DESCRIPTION OF BUSINESS

Aegion Corporation is a global leader in infrastructure protection and maintenance, providing proprietary technologies and services: (i) to protect against the corrosion of industrial pipelines; (ii) to rehabilitate and strengthen water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures; and (iii) to utilize integrated professional services in engineering, procurement, construction, maintenance and turnaround services for a broad range of energy related industries. The Company’s business activities include manufacturing, distribution, maintenance, construction, installation, coating and insulation, cathodic protection, research and development and licensing. The Company’s acquisition of Brinderson, L.P. and related entities (“Brinderson”) on July 1, 2013 opens new markets for the Company through the maintenance, engineering and construction services for downstream and upstream facilities in the North American oil and gas market. The Company’s products and services are currently utilized and performed in more than 80 countries across six continents. The Company believes that the depth and breadth of its products and services platform make us a leading “one-stop” provider for the world’s infrastructure rehabilitation and protection needs.

The Company is primarily built on the premise that it is possible to use technology to extend the structural design life and maintain, if not improve, the performance of a pipe. The Company is proving that this expertise can be applied in a variety of markets to protect pipelines in oil, gas, mining, wastewater and water applications and extending this to the rehabilitation of commercial structures. Many types of infrastructure must be protected from the corrosive and abrasive materials that pass through or near them. The Company’s expertise in non-disruptive corrosion engineering and abrasion protection is now wide-ranging, opening new markets for growth. The Company has a long history of product development and intellectual property management. The Company manufactures most of the engineered solutions it creates as well as the specialized equipment required to install them. Finally, decades of experience give the Company an advantage in understanding municipal, energy, mining, industrial and commercial customers. Strong customer relationships and brand recognition allow the Company to support the expansion of existing and innovative technologies into new high growth end markets.

The Company originally incorporated in Delaware in 1980 to act as the exclusive United States licensee of the Insituform^® cured-in-place pipe (“CIPP”) process, which Insituform’s founder invented in 1971. The Insituform^® CIPP process served as the first trenchless technology for rehabilitating sewer pipelines and has enabled municipalities and private industry to avoid the extraordinary expense and extreme disruption that can result from conventional “dig-and-replace” methods. For the past 40 years, the Company has maintained its leadership position in the CIPP market from manufacturing, to technological innovations, and market share.

In order to strengthen the Company’s ability to service the emerging demands of the infrastructure protection market and to better position the Company for sustainable growth, the Company embarked on a diversification strategy in 2009 to expand its product and service portfolio and its geographical reach. Through a series of strategic initiatives and complementary acquisitions, the Company now possesses one of the broadest portfolios of cost-effective solutions for rehabilitating aging or deteriorating infrastructure and protecting new infrastructure from corrosion worldwide. Management believes the depth and breadth of its products and services within the Energy and Mining, Commercial and Structural and Water and Wastewater platforms make it a leading “one-stop” provider for the world’s infrastructure rehabilitation and protection needs.

On October 25, 2011, Insituform Technologies, LLC (formerly known as Insituform Technologies, Inc. (“Insituform”)) reorganized by creating a new holding company structure (the “Corporate Reorganization”). The new parent company, Aegion Corporation (“Aegion” or the “Company”), includes Insituform as a direct, wholly-owned subsidiary. As part of the Corporate Reorganization, Insituform’s outstanding shares of common stock (and associated attached preferred stock rights) were automatically converted, on a share for share basis, into identical shares of Aegion common stock (and associated attached preferred stock rights).

Upon effectiveness of the Corporate Reorganization, Aegion’s certificate of incorporation, bylaws, executive officers and board of directors were identical to Insituform’s in effect immediately prior to the Corporate Reorganization, and the rights, privileges and interests of Insituform’s former stockholders remained the same with respect to the new holding company. Additionally, as a result of the Corporate Reorganization, Aegion is deemed the successor registrant to Insituform under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shares of Aegion common stock are deemed registered under Section 12(g) of the Exchange Act.

