UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                                                                to                                                                      
Commission File Number: 001-35328
Aegion Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
45-3117900
(State or other jurisdiction of incorporation or organization) 
 
(I.R.S. Employer Identification No.)
 
 
 
17988 Edison Avenue, Chesterfield, Missouri
 
63005-1195
(Address of principal executive offices) 
 
(Zip Code)
 
 
 
(636) 530-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No ¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
There were 32,313,990 shares of common stock, $.01 par value per share, outstanding at October 26, 2018 .




TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements (Unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II—OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

 
For the Quarters Ended  
 September 30,
 
For the Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
$
339,679

 
$
341,872


$
999,570


$
1,021,520

Cost of revenues
267,006

 
268,430

 
794,340

 
800,898

Gross profit
72,673

 
73,442


205,230


220,622

Operating expenses
51,386

 
54,872

 
161,750

 
165,812

Goodwill impairment
1,389

 
45,390

 
1,389

 
45,390

Definite-lived intangible asset impairment
870

 
41,032

 
870

 
41,032

Acquisition and divestiture expenses
4,800

 
1,980

 
6,024

 
2,513

Restructuring and related charges
1,219

 
5,439

 
4,548

 
5,439

Operating income (loss)
13,009

 
(75,271
)
 
30,649

 
(39,564
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(3,870
)
 
(3,962
)
 
(13,236
)
 
(12,014
)
Interest income
130

 
33

 
239

 
117

Other
(9,281
)
 
(798
)
 
(10,049
)
 
(1,593
)
Total other expense
(13,021
)
 
(4,727
)
 
(23,046
)
 
(13,490
)
Income (loss) before taxes on income
(12
)
 
(79,998
)
 
7,603

 
(53,054
)
Taxes (benefit) on income (loss)
(153
)
 
(5,954
)
 
1,740

 
1,144

Net income (loss)
141

 
(74,044
)
 
5,863

 
(54,198
)
Non-controlling interests (income) loss
(588
)
 
546

 
(458
)
 
(2,414
)
Net income (loss) attributable to Aegion Corporation
$
(447
)
 
$
(73,498
)
 
$
5,405

 
$
(56,612
)
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Aegion Corporation:
 
 
 
 
 
 
 
Basic
$
(0.01
)
 
$
(2.23
)
 
$
0.17

 
$
(1.70
)
Diluted
$
(0.01
)
 
$
(2.23
)
 
$
0.16

 
$
(1.70
)

The accompanying notes are an integral part of the consolidated financial statements.

3


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)

For the Quarters Ended  
 September 30,
 
For the Nine Months Ended  
 September 30,

2018
 
2017
 
2018
 
2017
Net income (loss)
$
141

 
$
(74,044
)
 
$
5,863

 
$
(54,198
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translation adjustments
(6,701
)
 
359

 
(10,983
)
 
17,637

Deferred gain on hedging activity, net of tax (1)
477

 
89

 
1,655

 
265

Pension activity, net of tax (2)
2

 
(9
)
 
7

 
(25
)
Total comprehensive loss
(6,081
)
 
(73,605
)
 
(3,458
)
 
(36,321
)
Comprehensive (income) loss attributable to non-controlling interests
(660
)
 
480

 
(283
)
 
(2,500
)
Comprehensive loss attributable to Aegion Corporation
$
(6,741
)
 
$
(73,125
)
 
$
(3,741
)
 
$
(38,821
)
__________________________
(1)  
Amounts presented net of tax of $171 and $59 for the quarters ended September 30, 2018 and 2017 , respectively, and $593 and $176 for the nine months ended September 30, 2018 and 2017, respectively.
(2)  
Amounts presented net of tax of $1 and $(2) for the quarters ended September 30, 2018 and 2017 , respectively, and $2 and $(6) for the nine months ended September 30, 2018 and 2017, respectively.


The accompanying notes are an integral part of the consolidated financial statements.

4


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
 
September 30, 
 2018
 
December 31, 
 2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
67,410

 
$
105,717

Restricted cash
1,835

 
1,839

Receivables, net of allowances of $5,967 and $5,775, respectively
194,941

 
201,570

Retainage
33,751

 
33,002

Contract assets
88,348

 
75,371

Inventories
63,144

 
63,969

Prepaid expenses and other current assets
33,435

 
35,282

Assets held for sale
10,173

 
70,314

Total current assets
493,037

 
587,064

Property, plant & equipment, less accumulated depreciation
107,792

 
109,040

Other assets
 
 
 
Goodwill
261,757

 
260,715

Intangible assets, less accumulated amortization
124,449

 
132,345

Deferred income tax assets
1,641

 
1,666

Other assets
26,362

 
16,269

Total other assets
414,209

 
410,995

Total Assets
$
1,015,038

 
$
1,107,099

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
75,654

 
$
70,611

Accrued expenses
83,682

 
92,011

Contract liabilities
35,297

 
51,597

Current maturities of long-term debt
26,548

 
26,555

Liabilities held for sale
6,423

 
20,900

Total current liabilities
227,604

 
261,674

Long-term debt, less current maturities
279,269

 
318,240

Deferred income tax liabilities
9,749

 
9,211

Other non-current liabilities
12,332

 
12,918

Total liabilities
528,954

 
602,043

 
 
 
 
(See Commitments and Contingencies: Note 10)


 


 
 
 
 
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 32,313,990 and 32,462,542, respectively
323

 
325

Additional paid-in capital
128,330

 
140,749

Retained earnings
382,367

 
376,694

Accumulated other comprehensive loss
(32,668
)
 
(23,522
)
Total stockholders’ equity
478,352

 
494,246

Non-controlling interests
7,732

 
10,810

Total equity
486,084

 
505,056

Total Liabilities and Equity
$
1,015,038

 
$
1,107,099


The accompanying notes are an integral part of the consolidated financial statements.

5


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(in thousands, except number of shares)
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Non-
Controlling
Interests
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
BALANCE, December 31, 2016
33,956,304

 
$
340

 
$
167,700

 
$
446,095

 
$
(45,635
)
 
$
7,683

 
$
576,183

Net income (loss)
—

 
—

 
—

 
(56,612
)
 
—

 
2,414

 
(54,198
)
Issuance of shares pursuant to restricted stock units
90,663

 
1

 
—

 
—

 
—

 
—

 
1

Issuance of shares pursuant to performance units
49,672

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of shares pursuant to deferred stock unit awards
30,559

 
—

 
—

 
—

 
—

 
—

 
—

Forfeitures of restricted shares
(1,084
)
 
—

 
—

 
—

 
—

 
—

 
—

Shares repurchased and retired
(1,452,296
)
 
(14
)
 
(31,716
)
 
—

 
—

 
—

 
(31,730
)
Equity-based compensation expense
—

 
—

 
8,104

 
—

 
—

 
—

 
8,104

Investments from non-controlling interests
—

 
—

 
—

 
—

 
—

 
158

 
158

Distributions to non-controlling interests
—

 
—

 
—

 
—

 
—

 
(71
)
 
(71
)
Currency translation adjustments, derivative transactions and pension activity, net
—

 
—

 
—

 
—

 
17,791

 
86

 
17,877

BALANCE, September 30, 2017
32,673,818

 
$
327

 
$
144,088

 
$
389,483

 
$
(27,844
)
 
$
10,270

 
$
516,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2017
32,462,542

 
$
325

 
$
140,749

 
$
376,694

 
$
(23,522
)
 
$
10,810

 
$
505,056

Cumulative effect adjustment (see Revenues: Note 3)
—

 
—

 
—

 
268

 
—

 
—

 
268

Net income
—

 
—

 
—

 
5,405

 
—

 
458

 
5,863

Issuance of shares pursuant to restricted stock units
301,041

 
3

 
—

 
—

 
—

 
—

 
3

Issuance of shares pursuant to performance units
296,909

 
3

 
—

 
—

 
—

 
—

 
3

Issuance of shares pursuant to deferred stock unit awards
26,396

 
—

 
—

 
—

 
—

 
—

 
—

Shares repurchased and retired
(772,898
)
 
(8
)
 
(18,620
)
 
—

 
—

 
—

 
(18,628
)
Equity-based compensation expense
—

 
—

 
6,201

 
—

 
—

 
—

 
6,201

Sale of non-controlling interests
—

 
—

 
—

 
—

 
—

 
(3,361
)
 
(3,361
)
Currency translation adjustments, derivative transactions and pension activity, net
—

 
—

 
—

 
—

 
(9,146
)
 
(175
)
 
(9,321
)
BALANCE, September 30, 2018
32,313,990

 
$
323

 
$
128,330

 
$
382,367

 
$
(32,668
)
 
$
7,732

 
$
486,084


The accompanying notes are an integral part of the consolidated financial statements.

6


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
For the Nine Months Ended 
 September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
5,863

 
$
(54,198
)
Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
27,692

 
34,410

Gain on sale of fixed assets
(423
)
 
(6
)
Equity-based compensation expense
6,201

 
8,104

Deferred income taxes
647

 
(4,511
)
Non-cash restructuring charges
5,891

 
102

Goodwill impairment
1,389

 
45,390

Definite-lived intangible asset impairment
870

 
41,032

Loss on sale of businesses
8,729

 
—

Loss on foreign currency transactions
1,231

 
1,659

Other
(119
)
 
(1,129
)
Changes in operating assets and liabilities (net of acquisitions):
 
 
 
Receivables net, retainage and contract assets
(19,247
)
 
(54,040
)
Inventories
(3,188
)
 
(4,645
)
Prepaid expenses and other assets
678

 
6,562

Accounts payable and accrued expenses
(256
)
 
23,726

Contract liabilities
(21,537
)
 
(9,869
)
Other operating
(396
)
 
(79
)
Net cash provided by operating activities
14,025

 
32,508

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(22,230
)
 
(22,515
)
Proceeds from sale of fixed assets
955

 
423

Patent expenditures
(197
)
 
(340
)
Other acquisition activity
(9,000
)
 
(9,045
)
Sale of Bayou, net of cash disposed
37,942

 
—

Net cash provided by (used in) investing activities
7,470

 
(31,477
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repurchase of common stock
(18,622
)
 
(31,730
)
Investments from non-controlling interests
—

 
158

Distributions to non-controlling interests
—

 
(71
)
Payment of contingent consideration
—

 
(500
)
Credit facility amendment fees
(1,093
)
 
—

Principal payments on notes payable
(26
)
 
150

Proceeds from line of credit, net
(19,000
)
 
14,000

Principal payments on long-term debt
(19,688
)
 
(15,085
)
Net cash used in financing activities
(58,429
)
 
(33,078
)
Effect of exchange rate changes on cash
(2,366
)
 
3,289

Net decrease in cash, cash equivalents and restricted cash for the period
(39,300
)

(28,758
)
Cash, cash equivalents and restricted cash, beginning of year
108,545

 
134,392

Cash, cash equivalents and restricted cash, end of period
69,245

 
105,634

Cash, cash equivalents and restricted cash associated with assets held for sale, end of period
—

 
(8,909
)
Cash, cash equivalents and restricted cash, end of period
$
69,245

 
$
96,725

The accompanying notes are an integral part of the consolidated financial statements.

7


AEGION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    GENERAL
The accompanying unaudited consolidated financial statements of Aegion Corporation and its subsidiaries (collectively, “Aegion” or the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All significant intercompany related accounts and transactions have been eliminated in consolidation.
The Consolidated Balance Sheet as of December 31, 2017, which is derived from the audited consolidated financial statements, and the interim unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the requirements of Form 10-Q and Article 10 of Regulation S-X and, consequently, do not include all information or footnotes required by GAAP for complete financial statements or all the disclosures normally made in an Annual Report on Form 10-K. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2018.

Revision
The Company identified errors related primarily to intercompany accounts and stock compensation prior to December 31, 2016 of approximately $9.0 million and corrected this error as a cumulative decrease to beginning retained earnings of $9.0 million with a corresponding increase to additional paid-in capital and accumulated other comprehensive loss of $1.1 million and $7.9 million , respectively, as of December 31, 2016. The Company also revised the results for the quarter and nine-month period ended September 30, 2017 to reflect the correction of these errors, resulting in: (i) a net increase to operating expenses of $0.3 million for both periods and a corresponding decrease in net income; and (ii) an increase to currency translation adjustments of $0.6 million and $1.4 million , respectively, which is a component of accumulated other comprehensive income. The Company also revised the results for the period ended September 30, 2017, which resulted in a decrease of $1.1 million to additional paid-in capital related to equity-based compensation expense.
The Company evaluated the impact of these errors on the prior period quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively. The Company determined that these errors were not material to any of the Company’s prior annual and interim period consolidated financial statements and therefore, amendments of previously filed reports were not required. As such, the revision for the corrections is reflected in the financial information of the applicable prior periods in this Form 10-Q filing and disclosure of the revised amount on other prior periods will be reflected in future filings containing the applicable period.

Acquisitions/Strategic Initiatives/Divestitures
2017 Restructuring
On July 28, 2017, the Company’s board of directors approved a realignment and restructuring plan (the “2017 Restructuring”). As part of the 2017 Restructuring, the Company announced plans to: (i) divest the Company’s pipe coating and insulation businesses in Louisiana, The Bayou Companies, LLC and Bayou Wasco Insulation, LLC (collectively “Bayou”); (ii) exit all non-pipe related contract applications for the Tyfo ® system in North America; (iii) right-size the cathodic protection services operation in Canada and the cured-in-place pipe (“CIPP”) businesses in Australia and Denmark; and (iv) reduce corporate and other operating costs. These decisions reflected the Company’s: (a) desire to reduce further its exposure in the North American upstream oil and gas markets; (b) assessment of its ability to drive sustainable, profitable growth in the non-pipe fiber reinforced polymer ( “FRP” ) contracting market in North America; and (c) assessment of continuing weak conditions in the Canadian oil and gas markets. See Note 4.
See Note 13 for additional restructuring activities approved by the Company’s board of directors on October 26, 2018.
Infrastructure Solutions Segment (“Infrastructure Solutions”)
On July 25, 2018, the Company’s board of directors approved a plan to exit the CIPP operation in Denmark to address continued underperformance in the business. As a result of this decision, the Company is seeking to divest assets, where possible. Accordingly, the Company has classified Denmark’s assets and liabilities as held for sale on the Consolidated

8


Balance Sheet at September 30, 2018. See Note 5. Additionally, see Note 13 for additional information on the executed asset sale agreement, effective November 1, 2018.
On May 14, 2018, the Company’s board of directors approved a plan to divest the Company’s CIPP business in Australia. While restructuring actions in Australia have led to year-over-year improvements in operating results, an assessment of the long-term fit within the Company’s portfolio led to the decision to divest the business. Accordingly, the Company has classified Australia’s assets and liabilities as held for sale on the Consolidated Balance Sheet at September 30, 2018. See Note 5.
Corrosion Protection Segment (“Corrosion Protection”)
On August 31, 2018, the Company sold substantially all of the assets of its wholly-owned subsidiary, The Bayou Companies, LLC and its fifty-one percent ( 51% ) interest in Bayou Wasco Insulation, LLC. The sale price was $46 million , consisting of $38 million paid in cash at closing and $8 million in a fully secured, two -year loan payable to Aegion. Aegion is also eligible to receive an additional $4 million in total earn-out payments based on performance of the divested businesses in 2019 and 2020. Cash proceeds, net of customary closing costs, were used to repay outstanding borrowings on the Company’s line of credit. The sale resulted in a pre-tax, non-cash loss of $8.7 million during the third quarter of 2018, which is included in “Other expense” in the Consolidated Statements of Operations.
On May 4, 2018, the Company acquired the operations of Hebna Inc., Hebna Canada Inc. and Hebna Corporation (collectively “Hebna”), for a total purchase price of $6.0 million ( $3.0 million was paid during the second quarter of 2018 and $3.0 million was paid during the third quarter of 2018). The transaction was funded from a combination of domestic and international cash balances, with fifty percent ( 50% ) of the purchase price being paid by the Company’s joint venture in Oman, in which the Company is a fifty-one percent ( 51% ) partner. Hebna provides pipeline lining services, including compressed-fit lining, slip-lining, liner and free-standing pipe fusing, pipeline assessment and integrity management, pipeline pigging and calibration, and roto-lining services primarily in the United States, Canada and Middle East .
In September 2017, the Company organized Aegion South Africa Proprietary Limited, a joint venture in South Africa between Aegion International Holdings Limited, a subsidiary of the Company (“Aegion International”), and Robor Proprietary Limited (“Robor”), for the purpose of providing Aegion’s Corrosion Protection and Infrastructure Solutions products and services to sub-Saharan Africa. Aegion International owns sixty percent ( 60% ) of the joint venture and Robor owns the remaining forty percent ( 40% ).
Energy Services Segment (“Energy Services”)
On July 20, 2018, the Company acquired the operations of Plant Performance Services LLC and P2S LLC (collectively “P2S”), for a total purchase price of $3.0 million . The transaction was funded from domestic cash balances. P2S specializes in general mechanical turnaround services, specialty welding services and field fabrication services primarily for the downstream oil and gas industry.

2.    ACCOUNTING POLICIES
On January 1, 2018, the Company adopted FASB ASC 606, Revenue from Contracts with Customers (“FASB ASC 606”). See Note 3 for further information. Other than the adoption of FASB ASC 606, t here were no material changes in accounting policies from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 .
Foreign Currency Translation
For the Company’s international subsidiaries, the local currency is generally the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates. The cumulative translation adjustment resulting from changes in exchange rates are included in the Consolidated Balance Sheets as a component of “Accumulated other comprehensive loss” in total stockholders’ equity.

9


The Company’s accumulated other comprehensive loss is comprised of three main components: (i) currency translation; (ii) derivatives; and (iii) gains and losses associated with the Company’s defined benefit plan in the United Kingdom (in thousands):
 
September 30, 
 2018
 
December 31,
2017
Currency translation adjustments
$
(38,017
)
 
$
(26,614
)
Derivative hedging activity
5,584

 
3,336

Pension activity
(235
)
 
(244
)
Total accumulated other comprehensive loss
$
(32,668
)
 
$
(23,522
)
Net foreign exchange transaction losses of $0.4 million and $0.8 million in the third quarters of 2018 and 2017 , respectively, and $1.2 million and $1.7 million for the nine months ended September 30, 2018 and 2017 , respectively, are included in “Other expense” in the Consolidated Statements of Operations.
Taxation
The Company provides for estimated income taxes payable or refundable on current year income tax returns as well as the estimated future tax effects attributable to temporary differences and carryforwards, based upon enacted tax laws and tax rates, and in accordance with FASB ASC 740, Income Taxes (“FASB ASC 740”). FASB ASC 740 also requires that a valuation allowance be recorded against any deferred tax assets that are not likely to be realized in the future. The determination is based on the Company’s ability to generate future taxable income and, at times, is dependent on its ability to implement strategic tax initiatives to ensure full utilization of recorded deferred tax assets. Should the Company not be able to implement the necessary tax strategies, it may need to record valuation allowances for certain deferred tax assets, including those related to foreign income tax benefits. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowances recorded against net deferred tax assets.
As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act (“TCJA”), FASB ASC 740 required the Company to remeasure its deferred tax assets and liabilities based on tax rates at which the balances are expected to reverse in the future. The provisional amount recorded for the remeasurement of the Company’s deferred tax balances resulted in no adjustment to income tax expense in 2017 or 2018. The remeasurement of the deferred tax assets gave rise to an additional income tax expense of $5.1 million in 2017, which was offset by an equal reduction in the valuation allowance of $5.1 million . The Company continues to analyze certain aspects of the TCJA, including consideration of additional forthcoming technical guidance, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
In 2017, in connection with its initial analysis of the TCJA, the Company recorded a provisional estimated net income tax expense of $2.4 million , which consisted of a charge of $10.4 million for the deemed mandatory repatriation less $7.1 million related to the release of deferred tax liabilities on unremitted foreign earnings and $0.9 million associated with other TCJA related impacts. On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), directing a taxpayer to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for income tax effects of the TCJA. In accordance with SAB 118, the additional estimated income tax of $2.4 million represented the Company’s best estimate at the time it was made, but also understanding that the provisional amount is subject to further adjustments under SAB 118. During the third quarter of 2018, the Company revised its estimate of the deemed mandatory repatriation tax on foreign earnings downward by $1.5 million primarily due to further refinement of the earnings and profits and cash and cash equivalent balances within the computation pursuant to guidance issued during the quarter. This adjustment was recorded as a reduction to income tax expense in the quarter and nine-month period ended September 30, 2018. The Company continues to refine its estimated balances, and adjustments may be made under SAB 118 during the measurement period as a result of future changes in interpretation, issuance of additional regulatory guidance from the U.S. federal and state tax authorities, or its own assumption changes. All accounting will be completed within the one-year measurement period allowed under SAB 118. The ultimate impact of the TCJA may differ from the current estimated amounts and the adjustments could be material.

10


Earnings per Share
Earnings per share have been calculated using the following share information:
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average number of common shares used for basic EPS
32,312,000

 
32,905,142

 
32,390,777

 
33,363,472

Effect of dilutive stock options and restricted and deferred stock unit awards
—

 
—

 
667,229

 
—

Weighted average number of common shares and dilutive potential common stock used for dilutive EPS
32,312,000

 
32,905,142

 
33,058,006

 
33,363,472

The Company excluded 664,661 stock options and restricted and deferred stock units for the quarter ended September 30, 2018, and 737,423 and 702,544 stock options and restricted and deferred stock units for the quarter and nine-month period ended September 30, 2017, respectively, from the diluted earnings per share calculation for the Company’s common stock because of the reported net loss for the periods. The Company excluded 77,807 stock options for the quarter and nine months ended September 30, 2017, respectively, from the diluted earnings per share calculations for the Company’s common stock because they were anti-dilutive as their exercise prices were greater than the average market price of common shares for each period.
Cash, Cash Equivalents and Restricted Cash
The Company classifies highly liquid investments with original maturities of 90 days or less as cash equivalents. Recorded book values are reasonable estimates of fair value for cash and cash equivalents.
Cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows are as follows (in thousands):
Balance sheet data
September 30, 2018
 
December 31, 
  2017 (1)
Cash and cash equivalents
$
67,410

 
$
105,717

Restricted cash
1,835

 
1,839

Cash, cash equivalents and restricted cash
$
69,245

 
$
107,556

__________________________
(1)  
Amounts exclude $1.0 million of cash and cash equivalents classified as held for sale at December 31, 2017 (see Note 5).
Restricted cash held in escrow primarily relates to funds reserved for legal requirements, deposits made in lieu of retention on specific projects performed for municipalities and state agencies, or advance customer payments and compensating balances for bank undertakings in Europe. Restricted cash related to operations is similar to retainage, and is, therefore, classified as a current asset, consistent with the Company’s policy on retainage.
Long-Lived Assets
Property, plant and equipment and other identified intangibles (primarily customer relationships, patents and acquired technologies, trademarks, licenses and non-compete agreements) are recorded at cost, net of accumulated depreciation and impairment, and, except for goodwill and certain trademarks, are depreciated or amortized on a straight-line basis over their estimated useful lives. Changes in circumstances such as technological advances, changes to the Company’s business model or changes in the Company’s capital strategy can result in the actual useful lives differing from the Company’s estimates. If the Company determines that the useful life of its property, plant and equipment or its identified intangible assets should be changed, the Company would depreciate or amortize the net book value in excess of the salvage value over its revised remaining useful life, thereby increasing or decreasing depreciation or amortization expense.
Long-lived assets, including property, plant and equipment and other intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. The estimate of cash flow is based upon, among other things, assumptions about expected future operating performance. The Company’s estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the undiscounted cash flows is less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset.

