Aegion Corporation Reports Third Quarter 2013 Non-GAAP Diluted Earnings Per Share From Continuing Operations Of $0.44

Aegion Corporation (Nasdaq Global Select Market: AEGN) today reported financial results for the third quarter and first nine months of 2013. Excluding one-time items defined as non-GAAP, net income from continuing operations in the third quarter totaled $17.0 million, or $0.44 per diluted share, compared to $20.4 million, or $0.51 per diluted share, in the prior year quarter. Net income from continuing operations for the first nine months of 2013 was $34.0 million, or $0.87 per diluted share, compared to net income of $41.0 million, or $1.04 per diluted share, in the first nine months of 2012.

J. Joseph Burgess, Aegion’s President and Chief Executive Officer, commented, “While our North American Water and Wastewater business performed exceptionally well in the third quarter, results from our Energy and Mining and Commercial and Structural businesses did not meet expectations. Each of our businesses will execute the schedule of project activity needed to deliver strong performance in the fourth quarter, while lower than expected results in the third quarter require a modest reduction in our full year non-GAAP diluted earnings per share guidance to $1.45 to $1.50, excluding the expected $0.08 to $0.10 per share contribution from Brinderson. Successful execution of our initiatives will give us the opportunity to end the year above this range.”

Fourth Quarter and Full Year Outlook

The outstanding third quarter performance by our North American Water and Wastewater business has provided momentum for the final quarter of the year. Although the potential for adverse weather late in the year could limit cured-in-place pipe installation activity, a record backlog of $242 million and the production schedule for October and November are positive signs that this business will be a key catalyst for Aegion’s performance in the fourth quarter, finishing 2013 with expected full year revenues of $345 to $350 million and operating margins in the range of 8 to 9 percent.

The general contractor for the Saudi Arabia Wasit gas field project once again altered the offshore schedule preventing CRTS from executing planned pipe weld coating activities in the third quarter. The revised schedule calls for the offshore installation of the 36-inch trunk pipelines to resume in November, nearly three months later than the previous plan. The result of this scheduling change is a reduction in the contribution from this project for the third and fourth quarters, shifting a majority of the remaining profit contribution into 2014. In the third quarter of 2013, Aegion recognized a $2.8 million reversal of the earnout as negotiated in the CRTS acquisition because of this delay. North America and the Middle East remain the primary Energy and Mining markets driving expected performance in the fourth quarter for United Pipeline Systems and Corrpro. The fourth quarter is traditionally a strong period for Bayou’s Canadian pipe coating operations ahead of the winter construction season. Given the delay in the CRTS/Wasit project and soft market conditions in the Gulf of Mexico, South America, and Mexico, full year 2013 revenues for Energy and Mining will likely be in the range of $465 to $470 million with operating margins of 9 to 10 percent, excluding the contribution from Brinderson. Brinderson got off to a good start in the third quarter contributing $47.9 million in revenues and gross profit of $8.5 million. Brinderson has a strong backlog position for the fourth quarter supporting expectations for revenue contributions in the second half to be approximately $115 million at mid-teens gross margins.

The fourth quarter is expected to be the most profitable quarter for the International Water and Wastewater segment as the European business traditionally has a strong quarter to conclude the year and progress on several key projects in Australia and Malaysia supports an anticipated operating profit for the Asia-Pacific business - the first in several years. Full year 2013 outlook for the International Water and Wastewater segment is to deliver operating income in the $3 million to $4 million range for the European segment, while operating income in the Asia-Pacific region is expected to be a modest loss of approximately $1.0 million.

Commercial and Structural’s North America business struggled to build momentum in the US during the third quarter. There were four main reasons for this: (1) lower workable backlog at the beginning of the quarter from a stall in sales activity that is being addressed by the ongoing investment in our sales organization; (2) project performance issues from inadequate cost estimation on several key projects in late 2012; (3) customers are taking more time to finalize the award of new contracts and issuing work releases; and (4) certain delays in the setup of new projects in hand, which delayed project execution. Investments to enhance our sales organization are beginning to payoff as the bid table for near term opportunities approached $100 million at the end of the third quarter compared to $40 million at June 30, 2013. Our efforts to enhance the sales organization will continue in the coming months to properly resource and align the organization in its primary end markets: pipelines, buildings and transportation. The second phase of our strategic investments has been accelerated to institute best-in-class project management to ensure consistency in execution on all projects. Global backlog for Commercial and Structural was $48.2 million as of September 30, 2013. We expect a return to profitability in the fourth quarter.

