UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarter ended September 30, 2020

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                                                              to

Commission File Number: 001-35328

Aegion Corporation

(Exact name of registrant as specified in its charter)

Delaware	45-3117900
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
17988 Edison Avenue, Chesterfield, Missouri	63005-1195
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:  (636) 530-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Shares, $0.01 par value	AEGN	The Nasdaq Global Select Market

There were 30,772,852 shares of Class A common stock, $0.01 par value per share, outstanding at October 23, 2020.

1

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Statements of Operations for the Quarters and Nine Months Ended September 30, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2020 and 2019	4
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5
	Consolidated Statements of Equity for the Quarters and Nine Months Ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1.A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 4.	Mine Safety Disclosures	52
Item 6.	Exhibits	53
SIGNATURE		54

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues	$	275,884		$	308,789		$	808,276		$	904,433
Cost of revenues		215,624			241,997			644,557			721,909
Gross profit		60,260			66,792			163,719			182,524
Operating expenses		45,055			48,866			133,373			147,990
Goodwill impairment		39,430			—			40,688			—
Definite-lived intangible asset impairment		—			—			957			—
Impairment (gain) of assets held for sale		—			—			(658	)		11,946
Acquisition and divestiture expenses		680			1,842			2,189			2,759
Restructuring and related charges		2,335			1,435			4,287			5,495
Operating income (loss)		(27,240	)		14,649			(17,117	)		14,334
Other income (expense):
Interest expense		(4,288	)		(3,446	)		(12,174	)		(10,602	)
Interest income		258			268			701			814
Other		245			(5,236	)		1,634			(6,925	)
Total other expense		(3,785	)		(8,414	)		(9,839	)		(16,713	)
Income (loss) before taxes (benefit)		(31,025	)		6,235			(26,956	)		(2,379	)
Taxes (benefit) on income (loss)		(3,131	)		(114	)		(1,755	)		3,410
Net income (loss)		(27,894	)		6,349			(25,201	)		(5,789	)
Non-controlling interests income		(580	)		(313	)		(1,049	)		(542	)
Net income (loss) attributable to Aegion Corporation	$	(28,474	)	$	6,036		$	(26,250	)	$	(6,331	)
Income (loss) per share attributable to Aegion Corporation:
Basic	$	(0.93	)	$	0.20		$	(0.85	)	$	(0.20	)
Diluted	$	(0.93	)	$	0.19		$	(0.85	)	$	(0.20	)

The accompanying notes are an integral part of the consolidated financial statements.

3

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net income (loss)	$	(27,894	)	$	6,349		$	(25,201	)	$	(5,789	)
Other comprehensive income (loss):
Currency translation adjustments		1,905			439			660			3,505
Deferred gain (loss) on hedging activity, net of tax (1)		618			(1,180	)		(5,556	)		(6,879	)
Pension activity, net of tax (2)		(39	)		28			22			31
Total comprehensive income (loss)		(25,410	)		5,636			(30,075	)		(9,132	)
Comprehensive income attributable to non-controlling interests		(528	)		(286	)		(907	)		(535	)
Comprehensive income (loss) attributable to Aegion Corporation	$	(25,938	)	$	5,350		$	(30,982	)	$	(9,667	)

⁽¹⁾  Amounts presented net of tax of $0 and $30 for the quarters ended September 30, 2020 and 2019, respectively, and $0 and $180 for the nine months ended September 30, 2020 and 2019, respectively.

⁽²⁾  Amounts presented net of tax of $(9) and $6 for the quarters ended September 30, 2020 and 2019, respectively, and $5 and $7 for the nine months ended September 30, 2020 and 2019, respectively.

The accompanying notes are an integral part of the consolidated financial statements.

