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Aegion Corporation, Successor To Insituform Technologies, Inc., Reports Third Quarter 2011 Results:

“And that growth outlook begins in 2012 as I see the pieces coming together for a very strong year. We have implemented important stabilizing improvements to our North American Sewer and Water Rehabilitation business in recent months, and we are experiencing very robust market conditions throughout our key growth segments of Energy and Mining and Commercial and Structural. I am confident that 2011 will be viewed as a transition year towards a stronger and more consistently profitable Company going forward.”

Segment Reporting

Prior to the third quarter of 2011, we previously considered Water Rehabilitation to be a separate reportable segment. Based on an internal management reorganization, we have combined previously reported water rehabilitation results for all periods presented below, which have not been material, with the geographically separated sewer rehabilitation segments. Additionally, in connection with our recent acquisition of the North American operations of Fyfe Group, LLC, we established a Commercial and Structural reportable segment.

Energy and Mining Segment
Increase (Decrease)
(in thousands, except %)   2011   2010 $   %
Three Months Ended September 30,    
Revenues $ 114,014 $ 102,881 $ 11,133 10.8%
Gross profit 27,392 29,606 (2,214) (7.5)
Gross margin 24.0% 28.8% n/a (4.8)
Operating expenses 18,838 17,913 925 5.2
Reversal of earnout (1,700) (1,700)
Acquisition-related expenses 2,358 2,358 n/m
Restructuring charges 778 778 n/m
Operating income 7,118 13,393 (6,275) (46.9)
Operating margin 6.2% 13.0% n/a (6.8)
Nine Months Ended September 30,
Revenues $ 309,871 $ 276,970 $ 32,901 11.9%
Gross profit 75,307 78,467 (3,160) (4.0)
Gross margin 24.3% 28.3% n/a (4.0)
Operating expenses 53,052 49,690 3,362 6.8
Reversal of earnout (1,700) (1,700)
Acquisition-related expenses 2,684 2,684 n/m
Restructuring charges 778 778 n/m
Operating income 20,493 30,477 (9,984) (32.8)
Operating margin 6.6% 11.0% n/a (4.4)
  September 30, 2011   June 30, 2011   March 31, 2011   December 31, 2010   September 30, 2010
Backlog (in millions) $225.6   $168.1   $147.6   $146.1   $156.3

In the third quarter of 2011, our Energy and Mining segment operating income decreased by $6.3 million, or 46.9 percent, compared to the third quarter of 2010, inclusive of $3.1 million of pre-tax acquisition-related expenses and restructuring charges. The decrease was primarily due to a lack of large diameter pipe coating projects partially offset by another strong quarter from our industrial linings and cathodic protection businesses. Energy and Mining gross margin declined to 24.0 percent compared to 28.8 percent in the third quarter of 2010 as much of the revenue growth came from geographic regions with lower gross profit margins coupled with lower margins resulting from a lack of large coating projects. The increase in operating expenses was attributable to higher corporate allocations due to the increased size of this segment, acquisition-related depreciation and amortization related to the CRTS and Hockway acquisitions and increased resources to support the growth of the segment, primarily for increased support of international projects and the addition of recent acquisitions. We expect strong global energy markets will lead to growth within existing geographies as well as new geographies, specifically in Asia, the Middle East and North Africa as evidenced by the recent acquisitions within our corrosion engineering and pipe coating businesses, which expand our presence in the Middle East and other key markets. During the third quarter of 2011, CRTS and Hockway both experienced a slight loss due to acquisition-related depreciation and amortization; however, we expect these acquisitions to contribute positive operating income in the coming quarters.

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