Mr. Burgess commented, “We’ve stated our intention since the acquisition of the Fyfe businesses to make the necessary investments to expand our leadership position in the rapidly growing global fiber-reinforced polymer market. Although these enhancements to our operations have taken more time to complete, we are committed to these markets and believe in their growth potential. The lower than expected results in the third quarter are expected to result in full year 2013 global Commercial and Structural revenues of between $75 to $80 million with gross margins of 35 to 40 percent. We expect a return to profitability in the fourth quarter and view 2014 as a year for Commercial and Structural to recover and grow from 2013. We believe this business can grow revenues 20 to 25 percent annually over the longer term and achieve gross margins in the range of 35 to 40 percent.”

“The foundation for our growth strategy is the sustainable end markets for our technologies and services in North America, the Middle East, South America and portions of Asia. The demand for energy remains favorable as does the outlook for commercial and industrial structural rehabilitation. We are well positioned in North America and Asia-Pacific for consistency and cash generation in the water and wastewater rehabilitation markets. Although we have not completed our 2014 budget planning process, our existing backlog for 2014 together with 2013 opportunities that have recently shifted into 2014 form a solid foundation for growth. Our expectation is to build on that foundation with prospects in our water and wastewater businesses, significant growth prospects for Brinderson and continued strength in strategic elements of our Energy and Mining platform, most notably Corrpro and United Pipeline Systems.”

Consolidated Highlights

Third Quarter 2013 versus Third Quarter 2012

Revenues increased $44.8 million, or 17.0 percent. Brinderson contributed $47.9 million in revenues in its first quarter as part of Aegion. North American Water and Wastewater revenues increased $18.2 million from increased volume across all geographies. Partially offsetting the increase was a $10.9 million decrease in revenues from our Bayou Coatings operations in New Iberia, Louisiana due to a lull in pipe coating project activity for the oil and gas market in the Gulf of Mexico. Revenues for United Pipeline Systems declined $9.7 million due to the near completion of the large Moroccan project begun last year and curtailment in capital and maintenance spending in the South American mining sector and the Mexican oil and gas market. Revenues for the Commercial and Structural platform were down $3.1 million due to lower workable backlog and customer driven project delays in North America and Asia.

Gross profit increased 10.3 percent, or $6.5 million, to $69.4 million. Brinderson contributed $8.5 million. North American Water and Waster increased gross profit by $4.2 million. The International Water and Wastewater segment increased gross profit by $2.2 million from improved project activity in Australia and Malaysia and a reduction in the 2012 losses in Singapore. United Pipeline Systems saw gross profit decline from the near completion of the large Moroccan project and a curtailment in market activity in Mexico and South America. The soft market conditions in 2013 for pipe coating activities supporting oil and gas development in the Gulf of Mexico had a negative impact on gross profit for Bayou in New Iberia, Louisiana as there was insufficient pipe volume to absorb plant fixed costs. Gross profit for the Commercial and Structural platform declined $3.3 million, primarily from challenges in North America. Consolidated gross margins declined by 130 basis points because of lower margin contribution from Brinderson, lower margins associated with the Moroccan project and a lack of higher margin projects from the prior year at Bayou and pipeline strengthening and rehabilitation projects for Commercial and Structural.

Operating expenses increased $5.6 million, or 13.2 percent. Brinderson added $5.9 million to operating expense. United Pipeline Systems increased operating expense by $0.4 million to support international expansion and provide additional support to the Moroccan project. Corrpro realized cost savings from ongoing initiatives to enhance sales and operational efficiencies. North American Water and Wastewater operating expenses decreased significantly as a percent of revenue because of efficiency gains achieved over the last two years through project management along with operational and administrative realignment. Operating expenses in International Water and Wastewater have been steady as new investments to improve operational management have been offset by savings from the reduced operations in Singapore and realignment of operations in certain European countries. Operating expenses as a percent of revenue for Commercial and Structural increased as a result of continued investments to build the infrastructure necessary to achieve our growth objectives.

The Company reversed a $2.8 million earnout liability in the third quarter of 2013 to reflect the high probability that CRTS will not achieve its negotiated EBITDA target in 2013 because of the delay in the Wasit project. This compares to a $6.9 million reversal in the third quarter of 2012 largely due to a previous delay in the same project. The earnout reversal in the consolidated statements of operations directly impacts the year-over-year comparison for the Energy and Mining platform.

