MRO Magazine

Aegion Corporation Reports 2015 Third Quarter Financial Results


November 2, 2015
By Business Wire News

ST. LOUIS

Aegion Corporation (Nasdaq Global Select Market:AEGN) today reported GAAP earnings from continuing operations of $14.8 million, or $0.40 per diluted share, compared to loss of $16.9 million, or $0.45 per diluted share, in the third quarter of 2014 when Aegion initiated its strategic realignment and restructuring plan. Adjusted earnings from continuing operations were $16.2 million, or $0.44 per diluted share, compared to $16.1 million, or $0.43 per diluted share, in the prior year quarter. Adjusted earnings is defined as GAAP results excluding restructuring and acquisition-related expenses (non-GAAP).

For the first nine months of 2015, reported GAAP earnings from continuing operations were $24.8 million, or $0.67 per diluted share, compared to $0.4 million, or $0.01 per diluted share, in the prior year period. Adjusted earnings from continuing operations were $34.1 million, or $0.92 per diluted share, compared to $33.9 million, or $0.89 per diluted share, for the first nine months of 2014. Adjusted earnings over the first nine months of 2015 and 2014 is defined as GAAP results excluding restructuring and acquisition-related expenses in both periods and a loss on the sale of Bayou Coatings during 2014 (non-GAAP). A complete reconciliation to all comparable GAAP measures is found later in this release.

Charles R. Gordon, Aegion’s President and Chief Executive Officer, commented, “We are pleased with our third quarter 2015 performance, which resulted from strong execution across the Company. One of the benefits of our 2014 realignment and restructuring is a much improved financial position, evidenced by significantly improved operating cash flow during the first nine months of 2015 and elevated cash balances at September 30, 2015. The amended and restated $650 million bank credit facility we announce today gives us greater financial flexibility to pursue our strategic initiatives, including acquisitions and share repurchases, as well as the ability to lock-in current favorable interest rates on a substantial portion of our debt for another five years.

“Consolidated backlog entering the fourth quarter continued to be at an attractive level. Infrastructure Solutions is expected to conclude 2015 with record revenues and profits. Energy Services’ downstream business expects record refinery maintenance billable hours in the fourth quarter, which should contribute to full-year revenue and profit growth. However, there continues to be margin pressure and project delays in the upstream and midstream energy markets. While the fourth quarter of 2015 promises to be solid, we expect the quarter’s financial performance to come in well below last year due to a stronger US dollar, lower pipe lining and coating backlog in Canada, and the usual seasonal uncertainty of early winter weather.

“We are in the early phases of assessing Aegion’s outlook for 2016. At this point, we believe market conditions indicate another favorable year for Infrastructure Solutions. The Energy Services platform has the potential to balance anticipated downstream and upstream market conditions. Corrosion Protection should benefit from increased investments in the North American midstream pipeline market. However, it is apparent 2016 will result in a second year of lower spending for upstream capital investment and maintenance, which will continue to affect portions of Corrosion Protection and Energy Services. Being selected to provide the pipe coating and insulation for the Shell Appomattox deepwater project is a significant opportunity, which has the potential to largely offset the anticipated challenges in the upstream market. The coming months will give us greater clarity as we continue discussions with our energy-related customers and work to finalize the Appomattox contract.

“The management team has been and will remain focused on improving execution, maintaining a robust balance sheet and translating earnings to cash. We will continue to position Aegion for future growth by executing strategic decisions based on our assessment of market realities. We have crossed a significant milepost by substantially completing our 2014 realignment and restructuring plan. I am very satisfied with the benefits to date as the plan successfully achieved our original objectives. Since inception of the plan in the third quarter 2014, we have recognized expected permanent annual savings of $10.8 million, or $0.20 per diluted share, which is at the upper end of our original annual savings range and which nearly covers the current one-time pre-tax cash costs of $11.4 million.”

CONTRACT BACKLOG

(Unaudited, in millions)

 

The following table sets forth consolidated backlog by segment (in millions):

       
September 30,

2015

June 30,

2015

December 31,

2014

September 30,
2014
Infrastructure Solutions (1) $ 348.0 $ 362.9 $ 337.5 $ 332.2
Corrosion Protection 185.0 173.4 176.0 200.4
Energy Services (2) 213.1   224.0   244.5   219.3
Total backlog $ 746.1   $ 760.3   $ 758.0   $ 751.9

________________

(1) September 30, 2015, June 30, 2015, December 31, 2014 and September 30, 2014 included backlog from restructured entities of $2.3 million, $3.3 million, $3.7 million and $6.8 million, respectively.
(2) Represents expected unrecognized revenues to be realized under long-term Master Service Agreements 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.