Acquisitions/Strategic Initiatives/Divestitures

Energy and Mining Segment

On July 1, 2013, the Company acquired the equity interests of Brinderson, L.P., a California limited partnership, General Energy Services, a California corporation, and Brinderson Constructors, Inc., a California corporation (collectively, “Brinderson”). The transaction purchase price was $150.0 million, which resulted in a cash purchase price at closing was $147.6 million after preliminary working capital adjustments and an adjustment to account for cash held in the business at closing. The cash purchase price was funded by borrowings under the Company’s new $650.0 million senior secured credit facility as discussed in Note 5. Brinderson is a leading integrated service provider of maintenance, construction, engineering and turnaround activities for the upstream and downstream oil and gas markets. Primarily focused on serving large oil and gas customers in California, Brinderson’s competitive advantages include its industry-leading safety record, a strong reputation for reliability and quality and comprehensive solutions needed for upstream oil field and downstream major refinery maintenance, repairs and retrofits. These core competencies position Brinderson to meet the growing demand for non-discretionary operating and maintenance expenditures.

During the second quarter of 2013, the Company’s Board of Directors approved a plan of liquidation for its Bayou Welding Works (“BWW”) business in an effort to improve the Company’s overall financial performance and align the operations with its long-term strategic initiatives. BWW provided specialty welding and fabrication services from its facility in New Iberia, Louisiana. Financial results for BWW were part of the Company’s Energy and Mining segment for financial reporting purposes. BWW ceased bidding new work and substantially completed all ongoing projects during the second quarter of 2013. As a result of the closure of BWW, Aegion recognized a pre-tax, non-cash charge of approximately $3.9 million ($2.4 million after-tax, or $0.06 per diluted share) to reflect the impairment of goodwill and intangible assets. The Company also recognized additional non-cash impairment charges for equipment and other assets of approximately $1.1 million on a pre-tax basis ($0.7 million on an after-tax basis, or $0.02 per diluted share), which also was recorded in the second quarter of 2013. The Company expects the cash liquidation value to approximate net asset value. Net asset value is determined using recorded amounts for assets and liabilities, which are based on Level 3 inputs as defined in Note 10. The Company also incurred cash charges to exit the business of approximately $0.1 million on a pre-tax and post-tax basis, which included property, equipment and vehicle lease termination and buyout costs, employee termination benefits and retention incentives, among other ancillary shut-down expenses. Final liquidation of BWW’s assets is expected to occur by year-end 2014.

In March 2012, the Company organized United Special Technical Services LLC (“USTS”), a joint venture located in the Sultanate of Oman between United Pipeline Systems and Special Technical Services LLC, an Omani company (“STS”), for the purpose of executing pipeline, piping and flow line high-density polyethylene lining services throughout the Middle East and Northern Africa. The Company holds a fifty-one percent (51%) equity interest in USTS and STS holds the remaining forty-nine percent (49%) equity interest. USTS initiated operations in the second quarter of 2012.

In June 2011, the Company acquired all of the outstanding stock of CRTS, Inc. (“CRTS”). The purchase price at closing included a provision whereby CRTS shareholders would be able to earn up to an additional $15.0 million upon the achievement of certain performance targets over the three-year period ended December 31, 2013 (the “CRTS earnout”). During 2013, the Company paid $2.1 million to the sellers relating to a portion of the performance target being met for 2012. During 2013 and 2012, the Company also reversed $3.9 million and $8.2 million, respectively, related to the CRTS earnout, due to operating results being below the target amounts in the purchase agreement. As of December 31, 2013, the Company calculated the fair value of the contingent consideration arrangement to be $0.7 million, which is based on Level 3 inputs as defined in Note 10.

On February 20, 2014, the Company received formal notice from its equity partner in Bayou Coating, L.L.C. (“Bayou Coating”), Stupp Brothers Inc. (“Stupp”), that Stupp is exercising its option to acquire the Company’s equity interests in Bayou Coating at forty-nine percent (49%) of the book value of Bayou Coating, as of December 31, 2013, with such book value to be determined on the basis of Bayou Coating’s federal information tax return for 2013. The Company currently expects this transaction to close on March 31, 2014. The Company had previously received an indication from Stupp of its intent to exercise such option and, in the second quarter of 2013 in connection with such indication, the Company recognized a non-cash charge of $2.7 million ($1.8 million post-tax) related to the goodwill allocated to the joint venture as part of the purchase price accounting associated with the 2009 acquisition of The Bayou Companies, LLC (“Bayou”). The non-cash charge represents the Company’s current estimate of the difference between the carrying value of the investment on the balance sheet and the amount the Company will receive in connection with the exercise. The Company does not expect any additional material impacts to its consolidated balance sheet related to the consummation of Stupp’s exercise of this option.