On a non-GAAP basis, operating income decreased 11.5 percent to $24.3 million. The North American Water and Wastewater segment improved operating performance by $4.0 million, while International Water and Wastewater reduced its operating loss by $2.5 million. Offsetting the improved performance was an operating income decline in our Energy and Mining and Commercial and Structural platforms of $6.3 million and $3.4 million, respectively.

Cash Flow

Net cash flow provided from continuing operations in the first nine months of 2013 was $41.6 million, or 111.5 percent of income from continuing operations, compared to $57.8 million in the first nine months of 2012. The decrease in operating cash flow from 2012 to 2013 was primarily related to slower than anticipated cash collections in the first half of the year from customer-directed project delays across several businesses and lost production days in the first half of 2013 from severe weather. We used $12.6 million of working capital during the nine-month period ended September 30, 2013 compared to $2.8 million used in the comparable period of 2012. Cash collections improved significantly in the third quarter and we expect further improvement in the fourth quarter. Also, in the first nine months of 2013, we incurred $4.2 million in acquisition-related expenses compared to $2.6 million in the first nine months of 2012.

Net cash flow used in investing activities in the first nine months of 2013 was $144.2 million compared to $72.7 million used in the first nine months of 2012. The increase in cash used in 2013 was primarily the result of the third quarter 2013 purchase of Brinderson (for a purchase price of $143.8 million, net of $3.8 million in cash acquired). Also in 2013, we received $18.3 million during the second quarter in connection with the sale of our fifty percent interest in the German joint venture. 2012 capital expenditures of $33.7 million, net of partner payments, reflected a significant investment for our coating facilities in Louisiana and Canada. Capital expenditures in 2013 are expected to be approximately $30 million. Also in 2012, we recorded purchases of Fyfe Asia (for a net purchase price of $39.4 million) and Fyfe Latin America (for a net purchase price of $3.0 million).

Net cash flows from financing activities provided $112.7 million during the first nine months of 2013 compared to $12.4 million provided in the first nine months of 2012. During 2013, we entered into a new credit facility and borrowed $147.6 million (gross purchase price) to fund the purchase of Brinderson and used $5.0 million for facility financing fees. During 2012, we borrowed $26.0 million to fund the purchase of Fyfe Asia and for working capital and joint venture investments. In the first nine months of 2013, we used $19.0 million to repurchase 833,552 shares of our common stock through open market purchases and in connection with our equity compensation programs, as compared to $6.4 million to repurchase shares in the first nine months of 2012.

Net cash flow for the first nine months of 2013 was a $7.0 million use of cash.

Consolidated Backlog
 

AEGION CORPORATION AND SUBSIDIARIESCONTRACT BACKLOG(Unaudited in millions)
 
 

September 30,

2013
 

June 30,

2013
 

December 31,

2012
 

September 30,

2012
Energy and Mining (1) $ 172.5   $ 193.0   $ 240.8   $ 246.9
North American Water and Wastewater 241.7 221.1 185.0 167.3
International Water and Wastewater 43.0 44.1 56.6 55.6
Commercial and Structural 48.2   52.2   50.8   46.7
Total hard backlog 505.4 510.4 533.2 516.5
Brinderson (2) 209.2      
Total backlog $ 714.6   $ 510.4   $ 533.2   $ 516.5
 

(1) All periods presented exclude Bayou Welding Works backlog as this business was discontinued in the second quarter of 2013.
 

(2) Brinderson backlog represents expected unrecognized 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.
 

Our Energy and Mining segment contract backlog at September 30, 2013 was $172.5 million, which represented a $20.5 million, or 10.6 percent, decrease compared to June 30, 2013 and a $74.4 million, or 30.1 percent, decrease compared to September 30, 2012. Backlog for United Pipeline Systems declined sequentially and on a year-over-year basis primarily from the near completion of the $65 million project in Morocco awarded in 2012. This project accounted for 12.1 percent of Energy and Mining backlog at September 30, 2012, but only 1.1 percent of Energy and Mining backlog as of September 30, 2013. United Pipeline Systems is also facing a temporary curtailment in capital and maintenance expenditures for the mining sector in South America and oil and gas pipeline infrastructure in Mexico. Corrpro maintained a sizeable backlog as of September 30, 2013, as such, Corrpro’s outlook remains strong and it is a source of recurring revenues for Energy and Mining. Backlog for our Bayou operation has been depressed in 2013 because of the timing of pipe coating activity supporting oil and gas offshore projects in the Gulf of Mexico. There are solid signs of a recovery in 2014 from a more active bid table. At the date of acquisition, July 1, 2013, backlog for Brinderson was $201.0 million and increased by 4.1 percent at September 30, 2013.