New Credit Facility

On October 30, 2015, the Company entered into an amended and restated $650 million senior secured credit facility (the “New Credit Facility”) with a syndicate of banks. Bank of America, N.A. served as the sole administrative agent. JP Morgan Chase Bank, N.A. and U.S. Bank National Association acted as co-syndication agents.

David A. Martin, Aegion’s Executive Vice President and Chief Financial Officer, commented, “We believe this is the appropriate time to take advantage of the current low interest rate environment and secure a credit facility for the next five years that will give us additional flexibility to execute our long-term strategy through selective investments and acquisitions, as well as the ability to repurchase shares as a means to return cash to stockholders. We appreciate the strong relationships we have with our banking partners and their continued support as we put this important building block in place.”

The New Credit Facility consists of a $300 million five-year revolving line of credit and a $350 million five-year term loan facility. The New Credit Facility replaced the Company’s $650 million credit facility entered into on July 1, 2013 (the “Old Credit Facility”). The Company drew the entire term loan from the New Credit Facility on October 30, 2015 to (i) retire $344.7 million in indebtedness outstanding under the Old Credit Facility, (ii) fund transaction expenses associated with the New Credit Facility and (iii) for other corporate purposes.

The New Credit Facility extends the maturity of the facility from July 2018 to October 2020, and also provides the Company increased flexibility for, among other things, acquisitions, investments and stock repurchases. For 2016, the annual share repurchase authorization has been increased to $40 million (compared to $20 million under the Old Credit Facility), while the Company’s leverage ratio is above 2.5 to 1. In addition, the Company now has authority to repurchase up to $20 million of shares beginning in the fourth quarter 2015.

Generally, interest will be charged on the principal amounts outstanding under the New Credit Facility at the British Bankers Association LIBOR rate plus an applicable rate ranging from 1.25% to 2.25% depending on the Company’s consolidated leverage ratio. The Company can also opt for an interest rate equal to a base rate (as defined in the credit documents) plus an applicable rate, which also is based on the Company’s consolidated leverage ratio. The applicable one month LIBOR borrowing rate (LIBOR plus Company’s applicable rate) as of October 30, 2015 was 2.19 percent, similar to the Old Credit Facility. The Company has entered into an interest rate swap arrangement to fix the interest rate on $262.5 million, or 75 percent, of the term loan through maturity. The annualized borrowing rate of the swap at closing was 3.46 percent.

The New Credit Facility includes a provision permitting the Company to increase either the revolving credit line or the term loan with additional commitments of up to $250 million from either the existing lending banks or other financial institutions. The New Credit Facility is subject to certain financial covenants, similar to the Old Credit Facility, including a consolidated financial leverage ratio and consolidated fixed charge coverage ratio.

Realignment and Restructuring Plan

On October 6, 2014, Aegion announced a realignment and restructuring plan (“2014 Restructuring”) to exit low-return CIPP contracting markets and reduce the size and cost of the Company’s overhead structure, with the objective of improving gross margins and profitability over the long term.

In 2014, pre-tax charges were $49.5 million ($36.2 million after-tax, or $0.95 per diluted share). During the first nine months of 2015, the Company recorded pre-tax charges of $10.7 million ($8.8 million after-tax), or $0.24 per diluted share, related to the loss on the sale of Insituform’s contracting business in France, severance, retention and other cash items related to the shutdown of contracting operations in Hong Kong, Singapore and Malaysia and the combination of Fyfe/Fibrwrap with Insituform. Pre-tax cash charges were $5.7 million during this period.

A pre-tax charge of $1.5 million ($1.2 million after-tax or $0.03 per diluted share) was recorded in the third quarter 2015. Non-cash charges totaled $0.9 million, primarily related to allowances for the risk of uncollectible receivables and fixed asset impairment in Asia and Europe. Cash charges totaled $0.6 million, which consisted of employee severance, extension of benefits, employment assistance programs and other employment-related costs, as well as other restructuring costs.

Although the 2014 Restructuring is substantially complete, there is the potential for additional, but modest, trailing cash and non-cash costs, inclusive of potential reversals of cumulative currency translation adjustments, through mid-2016 upon the complete exit of these businesses.