11


Impairment Review – Third Quarter 2017
As part of the 2017 Restructuring, which was approved by the Company’s board of directors on July 28, 2017, the Company exited all non-pipe related contract applications for the Tyfo ® system in North America. As a result of this action, the Company evaluated the long-lived assets of its Fyfe reporting unit, which caused the Company to review the financial performance of at-risk asset groups within the Fyfe reporting unit in accordance with FASB ASC 360, Property, Plant and Equipment (“FASB ASC 360”). The results of the Fyfe reporting unit and its related asset groups are reported within the Infrastructure Solutions reportable segment.
The assets of an asset group represent the lowest level for which identifiable cash flows can be determined independent of other groups of assets and liabilities. The Fyfe North America asset group was the only at-risk asset group reviewed for impairment. The Company developed internal forward business plans under the guidance of local and regional leadership to determine the undiscounted expected future cash flows derived from Fyfe North America’s long-lived assets. Such were based on management’s best estimates considering the likelihood of various outcomes. Based on the internal projections, the Company determined that the sum of the undiscounted expected future cash flows for the Fyfe North America asset group was less than the carrying value of the assets, and as a result, engaged a third-party valuation firm to assist management in determining the fair value of long-lived assets for the Fyfe North America asset group.
In order to determine the impairment amount of long-lived assets, the Company first determined the fair value of each key component of its long-lived assets for the Fyfe North America asset group. The fair values were derived using various income-based approaches, which utilize discounted cash flows to evaluate the net earnings attributable to the asset being measured. Key assumptions used in assessment include the discount rate (based on weighted-average cost of capital), revenue growth rates, contributory asset charges, customer attrition, income tax rates and working capital needs, which were based on current market conditions and were consistent with internal management projections.
Based on the results of the valuation, the carrying amount of certain long-lived assets for the Fyfe North America asset group exceeded the fair value. Accordingly, the Company recorded impairment charges of $3.4 million to trademarks, $20.8 million to customer relationships and $16.8 million to patents and acquired technology in the third quarter of 2017. The impairment charges were recorded to “Definite-lived intangible asset impairment” in the Consolidated Statement of Operations. Property, plant and equipment were determined to have a fair value that exceeded carrying value; thus, no impairment was recorded.
The fair value estimates described above were determined using observable inputs and significant unobservable inputs, which are based on level 3 inputs as defined in Note 12.
Goodwill
Under FASB ASC 350, Intangibles – Goodwill and Other (“FASB ASC 350”), the Company assesses recoverability of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. An impairment charge will be recognized to the extent that the fair value of a reporting unit is less than its carrying value. Factors that could potentially trigger an impairment review include (but are not limited to):
•
significant underperformance of a segment relative to expected, historical or forecasted operating results;
•
significant negative industry or economic trends;
•
significant changes in the strategy for a segment including extended slowdowns in the segment’s market;
•
a decrease in market capitalization below the Company’s book value; and
•
a significant change in regulations.
Whether during the annual impairment assessment or during a trigger-based impairment review, the Company determines the fair value of its reporting units and compares such fair value to the carrying value of those reporting units to determine if there are any indications of goodwill impairment.
Fair value of reporting units is determined using a combination of two valuation methods: a market approach and an income approach with each method given equal weight in determining the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, the Company believes the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic outlooks, which are used to forecast future revenues, earnings and after-tax cash flows for each reporting unit. These assumptions are applied consistently for both methods.
The market approach estimates fair value by first determining earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples for comparable publicly-traded companies with similar characteristics of the reporting unit. The EBITDA multiples for comparable companies are based upon current enterprise value. The enterprise value is based upon current market capitalization and includes a control premium. The Company believes this approach is appropriate because it

12


provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to its reporting units.
The income approach is based on forecasted future (debt-free) cash flows that are discounted to present value using factors that consider timing and risk of future cash flows. The Company believes this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on financial forecasts developed from operating plans and economic outlooks, growth rates, estimates of future expected changes in operating margins, terminal value growth rates, future capital expenditures and changes in working capital requirements. Estimates of discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to business models, changes in the Company’s weighted average cost of capital, or changes in operating performance.
The discount rate applied to the estimated future cash flows is one of the most significant assumptions utilized under the income approach. The Company determines the appropriate discount rate for each of its reporting units based on the weighted average cost of capital (“WACC”) for each individual reporting unit. The WACC takes into account both the pre-tax cost of debt and cost of equity (including the risk-free rate on 20-year U.S. Treasury bonds), and certain other company-specific and market-based factors. As each reporting unit has a different risk profile based on the nature of its operations, the WACC for each reporting unit is adjusted, as appropriate, to account for company-specific risks. Accordingly, the WACC for each reporting unit may differ.
Impairment Review – Third Quarter 2017
As part of the 2017 Restructuring, which was approved by the Company’s board of directors on July 28, 2017, the Company exited all non-pipe related contract applications for the Tyfo ® system in North America. As a result of this action, the Company evaluated the goodwill of its Fyfe reporting unit and determined that a triggering event occurred. As such, the Company engaged a third-party valuation firm to assist management in performing a goodwill impairment review for its Fyfe reporting unit during the third quarter of 2017. In accordance with the provisions of FASB ASC 350, the Company determined the fair value of the reporting unit and compared such fair value to the carrying value of the reporting unit. For the Fyfe reporting unit, carrying value, as adjusted for the long-lived asset impairments discussed previously, exceeded fair value by approximately 45% .
As of January 1, 2017, the Company adopted FASB Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment , which states that an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Based on the impairment analysis, the Company determined that recorded goodwill at the Fyfe reporting unit was impaired by $45.4 million , which was recorded to “Goodwill impairment” in the Consolidated Statement of Operations during the third quarter of 2017. As of December 31, 2017, the Company had remaining Fyfe goodwill of $9.6 million . Projected cash flows were based, in part, on the ability to grow third-party product sales and pressure pipe contracting in North America, and maintaining a presence in other international markets.
Investments in Variable Interest Entities
The Company evaluates all transactions and relationships with variable interest entities (“VIE”) to determine whether the Company is the primary beneficiary of the entities in accordance with FASB ASC 810, Consolidation . There were no changes in the Company’s VIEs during the quarter ended September 30, 2018 .
Financial data for consolidated variable interest entities are summarized in the following tables (in thousands):
Balance sheet data
September 30, 
 2018
 
December 31, 
 2017 (1)
Current assets
$
39,022

 
$
42,732

Non-current assets
5,098

 
26,346

Current liabilities
14,514

 
12,449

Non-current liabilities
11,341

 
30,675

__________________________
(1)  
Amounts included $25.4 million of assets and $9.8 million of liabilities classified as held for sale relating to our pipe coating and insulation joint venture in Louisiana, Bayou Wasco Insulation, LLC, which was divested on August 31, 2018. See Note 5.

13


 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Income statement data (1)
2018
 
2017
 
2018
 
   2017 (1)
Revenue
$
16,405

 
$
11,457

 
$
39,179

 
$
72,916

Gross profit
3,238

 
1,984

 
6,982

 
11,704

Net income (loss) attributable to Aegion Corporation
(946
)
 
1,121

 
(886
)
 
3,071

__________________________
(1)  
During the nine months ended September 30, 2017, increased activity was primarily driven from our joint venture in Louisiana, which performed work on a large deepwater pipe coating and insulation project.
Newly Issued Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for the Company’s fiscal year beginning January 1, 2020, including interim periods within that fiscal year. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which permits a company to reclassify the income tax effects of the TCJA on items within accumulated other comprehensive income to retained earnings. The guidance is effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Companies may adopt the new guidance using one of two transition methods: (i) retrospective to each period (or periods) in which the income tax effects are recognized, or (ii) at the beginning of the period of adoption. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities , which amends the recognition and presentation requirements for hedge accounting activities. The standard improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and reduces the complexity of applying hedge accounting. This new guidance is effective for the Company’s fiscal year beginning January 1, 2019, but the Company early-adopted this standard, effective January 1, 2018. The adoption of this standard did not have a material impact on its consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. As a result, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This new guidance was effective for the Company’s fiscal year beginning January 1, 2018 and applied retrospectively. The Company’s adoption of this standard, effective January 1, 2018, did not have a material impact on its consolidated financial statements, other than the classification of restricted cash on the Consolidated Statement of Cash Flows.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard was effective for the Company’s fiscal year beginning January 1, 2018, the adoption of which did not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) , that requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with lease terms longer than twelve months. The standard is effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Early adoption is permitted, although the Company does not intend to do so. The Company intends to adopt the new guidance using the cumulative effect method, which would apply to all new lease contracts initiated on or after January 1, 2019. For existing lease contracts that have remaining obligations as of January 1, 2019, the difference between the recognition criteria in the new guidance and the Company’s current practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings.
In early 2017, the Company identified a project manager as well as a cross-functional implementation team responsible for identifying and assessing the impact on its lease contracts. During 2017 and 2018, the implementation team completed the assessment phase, which included data retrieval from the Company’s key third-party lease administration vendors and the identification of the Company’s known lease contracts throughout the world. Additionally, the Company is currently implementing a third-party software solution to support recognition and disclosure under the new standard, including

14


customization and migration of existing data into the new software solution. During the fourth quarter of 2018, the Company will: (i) test the data output from the software solution in accordance with the new standard; (ii) calculate opening balances and determine the cumulative effect adjustment; and (iii) identify any further potential changes to business processes, systems and controls.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which replaces revenue recognition requirements regarding contracts with customers to transfer goods or services with a single revenue recognition model for recognizing revenue. Under the new guidance, entities are required to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. The Company adopted this standard, effective January 1, 2018, using the modified retrospective transition method. See Note 3.

3.    REVENUES
On January 1, 2018, the Company adopted FASB ASC 606 for all contracts that were not completed using the modified retrospective transition method. The Company recognized the cumulative effect of initially applying FASB ASC 606 as an adjustment to the opening balance of retained earnings. Prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The Company recorded a net reduction to opening retained earnings of $0.3 million as of January 1, 2018 due to the cumulative impact of adopting FASB ASC 606, with the impact primarily related to royalty license fee revenues. The impact to revenues for the nine months ended September 30, 2018 was an increase of $1.9 million as a result of applying FASB ASC 606.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in FASB ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts in which construction, engineering and installation services are provided, there is a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The bundle of goods and services represents the combined output for which the customer has contracted. For product sales contracts with multiple performance obligations where each product is distinct, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good in the contract. For royalty license agreements whereby intellectual property is transferred to the customer, there is a single performance obligation as the license is not separately identifiable from the other goods and services in the contract.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. Revenues from products and services transferred to customers over time accounted for 92.6% and 93.3% of revenues for the quarters ended September 30, 2018 and 2017, respectively, and 93.6% and 93.3% of revenues for the nine months ended September 30, 2018 and 2017, respectively. Revenues from construction, engineering and installation services are recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress toward satisfying performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, general and administrative expenses. Revenues from royalty license arrangements are recognized either at contract inception when the license is transferred or when the royalty has been earned, depending on whether the contract contains fixed consideration. Revenues from stand-alone product sales are recognized at a point in time, when control of the product is transferred to the customer. Revenues from these types of contracts accounted for 7.4% and 6.7% of revenues for the quarters ended September 30, 2018 and 2017, respectively, and 6.4% and 6.7% for the nine months ended September 30, 2018 and 2017, respectively.
On September 30, 2018 , the Company had $670.7 million of remaining performance obligations. The Company estimates that approximately $654.7 million , or 97.6% , of the remaining performance obligations at September 30, 2018 will be realized as revenues in the next 12 months.
Contract Estimates
Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract, and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that sometimes span multiple years. These assumptions include

15


labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
The Company’s contracts do not typically contain variable consideration or other provisions that increase or decrease the transaction price. In rare situations where the transaction price is not fixed, the Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. For royalty license agreements, the Company applies the sales-based and usage-based royalty exception and recognizes royalties at the later of: (i) when the subsequent sale or usage occurs; or (ii) the satisfaction or partial satisfaction of the performance obligation to which some or all of the sales-or usage-based royalty has been allocated. For contracts in which a portion of the transaction price is retained and paid after the good or service has been transferred to the customer, the Company does not recognize a significant financing component. The primary purpose of the retainage payment is often to provide the customer with assurance that the Company will perform its obligations under the contract, rather than to provide financing to the customer.
The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.
Revenue by Category
The following tables summarize revenues by segment and geography (in thousands):
 
Quarter Ended September 30, 2018
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Primary geographic region:
 
 
 
 
 
 
 
United States
$
111,902

 
$
72,022

 
$
78,374

 
$
262,298

Canada
16,153

 
19,767

 
—

 
35,920

Europe
13,460

 
2,821

 
—

 
16,281

Other foreign
14,166

 
11,014

 
—

 
25,180

Total revenues
$
155,681

 
$
105,624

 
$
78,374

 
$
339,679


 
Nine Months Ended September 30, 2018
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Primary geographic region:
 
 
 
 
 
 
 
United States
$
323,327

 
$
207,267

 
$
248,612

 
$
779,206

Canada
44,028

 
51,157

 
—

 
95,185

Europe
39,600

 
8,535

 
—

 
48,135

Other foreign
43,885

 
33,159

 
—

 
77,044

Total revenues
$
450,840

 
$
300,118

 
$
248,612

 
$
999,570


 
Quarter Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Primary geographic region:
 
 
 
 
 
 
 
United States
$
128,356

 
$
57,024

 
$
65,435

 
$
250,815

Canada
17,936

 
24,003

 
—

 
41,939

Europe
13,900

 
3,467

 
—

 
17,367

Other foreign
13,969

 
17,782

 
—

 
31,751

Total revenues
$
174,161

 
$
102,276

 
$
65,435

 
$
341,872



16


 
Nine Months Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Primary geographic region:
 
 
 
 
 
 
 
United States
$
328,627

 
$
241,620

 
$
216,799

 
$
787,046

Canada
42,170

 
55,883

 
—

 
98,053

Europe
41,196

 
10,460

 
—

 
51,656

Other foreign
39,347

 
45,418

 
—

 
84,765

Total revenues
$
451,340

 
$
353,381

 
$
216,799

 
$
1,021,520


The following tables summarize revenues by segment and contract type (in thousands):
 
Quarter Ended September 30, 2018
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Contract type:
 
 
 
 
 
 
 
Fixed fee
$
141,598

 
$
68,935

 
$
2,069

 
$
212,602

Time and materials
—

 
25,612

 
76,305

 
101,917

Product sales
11,679

 
11,077

 
—

 
22,756

License fees
2,404

 
—

 
—

 
2,404

Total revenues
$
155,681

 
$
105,624

 
$
78,374

 
$
339,679


 
Nine Months Ended September 30, 2018
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Contract type:
 
 
 
 
 
 
 
Fixed fee
$
416,392

 
$
210,819

 
$
13,793

 
$
641,004

Time and materials
—

 
60,160

 
234,819

 
294,979

Product sales
32,011

 
29,139

 
—

 
61,150

License fees
2,437

 
—

 
—

 
2,437

Total revenues
$
450,840

 
$
300,118

 
$
248,612

 
$
999,570


 
Quarter Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Contract type:
 
 
 
 
 
 
 
Fixed fee
$
163,043

 
$
76,419

 
$
1,548

 
$
241,010

Time and materials
—

 
14,188

 
63,887

 
78,075

Product sales
10,987

 
11,669

 
—

 
22,656

License fees
131

 
—

 
—

 
131

Total revenues
$
174,161

 
$
102,276

 
$
65,435

 
$
341,872



17


 
Nine Months Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Contract type:
 
 
 
 
 
 
 
Fixed fee
$
419,991

 
$
276,431

 
$
4,216

 
$
700,638

Time and materials
—

 
40,325

 
212,583

 
252,908

Product sales
30,905

 
36,625

 
—

 
67,530

License fees
444

 
—

 
—

 
444

Total revenues
$
451,340

 
$
353,381

 
$
216,799

 
$
1,021,520

Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets and contract liabilities on the Consolidated Balance Sheets. Contract assets represent work performed that could not be billed either due to contract stipulations or the required contractual documentation has not been finalized. Substantially all unbilled amounts are expected to be billed and collected within one year.
For fixed fee and time-and-materials based contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. For some royalty license arrangements, minimum amounts are billed over the license term as quarterly royalty amounts are determined. This results in contract assets as the Company recognizes revenue for the license when the license is transferred to the customer at contract inception. The Company’s contract liabilities consist of advance payments, billings in excess of revenue recognized and deferred revenue.
The Company’s contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Advance payments, billings in excess of revenue recognized and deferred revenue are each classified as current.
Net contract assets (liabilities) consisted of the following (in thousands):
 
September 30, 
  2018 (1)
 
December 31,
  2017 (2)
Contract assets – current
$
88,348

 
$
75,371

Contract liabilities – current
(35,297
)
 
(51,597
)
Net contract assets
$
53,051

 
$
23,774

__________________________
(1)  
Amounts exclude contract assets of $2.2 million and contract liabilities of less than $0.1 million that were classified as held for sale at September 30, 2018 (see Note 5).
(2)  
Amounts exclude contract assets of $1.3 million and contract liabilities of $5.5 million that were classified as held for sale at December 31, 2017 (see Note 5).
Included in the change of total net contract assets was a $13.0 million increase in contract assets, primarily related to the timing between work performed on open contracts and contractual billing terms, and a $16.3 million decrease in contract liabilities, primarily related to the timing of customer advances on certain contracts.
Substantially all of the $51.6 million and $62.7 million contract liabilities balances at December 31, 2017 and December 31, 2016, respectively, were recognized in revenues during the first nine months of 2018 and 2017, respectively.
Impairment losses recognized on receivables and contract assets were not material during the first nine months of 2018 and 2017.

4.    RESTRUCTURING
2017 Restructuring
On July 28, 2017, the Company’s board of directors approved the 2017 Restructuring. As part of the 2017 Restructuring, the Company announced plans to: (i) divest Bayou; (ii) exit all non-pipe related contract applications for the Tyfo ® system in North America; (iii) right-size the cathodic protection services operation in Canada and the CIPP businesses in Australia and Denmark; and (iv) reduce corporate and other operating costs. These decisions reflected the Company’s: (a) desire to reduce further its exposure in the North American upstream oil and gas markets; (b) assessment of its ability to drive sustainable,

18


profitable growth in the non-pipe FRP contracting market in North America; and (c) assessment of continuing weak conditions in the Canadian oil and gas markets.
In May 2018 and July 2018, the Company’s board of directors approved subsequent actions to divest the Australia CIPP business and divest assets, where possible, from the Denmark CIPP business, respectively (see Note 5).
During the first nine months of 2018, total pre-tax 2017 Restructuring charges recorded were $15.6 million ( $14.0 million post-tax) and consisted of employee severance, retention, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring costs associated with the restructuring efforts described above. Total pre-tax 2017 Restructuring and related impairment charges since inception were $125.7 million ( $115.6 million post-tax), including cash charges of $21.1 million and non-cash charges of $104.6 million , of which $86.4 million relates to goodwill and long-lived asset impairment charges recorded in 2017 as part of exiting the non-pipe FRP contracting market in North America. The Company reduced headcount by approximately 320 employees as a result of these actions.
Management expects total restructuring and impairment charges for actions approved on July 28, 2017, and including the subsequent actions for Australia and Denmark, to be approximately $130 million .
See Note 13 for additional restructuring activities approved by the Company’s board of directors on October 26, 2018.
During the quarter and nine months ended September 30, 2018 and 2017 , the Company recorded pre-tax expenses related to the 2017 Restructuring as follows (in thousands):
 
Quarter Ended September 30, 2018
 
Quarter Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Total
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Total
Severance and benefit related costs
$
914

 
$
35

 
$
949

 
$
3,140

 
$
1,930

 
$
5,070

Lease and contract termination costs
215

 
—

 
215

 
250

 
90

 
340

Relocation and other moving costs
55

 
—

 
55

 
—

 
29

 
29

Other restructuring costs (1)
5,085

 
1,119

 
6,204

 
1,183

 
115

 
1,298

Total pre-tax restructuring charges (2)
$
6,269

 
$
1,154

 
$
7,423

 
$
4,573

 
$
2,164

 
$
6,737

__________________________
(1)  
Includes charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals and other restructuring-related costs in connection with exiting non-pipe-related contract applications for the Tyfo ® system in North America and right-sizing the CIPP operations in Australia and Denmark. Amounts also include goodwill and definite-lived intangible asset impairments related to Denmark.
(2)  
Includes $0.3 million and $0.8 million of corporate-related restructuring charges in the third quarter of 2018 and 2017 , respectively, that have been allocated to the Infrastructure Solutions and Corrosion Protection reportable segments.
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Total
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Total
Severance and benefit related costs
$
2,780

 
$
437

 
$
3,217

 
$
3,140

 
$
1,930

 
$
5,070

Lease and contract termination costs
1,052

 
150

 
1,202

 
250

 
90

 
340

Relocation and other moving costs
129

 
—

 
129

 
—

 
29

 
29

Other restructuring costs (1)
8,395

 
2,637

 
11,032

 
1,183

 
115

 
1,298

Total pre-tax restructuring charges (2)
$
12,356

 
$
3,224

 
$
15,580

 
$
4,573

 
$
2,164

 
$
6,737

__________________________
(1)  
Includes charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals and other restructuring-related costs in connection with exiting non-pipe-related contract applications for the Tyfo ® system in North America and right-sizing the CIPP operations in Australia and Denmark. Amounts also include goodwill and definite-lived intangible asset impairments related to Denmark.
(2)  
Includes $0.9 million and $0.8 million of corporate-related restructuring charges in the first nine months of 2018 and 2017 , respectively, that have been allocated to the Infrastructure Solutions and Corrosion Protection reportable segments.
2017 Restructuring costs related to severance, other termination benefit costs and early lease and contract termination costs were $1.2 million and $5.4 million for the quarters ended September 30, 2018 and 2017 , respectively, and $4.5 million and $5.4 million for the nine months ended September 30, 2018 and 2017 , respectively, and are reported on a separate line in the Consolidated Statements of Operations.