Contract backlog in our North American Water and Wastewater segment at September 30, 2013 was a record $241.7 million, a $20.6 million, or 9.3 percent, increase from backlog at June 30, 2013 and a $74.4 million, or 44.5 percent, increase from backlog at September 30, 2012. This segment won multiple large projects during the quarter in the Midwest and West regions of the United States. We expect backlog in Canada to remain steady in the coming quarters due to seasonality, while domestic market activity is expected to remain favorable for the remainder of 2013 and into 2014.

Contract backlog in our International Water and Wastewater segment was $43.0 million at September 30, 2013. This represented a decrease of $1.1 million, or 2.5 percent, compared to June 30, 2013 and a decrease of $12.6 million, or 22.7 percent, compared to September 30, 2012. These decreases were primarily due to current year production in Spain, the Netherlands and Malaysia. We have a number of large near-term bidding opportunities in key markets in Asia. We believe our opportunities for profitable growth are significant if we are successful on these bids.

Contract backlog in our Commercial and Structural segment was $48.2 million at September 30, 2013. This represented a decrease of $4.0 million, or 7.7 percent, compared to June 30, 2013 and an increase of $1.5 million, or 3.2 percent, compared to September 30, 2012. Backlog has been slower to develop in North America than we anticipated. However, a growing bid table from investments made to enhance sales growth holds the promise of a recovery over the near term. In Asia, backlog decreased slightly due to current projects, especially large projects in Hong Kong and Singapore, and reflects delays receiving final awards for new projects in other countries in Asia.

Segment Reporting

Energy and Mining
  Quarters Ended September 30,       Increase (Decrease)
2013   2012 $   %
Revenues $ 168,708   $ 137,386 $ 31,322   22.8 %
Gross profit 37,118 33,710 3,408 10.1
Gross profit margin 22.0 % 24.5 % n/a (250)bp
Operating expenses 24,821 19,176 5,645 29.4
Earnout reversal (2,844 ) (6,892 ) (4,048 ) (58.7 )
Acquisition-related expenses 2,267 2,267 n/m
Operating income 12,874 21,426 (8,552 ) (39.9 )
Operating margin 7.6 % 15.6 % n/a (800)bp
Non-GAAP operating income 15,141 21,426 (6,285 ) (29.3 )
 
 
Nine Months Ended September 30, Increase (Decrease)
2013   2012 $   %
Revenues $ 385,991 $ 377,610 $ 8,381 2.2 %
Gross profit 87,678 93,466 (5,788 ) (6.2 )
Gross profit margin 22.7 % 24.8 % n/a (210)bp
Operating expenses 61,866 57,456 4,410 7.7
Earnout reversal (2,844 ) (6,892 ) (4,048 ) (58.7 )
Acquisition-related expenses 4,175 4,175 n/m
Operating income 24,481 42,902 (18,421 ) (42.9 )
Operating margin 6.3 % 11.4 % n/a (510)bp
Non-GAAP operating income 28,656 42,902 (14,246 ) (33.2 )
 

Third Quarter 2013 versus Third Quarter 2012

Excluding acquisition-related expenses, Energy and Mining operating income decreased $6.3 million to $15.1 million, due principally to a lack of project activity available in the market for our Bayou operations in New Iberia, Louisiana, a decline in market conditions in many of the international markets for United Pipeline Systems, notably the mining sector, and significantly lower operating income from the large phosphate lining project in Morocco as this project nears completion. Offsetting the reported decline in operating income was Brinderson’s contribution of $2.6 million in operating income. In addition, revenues and profits were recognized in the third quarter of 2013 from the start of the Wasit gas field project in Saudi Arabia for our CRTS robotic coating operations, although below our plan because of another delay in the offshore production schedule.

During the third quarters of 2013 and 2012, we reversed $2.8 million and $5.9 million, respectively, of the contractual earnouts related to CRTS. In each year, operating results were below the target amounts in the purchase agreement, mostly due to the Wasit project.