Through Bayou, the Company holds a fifty-nine percent (59%) equity interest in Delta Double Jointing, LLC (“Bayou Delta”) through which the Company offers pipe jointing and other services for the steel-coated pipe industry. The remaining forty-one percent (41%) is currently held by Bayou Coating. As stated above, the Company currently holds through Bayou a forty-nine percent (49%) equity interest in Bayou Coating, but Stupp has exercised its option to acquire such forty-nine percent (49%) equity interest. The Company currently holds an option to acquire the forty-one percent (41%) interest in Bayou Delta and, on February 20, 2014, provided notice to Stupp regarding the Company's intent to exercise such option. The Company currently anticipates closing on the acquisition of such forty-one percent (41%) interest in Bayou Delta on March 31, 2014.

International Water and Wastewater Segment

In June 2013, the Company sold its fifty percent (50%) interest in Insituform Rohrsanierungstechniken GmbH (“Insituform-Germany”) to Per Aarsleff A/S, a Danish company (“Aarsleff”). Insituform-Germany, a company that was jointly owned by Aegion and Aarsleff, is active in the business of no-dig pipe rehabilitation in Germany, Slovakia and Hungary. The sale price was €14 million, approximately $18.3 million. The sale resulted in a gain on the sale of approximately $11.3 million (net of $0.5 million of transaction expenses) recorded in other income (expense) on the consolidated statement of operations. In connection with the sale, Insituform-Germany also entered into a tube supply agreement with the Company whereby Insituform-Germany will purchase on an annual basis at least GBP 2.3 million, approximately $3.6 million, of felt cured-in-place pipe (“CIPP”) liners during the two-year period from June 26, 2013 to June 30, 2015.

Commercial and Structural Segment

In April 2012, the Company purchased Fyfe Group LLC’s Asian operations (“Fyfe Asia”), which included all of the equity interests of Fyfe Asia Pte. Ltd, a Singaporean entity (and its interest in two joint ventures located in Borneo and Indonesia), Fyfe (Hong Kong) Limited, Fibrwrap Construction (M) Sdn Bhd, a Malaysian entity, Fyfe Japan Co. Ltd., a Japanese entity, and Fibrwrap Construction Pte. Ltd and Technologies & Art Pte. Ltd., Singaporean entities. Customers in India and China are served through a product supply and license arrangement. Fyfe Asia provides Fibrwrap^® installation services throughout Asia, as well as provides product and engineering support to installers and applicators of fiber reinforced polymer systems in Asia. The cash purchase price at closing was $40.7 million. The purchase price was funded out of the Company’s cash balances and by borrowing $18.0 million against the Company’s line of credit.

In January 2012, the Company purchased Fyfe Group LLC’s Latin American operations (“Fyfe LA”), which included all of the equity interests of Fyfe Latin America S.A., a Panamanian entity (and its interest in various joint ventures located in Peru, Costa Rica, Chile and Colombia), Fyfe – Latin America S.A. de C.V., an El Salvadorian entity, and Fibrwrap Construction Latin America S.A., a Panamanian entity. Fyfe LA provides Fibrwrap^® installation services throughout Latin America, as well as product and engineering support to installers and applicators of fiber reinforced polymer systems in Latin America. The cash purchase price at closing was $2.3 million and funded out of the Company’s cash balances. During the first quarter of 2012, the Company paid the sellers an additional $1.1 million based on a preliminary working capital adjustment. An annual payout can be earned based on the achievement of certain performance targets in each year over the three-year period ending December 31, 2014. No annual payout has been earned to date as the performance targets have not been met. As of December 31, 2013, the Company calculated the fair value of the contingent consideration arrangement to be zero, which is based on Level 3 inputs as defined in Note 10.

In August 2011, the Company purchased the North American business of Fyfe Group, LLC (“Fyfe NA”) for a purchase price at closing of $115.8 million (subject to working capital adjustments calculated from an agreed upon target), which was funded by borrowings under the Company’s credit facility. Fyfe NA, based in San Diego, California, is a pioneer and industry leader in the development, manufacture and installation of fiber reinforced polymer (FRP) systems for the structural repair, strengthening and restoration of pipelines (water, wastewater, oil and gas), buildings (commercial, federal, municipal, residential and parking structures), bridges and tunnels and waterfront structures. Fyfe NA has a comprehensive portfolio of patented and other proprietary technologies and products, including its Tyfo^® Fibrwrap^® System, the first fiber solution on the market that complies with 2009 International Building Code requirements. Fyfe NA’s product and service offering also includes pipeline rehabilitation, concrete repair, epoxy injection, corrosion mitigation and specialty coatings services. This purchase resulted in a new reportable segment for the Company, the Commercial and Structural segment.

