ACCOUNTING POLICIES

On January 1, 2019, the Company adopted FASB ASC 842, Leases (“FASB ASC 842”). See Note 6 for further information. Other than the adoption of FASB ASC 842, 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, 2018.

Accumulated Other Comprehensive Income (Loss)

As set forth below, 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):



	March 31, 2019			December 31, 2018
Currency translation adjustments	$	(39,158	)	$	(41,107	)
Derivative hedging activity	(431		)	1,715
Pension activity	(919		)	(898		)
Total accumulated other comprehensive loss	$	(40,508	)	$	(40,290	)

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. Net foreign exchange transaction losses of $0.8 million and $0.3 million in the first quarters of 2019 and 2018, 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.

Earnings per Share

Earnings per share have been calculated using the following share information:



	Quarters Ended March 31,
	2019	2018
Weighted average number of common shares used for basic EPS	31,704,923	32,483,963
Effect of dilutive stock options and restricted and deferred stock unit awards	—	—
Weighted average number of common shares and dilutive potential common stock used for dilutive EPS	31,704,923	32,483,963

The Company excluded 549,679 restricted and deferred stock units for the quarter ended March 31, 2019, and 710,173 restricted and deferred stock units and stock options for the quarter ended March 31, 2018 from the diluted earnings per share calculation for the Company’s common stock because of the reported net loss for the periods.

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	March 31, 2019		December 31, 2018
Cash and cash equivalents	$	62,482	$	83,527
Restricted cash	1,235		1,359
Cash, cash equivalents and restricted cash	$	63,717	$	84,886

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.

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 March 31, 2019.

Financial data for consolidated variable interest entities are summarized in the following tables (in thousands):



Balance sheet data	March 31, 2019⁽¹⁾		December 31, 2018
Current assets	$	29,847	$	33,066
Non-current assets	7,016		6,466
Current liabilities	12,006		12,953
Non-current liabilities	7,281		8,780

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⁽¹⁾	Includes $8.1 million of assets and $6.3 million of liabilities classified as held for sale relating to Corrpower and Aegion South Africa. See Note 5.



	Quarters Ended March 31,
Statement of operations data	2019		2018⁽¹⁾
Revenue	$	5,925	$	16,051
Gross profit	1,635		3,310
Net income attributable to Aegion Corporation	33		1,248

__________________________


⁽¹⁾	Includes activity from our pipe coating and insulation joint venture in Louisiana, which was sold during the third quarter of 2018.

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 adoption of this standard is not expected to have a material impact 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 Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. 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 adopted this standard effective January 1, 2019 and elected not to reclassify the tax effects due to the immaterial impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable. The guidance is effective for the Company’s fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early adoption is permitted, although the Company does not intend to do so. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which 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 Company adopted this standard, effective January 1, 2019, using the adoption-date transition provision, which recognizes and measures leases existing at January 1, 2019 but without retrospective application. See Note 6.