North American Water and Wastewater
  Quarters Ended September 30,       Increase (Decrease)
2013   2012 $   %
Revenues $ 95,997   $ 77,818 $ 18,179   23.4 %
Gross profit 21,357 17,183 4,174 24.3
Gross profit margin 22.2 % 22.1 % n/a 10bp
Operating expenses 11,029 10,894 135 1.2
Operating income 10,328 6,289 4,039 64.2
Operating margin 10.8 % 8.1 % n/a 270bp
 
 
Nine Months Ended September 30, Increase (Decrease)
2013   2012 $   %
Revenues $ 261,616 $ 231,647 $ 29,969 12.9 %
Gross profit 55,786 48,850 6,936 14.2
Gross profit margin 21.3 % 21.1 % n/a 20bp
Operating expenses 32,776 32,489 287 0.9
Operating income 23,010 16,361 6,649 40.6
Operating margin 8.8 % 7.1 % n/a 170bp
 

Third Quarter 2013 versus Third Quarter 2012

Our North American Water and Wastewater segment achieved a $4.0 million, or 64.2 percent, increase in operating income compared to the prior year quarter. The growth came from increased volume across all geographies, especially large diameter footage, which increased 105 percent compared to the prior year. The Canadian region also contributed because of a shift of work from the first half of 2013 where there was an abnormal amount of weather delays into the third quarter of 2013 and recent project awards in Eastern Canada. Operating margins improved 270 basis points from favorable project mix with large diameter work. We also have maintained our bidding discipline and have experienced increased success from our enhanced estimating and project management structure.

International Water and Wastewater

  Quarters Ended September 30,       Increase (Decrease)
2013   2012 $   %
Revenues $ 26,152   $ 27,766 $ (1,614 )   (5.8 )%
Gross profit 5,116 2,890 2,226 77.0
Gross profit margin 19.6 % 10.4 % n/a 920bp
Operating expenses 5,373 5,640 (267 ) (4.7 )
Acquisition-related expenses 445 (445 ) n/m
Operating loss (257 ) (3,195 ) 2,938 92.0
Operating margin (1.0 )% (11.5 )% n/a 1,050bp
Non-GAAP operating loss (257 ) (2,750 ) 2,493 90.7
 
 
Nine Months Ended September 30, Increase (Decrease)
2013   2012 $   %
Revenues $ 80,064 $ 80,712 $ (648 ) (0.8 )%
Gross profit 15,424 9,603 5,821 60.6
Gross profit margin 19.3 % 11.9 % n/a 740bp
Operating expenses 16,762 16,700 62 0.4
Acquisition-related expenses 445 (445 ) n/m
Operating loss (1,338 ) (7,542 ) 6,204 82.3
Operating margin (1.7 )% (9.3 )% n/a 760bp
Non-GAAP operating loss (1,338 ) (7,097 ) 5,759 81.1
 

Third Quarter 2013 versus Third Quarter 2012

Excluding acquisition-related expenses, operating income in our International Water and Wastewater improved by $2.5 million, or 90.7 percent, for the third quarter of 2013 compared to the prior year quarter. During the quarter, we reduced losses associated with the legacy projects in Singapore by $1.6 million. We also recognized greater profits from project activity in Australia and Malaysia. Partially offsetting these improvements were project delays from the effects of sustained economic recession impacting activity in France and Switzerland and lower third party tube sales in certain markets in Europe.

Commercial and Structural

  Quarters Ended September 30,       Increase (Decrease)
2013   2012 $   %
Revenues $ 16,808   $ 19,897 $ (3,089 )   (15.5 )%
Gross profit 5,820 9,148 (3,328 ) (36.4 )
Gross profit margin 34.6 % 46.0 % n/a (1,140)bp
Operating expenses 6,733 6,641 92 1.4
Acquisition-related expenses 162 (162 ) n/m
Operating income (loss) (913 ) 2,345 (3,258 ) (138.9 )
Operating margin (5.4 )% 11.8 % n/a (1,720)bp
Non-GAAP operating income (loss) (913 ) 2,507 (3,420 ) (136.4 )
 
 
Nine Months Ended September 30, Increase (Decrease)
2013   2012 $   %
Revenues $ 48,070 $ 55,267 $ (7,197 ) (13.0 )%
Gross profit 17,228 25,803 (8,575 ) (33.2 )
Gross profit margin 35.8 % 46.7 % n/a (1,090)bp
Operating expenses 18,708 18,669 39 0.2
Acquisition-related expenses 2,149 (2,149 ) n/m
Operating income (loss) (1,480 ) 4,985 (6,465 ) (129.7 )
Operating margin (3.1 )% 9.0 % n/a (1,210)bp
Non-GAAP operating income (loss) (1,480 ) 7,134 (8,614 ) (120.7 )
 