Since inception, the 2014 Restructuring generated expected permanent annual savings of $10.8 million, or $0.20 per diluted share, which was at the high end of the initial savings range. Pre-tax restructuring savings in the third quarter and first nine months of 2015 were $2.2 million ($0.04 per diluted share) and $7.3 million ($0.14 per diluted share), respectively.

Consolidated Highlights

Third Quarter 2015 versus Third Quarter 2014

(On an adjusted (non-GAAP) basis excluding pre-tax charges for restructuring and acquisition-related expenses)

Consolidated revenues increased 1.8 percent to $356.6 million. Revenues for Infrastructure Solutions declined 2.0 percent to $149.6 million as the expected revenue decline from the restructured international water and wastewater markets were partially offset by a 10 percent revenue increase by Fyfe/Fibrwrap through the completion of a large industrial project and growth in Asia. Revenues for the North America water and wastewater business were in line with a strong prior year quarter. Excluding revenues from the restructured international water and wastewater business, consolidated Company revenues increased 3.3 percent to $354.1 million and Infrastructure Solutions revenues increased 1.3 percent to $147.1 million. Revenues for Corrosion Protection grew 1.0 percent to $121.4 million as revenue growth in pipeline coatings was partially offset by declines in the upstream market, especially Canada, and the impact from certain customer-driven project delays in the North America midstream market. Energy Services grew revenues 10.7 percent to $85.6 million because of continued strong performance in the West Coast downstream refining market, which offset an expected revenue decline in the Central California upstream market in response to the steep reduction in oil prices. Adverse foreign currency translation rates accounted for a $15.2 million, or 4.3 percent, decline in consolidated revenues, which affected Infrastructure Solutions and Corrosion Protection, primarily in Canada, Europe and Australia.

Consolidated adjusted gross profit decreased slightly to $78.8 million. Adjusted gross margins for Infrastructure Solutions expanded 180 basis points to 26.8 percent due to strong execution in the water and wastewater and Fyfe/Fibrwrap businesses in North America and the benefits from the restructured international water and wastewater business. As a result, Infrastructure Solutions adjusted gross profit increased 5.1 percent to $40.1 million. Corrosion Protection adjusted gross margins contracted by 160 basis points to 22.7 percent, resulting in a 5.4 percent decline in gross profit to $27.6 million. Three factors accounted for the decline in gross profit. First, the impact to revenues and margins from the dramatic drop in oil prices. Second, the absence of the large and high-margin Saudi Aramco Wasit project, completed in the fourth quarter 2014. Third, customer-driven project delays in the upstream and midstream markets, which also impacted the cathodic protection business. The impact of low oil prices on the North America upstream segment accounted for a majority of the 190 basis point reduction in gross margins to 13.0 percent for Energy Services. Foreign currency translation adversely impacted Corrosion Protection and Infrastructure Solutions resulting in a $3.3 million decrease in consolidated gross profit.

Consolidated adjusted operating expense declined $0.9 million, or 1.6 percent, to $52.0 million. As a percent of revenues, the consolidated operating expense ratio declined 50 basis points to 14.6 percent. Adjusted operating expense for Infrastructure Solutions decreased 7.1 percent to $22.4 million as a result of savings from the 2014 Restructuring, as well as cost containment efforts. Adjusted operating expense for Corrosion Protection declined 3.7 percent to $20.3 million as a result of cost containment efforts to address current adverse market conditions. Energy Services operating expense increased 21.4 percent to $9.3 million, primarily from the February 2015 Schultz Mechanical acquisition and investments in back office resources to support the expansion of Energy Services’ downstream operations.

Consolidated adjusted operating income increased 2.9 percent to $26.8 million as strong performances from Infrastructure Solutions and the downstream business for Energy Services were partially offset by declines in Corrosion Protection and upstream Energy Services. Infrastructure Solutions’ adjusted operating income grew 26.1 percent to $17.6 million because of revenue growth, strong execution, cost containment efforts and benefits of the 2014 Restructuring. The challenges in the upstream segment were the primary factor for the decline in operating income for Corrosion Protection and Energy Services. Corrosion Protection adjusted operating income declined $0.8 million to $7.3 million, while operating income for Energy Services declined $2.1 million to $1.8 million. Foreign currency translation negatively impacted adjusted operating income by $1.8 million affecting Corrosion Protection and Infrastructure Solutions.

