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Note 2 - Accounting Policies

6 Months Ended

Jun. 30, 2020

Significant Accounting Policies [Text Block]

2.	ACCOUNTING POLICIES

Accumulated Other Comprehensive 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):

	*June 30, 2020*			*December 31, 2019*
Currency translation adjustments (1)	$	(28,396	)	$	(27,241	)
Derivative hedging activity		(10,696	)		(4,522	)
Pension activity		(870	)		(931	)
Total accumulated other comprehensive loss	$	(39,962	)	$	(32,694	)

⁽¹⁾

During the six months ended June 30, 2020, as a result of disposing of certain international entities, $0.8 million was reclassified out of accumulated other comprehensive loss to “Other expense” in the Consolidated Statements of Operations.

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 gains of $0.3 million and $0.1 million in the second quarters of 2020 and 2019, respectively, and losses of $0.3 million and $0.7 million for the six months ended June 30, 2020 and 2019, 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:

	Quarter Ended June 30,				Six Months Ended June 30,
	*2020*		*2019*		*2020*		*2019*
Weighted average number of common shares used for basic EPS		30,726,566		31,216,886		30,721,684		31,459,557
Effect of dilutive stock options and restricted and deferred stock unit awards		391,918		—		475,734		—
Weighted average number of common shares and dilutive potential common stock used for dilutive EPS		31,118,484		31,216,886		31,197,418		31,459,557

The Company excluded 449,156 and 498,315 restricted and deferred stock units for the quarter and six-month period ended June 30, 2019, respectively, 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	*June 30, 2020*		*December 31, 2019*
Cash and cash equivalents	$	95,324	$	64,874
Restricted cash		994		1,348
Cash, cash equivalents and restricted cash	$	96,318	$	66,222

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.

Fair Value Measurements

FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), defines fair value and establishes a framework for measuring and disclosing fair value instruments. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

	•	Level 1 – defined as quoted prices in active markets for identical instruments;
	•	Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
	•	Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company uses these levels of hierarchy to measure the fair value of certain financial instruments on a recurring basis, such as for derivative instruments; on a non-recurring basis, such as for acquisitions and impairment testing; for disclosure purposes, such as for long-term debt; and for other applications, as discussed in their respective footnotes. Changes in assumptions or estimation methods could affect the fair value estimates. Other financial instruments including notes payable are recorded at cost, which approximates fair value, and is based on Level 2 inputs as previously defined. The Company had no transfers between Level 1, 2 or 3 inputs during the six months ended June 30, 2020 and 2019.

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 June 30, 2020.

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

Balance sheet data	*June 30, 2020*		*December 31, 2019*
Current assets	$	16,546	$	18,304
Non-current assets		7,892		7,635
Current liabilities		5,764		8,261
Non-current liabilities		2,521		1,962

	Quarter Ended June 30,					Six Months Ended June 30,
Statement of operations data	*2020*		*2019*			*2020*		*2019*
Revenue	$	5,727	$	7,519		$	13,456	$	13,444
Gross profit		2,078		2,416			4,381		4,051
Net income (loss) attributable to Aegion Corporation		70		(652	)		355		(619	)

Newly Issued Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improved consistent application. The guidance is effective for the Company’s fiscal year beginning January 1, 2021, including interim periods within that fiscal year. Early adoption is permitted. The Company early-adopted this standard effective January 1, 2020, the impact of which was not material on the Company’s consolidated financial statements.

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 Company adopted this standard effective January 1, 2020, the impact of which was not material 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. For the Company’s trade receivables, certain other receivables and certain other financial instruments, it will be required to use a new forward-looking “expected” credit loss model based on historical loss rates that will replace the existing “incurred” credit loss model, which will generally result in earlier recognition of allowances for credit losses. The Company adopted this standard effective January 1, 2020, the impact of which was not material on the Company’s consolidated financial statements.