Third Quarter 2013 versus Third Quarter 2012

Operating income, excluding acquisition-related expenses, in our Commercial and Structural platform decreased $3.4 million, or 136.4 percent. The North America operations had lower workable backlog, project performance issues, customer driven project delays and fewer higher margin pipeline projects than in the prior year period. In addition, our Asian operations experienced delays on several large projects. Partially offsetting the operating income decline was a large manufacturing material order for our Canadian operations. We are repositioning the North American business to accelerate growth from the challenges experienced so far in 2013. The enhancements to the sales organization are to be completed in the coming months. The bid table has improved over the past few months bolstering expectations for a return to profitability in the fourth quarter and for growth in 2014. Further investments are underway to improve our project management capabilities in order to enhance profitability.

Aegion Corporation is a global leader in infrastructure protection and maintenance, providing proprietary technologies and services to (i) protect against the corrosion of industrial pipelines; (ii) rehabilitate and strengthen water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures; and (iii) utilize integrated professional services in engineering, procurement, construction, maintenance and turnaround services to a broad range of energy related industries. 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, 2012, as filed with the Securities and Exchange Commission on February 27, 2013. 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 periodic 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 exclude the earnings impact of acquisition-related expenses, charges associated with our decision to liquidate Bayou Welding Works and a goodwill write-down associated with the anticipated sale of our shares in Bayou Coatings, LLC. 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®, the Aegion® logo, Insituform®, the Insituform® logo, United Pipeline Systems®, Tite Liner®, Bayou Companies®, Corrpro®, CRTS™, Fibrwrap®, Fyfe® and Brinderson® are the registered and unregistered trademarks of Aegion Corporation and its affiliates.
 
 
 
 
 
 

AEGION CORPORATION AND SUBSIDIARIESCONSOLIDATED 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,
2013   2012 2013   2012
Revenues $ 307,665 $ 262,867 $ 775,741 $ 745,236
Cost of revenues 238,254   199,936   599,625   567,514  
Gross profit 69,411 62,931 176,116 177,722
Operating expenses 47,956 42,351 130,112 125,314
Reversal of earnout (2,844 ) (6,892 ) (2,844 ) (6,892 )
Acquisition-related expenses 2,267   607   4,175   2,594  
Operating income 22,032   26,865   44,673   56,706  
Other income (expense):
Interest expense (5,454 ) (2,481 ) (10,033 ) (7,591 )
Interest income 40 86 158 230
Other (522 ) (237 ) 6,561   (1,169 )
Total other expense (5,936 ) (2,632 ) (3,314 ) (8,530 )
Income before taxes on income 16,096 24,233 41,359 48,176
Taxes on income 3,164   5,064   7,985   11,862  
Income before equity in earnings of affiliated companies 12,932 19,169 33,374 36,314
Equity in earnings of affiliated companies 1,691   2,001   3,903   4,389  
Income from continuing operations 14,623 21,170 37,277 40,703
Loss from discontinued operations (558 ) (435 ) (6,456 ) (880 )
Net income 14,065 20,735 30,821 39,823
Non-controlling interests (127 ) (1,191 ) (959 ) (2,057 )
Net income attributable to Aegion Corporation $ 13,938   $ 19,544   $ 29,862   $ 37,766  
 
Earnings per share attributable to Aegion Corporation:
Basic:
Income from continuing operations $ 0.37 $ 0.51 $ 0.94 $ 0.98
Loss from discontinued operations (0.01 ) (0.01 ) (0.17 ) (0.02 )
Net income $ 0.36 $ 0.50 $ 0.77 $ 0.96
Diluted:
Income from continuing operations $ 0.37 $ 0.50 $ 0.93 $ 0.97
Loss from discontinued operations (0.01 ) (0.01 ) (0.17 ) (0.02 )
Net income $ 0.36 $ 0.49 $ 0.76 $ 0.95
 
 
Weighted average shares outstanding - Basic 38,672,441 39,285,484 38,836,276 39,253,373
Weighted average shares outstanding - Diluted 39,071,373 39,605,229 39,228,625 39,559,614
 
 
 
 
 
 

AEGION CORPORATION AND SUBSIDIARIESSTATEMENT OF OPERATIONS RECONCILIATION(Unaudited) (Non-GAAP)(in thousands, except share and per share information)
 