19


The following tables summarize all charges related to the 2017 Restructuring recognized in the quarter and nine month periods ended September 30, 2018 and 2017 as presented in their affected line in the Consolidated Statements of Operations (in thousands):
 
Quarter Ended September 30, 2018
 
Quarter Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
  Total (1)
 
Infrastructure
Solutions
 
Corrosion
Protection
 
  Total (2)
Cost of Revenues
$
138

 
$
567

 
$
705

 
$
30

 
$
15

 
$
45

Operating expenses
2,466

 
552

 
3,018

 
1,153

 
100

 
1,253

Goodwill impairment
1,389

 
—

 
1,389

 
—

 
—

 
—

Definite-lived intangible asset impairment
870

 
—

 
870

 
—

 
—

 
—

Restructuring and related charges
1,184

 
35

 
1,219

 
3,390

 
2,049

 
5,439

Other expense
222

 
—

 
222

 
—

 
—

 
—

Total pre-tax restructuring charges
$
6,269

 
$
1,154

 
$
7,423

 
$
4,573

 
$
2,164

 
$
6,737

__________________________
(1)  
Total pre-tax restructuring charges include cash charges of $2.3 million and non-cash charges of $5.1 million . Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.
(2)  
Total pre-tax restructuring charges include cash charges of $6.6 million and non-cash charges of $0.1 million . Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
Infrastructure
Solutions
 
Corrosion
Protection
 
  Total (1)
 
Infrastructure
Solutions
 
Corrosion
Protection
 
  Total (2)
Cost of Revenues
$
138

 
$
567

 
$
705

 
$
30

 
$
15

 
$
45

Operating expenses
5,776

 
2,070

 
7,846

 
1,153

 
100

 
1,253

Goodwill impairment
1,389

 
—

 
1,389

 
—

 
—

 
—

Definite-lived intangible asset impairment
870

 
—

 
870

 
—

 
—

 
—

Restructuring and related charges
3,961

 
587

 
4,548

 
3,390

 
2,049

 
5,439

Other expense
222

 
—

 
222

 
—

 
—

 
—

Total pre-tax restructuring charges
$
12,356

 
$
3,224

 
$
15,580

 
$
4,573

 
$
2,164

 
$
6,737

__________________________
(1)  
Total pre-tax restructuring charges include cash charges of $7.4 million and non-cash charges of $8.2 million . Cash charges consist of charges incurred during the period that will be settled in cash, either during the current period or future periods.
(2)  
Total pre-tax restructuring charges include cash charges of $6.6 million and non-cash charges of $0.1 million . Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

The following tables summarize the 2017 Restructuring activity during the first nine months of 2018 and 2017 (in thousands):
 
Reserves at
December 31,
2017
 
2018
Charge to
Income
 
Foreign Currency Translation
 
Utilized in 2018
 
Reserves at
September 30,
2018
 
 
 
 
Cash (1)
 
Non-Cash
 
Severance and benefit related costs
$
3,864

 
$
3,217

 
$
(30
)
 
$
4,754

 
$
—

 
$
2,297

Lease and contract termination costs
650

 
1,202

 
(4
)
 
1,337

 
—

 
511

Relocation and other moving costs
—

 
129

 
—

 
129

 
—

 
—

Other restructuring costs
675

 
11,032

 
—

 
3,204

 
8,150

 
353

Total pre-tax restructuring charges
$
5,189

 
$
15,580

 
$
(34
)
 
$
9,424

 
$
8,150

 
$
3,161

__________________________
(1)  
Refers to cash utilized to settle charges during the first nine months of 2018.

20


 
2017
Charge to
Income
 
Utilized in 2017
 
Reserves at
September 30,
2017
 
 
Cash (1)
 
Non-Cash
 
Severance and benefit related costs
$
5,070

 
$
1,639

 
$
—

 
$
3,431

Lease and contract termination costs
340

 
264

 
—

 
76

Relocation and other moving costs
29

 
29

 
—

 
—

Other restructuring costs
1,298

 
521

 
77

 
700

Total pre-tax restructuring charges
$
6,737

 
$
2,453

 
$
77

 
$
4,207

__________________________
(1)  
Refers to cash utilized to settle charges during the first nine months of 2017.

5.    ASSETS AND LIABILITIES HELD FOR SALE
On May 14, 2018 and July 25, 2018, the Company’s board of directors approved plans to divest the assets and liabilities of Australia and Denmark, respectively (see Notes 1 and 4). For Australia, a sales process is under way and management believes that it is probable that a sale will occur before the end of the first quarter of 2019. For Denmark, see Note 13 for additional information on the executed asset sale agreement, effective November 1, 2018.
On July 28, 2017, the Company’s board of directors approved a plan to sell the assets and liabilities of Bayou. The Company completed a sale transaction during the third quarter of 2018. See Note 1.
The relevant asset and liability balances at September 30, 2018 and December 31, 2017 are accounted for as held for sale and measured at the lower of carrying value or fair value less cost to sell. No impairment charges were recorded on these assets as the net carrying value approximated or was less than management’s current expectation of fair value less cost to sell. In the event the Company is unable to sell the assets and liabilities or sells them at a price or on terms that are less favorable, or at a higher cost than currently anticipated, the Company could incur impairment charges or a loss on disposal.
The following table provides the components of assets and liabilities held for sale (in thousands):
 
September 30,
2018
 
December 31, 
 2017
 
Australia
 
Denmark
 
Total
 
Bayou
Assets held for sale:
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
989

Receivables, net
2,003

 
—

 
2,003

 
6,368

Retainage
16

 
—

 
16

 
—

Contract assets
2,185

 
—

 
2,185

 
1,299

Inventories
1,769

 
35

 
1,804

 
3,727

Prepaid expenses and other current assets
250

 
—

 
250

 
827

Total current assets
6,223

 
35

 
6,258

 
13,210

Property, plant & equipment, less accumulated depreciation
2,315

 
1,600

 
3,915

 
53,887

Identified intangible assets, less accumulated amortization
—

 
—

 
—

 
3,217

Total assets held for sale
$
8,538

 
$
1,635

 
$
10,173

 
$
70,314

 
 
 
 
 
 
 
 
Liabilities held for sale:
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable
$
985

 
$
—

 
$
985

 
$
5,763

Accrued expenses
5,399

 
—

 
5,399

 
1,805

Contract liabilities
39

 
—

 
39

 
5,478

Total current liabilities
6,423

 
—

 
6,423

 
13,046

Long-term debt
—

 
—

 
—

 
7,757

Other non-current liabilities
—

 
—

 
—

 
97

Total liabilities held for sale
$
6,423

 
$
—

 
$
6,423

 
$
20,900



21


6.    GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table presents a reconciliation of the beginning and ending balances of the Company’s goodwill (in thousands):
 
Infrastructure
Solutions
 
Corrosion
Protection
 
Energy
Services
 
Total
Balance, December 31, 2017:
 
 
 
 
 
 
 
Goodwill, gross
$
246,486

 
$
74,369

 
$
80,246

 
$
401,101

Accumulated impairment losses
(61,459
)
 
(45,400
)
 
(33,527
)
 
(140,386
)
Goodwill, net
185,027

 
28,969

 
46,719

 
260,715

2018 Activity:
 
 
 
 
 
 
 
Acquisitions (1) (2)
—

 
2,715

 
1,258

 
3,973

Impairments (3)
(1,389
)
 
—

 
—

 
(1,389
)
Foreign currency translation
(1,363
)
 
(179
)
 
—

 
(1,542
)
Balance, September 30, 2018:
 
 
 
 
 
 
 
Goodwill, gross
245,123

 
76,905

 
81,504

 
403,532

Accumulated impairment losses
(62,848
)
 
(45,400
)
 
(33,527
)
 
(141,775
)
Goodwill, net
$
182,275

 
$
31,505

 
$
47,977

 
$
261,757

__________________________
(1)  
During the second quarter of 2018, the Company recorded goodwill of $2.7 million related to the acquisition of Hebna (see Note 1).
(2)  
During the third quarter of 2018, the Company recorded goodwill of $1.3 million related to the acquisition of P2S (see Note 1).
(3)  
During the third quarter of 2018, the Company recorded a  $1.4 million goodwill impairment related to restructuring activities in Denmark (see Note 4).
Intangible Assets
Intangible assets consisted of the following (in thousands):
 
September 30, 2018
 
December 31, 2017
 
Weighted
Average
Useful Lives
(Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
License agreements  (3)
1.8
 
$
3,899

 
$
(3,686
)
 
$
213

 
$
4,497

 
$
(3,623
)
 
$
874

Leases
2.3
 
796

 
(599
)
 
197

 
796

 
(534
)
 
262

Trademarks (2) (3)
9.6
 
15,739

 
(7,132
)
 
8,607

 
15,464

 
(6,184
)
 
9,280

Non-competes (1) (2)
4.8
 
2,548

 
(1,107
)
 
1,441

 
1,197

 
(1,048
)
 
149

Customer relationships (1) (2) (3)
9.2
 
161,745

 
(64,876
)
 
96,869

 
160,423

 
(56,907
)
 
103,516

Patents and acquired technology
6.1
 
38,699

 
(21,577
)
 
17,122

 
39,285

 
(21,021
)
 
18,264

 
 
 
$
223,426

 
$
(98,977
)
 
$
124,449

 
$
221,662

 
$
(89,317
)
 
$
132,345

__________________________
(1)  
During the second quarter of 2018, the Company recorded non-competes of $1.1 million and customer relationships of $1.3 million related to the acquisition of Hebna (see Note 1).
(2)  
During the third quarter of 2018, the Company recorded trademarks of $0.3 million , non-competes of $0.2 million and customer relationships of $0.7 million related to the acquisition of P2S (see Note 1).
(3)  
During the third quarter of 2018, the Company recorded intangible asset impairments related to restructuring activities in Denmark of $0.5 million for license agreements, $0.1 million for trademarks, and $0.3 million  for customer relationships (see Note 4).

22


Amortization expense was $3.5 million and $3.8 million for the quarters ended September 30, 2018 and 2017 , respectively, and $10.4 million and $12.5 million for the nine months ended September 30, 2018 and 2017 , respectively. Estimated amortization expense by year is as follows (in thousands):
2018
 
$
13,848

2019
 
13,738

2020
 
13,691

2021
 
13,485

2022
 
13,287


7.    LONG-TERM DEBT AND CREDIT FACILITY
Financing Arrangements
Long-term debt consisted of the following (in thousands):
 
September 30, 
 2018
 
December 31, 
 2017
Term note, due February 27, 2023, annualized rates of 4.53% and 3.60%, respectively
$
288,750

 
$
308,437

Line of credit, 4.39% and 3.50%, respectively
19,000

 
38,000

Other notes with interest rates from 3.3% to 7.8%
780

 
875

Subtotal
308,530

 
347,312

Less – Current maturities of long-term debt
26,548

 
26,555

Less – Unamortized loan costs
2,713

 
2,517

Total
$
279,269

 
$
318,240

In October 2015, the Company entered into an amended and restated $650.0 million senior secured credit facility with a syndicate of banks. On February 27, 2018, the Company amended this facility (the “amended Credit Facility”). Bank of America, N.A. served as the sole administrative agent and U.S. Bank National Association, PNC Bank, National Association and Compass Bank acted as co-syndication agents. Merrill Lynch Pierce Fenner & Smith Incorporated, U.S. Bank National Association, PNC Capital Markets, LLC and Compass Bank acted as joint lead arrangers and joint book managers in the syndication of the amended Credit Facility.
The amended Credit Facility consists of a $300.0 million five -year revolving line of credit and a $308.4 million five -year term loan facility. Interest terms from the Company’s original credit facility did not change under the amendment. The amended Credit Facility also: (i) extended the expiration date of the original credit facility and the amortization period for the term loan facility from October 2020 to February 2023; (ii) approved the sale of Bayou; and (iii) updated the defined terms to allow for the add-back of certain charges related to the 2017 Restructuring when calculating the Company’s compliance with the financial covenants. As required by the amended Credit Facility, net cash proceeds of $35 million from the sale of Bayou were applied against the outstanding borrowings on the revolving line of credit during the third quarter of 2018. Additionally, and in conjunction with the sale, the maximum aggregate principal amount of the revolving line of credit was permanently reduced from $300.0 million to $275.0 million .
The Company paid expenses of $2.5 million associated with the amended Credit Facility, $0.9 million related to up-front lending fees and $1.6 million related to third-party arranging fees and expenses, the latter of which was recorded in “Interest expense” in the Consolidated Statement of Operations during the first nine months of 2018. In addition, the Company had $2.4 million in unamortized loan costs associated with the original Credit Facility, of which $0.2 million was written off and recorded in “Interest expense” in the Consolidated Statement of Operations during the first nine months of 2018.
Generally, interest is charged on the principal amounts outstanding under the amended 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 LIBOR borrowing rate (LIBOR plus Company’s applicable rate) as of September 30, 2018 was approximately 4.39% .
The Company’s indebtedness at September 30, 2018 consisted of $288.8 million outstanding from the $308.4 million term loan under the amended Credit Facility, $19.0 million on the line of credit under the amended Credit Facility and $0.8 million of third-party notes and bank debt. During the first nine months of 2018, the Company had net repayments on the line of credit

23


of $19.0 million , which included a $35.0 million repayment from the proceeds on the Bayou sale, net of borrowings of $16.0 million for domestic working capital needs.
As of September 30, 2018 , the Company had $29.3 million in letters of credit issued and outstanding under the amended Credit Facility. Of such amount, $13.7 million was collateral for the benefit of certain of our insurance carriers and $15.6 million was for letters of credit or bank guarantees of performance or payment obligations of foreign subsidiaries.
The Company’s indebtedness at December 31, 2017 consisted of $308.4 million outstanding from the term loan under the Credit Facility, $38.0 million on the line of credit under the Credit Facility and $0.9 million of third-party notes and bank debt. Additionally, the Company had $7.8 million of debt held by a joint venture (representing funds loaned by its joint venture partner) listed as held for sale at December 31, 2017 related to the planned sale of Bayou.
At September 30, 2018 and December 31, 2017, the estimated fair value of the Company’s long-term debt was approximately $305.6 million and $356.0 million , respectively. Fair value was estimated using market rates for debt of similar risk and maturity and a discounted cash flow model, which are based on Level 3 inputs as defined in Note 12.
In October 2015, the Company entered into an interest rate swap agreement for a notional amount of $262.5 million , which is set to expire in October 2020. The notional amount of this swap mirrors the amortization of a $262.5 million portion of the Company’s $350.0 million term loan drawn from the original Credit Facility. The swap requires the Company to make a monthly fixed rate payment of 1.46% calculated on the amortizing $262.5 million notional amount, and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $262.5 million notional amount. The receipt of the monthly LIBOR-based payment offsets a variable monthly LIBOR-based interest cost on a corresponding $262.5 million portion of the Company’s term loan from the original Credit Facility. After considering the impact of the interest rate swap agreement, the effective borrowing rate on the Company’s term note as of September 30, 2018 was approximately 3.74% . This interest rate swap is used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and is accounted for as a cash flow hedge. See Note 12.
On March 12, 2018, the Company entered into an interest rate swap forward agreement that begins in October 2020 and expires in February 2023 to coincide with the amortization period of the amended Credit Facility. The swap will require the Company to make a monthly fixed rate payment of 2.937% calculated on the then amortizing $170.6 million notional amount, and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $170.6 million notional amount. The receipt of the monthly LIBOR-based payment will offset the variable monthly LIBOR-based interest cost on a corresponding $170.6 million portion of the Company’s term loan from the amended Credit Facility. This interest rate swap will be used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and accounted for as a cash flow hedge. See Note 12.
The amended Credit Facility is subject to certain financial covenants, including a consolidated financial leverage ratio and consolidated fixed charge coverage ratio. Subject to the specifically defined terms and methods of calculation as set forth in the amended Credit Facility’s credit agreement, the financial covenant requirements, as of each quarterly reporting period end, are defined as follows:
•
Consolidated financial leverage ratio compares consolidated funded indebtedness to amended Credit Facility defined income with a maximum amount not to exceed 3.5 to 1.00. At September 30, 2018 , the Company’s consolidated financial leverage ratio was 2.88 to 1.00 and, using the amended Credit Facility defined income, the Company had the capacity to borrow up to $68.8 million of additional debt.
•
Consolidated fixed charge coverage ratio compares amended Credit Facility defined income to amended Credit Facility defined fixed charges with a minimum permitted ratio of not less than 1.15 to 1.00. At September 30, 2018 , the Company’s fixed charge ratio was 1.45 to 1.00.
At September 30, 2018 , the Company was in compliance with all of its debt and financial covenants as required under the amended Credit Facility.

8.    STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION
Share Repurchase Plan
Under the terms of the amended Credit Facility, the Company is authorized to purchase up to $30.0 million of shares of its common stock in open market purchases during 2018. In October 2017, the Company’s board of directors authorized the open market repurchase of up to $40.0 million of the Company’s common stock to be made during 2018. That authorization was reduced to $30 million in 2018 in connection with the execution of the amended Credit Facility. The Company began repurchasing shares under this program in January 2018. Once repurchased, the Company promptly retires such shares.

24


The Company is also authorized to repurchase up to $10.0 million of the Company’s common stock in each calendar year in connection with the Company’s equity compensation programs for employees. The participants in the Company’s equity plans may surrender shares of common stock in satisfaction of tax obligations arising from the vesting of restricted stock, restricted stock unit awards and performance unit awards under such plans and in connection with the exercise of stock option awards. The deemed price paid is the closing price of the Company’s common stock on the Nasdaq Global Select Market on the date that the restricted stock, restricted stock unit or performance unit vests or the shares of the Company’s common stock are surrendered in exchange for stock option exercises. With regard to stock option awards, the option holder may elect a “net, net” exercise in connection with the exercise of employee stock options such that the option holder receives a number of shares equal to the built-in gain in the option shares divided by the market price of the Company’s common stock on the date of exercise, less a number of shares equal to the taxes due upon the exercise of the option divided by the market price of the Company’s common stock on the date of exercise. The shares of common stock surrendered for taxes due on the exercise of the option are deemed repurchased by the Company.
During the first nine months of 2018, the Company acquired 548,198 shares of the Company’s common stock for $13.2 million ( $24.07 average price per share) through the open market repurchase program discussed above and 224,700 shares of the Company’s common stock for $5.4 million ( $24.15 average price per share) in connection with the satisfaction of tax obligations in connection with the vesting of restricted stock units and performance units. Once repurchased, the Company immediately retired all such shares.
During the first nine months of 2017, the Company acquired 1,346,132 shares of the Company’s common stock for $29.4 million ( $21.81 average price per share) through the open market repurchase program discussed above and 106,164 shares of the Company’s common stock for $2.4 million ( $22.25 average price per share) in connection with the satisfaction of tax obligations in connection with the vesting of restricted stock, restricted stock units and performance units. Once repurchased, the Company immediately retired all such shares.
Equity-Based Compensation Plans
In April 2016, the Company’s stockholders approved the 2016 Employee Equity Incentive Plan, which was amended in 2017 by the First Amendment to the 2016 Employee Equity Incentive Plan (as amended, the “2016 Employee Plan”). In April 2018, the Company’s stockholders approved the Second Amendment to the 2016 Employee Equity Incentive Plan, which increased by  1,700,000  the number of shares of the Company’s common stock reserved and available for issuance in connection with awards issued under the 2016 Employee Plan. The 2016 Employee Plan, which replaced the 2013 Employee Equity Incentive Plan, provides for equity-based compensation awards, including restricted shares of common stock, performance awards, stock options, stock units and stock appreciation rights. The 2016 Employee Plan is administered by the Compensation Committee of the board of directors, which determines eligibility, timing, pricing, amount and other terms or conditions of awards. As of September 30, 2018 , 2,667,104 shares of the Company’s common stock were available for issuance under the 2016 Employee Plan.
In April 2016, the Company’s stockholders also approved the 2016 Non-Employee Director Equity Incentive Plan (the “2016 Director Plan”), which replaced the 2011 Non-Employee Director Equity Incentive Plan. The 2016 Director Plan provides for equity-based compensation awards, including non-qualified stock options and stock units. The board of directors administers the 2016 Director Plan and has the authority to establish, amend and rescind any rules and regulations related to the 2016 Director Plan. As of September 30, 2018 , 73,532 shares of the Company’s common stock were available for issuance under the 2016 Director Plan.
Stock Awards
Stock awards, which include shares of restricted stock, restricted stock units and performance stock units, are awarded from time to time to executive officers and certain key employees of the Company. Stock award compensation is recorded based on the award date fair value and charged to expense ratably through the requisite service period. The forfeiture of unvested restricted stock, restricted stock units and performance stock units causes the reversal of all previous expense to be recorded as a reduction of current period expense.

25


A summary of the stock award activity is as follows:
 
Nine Months Ended 
 September 30, 2018
 
Stock Awards
 
Weighted
Average
Award Date
Fair Value
Outstanding at December 31, 2017
1,428,878

 
$
21.53

Restricted stock units awarded
279,459

 
24.14

Performance stock units awarded
219,943

 
23.25

Restricted stock units distributed
(301,041
)
 
17.37

Performance stock units distributed
(296,909
)
 
21.55

Restricted stock units forfeited
(78,171
)
 
21.52

Performance stock units forfeited
(61,952
)
 
26.42

Outstanding at September 30, 2018
1,190,207

 
$
23.26

Expense associated with stock awards was $1.1 million and $2.2 million for the quarters ended September 30, 2018 and 2017 , respectively, and $5.2 million and $7.0 million for the nine months ended September 30, 2018 and 2017 , respectively. Unrecognized pre-tax expense of $12.4 million related to stock awards is expected to be recognized over the weighted average remaining service period of 1.91 years for awards outstanding at September 30, 2018 .
Deferred Stock Unit Awards
Deferred stock units are generally awarded to directors of the Company and represent the Company’s obligation to transfer one share of the Company’s common stock to the grantee at a future date and are generally fully vested on the date of grant. The expense related to the issuance of deferred stock units is recorded as of the date of the award.
A summary of deferred stock unit activity is as follows:
 
Nine Months Ended 
 September 30, 2018

Deferred
Stock
Units

Weighted
Average
Award Date
Fair Value
Outstanding at December 31, 2017
269,977

 
$
20.14

Awarded
43,729

 
23.67

Distributed
(26,396
)
 
19.32

Outstanding at September 30, 2018
287,310

 
$
20.76

Expense associated with deferred stock unit awards was less than $0.1 million for each of the quarters ended September 30, 2018 and 2017 , and $1.0 million and $1.1 million for the nine months ended September 30, 2018 and 2017 , respectively.
Stock Options
Stock options on the Company’s common stock are awarded from time to time to executive officers and certain key employees of the Company. Stock options granted generally have a term of seven to ten years and an exercise price equal to the market value of the underlying common stock on the date of grant.
There were 73,897 stock options forfeited during the nine months ended September 30, 2018 with a weighted average exercise price of $26.60 per share. Stock options outstanding and exercisable at September 30, 2018 were 52,783 , with a weighted average exercise price of $18.11 per share.
There was no expense associated with stock option grants for both quarters and nine months ended September 30, 2018 and 2017 and no unrecognized pre-tax expense related to stock option grants at September 30, 2018 .

