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 presentation 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, 2014, 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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2015.

Acquisitions/Strategic Initiatives/Divestitures

Infrastructure Solutions Segment

On October 6, 2014, the Company’s board of directors approved a realignment and restructuring plan (the “2014 Restructuring”) which included the decision to exit Insituform’s contracting markets in France, Switzerland, India, Hong Kong, Malaysia and Singapore (see Note 3). This decision was made taking into account market size, bid table consistency, supportive governmental bid process, length of cash collection cycles and operating results in each country. The contracting operations in Switzerland and France were sold in December 2014 and February 2015, respectively, as described in more detail below. Activities with respect to Insituform’s contracting operations in Hong Kong, Malaysia and Singapore were concluded as of the end of the third quarter of 2015. Activities with respect to contracting operations in India are expected to be concluded in 2016. Certain administrative wind-down and compliance activities related to the 2014 Restructuring, including the management of outstanding accounts receivable and related reserves, will also continue into 2016 (see Note 3).

In December 2014, and in connection with the 2014 Restructuring, the Company sold its wholly-owned subsidiary, Ka-te Insituform AG (“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 Linings Ltd., the Company’s European manufacturing operation (“Insituform Linings”). 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, Video Injection - Insituform SAS (“VII”), the Company’s French cured-in-place pipe (“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 Linings. 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.

Corrosion Protection Segment

As part of the 2014 Restructuring, the Company made the decision to shutter two older and redundant fusion bonded epoxy coating plants and terminate certain land leases at the Louisiana facility of The Bayou Companies, LLC, a wholly-owned subsidiary of the Company (“Bayou”). The actions taken to restructure Bayou’s Louisiana operation are expected to allow Bayou to cost effectively meet market demand for both onshore and offshore projects by optimizing pipe coating activities and reducing fixed costs. The repositioning of Bayou’s Louisiana facility will also include additional capital investments in the remaining coating facilities over the next one to two years to augment Bayou’s competitive position.

Prior to March 2014, the Company owned a 49% interest in Bayou Coating, L.L.C (“Bayou Coating”). On March 31, 2014, the Company sold its forty-nine percent (49%) interest in Bayou Coating to Stupp Brothers Inc. (“Stupp”), the holder of a fifty-one percent (51%) interest in Bayou Coating. Stupp purchased the interest by exercising an existing option to acquire the Company’s interest in Bayou Coating at a purchase price equal to $9.1 million, which represented forty-nine percent (49%) of the book value of Bayou Coating as of December 31, 2013. Such book value was determined on the basis of Bayou Coating’s federal information tax return for 2013 and approximated the Company’s book value of its investment in Bayou Coating as of December 31, 2013. During the first quarter of 2014, the difference between the Company’s recorded gross equity in earnings of affiliated companies of approximately $1.2 million and the final equity distribution settlement of $0.7 million resulted in a loss of approximately $0.5 million that was recorded to other income (expense) in the Consolidated Statement of Operations for the nine months ended September 30, 2014.

Prior to March 2014, the Company held a fifty-nine (59%) equity interest in Delta Double Jointing, LLC (“Bayou Delta”) through which the Company offered pipe jointing and other services for the steel-coated pipe industry. The remaining forty-one percent (41%) was held by Bayou Coating. On March 31, 2014, the Company acquired this forty-one percent (41%) interest from Bayou Coating by exercising an existing option at a purchase price equal to $0.6 million.

In July 2015, the Company paid $0.7 million to the former shareholders of CRTS, Inc., a wholly-owned subsidiary of the Company (“CRTS”), related to contingent consideration achieved during the year ended December 31, 2013. This amount was fully accrued as of June 30, 2015 and December 31, 2014. Also, in June 2015, the Company finalized the settlement of escrow claims made pursuant to the CRTS purchase agreement. As a result of the settlement, the Company received proceeds of approximately $1.0 million in the third quarter of 2015, of which $0.2 million was recorded as an offset to operating expenses and the remaining $0.8 million was recorded to other income (expense) in the Consolidated Statement of Operations for the nine months ended September 30, 2015.

Energy Services Segment

On March 1, 2015, the Company acquired all of the equity interests of Schultz Mechanical Contractors, Inc. (“Schultz”), a California corporation, for a total purchase price of $7.9 million. Schultz primarily services customers in California and Arizona and is a provider of piping installations, concrete construction and excavation and trenching services. Schultz is part of the Company’s Energy Services reportable segment.

Purchase Price Accounting

The Company accounts for its acquisitions in accordance with FASB ASC 805, Business Combinations. The Company records definite-lived intangible assets at their determined fair value related to customer relationships, backlog, trade names, trademarks, patents and other acquired technologies. Acquisitions generally result in goodwill related to, among other things, synergies, acquired workforce, growth opportunities and market potential. The goodwill and definite-lived intangible assets associated with the Schultz acquisition are deductible for tax purposes. During the second quarter of 2015, the Company substantially completed its accounting for Schultz. As the Company completes its final accounting for this acquisition, future adjustments related to working capital could occur.

The Schultz acquisition made the following contribution to the Company’s revenues and profits (in thousands):



	Quarter Ended September 30, 2015		Nine Months Ended September 30, 2015
Revenues	$	3,718	$	8,205
Net income	57		31

The following unaudited pro forma summary presents combined information of the Company as if the Schultz acquisition had occurred at the beginning of the year preceding its acquisition (in thousands):



	Quarter Ended September 30, 2014			Nine Months Ended September 30, 2014
Revenues	$	352,148		$	985,543
Net income (loss) ⁽¹⁾	(15,930		)	1,198

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⁽¹⁾	Includes pro-forma adjustments for depreciation and amortization associated with acquired tangible and intangible assets, as if those assets were recorded at the beginning of the year preceding the acquisition date.

Total cash consideration recorded to acquire Schultz was $6.9 million, which was funded by the Company’s cash reserves. The cash consideration included the purchase price paid at closing of $7.1 million less working capital adjustments of $0.2 million. The total purchase price was $7.9 million, which represented the cash consideration of $6.9 million plus $1.0 million of deferred contingent consideration.

The following table summarizes the fair value of identified assets and liabilities of the Schultz acquisition at its acquisition date (in thousands):



Receivables and cost and estimated earnings in excess of billings	$	1,100
Prepaid expenses and other current assets	19
Property, plant and equipment	162
Identified intangible assets	3,060
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings	(461		)
Total identifiable net assets	$	3,880

Total consideration recorded	$	7,878
Less: total identifiable net assets	3,880
Goodwill at September 30, 2015	$	3,998