 

For the Quarter Ended September 30, 2013
 
  Consolidated

Acquisition-

Related

Expenses
 

Credit Facility

Fees
  Total
Affected Line Items:
Operating expenses $ 50,223 $ (2,267 ) $ $ 47,956
Operating income 22,032 2,267 24,299
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 (1) 14,496 1,365 1,182 17,043
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (1) $ 0.37 $ 0.03 $ 0.03 $ 0.44
 

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

For the Quarter Ended September 30, 2012
 
Consolidated

Acquisition-

Related

Expenses
Total
Affected Line Items:
Operating expenses $ 42,958 $ (607 ) $ 42,351
Operating income 26,865 607 27,472
Income before taxes on income 24,233 607 24,840
Taxes on income 5,064 233 5,297
 
Income from continuing operations attributable to Aegion Corporation (1) 19,979 374 20,353
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (1) $ 0.50 $ 0.01 $ 0.51
 

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

AEGION CORPORATION AND SUBSIDIARIESSTATEMENT OF OPERATIONS RECONCILIATION(Unaudited) (Non-GAAP)(in thousands, except share and per share information)
 
 

For the Nine-Month Period Ended September 30, 2013
 
  Consolidated  

Acquisition-

Related

Expenses

Credit Facility

Fees
 

Joint

Venture/Divest

iture Activity

 
  Total
Affected Line Items:
Operating expenses $ 134,287 $ (4,175 ) $ $ $ 130,112
Operating income 44,673 4,175 48,848
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 (1) 36,318 2,513 1,182 (6,053 ) 33,960
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (1) $ 0.93 $ 0.06 $ 0.03 $ (0.15 ) $ 0.87
 

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

For the Nine-Month Period Ended September 30, 2012
 
Consolidated

Acquisition-

Related

Expenses
Total
Affected Line Items:
Operating expenses $ 127,908 $ (2,594 ) $ 125,314
Operating income 56,706 2,594 59,300
Income before taxes on income 48,176 2,594 50,770
Taxes on income 11,862 247 12,109
 
Income from continuing operations attributable to Aegion Corporation (1) 38,646 2,347 40,993
 
Diluted earnings per share:
Income from continuing operations attributable to Aegion Corporation (1) $ 0.97 $ 0.06 $ 1.04
 

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

AEGION CORPORATION AND SUBSIDIARIESSEGMENT DATA(in thousands)
 
 
  Quarters Ended September 30,   Nine Months Ended September 30,
2013   2012 2013   2012
Revenues:
Energy and Mining $ 168,708 $ 137,386 $ 385,991 $ 377,610
North American Water and Wastewater 95,997 77,818 261,616 231,647
International Water and Wastewater 26,152 27,766 80,064 80,712
Commercial and Structural 16,808   19,897   48,070   55,267  
Total revenues $ 307,665   $ 262,867   $ 775,741   $ 745,236  
 
Gross profit:
Energy and Mining $ 37,118 $ 33,710 $ 87,678 $ 93,466
North American Water and Wastewater 21,357 17,183 55,786 48,850
International Water and Wastewater 5,116 2,890 15,424 9,603
Commercial and Structural 5,820   9,148   17,228   25,803  
Total gross profit $ 69,411   $ 62,931   $ 176,116   $ 177,722  
 
Operating income (loss):
Energy and Mining $ 12,874 $ 21,426 $ 24,481 $ 42,902
North American Water and Wastewater 10,328 6,289 23,010 16,361
International Water and Wastewater (257 ) (3,195 ) (1,338 ) (7,542 )
Commercial and Structural (913 ) 2,345   (1,480 ) 4,985  
Total operating income $ 22,032   $ 26,865   $ 44,673   $ 56,706  
 
 
 
 
 
 

AEGION CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited)(in thousands, except share amounts)
 
 
 

September 30,

2013
 

December 31,

2012
Assets
Current assets
Cash and cash equivalents $ 126,687 $ 133,676
Restricted cash 523 382
Receivables, net 238,585 232,854
Retainage 31,392 30,172
Costs and estimated earnings in excess of billings 93,443 67,740
Inventories 61,764 59,123
Prepaid expenses and other current assets 32,724 27,728
Current assets of discontinued operations 12,365   8,986
Total current assets 597,483   560,661
Property, plant & equipment, less accumulated depreciation 187,294   183,163
Other assets
Goodwill 334,416 272,294
Identified intangible assets, less accumulated amortization 212,506 159,629
Investments 10,920 19,181
Deferred income tax assets 7,731 7,989
Other assets 13,241   8,153
Total other assets 578,814   467,246
Non-current assets of discontinued operations 1,242   6,824
 