26


Financial data for stock option exercises are summarized as follows (in thousands):

Nine Months Ended
September 30,

2018
 
2017
Aggregate intrinsic value of outstanding stock options
$
384

 
$
478

Aggregate intrinsic value of exercisable stock options
384

 
478

The intrinsic value calculations are based on the Company’s closing stock price of $25.38 and $23.28 on September 30, 2018 and 2017 , respectively.
The Company uses a binomial option-pricing model for valuation purposes to reflect the features of stock options granted. Volatility, expected term and dividend yield assumptions are based on the Company’s historical experience. The risk-free rate is based on a U.S. treasury note with a maturity similar to the option grant’s expected term. There were no stock options awarded during 2018 or 2017 .

9.    TAXES ON INCOME
The Company’s effective tax rate in the quarter and nine-month period ended September 30, 2018 was a benefit of 1,275.0% on a pre-tax loss and an expense of 22.9% on pre-tax income, respectively. These effective rates were positively impacted by a $1.5 million adjustment to the mandatory deemed repatriation tax on foreign earnings and a $1.5 million net tax benefit related to employee share-based awards that vested during the first quarter of 2018. In total, these two adjustments had a 39.3% benefit to the effective tax rate during the first nine months of 2018. Offsetting these positive impacts were valuation allowances recorded on certain net operating losses in foreign jurisdictions for which no income tax benefit can be recognized.
For the quarter and nine-month period ended September 30, 2017 , the Company’s effective tax rate was a benefit of 7.4% on a pre-tax loss and an expense of 2.2% on a pre-tax loss, respectively. The low effective tax rates, as compared to the U.S. federal statutory income tax rate, were unfavorably impacted by: (i) significant pre-tax charges related to goodwill and definite-lived intangible asset impairments, certain of which are not deductible for tax purposes; and (ii) the impact of establishing a $14.9 million valuation allowance on net operating losses and other deferred tax assets in jurisdictions, primarily in the United States, where the Company is unlikely to recognize these benefits. The effective tax rate for the first nine months of 2017 was also unfavorably impacted by a higher mix of earnings in the United States, primarily from income generated on a large deepwater project in the Company’s pipe coating and insulation operation.

10.    COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in certain litigation incidental to the conduct of its business and affairs. Management, after consultation with legal counsel, does not believe that the outcome of any such litigation, individually or in the aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
Purchase Commitments
The Company had no material purchase commitments at September 30, 2018 .
Guarantees
The Company has many contracts that require the Company to indemnify the other party against loss from claims, including claims of patent or trademark infringement or other third-party claims for injuries, damages or losses. The Company has agreed to indemnify its surety against losses from third-party claims of subcontractors. The Company has not previously experienced material losses under these provisions and, while there can be no assurances, currently does not anticipate any future material adverse impact on its consolidated financial position, results of operations or cash flows.
The Company regularly reviews its exposure under all its engagements, including performance guarantees by contractual joint ventures and indemnification of its surety. As a result of the most recent review, the Company has determined that the risk of material loss is remote under these arrangements and has not recorded a liability for these risks at September 30, 2018 on its Consolidated Balance Sheet.


27


11.    SEGMENT REPORTING
The Company has three operating segments, which are also its reportable segments: Infrastructure Solutions; Corrosion Protection; and Energy Services. The Company’s operating segments correspond to its management organizational structure. Each operating segment has a president who reports to the Company’s chief executive officer, who is also the chief operating decision manager (“CODM”). The operating results and financial information reported by each segment are evaluated separately, regularly reviewed and used by the CODM to evaluate segment performance, allocate resources and determine management incentive compensation.
The following disaggregated financial results have been prepared using a management approach that is consistent with the basis and manner with which management internally disaggregates financial information for the purpose of making internal operating decisions. The Company evaluates performance based on stand-alone operating income (loss), which includes acquisition and divestiture expenses, restructuring charges and an allocation of corporate-related expenses.
Financial information by segment was as follows (in thousands):
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Infrastructure Solutions
$
155,681

 
$
174,161

 
$
450,840

 
$
451,340

Corrosion Protection
105,624

 
102,276

 
300,118

 
353,381

Energy Services
78,374

 
65,435

 
248,612

 
216,799

Total revenues
$
339,679

 
$
341,872

 
$
999,570

 
$
1,021,520

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
Infrastructure Solutions
$
38,135

 
$
41,189

 
$
100,793

 
$
106,803

Corrosion Protection
26,411

 
23,063

 
74,524

 
86,663

Energy Services
8,127

 
9,190

 
29,913

 
27,156

Total gross profit
$
72,673

 
$
73,442

 
$
205,230

 
$
220,622

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Infrastructure Solutions (1)
$
10,398

 
$
(74,025
)
 
$
19,563

 
$
(60,224
)
Corrosion Protection (2)
2,463

 
(2,703
)
 
6,184

 
15,803

Energy Services
148

 
1,457

 
4,902

 
4,857

Total operating income (loss)
13,009

 
(75,271
)
 
30,649

 
(39,564
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(3,870
)
 
(3,962
)
 
(13,236
)
 
(12,014
)
Interest income
130

 
33

 
239

 
117

Other (3)
(9,281
)
 
(798
)
 
(10,049
)
 
(1,593
)
Total other expense
(13,021
)
 
(4,727
)
 
(23,046
)
 
(13,490
)
Income (loss) before taxes on income
$
(12
)
 
$
(79,998
)
 
$
7,603

 
$
(53,054
)
_______________________
(1)  
Operating income in the third quarter of 2018 includes $6.0 million of 2017 Restructuring charges (see Note 4) and $0.2 million of costs primarily related to the planned divestitures of Australia and Denmark. Operating loss in the third quarter of 2017 includes: (i) $4.5 million of 2017 Restructuring charges (see Note 3); (ii) $45.4 million of goodwill impairment charges (see Note 2); (iii) $41.0 million of definite-lived intangible asset impairment charges (see Note 2); and (iv) $0.1 million of costs incurred primarily related to the acquisition of Environmental Techniques.
Operating income in the first nine months of 2018 includes $12.1 million of 2017 Restructuring charges (see Note 4) and $0.5 million of costs primarily related to the planned divestitures of Australia and Denmark. Operating loss in the nine months ended September 30, 2017 includes: (i) $4.7 million of 2017 Restructuring charges (see Note 3); (ii) $45.4 million of goodwill impairment charges (see Note 2); (iii) $41.0 million of definite-lived intangible asset impairment charges (see Note 2); and (iv) $0.7 million of costs incurred primarily related to the acquisition of Environmental Techniques.
(2)  
Operating income in the third quarter of 2018 includes $1.2 million of 2017 Restructuring charges (see Note 4) and $4.6 million of costs incurred primarily related to the divestiture of Bayou. Operating loss in the third quarter of 2017 includes $2.2 million of 2017 Restructuring charges (see Note 3) and $1.9 million of costs incurred primarily related to the planned divestiture of Bayou.

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Operating income in the first nine months of 2018 includes $3.2 million of 2017 Restructuring charges (see Note 4) and $5.5 million of costs incurred primarily related to the acquisition of Hebna and the divestiture of Bayou. Operating income in the first nine months of 2017 includes $2.2 million of 2017 Restructuring charges (see Note 3) and $1.9 million of costs incurred primarily related to the planned divestiture of Bayou.
(3)  
Other expense for the quarter and nine months ended September 30, 2018 includes charges of $8.7 million related to the loss on the sale of Bayou and $0.2 million related to 2017 Restructuring charges (see Note 4).
The following table summarizes revenues, gross profit and operating income (loss) by geographic region (in thousands):
 
Quarters Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues (1) :
 
 
 
 
 
 
 
United States
$
262,298

 
$
250,815

 
$
779,206

 
$
787,046

Canada
35,920

 
41,939

 
95,185

 
98,053

Europe
16,281

 
17,367

 
48,135

 
51,656

Other foreign
25,180

 
31,751

 
77,044

 
84,765

Total revenues
$
339,679

 
$
341,872

 
$
999,570

 
$
1,021,520

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
United States
$
57,043

 
$
56,295

 
$
165,203

 
$
179,029

Canada
7,265

 
9,099

 
17,494

 
19,703

Europe
2,931

 
2,989

 
5,467

 
9,414

Other foreign
5,434

 
5,059

 
17,066

 
12,476

Total gross profit
$
72,673

 
$
73,442

 
$
205,230

 
$
220,622

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
United States
$
12,604

 
$
(57,799
)
 
$
32,983

 
$
(25,752
)
Canada
4,055

 
1,148

 
7,170

 
5,086

Europe
(4,423
)
 
(2,860
)
 
(10,473
)
 
(2,672
)
Other foreign
773

 
(15,760
)
 
969

 
(16,226
)
Total operating income (loss)
$
13,009

 
$
(75,271
)
 
$
30,649

 
$
(39,564
)
__________________________
(1)  
Revenues are attributed to the country of origin for the Company’s legal entities. For a significant majority of its legal entities, the country of origin relates to the country or geographic area that it services.

12.    DERIVATIVE FINANCIAL INSTRUMENTS
As a matter of policy, the Company uses derivatives for risk management purposes, and does not use derivatives for speculative purposes. From time to time, the Company may enter into foreign currency forward contracts to hedge foreign currency cash flow transactions. For cash flow hedges, a gain or loss is recorded in the Consolidated Statements of Operations upon settlement of the hedge. All of the Company’s hedges that are designated as hedges for accounting purposes were highly effective; therefore, no notable amounts of hedge ineffectiveness were recorded in the Company’s Consolidated Statements of Operations for either the settlement of cash flow hedges or the outstanding hedged balance. At September 30, 2018 , the Company’s cash flow hedges were in a net deferred gain position of $5.6 million due to favorable movements in short-term interest rates relative to the hedged position. The Company presents derivative instruments in the consolidated financial statements on a gross basis. Deferred gains and losses were recorded in other non-current assets and other non-current liabilities, respectively, and other comprehensive income on the Consolidated Balance Sheets. The net periodic change of the Company’s cash flow hedges was recorded on the foreign currency translation adjustment and derivative transactions line of the Consolidated Statements of Equity.
The Company also engages in regular inter-company trade activities and receives royalty payments from certain of its wholly-owned entities, paid in local currency, rather than the Company’s functional currency, U.S. dollars. The Company utilizes foreign currency forward exchange contracts to mitigate the currency risk associated with the anticipated future payments from certain of its international entities. During the first nine months of 2018 and 2017 , losses of $0.4 million and

29


$0.1 million , respectively, were recorded upon settlement of foreign currency forward exchange contracts. Gains and losses of this nature are recorded to “Other income (expense)” in the Consolidated Statements of Operations.
In October 2015, the Company entered into an interest rate swap agreement for a notional amount of $262.5 million , which is set to expire in October 2020. The notional amount of this swap mirrored the amortization of a $262.5 million portion of the Company’s $350.0 million term loan drawn from the original Credit Facility. The swap requires the Company to make a monthly fixed rate payment of 1.46% calculated on the amortizing $262.5 million notional amount and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated by amortizing the $262.5 million same notional amount. The receipt of the monthly LIBOR-based payment offsets a variable monthly LIBOR-based interest cost on a corresponding $262.5 million portion of the Company’s term loan from the original Credit Facility. This interest rate swap is used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and is accounted for as a cash flow hedge.
On March 12, 2018, the Company entered into an interest rate swap forward agreement that begins in October 2020 and expires in February 2023 to coincide with the amortization period of the amended Credit Facility. The swap will require the Company to make a monthly fixed rate payment of 2.937% calculated on the then amortizing $170.6 million notional amount, and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $170.6 million notional amount. The receipt of the monthly LIBOR-based payment will offset the variable monthly LIBOR-based interest cost on a corresponding $170.6 million portion of the Company’s term loan from the amended Credit Facility. This interest rate swap will be used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and accounted for as a cash flow hedge.
The following table summarizes the Company’s derivative positions at September 30, 2018 :
 
Position
 
Notional
Amount
 
Weighted
Average
Remaining
Maturity
In Years
 
Average
Exchange
Rate
USD/British Pound
Sell
 
£
1,962,900

 
0.3
 
1.31
EURO/British Pound
Sell
 
£
2,568,300

 
0.3
 
1.12
Interest Rate Swap
 
 
$
216,562,500

 
4.3
 
 
The following table provides a summary of the fair value amounts of our derivative instruments, all of which are Level 2 inputs as defined below (in thousands):
Designation of Derivatives
 
Balance Sheet Location
 
September 30, 
 2018
 
December 31, 
 2017
Derivatives Designated as Hedging Instruments:
 
 
 
 
Forward Currency Contracts
 
Prepaid expenses and other current assets
 
$
—

 
$
176

Interest Rate Swaps
 
Other non-current assets
 
5,584

 
3,193

 
 
Total Assets
 
$
5,584

 
$
3,369

 
 
 
 
 
 
 
Forward Currency Contracts
 
Accrued expenses
 
$
—

 
$
33

 
 
Total Liabilities
 
$
—

 
$
33

 
 
 
 
 
 
 
Derivatives Not Designated as Hedging Instruments:
 
 
 
 
Forward Currency Contracts
 
Prepaid expenses and other current assets
 
$
—

 
$
10

 
 
Total Assets
 
$
—

 
$
10

 
 
 
 
 
 
 
Forward Currency Contracts
 
Accrued expenses
 
$
61

 
$
—

 
 
Total Liabilities
 
$
61

 
$
—

 
 
 
 
 
 
 
 
 
Total Derivative Assets
 
$
5,584

 
$
3,379

 
 
Total Derivative Liabilities
 
61

 
33

 
 
Total Net Derivative Asset (Liability)
 
$
5,523

 
$
3,346


30


FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), defines fair value and establishes a framework for measuring and disclosing fair value instruments. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
•
Level 1 – defined as quoted prices in active markets for identical instruments;
•
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;
•
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
In accordance with FASB ASC 820, the Company determined that the value of all of its derivative instruments, which are measured at fair value on a recurring basis, are derived from significant observable inputs, referred to as Level 2 inputs.
The Company had no transfers between Level 1, 2 or 3 inputs during the quarter ended September 30, 2018 . Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, the Company does not believe any such changes would have a material impact on its financial condition, results of operations or cash flows. Other financial instruments including cash and cash equivalents and short-term borrowings, including notes payable, are recorded at cost, which approximates fair value, which is based on Level 2 inputs as previously defined.

13.    SUBSEQUENT EVENTS
Additional Restructuring Actions
On October 26, 2018, the Company’s board of directors approved additional actions with respect to the 2017 Restructuring, which included the decision to: (i) exit multiple additional international locations; and (ii) take actions to further optimize operations within North America. Total pre-tax charges associated with the additional actions are expected to be approximately $25 million , including pre-tax cash charges of approximately $8 million to $10 million . Most charges are expected to be incurred by mid-2019 and relate to employee severance, retention, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring related costs. The identified charges are primarily focused in the international operations of both Infrastructure Solutions and Corrosion Protection, but also include certain other measures to reduce consolidated operating costs. The Company expects to reduce headcount by approximately 150 employees as a result of these additional actions. As the Company completes these actions over the coming months, additional charges and headcount reductions could occur.
Asset Sale Agreement
On November 1, 2018, the Company executed a sale agreement for substantially all of the fixed assets and inventory from its CIPP operations in Denmark for a sale price of DKK 10.5 million (approximately $1.6 million ). The transfer of ownership is expected to occur in early November 2018. In connection with the sale, the Company entered into a five -year exclusive tube-supply agreement whereby the buyers will purchase liners from the Company. The buyers will also be entitled to use the Insituform ® trade name based on a trade mark license granted for the same five -year time period. No impairment charges are expected to be recorded as the net carrying value approximated or was less than the sale price.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying unaudited consolidated financial statements. This discussion should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 .
We believe that certain accounting policies could potentially have a more significant impact on our consolidated financial statements, either because of the significance of the consolidated financial statements to which they relate or because they involve a higher degree of judgment and complexity. A summary of such critical accounting policies can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2017 and in Note 2 to the consolidated financial statements contained in this report.

Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. We make forward-looking statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q 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 and projections and are not guarantees of future events or results. When used in this report, 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, 2017 , as filed with the Securities and Exchange Commission on March 1, 2018, and in our subsequent filed reports, including this report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed 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 report are qualified by these cautionary statements.

Executive Summary
Aegion combines innovative technologies with market leading expertise to maintain, rehabilitate and strengthen pipelines and other infrastructure around the world. Since 1971, we have played a pioneering role in finding transformational solutions to rehabilitate aging infrastructure, primarily pipelines in the wastewater, water, energy, mining and refining industries. We also maintain the efficient operation of refineries and other industrial facilities and provide innovative solutions for the strengthening of buildings, bridges and other structures. We are committed to Stronger. Safer. Infrastructure ® . We believe the depth and breadth of our products and services make us a leading provider for the world’s infrastructure rehabilitation and protection needs.
Our Segments
We have three operating segments, which are also our reportable segments: Infrastructure Solutions, Corrosion Protection and Energy Services. Our operating segments correspond to the Company’s management organizational structure.
Infrastructure Solutions – The majority of our work is performed in the municipal water and wastewater pipeline sector and, while the pace of growth is primarily driven by government funding and spending, overall demand due to required infrastructure improvements in our core markets should result in a long-term stable growth opportunity for our market leading products, Insituform ® CIPP, Tyfo ® system and Fusible PVC ® pipe.
Corrosion Protection – Corrosion Protection is positioned to capture the benefits of continued oil and natural gas pipeline infrastructure developments across North America and internationally, as producers and midstream pipeline companies transport their product from onshore and offshore oil and gas fields to regional demand centers. The segment has a broad portfolio of technologies, products and services to protect, maintain, rehabilitate, assess and monitor pipelines from the effects of corrosion, including cathodic protection, interior pipe linings, interior and exterior pipe joint coatings and insulation, as well as an increasing offering of assessment and repair capabilities. We provide solutions to customers to enhance the safety, environmental integrity, reliability and compliance of their pipelines in the oil and gas markets.

32


Energy Services – We offer a unique value proposition based on our world-class safety and labor productivity programs, which allow us to provide cost-effective construction, maintenance, turnaround and specialty services at customers’ refineries and chemical and other industrial facilities. We understand the demands and the level of critical planning required to ensure a successful turnaround or shutdown and offer a full range of services as part of our facility maintenance solutions, while maintaining a reputation for being safe and professional and providing predictable value.
Our Long-Term Strategy
We are committed to being a valued partner to our customers, with a constant focus on expanding those relationships by solving complex infrastructure problems, enhancing our capabilities and improving execution while also developing or acquiring innovative technologies and comprehensive services. We are pursuing three key strategic initiatives:
Municipal Pipeline Rehabilitation – The fundamental driver in the global municipal pipeline rehabilitation market is the growing gap between the need and current spend. While we do not expect the spending gap to close any time soon, the increasing need for pipeline rehabilitation supports a long-term sustainable market for the technologies and services offered by our Infrastructure Solutions segment. We are committed to maintaining our market leadership position in the rehabilitation of wastewater pipelines in North America using our CIPP technology, the largest contributor to Aegion’s consolidated revenues. We have a diverse portfolio of trenchless technologies to rehabilitate aging and damaged municipal pipelines. The focus today is growing our presence in the rehabilitation of pressure pipelines through both internal development and acquisitions. Our pressure pipe portfolio includes Fusible PVC ® , InsituMain ® CIPP, Tyfo ® fiber-reinforce polymer (“FRP”) and Tite Liner ® high-density polyethylene (“HDPE”) systems. Our international strategy is to use a blend of third-party product sales as well as CIPP and FRP contract installation operations in select markets. A key to the success of this strategy is a continuing focus on improving productivity to reduce costs and increase efficiencies across the entire value chain from engineering, manufacturing and installation of our technology-based solutions.
Midstream Pipeline Integrity Management – There are over one million miles of regulated pipelines in North America, which remain the safest and most cost-effective mode of oil and gas transmission. Within our Corrosion Protection segment, the design and installation of cathodic protection systems to help prevent pipeline corrosion have historically represented a majority of the revenues and profits for the segment. We also provide assessment services to monitor these systems and detect early signs of corrosion. In 2017, we launched a new asset integrity management program designed to increase the efficiency and accuracy of the pipeline corrosion assessment data we collect as well as upgrade how we share this valuable information with customers. We seek to improve customer regulatory compliance and add new services in the areas of data gathering and validation, advanced analytics and predictive maintenance.
Downstream Oil Refining and Industrial Facility Maintenance – We have long-term relationships with oil refinery and industrial customers on the United States West Coast through our Energy Services segment. Our objective is to leverage those relationships to expand the services we provide in mechanical maintenance, electrical and instrumentation services, small capital construction, shutdown and turnaround maintenance activity and specialty services. We continue to promote our safety services and recently began offering scaffolding services. There are opportunities in other industries on the West Coast such as oil and oil product terminals, chemicals, industrial gas and power to leverage our experience in maintenance and construction services.

Business Outlook
We believe favorable end markets and the progress made over the last three years to advance our long-term strategy give us the opportunity to grow operating income in 2018, which is expected to result in earnings per share growth and an increase in return on invested capital compared to 2017.
Infrastructure Solutions
One of the most attractive areas for growth is in the rehabilitation of municipal pressure pipelines, primarily in North America. We have a diverse portfolio of solutions in a highly fragmented and growing North American market. We also have an attractive market in Asia-Pacific for large-diameter pressure pipe strengthening. We completed a research and development effort in 2016 that has significantly reduced material and installation costs for the Tyfo ® system while maintaining the superior material properties and quality of the technology. We also improved our InsituMain ® CIPP technology to give customers a more robust solution. These enhancements and favorable market conditions support our expectations for strong growth in North America pressure pipeline rehabilitation activities in 2018.
We continue to make additional investments in 2018 to expand the use of Insituform ® CIPP in several regions currently underserved by Insituform in the North American wastewater pipeline market. Our objective is to maintain growth and our

33


leading share in a large and mature market. Outside North America, we are continuing to pursue a strategy of growing third-party product sales around the globe.
Despite favorable end markets, strategic investments and technology enhancements, we expect Infrastructure Solutions to have flat to a slight decline in revenues in 2018 compared to 2017. Our revenue expectation for the year has declined as a result of year-to-date challenges in the North American CIPP market and certain international markets. Operating margins are expected to be slightly higher in 2018 than in 2017 due to a reduction in losses incurred in 2017 in our CIPP businesses in Denmark and Australia and in our FRP business in North America, partially offset by potential increases in petroleum-based inputs and construction labor costs.
Corrosion Protection
For Corrosion Protection, we expect a revenue decline in 2018 compared to 2017, reflecting the lost contribution from the large deepwater project and the sale of Bayou in the third quarter of 2018. Excluding the large deepwater project, revenues are expected to increase compared to 2017.
Over 50 percent of Corrosion Protection’s revenues come from cathodic protection services for midstream oil and gas pipelines in North America, an attractive and growing market that we believe justifies further investment to outpace market growth. To that end, we continue promoting our new asset integrity management program for pipeline corrosion assessments. The new service improves data accuracy and processing efficiency, customizes the data transfer format (including geospatial mapping) and provides faster access to the information by customers. Corrosion Protection’s pipeline assessment services are expected to create a multiplier effect for our other capabilities in direct pipeline assessments, engineering, cathodic protection system installation and pipeline corrosion remediation. Our objective is to expand the relationships with our top customers, who are the leading pipeline owners in North America, to accelerate revenue growth.
With oil prices trading in a more stable range, we have responded to more customer inquiries for our Tite Liner ® lining pipeline protection system and field pipe coatings domestically and overseas.
Energy Services
We expect Energy Services to continue to build on the momentum achieved in 2017. The outlook for day-to-day downstream refinery maintenance remains robust based on long-term contracts and our position as the lead outsourced provider of maintenance services at 14 out of the 17 refineries on the United States West Coast. We have an effort underway to expand our services to those customers in mechanical maintenance, turnaround service, electrical and instrumentation maintenance, scaffolding services and small capital construction activities. Our plan to improve operating efficiencies and maximize margins is working. The favorable outlook we expect in 2018 supports growth in revenue and operating margins compared to 2017.

