RESTRUCTURING

On October 6, 2014, the Company’s board of directors approved the 2014 Restructuring to improve gross margins and profitability over the long term by exiting low-return businesses and reducing the size and cost of the Company’s overhead structure.

The 2014 Restructuring is expected to reduce future annual operating costs by approximately $11 million, with approximately $9 million in savings from Infrastructure Solutions and $2 million in savings from Corrosion Protection. The Company expected to achieve these future cost savings by (i) exiting certain unprofitable international locations for the Company’s Insituform business and consolidating the Company’s worldwide Fyfe business with the Company’s global Insituform business, all of which is in the Infrastructure Solutions segment; and (ii) eliminating certain idle facilities in the Company’s Bayou Louisiana operations, which is in the Company’s Corrosion Protection segment.

As of September 30, 2015, significant progress had been made against all of the aforementioned objectives. Headcount reductions to date total 86, of which 55 occurred in the first nine months of 2015. The Company expects minimal additional headcount reductions to occur throughout the remainder of 2015 as the Company substantially completes its 2014 Restructuring.

Since inception, the 2014 Restructuring has generated annual cost savings of approximately $10.8 million, which was in-line with the Company’s initial estimate, and consisted of approximately $8.4 million and $2.4 million of recognized savings within the Infrastructure Solutions and Corrosion Protection segments, respectively.

In December 2014, and in connection with the 2014 Restructuring, the Company sold its wholly-owned subsidiary, Ka-te, the Company’s Swiss contracting operation, to Marco Daetwyler Gruppe AG, a Swiss company. In connection with the sale, the Company entered into a five-year tube supply agreement whereby Ka-te will purchase liners from Insituform Lining. Ka-te will also be entitled to continue to use its trade name based on a trade mark license granted for the same five-year time period. The sale resulted in a loss of approximately $0.5 million that was recorded to other income (expense) in the Consolidated Statement of Operations during the fourth quarter of 2014.

In February 2015, and in connection with the 2014 Restructuring, the Company sold its wholly-owned subsidiary, VII, the Company’s French CIPP contracting operation, to certain employees of VII. In connection with the sale, the Company entered into a five-year exclusive tube supply agreement whereby VII will purchase liners from Insituform Lining. VII will also be entitled to continue to use its trade name based on a trade mark license granted for the same five-year time period. The sale resulted in a loss of approximately $2.9 million that was recorded to other income (expense) in the Consolidated Statement of Operations during the first quarter of 2015.

During the quarters and nine-month periods ended September 30, 2015 and 2014, the Company recorded pre-tax expense related to the 2014 Restructuring as follows (in thousands):



	Quarters Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Severance and benefit related costs	$	172	$	—	$	866	$	—
Lease termination costs	—		—		168		—
Allowances for doubtful accounts	339		11,810		1,630		11,810
Inventory obsolescence	—		3,081		—		3,081
Fixed asset impairment	—		11,871		—		11,871
Definite-lived intangible asset impairment	—		10,896		—		10,896
Currency translation	44		—		864		—
Other restructuring costs ⁽¹⁾	943		2,295		7,202		2,295
Total pre-tax restructuring charges ⁽²⁾	$	1,498	$	39,953	$	10,730	$	39,953

__________________________


⁽¹⁾	Includes charges related to the the write-off of certain other assets, including the loss on the sale of the CIPP contracting operation in France in February 2015, professional fees and certain other restructuring charges.


⁽²⁾	All charges for the quarter and nine-month period ended September 30, 2015 relate to the Infrastructure Solutions reportable segment. For the quarter and nine-month period ended September 30, 2014, $22.2 million related to the Corrosion Protection reportable segment and $17.8 million related to the Infrastructure Solutions reportable segment.

Restructuring costs related to severance, other termination benefit costs and early lease termination costs for the quarter and nine-month period ended September 30, 2015 were $0.2 million and $1.0 million, respectively, and are reported on a separate line in the Consolidated Statements of Operations in accordance with FASB ASC 420, Exit or Disposal Cost Obligations.