The adjusted effective tax rate increased by 410 basis points to 28.8 percent as a result of a higher proportion of earnings in higher tax jurisdictions, primarily the United States. On a GAAP basis, the effective tax rate was 29.1 percent compared to 7.8 percent in the third quarter 2014 when there was a loss before taxes, and substantially no tax benefits were recorded from the impact of restructuring-related charges.

Cash Flow

Net cash flow provided by continuing operations was $68.5 million in the first nine months of 2015 compared to $8.7 million provided in prior year period. Net changes in working capital was a $0.4 million source of cash compared to a $67.6 million use of cash in the prior year period. There was an increase in future vendor payments from strong business volume, while receivables were down significantly as a result of a concerted effort to instill greater billing and collection discipline across the Company. Days sales outstanding on receivables decreased approximately 23 days from the prior year period. Additionally, several large deposits related to pipe coating projects were received during the first nine months of 2015, which accounted for a portion of the decrease in days sales outstanding.

Net cash flow used by investing activities was $29.3 million in the first nine months of 2015 compared to $16.9 million used in the same period in 2014. The Company used $6.9 million, net of cash acquired, for the acquisition of Schultz Mechanical Contractors, Inc. earlier this year. Capital expenditures were $21.3 million in the first nine months of 2015 compared to $25.1 million in the prior year period. The pace of capital expenditures is lower in 2015 as a result of management efforts to control spending in response to challenging market conditions. In the first quarter 2014, the Company received proceeds of $9.1 million for the sale of the Company’s 49 percent ownership interest in Bayou Coating, L.L.C., following the majority partner’s exercise of its buy-out right.

Net cash flows from financing activities used $42.3 million in the first nine months of 2015 compared to $27.2 million used in the prior year period. During the first nine months of 2015, the Company used net cash of $20.6 million to repurchase approximately 1.1 million shares of Company common stock through open market purchases and to repurchase shares in connection with the Company’s equity compensation programs. The Company also made $19.7 million in scheduled principal payments on its long-term debt. During the first nine months of 2014, the Company used net cash of $22.4 million to repurchase stock and $15.5 million to pay down the principal balance on its long-term debt.

Net cash flow for the first nine months of 2015 was an outflow of $7.4 million, which included a $4.4 million negative impact from currency exchange rate changes. This compares to an outflow of $42.1 million in the first nine months of 2014.

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.Aegion’s 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. Aegion’s forward-looking statements in this news release represent its beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to Aegion 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 Aegion’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on March 2, 2015, and in subsequently filed documents. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, Aegion’s actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, Aegion does 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 Aegion from time to time in Aegion’s 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 Aegion in this news release are qualified by these cautionary statements.

About Non-GAAP Financial Measures

Aegion has 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 the third quarter and first nine months of 2015 exclude certain charges related to the 2014 Restructuring and acquisition-related expenses. The non-GAAP earnings per share in the third quarter and first nine months of 2014 exclude certain charges related to the 2014 Restructuring, the loss on sale of the Company’s 49 percent interest in Bayou Coating, L.L.C., losses from discontinued operations and acquisition-related expenses. Aegion management uses such non-GAAP information internally to evaluate financial performance for Aegion’s operations because Aegion’s management believes such non-GAAP information allows management to more accurately compare Aegion’s ongoing performance across periods. As such, Aegion’s management believes that providing non-GAAP financial information to Aegion’s investors is useful because it allows investors to evaluate Aegion’s performance using the same methodology and information used by Aegion management.

Aegion®, the Aegion® logo, Insituform®, Fibrwrap®, Fyfe® and Brinderson® 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,
2015  2014  2015  2014
Revenues $ 356,595 $ 350,138 $ 1,002,857 $ 979,240
Cost of revenues 279,474   286,199   794,493   782,320  
Gross profit 77,121 63,939 208,364 196,920
Operating expenses 51,554 66,977 157,964 169,666
Definite-lived intangible asset impairment 10,896 10,896
Acquisition-related expenses 457 780 539
Restructuring charges 172     1,034    
Operating income (loss) 24,938 (13,934 ) 48,586 15,819
Other income (expense):
Interest expense (3,144 ) (3,258 ) (9,365 ) (9,693 )
Interest income 25 102 229 479
Other (359 ) (367 ) (2,360 ) (1,830 )
Total other expense (3,478 ) (3,523 ) (11,496 ) (11,044 )
Income (loss) before taxes on income 21,460 (17,457 ) 37,090 4,775
Taxes (benefit) on income (loss) 6,237   (1,356 ) 11,647   4,217  
Income (loss) before equity in earnings of affiliated companies 15,223 (16,101 ) 25,443 558
Equity in earnings of affiliated companies       677  
Income (loss) from continuing operations 15,223 (16,101 ) 25,443 1,235
Loss from discontinued operations   (130 )   (626 )
Net income (loss) 15,223 (16,231 ) 25,443 609
Non-controlling interests (473 ) (823 ) (650 ) (880 )
Net income (loss) attributable to Aegion Corporation $ 14,750   $ (17,054 ) $ 24,793   $ (271 )
 