4

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

	September 30, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	75,758		$	64,874
Restricted cash		986			1,348
Receivables, net of allowances of $4,629 and $7,224, respectively		178,249			192,604
Retainage		30,970			33,103
Contract assets		51,150			51,092
Inventories		47,637			57,193
Prepaid expenses and other current assets		39,147			33,909
Assets held for sale		11,083			16,092
Total current assets		434,980			450,215
Property, plant & equipment, less accumulated depreciation		98,361			101,091
Other assets
Goodwill		216,340			256,835
Intangible assets, less accumulated amortization		93,945			104,828
Operating lease assets		67,504			71,466
Deferred income tax assets		445			1,216
Other non-current assets		8,955			9,862
Total other assets		387,189			444,207
Total Assets	$	920,530		$	995,513
Liabilities and Equity
Current liabilities
Accounts payable	$	66,226		$	60,614
Accrued expenses		93,141			96,577
Contract liabilities		37,034			37,562
Current maturities of long-term debt		23,825			32,803
Liabilities held for sale		1,864			6,485
Total current liabilities		222,090			234,041
Long-term debt, less current maturities		201,600			243,629
Other liabilities
Operating lease liabilities		52,418			56,253
Deferred income tax liabilities		9,453			11,254
Other non-current liabilities		27,274			15,243
Total other liabilities		89,145			82,750
Total liabilities		512,835			560,420
(See Commitments and Contingencies: Note 11)
Equity
Preferred stock, undesignated, $.10 par – shares authorized 2,000,000; none outstanding		—			—
Common stock, $.01 par – shares authorized 125,000,000; shares issued and outstanding 30,770,323 and 30,715,959, respectively		308			307
Additional paid-in capital		103,977			101,148
Retained earnings		332,748			358,998
Accumulated other comprehensive loss		(37,426	)		(32,694	)
Total stockholders’ equity		399,607			427,759
Non-controlling interests		8,088			7,334
Total equity		407,695			435,093
Total Liabilities and Equity	$	920,530		$	995,513

The accompanying notes are an integral part of the consolidated financial statements.

5

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands, except number of shares)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Common Stock - Shares
Balance, beginning of period		30,768,399			30,941,394			30,715,959			31,922,409
Issuance of common stock upon stock option exercises		—			—			—			52,783
Issuance of shares pursuant to restricted stock units		9,888			17,471			198,433			222,745
Issuance of shares pursuant to performance units		—			—			71,541			111,158
Issuance of shares pursuant to deferred stock units		1,685			6,698			58,267			84,184
Shares repurchased and retired		(9,649	)		(158,015	)		(273,877	)		(1,585,731	)
Balance, end of period		30,770,323			30,807,548			30,770,323			30,807,548
Common Stock - Amount
Balance, beginning of period	$	308		$	309		$	307		$	319
Issuance of common stock upon stock option exercises		—			—			—			1
Issuance of shares pursuant to restricted stock units		—			—			2			2
Issuance of shares pursuant to performance units		—			—			1			1
Issuance of shares pursuant to deferred stock units		—			—			1			1
Shares repurchased and retired		—			(1	)		(3	)		(16	)
Balance, end of period	$	308		$	308		$	308		$	308
Additional Paid-In Capital
Balance, beginning of period	$	100,490		$	102,841		$	101,148		$	122,818
Issuance of common stock upon stock option exercises		—			—			—			955
Shares repurchased and retired		(151	)		(2,971	)		(5,252	)		(28,127	)
Equity-based compensation expense		3,638			1,757			8,081			5,981
Balance, end of period	$	103,977		$	101,627		$	103,977		$	101,627
Retained Earnings
Balance, beginning of period	$	361,222		$	367,523		$	358,998		$	379,890
Net income (loss) attributable to Aegion Corporation		(28,474	)		6,036			(26,250	)		(6,331	)
Balance, end of period	$	332,748		$	373,559		$	332,748		$	373,559
Accumulated Other Comprehensive Loss
Balance, beginning of period	$	(39,962	)	$	(42,940	)	$	(32,694	)	$	(40,290	)
Currency translation adjustment and derivative transactions, net		2,536			(686	)		(4,732	)		(3,336	)
Balance, end of period	$	(37,426	)	$	(43,626	)	$	(37,426	)	$	(43,626	)
Non-Controlling Interests
Balance, beginning of period	$	7,560		$	6,290		$	7,334		$	7,450
Net income		580			313			1,049			542
Distributions to non-controlling interests		—			—			(153	)		(1,409	)
Currency translation adjustment, net		(52	)		(27	)		(142	)		(7	)
Balance, end of period	$	8,088		$	6,576		$	8,088		$	6,576
Total Equity
Balance, beginning of period	$	429,618		$	434,023		$	435,093		$	470,187
Net income (loss)		(27,894	)		6,349			(25,201	)		(5,789	)
Issuance of common stock upon stock option exercises		—			—			—			956
Issuance of shares pursuant to restricted stock units		—			—			2			2
Issuance of shares pursuant to performance units		—			—			1			1
Issuance of shares pursuant to deferred stock units		—			—			1			1
Shares repurchased and retired		(151	)		(2,972	)		(5,255	)		(28,143	)
Equity-based compensation expense		3,638			1,757			8,081			5,981
Distributions to non-controlling interests		—			—			(153	)		(1,409	)
Currency translation adjustment and derivative transactions, net		2,484			(713	)		(4,874	)		(3,343	)
Balance, end of period	$	407,695		$	438,444		$	407,695		$	438,444

The accompanying notes are an integral part of the consolidated financial statements.

