Note 4 - Restructuring

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Restructuring, Impairment, and Other Activities Disclosure [Text Block]

4. RESTRUCTURING

On July 28, 2017, the Company’s board of directors approved the Restructuring. As part of the Restructuring, the Company announced plans to: (i) divest 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 the CIPP businesses in Australia and Denmark; and (iv) reduce corporate and other operating costs.

During 2018 and 2019, the Company’s board of directors approved additional actions with respect to the Restructuring, which included the decisions to: (i) divest the Australia and Denmark CIPP businesses; (ii) take actions to further optimize operations within North America, including measures to reduce consolidated operating costs; and (iii) divest or otherwise exit multiple additional international businesses, including: (a) the Company’s cathodic protection installation activities in the Middle East, including Corrpower International Limited, the Company’s cathodic protection materials manufacturing and production joint venture in Saudi Arabia; (b) United Pipeline de Mexico S.A. de C.V., the Company’s Tite Liner^® joint venture in Mexico; (c) the Company’s Tite Liner^® businesses in Brazil and Argentina; (d) Aegion South Africa Proprietary Limited, the Company’s Tite Liner^® and CIPP joint venture in the Republic of South Africa; and (e) the Company’s CIPP contract installation operations in England, the Netherlands, Spain and Northern Ireland.

The Company completed the divestitures of Bayou and the Denmark CIPP business in 2018. The Company also completed the divestitures of the Netherlands CIPP business and its Tite Liner^® joint venture in Mexico in 2019, as well as the shutdown of activities for the CIPP business in England. The Company completed the divestitures of CIPP operations in Australia and Spain in early 2020 (see Note 1). Remaining shutdown activities include Corrosion Protection entities in Argentina and South Africa, which are expected to be completed in 2020 or the first half of 2021. Additionally, the exit of the Company’s cathodic protection installation activities in the Middle East is substantially complete, though management expects minimal wind-down activities will extend through the first half of 2021 related to a small number of projects remaining in backlog. The sale of the Northern Ireland contracting operation has been suspended due to COVID-19, but the Company expects to recommence the process as soon as reasonably practicable.

As part of efforts to optimize the cathodic protection operations in North America, management initiated plans during the fourth quarter of 2019 to further downsize operations in the U.S., including the closure of three branch offices and the exit of capital intensive drilling activities at four branch offices. These actions included a reduction of approximately 20% of the cathodic protection domestic workforce and an exit of drilling activities that contributed approximately 20% to our cathodic protection domestic revenues in 2019. Management expects these actions to improve our cathodic protection cost structure in the U.S., eliminate unprofitable results in certain parts of the business and reduce consolidated annual expenses for the business overall. Also during the fourth quarter of 2019, the Company reduced corporate headcount and took other actions to reduce corporate costs.

During the second quarter of 2020, the Company took additional actions to exit its specialty turnaround services businesses in Energy Services, P2S ServTech, LLC (“P2S”). Additionally, the Company executed headcount reductions across the rest of the Company related to business slowdowns due to COVID-19. During the third quarter of 2020, the Company initiated additional restructuring actions to balance the effects of COVID-19, including additional headcount reductions and office closings within the Corrosion Protection segment.

Total pre-tax restructuring and related impairment charges since inception were $184.7 million ($166.0 million post-tax) and consisted of cash charges totaling $54.8 million and non-cash charges totaling $129.9 million. Cash charges included employee severance, retention, extension of benefits, employment assistance programs and other restructuring costs associated with the restructuring efforts described above. Non-cash charges included (i) $86.4 million related to goodwill and long-lived asset impairment charges recorded in 2017 as part of exiting the non-pipe FRP contracting market in North America, and (ii) $43.5 million related to allowances for accounts receivable, write-offs of inventory and long-lived assets, impairment of definite-lived intangible assets, release of cumulative currency translation adjustments as well as net losses on the disposal of both domestic and international entities. The Company reduced headcount by approximately 804 employees as a result of these actions.