Earnings per share attributable to Aegion Corporation:
Basic:
Income (loss) from continuing operations $ 0.41 $ (0.45 ) $ 0.68 $ 0.01
Loss from discontinued operations       (0.02 )
Net income (loss) $ 0.41 $ (0.45 ) $ 0.68 $ (0.01 )
Diluted:
Income (loss) from continuing operations $ 0.40 $ (0.45 ) $ 0.67 $ 0.01
Loss from discontinued operations       (0.02 )
Net income (loss) $ 0.40 $ (0.45 ) $ 0.67 $ (0.01 )
 
 
Weighted average shares outstanding – Basic 36,245,193 37,406,061 36,670,565 37,752,472
Weighted average shares outstanding – Diluted 36,581,829 37,406,061 36,960,586 38,112,789
 

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, 2015

 
As Reported

(GAAP)

Restructuring-

Related

Charges(1)

Acquisition-

Related

Expenses(2)

 

As Adjusted

(Non-GAAP)

Affected Line Items:
Cost of revenues $ 279,474 $ (1,661 ) $ $ 277,813
Gross profit 77,121 1,661 78,782
Operating expenses 51,554 443 51,997
Acquisition-related expenses 457 (457 )
Restructuring charges 172 (172 )
Operating income 24,938 1,390 457 26,785
Other income (expense):
Interest expense (3,144 ) 42 (3,102 )
Other (359 ) 66 (293 )
Income before taxes on income 21,460 1,498 457 23,415
Taxes on income 6,237 325 184 6,746
 
Income from continuing operations attributable to Aegion Corporation (3) 14,750 1,173 273 16,196
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (3) $ 0.40 $ 0.03 $ 0.01 $ 0.44

_________________________________

(1) Includes the following non-GAAP adjustments: (i) pre-tax restructuring charges for cost of revenues of $1,661 related to the write-off of certain other assets; (ii) pre-tax restructuring charges for operating expenses of ($443) related to the reversal of reserves for potentially uncollectable receivables, early lease termination costs, and other restructuring charges; (iii) pre-tax restructuring charges of $172 related to severance and benefit related costs in accordance with ASC 420, Exit or Disposal Cost Obligations, and recorded as “Restructuring charges” in the Consolidated Statements of Operations; and (iv) charges of $108 related to the write-off of certain other assets.
(2) Includes non-GAAP adjustments related to expenses incurred in connection with potential acquisition activity pursued by the Company during the period.
(3) 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, 2014

 
As Reported

(GAAP)

Restructuring-

Related

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 (loss) (13,934 ) 39,953 26,019
Income (loss) before taxes on income (17,457 ) 39,953 22,496
Taxes (benefit) on income (loss) (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 the following non-GAAP adjustments: (i) 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; (ii) operating expenses of $14,117 related to the write-down of long-lived assets, reserves for potentially uncollectable receivables, write-off of certain other assets and accrued expenses; and (iii) 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 Nine Months Ended September 30, 2015

 
As Reported

(GAAP)

Restructuring-

Related

Charges(1)

Acquisition-

Related

Expenses(2)

 As Adjusted

(Non-GAAP)

Affected Line Items:
Cost of revenues $ 794,493 $ (2,643 ) $ $ 791,850
Gross profit 208,364 2,643 211,007
Operating expenses 157,964 (4,190 ) 153,774
Acquisition-related expenses 780 (780 )
Restructuring charges 1,034 (1,034 )
Operating income 48,586 7,867 780 57,233
Other income (expense):
Interest expense (9,365 ) 126 (9,239 )
Other (2,360 ) 2,736 376
Income before taxes on income 37,090 10,729 780 48,599
Taxes on income 11,647 1,917 313 13,877
 