6

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(25,201	)	$	(5,789	)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		26,853			26,530
Gain on sale of fixed assets		(568	)		(527	)
Equity-based compensation expense		8,081			5,981
Deferred income taxes		(1,670	)		883
Non-cash restructuring charges		1,067			6,419
Goodwill impairment		40,688			—
Definite-lived intangible asset impairment		957			—
Impairment of assets held for sale		—			11,946
Gain on sale of businesses		(109	)		—
Loss on foreign currency transactions		420			370
Other		767			(39	)
Changes in operating assets and liabilities (net of acquisitions):
Receivables net, retainage and contract assets		16,135			(1,488	)
Inventories		6,283			(3,170	)
Prepaid expenses and other assets		(4,953	)		2,225
Accounts payable and accrued expenses		3,198			(8,476	)
Contract liabilities		(381	)		(1,435	)
Other operating		7,812			(1,779	)
Net cash provided by operating activities		79,379			31,651
Cash flows from investing activities:
Capital expenditures		(15,238	)		(21,392	)
Proceeds from sale of fixed assets		1,143			1,270
Patent expenditures		(264	)		(292	)
Sale of businesses, net of cash disposed		3,602			—
Net cash used in investing activities		(10,757	)		(20,414	)
Cash flows from financing activities:
Proceeds from issuance of common stock upon stock option exercises		—			956
Repurchase of common stock		(5,251	)		(28,143	)
Distributions to non-controlling interests		(153	)		(1,409	)
Credit facility amendment fees		(1,995	)		—
Payments on notes payable, net		—			(273	)
Proceeds from (payments on) line of credit, net		(24,000	)		8,000
Principal payments on long-term debt		(26,250	)		(19,688	)
Net cash used in financing activities		(57,649	)		(40,557	)
Effect of exchange rate changes on cash		(451	)		(970	)
Net increase (decrease) in cash, cash equivalents and restricted cash for the period		10,522			(30,290	)
Cash, cash equivalents and restricted cash, beginning of year		66,222			84,886
Cash, cash equivalents and restricted cash, end of period	$	76,744		$	54,596

The accompanying notes are an integral part of the consolidated financial statements.

7

AEGION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. 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 statement 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, 2019, 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 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2020.

Strategic Initiatives/Acquisitions/Divestitures

Restructuring Activities

On July 28, 2017, the Company’s board of directors approved a comprehensive global realignment and restructuring plan (the “Restructuring”) intended to generate more predictable and sustainable long‐term earnings growth, which included, among other things, actions to reduce upstream oil & gas exposure, the exit or divestiture of multiple smaller international businesses, the restructuring of unprofitable businesses in North America and other efforts to right‐size underperforming businesses and reduce corporate and other operating costs. See further discussion in Note 4.

Infrastructure Solutions Segment (“Infrastructure Solutions”)

On February 13, 2020, the Company sold its Spanish CIPP contracting entity, Insituform Technologies Iberica, S.A. (“Insituform Spain”), to Lajusocarley S.L. In connection with the sale, the Company entered into a five-year tube supply agreement whereby Insituform Spain will buy felt liners exclusively from the Company. Insituform Spain is also entitled to use the Insituform^® trade name in Spain based on a trademark license granted for the same five-year time period. The Company had classified Insituform Spain’s assets and liabilities as held for sale on the Consolidated Balance Sheet at December 31, 2019. See Note 5.

On January 24, 2020, the Company sold its Australian CIPP contracting entity, Insituform Pacific Pty Limited (“Insituform Australia”), to Insituform Holdings Pty Ltd, an entity affiliated with Killard Infrastructure Pty Ltd. In connection with the sale, the Company entered into a five-year tube supply agreement whereby Insituform Australia, under its new ownership, will buy liners exclusively from the Company. Insituform Australia is also entitled to use the Insituform^® trade name in Australia based on a trademark license granted for the same five-year time period. The Company had classified Insituform Australia’s assets and liabilities as held for sale on the Consolidated Balance Sheet at December 31, 2019. See Note 5.

During the second quarter of 2019, the Company initiated plans to sell its contracting business in Northern Ireland, Environmental Techniques Limited (“Environmental Techniques”). Accordingly, the Company has classified the assets and liabilities of this business as held for sale on the Consolidated Balance Sheets at September 30, 2020 and December 31, 2019. The Company has suspended the sales process for Environmental Techniques due to COVID-19 and expects to recommence the sales process as soon as reasonably practicable. See Note 5.