Total Assets $ 1,364,833   $ 1,217,894
 
Liabilities and Equity
Current liabilities
Accounts payable $ 85,091 $ 74,724
Accrued expenses 88,393 79,580
Billings in excess of costs and estimated earnings 24,953 31,552
Current maturities of long-term debt and line of credit 26,879 33,775
Current liabilities of discontinued operations 2,401   4,885
Total current liabilities 227,717 224,516
Long-term debt, less current maturities 366,469 221,848
Deferred income tax liabilities 37,140 39,790
Other non-current liabilities 11,354   15,620
Total liabilities 642,680   501,774
 
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 38,576,118 and 38,952,561, respectively 386 390
Additional paid-in capital 244,189 257,209
Retained earnings 456,319 426,457
Accumulated other comprehensive income 3,615   15,260
Total stockholders’ equity 704,509 699,316
Non-controlling interests 17,644   16,804
Total equity 722,153   716,120
 
Total Liabilities and Equity $ 1,364,833   $ 1,217,894
 
 
 
 
 
 

AEGION CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) (in thousands)
 
 
 

For the Nine Months Ended

September 30,
2013   2012

Cash flows from operating activities:
Net income $ 30,821 $ 39,823
Loss from discontinued operations 6,456   880  
37,277 40,703
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 29,126 28,743
Gain on sale of fixed assets (815 ) (246 )
Equity-based compensation expense 5,090 5,246
Deferred income taxes (1,523 ) (1,800 )
Equity in earnings of affiliated companies (3,903 ) (4,389 )
Debt issuance costs 1,964
Earnout reversal (2,844 ) (6,892 )
Gain on sale of interests in German joint venture (11,771 )
Loss on foreign currency transactions 1,700 138
Other (159 ) (913 )
Changes in operating assets and liabilities (net of acquisitions):
Restricted cash (142 ) (359 )
Return on equity of affiliated companies 4,027 5,002
Receivables net, retainage and costs and estimated earnings in excess of billings (11,144 ) 3,760
Inventories (3,416 ) (6,333 )
Prepaid expenses and other assets (5,044 ) (2,624 )
Accounts payable and accrued expenses 2,932 (3,980 )
Other operating 198   1,773  
Net cash provided by operating activities of continuing operations 41,553 57,829
Net cash provided by (used in) operating activities of discontinued operations (10,179 ) 863  
Net cash provided by operating activities 31,374 58,692
 

Cash flows from investing activities:
Capital expenditures (20,079 ) (33,710 )
Proceeds from sale of fixed assets 1,856 3,399
Patent expenditures (469 ) (420 )
Sale of interests in German joint venture 18,300
Receipt of cash from Hockway sellers due to final net working capital adjustments 1,048
Purchase of Brinderson, net of cash acquired (143,763 )
Purchase of Fyfe Latin America, net of cash acquired (3,048 )
Purchase of Fyfe Asia, net of cash acquired (39,415 )
Payment to Fyfe North America sellers for final net working capital adjustments   (532 )
Net cash used in investing activities of continuing operations (144,155 ) (72,678 )
Net cash provided by (used in) investing activities of discontinued operations 774   (1,002 )
Net cash used in investing activities (143,381 ) (73,680 )
 

Cash flows from financing activities:
Proceeds from issuance of common stock upon stock option exercises, including tax effects 903 840
Repurchase of common stock (19,017 ) (6,354 )
Investments from noncontrolling interests 4,939

Payment of earnout related to acquisition of CRTS, Inc.
(2,112 )
Credit facility financing fees (5,013 )
Proceeds on notes payable 1,541 5,608
Principal payments on notes payable (890 )
Proceeds from line of credit 26,000
Proceeds from long-term debt 385,500 983
Principal payments on long-term debt (249,125 ) (18,750 )
Net cash provided by financing activities 112,677   12,376  
Effect of exchange rate changes on cash (7,659 ) (2,203 )
Net decrease in cash and cash equivalents for the period (6,989 ) (4,815 )
Cash and cash equivalents, beginning of period 133,676   106,129  
Cash and cash equivalents, end of period $ 126,687   $ 101,314  
 
 
 
 

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