DESCRIPTION OF BUSINESS

Aegion Corporation combines innovative technologies with market leading expertise to maintain, rehabilitate and strengthen pipelines and other infrastructure around the world. Since 1971, the Company has played a pioneering role in finding transformational solutions to rehabilitate aging infrastructure, primarily pipelines in the wastewater, water, energy, mining and refining industries. The Company also maintains the efficient operation of refineries and other industrial facilities and provide innovative solutions for the strengthening of buildings, bridges and other structures. Aegion is committed to Stronger. Safer. Infrastructure^®. The Company’s products and services are currently utilized and performed in over 80 countries across six continents. The Company believes that the depth and breadth of its products and services platform make Aegion 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 infrastructure, mostly 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 and maintenance of commercial structures and the provision of professional services in energy-related industries. 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’s predecessor was 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 more than 45 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 key acquisitions, the Company now possesses a broad portfolio of cost-effective solutions for rehabilitating and maintaining aging or deteriorating infrastructure, protecting new infrastructure from corrosion worldwide and providing integrated professional services in engineering, procurement, construction, maintenance, and turnaround services for oil companies, primarily in the downstream market.

Recognizing that the breadth of offerings expanded beyond the Company’s flagship Insituform^®brand, which constituted less than half of the Company’s revenues in 2011, the Company reorganized Insituform Technologies, Inc. (“Insituform”), the parent company at the time, into a new holding company structure in October 2011. Aegion became the new parent company and Insituform became a wholly-owned subsidiary of Aegion. Aegion reflects the Company’s mission of extending its leadership capabilities to furnish products and services to provide: (i) long-term protection for water and wastewater pipes, oil and gas pipelines and infrastructure as well as commercial and governmental structures and transportation infrastructure; and (ii) integrated professional services to energy companies.

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”) 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 (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. During 2017, the Company also completed a detailed assessment of Infrastructure Solutions’ CIPP businesses in Australia and Denmark, which resulted in additional restructuring actions in both countries. See Note 3.

2016 Restructuring

On January 4, 2016, the Company’s board of directors approved a restructuring plan (the “2016 Restructuring”) to reduce the Company’s exposure to the upstream oil markets and to reduce consolidated expenses. The 2016 Restructuring repositioned Energy Services’ upstream operations in California, reduced Corrosion Protection’s upstream exposure by divesting its interest in a Canadian pipe coating joint venture, right-sized Corrosion Protection to compete more effectively and reduced corporate and other operating costs. The Company completed all of the aforementioned objectives related to the 2016 Restructuring. See Note 3.

Infrastructure Solutions Segment (“Infrastructure Solutions”)

On March 1, 2017, the Company acquired Environmental Techniques Limited and its parent holding company, Killeen Trading Limited (collectively “Environmental Techniques”), for a purchase price of £6.5 million, approximately $8.0 million, which was funded from the Company’s international cash balances. The purchase price is subject to post-closing working capital adjustments and included £1.0 million, approximately $1.2 million, held in escrow as security for any post-closing purchase price adjustments and post-closing indemnification obligations of Environmental Techniques’ previous owners. Environmental Techniques provides trenchless drainage inspection, cleaning and rehabilitation services throughout the United Kingdom and the Republic of Ireland.

On July 1, 2016, the Company acquired Concrete Solutions Limited (“CSL”) and Building Chemical Supplies Limited (“BCS”), two New Zealand companies (collectively, “Concrete Solutions”), for a purchase price paid at closing of NZD 7.5 million, approximately $5.5 million, which was funded from the Company’s cash balances. The sellers have the ability to earn up to an additional NZD 2.0 million, approximately $1.4 million, of proceeds based on reaching certain future performance targets. CSL provides structural strengthening, concrete repair and bridge jointing solutions primarily through application of FRP and injection resins and had served as a Tyfo^® system certified applicator in New Zealand since the late 1990’s. BCS imports and distributes materials, including fiber reinforced polymer, injection resins, repair mortars and protective coatings.

On June 2, 2016, the Company acquired the cured-in-place pipe (“CIPP”) contracting operations of Leif M. Jensen A/S (“LMJ”), a Danish company and the Insituform licensee in Denmark since 2011. The purchase price was €2.9 million, approximately $3.2 million, and was funded from the Company’s cash balances.

On May 13, 2016, the Company acquired the operations and territories of Fyfe Europe S.A. and related companies (“Fyfe Europe”) for a purchase price of $3.0 million. The transaction was funded from the Company’s cash balances. Fyfe Europe held rights to provide Fyfe^® product engineering and support to installers and applicators of FRP systems in 72 countries throughout Europe, the Middle East and North Africa. The acquisition of these territories now provides the Company with worldwide rights to market, manufacture and install the patented Tyfo^®technology.