Strategic Initiatives/Divestiture
2017 Restructuring
In July 2017, our board of directors approved a realignment and restructuring plan (the “2017 Restructuring”). As part of the 2017 Restructuring, we announced plans to: (i) divest our pipe coating and insulation businesses in Louisiana, The Bayou Companies, LLC and Bayou Wasco Insulation, LLC (collectively “Bayou”); (ii) exit all non-pipe related contract applications for the Tyfo ® system in North America; (iii) right-size our cathodic protection services operation in Canada and our CIPP businesses in Australia and Denmark; and (iv) reduce corporate and other operating costs. These decisions reflected our: (a) desire to reduce further our exposure in the North American upstream oil and gas markets; (b) assessment of our ability to drive sustainable, profitable growth in the non-pipe FRP contracting market in North America; and (c) assessment of continuing weak conditions in the Canadian oil and gas markets. We reduced headcount by approximately 320 employees as a result of these actions.
While restructuring actions in Australia have led to year-over-year improvements in operating results, an assessment of the long-term fit within our portfolio led to the decision in May 2018 to divest the Australia CIPP business. In July 2018, we also made the decision to divest assets, where possible, from the Denmark CIPP business.
Total pre-tax 2017 Restructuring charges recorded during the first nine months of 2018 were $15.6 million ( $14.0 million post-tax) and consisted of employee severance, retention, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring costs associated with the restructuring efforts described above. Total pre-tax 2017 Restructuring and related impairment charges since inception were $125.7 million ( $115.6 million post-tax), including cash charges of $21.1 million and non-cash charges of $104.6 million , of which $86.4 million relates to goodwill and long-lived asset impairment charges recorded in 2017 as part of exiting the non-pipe FRP contracting market in North America.
We expect total restructuring and impairment charges for actions approved on July 28, 2017, and including the subsequent actions in Australia and Denmark, to be approximately $130 million .

34


On October 26, 2018, our board of directors approved additional actions with respect to the 2017 Restructuring, which included the decision to: (i) exit multiple additional international locations; and (ii) take actions to further optimize operations within North America. These actions are expected to drive incremental annual savings of more than $5 million as well as eliminate significant losses from underperforming businesses over the last several years. Total pre-tax charges associated with the additional actions are expected to be approximately $25 million, including pre-tax cash charges of approximately $8 million to $10 million. Most charges are expected to be incurred by mid-2019 and relate to employee severance, retention, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring related costs. The identified charges are primarily focused in the international operations of both Infrastructure Solutions and Corrosion Protection, but also include certain other measures to reduce consolidated operating costs. We expect to reduce headcount by approximately 150 employees as a result of these additional actions. As we completes these actions over the coming months, additional charges and headcount reductions could occur.
See Notes 4 and 13 to the consolidated financial statements contained in this Report for a detailed discussion regarding our restructuring efforts.
Divestitures – Completed and Planned
On August 31, 2018, we sold substantially all of the assets of our wholly-owned subsidiary, The Bayou Companies, LLC and its fifty-one percent (51%) interest in Bayou Wasco Insulation, LLC. The sale price was $46 million, consisting of $38 million paid in cash at closing and $8 million in a fully secured, two-year loan payable to Aegion. The sale resulted in a pre-tax, non-cash loss of $8.7 million during the third quarter of 2018, which is included in “Other expense” in the Consolidated Statements of Operations.
On July 25, 2018, our board of directors approved a plan to exit the CIPP operation in Denmark to address continued underperformance in the business. As a result of this decision, on November 1, 2018 we executed a sale agreement for substantially all of the fixed assets and inventory. We expect any remaining activities related to exiting the business to be completed by the end of 2018. As of September 30, 2018, the assets and liabilities were classified as held for sale on our Consolidated Balance Sheet.
On May 14, 2018, our board of directors approved a plan to divest our CIPP business in Australia. While restructuring actions in Australia have led to year-over-year improvements in operating results, an assessment of the long-term fit within our portfolio led to the decision to divest the business. We are currently engaged in a process to sell the business and expect completion before the end of 2018. As of September 30, 2018, the assets and liabilities were classified as held for sale on our Consolidated Balance Sheet. If we are unable to sell this business or if we dispose of assets at a price or on terms that are less favorable, or at a higher cost, than we currently anticipate, we could incur impairment charges or losses on disposal.
See Notes 1 and 5 to the consolidated financial statements contained in this Report for additional information.


Results of Operations – Quarters and Nine-Month Periods Ended September 30, 2018 and 2017
Significant Events
2017 Restructuring – As part of the 2017 Restructuring, we recorded pre-tax charges of $15.6 million ( $14.0 million post-tax) and $6.7 million ($5.7 million post-tax) during the first nine months of 2018 and 2017, respectively. Restructuring charges impacted the Infrastructure Solutions and Corrosion Protection reportable segments. See Note 4 to the consolidated financial statements contained in this Report.
Acquisition and Divestiture Expenses – We recorded pre-tax expenses of $6.0 million ($4.5 million post-tax) and $2.5 million ($1.6 million post-tax) during the first nine months of 2018 and 2017, respectively, related primarily to the divestitures of Bayou and Australia and the acquisitions of Hebna in 2018 and Environmental Techniques in 2017. Expenses primarily impacted the Corrosion Protection and Infrastructure Solutions reportable segments.
Loss on Sale of Bayou – The sale of our pipe coating and insulation businesses in Louisiana resulted in a pre-tax loss of $8.7 million ($6.5 million post-tax) during the third quarter of 2018, which is included in “Other expense” in the Consolidated Statements of Operations.

35


Consolidated Operating Results
Key financial data for consolidated operations was as follows:
(dollars in thousands)
Quarters Ended September 30,

Increase (Decrease)

2018

2017

$

%
Revenues
$
339,679


$
341,872


$
(2,193
)

(0.6
)%
Gross profit
72,673


73,442


(769
)

(1.0
)
Gross profit margin
21.4
%

21.5
 %

N/A


(10
)bp
Operating expenses
51,386


54,872


(3,486
)

(6.4
)
Goodwill impairment
1,389

 
45,390

 
(44,001
)
 
N/M

Definite-lived intangible asset impairment
870

 
41,032

 
(40,162
)
 
N/M

Acquisition and divestiture expenses
4,800


1,980


2,820


142.4

Restructuring and related charges
1,219

 
5,439

 
(4,220
)
 
(77.6
)
Operating income (loss)
13,009


(75,271
)

88,280


117.3

Operating margin
3.8
%

(22.0
)%

N/A


2,580
bp
Net loss attributable to Aegion Corporation
(447
)
 
(73,498
)
 
73,051

 
(99.4
)
(dollars in thousands)
Nine Months Ended September 30,
 
Increase (Decrease)
 
2018
 
2017
 
$
 
%
Revenues
$
999,570

 
$
1,021,520

 
$
(21,950
)
 
(2.1
)%
Gross profit
205,230

 
220,622

 
(15,392
)
 
(7.0
)
Gross profit margin
20.5
%
 
21.6
 %
 
N/A

 
(110
)bp
Operating expenses
161,750

 
165,812

 
(4,062
)
 
(2.4
)
Goodwill impairment
1,389

 
45,390

 
(44,001
)
 
N/M

Definite-lived intangible asset impairment
870

 
41,032

 
(40,162
)
 
N/M

Acquisition and divestiture expenses
6,024

 
2,513

 
3,511

 
139.7

Restructuring and related charges
4,548

 
5,439

 
(891
)
 
(16.4
)
Operating income (loss)
30,649

 
(39,564
)
 
70,213

 
177.5

Operating margin
3.1
%
 
(3.9
)%
 
N/A

 
700
bp
Net income (loss) attributable to Aegion Corporation
5,405

 
(56,612
)
 
62,017

 
109.5

_____________________________
“N/A” represents not applicable.
“N/M” represents not meaningful.

Revenues
Revenues decrease d $2.2 million , or 0.6% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease in revenues was due to an $18.5 million decrease in Infrastructure Solutions primarily due to a decrease in North American CIPP contracting installation services activity due to an unfavorable project mix and FRP project activity in our North American operations. Partially offsetting the decrease was a $12.9 million increase in Energy Services due to an increase in construction services activities and a $3.3 million increase in Corrosion Protection primarily from higher revenues in our Middle East coating services operation.
Revenues decrease d $22.0 million , or 2.1% , in the first nine months of 2018 compared to the first nine months of 2017 . The decrease in revenues was primarily due to a $53.3 million decrease in Corrosion Protection, driven by a $79.6 million decrease in revenues at our pipe coating and insulation operation, which completed a large deepwater project in 2017 and was sold during the third quarter of 2018. Partially offsetting the decrease was a $31.8 million increase in Energy Services mainly due to an increase in construction services activities and the successful completion of labor transitions at refineries to comply with labor laws in California.
Gross Profit and Gross Profit Margin
Gross profit decrease d $0.8 million , or 1.0% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease in gross profit was due to: (i) a $3.1 million decrease in Infrastructure Solutions primarily due to lower FRP project

36


activity in our North American operation, as noted above, and lower revenues and execution issues related to CIPP contracting installation services activity in our North American and European operations; and (ii) a $1.1 million decrease in Energy Services mainly due to project performance execution issues on certain construction services projects. Partially offsetting the decreases in gross profit was a $3.3 million increase in Corrosion Protection primarily from higher margin project activity in our Middle East coating services operation.
Gross profit margin decline d to 21.4% in the third quarter of 2018 from 21.5% in the third quarter of 2017 . The decline was primarily due to a decrease in margins driven by our pipe coating and insulation operation in Corrosion Protection, and certain isolated project execution issues related to CIPP contracting installation services activity in our European and North American operations in Infrastructure Solutions. Offsetting the decreases was improved gross profit margin performance in Corrosion Protection primarily related to improved project performance in our U.S. cathodic protection operation and high-margin project activities in our coating services operation, most notably in the Middle East.
Gross profit decrease d $15.4 million , or 7.0% , and gross profit margin decline d 110 basis points in the first nine months of 2018 compared to the first nine months of 2017 . The decrease in gross profit was due t o: (i) a $12.1 million decrease in Corrosion Protection driven by a decrease in margins from our pipe coating and insulation operation, partially offset by improved project performance in our U.S. cathodic protection operation and Middle East coating services operation, as noted above; and (ii) a $6.0 million decrease in Infrastructure Solutions primarily due to lower gross profit generated from CIPP contracting installation services activity in our North American operation as severe weather negatively impacted productivity in the first four months of 2018 and project mix issues impacted gross profit in the third quarter of 2018, lower FRP project activity in our North American operation and project performance issues in our European CIPP operations, most notably in Denmark and the Netherlands. Offsetting the decreases was a $2.8 million increase in Energy Services primarily from increased revenues and activity from maintenance and construction services. Gross profit margin decline d primarily due to the same factors impacting the changes in gross profit margin in the third quarter of 2018 compared to the third quarter of 2017 .
Operating Expenses
Operating expenses decrease d $3.5 million , or 6.4% , in the third quarter of 2018 compared to the third quarter of 2017 . As part of our restructuring efforts, we recognized charges of $3.0 million and $1.3 million in the third quarter s of 2018 and 2017 , respectively. Excluding restructuring charges, operating expenses decrease d $5.2 million , or 9.8% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease in operating expenses was due to a $3.0 million decrease in Corrosion Protection primarily due to cost savings achieved in connection with our 2017 Restructuring actions, as well as lower incentive compensation expense, and a $2.5 million decrease in Infrastructure Solutions primarily from exiting contracting installation services for non-pressure pipe FRP applications in our North American operation and achieved cost savings in connection with our 2017 Restructuring actions. Partially offsetting the decrease in operating expenses was a $0.2 million increase in Energy Services primarily due to an increase in general and administrative expenses to support continued growth in the business and additional costs necessary to support the transition of our refinery personnel to the trade unions.
Operating expenses as a percentage of revenues were 15.1% in the third quarter of 2018 compared to 16.1% in the third quarter of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 14.2% in the third quarter of 2018 compared to 15.7% in the third quarter of 2017 .
Operating expenses decrease d $4.1 million , or 2.4% , in the first nine months of 2018 compared to the first nine months of 2017 . As part of our restructuring efforts, we recognized charges of $7.8 million in the first nine months of 2018 and $1.3 million in the first nine months of 2017. Excluding restructuring charges, operating expenses decrease d $10.6 million , or 6.5% , in the first nine months of 2018 compared to the first nine months of 2017 . The decrease in operating expenses was mainly due to the same factors impacting the changes in operating expenses in the third quarter of 2018 compared to the third quarter of 2017. Additionally, we recorded a reserve reversal for certain Brinderson pre-acquisition matters in the first nine months of 2017 that lessened the year-over-year decrease.
Operating expenses as a percentage of revenues were 16.2% in the first nine months of 2018 compared to 16.2% in the first nine months of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 15.4% in the first nine months of 2018 compared to 16.1% in the first nine months of 2017 .
Consolidated Net Income (Loss)
Consolidated net loss was $0.4 million in the third quarter of 2018 , an increase of $73.1 million from a loss of $73.5 million in the third quarter of 2017 .
Included in consolidated net loss were the following pre-tax items: (i) goodwill impairment charges of $1.4 million and $45.4 million in the third quarters of 2018 and 2017, respectively; (ii) definite-lived intangible asset impairment charges of $0.9 million and $41.0 million in the third quarters of 2018 and 2017, respectively; (iii) restructuring charges of $5.2 million and $6.7 million in the third quarter s of 2018 and 2017 , respectively, related to employee severance, retention, extension of benefits, employee assistance programs, wind-down and other related restructuring costs; (iv) acquisition and divestiture

37


expenses of $4.8 million and $2.0 million in the third quarter s of 2018 and 2017, respectively; and (v) an $8.7 million loss on the sale of Bayou in the third quarter of 2018.
Excluding the after-tax effect of the above items, consolidated net income was $14.9 million in the third quarter of 2018 , an increase of $4.3 million , or 40.4% , from $10.6 million in the third quarter of 2017 . The increase was primarily due to higher operating income in Corrosion Protection due to increased revenues and gross margin performance in our coating services operation, most notably in the Middle East. Partially offsetting the increase in consolidated net income was a decrease from Infrastructure Solutions related to lower gross profit generated from CIPP contracting installation services activity in our North American operations, partially offset by higher revenues and profitability from Fusible PVC ® project activity, cost savings achieved in our North American FRP operation, and loss avoidance in our European and Asia-Pacific CIPP operations. Consolidated net income in the third quarter of 2018, as compared to the third quarter of 2017, was also positively impacted by lower interest expense due to lower debt balances, lower income taxes due to lower U.S. statutory rates and a $1.5 benefit related to the Tax Cuts and Jobs Act, and reduced foreign currency transaction losses.
Consolidated net income was $5.4 million in the first nine months of 2018 , an improvement of $62.0 million from a loss of $56.6 million in the first nine months of 2017 .
Included in consolidated net income (loss) were the following pre-tax items: (i) goodwill impairment charges of $1.4 million and $45.4 million in the first nine months of 2018 and 2017 , respectively; (ii) definite-lived intangible asset impairment charges of $0.9 million and $41.0 million in the first nine months of 2018 and 2017 , respectively; (iii) restructuring charges of $13.3 million and $6.9 million in the first nine months of 2018 and 2017 , respectively; (iv) acquisition and divestiture expenses of $6.0 million and $2.5 million in the first nine months of 2018 and 2017 , respectively; (v) credit facility amendment fees of $1.8 million in the first nine months of 2018 ; and (vi) an $8.7 million loss on the sale of Bayou in the first nine months of 2018 .
Excluding the after-tax effect of the above items, consolidated net income was $30.2 million in the first nine months of 2018 , an increase of $2.3 million , or 8.2% , from $27.9 million in the first nine months of 2017 . The increase was primarily due to lower income taxes due to lower U.S. statutory rates, lower interest expense due to lower debt balances and reduced foreign currency transaction losses. Partially offsetting the increases in consolidated net income was lower operating income, primarily due to decreased revenues in Corrosion Protection’s pipe coating and insulation operation driven by production in 2017 on a large deepwater project. Consolidated net income in the first nine months of 2018 , as compared to the first nine months of 2017 , was also positively impacted by reduced income attributable to noncontrolling interests.

Contract Backlog
Contract backlog is our expectation of revenues to be generated from received, signed and uncompleted contracts, the cancellation of which is not anticipated at the time of reporting. We assume that these signed contracts are funded. For government or municipal contracts, our customers generally obtain funding through local budgets or pre-approved bond financing. We have not undertaken a process to verify funding status of these contracts and, therefore, cannot reasonably estimate what portion, if any, of our contracts in backlog have not been funded. However, we have little history of signed contracts being canceled due to the lack of funding. Contract backlog excludes any term contract amounts for which there are not specific and determinable work releases or values beyond a renewal date in the forward 12-month period. Projects whereby we have been advised that we are the low bidder, but have not formally been awarded the contract, are not included. Although backlog represents only those contracts and Master Service Agreements (“MSAs”) that are considered to be firm, there can be no assurance that cancellation or scope adjustments will not occur with respect to such contracts.
The following table sets forth our consolidated backlog by segment (in millions):
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
Infrastructure Solutions
$
343.0

 
$
376.3

 
$
328.9

 
$
358.5

Corrosion Protection (1)
136.7

 
161.3

 
155.7

 
190.7

Energy Services (2)
191.0

 
199.9

 
207.8

 
213.0

Total backlog
$
670.7

 
$
737.5

 
$
692.4

 
$
762.2

__________________________
(1)  
June 30, 2018, December 31, 2017, and September 30, 2017 included backlog from Bayou of $16.6 million, $21.1 million and $16.7 million, respectively.
(2)  
Represents expected unrecognized revenues to be realized under long-term 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.

38


Within our Infrastructure Solutions and Corrosion Protection segments, certain contracts are performed through our variable interest entities, in which we own a controlling portion of the entity. As of September 30, 2018 , 0.1% and 17.8% of our Infrastructure Solutions backlog and Corrosion Protection backlog, respectively, related to these variable interest entities. A substantial majority of our contracts in these two segments are fixed price contracts with individual private businesses and municipal and federal government entities across the world. Energy Services generally enters into cost reimbursable contracts that are based on costs incurred at agreed upon contractual rates.
Consolidated customer orders, net of cancellations (“New Orders”), decrease d $31.9 million , or 9.6% , to $298.4 million in the third quarter of 2018 compared to $330.3 million in the third quarter of 2017 . New Orders decrease d $91.4 million , or 8.3% , to $1,003.4 million in the nine months ended September 30, 2018 compared to $1,094.8 million in the nine months ended September 30, 2017 .

Infrastructure Solutions Segment
Key financial data for Infrastructure Solutions was as follows:
(dollars in thousands)
Quarters Ended September 30,
 
Increase (Decrease)

2018

2017
 
$ 

%
Revenues
$
155,681


$
174,161


$
(18,480
)

(10.6
)%
Gross profit
38,135


41,189


(3,054
)

(7.4
)
Gross profit margin
24.5
%

23.6
 %

N/A


90
bp
Operating expenses
24,078


25,284


(1,206
)

(4.8
)
Goodwill impairment
1,389

 
45,390

 
(44,001
)
 
N/M

Definite-lived intangible asset impairment
870

 
41,032

 
(40,162
)
 
N/M

Acquisition and divestiture expenses
216

 
118

 
98

 
83.1

Restructuring and related charges
1,184

 
3,390

 
(2,206
)
 
(65.1
)
Operating income (loss)
10,398


(74,025
)

84,423


114.0

Operating margin
6.7
%

(42.5
)%

N/A


4,920
bp
(dollars in thousands)
Nine Months Ended September 30,
 
Increase (Decrease)
 
2018
 
2017
 
$ 
 
%
Revenues
$
450,840

 
$
451,340

 
$
(500
)
 
(0.1
)%
Gross profit
100,793

 
106,803

 
(6,010
)
 
(5.6
)
Gross profit margin
22.4
%
 
23.7
 %
 
N/A

 
(130
)bp
Operating expenses
74,475

 
76,564

 
(2,089
)
 
(2.7
)
Goodwill impairment
1,389

 
45,390

 
(44,001
)
 
N/M

Definite-lived intangible asset impairment
870

 
41,032

 
(40,162
)
 
N/M

Acquisition and divestiture expenses
535

 
651

 
(116
)
 
(17.8
)
Restructuring and related charges
3,961

 
3,390

 
571

 
16.8

Operating income (loss)
19,563

 
(60,224
)
 
79,787

 
132.5

Operating margin
4.3
%
 
(13.3
)%
 
N/A

 
1,760
bp
______________________________
“N/A” represents not applicable.
“N/M” represents not meaningful.