Income from continuing operations attributable to Aegion Corporation (3) 24,793 8,812 467 34,072
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (3) $ 0.67 $ 0.24 $ 0.01 $ 0.92

_________________________________

(1) Includes the following non-GAAP adjustments: (i) pre-tax restructuring charges for cost of revenues of $2,643 related to the write-off of certain other assets; (ii) pre-tax restructuring charges for operating expenses of $4,190 related to reserves for potentially uncollectable receivables, early lease termination costs, and other restructuring charges; (iii) pre-tax restructuring charges of $1,034 related to severance and benefit related costs in accordance with ASC 420, Exit or Disposal Cost Obligations, and recorded as “Restructuring charges” in the Consolidated Statements of Operations; and (iv) charges of $2,862 related to the write-off of certain other assets, including the loss on the sale of the CIPP contracting operation in France.
(2) Includes the following non-GAAP adjustments: (i) expenses incurred in connection with the Company’s acquisition of Schultz Mechanical Contractors, Inc.; and (ii) other potential acquisition activity pursued by the Company during the period.
(3) 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 Nine Months Ended September 30, 2014

 
As Reported

(GAAP)

Restructuring-

Related

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 169,666 (14,117 ) 155,549
Definite-lived intangible asset impairment 10,896 (10,896 )
Acquisition-related expenses 539 (539 )
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 the following non-GAAP adjustments: (i) 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; (ii) operating expenses of $14,117 related to the write-down of long-lived assets, reserves for potentially uncollectable receivables, write-off of certain other assets and accrued expenses; and (iii) impairment of definite-lived intangible assets of $10,896 related to Bayou’s reporting unit.
(2) Includes the following non-GAAP adjustments: (i) expenses incurred in connection with the 2013 acquisition of Brinderson, L.P.; and (ii) other potential acquisition activity pursued by the Company during the period.
(3) Includes non-GAAP adjustments related to 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 $1,200 and the final equity distribution settlement of $700 resulted in a loss of approximately $500.
(4) Includes non-controlling interests and equity in earnings of affiliated companies.

Segment Reporting

Infrastructure Solutions

(in thousands)  Quarter Ended September 30, 2015  Quarter Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments

(1)

 As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments

(2)

 As

Adjusted

(Non-GAAP)

Revenues $ 149,606 $ $ 149,606 $ 152,628 $ $ 152,628
Cost of revenues 111,178 (1,661 ) 109,517 118,069 (3,602 ) 114,467
Gross profit 38,428 1,661 40,089 34,559 3,602 38,161
Gross profit margin 25.7 % 26.8 % 22.6 % 25.0 %
Operating expenses 22,001 443 22,444 38,288 (14,117 ) 24,171
Restructuring charges 172 (172 )
Operating income (loss) 16,255 1,390 17,645 (3,729 ) 17,719 13,990
Operating margin 10.9 % 11.8 % (2.4 )% 9.2 %

______________

(1) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with the write-off of certain other assets, reversal of reserves for potentially uncollectable receivables, early lease termination costs, severance and benefit related costs, and other restructuring charges.
(2) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with inventory obsolescence, reserves for potentially uncollectable receivables and write-off of certain other assets and accrued expenses.

Corrosion Protection

(in thousands)  Quarter Ended September 30, 2015  Quarter Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments

(1)

 As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments

(2)

 As

Adjusted

(Non-GAAP)

Revenues $ 121,392 $ $ 121,392 $ 120,157 $ $ 120,157
Cost of revenues 93,797 93,797 102,315 (11,338 ) 90,977
Gross profit 27,595 27,595 17,842 11,338 29,180
Gross profit margin 22.7 % 22.7 % 14.8 % 24.3 %
Operating expenses 20,252 20,252 21,028 21,028
Definite-lived intangible asset impairment 10,896 (10,896 )
Acquisition-related expenses 457 (457 )
Operating income (loss) 6,886 457 7,343 (14,082 ) 22,234 8,152
Operating margin 5.7 % 6.0 % (11.7 )% 6.8 %

_______________

(1) Includes non-GAAP adjustments related to expenses incurred in conjunction with potential acquisition activity pursued by the Company during the period.
(2) Includes non-GAAP adjustments related to pre-tax restructuring and impairment-related charges for Bayou’s operation for the write-down of long-lived assets and the impairment of definite-lived intangible assets.

