,733 (166 ) (2.5 )
Operating income/(loss) 1,273 (913 ) 2,186 239.4
Operating margin 7.5 % (5.4 )% n/a 1,290 bp
($ in thousands, except percentages) Nine Months Ended September 30, Increase (Decrease)
2014 2013 $ %
Revenues $ 50,719 $ 48,070 $ 2,649 5.5 %
Gross profit 19,986 17,228 2,758 16.0
Gross profit margin 39.4 % 35.8 % n/a 360 bp
Operating expenses 20,052 18,708 1,344 7.2
Operating loss (66 ) (1,480 ) 1,414 95.5
Operating margin (0.1 )% (3.1 )% n/a 300 bp

Third Quarter 2014 versus Third Quarter 2013

Commercial and Structural operating income increased $2.2 million, or 239.4 percent, due to strong project execution in the North American and Asian businesses and a small decrease in operating expense. The improved project execution in North America was the result of investments made in 2013 and 2014 to enhance operations and project management. Third quarter 2014 operating results improved $1.0 million from the second quarter of 2014, marking the fourth consecutive quarter of improved operating income.

About Aegion

Aegion Corporation is a global leader in infrastructure protection and maintenance, providing proprietary technologies and services: (i) to protect against the corrosion of industrial pipelines; (ii) to rehabilitate and strengthen water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures; and (iii) to utilize integrated professional services in engineering, procurement, construction, maintenance and turnaround services for a broad range of energy related industries. Our business activities include manufacturing, distribution, maintenance, construction, installation, coating and insulation, cathodic protection, research and development and licensing. More information about Aegion can be found on our internet site at www.aegion.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. We make forward-looking statements in this news release that represent our beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to us and on management’s beliefs, assumptions, estimates or projections and are not guarantees of future events or results. When used in this document, the words “anticipate,” “estimate,” “believe,” “plan,” “intend, “may,” “will” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Such statements are subject to known and unknown risks, uncertainties and assumptions, including those referred to in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on February 28, 2014, and in subsequently filed documents. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, our actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, we do not assume a duty to update forward-looking statements, whether as a result of new information, future events or otherwise. Investors should, however, review additional disclosures made by us from time to time in our filings with the Securities and Exchange Commission. Please use caution and do not place reliance on forward-looking statements. All forward-looking statements made by us in this news release are qualified by these cautionary statements.

Regulation G Statement

We have presented certain information in this release excluding certain items that impacted income, expense and earnings per share from continuing operations. The non-GAAP earnings per share in 2014 exclude the write-down of long-lived assets, the write-off of definite-lived intangible asset impairments, acquisition-related expenses and the loss on sale of our 49 percent interest in Bayou Coating, L.L.C. The non-GAAP earnings per share in 2013 exclude the earnings impact of acquisition-related expenses, the gain related to the sale of our German joint venture, charges associated with our decision to liquidate Bayou Welding Works and a goodwill write-off associated with the sale of our interest in Bayou Coating, L.L.C. Aegion management uses such non-GAAP information internally to evaluate financial performance for our operations, as we believe it allows us to more accurately compare our ongoing performance across periods.

Aegion(R), the Aegion(R) logo, Insituform(R), United Pipeline Systems(R), Bayou Companies(R), Corrpro(R), CRTS(R), Fyfe(R) and Brinderson(R) are registered trademarks of Aegion Corporation and its affiliates.

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share information)