Revenues
Revenues decrease d $18.5 million , or 10.6% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease in revenues was primarily due to: (i) a decrease in CIPP contracting installation services activity in North America as a result of an unfavorable mix of work performed (despite a 15% increase in installed CIPP liner footage, average revenue per foot declined nearly 25% due to a higher mix of lower-value, small-diameter projects, which negatively impacted revenues by more than $30 million); (ii) a decrease in FRP project activity in our North American operation, specifically associated with our exit of non-pressure pipe FRP contracting installation services activity in North America as part of our 2017 Restructuring; and (iii) a decrease in license royalty income from a $3.9 million license settlement in the third quarter of 2017 in our North

39


American CIPP operation. Partially offsetting the decreases in revenues was an increase in Fusible PVC ® project activity and royalty income in our North American operation.
Revenues decreased $0.5 million , or 0.1% , in the first nine months of 2018 compared to the first nine months of 2017 . The changes in revenues in the first nine months of 2018 compared to the first nine months of 2017 were primarily due to the same factors impacting the changes in revenues in the third quarter of 2018 compared to the third quarter of 2017. Additionally, both CIPP and FRP project activity in our Asia-Pacific operation increased as compared to the prior year.
Gross Profit and Gross Profit Margin
Gross profit decrease d $3.1 million , or 7.4% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease was primarily due to lower FRP project activity in our North American operation, as noted above, and lower revenues and execution issues related to CIPP contracting installation services activity in our North American and European operations. Partially offsetting the decreases in gross profit were increases related to Fusible PVC ® project activity in our North American operation and improved project performance from our FRP and CIPP project activity in our Asia-Pacific operation.
Gross profit margin improve d 90 basis points in the third quarter of 2018 compared to the third quarter of 2017 mainly due to: (i) improved project performance and loss avoidance associated with FRP project activity in our North American operation; (ii) CIPP project activity in our Australian operations as a result of the 2017 Restructuring actions; and (iii) increased royalty income in our North American operation. Partially offsetting the increases in gross profit margin were decreases driven by isolated CIPP project execution issues and increasing labor, fuel and chemical costs in our North American operation.
Gross profit decrease d $6.0 million , or 5.6% , and gross profit margin declined 130 basis points in the first nine months of 2018 compared to the first nine months of 2017 . The decreases in gross profit and gross profit margin were primarily due to lower gross profit generated from CIPP contracting installation services activity in our North American and European operations as described above. Additionally, severe weather negatively impacted North American CIPP productivity during the first four months of 2018 and an unfavorable project mix negatively impacted gross profit during the third quarter of 2018. Partially offsetting the decreases in gross profit and gross profit margin was improved execution of FRP project activity in our North American operation and CIPP project activity in our Australian operation. Additionally, gross profit and gross profit margin improvements were noted as Fusible PVC ® project activity increased in our North American operation.
Operating Expenses
Operating expenses decrease d $1.2 million , or 4.8% , in the third quarter of 2018 compared to the third quarter of 2017 . As part of our restructuring efforts, we recognized charges of $2.5 million in the third quarter of 2018 and $1.2 million in the third quarter of 2017 . Excluding restructuring charges, operating expenses decrease d $2.5 million , or 10.4% , in the third quarter of 2018 compared to the third quarter of 2017 . The decrease in operating expenses was primarily due to exiting contracting installation services for non-pressure pipe FRP applications in our North American operation, achieved cost savings in connection with our 2017 Restructuring actions, lower incentive compensation in our North American operation and lower costs allocated from our corporate administrative function.
Operating expenses as a percentage of revenues were 15.5% in the third quarter of 2018 compared to 14.5% in the third quarter of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 13.9% in the third quarter of 2018 compared to 13.9% in the third quarter of 2017 .
Operating expenses decrease d $2.1 million , or 2.7% , in the first nine months of 2018 compared to the first nine months of 2017 . As part of our restructuring efforts, we recognized charges of $5.8 million and $1.2 million in the first nine months of 2018 and 2017 , respectively. Excluding restructuring charges, operating expenses decrease d $6.7 million , or 8.9% , in the first nine months of 2018 compared to the first nine months of 2017 . The decrease in operating expenses was primarily due to the same factors impacting the changes in operating expenses in the third quarter of 2018 compared to the third quarter of 2017 .
Operating expenses as a percentage of revenues were 16.5% for the first nine months of 2018 compared to 17.0% in the first nine months of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 15.2% in the first nine months of 2018 compared to 16.7% in the first nine months of 2017 .
Operating Income (Loss) and Operating Margin
Operating income increase d to $10.4 million in the third quarter of 2018 compared to a loss of $74.0 million in the third quarter of 2017 . Operating margin improve d to 6.7% in the third quarter of 2018 compared to (42.5)% in the third quarter of 2017 .
Included in operating income (loss) are the following items: (i) goodwill impairment charges of $1.4 million and $45.4 million in the third quarters of 2018 and 2017, respectively; (ii) definite-lived intangible asset impairment charges of $0.9 million and $41.0 million in the third quarters of 2018 and 2017, respectively; (iii) restructuring charges of $3.8 million and $4.5 million in the third quarter s of 2018 and 2017 , respectively, related to employee severance, retention, extension of

40


benefits, employee assistance programs, wind-down and other related restructuring costs; and (iv) acquisition and divestiture related expenses of $0.2 million and $0.1 million in the third quarter s of 2018 and 2017, respectively.
Excluding the above items, operating income decrease d $0.4 million , or 2.3% , to $16.7 million in the third quarter of 2018 compared to $17.0 million in the third quarter of 2017 , but operating margin improve d 90 basis points to 10.7% in the third quarter of 2018 compared to 9.8% in the third quarter of 2017 . Operating income decreased primarily due to lower revenues and profitability from our North American CIPP operation due to an unfavorable project mix, partially offset by increased profitability from Fusible PVC ® project activity in our North American operation and loss avoidance achieved in our North American FRP and Australian CIPP operation in connection with our 2017 Restructuring actions.
Operating income increase d to $19.6 million in the first nine months of 2018 compared to a loss of $60.2 million in the first nine months of 2017 . Operating margin improve d to 4.3% in the first nine months of 2018 compared to (13.3)% in the first nine months of 2017 .
Included in operating income are the following items: (i) goodwill impairment charges of $1.4 million and $45.4 million in the first nine months of 2018 and 2017, respectively; (ii) definite-lived intangible asset impairment charges of $0.9 million and $41.0 million in the first nine months of 2018 and 2017, respectively; (iii) restructuring charges of $9.9 million and $4.7 million in the first nine months of 2018 and 2017 , respectively; and (iv) acquisition and divestiture related expenses of $0.5 million and $0.7 million in the first nine months of 2018 and 2017 , respectively.
Excluding the above items, operating income increase d $0.7 million , or 2.1% , to $32.2 million in the first nine months of 2018 compared to $31.6 million in the first nine months of 2017 . Operating margin improve d 10 basis points to 7.1% in the first nine months of 2018 compared to 7.0% in the first nine months of 2017 . Operating income increased primarily due to higher revenues and profitability from Fusible PVC ® project activity in our North American operation and cost savings achieved in our North American FRP operation in connection with our 2017 Restructuring actions. These increases were substantially offset by: (i) severe weather that negatively impacted productivity in our North American CIPP contracting operation during the first four months of 2018; (ii) an unfavorable project mix that negatively impacted operating results in the third quarter of 2018; (iii) certain isolated project execution issues related to CIPP contracting installation services activity in our European and North American operations; and (iv) increasing labor, fuel and chemical costs in our North America operation.

Corrosion Protection Segment
Key financial data for Corrosion Protection was as follows:
(dollars in thousands)
Quarters Ended September 30,

Increase (Decrease)

2018

2017

$

%
Revenues
$
105,624


$
102,276


$
3,348


3.3
 %
Gross profit
26,411


23,063


3,348


14.5

Gross profit margin
25.0
%

22.5
 %

N/A


250
bp
Operating expenses
19,344


21,855


(2,511
)

(11.5
)
Acquisition and divestiture expenses
4,569


1,862


2,707


145.4

Restructuring and related charges
35

 
2,049

 
(2,014
)
 
(98.3
)
Operating income (loss)
2,463


(2,703
)

5,166


191.1

Operating margin
2.3
%

(2.6
)%

N/A


490
bp
(dollars in thousands)
Nine Months Ended September 30,
 
Increase (Decrease)
 
2018
 
2017
 
$
 
%
Revenues
$
300,118

 
$
353,381

 
$
(53,263
)
 
(15.1
)%
Gross profit
74,524

 
86,663

 
(12,139
)
 
(14.0
)
Gross profit margin
24.8
%
 
24.5
%
 
N/A

 
30
bp
Operating expenses
62,279

 
66,949

 
(4,670
)
 
(7.0
)
Acquisition and divestiture expenses
5,474

 
1,862

 
3,612

 
194.0

Restructuring and related charges
587

 
2,049

 
(1,462
)
 
(71.4
)
Operating income
6,184

 
15,803

 
(9,619
)
 
(60.9
)
Operating margin
2.1
%
 
4.5
%
 
N/A

 
(240
)bp

41


______________________________
“N/A” represents not applicable.
“N/M” represents not meaningful.

Revenues
Revenues increase d $3.3 million , or 3.3% , in the third quarter of 2018 compared to the third quarter of 2017 . The increase was primarily due to our coating services operation, which benefited from increased project activity in the Middle East and its field services operation in North America. Partially offsetting the increase in revenues was a decrease in project activities in our cathodic protection operations, primarily in Canada and the Middle East, and our industrial linings operation in Central and South America.
Revenues decrease d $53.3 million , or 15.1% , in the first nine months of 2018 compared to the first nine months of 2017 . The decrease was due to a $79.6 million decrease in revenues in our pipe coating and insulation operation driven by production in 2017 on a large deepwater project. Also contributing to the decrease in revenues was a decrease in project activities in our cathodic protection operation in North America and our industrial linings operation in South America. Partially offsetting the decreases in revenues was an increase in revenues in our coating services operation, as described above.
Gross Profit and Gross Profit Margin
Gross profit increase d $3.3 million , or 14.5% , and gross profit margin improve d 250 basis points in the third quarter of 2018 compared to the third quarter of 2017 . Gross profit and gross profit margin increased primarily due to higher revenues and gross margins associated with our coating services operation, most notably in the Middle East. Partially offsetting the increase in gross profit were decreases associated with declining revenues and project performance in our cathodic protection operation and our industrial linings operation in South America.
Gross profit decrease d $12.1 million , or 14.0% , but gross profit margin improve d 30 basis points in the first nine months of 2018 compared to the first nine months of 2017 . The decrease in gross profit was primarily due to a decrease in gross profit from our pipe coating and insulation operation, partially offset by project activities in our Middle East coating services operation. The gross profit margin improvement was driven by high-margin project activities in our coating services operation, most notably in the Middle East, and improved project performance in our U.S. cathodic protection operation.
Operating Expenses
Operating expenses decrease d $2.5 million , or 11.5% , in the third quarter of 2018 compared to the third quarter of 2017 . As part of our restructuring efforts, we recognized charges of $0.6 million and $0.1 million in the third quarter s of 2018 and 2017, respectively. Excluding restructuring charges, operating expenses decrease d $3.0 million , or 13.6% , in the third quarter of 2018 compared to the third quarter of 2017 . Operating expenses decrease d primarily due to cost savings achieved in connection with our 2017 Restructuring actions, as well as lower incentive compensation expense and lower costs allocated from our corporate administrative function.
Operating expenses as a percentage of revenues were 18.3% in the third quarter of 2018 compared to 21.4% in the third quarter of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 17.8% in the third quarter of 2018 compared to 21.3% in the third quarter of 2017 . The decrease , as a percentage of revenues, was primarily driven by the factors noted above.
Operating expenses decrease d $4.7 million , or 7.0% , in the first nine months of 2018 compared to the first nine months of 2017 . As part of our restructuring efforts, we recognized charges of $2.1 million and $0.1 million in the first nine months of 2018 and 2017, respectively. Excluding restructuring charges, operating expenses decrease d $6.6 million , or 9.9% , in the first nine months of 2018 compared to the first nine months of 2017 . Operating expenses decreased mainly due to the same factors impacting the changes in operating expenses in the third quarter of 2018 compared to the third quarter of 2017. Operating expenses as a percentage of revenues were 20.8% in the first nine months of 2018 compared to 18.9% in the first nine months of 2017 . Excluding restructuring charges, operating expenses as a percentage of revenues were 20.1% in the first nine months of 2018 compared to 18.9% in the first nine months of 2017 . The increase , as a percentage of revenues, was primarily driven by the absence in 2018 of revenues from the large deepwater project performed in 2017.
Operating Income (Loss) and Operating Margin
Operating income increase d $5.2 million , or 191.1% , to $2.5 million in the third quarter of 2018 compared to a loss of $2.7 million in the third quarter of 2017 . Operating margin improve d to 2.3% in the third quarter of 2018 compared to (2.6)% in the third quarter of 2017 .
Included in operating income are (i) restructuring charges of $1.2 million and $2.2 million in the third quarter s of 2018 and 2017 , respectively, related to employee severance, retention, extension of benefits, employee assistance programs, wind-down

42


and other related restructuring costs; and (ii) acquisition and divestiture related expenses of $4.6 million and $1.9 million in the third quarter s of 2018 and 2017 , respectively.
Excluding restructuring charges and acquisition and divestiture expenses, operating income increase d $6.9 million , or 518.8% , to $8.2 million in the third quarter of 2018 compared to $1.3 million in the third quarter of 2017 and operating margin improve d to 7.8% in the third quarter of 2018 compared to 1.3% in the third quarter of 2017 . The increases in operating income and operating margin were primarily the result of higher revenues and related gross profit generated from our coating service operation in the Middle East, as well as reduced operating expenses as described above. Partially offsetting the increases in operating income and operating margin were decreases at our cathodic protection operation in the United States and our industrial linings operation in South America.
Operating income decrease d $9.6 million , or 60.9% , to $6.2 million in the first nine months of 2018 compared to $15.8 million in the first nine months of 2017 . Operating margin decline d to 2.1% in the first nine months of 2018 compared to 4.5% in the first nine months of 2017 .
Included in operating income are (i) restructuring charges of $3.2 million and $2.2 million in the first nine months of 2018 and 2017 , respectively; and (ii) acquisition and divestiture related expenses of $5.5 million and $1.9 million in the first nine months of 2018 and 2017 , respectively.
Excluding restructuring charges and acquisition and divestiture expenses, operating income decrease d $4.9 million , or 24.9% , to $14.9 million in the first nine months of 2018 compared to $19.8 million in the first nine months of 2017 and operating margin decline d to 5.0% in the first nine months of 2018 compared to 5.6% in the first nine months of 2017 . The decreases in operating income and operating margin were primarily the result of lower revenues and related gross profit in our pipe coating and insulation operation driven by production in 2017 on a large deepwater project. Partially offsetting the decreases in operating income and operating margin were increases generated from our coating service operation in the Middle East and our cathodic protection operation in the United States, as well as reduced operating expenses as described above.

Energy Services Segment
Key financial data for Energy Services was as follows:
(dollars in thousands)
Quarters Ended September 30,

Increase (Decrease)

2018

2017

$

%
Revenues
$
78,374


$
65,435


$
12,939


19.8
 %
Gross profit
8,127


9,190


(1,063
)

(11.6
)
Gross profit margin
10.4
%

14.0
%

N/A


(360
)bp
Operating expenses
7,964


7,733


231


3.0

Acquisition-related expenses
15


—


15


N/M

Operating income
148


1,457


(1,309
)

(89.8
)
Operating margin
0.2
%

2.2
%

N/A


(200
)bp
(dollars in thousands)
Nine Months Ended September 30,
 
Increase (Decrease)
 
2018
 
2017
 
$
 
%
Revenues
$
248,612

 
$
216,799

 
$
31,813

 
14.7
%
Gross profit
29,913

 
27,156

 
2,757

 
10.2

Gross profit margin
12.0
%
 
12.5
%
 
N/A

 
(50
)bp
Operating expenses
24,996

 
22,299

 
2,697

 
12.1

Acquisition-related expenses
15

 
—

 
15

 
N/M

Operating income
4,902

 
4,857

 
45

 
0.9

Operating margin
2.0
%
 
2.2
%
 
N/A

 
(20
)bp
______________________________
“N/A” represents not applicable.
“N/M” represents not meaningful.


43


Revenues
Revenues increase d $12.9 million , or 19.8% , in the third quarter of 2018 compared to the third quarter of 2017 . The increase was due to increased construction and maintenance services activities, partially offset by lower volume associated with turnaround services activity.
Revenues increase d $31.8 million , or 14.7% , in the first nine months of 2018 compared to the first nine months of 2017 . The increase was due to higher volume associated with construction services activity and increased maintenance services activities. These increases were the result of increased demand from existing customers and successful completion of several labor transitions at refineries to comply with labor laws in California.
Gross Profit and Gross Profit Margin
Gross profit decrease d $1.1 million , or 11.6% , in the third quarter of 2018 compared to the third quarter of 2017 and gross profit margin decline d 360 basis points in the third quarter of 2018 compared to the third quarter of 2017 . The decreases in gross profit and gross profit margin were primarily due to project performance issues on one large construction services project, as well as higher unabsorbed costs and other inefficiencies related to maintenance services activities. At September 30, 2018, we were pursuing over $1.0 million in outstanding cost recovery requests associated with the large construction services project, which, if received, will positively impact operating results in the fourth quarter of 2018.
Gross profit increase d $2.8 million , or 10.2% , but gross profit margin decline d 50 basis points in the first nine months of 2018 compared to the first nine months of 2017 . The increase in gross profit was primarily due to an increase in revenues, mostly driven by maintenance and construction services activity, and completion of labor transitions at refineries, as noted above. Gross profit margin declined mainly due to a higher volume of construction services activity, which suffered certain project performance execution issues in 2018, as noted above.
Operating Expenses
Operating expenses increase d $0.2 million , or 3.0% , in the third quarter of 2018 compared to the third quarter of 2017 . The increase was primarily due to an increase in general and administrative expenses to support continued growth in the business and additional costs necessary to support the transition of our refinery personnel to the trade unions, partially offset by lower costs allocated from our corporate administrative function. Operating expenses as a percentage of revenues were 10.2% in the third quarter of 2018 compared to 11.8% in the third quarter of 2017 .
Operating expenses in the first nine months of 2018 increase d $2.7 million , or 12.1% in the first nine months of 2018 compared to the first nine months of 2017 . The increase was primarily due to the same factors impacting the changes in operating expenses in the third quarter of 2018 compared to the third quarter of 2017 . Additionally, the first nine months of 2017 included a reserve reversal for certain pre-acquisition matters. Operating expenses as a percentage of revenues were 10.1% in the first nine months of 2018 compared to 10.3% in the first nine months of 2017 .
Operating Income and Operating Margin
Operating income decrease d $1.3 million , or 89.8% , to $0.1 million in the third quarter of 2018 compared to $1.5 million in the third quarter of 2017 , primarily due to the project performance issues on the large construction services contract discussed above. Operating margin decline d to 0.2% in the third quarter of 2018 compared to 2.2% in the third quarter of 2017 . Increased revenues associated with stronger maintenance and construction activities were more than offset by project performance execution issues on one large construction services project during the third quarter of 2018. Additionally, decreased revenues and gross profit contributions associated with higher-margin turnaround services activities and increased operating expenses from investments to support the business further contributed to the operating income decrease.
Operating income increase d less than $0.1 million, or 0.9% , to $4.9 million in the first nine months of 2018 compared to $4.9 million in the first nine months of 2017 . Operating margin decline d to 2.0% in the first nine months of 2018 compared to 2.2% in the first nine months of 2017 . The decreases in operating income and operating margin were driven by: (i) decreased gross profit contributions associated with higher-margin turnaround services activities; (ii) project performance execution issues on certain construction services projects; and (iii) increased operating expenses from investments to support the business and a decrease in reserves for certain Brinderson pre-acquisition matters in the first nine months of 2017. Offsetting the decreases were increased revenues and gross profit contributions from maintenance services activities as a result of increased demand from existing customers.

Other Income (Expense)
Interest Income and Expense
Interest income increase d $0.1 million in the third quarter of 2018 compared to the prior year quarter primarily due to interest received on the $8.0 million note receivable acquired in the Bayou sale. Interest expense decrease d $0.1 million in the

44


third quarter of 2018 compared to the prior year quarter primarily due to reduced loan principal balances during the third quarter of 2018 compared to the third quarter of 2017, partially offset by higher LIBOR-based borrowing costs under our Credit Facility.
Interest income increase d $0.1 million in the first nine months of 2018 compared to the prior year period due to the newly acquired note receivable noted above. Interest expense increase d $1.2 million in the first nine months of 2018 compared to the same period in the prior year. During the first nine months of 2018, we recognized expenses of $1.8 million related to certain arrangement and other fees associated with amending our credit facility as well as the write-off of previously unamortized deferred financing costs. Excluding these expenses, interest expense decreased as compared to same period in the prior year due to reduced loan principal balances, partially offset by higher LIBOR-based borrowing costs under our Credit Facility.
Other Expense
Other expense was $9.3 million and $10.0 million in the quarter and nine-month period ended September 30, 2018 , respectively. During the third quarter of 2018, the Company incurred charges of $8.7 million related to the loss on sale of our pipe coating and insulation businesses in Louisiana. The remaining balances primarily consisted of foreign currency transaction losses.
Other expense was $0.8 million and $1.6 million in the quarter and nine-month period ended September 30, 2017 , respectively. In both periods, the balances primarily consisted of foreign currency transaction losses.

Taxes (Benefit) on Income (Loss)
Taxes on income (loss) was a benefit of $0.2 million in the third quarter of 2018 compared to a benefit of $6.0 million in the third quarter of 2017. Our effective tax rate was a benefit of 1,275.0% on a pre-tax loss in the quarter ended September 30, 2018 compared to a benefit of 7.4% on a pre-tax loss in the quarter ended September 30, 2017 . The effective tax rate for the quarter ended September 30, 2018 was positively impacted by a $1.5 million adjustment to the mandatory deemed repatriation tax on foreign earnings, partially offset by valuation allowances recorded on certain net operating losses in foreign jurisdictions for which no income tax benefit can be recognized. The effective tax rate for the quarter ended September 30, 2017 was lower than the U.S. federal statutory income tax rate and unfavorably impacted by: (i) significant pre-tax charges related to goodwill and definite-lived intangible asset impairments, certain of which are not deductible for tax purposes; and (ii) the impact of establishing a $14.9 million valuation allowance on net operating losses and other deferred tax assets in jurisdictions, primarily the United States, where we are unlikely to realize these benefits.
Taxes on income (loss) increase d $0.6 million during the first nine months of 2018 compared to the first nine months of 2017 . Our effective tax rate was an expense of 22.9% on pre-tax income in the nine months ended September 30, 2018 and an expense of 2.2% on a pre-tax loss in the nine months ended September 30, 2017 . The effective tax rate for the nine months ended September 30, 2018 was impacted by the same factors impacting the effective tax rate in the third quarter of 2018, but also benefited by a $1.5 million discrete item related to employee share-based awards that vested during the first quarter of 2018. Together, the adjustment to the repatriation tax and the discrete item had a 39.3% benefit to the effective tax rate during the first nine months of 2018. The effective tax rate in the first nine months of 2017 was lower than the U.S. federal statutory income tax rate and unfavorably impacted by: (i) significant pre-tax charges related to goodwill and definite-lived intangible asset impairments, certain of which are not deductible for tax purposes; (ii) the net impact of the $14.9 million valuation allowance recorded in the third quarter of 2017, as noted above, partially offset by the reversal of previously recorded valuation allowances recorded in the first quarter of 2017; and (iii) a higher mix of earnings in the United States, primarily from income generated on a large deepwater project in our pipe coating and insulation operation.