The Company continues to monitor the impact COVID-19 is having on the oil refining markets in the United States and stay-at-home or other restrictive orders in certain of the Company’s international operations. The Company is prepared to proactively respond to the situation and may take further restructuring actions as warranted. The Company expects to incur additional cash charges related to this program of approximately $2 million. It could also incur additional non-cash charges primarily associated with the release of cumulative currency translation adjustments and losses on the closure or liquidation of international businesses.

During the quarters and nine months ended September 30, 2020 and 2019, the Company recorded pre-tax expenses related to the Restructuring as follows (in thousands):

	Quarter Ended September 30, 2020											Quarter Ended September 30, 2019
	Infrastructure Solutions			Corrosion Protection		Energy Services		Corporate		Total		Infrastructure Solutions		Corrosion Protection		Energy Services		Corporate		Total
Severance and benefit related costs	$	(89	)	$	1,952	$	172	$	3	$	2,038	$	210	$	447	$	74	$	416	$	1,147
Contract termination costs		—			188		86		—		274		201		8		—		—		209
Relocation and other moving costs		—			23		—		—		23		79		—		—		—		79
Other restructuring costs (1)		(1,386	)		2,325		611		358		1,908		5,414		463		65		1,230		7,172
Total pre-tax restructuring charges	$	(1,475	)	$	4,488	$	869	$	361	$	4,243	$	5,904	$	918	$	139	$	1,646	$	8,607

⁽¹⁾  For the quarter ended September 30, 2020, charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals, release of cumulative currency translation adjustments and other restructuring-related costs in connection with optimizing the cathodic protection operations in North America, disposing of certain international businesses and other cost savings initiatives. For the quarter ended September 30, 2019, charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals, and other restructuring-related costs in connection with exiting the CIPP operations in Europe, exiting the cathodic protection operations in the Middle East and other cost savings initiatives.

	Nine Months Ended September 30, 2020											Nine Months Ended September 30, 2019
	Infrastructure Solutions			Corrosion Protection		Energy Services		Corporate		Total		Infrastructure Solutions		Corrosion Protection		Energy Services		Corporate		Total
Severance and benefit related costs	$	29		$	2,921	$	241	$	335	$	3,526	$	1,043	$	2,192	$	114	$	425	$	3,774
Contract termination costs		36			417		148		—		601		534		815		—		98		1,447
Relocation and other moving costs		—			126		34		—		160		130		144		—		—		274
Other restructuring costs (1)		(1,224	)		3,404		3,996		2,236		8,412		8,854		1,192		65		2,383		12,494
Total pre-tax restructuring charges	$	(1,159	)	$	6,868	$	4,419	$	2,571	$	12,699	$	10,561	$	4,343	$	179	$	2,906	$	17,989

⁽¹⁾  For the nine months ended September 30, 2020, charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals, release of cumulative currency translation adjustments and other restructuring-related costs in connection with optimizing the cathodic protection operations in North America, exiting the CIPP operations in Europe, disposing of certain international businesses and other cost savings initiatives. Amounts also include goodwill and definite-lived intangible asset impairments related to the exiting P2S. For the nine months ended September 30, 2019, charges primarily related to certain wind-down costs, allowances for accounts receivable, fixed asset disposals and other restructuring-related costs in connection with exiting the CIPP operations in Europe, exiting the cathodic protection operations in the Middle East and other cost savings initiatives.

Restructuring costs related to severance, other termination benefit costs and early contract termination costs were $2.3 million and $1.4 million for the quarters ended September 30, 2020 and 2019, respectively, and $4.3 million and $5.5 million for the nine months ended September 30, 2020 and 2019, respectively, are reported on a separate line in the Consolidated Statements of Operations.