For the Quarters Ended

September 30,

For the Nine Months Ended
September 30,
2014 2013 2014 2013
Revenues $ 350,138 $ 307,665 $ 979,240 $ 775,741
Cost of revenues 286,199 238,254 782,320 599,625
Gross profit 63,939 69,411 196,920 176,116
Operating expenses 66,977 47,956 169,666 130,112
Definite-lived intangible asset impairment 10,896 10,896
Earnout reversal (2,844 ) (2,844 )
Acquisition-related expenses 2,267 539 4,175
Operating income/(loss) (13,934 ) 22,032 15,819 44,673
Other income (expense):
Interest expense (3,258 ) (5,454 ) (9,693 ) (10,033 )
Interest income 102 40 479 158
Other (367 ) (522 ) (1,830 ) 6,561
Total other income (expense) (3,523 ) (5,936 ) (11,044 ) (3,314 )
Income/(loss) before taxes on income (17,457 ) 16,096 4,775 41,359
Taxes on income (1,356 ) 3,164 4,217 7,985
Income/(loss) before equity in earnings of affiliated companies (16,101 ) 12,932 558 33,374
Equity in earnings of affiliated companies 1,691 677 3,903
Income/(loss) from continuing operations (16,101 ) 14,623 1,235 37,277
Loss from discontinued operations (130 ) (558 ) (626 ) (6,456 )
Net income/(loss) (16,231 ) 14,065 609 30,821
Non-controlling interests (823 ) (127 ) (880 ) (959 )
Net income/(loss) attributable to Aegion Corporation $ (17,054 ) $ 13,938 $ (271 ) $ 29,862
Earnings per share attributable to Aegion Corporation:
Basic:
Income/(loss) from continuing operations $ (0.45 ) $ 0.37 $ 0.01 $ 0.94
Loss from discontinued operations (0.01 ) (0.02 ) (0.17 )
Net income/(loss) $ (0.45 ) $ 0.36 $ (0.01 ) $ 0.77
Diluted:
Income/(loss) from continuing operations $ (0.45 ) $ 0.37 $ 0.01 $ 0.93
Loss from discontinued operations (0.01 ) (0.02 ) (0.17 )
Net income/(loss) $ (0.45 ) $ 0.36 $ (0.01 ) $ 0.76
Weighted average shares outstanding – Basic 37,406,061 38,672,441 37,752,472 38,836,276
Weighted average shares outstanding – Diluted 37,406,061 39,071,373 38,112,789 39,228,625

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

For the Quarter Ended September 30, 2014

As Reported

(GAAP)

Restructuring
and
Impairment
Charges (1)

As Adjusted

(Non-GAAP)

Affected Line Items:
Cost of revenues $ 286,199 $ (14,940 ) $ 271,259
Gross profit 63,939 14,940 78,879
Operating expenses 66,977 (14,117 ) 52,860
Definite-lived intangible asset impairment 10,896 (10,896 )
Operating income (13,934 ) 39,953 26,019
Income/(loss) before taxes on income (17,457 ) 39,953 22,496
Taxes on income (1,356 ) 6,917 5,561
Income/(loss) from continuing operations attributable to Aegion Corporation (2) (16,924 ) 33,036 16,112
Diluted earnings per share:
Income/(loss) from continuing operations attributable to

Aegion Corporation (2)

$ (0.45 ) $ 0.88 $ 0.43

(1) Includes pre-tax restructuring and impairment related charges for cost of revenues of $14,940 related to the write-down of long-lived assets, inventory obsolescence and write-off of certain other assets; operating expenses of $14,117 related to the write-down of long-lived assets, bad debt expenses, write-off of certain other assets and accrued expenses; and impairment of definite-lived intangible assets of $10,896 related to Bayou’s reporting unit.

(2) Includes non-controlling interests.

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

For the Quarter Ended September 30, 2013

As Reported

(GAAP)

Acquisition-
Related

Expenses (1)

Credit

Facility

Fees (2)

As Adjusted

(Non-GAAP)

Affected Line Items:
Operating expenses $ 50,223 $ (2,267 ) $ $ 47,956
Operating income 22,032 2,267 24,299
Other income (expense):
Interest expense (5,454 ) 1,964 (3,490 )
Income before taxes on income 16,096 2,267 1,964 20,327
Taxes on income 3,164 902 782 4,848
Income from continuing operations attributable to Aegion Corporation (3) 14,496 1,365 1,182 17,043
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (3) $ 0.37 $ 0.03 $ 0.03 $ 0.44

(1) Includes expenses incurred in conjunction with the acquisition of Brinderson, L.P. in July 2013 and other acquisition activity pursued by the Company during the quarter (non-GAAP).

(2) Includes certain out-of-pocket expenses and acceleration of certain unamortized fees associated with the refinancing of the Company’s credit facility as part of the Brinderson acquisition (non-GAAP).

(3) Includes non-controlling interests and equity in earnings of affiliated companies.