Non-controlling Interests
Income attributable to non-controlling interests was $0.6 million in the quarter ended September 30, 2018 compared to losses of $0.5 million in the quarter ended September 30, 2017 . In the third quarter of 2018, income was primarily driven from our Corrosion Protection joint ventures in Oman, South Africa and Louisiana, and our Infrastructure Solutions joint ventures in Asia. In the third quarter of 2017, losses were primarily driven from our Corrosion Protection joint venture in Louisiana, partially offset by income from our Corrosion Protection joint venture in Oman and our Infrastructure Solutions joint ventures in Asia.
Income attributable to non-controlling interests was $0.5 million in the first nine months of 2018 compared to income of $2.4 million in the comparable period of 2017. In the nine months ended September 30, 2018, income from our Corrosion Protection joint ventures in Oman, South Africa and Louisiana, and our Infrastructure Solutions joint ventures in Asia were partially offset by losses from our Corrosion Protection joint venture in Mexico. In the nine months ended September 30, 2017 , income was primarily driven from our Corrosion Protection joint venture in Louisiana, which performed a majority of its work

45


on a large deepwater project in our pipe coating and insulation operation. Our Corrosion Protection joint venture in Oman and our Infrastructure Solutions joint ventures in Asia also contributed positive earnings during the period.

Liquidity and Capital Resources
Cash and Cash Equivalents
(in thousands)
September 30, 
 2018
 
December 31, 
 2017
Cash and cash equivalents
$
67,410

 
$
105,717

Restricted cash
1,835

 
1,839

Restricted cash held in escrow primarily relates to funds reserved for legal requirements, deposits made in lieu of retention on specific projects performed for municipalities and state agencies, or advance customer payments and compensating balances for bank undertakings in Europe.
Sources and Uses of Cash
We expect the principal operational use of funds for the foreseeable future will be for capital expenditures, working capital, debt service and share repurchases.
During the first nine months of 2018 , capital expenditures were primarily used to: (i) support our Infrastructure Solutions North American CIPP business, expand our Corrosion Protection businesses in the Middle East and provide growth capital for Energy Services; and (ii) boost our information systems platform with a new human capital management system and upgrades to our enterprise resource planning system. For 2018, we anticipate that we will spend approximately $25.0 million to $30.0 million for capital expenditures, which is slightly below that in 2017.
Under the terms of our amended Credit Facility, we are authorized to purchase up to $30.0 million of our common stock in open market transactions in 2018. In October 2017, our Board of Directors authorized the open market repurchase of up to $40.0 million of our common stock to be made during 2018. That authorization is now limited to $30.0 million in 2018 due to the recent amendment to our Credit Facility. The shares are repurchased from time to time in the open market, subject to cash availability, market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and, subject to applicable regulatory requirements, may commence, suspend or discontinue purchases at any time without notice or authorization. During the nine months ended September 30, 2018 , we acquired 548,198 shares of our common stock for $13.2 million ( $24.07 average price per share) through the open market repurchase program discussed above. In addition, we repurchased 224,700 shares of our common stock for $5.4 million ( $24.15 average price per share) in connection with the satisfaction of tax obligations in connection with the vesting of restricted stock units and performance units. Any shares repurchased during 2018 are expected to be funded primarily through available cash. Once repurchased, we promptly retire such shares.
As part of our 2017 Restructuring, we utilized cash of $9.4 million during the first nine months of 2018 and $17.9 million in cumulative cash payments since 2017 related to employee severance, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring related costs as we exit our non-pipe related contract applications for the Tyfo ® system in North America, right-size our cathodic protection services operations in Canada, right-size our Infrastructure Solutions businesses in Australia and Denmark, and reduce corporate and other operating costs. Cumulatively, we have incurred both cash and non-cash charges of $125.7 million , of which $86.4 million relates to goodwill and long-lived asset impairment charges recorded in 2017 as part of exiting the non-pipe FRP contracting market in North America. We expect total restructuring and impairment charges for previously announced actions to be approximately $130 million , inclusive of $21 million to $23 million in cash charges.
On October 26, 2018, our board of directors approved additional actions with respect to the 2017 Restructuring, which included the decision to: (i) exit multiple additional international locations; and (ii) take actions to further optimize operations within North America. These actions are expected to drive incremental annual savings of more than $5 million as well as eliminate significant losses from underperforming businesses over the last several years. Total pre-tax charges associated with the additional actions are expected to be approximately $25 million, including pre-tax cash charges of approximately $8 million to $10 million. Most charges are expected to be incurred by mid-2019 and relate to employee severance, retention, extension of benefits, employment assistance programs, early lease and contract termination and other restructuring related costs.
At September 30, 2018 , our cash balances were located worldwide for working capital, support needs and potential acquisitions. Given the breadth of our international operations, approximately $37.7 million , or 56.0% , of our cash was denominated in currencies other than the United States dollar as of September 30, 2018 . We manage our worldwide cash

46


requirements by reviewing available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations. As a result of the deemed mandatory repatriation provisions in the TCJA, in 2017 we included an estimated $210.6 million of undistributed earnings in income subject to U.S. tax at reduced tax rates. The TCJA resulted in certain reassessments of previous indefinite reinvestment assertions with respect to certain jurisdictions. We do not intend to distribute earnings in a taxable manner, and therefore, intend to limit distributions to: (i) earnings previously taxed in the U.S.; (ii) earnings that would qualify for the 100 percent dividends received deduction provided in the TCJA; or (iii) earnings that would not result in significant foreign taxes. As a result, we did not recognize a deferred tax liability on our investment in foreign subsidiaries at September 30, 2018 or December 31, 2017. We continue to refine our provisional balances under the TCJA and adjustments may be made during the allowed one-year measurement period. The ultimate impact of the TCJA may differ from the current provisional amounts and the adjustments could be material.
Our primary source of cash is operating activities. We occasionally borrow under our line of credit’s available capacity to fund operating activities, including working capital investments. Our operating activities include the collection of accounts receivable as well as the ultimate billing and collection of contract assets. At September 30, 2018 , we believed our net accounts receivable and our contract assets, as reported on our Consolidated Balance Sheet, were fully collectible and a significant portion of the receivables will be collected within the next twelve months. From time to time, we have net receivables recorded that we believe will be collected but are being disputed by the customer in some manner. Disputes of this nature could meaningfully impact the timing of receivable collection or require us to invoke our contractual or legal rights in a lawsuit or alternative dispute resolution proceeding. If in a future period we believe any of these receivables are no longer collectible, we would increase our allowance for bad debts through a charge to earnings.
Cash Flows from Operations
Cash flows from operating activities provided $14.0 million in the first nine months of 2018 compared to $32.5 million provided in the first nine months of 2017 . The decrease in operating cash flow from the prior year period was primarily due to lower operating income during the first nine months of 2018 as compared to the first nine months of 2017, exclusive of significant non-cash charges in both periods. Additionally, cash flows during the nine-month periods ended September 30, 2018 and 2017 were negatively impacted by $9.4 million and $2.5 million, respectively, in cash payments related to our restructuring activities. Working capital used $43.6 million of cash during the first nine months of 2018 compared to $38.3 million used in the first nine months of 2017 . This increased usage was primarily attributed to favorable customer prepayments in 2017 related to large Middle East coating projects executed in 2018.
Cash Flows from Investing Activities
Cash flows from investing activities provided $7.5 million during the first nine months of 2018 compared to $31.5 million used during the first nine months of 2017 . During the first nine months of 2018, we received $37.9 million in the sale of Bayou and we used $9.0 million for two smaller acquisitions. During the first nine months of 2017, we used £6.5 million , approximately $8.0 million , to acquire Environmental Techniques. We used $22.2 million in cash for capital expenditures in the first nine months of 2018 compared to $22.5 million in the prior year period. In the first nine months of 2018 and 2017 , $0.9 million of non-cash capital expenditures were included in accounts payable and accrued expenses in both periods. Capital expenditures in the first nine months of 2018 and 2017 were partially offset by $1.0 million and $0.4 million , respectively, in proceeds received from asset disposals.
Cash Flows from Financing Activities
Cash flows from financing activities used $58.4 million during the first nine months of 2018 compared to $33.1 million used in the first nine months of 2017 . During the first nine months of 2018 and 2017 , we used net cash of $18.6 million and $31.7 million , respectively, to repurchase 772,898 and 1,452,296 shares, respectively, of our common stock through open market purchases and in connection with our equity compensation programs as discussed in Note 8 to the consolidated financial statements contained in this report. During the first nine months of 2018 , we had net repayments of $19.0 million on our line of credit, which included a $35.0 million repayment from the proceeds received on the sale of Bayou less borrowing of $16.0 million to fund domestic working capital needs. Additionally, during the first nine months of 2018 , we used cash of $19.7 million to pay down the principal balance of our term loans and used cash of $2.5 million to amend our original credit facility, as discussed in Note 7 to the consolidated financial statements contained in this report. During the first nine months of 2017 , we had net borrowings of $14.0 million from our line of credit primarily to fund domestic working capital needs and our acquisition activity, and we used cash of $15.1 million to pay down the principal balance of our term loan.

47


Long-Term Debt
In October 2015, the Company entered into an amended and restated $650.0 million senior secured credit facility with a syndicate of banks. On February 27, 2018, the Company amended this facility (the “amended Credit Facility”). Following the sale of Bayou, the amended Credit Facility consists of a $275.0 million five -year revolving line of credit and a $308.4 million five -year term loan facility, each with a maturity date in February 2023.
The Company paid expenses of $2.5 million associated with the amended Credit Facility, $0.9 million related to up-front lending fees and $1.6 million related to third-party arranging fees and expenses, the latter of which was recorded in “Interest expense” in the Consolidated Statement of Operations during the first nine months of 2018. In addition, the Company had $2.4 million in unamortized loan costs associated with the original Credit Facility, of which $0.2 million was written off and recorded in “Interest expense” in the Consolidated Statement of Operations during the first nine months of 2018.
Our indebtedness at September 30, 2018 consisted of $288.8 million outstanding from the $308.4 million term loan under the amended Credit Facility, $19.0 million on the line of credit under the amended Credit Facility and $0.8 million of third-party notes and bank debt.
As of September 30, 2018 , we had $29.3 million in letters of credit issued and outstanding under the amended Credit Facility. Of such amount, $13.7 million was collateral for the benefit of certain of our insurance carriers and $15.6 million was for letters of credit or bank guarantees of performance or payment obligations of foreign subsidiaries.
In October 2015, we entered into an interest rate swap agreement for a notional amount of $262.5 million , which is set to expire in October 2020. The notional amount of this swap mirrors the amortization of a $262.5 million portion of our $350.0 million term loan drawn from the Credit Facility. The swap requires us to make a monthly fixed rate payment of 1.46% calculated on the amortizing $262.5 million notional amount, and provides for us to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $262.5 million notional amount. The receipt of the monthly LIBOR-based payment offsets a variable monthly LIBOR-based interest cost on a corresponding $262.5 million portion of our term loan from the Credit Facility. This interest rate swap is used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and is accounted for as a cash flow hedge.
On March 12, 2018, we entered into an interest rate swap forward agreement that begins in October 2020 and expires in February 2023 to coincide with the amortization period of the amended Credit Facility. The swap will require us to make a monthly fixed rate payment of 2.937% calculated on the then amortizing $170.6 million notional amount, and provides for us to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $170.6 million notional amount. The receipt of the monthly LIBOR-based payment will offset the variable monthly LIBOR-based interest cost on a corresponding $170.6 million portion of our term loan from the amended Credit Facility. This interest rate swap will be used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and accounted for as a cash flow hedge.
The amended Credit Facility is subject to certain financial covenants including a consolidated financial leverage ratio and consolidated fixed charge coverage ratio. We were in compliance with all covenants at September 30, 2018 and expect continued compliance for the foreseeable future.
We believe that we have adequate resources and liquidity to fund future cash requirements and debt repayments with cash generated from operations, existing cash balances and additional short- and long-term borrowing capacity for the next 12 months.
See Note 7 to the consolidated financial statements contained in this report for additional information and disclosures regarding our long-term debt.

Disclosure of Contractual Obligations and Commercial Commitments
There were no material changes in contractual obligations and commercial commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 . See Note 10 to the consolidated financial statements contained in this report for further discussion regarding our commitments and contingencies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We are exposed to the effect of interest rate changes and of foreign currency and commodity price fluctuations. We currently do not use derivative contracts to manage commodity risks. From time to time, we may enter into foreign currency forward contracts to fix exchange rates for net investments in foreign operations to hedge our foreign exchange risk.

48


Interest Rate Risk
The fair value of our cash and short-term investment portfolio at September 30, 2018 approximated carrying value. Given the short-term nature of these instruments, market risk, as measured by the change in fair value resulting from a hypothetical 100 basis point change in interest rates, would not be material.
Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we maintain fixed rate debt whenever favorable; however, the majority of our debt at September 30, 2018 was variable rate debt. We substantially mitigate our interest rate risk through interest rate swap agreements, which are used to hedge the volatility of monthly LIBOR rate movement of our debt. We currently utilize interest rate swap agreements with a notional amount that mirrors approximately 75% of our outstanding borrowings from the term loan under our amended Credit Facility.
At September 30, 2018 , the estimated fair value of our long-term debt was approximately $305.6 million . Fair value was estimated using market rates for debt of similar risk and maturity and a discounted cash flow model. Market risk related to the potential increase in fair value resulting from a hypothetical 100 basis point increase in our debt specific borrowing rates at September 30, 2018 would result in a $0.8 million increase in interest expense.
Foreign Exchange Risk
We operate subsidiaries and are associated with licensees and affiliated companies operating solely outside of the United States and in foreign currencies. Consequently, we are inherently exposed to risks associated with the fluctuation in the value of the local currencies compared to the U.S. dollar. At September 30, 2018 , a substantial portion of our cash and cash equivalents was denominated in foreign currencies, and a hypothetical 10% change in currency exchange rates could result in an approximate $4.0 million impact to our equity through accumulated other comprehensive income (loss).
In order to help mitigate this risk, we may enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations. We do not engage in hedging transactions for speculative investment reasons. There can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies. At September 30, 2018 , there were no material foreign currency hedge instruments outstanding. See Note 12 to the consolidated financial statements contained in this report for additional information and disclosures regarding our derivative financial instruments.
Commodity Risk
We have exposure to the effect of limitations on supply and changes in commodity pricing relative to a variety of raw materials that we purchase and use in our operating activities, most notably resin, chemicals, staple fiber, fuel, metals and pipe. We manage this risk by entering into agreements with certain suppliers utilizing a request for proposal, or RFP, format and purchasing in bulk, and advantageous buying on the spot market for certain metals, when possible. We also manage this risk by continuously updating our estimation systems for bidding contracts so that we are able to price our products and services appropriately to our customers. However, we face exposure on contracts in process that have already been priced and are not subject to any cost adjustments in the contract. This exposure is potentially more significant on our longer-term projects.
We obtain a majority of our global resin requirements, one of our primary raw materials, from multiple suppliers in order to diversify our supplier base and thus reduce the risks inherent in concentrated supply streams. We have qualified a number of vendors in North America, Europe and Asia that can deliver, and are currently delivering, proprietary resins that meet our specifications.
The primary products and raw materials used by our infrastructure rehabilitation operations in the manufacture of fiber reinforced polymer composite systems are carbon, glass, resins, fabric and epoxy raw materials. Fabric and epoxies are the largest materials purchased, which are currently purchased through a select group of suppliers, although we believe these and the other materials are available from a number of vendors. The price of epoxy historically is affected by the price of oil. In addition, a number of factors such as worldwide demand, labor costs, energy costs, import duties and other trade restrictions may influence the price of these raw materials.
We rely on a select group of third-party extruders to manufacture our Fusible PVC ® pipe products.

Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2018 . Based upon and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures

49


were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


50


PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in certain actions incidental to the conduct of our business and affairs. Management, after consultation with legal counsel, does not believe that the outcome of any such actions, individually and in the aggregate, will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors
There have been no material changes to the risk factors described in Items 1A in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
 
 
Total Number of Shares (or Units) Purchased
 
Average Price Paid per Share (or Unit)
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 2018 (1) (2)
 
76,148

 
 
$
25.61

 
 
69,300

 
$
28,227,784

February 2018  (1) (2)
 
325,904

 
 
24.13

 
 
124,035

 
25,237,042

March 2018 (1) (2)
 
169,528

 
 
22.75

 
 
160,496

 
21,585,486

April 2018 (1) (2)
 
68,059

 
 
23.30

 
 
68,059

 
20,000,035

May 2018 (1) (2)
 
78,167

 
 
24.88

 
 
71,942

 
18,205,419

June 2018 (1) (2)
 
54,366

 
 
25.79

 
 
54,366

 
16,803,327

July 2018 (2)
 
726

 
 
25.69

 
 
—

 
16,803,327

August 2018
 
—

 
 
—

 
 
—

 
16,803,327

September 2018
 
—

 
 
—

 
 
—

 
16,803,327

Total
 
772,898

 
 
$
24.09

 
 
548,198

 

_________________________________
(1)  
In October 2017, our board of directors authorized the open market repurchase of up to $40.0 million of our common stock to be made during 2018. That authorization was reduced to $30.0 million in 2018 in connection with the recent amendment to our Credit Facility. Any shares repurchased will be pursuant to one or more 10b5-1 plans. The program will expire on the earlier of: (i) December 31, 2018; (ii) the repurchase by the Company of $30.0 million of common stock pursuant to the program; or (iii) the board of director’s termination of the program. We began repurchasing shares under this program in January 2018. Once repurchased, we promptly retire the shares.
(2)  
In connection with approval of our credit facility, our board of directors approved the purchase of up to $10.0 million of our common stock in each calendar year in connection with our equity compensation programs for employees and directors. The number of shares purchased includes shares surrendered to us to pay the exercise price and/or to satisfy tax withholding obligations in connection with “net, net” exercises of employee stock options and/or the vesting of restricted stock, restricted stock units or performance units issued to employees. For the quarter ended September 30, 2018 , 224,700 shares were surrendered in connection with restricted stock unit and performance unit transactions. The deemed price paid was the closing price of our common stock on the Nasdaq Global Select Market on the date that the restricted stock units or performance units vested. Once repurchased, we promptly retire the shares.

Item 4. Mine Safety Disclosures.
Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this quarterly report on Form 10-Q.

Item 6. Exhibits
The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed on the Index to Exhibits attached hereto.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AEGION CORPORATION
 
 
Date: November 2, 2018
/s/ David F. Morris
 
David F. Morris
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial Officer)

52


INDEX TO EXHIBITS
These exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
10.1
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
95
 
 
101.INS
XBRL Instance Document*
 
 
101.SCH
XBRL Taxonomy Extension Schema Document*
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*
*
In accordance with Rule 406T under Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed “furnished” and not “filed”.
(1) Management contract or compensatory plan, contract or arrangement.

53


Exhibit 10.1

AEGION CORPORATION
CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS CHANGE IN CONTROL SEVERANCE AGREEMENT is made, entered into, and is effective this 22nd day of October 2018 (hereinafter referred to as the “Effective Date”), by and between Aegion Corporation (the “Company”), a Delaware corporation, and Mark A. Menghini (the “Officer”).
WHEREAS, the Officer is employed by the Company (as defined in Article 1) and has and will develop considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and
WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Officer’s services , and the Officer is desirous of having such assurances; and
WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control (as defined in Article 1) of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Officer’s competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Officer to the detriment of the Company and its stockholders; and
WHEREAS, both the Company and the Officer are desirous that any proposal for a Change in Control will be executed by the Officer objectively and with reference only to the business interests of the Company and its stockholders; and
WHEREAS, the Officer will be in a better position to consider the Company’s best interests if the Officer is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
Article 1. Definitions

Wherever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:
(a)
“ Agreement ” means this Officer Change in Control Severance Agreement, as it may be amended from time to time.
(b)
“ Base Salary ” means, at any time, the then regular annual rate of pay which the Officer is receiving as annual salary, excluding amounts: (i) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred, or (ii) designated by the Company as payment toward reimbursement of expenses.
(c)
“ Beneficial Owner ” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(d)
“ Board ” means the Board of Directors of the Company.
(c)
" Cause ” shall be determined solely by the Board in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:
(i)
breaching any employment, confidentiality, noncompete, nonsolicitation or other agreement with the Company, any written Company policy relating to compliance with laws (during employment); or





(ii)
causing, inducing, requesting or advising, or attempting to cause, induce, request or advise, any employee, representative, consultant or other similar person to terminate his/her relationship, or breach any agreement, with the Company; or

(iii)
causing, inducing, requesting or advising, or attempting to cause, induce, request or advise, any customer, supplier or other Company business contact to withdraw, curtail or cancel its business with the Company; or

(iv)
the Officer’s willful and continued failure to substantially perform the Officer’s duties with the Company (other than any such failure resulting from the Officer’s Disability), after a written demand for substantial performance is delivered to the Officer that specifically identifies the manner in which the Board believes that the Officer has not substantially performed his duties, and the Officer has failed to remedy the situation within fifteen (15) business days of such written notice from the Company; or
 
(v)
the Officer’s conviction of a felony; or

(vi)
the Officer’s willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise. Under this standard, no act or failure to act on the Officer’s part shall be deemed “willful” unless done, or omitted to be done, by the Officer not in good faith and without reasonable belief that the action or omission was in the best interests of the Company.

(f)
“ Change in Control ” of the Company shall mean the occurrence of any one (1) or more of the following events:
(i)
the acquisition by one person, or more than one person acting as a group, in a transaction or series of related transactions, of ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 30% of the total fair market value or total voting power of the stock of the Company; and/or

(ii)
a majority of the members of the Company’s board of directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; and/or

(iii)
the consummation of a merger or consolidation of the Company other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; and/or

(iv)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is a consummated sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

For purposes hereof, “person” shall mean any person, entity or “group” within the meaning of Section 13(d)(3) of the Exchange Act, except that such term shall not include (i) the Company or any of its affiliates; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, or (v) a person or group as used in Rule 13d-1(b) under the Exchange Act.

(g)
“ Code ” means the Internal Revenue Code of 1986, as amended.




(h)
“ Committee ” means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.
(i)
“ Company ” means Aegion Corporation, a Delaware corporation (including any and all subsidiaries and affiliates), or any successor thereto as provided in Section 8.1 herein.
(j)
“ Disability ” or “ Disabled ” shall mean that the Officer is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company.
(k)
“ Effective Date ” means the date this Agreement is approved by the Committee, or such other date as the Committee shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement.
(l)
“ Effective Date of Termination ” means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder.
(m)
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
(n)
“ Good Reason ” means, without the Officer’s express written consent, the occurrence after a Change in Control of the Company of any one (1) or more of the following:
(i)
a material reduction or alteration in the nature or status of the Officer’s authorities, duties, or responsibilities from those in effect as of 90 calendar days prior to the Change in Control, other than an insubstantial and inadvertent act that is remedied by the Company or the acquiring company promptly after receipt of notice thereof given by the Officer;

(ii)
the Company’s or the acquiring company’s requiring the Officer to be based at a location in excess of 50 miles from the location of the Officer’s principal job location or office in effect as of 90 calendar days prior to the Change in Control , except for required travel on the Company’s business to an extent substantially consistent with the Officer’s then present business travel obligations;

(iii)
a reduction by the Company or the acquiring company of the Officer’s base salary in effect as of 90 calendar days prior to the Change in Control that is greater than the lesser of: (A) ten percent (10%) of such base salary; and (B) the average percentage reduction applicable to all other Officers of the Company;

(iv)
the failure of the Company or the acquiring company to continue in effect any of the Company’s short- and long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Officer participates taken as a whole unless such failure to continue the plan, policy, practice, or arrangement pertains to all plan participants generally; or the failure by the Company or the acquiring company to continue the Officer’s participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Officer’s participation relative to other participants, as existed 90 calendar days prior to the Change in Control;

(v)
the failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company’s obligations under this Agreement, as contemplated in Section 8.1 herein; and

(vi)
a material breach of this Agreement by the Company which is not remedied by the Company within thirty (30) business days of receipt of written notice of such breach delivered by the Officer to the Company.