The following tables summarize all charges related to the Restructuring recognized in the quarters and nine months ended September 30, 2020 and 2019 as presented in their affected line in the Consolidated Statements of Operations (in thousands):

	Quarter Ended September 30, 2020														Quarter Ended September 30, 2019
	Infrastructure Solutions			Corrosion Protection			Energy Services		Corporate			Total (1)			Infrastructure Solutions			Corrosion Protection			Energy Services		Corporate		Total (2)
Cost of revenues	$	—		$	1,830		$	—	$	—		$	1,830		$	(30	)	$	(3	)	$	—	$	—	$	(33	)
Operating expenses		(87	)		527			611		495			1,546			748			315			65		732		1,860
Restructuring and related charges		(89	)		2,163			258		3			2,335			490			455			74		416		1,435
Other expense		(1,299	)		(32	)		—		(137	)		(1,468	)		4,696			151			—		498		5,345
Total pre-tax restructuring charges	$	(1,475	)	$	4,488		$	869	$	361		$	4,243		$	5,904		$	918		$	139	$	1,646	$	8,607

⁽¹⁾  Total pre-tax restructuring charges for the quarter ended September 30, 2020 include cash charges of $3.7 million and non-cash charges of $0.5 million. Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

⁽²⁾  Total pre-tax restructuring charges for the quarter ended September 30, 2019 include cash charges of $3.1 million and non-cash charges of $5.5 million. Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

	Nine Months Ended September 30, 2020													Nine Months Ended September 30, 2019
	Infrastructure Solutions			Corrosion Protection			Energy Services		Corporate		Total (1)			Infrastructure Solutions			Corrosion Protection		Energy Services		Corporate		Total (2)
Cost of revenues	$	69		$	2,005		$	—	$	—	$	2,074		$	(122	)	$	559	$	—	$	—	$	437
Operating expenses		229			2,169			1,781		1,714		5,893			3,070			583		65		1,877		5,595
Goodwill impairment		—			—			1,258		—		1,258			—			—		—		—		—
Definite-lived intangible asset impairment		—			—			957		—		957			—			—		—		—		—
Restructuring and related charges		65			3,464			423		335		4,287			1,707			3,151		114		523		5,495
Other expense		(1,522	)		(770	)		—		522		(1,770	)		5,906			50		—		506		6,462
Total pre-tax restructuring charges	$	(1,159	)	$	6,868		$	4,419	$	2,571	$	12,699		$	10,561		$	4,343	$	179	$	2,906	$	17,989

⁽¹⁾  Total pre-tax restructuring charges for the nine months ended September 30, 2020 include cash charges of $9.5 million and non-cash charges of $3.2 million. Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

⁽²⁾  Total pre-tax restructuring charges for the nine months ended September 30, 2019 include cash charges of $11.6 million and non-cash charges of $6.4 million. Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

The following tables summarize restructuring activity during the first nine months of 2020 and 2019 (in thousands):

								Utilized in 2020
	Reserves at December 31, 2019		2020 Charge to Income		Foreign Currency Translation			Cash(1)		Non-Cash		Reserves at September 30, 2020
Severance and benefit related costs	$	4,389	$	3,526	$	(18	)	$	6,567	$	—	$	1,330
Contract termination costs		953		601		(7	)		961		—		586
Relocation and other moving costs		367		160		1			288		—		240
Other restructuring costs		2,379		8,412		(12	)		6,139		3,282		1,358
Total pre-tax restructuring charges	$	8,088	$	12,699	$	(36	)	$	13,955	$	3,282	$	3,514

⁽¹⁾  Refers to cash utilized to settle charges during the first nine months of 2020.

								Utilized in 2019
	Reserves at December 31, 2018		2019 Charge to Income		Foreign Currency Translation			Cash(1)		Non-Cash		Reserves at September 30, 2019
Severance and benefit related costs	$	1,742	$	3,774	$	(26	)	$	2,434	$	—	$	3,056
Contract termination costs		359		1,447		(30	)		1,153		—		623
Relocation and other moving costs		—		274		(4	)		198		—		72
Other restructuring costs		311		12,494		(9	)		5,954		6,419		423
Total pre-tax restructuring charges	$	2,412	$	17,989	$	(69	)	$	9,739	$	6,419	$	4,174

⁽¹⁾  Refers to cash utilized to settle charges during the first nine months of 2019.