On February 18, 2016, the Company acquired Underground Solutions, Inc. and its subsidiary, Underground Solutions Technologies Group, Inc. (collectively, “Underground Solutions”), for an initial purchase price of $85.0 million plus an additional $5.0 million for the value of the estimated tax benefits associated with Underground Solutions’ net operating loss carry forwards. The purchase price included $6.3 million held in escrow as security for the post-closing purchase price adjustments and post-closing indemnification obligations of Underground Solutions’ previous owners. The transaction was funded partially from the Company’s cash balances and partially from borrowings under the Company’s revolving credit facility. To supplement the domestic cash balances, the Company repatriated approximately $29.7 million from foreign subsidiaries to assist in funding the transaction, incurring approximately $3.2 million in additional taxes, an accrual for which was included in the Company’s tax provision amounts for 2015. Underground Solutions provides infrastructure technologies for water, sewer and conduit applications.

In February 2015, 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 Limited. 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.

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, Hong Kong, Malaysia and Singapore (see Note 3). The Company completed all of the aforementioned objectives related to the 2014 Restructuring. See Note 3.

Corrosion Protection Segment (“Corrosion Protection”)

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 Eastern and Southern Africa. Aegion International owns sixty percent (60%) of the joint venture and Robor owns the remaining forty percent (40%).

On July 28, 2017, the Company’s board of directors approved a plan to divest Bayou. Accordingly, the Company has classified Bayou’s assets and liabilities as held for sale on the Consolidated Balance Sheet at December 31, 2017. See Note 5.

On February 1, 2016, the Company sold its fifty-one percent (51%) interest in its Canadian pipe-coating joint venture, Bayou Perma-Pipe Canada, Ltd. (“BPPC”), to its joint venture partner, Perma-Pipe, Inc. The sale price was $9.6 million, which consisted of a $7.6 million payment at closing and a $2.0 million promissory note, which was paid in full on July 28, 2016. BPPC served as the Company’s pipe coating and insulation operation in Canada. As a result of the sale, the Company recognized a pre-tax, non-cash charge of approximately $0.6 million at December 31, 2015 to reflect the expected loss on the sale of the business. This loss was derived primarily from the release of cumulative currency translation adjustments and was recorded to “Other income (expense)” in the Consolidated Statement of Operations.

In July 2015, the Company paid $0.7 million to the sellers of CRTS, Inc. (“CRTS”) related to contingent consideration achieved during the year ended December 31, 2013. 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 July 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.

Energy Services Segment (“Energy Services”)

On March 1, 2015, the Company acquired Schultz Mechanical Contractors, Inc. (“Schultz”), a California corporation, for a total purchase price of $7.7 million. Schultz primarily services customers in California and Arizona and is a provider of piping installations, concrete construction and excavation and trenching services to the upstream and downstream oil and gas markets.

Purchase Price Accounting

During 2017, the Company substantially completed its accounting for Environmental Techniques and finalized its accounting for Underground Solutions, Fyfe Europe, LMJ and Concrete Solutions. There were no significant adjustments to the purchase price accounting for Underground Solutions, Fyfe Europe, LMJ or Concrete Solutions during 2017. As the Company completes its final accounting for the Environmental Techniques acquisition, future adjustments related to working capital, deferred income taxes, definite-lived intangible assets and goodwill could occur. The goodwill and definite-lived intangible assets associated with the Fyfe Europe, LMJ and Concrete Solutions acquisitions are deductible for tax purposes; whereas, the goodwill and definite-lived intangible assets associated with the Environmental Techniques and Underground Solutions acquisitions are not deductible for tax purposes.

Schultz, Underground Solutions, Fyfe Europe, LMJ, Concrete Solutions and Environmental Techniques made the following contributions to the Company’s revenues and profits (in thousands):



	Year Ended December 31,
	2017					2016					2015
	Revenues		Net Loss			Revenues		Net Income (Loss)			Revenues		Net Loss
Schultz ⁽¹⁾	$	71,252	$	(891	)	$	24,702	$	(1,068	)	$	13,771	$	(1,470	)
Underground Solutions ⁽²⁾	32,063		(3,778		)	29,425		(2,694		)	N/A		N/A
Fyfe Europe	583		(190		)	23		(764		)	N/A		N/A
LMJ ⁽³⁾	3,070		(2,186		)	4,865		(1,153		)	N/A		N/A
Concrete Solutions ⁽⁴⁾	5,922		(1,940		)	2,700		106			N/A		N/A
Environmental Techniques	5,270		(909		)	N/A		N/A			N/A		N/A

_____________________

“N/A” represents not applicable.

⁽¹⁾

The reported net loss in 2017 includes a pre-tax allocation of corporate expenses of $6.8 million. The reported net loss in 2016 includes pre-tax 2016 Restructuring charges of $0.2 million and a pre-tax allocation of corporate expenses of $2.9 million. The reported net loss in 2015 includes a pre-tax impairment charge of $1.7 million allocated from goodwill impairments in the Energy Services reporting unit (see Note 2) and a pre-tax allocation of corporate expenses of $1.0 million.


⁽²⁾	The reported net loss in 2017 includes a pre-tax allocation of corporate expenses of $4.5 million.The reported net loss in 2016 includes a pre-tax charge for inventory step-up of $3.6 million, recognized as part of the accounting for business combinations, and a pre-tax allocation of corporate expenses of $3.2 million.