Energy Services

(in thousands)  Quarter Ended September 30, 2015  Quarter Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments  As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments  As

Adjusted

(Non-GAAP)

Revenues $ 85,597 $ $ 85,597 $ 77,353 $ $ 77,353
Cost of revenues 74,499 74,499 65,815 65,815
Gross profit 11,098 11,098 11,538 11,538
Gross profit margin 13.0 % 13.0 % 14.9 % 14.9 %
Operating expenses 9,301 9,301 7,661 7,661
Operating income 1,797 1,797 3,877 3,877
Operating margin 2.1 % 2.1 % 5.0 % 5.0 %
 

Infrastructure Solutions

(in thousands)  Nine Months Ended September 30, 2015  Nine Months Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments

(1)

 As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments

(2)

 As

Adjusted

(Non-GAAP)

Revenues $ 421,170 $ $ 421,170 $ 422,212 $ $ 422,212
Cost of revenues 315,096 (2,643 ) 312,453 326,148 (3,602 ) 322,546
Gross profit 106,074 2,643 108,717 96,064 3,602 99,666
Gross profit margin 25.2 % 25.8 % 22.8 % 23.6 %
Operating expenses 69,339 (4,190 ) 65,149 85,459 (14,117 ) 71,342
Restructuring charges 1,034 (1,034 )
Operating income 35,701 7,867 43,568 10,605 17,719 28,324
Operating margin 8.5 % 10.3 % 2.5 % 6.7 %

_____________

(1) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with the write-off of certain other assets, reserves for potentially uncollectable receivables, early lease termination costs, severance and benefit related costs, and other restructuring charges.
(2) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with inventory obsolescence, reserves for potentially uncollectable receivables and write-off of certain other assets and accrued expenses.

Corrosion Protection

(in thousands)  Nine Months Ended September 30, 2015  Nine Months Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments

(1)

 As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments

(2)

 As

Adjusted

(Non-GAAP)

Revenues $ 329,157 $ $ 329,157 $ 331,088 $ $ 331,088
Cost of revenues 258,846 258,846 264,071 (11,338 ) 252,733
Gross profit 70,311 70,311 67,017 11,338 78,355
Gross profit margin 21.4 % 21.4 % 20.2 % 23.7 %
Operating expenses 61,531 61,531 61,038 61,038
Definite-lived intangible asset impairment 10,896 (10,896 )
Acquisition-related expenses 457 (457 ) 197 (197 )
Operating income (loss) 8,323 457 8,780 (5,114 ) 22,431 17,317
Operating margin 2.5 % 2.7 % (1.5 )% 5.2 %

________________

(1) Includes non-GAAP adjustments related to expenses incurred in conjunction with potential acquisition activity pursued by the Company during the period.
(2) Includes non-GAAP adjustments related to (i) pre-tax restructuring and impairment-related charges for Bayou’s operation for the write-down of long-lived assets and the impairment of definite-lived intangible assets; and (ii) expenses incurred in conjunction with potential acquisition activity pursued by the Company during the period.

Energy Services

(in thousands)  Nine Months Ended September 30, 2015  Nine Months Ended September 30, 2014
As

Reported

(GAAP)

 Adjustments

(1)

 As

Adjusted

(Non-GAAP)

As

Reported

(GAAP)

 Adjustments

(2)

 As

Adjusted

(Non-GAAP)

Revenues $ 252,530 $ $ 252,530 $ 225,940 $ $ 225,940
Cost of revenues 220,551 220,551 192,101 192,101
Gross profit 31,979 31,979 33,839 33,839
Gross profit margin 12.7 % 12.7 % 15.0 % 15.0 %
Operating expenses 27,094 27,094 23,169 23,169
Acquisition-related expenses 323 (323 ) 342 (342 )
Operating income 4,562 323 4,885 10,328 342 10,670
Operating margin 1.8 % 1.9 % 4.6 % 4.7 %

_________________

(1) Includes non-GAAP adjustments related to expenses incurred in conjunction with the Company’s acquisition of Schultz Mechanical Contractors, Inc. during the period.

(2) Includes non-GAAP adjustments related to expenses incurred in conjunction with the Company’s acquisition of Brinderson, L.P. during the period.