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

For the Nine-Month Period Ended September 30, 2014

As Reported

(GAAP)

Restructuring
and
Impairment
Charges (1)

Acquisition-
Related
Expenses (2)

Loss on Sale of
Bayou Coating (3)

As Adjusted

(Non-GAAP)

Affected Line Items:
Cost of revenues $ 782,320 $ (14,940 ) $ $ $ 767,380
Gross profit 196,920 14,940 211,860
Operating expenses 170,205 (14,117 ) (539 ) 155,549
Definite-lived intangible asset impairment 10,896 (10,896 )
Operating income 15,819 39,953 539 56,311
Other income (expense):
Other (1,830 ) 472 (1,358 )
Income before taxes on income 4,775 39,953 539 472 45,739
Taxes on income 4,217 6,917 214 194 11,542
Income from continuing operations attributable to Aegion Corporation (4) 355 33,036 325 278 33,994
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (4) $ 0.01 $ 0.87 $ 0.01 $ 0.01 $ 0.89

(1) Includes pre-tax restructuring and impairment related charges for cost of revenues of $14,940 associated with the write-down of long-lived assets, inventory obsolescence and write-off of certain other assets; operating expenses of $14,117 related to the write-down of long-lived assets, bad debt expenses, write-off of certain other assets and accrued expenses; and impairment of definite-lived intangible assets of $10,896 related to Bayou’s reporting unit.

(2) Includes expenses incurred in connection with the 2012 acquisition of Fyfe Group LLC’s Asian operations (Fyfe Asia), the 2013 acquisition of Brinderson, L.P. and other acquisition activity pursued by the Company during the period (non-GAAP).

(3) Represents a loss on the sale of the Company’s 49 percent interest in Bayou Coating, L.L.C. The difference between the Company’s recorded gross equity in earnings of affiliated companies of approximately $1.2 million and the final equity distribution settlement of $0.7 million resulted in a loss of approximately $0.5 million that is recorded in “Other income (expense)” on the consolidated statement of operations (non-GAAP).

(4) Includes non-controlling interests and equity in earnings of affiliated companies.

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

For the Nine-Month Period Ended September 30, 2013

As Reported

(GAAP)

Acquisition-
Related

Expenses (1)

Credit

Facility

Fees (2)

Joint Venture/
Divestiture
Activity (3)(4)

As Adjusted

(Non-GAAP)

Affected Line Items:
Operating expenses $ 134,287 $ (4,175 ) $ $ $ 130,112
Operating income 44,673 4,175 48,848
Other income (expense):
Interest expense (10,033 ) 1,964 (8,069 )
Other 6,561 (8,688 ) (2,127 )
Income before taxes on income 41,359 4,175 1,964 (8,688 ) 38,810
Taxes on income 7,985 1,662 782 (2,635 ) 7,794
Income from continuing operations attributable to Aegion Corporation (5) 36,318 2,513 1,182 (6,053 ) 33,960
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (5) $ 0.93 $ 0.06 $ 0.03 $ (0.15 ) $ 0.87

(1) Includes expenses incurred in conjunction with the acquisition of Brinderson, L.P. in July 2013 and other acquisition activity pursued by the Company during the period (non-GAAP).

(2) Includes certain out-of-pocket expenses and acceleration of certain unamortized fees associated with the refinancing of the Company’s credit facility as part of the Brinderson acquisition (non-GAAP).

(3) Includes a gain on the sale of the Company’s 50 percent interest in Insituform Rohrsanierungstechniken GmbH. The sale price was EUR14.0 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) (non-GAAP).

(4) Includes a non-cash write down of the Company’s investment in Bayou Coating, LLC. 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 2009 acquisition of The Bayou Companies, LLC. The non-cash charge represented the Company’s then current estimate of the difference between the carrying value of the investment on the balance sheet and the amount the Company would receive in connection with the exercise (non-GAAP).

(5) Includes non-controlling interests and equity in earnings of affiliated companies.

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (in thousands, except share amounts)

