Company Quick10K Filing
Quick10K
Aegion
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.91 32 $676
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-12-12 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2018-12-10 Other Events, Exhibits
8-K 2018-10-31 Regulation FD, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-26 Exit Costs, Impairments, Exhibits
8-K 2018-09-07 Exit Costs, Regulation FD, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-08-02 Regulation FD, Exhibits
8-K 2018-06-11 Regulation FD, Exhibits
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-04-27 Officers, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-04-16 Officers, Regulation FD, Exhibits
8-K 2018-03-13 Regulation FD, Exhibits
8-K 2018-02-28 Earnings, Exhibits
AWK American Water Works Company
SBS Companhia De Saneamento Basico Do Estado De Sao Paulo-Sabesp
WTR Aqua America
MTZ Mastec
DY Dycom Industries
PRIM Primoris Services
MYRG MYR Group
WAAS Aquaventure Holdings
GWRS Global Water Resources
GV Goldfield
AEGN 2018-09-30
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Mine Safety Disclosures.
Item 6. Exhibits
EX-10.1 exhibit101-10q9302018q3.htm
EX-31.1 exhibit311-10q09302018q3.htm
EX-31.2 exhibit312-10q09302018q3.htm
EX-32.1 exhibit321-10q09302018q3.htm
EX-32.2 exhibit322-10q09302018q3.htm
EX-95 exhibit95-10q09302018q3.htm

Aegion Earnings 2018-09-30

AEGN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a10q-09302018q3.htm 10-Q Document


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, there 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