The following tables summarize all charges related to the 2014 Restructuring recognized in the quarters and nine-month periods ended September 30, 2015 and 2014 as presented in their affected line in the Consolidated Statements of Operations (in thousands):



	Quarter Ended September 30, 2015									Nine Months Ended September 30, 2015
	Other Non-Cash Restructuring Charges			Cash Restructuring Charges (Reversals)⁽¹⁾			Total			Other Non-Cash Restructuring Charges (Reversals)		Cash Restructuring Charges (Reversals)⁽¹⁾			Total
Cost of revenues	$	1,678		$	(17	)	$	1,661		$	1,546	$	1,097		$	2,643
Operating expenses	(829		)	386			(443		)	441		3,748			4,189
Restructuring charges	—			172			172			—		1,034			1,034
Other expense	66			42			108			3,004		(140		)	2,864
Total pre-tax restructuring charges ⁽²⁾	$	915		$	583		$	1,498		$	4,991	$	5,739		$	10,730

__________________________


⁽¹⁾	Cash charges consist of charges incurred during the period that will be settled in cash, either during the current period or future periods.


⁽²⁾	All charges for the quarter and nine-month period ended September 30, 2015 relate to the Infrastructure Solutions reportable segment.



	Quarter Ended September 30, 2014						Nine Months Ended September 30, 2014
	Other Non-Cash Restructuring Charges		Cash Restructuring Charges (Reversals)		Total		Other Non-Cash Restructuring Charges (Reversals)		Cash Restructuring Charges (Reversals)		Total
Cost of revenues ⁽¹⁾	$	14,940	$	—	$	14,940	$	14,940	$	—	$	14,940
Operating expenses ⁽²⁾	14,117		—		14,117		14,117		—		14,117
Definite-lived intangible asset impairment ⁽³⁾	10,896		—		10,896		10,896		—		10,896
Total pre-tax restructuring charges	$	39,953	$	—	$	39,953	$	39,953	$	—	$	39,953

__________________________


⁽¹⁾	Includes charges of $11.3 million related to the Corrosion Protection reportable segment and $3.6 million related to the Infrastructure Solutions reportable segment for the quarter and nine-month period ended September 30, 2014.


⁽²⁾	All charges for the quarter and nine-month period ended September 30, 2014 relate to the Infrastructure Solutions reportable segment.


⁽³⁾	All charges for the quarter and nine-month period ended September 30, 2014 relate to the Corrosion Protection reportable segment.

Total pre-tax restructuring charges to date were $60.2 million ($45.0 million post-tax) and consisted of non-cash charges totaling $48.8 million and cash charges totaling $11.4 million. The non-cash charges of $48.8 million included $22.2 million related to the impairment of certain long-lived assets and definite-lived intangible assets for Bayou’s coatings operation in Louisiana, which is reported in the Corrosion Protection reportable segment, and $26.6 million related to inventory obsolescence, impairment of definite-lived intangible assets, allowances for doubtful accounts receivable, currency translation adjustments, write-off of certain other current assets and long-lived assets as well as legal accruals related to work performed by our European and Asia-Pacific operations, which are reported in the Infrastructure Solutions reportable segment. The cash charges of $11.4 million included employee severance, retention, extension of benefits, employment assistance programs, early lease termination costs and other costs associated with the restructuring of Insituform’s European and Asia-Pacific operations and Fyfe’s worldwide business.

Estimated remaining cash costs to be incurred in 2015 for the 2014 Restructuring are approximately $0.5 million related to severance and benefits costs and other restructuring costs. The Company also expects to incur additional non-cash charges throughout the remainder of 2015, primarily related to potential reversals of cumulative currency translation adjustments, as the Company concludes its 2014 Restructuring and exits these businesses.

The following table summarizes the 2014 Restructuring activity during the first nine months of 2015 (in thousands):



								Utilized
	Reserves at December 31, 2014		Charge to Income		Foreign Currency Translation			Cash⁽¹⁾		Non-Cash		Reserves at September 30, 2015
Severance and benefit related costs	$	466	$	866	$	(7	)	$	1,205	$	—	$	120
Lease termination expenses	—		168		(2		)	166		—		—
Allowances for doubtful accounts	11,464		1,630		(321		)	—		3,863		8,910
Currency translation	—		864		—			—		864		—
Other restructuring costs	2,496		7,202		(67		)	4,045		3,968		1,618
Total pre-tax restructuring charges	$	14,426	$	10,730	$	(397	)	$	5,416	$	8,695	$	10,648

__________________________


⁽¹⁾	Refers to cash utilized to settle charges, either those reserved at December 31, 2014 or charged to income during the first nine months of 2015.