8

 

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):

	September 30, 2020			December 31, 2019
Currency translation adjustments (1)	$	(26,439	)	$	(27,241	)
Derivative hedging activity		(10,078	)		(4,522	)
Pension activity		(909	)		(931	)
Total accumulated other comprehensive loss	$	(37,426	)	$	(32,694	)

⁽¹⁾  During the nine months ended September 30, 2020, as a result of disposing of certain international entities, $1.5 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 losses of $0.7 million and gains of $0.1 million in the third quarters of 2020 and 2019, respectively, and losses of $0.4 million and $0.4 million for the nine months ended September 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Weighted average number of common shares used for basic EPS		30,770,324		30,866,188		30,738,150		31,259,594
Effect of dilutive stock options and restricted and deferred stock unit awards		—		511,244		—		—
Weighted average number of common shares and dilutive potential common stock used for dilutive EPS		30,770,324		31,377,432		30,738,150		31,259,594

The Company excluded 501,802 and 484,712 restricted and deferred stock units for the quarter and nine-month period ended September 30, 2020, respectively, and 497,192 restricted and deferred stock units for the nine-month period ended September 30, 2019 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	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	75,758	$	64,874
Restricted cash		986		1,348
Cash, cash equivalents and restricted cash	$	76,744	$	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.

9

 

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 nine months ended September 30, 2020 and 2019.

Long-Lived Assets

Property, plant and equipment and other identified intangibles (primarily customer relationships, patents and acquired technologies, trademarks, licenses and non-compete agreements) are recorded at cost, net of accumulated depreciation, amortization and impairment, and, except for goodwill, are depreciated or amortized on a straight-line basis over their estimated useful lives. Changes in circumstances such as technological advances, changes to the Company’s business model or changes in the Company’s capital strategy can result in the actual useful lives differing from the Company’s estimates. If the Company determines that the useful life of its property, plant and equipment or its identified intangible assets should be shortened, the Company would prospectively depreciate or amortize the net book value in excess of the salvage value over its revised remaining useful life, thereby increasing depreciation or amortization expense.

Long-lived assets, including property, plant and equipment and other intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. The estimate of cash flow is based upon, among other things, assumptions about expected future operating performance. The Company’s estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Impairment Review – Third Quarter 2020

The oil and gas industry experienced an unprecedented disruption during the first nine months of 2020 as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic. These market conditions have significantly impacted a portion of the Company’s business, with a more severe impact to the refinery industry on the United States West Coast. Customers in our Energy Services reporting unit continue to revise their capital and maintenance budgets in order to adjust spending levels in response to the lower commodity prices and lower fuel demand, and the Company has experienced significant activity reductions and pricing pressure for its services, which management now expects to continue for the foreseeable future. Given the prolonged uncertainty, management performed a market assessment of the Energy Services reporting unit during the third quarter of 2020 and concluded that sustained low oil prices and lower fuel demand would continue to create market challenges for the foreseeable future, including a continued reduction in spending by certain of our customers in 2020 and into 2021. As a result, the Company determined a triggering event had occurred and evaluated the fair value of long-lived assets in its Energy Services reporting unit in accordance with FASB ASC 360, Property, Plant and Equipment (“FASB ASC 360”). The results of the Energy Services reporting unit and its related asset groups are reported within the Energy Services reportable segment.

The assets of an asset group represent the lowest level for which identifiable cash flows can be determined independent of other groups of assets and liabilities. The Energy Services asset group was the only at-risk asset group reviewed for impairment. The Company developed internal forward business plans under the guidance of local and regional leadership to determine the undiscounted expected future cash flows derived from Energy Services’ long-lived assets. Such were based on management’s best estimates considering the likelihood of various outcomes. Based on the internal projections, the Company determined that the sum of the undiscounted expected future cash flows for the Energy Services asset group exceeded the carrying value of the assets and no impairment was recorded.

The fair value estimates described above were determined using observable inputs and significant unobservable inputs, which are based on level 3 inputs as defined in the Fair Value Measurements section above.

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Goodwill

Under FASB ASC 350, Goodwill and Other (“FASB ASC 350”), the Company conducts an impairment test of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. An impairment charge will be recognized to the extent that the fair value of a reporting unit is less than its carrying value. Factors that could potentially trigger an impairment review include (but are not limited to):

•	significant underperformance of a segment relative to expected, historical or forecasted operating results;
•