The Officer must notify the Company within ninety (90) days of its first occurrence of the existence of the Good Reason condition, and the Company shall have thirty (30) days to remedy the conditions. Unless the Officer becomes Disabled, the Officer’s right to terminate employment for Good Reason shall not be affected by the Officer’s incapacity due to physical or mental illness.

(o)
“ Notice of Termination ” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Officer’s employment under the provision so indicated.
(p)
“ Person ” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d).
(q)
“ Potential Change in Control ” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(i)
the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

(ii)
the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

(iii)
any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company); or

(iv)
the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(r)
“ Qualifying Termination ” means the Officer’s separation from service (as defined in Section 409A of the Code and the applicable regulations) with the Company due to any of the events described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.
(s)
“ Severance Benefits ” means the payment of amounts and benefits upon the Officer’s separation from service (as defined in Section 409A of the Code and applicable regulations) as provided in Section 2.3 herein.
Article 2. Severance Benefits

2.1      Right to Severance Benefits . The Officer shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and, if within twenty-four (24) calendar months thereafter the Officer’s employment with the Company shall end for any reason specified in Section 2.2 herein as being a Qualifying Termination.
The Officer shall not be entitled to receive Severance Benefits if the Officer is terminated for Cause, or if the Officer’s employment with the Company ends due to death, Disability, or a voluntary termination of employment by the Officer for reasons other than Good Reason.
The Officer shall not be entitled to receive severance benefits under any other Company-related plans or programs that are duplicative of the Severance Benefits payable under this Agreement, if additional benefits are triggered under such other Company-related plans or programs.
2.2      Qualifying Termination . The separation from service (as defined in Section 409A of the Code and applicable regulations) of the Officer with the Company within twenty-four (24) calendar months after a Change in Control of the Company shall constitute a Qualifying Termination and shall trigger the payment of Severance Benefits to the Officer under this Agreement under the following circumstances:
(a)
The Company’s involuntary termination of the Officer’s employment without Cause; and




(b)
The Officer’s voluntary termination of the Officer’s employment for Good Reason.
For purposes of this Agreement, a Qualifying Termination shall not include a termination of employment by reason of death, Disability, or the Officer’s voluntary termination of employment for reasons other than Good Reason, or the Company’s involuntary termination for Cause.
2.3      Description of Severance Benefits . In the event the Officer becomes entitled to receive Severance Benefits upon a Qualifying Termination, as provided in Sections 2.1 and 2.2 herein, the Company shall pay to the Officer and provide the Officer with the following Severance Benefits, subject to the limitations set forth in Section 3.3 herein:
(a)
A lump-sum amount equal to the Officer’s accrued but unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Officer through and including the Effective Date of Termination.

(b)
A lump-sum amount: (i) if the Effective Date of Termination is between January 1 and June 30, equal to the Officer’s then current annual target bonus opportunity; or (ii) if the Effective Date of Termination is between July 1 and December 31, equal to the greater of (A) the Officer’s then current annual target bonus opportunity or (B) the actual annual bonus payable to the Officer based on the Company’s performance up to and including the Effective Date of Termination, as such target and actual amounts are established or computed under the annual bonus plan in which the Officer is then participating, for the bonus plan year in which the Officer’s Effective Date of Termination occurs, and multiplied by a fraction the numerator of which is the number of days in the year from January 1 through the Effective Date of Termination, and the denominator of which is three hundred sixty-five (365). This payment will be in lieu of any other payment to be made to the Officer under the annual bonus plan in which the Officer is then participating for the plan year in which the Effective Date of Termination occurs.

(c)
A lump-sum amount equal to 1.99 multiplied by the sum of the following: (i) the higher of: (A) the Officer’s annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Officer’s annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the higher of: (A) the Officer’s annual target bonus opportunity established under the annual bonus plan in which the Officer is then participating for the bonus plan year in which the Officer’s Effective Date of Termination occurs, or (B) the Officer’s annual target bonus opportunity established under the annual bonus plan in which the Officer is participating for the bonus plan year in which the Change in Control occurs.

(d)
Continuation for twenty-four (24) months of the Officer’s health, dental and vision insurance coverage. The benefit shall be provided by the Company to the Officer beginning immediately upon the Effective Date of Termination. Such benefit shall be provided to the Officer at the same coverage level as in effect immediately prior to the Change in Control and the Company (or the acquirer as the case may be) shall pay the amounts that the Company would have been required to pay for health, dental and vision benefits for Officer and Officer’s eligible family members had Officer remained an employee of the Company following the Effective Date of Termination (Officer shall be responsible for the portion of health, dental and vision premiums that would be paid by an employee of the Company receiving comparable benefits). Any COBRA health benefit continuation coverage provided to Officer shall run concurrently with the aforementioned twenty-four (24) month period.

The value of such health insurance coverage shall be treated as taxable income to Officer to the extent necessary to comply with Sections 105(h) and 409A of the Code. For purposes of 409A of the Code, any payments of continued health benefits that are made during the applicable COBRA continuation period (even if the Officer does not actually receive COBRA coverage for the entire applicable period), are exempt from the requirements of Code Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(v)(B). The right to continue coverage beyond the applicable COBRA continuation period is not subject to liquidation or exchange for another benefit. Notwithstanding the above, this health insurance benefit shall be discontinued prior to the end of the stated continuation period in the event the Officer receives a substantially similar benefit from a subsequent employer, as determined solely by the Committee in good faith. For purposes of enforcing this offset provision, the Officer shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and any corresponding benefit earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.






(e)
The Company agrees to pay on the Officer’s behalf up to $15,000 in Officer outplacement services to one or more firms chosen by Officer and acceptable to the Company, provided that such services are incurred no later the first anniversary of the Officer’s Effective Date of Termination. Such expenses shall be reimbursed by the Company as soon as practical after an expense report is completed and submitted to the Company for approval, provided such expense report must be received by the Company no later than the second anniversary of the Officer’s Effective Date of Termination.

2.4      Termination for Total and Permanent Disability . Following a Change in Control, if the Officer has a separation from service (as defined in Section 409A of the Code and the applicable regulations) with the Company due to Disability, the Officer’s benefits shall be determined in accordance with the Company’s retirement, insurance, and other applicable plans and programs relating to Disability then in effect.
2.5      Termination for Death . Following a Change in Control, if the Officer has a separation from service (as defined in Section 409A of the Code and the applicable regulations) with the Company due to the Officer’s death, the Officer’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance, and other applicable programs relating to an employee’s death then in effect.
2.6      Termination for Cause or by the Officer Other Than for Good Reason . Following a Change in Control, if the Officer has a separation from service (as defined in Section 409A of the Code and the applicable regulations) with the Company either due to: (i) termination by the Company for Cause; or (ii) voluntary termination by the Officer for reasons other than for Good Reason, the Company shall pay the Officer the Officer’s accrued but unpaid Base Salary at the rate then in effect, accrued vacation, and other items earned by and owed to the Officer through the Officer’s separation from service, plus all other amounts to which the Officer is entitled under any compensation plans of the Company at the time such payments are due, and the Company shall have no further obligations to the Officer under this Agreement.
2.7      Notice of Termination . Any termination of the Officer’s employment by the Company for Cause or by the Officer for Good Reason shall be communicated by Notice of Termination to the other party.
Article 3. Terms and Conditions for Payment of Severance Benefits; Alternative Payments in Event of Excise Tax

3.1      Form and Timing of Severance Benefits . The Severance Benefits described in Sections 2.3(a), 2.3(b), and 2.3(c) herein shall be paid in cash to the Officer in a single lump sum as soon as practicable following the Effective Date of Termination.
3.2      Internal Revenue Code Section 409A. This Agreement is intended to comply with the American Jobs Creation Act of 2004, Code Section 409A, and related guidance.
(a)
Notwithstanding anything to the contrary set forth in this Agreement, any Severance Benefits paid (i) within 2-½ months of the end of the Company’s taxable year containing the Officer’s separation from service with the Company, or (ii) within 2-½ months of the Officer’s taxable year containing the separation from service from employment by the Company shall be exempt from the requirements of Section 409A of the Code, and shall be paid in accordance with this Article 3. Severance Benefits subject to this Section 3.2(a) shall be treated and shall be deemed to be an entitlement to a separate payment within the meaning of Section 409A of the Code and the regulations thereunder.

(b)
To the extent Severance Benefits are not exempt from Section 409A under Section 3.2(a) above, any Severance Benefits paid in the first six (6) months following the Officer’s separation from service with the Company that are equal to or less than the lesser of the amounts described in Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and (2) shall be exempt from Section 409A and shall be paid in accordance with this Article 3. Severance Benefits subject to this Section 3.2(b) shall be treated and shall be deemed to be an entitlement to a separate payment within the meaning of Section 409A of the Code and the regulations thereunder.

(c)
To the extent Severance Benefits are not exempt from Section 409A under Sections 3.2(a) or (b) above, any Severance Benefits paid equal to or less than the applicable dollar amount under Section 402(g)(1)(B) of the Code for the year of separation from service with the Company shall be exempt from Section 409A in accordance with Treasury Regulation Section 1.409A-1(b)(9)(v)(D) and shall be paid in accordance with this Article 3. Severance Benefits subject to this Section 3.2(c) shall be treated and shall be deemed to be an entitlement to a separate payment within the meaning of Section 409A of the Code and the regulations thereunder.





(d)
To the extent Severance Benefits are not exempt from Section 409A pursuant to Sections 3.2(a), (b) or (c) above, and to the extent the Officer is a “specified employee” (as defined below), payments due to the Officer under Section 3 shall begin no sooner than six (6) months after the Officer’s separation from service with the Company (other than for death); provided, however, that any payments not made during the six (6) month period described in this Section 3.2(d) due to the six (6) month delay period required under Treasury Regulation Section 1.409A-3(i)(2) shall be made in a single lump sum as soon as administratively practicable after the expiration of such six (6) month period and the balance of all other payments required under this Agreement shall be made as otherwise scheduled in this Agreement. Notwithstanding anything herein to the contrary, and subject to Code Section 409A, to the extent the following rules should apply to the Officer in connection with a payment made hereunder, such payment shall not be made or commence as a result of the Officer’s Effective Date of Termination if the Officer is a key employee (as set forth below) before the date that is not less than six (6) months after the Officer’s Effective Date of Termination. For this purpose, a key employee includes a “specified employee” (as defined in Code Section 409A(a)(2)(B)) during the entire twelve (12) month period determined by the Company ending with the annual date upon which key employees are identified by the Company, and also includes any Officer identified by the Company in good faith with respect to any distribution as belonging to the group of identified key employees, to a maximum of 200 such key employees, regardless of whether such Officer is subsequently determined by the Company, any governmental agency, or a court not to be a key employee. The identification date for determining key employees shall be each December 31 (and the new key employee list shall be updated and effective each subsequent April 1).

(e)
For purposes of this Agreement, the term “specified employee” shall have the meaning set forth in Treasury Reg. Section 1.409A-1(i). The determination of whether the Officer is a “specified employee” shall be made by the Company in good faith applying the applicable Treasury regulations.

3.3      Best Net Determination in Event of Total Payments Exceeding Excise Tax Limits. In the event that the vesting of Severance Benefits along with all other payments and the value of any benefits received or to be received by the Officer (including the acceleration of vesting or exercisability of any equity- or cash-based long-term incentive awards) (the “Total Payments”) would result in all or a portion of such Total Payments being subject to the excise tax under Section 4999 of the Code (the “Excise Tax”), then the Officer’s Total Payments shall be either: (i) the full amount of such Total Payments, or (ii) such lesser amount that would result in no portion of the Total Payments being subject to excise tax under Section 4999 of the Code; whichever of the foregoing alternatives, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in the receipt by the Officer, on an after-tax basis, of the largest value of payments and benefits notwithstanding that all or some portion of the payments and benefits may be subject to the Excise Tax under Section 4999 of the Code. Solely to the extent that the Officer is placed in a better after-tax position as a result of the reduction of the Total Payments, such benefits shall be reduced or eliminated, as determined by the Company, in the following order: (i) any cash payments, (ii) any taxable benefits, (iii) any nontaxable benefits, and (iv) any vesting or accelerated delivery of equity awards in each case in reverse order beginning with the payments or benefits that are to be paid the farthest in time from the date that triggers the applicable Excise Tax.
All determinations required to be made under this Section 3.3 shall be made by PricewaterhouseCoopers LLP, or any other nationally recognized outside auditor immediately prior to the event triggering the payments that are subject to the Excise Tax (the “Accounting Firm”). The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and the Officer. All fees and expenses of the Accounting Firm in making the determinations required to be made under this Section 3.3 shall be borne solely by the Company. The Accounting Firm’s determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). For purposes of all calculations under Section 280G of the Code and the application of this Section 3.3, all determinations as to present value shall be made using 120 percent of the applicable federal rate (determined under Section 1274(d) of the Code) compounded semiannually, as in effect of the date of the Change in Control of the Company.
3.4      Withholding of Taxes . The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required.
3.5      Conditions to Payment of Severance Benefits . Within 45 days after the Officer’s Effective Date of Termination, to be eligible to receive (and continue to receive) and retain the payments and benefits described in Sections 2.3 (b), (c), (d) and (e), the Officer must comply with the terms of Article 4, and must execute and deliver to the Company (without subsequent revocation) a mutually acceptable agreement, in form and substance reasonably satisfactory to both the Officer and the Company, effectively releasing and giving up all claims the Officer may have against the Company and its subsidiaries,




stockholders, successors and affiliates (and each of their respective employees, officers, plans and agents) arising out of or based upon any facts or conduct occurring prior to that date with the exception of (i) all payment of Severance Benefits, vested stock, deferred compensation and other benefits provided under the terms of this Agreement, (ii) the Officer’s right to continued indemnification to the fullest extent provided under the Company By-laws by reason of any act or omission performed or omitted by the Officer during the Officer’s employment, and (iii) the Officer’s rights to enforce the terms of this Agreement and sue for its breach. Such agreement will also require the Officer to reaffirm and agree to comply with the terms of this Agreement and any other agreement signed by the Officer in favor of the Company or any of its subsidiaries or affiliates that is still in effect. To the extent that any severance benefits described in Section 2.3(b) or (c) are not exempt from Section 409A of the Code, payment of such benefit shall not be made until the 60th day following the Officer’s Effective Date of Termination.
Article 4. Noncompetition and Confidentiality

In the event of a Change in Control, the following shall apply:
4.1      Noncompetition . During the term of this Agreement and, if longer, for a period of twenty-four (24) months after the Effective Date of Termination, the Officer shall not: (i) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which the Officer knows (or reasonably should have known) to be directly competitive with any business of the Company as then being carried on, or (ii) serve as an employee, agent, partner, stockholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity which the Officer knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Officer may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Exchange Act).
4.2      Confidentiality . The Company has advised the Officer and the Officer acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently and the Officer shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Officer’s employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company to enter the public domain.
For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the Officer; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company is not Protected Information.
4.3      Nonsolicitation . During the term of this Agreement and, if longer, for a period of twenty-four (24) months after the Effective Date of Termination, the Officer shall not: (a) employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company; or (b) solicit customers of the Company for a venture or business of any kind that competes with, or is a competitor of, the Company.
4.4      Cooperation . The Officer agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to the Officer’s employment by the Company.
4.5     Nondisparagement . At all times, the Officer agrees not to disparage the Company, its directors, officers or other representatives or otherwise make comments harmful to any of the foregoing party’s reputation.
4.6      Judicial Interpretation. It is expressly understood and agreed that although the Officer and the Company consider the restrictions contained in this Article 4 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that any restriction contained in this Agreement is an unenforceable restriction against the Officer, the




provisions of this Agreement shall not be rendered void but shall be deemed amended to apply to the maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
4.7      Injunctive Relief and Additional Remedy. The covenants in this Article 4 are in addition to and not in lieu of covenants and agreements in any other agreement signed or delivered by Officer in connection with Officer’s employment with the Company, including, without limitation, any agreement signed or delivered in connection with any incentive plans, equity grants or other compensatory arrangements. The Officer acknowledges that the injury that would be suffered by the Company as a result of a breach of the provisions of this Agreement would be irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy. Consequently, the Company will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company will not be obligated to post bond or other security in seeking such relief. Without limiting the Company’s rights under this Article 4 or any other remedies of the Company, if the Officer breaches any of the provisions of this Article, the Company will have the right to recover any amounts paid to the Officer under Section 2.3(c) of this Agreement.
Article 5. The Company’s Payment Obligation

5.1      Payment Obligations Absolute . Except as set forth in Sections 2.3(d), 3.3, 4.7 and 9.6 or otherwise required by law, the Company’s obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Officer or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Officer or from whomsoever may be entitled thereto, for any reasons whatsoever.
The Officer shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 2.3(d) herein.
5.2      Contractual Rights to Benefits . This Agreement establishes and vests in the Officer a contractual right to the benefits to which the Officer is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
Article 6. Term of Agreement
The Company reserves the right, except as hereinafter provided, at any time and from time to time, to amend, modify, change or terminate this Agreement; provided, however, that upon the earlier to occur of (i) a Change in Control or (ii) a Potential Change in Control, no such amendment, modification, change or termination that adversely affects the rights of the Officer under this Agreement may be made without the written consent of the Officer for a period of not less than twenty-four (24) months beyond the month in which the triggering Change in Control or Potential Change in Control occurred.
Article 7. Dispute Resolution

Any dispute or controversy between the parties arising under or in connection with this Agreement shall be settled by arbitration.
The arbitration proceeding shall be conducted before a panel of three (3) arbitrators sitting in a location selected by the Officer within fifty (50) miles from the location of the Officer’s principal place of employment, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrators in any court having competent jurisdiction.
Each party shall be responsible for (i) its own expenses of such arbitration, including the reasonable fees and expenses of its legal representative(s), and necessary costs and disbursements incurred as a result of such dispute or legal proceeding and




(ii) one-half of the fees and expenses of the arbitrators and the fees associated with arbitration filing; provided, however, that in the event the Officer prevails with respect to at least a majority of the issues in dispute, the Company shall bear all such expenses (including the fees and expense of Officer’s legal representative(s)), costs, disbursements and prejudgment interest.
Article 8. Successors

8.1      Successors to the Company . The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization (including the formation of a holding company structure), consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the business or assets of the Company, including, without limitation, a successor resulting from a Change in Control, by agreement, in form and substance reasonably satisfactory to the Officer, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the “Company” for purposes of this Agreement.
8.2      Assignment by the Officer . This Agreement shall inure to the benefit of and be enforceable by the Officer’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Officer dies while any amount would still be payable to the Officer hereunder had the Officer continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Officer’s devisee, legatee, or other designee, or if there is no such designee, to the Officer’s beneficiary designated under the Company’s life insurance plan, or, if there is no such beneficiary, to the Officer’s estate.
Article 9. Miscellaneous

9.1      Employment Status . This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Officer and the Company or any of its subsidiaries. The Officer acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time the Officer’s compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge the Officer, prior to a Change in Control.
9.2      Entire Agreement . Except as provided in the first sentence of Section 4.7 and the first sentence of Section 9.5, this Agreement contains the entire understanding of the Company and the Officer with respect to the subject matter hereof. In addition, the payments provided for under this Agreement in the event of the Officer’s separation from service with the Company shall be in lieu of any severance benefits payable under any severance plan, program, or policy of the Company to which the Officer might otherwise be entitled.
9.3      Notices . All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Officer at the last address the Officer has filed in writing with the Company or, in the case of the Company, at its principal offices.
9.4      Execution in Counterparts . This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.
9.5      Conflicting Agreements . Except as may be provided in any award agreement between the Company and Officer relating to any equity- or cash-based long-term incentive award, this Agreement completely supersedes any and all prior change in control agreements, provisions or understandings, oral or written, entered into by and between the Company and the Officer, with respect to the subject matter hereof, and all amendments thereto, in their entirety. Further, the Officer hereby represents and warrants to the Company that the Officer’s entering into this Agreement, and the obligations and duties undertaken by the Officer hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which the Officer is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement.
Notwithstanding any other provisions of this Agreement to the contrary, if there is any inconsistency between the terms and provisions of this Agreement and the terms and provisions of Company-sponsored compensation and welfare plans and programs, this Agreement’s terms and provisions shall completely supersede and replace the conflicting terms of the Company-sponsored compensation and welfare plans and programs, where applicable.




9.6      Severability . Except as provided in Section 4.6, in the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.
Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Officer hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order.
9.7      Modification . No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Officer and by a member of the Board, as applicable, or by the respective parties’ legal representatives or successors.
9.8      Applicable Law . To the extent not preempted by the laws of the United States, the laws of Missouri shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws.

[Signature Page Follows]






IN WITNESS WHEREOF, the parties have executed this Agreement on this 22nd day of October 2018.

AEGION CORPORATION

/s/ Stephanie A. Cuskley
By: Stephanie A. Cuskley, Chair of Compensation Committee



/s/ Mark A. Menghini
By: Mark A. Menghini







Exhibit 31.1

CERTIFICATIONS

I, Charles R. Gordon, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Aegion Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 2, 2018
/s/ Charles R. Gordon

Charles R. Gordon
President and Chief Executive Officer
(Principal Executive Officer)




Exhibit 31.2

CERTIFICATIONS

I, David F. Morris, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Aegion Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 2, 2018
/s/ David F. Morris
David F. Morris
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)




Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report on Form 10-Q of Aegion Corporation (the “ Company ”) for the quarter ended September 30, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “ Form 10-Q ”), I, Charles R. Gordon, President and Chief Executive Officer of the Company, hereby certify as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 2, 2018

/s/ Charles R. Gordon

Charles R. Gordon
President and Chief Executive Officer
(Principal Executive Officer)




Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report on Form 10-Q of Aegion Corporation (the “ Company ”) for the quarter ended September 30, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “ Form 10-Q ”), I, David F. Morris, Executive Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 2, 2018

/s/ David F. Morris

David F. Morris
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)




Exhibit 95
Mine Safety and Health Disclosure
Mine Safety and Health Administration Contractor Identification Number VBW

The operation of mines located in the U.S. is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Under the Mine Act, an independent contractor who provides onsite services to a mine is deemed to be an “operator” of the mine. United Pipeline Systems, Inc., a wholly-owned subsidiary of the Company, performs services or construction at mines in the U.S. from time to time. As such, we are providing this report pursuant to section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K.
For the quarter ended September 30, 2018 , the Company did not perform services or construction at any mines in the U.S. and therefore was not an operator of a mine during the quarter.