Purchase Price Accounting

The Company accounts for its acquisitions in accordance with FASB ASC 805, Business Combinations. The Company records finite-lived intangible assets at their determined fair value related to customer relationships, backlog, trade names and trademarks and patents and other acquired technologies. The acquisitions generally result in goodwill related to, among other things, growth opportunities and synergies. The goodwill associated with the Brinderson acquisition is deductible for tax purposes. The Company completed its accounting for Fyfe LA and Fyfe Asia during the quarters ended December 31, 2012 and March 31, 2013, respectively, subject to final working capital adjustments and settlement of escrow accounts. At December 31, 2013, the Company substantially completed its accounting for Brinderson with the exception of final working capital adjustments. As the Company completes its final accounting for this acquisition, there might be changes, none of which are expected to be material to the financial statements.

The Fyfe LA, Fyfe Asia and Brinderson acquisitions made the following contributions to the Company’s revenues and profits during the years ended December 31, 2013 and 2012 (in thousands):



	2013				2012
	Brinderson		Fyfe Asia/ Fyfe LA		Brinderson		Fyfe Asia/ Fyfe LA
Revenues	$	108,233	$	16,986	$	—	$	12,894
Net income ⁽¹⁾	4,838		1,091		—		781

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⁽¹⁾	Net income includes an allocation of corporate expenses that is not necessarily an indication of the entity’s operations on a stand alone basis.

The following unaudited pro forma summary presents combined information of the Company as if the Fyfe LA, Fyfe Asia and Brinderson acquisitions had occurred at the beginning of the year preceding their acquisition (in thousands):



	Years Ended December 31,
	2013		2012
Revenues	$	1,201,521	$	1,239,825
Net income ⁽¹⁾	49,410		65,995

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⁽¹⁾	Includes pro-forma adjustments for purchase price depreciation and amortization as if those intangibles were recorded as of January 1 of the year preceding the respective acquisition date.

Total cash consideration recorded to acquire Fyfe Asia was $40.1 million. This amount included purchase price at closing of $40.7 million less a working capital adjustment of $0.6 million. The transaction purchase price to acquire Brinderson was $150.0 million, which resulted in a cash purchase price at closing of $147.6 million after preliminary working capital adjustments and an adjustment to account for cash held in the business at closing.

The following table summarizes the fair value of identified assets and liabilities of the Brinderson and Fyfe Asia acquisitions at their respective acquisition dates (in thousands):



	Brinderson			Fyfe Asia
Cash	$	3,842		$	1,303
Receivables and cost and estimated earnings in excess of billings	28,353			9,022
Prepaid expenses and other current assets	655			1,262
Property, plant and equipment	6,848			938
Identified intangible assets	60,210			14,130
Other assets	1,071			—
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings	(16,122		)	(4,109		)
Deferred tax liabilities	—			(2,410		)
Total identifiable net assets	$	84,857		$	20,136

Total consideration	$	147,605		$	40,144
Less: total identifiable net assets	84,857			20,136
Goodwill at December 31, 2013	$	62,748		$	20,008

The following adjustments were made during the first quarter of 2013 relative to the acquisition of Fyfe Asia as the Company finalized its purchase price accounting, subject to final working capital adjustments and settlement of escrow accounts (in thousands):



Total identifiable net assets at December 31, 2012	$	20,342
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings	206
Total identifiable net assets at December 31, 2013	$	20,136

Goodwill at December 31, 2012	$	19,802
Increase in goodwill related to acquisition	206
Goodwill at December 31, 2013	$	20,008

The following adjustments were made during the fourth quarter of 2013 relative to the acquisition of Brinderson as the Company substantially completed its purchase price accounting (in thousands):



Total identifiable net assets at July 1, 2013	$	84,907
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings	50
Total identifiable net assets at December 31, 2013	$	84,857

Goodwill at July 1, 2013	$	62,698
Increase in goodwill related to acquisition	50
Goodwill at December 31, 2013	$	62,748