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

   
September 30,

2015

December 31,

2014

Assets
Current assets
Cash and cash equivalents $ 167,584 $ 174,965
Restricted cash 4,130 2,075
Receivables, net of allowances of $18,484 and $19,307, respectively 223,249 227,481
Retainage 38,210 38,318
Costs and estimated earnings in excess of billings 108,426 94,045
Inventories 53,579 59,192
Prepaid expenses and other current assets 58,799   42,046  
Total current assets 653,977   638,122  
Property, plant & equipment, less accumulated depreciation 160,203   168,213  
Other assets
Goodwill 293,149 293,023
Identified intangible assets, less accumulated amortization 177,307 182,273
Deferred income tax assets 2,899 3,334
Other assets 9,250   10,708  
Total other assets 482,605   489,338  
Total Assets$1,296,785  $1,295,673  
 
Liabilities and Equity
Current liabilities
Accounts payable $ 82,696 $ 83,285
Accrued expenses 111,706 111,617
Billings in excess of costs and estimated earnings 73,734 43,022
Current maturities of long-term debt and line of credit 28,586   26,399  
Total current liabilities 296,722 264,323
Long-term debt, less current maturities 327,931 351,076
Deferred income tax liabilities 26,113 22,913
Other non-current liabilities 11,282   12,276  
Total liabilities 662,048   650,588  
 
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 36,247,231 and 37,360,515, respectively 362 374
Additional paid-in capital 203,298 217,289
Retained earnings 458,434 433,641
Accumulated other comprehensive loss (44,544 ) (24,669 )
Total stockholders’ equity 617,550 626,635
Non-controlling interests 17,187   18,450  
Total equity 634,737   645,085  
Total Liabilities and Equity$1,296,785  $1,295,673  
 

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)(in thousands)

 
For the Nine Months Ended September 30,
2015  2014
Cash flows from operating activities:
Net income $ 25,443 $ 609
Loss from discontinued operations   626  
25,443 1,235
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 32,046 32,984
Gain on sale of fixed assets (1,023 ) (65 )
Equity-based compensation expense 6,847 4,201
Deferred income taxes 1,799 (3,797 )
Equity in earnings of affiliated companies (677 )
Non-cash restructuring charges 2,127 17,187
Fixed asset impairment 11,870
Definite-lived intangible asset impairment 10,896
Loss on sale of Video Injection – Insituform SAS 2,864
Loss on sale of interests in Bayou Coating, LLC 472
Loss on foreign currency transactions 284 149
Other (860 ) 881
Changes in operating assets and liabilities (net of acquisitions):
Restricted cash related to operating activities (2,215 ) (142 )
Return on equity of affiliated companies 684
Receivables net, retainage and costs and estimated earnings in excess of billings (24,738 ) (83,383 )
Inventories 3,514 (4,732 )
Prepaid expenses and other assets (17,374 ) (5,009 )
Accounts payable and accrued expenses 7,023 19,679
Billings in excess of costs and estimated earnings 31,979 5,832
Other operating 810   430  
Net cash provided by operating activities of continuing operations 68,526 8,695
Net cash used in operating activities of discontinued operations   (90 )
Net cash provided by operating activities 68,526 8,605
 
Cash flows from investing activities:
Capital expenditures (21,337 ) (25,118 )
Proceeds from sale of fixed assets 1,706 1,140
Patent expenditures (1,643 ) (1,988 )
Purchase of Schultz Mechanical Contractors, Inc. (6,878 )
Proceeds from sale of interests in Bayou Coating, L.L.C. 9,065
Payment to Fyfe Asia sellers for final net working capital (1,098 )  
Net cash used in investing activities of continuing operations (29,250 ) (16,901 )
Net cash provided by investing activities of discontinued operations   90  
Net cash used in investing activities (29,250 ) (16,811 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock upon stock option exercises, including tax effects 1,299 8,615
Repurchase of common stock (21,941 ) (31,051 )
Distributions to non-controlling interests (472 )
Purchase of non-controlling interest (617 )
Payment of earnout related to acquisition of CRTS, Inc. (684 )
Proceeds on notes payable 1,505 1,284
Principal payments on notes payable (1,875 )
Proceeds from line of credit 26,000 10,000
Principal payments on long-term debt (46,122 ) (15,477 )
Net cash used in financing activities (42,290 ) (27,246 )
Effect of exchange rate changes on cash (4,367 ) (6,652 )
Net decrease in cash and cash equivalents for the period (7,381 ) (42,104 )
Cash and cash equivalents, beginning of year 174,965   158,045  
Cash and cash equivalents, end of period $ 167,584   $ 115,941  
 

Aegion Corporation
David A. Martin, 636-530-8000
Executive Vice President and Chief Financial Officer