⁽³⁾	The reported net loss in 2017 includes pre-tax 2017 Restructuring charges of $0.1 million.


⁽⁴⁾	The reported net loss in 2017 includes a pre-tax impairment charge of $2.2 million allocated from goodwill impairments in the Fyfe reporting unit (see Note 2).

The following unaudited pro forma summary presents combined information of the Company as if the Schultz, Underground Solutions, Fyfe Europe, LMJ, Concrete Solutions and Environmental Techniques acquisitions had occurred at the beginning of the year preceding their acquisition (in thousands, except earnings per share):



	Years Ended December 31,
	2017⁽¹⁾			2016⁽²⁾		2015⁽³⁾
Revenues	$	1,359,901		$	1,238,730	$	1,387,465
Net income (loss) ⁽⁴⁾	(69,227		)	29,959		(6,545		)
Diluted earnings (loss) per share	$	(2.09	)	$	0.85	$	(0.18	)

_____________________


⁽¹⁾	Includes pro-forma results related to Environmental Techniques.


⁽²⁾	Includes pro-forma results related to Environmental Techniques, Underground Solutions, Fyfe Europe, LMJ and Concrete Solutions.


⁽³⁾	Includes pro-forma results related to Underground Solutions, Fyfe Europe, LMJ, Concrete Solutions and Schultz.


⁽⁴⁾	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.

The transaction purchase price to acquire Environmental Techniques was £6.5 million, approximately $8.0 million, which represented cash consideration paid at closing.

The transaction purchase price to acquire Underground Solutions was $88.4 million, which included: (i) a payment at closing of $85.0 million; (ii) a payment of $5.0 million for the value of the estimated tax benefits associated with Underground Solutions’ net operating loss carry forwards; and (iii) working capital adjustments of $1.6 million payable to the Company.

The transaction purchase price to acquire Fyfe Europe was $3.0 million, which represented cash consideration paid at closing of $2.8 million plus $0.2 million of deferred contingent consideration, which was paid during 2017.

The transaction purchase price to acquire LMJ was €2.9 million, approximately $3.2 million, which was paid at closing.

The transaction purchase price to acquire Concrete Solutions was NZD 8.9 million, approximately $6.4 million, which included: (i) a payment at closing of NZD 7.5 million, approximately $5.5 million; (ii) a preliminary working capital adjustment payable to the sellers of NZD 0.2 million, approximately $0.1 million; and (iii) the estimated fair value of earnout consideration of NZD 1.2 million, approximately $0.9 million. During 2017, the Company reversed $0.1 million of the earnout consideration as operating results for the twelve-month period ended June 30, 2017 were below the target amounts in the purchase agreement. The accrual adjustment resulted in an offset to “Operating expenses” in the Consolidated Statement of Operations. After the accrual adjustment, the estimated fair value of the contingent consideration was NZD 1.0 million, approximately $0.8 million, and recorded to “Other non-current liabilities” in the Consolidated Balance Sheet. The fair value estimate was determined using observable inputs and significant unobservable inputs, which are based on level 3 inputs as defined in Note 12.

Total cash consideration recorded to acquire Schultz was $6.7 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 $0.4 million. The total purchase price was $7.7 million, which represented the cash consideration of $6.7 million plus $1.0 million of deferred contingent consideration. The fair value estimate of the contingent consideration was determined using observable inputs and significant unobservable inputs, which are based on level 3 inputs as defined in Note 12. In each of the first quarters of 2017 and 2016, $0.5 million of the contingent consideration was paid to the previous owners.

The following table summarizes the fair value of identified assets and liabilities of the Environmental Techniques, Underground Solutions, Fyfe Europe, LMJ, Concrete Solutions and Schultz acquisitions at their respective acquisition dates (in thousands):



	Environmental Techniques			Underground Solutions			Fyfe Europe		LMJ		Concrete Solutions			Schultz
Cash	$	—		$	3,630		$	—	$	—	$	—		$	—
Receivables and cost and estimated earnings in excess of billings	801			6,339			—		—		1,469			1,086
Inventories	1,281			12,629			—		504		857			—
Prepaid expenses and other current assets	93			671			—		—		18			19
Property, plant and equipment	2,147			2,755			50		1,194		422			162
Identified intangible assets	1,869			33,370			513		795		1,722			3,060
Deferred income tax assets	124			13,282			—		—		—			—
Other assets	—			90					—		—			—
Accounts payable	(1,025		)	(4,653		)	—		—		(837		)	(663		)
Accrued expenses	(186		)	(5,900		)	—		—		(149		)	—
Billings in excess of cost and estimated earnings	—			(2,943		)	—		—		—			—
Deferred tax liabilities	(413		)	(14,562		)	—		—		(482		)	—
Total identifiable net assets	$	4,691		$	44,708		$	563	$	2,493	$	3,020		$	3,664

Total consideration recorded	$	8,046		$	88,370		$	3,000	$	3,235	$	6,393		$	7,662
Less: total identifiable net assets	4,691			44,708			563		2,493		3,020			3,664
Final purchase price goodwill	$	3,355		$	43,662		$	2,437	$	742	$	3,373		$	3,998