September 30,

2014

December 31,

2013

Assets
Current assets
Cash and cash equivalents $ 115,941 $ 158,045
Restricted cash 623 483
Receivables, net 266,883 231,775
Retainage 35,923 30,831
Costs and estimated earnings in excess of billings 105,170 79,999
Inventories 59,225 58,768
Prepaid expenses and other current assets 41,459 38,522
Current assets of discontinued operations 4,789 5,435
Total current assets 630,013 603,858
Property, plant & equipment, less accumulated depreciation 169,873 182,303
Other assets
Goodwill 347,236 348,680
Identified intangible assets, less accumulated amortization 189,974 209,283
Investments 9,101
Deferred income tax assets 2,627 6,957
Other assets 13,276 14,315
Total other assets 553,113 588,336
Non-current assets of discontinued operations 2,191 2,921
Total Assets $ 1,355,190 $ 1,377,418
Liabilities and Equity
Current liabilities
Accounts payable $ 93,548 $ 80,417
Accrued expenses 111,785 105,466
Billings in excess of costs and estimated earnings 30,355 24,978
Current maturities of long-term debt and line of credit 26,399 22,024
Current liabilities of discontinued operations 1,721 2,070
Total current liabilities 263,808 234,955
Long-term debt, less current maturities 357,802 366,616
Deferred income tax liabilities 29,629 38,217
Other non-current liabilities 12,299 10,512
Non-current liabilities of discontinued operations 224 197
Total liabilities 663,762 650,497
Equity
Preferred stock, undesignated, $.10 par – shares authorized 2,000,000; none outstanding
Common stock, $.01 par – shares authorized 125,000,000; shares issued and outstanding 37,374,331 and 37,983,114, respectively 374 380
Additional paid-in capital 216,575 236,128
Retained earnings 470,537 470,808
Accumulated other comprehensive income (loss) (14,211 ) 2,052
Total stockholders’ equity 673,275 709,368
Non-controlling interests 18,153 17,553
Total equity 691,428 726,921
Total Liabilities and Equity $ 1,355,190 $ 1,377,418

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

For the Nine Months Ended

September 30,

2014 2013

Cash flows from operating activities:

Net income $ 609 $ 30,821
Loss from discontinued operations 626 6,456
1,235 37,277
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 32,984 29,126
Gain on sale of fixed assets (65 ) (815 )
Equity-based compensation expense 4,201 5,090
Deferred income taxes (3,797 ) (1,523 )
Equity in earnings of affiliated companies (677 ) (3,903 )
Non-cash restructuring charges 17,187
Fixed asset impairment 11,870
Definite-lived intangible asset impairment 10,896
Gain on sale of interests in German joint venture (11,771 )
Debt issuance costs 1,964
Earnout reversal (2,844 )
Loss on sale of interests in Bayou Coating, LLC 472
Loss on foreign currency transactions 149 1,700
Other 881 (159 )
Changes in operating assets and liabilities:
Restricted cash (142 ) (142 )
Return on equity of affiliated companies 684 4,027
Receivables net, retainage and costs and estimated earnings in excess of billings (83,383 ) (11,144 )
Inventories (4,732 ) (3,416 )
Prepaid expenses and other assets (5,009 ) (5,044 )
Accounts payable and accrued expenses 25,511 2,932
Other operating 430 198
Net cash provided by operating activities of continuing operations 8,695 41,553
Net cash used in operating activities of discontinued operations (90 ) (10,179 )
Net cash provided by operating activities 8,605 31,374

Cash flows from investing activities:

Capital expenditures (25,118 ) (20,079 )
Proceeds from sale of fixed assets 1,140 1,856
Patent expenditures (1,988 ) (469 )
Sale of interests in German join venture 18,300
Sale of interest in Bayou Coating, L.L.C. 9,065
Purchase of Brinderson, net of cash acquired (143,763 )
Net cash used in investing activities of continuing operations (16,901 ) (144,155 )
Net cash provided by investing activities of discontinued operations 90 774
Net cash used in investing activities (16,811 ) (143,381 )

Cash flows from financing activities:

Proceeds from issuance of common stock upon stock option exercises, including tax effects 8,615 903
Repurchase of common stock (31,051 ) (19,017 )
Purchase of noncontrolling interest (617 )
Payment of earnout related to acquisition of CRTS, Inc. (2,112 )
Credit facility financing fees (5,013 )
Proceeds on notes payable 1,284 1,541
Proceeds from line of credit 10,000
Proceeds from long-term debt 385,500
Principal payments on long-term debt (15,477 ) (249,125 )
Net cash provided by (used in) in financing activities (27,246 ) 112,677
Effect of exchange rate changes on cash (6,652 ) (7,659 )
Net decrease in cash and cash equivalents for the period (42,104 ) (6,989 )
Cash and cash equivalents, beginning of period 158,045 133,676
Cash and cash equivalents, end of period $ 115,941 $ 126,687

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