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Note 6 - Discontinued Operations and Assets and Liabilities Held for Sale

12 Months Ended

Dec. 31, 2020

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

6. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

Discontinued Operations

In December 2020, the Company’s board of directors approved a plan to sell its Energy Services operating segment. This disposal represents a strategic shift to further reduce Aegion’s oil and gas exposure and drive greater focus on the Company’s portfolio of pipeline rehabilitation technologies. Energy Services has historically been a separate reportable segment with exclusive operations in the United States. The decision to divest the segment represented a triggering event for the goodwill and long-lived assets of the disposal group. As such, the Company engaged a third-party valuation firm and performed a goodwill impairment review. There were no material changes in significant assumptions as compared to the third quarter 2020 review discussed in Note 2 other than to the discount rate. The impairment analysis assumed a weighted average cost of capital of 17.0%, which is higher than the 15.0% utilized in the third quarter 2020 review, primarily due to increased company-specific risk factors related to uncertainties in the timing of recovery for the refinery industry on the United States West Coast. In accordance with the provisions of FASB ASC 350, the Company determined the fair value of the reporting unit (disposal group) and compared such fair value to the carrying value of the reporting unit (disposal group). For the Energy Services reporting unit (disposal group), carrying value exceeded fair value. As a result, the Company determined that recorded goodwill at the Energy Services reporting unit (disposal group) was fully impaired and recognized a pre-tax, non-cash charge of $7.3 million during the fourth quarter of 2020, which was recorded to “Net income (loss) from discontinued operations” in the Consolidated Statement of Operations. After the impairment to goodwill, the fair value of the Energy Services disposal group approximated fair value less cost to sell. The Company expects to incur between $2 million and $3 million in cash charges in 2021 to divest Energy Services.

In accordance with FASB ASC 205, Presentation of Financial Statements – Discontinued Operations (“FASB ASC 205”), the results of the former Energy Services segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the years ended December 31, 2020, 2019 and 2018. Financial information included in net income (loss) from discontinued operations for the former Energy Services segment is as follows:

	Years Ended December 31,
	*2020*			*2019*			*2018*
Revenues	$	271,529		$	328,048		$	335,707
Cost of revenues		247,453			286,814			294,160
Gross profit		24,076			41,234			41,547
Operating expenses		28,455			30,652			31,675
Goodwill impairment		47,977			—			—
Definite-lived intangible asset impairment		957			—			—
Restructuring and related charges		804			842			234
Operating income (loss)		(54,117	)		9,740			9,638
Other income (expense):
Interest expense⁽¹⁾		(3,308	)		(2,644	)		(2,618	)
Total other expense		(3,308	)		(2,644	)		(2,618	)
Income (loss) before taxes on income		(57,425	)		7,096			7,020
Taxes (benefit) on income (loss)		(2,269	)		2,554			1,161
Net income (loss) from discontinued operations	$	(55,156	)	$	4,542		$	5,859

⁽¹⁾

The Company allocated interest expense, including a portion of the settlement amount from the Company's interest rate swaps, to its discontinued operations based on carrying value at December 31, 2020.

Assets Held for Sale

During 2018 and 2019, the Company initiated plans to sell several entities as part of its ongoing strategic actions intended to generate higher returns and more predictable and sustainable long-term earnings growth. Within Infrastructure Solutions, the Company initiated plans to divest its international CIPP contracting businesses: Insituform Australia, Insituform Netherlands, Insituform Spain and Environmental Techniques. During 2019, the Company sold the contracting operations of Insituform Netherlands (see Note 1). During the first quarter of 2020, the Company completed sale transactions for Insituform Australia and Insituform Spain (see Note 1). Before the COVID-19 pandemic, the Company was in various stages of discussions with third parties for Environmental Techniques. Although the sale process has been temporarily suspended, the Company expects to recommence the process during the second half of 2021. Within Corrosion Protection, the Company initiated plans to divest its interests in United Mexico, Corrpower and Aegion South Africa. During 2019, the Company completed a sale transaction for United Mexico (see Note 1). Also during 2019, the Company ended its negotiations with potential buyers for Corrpower and Aegion South Africa. Accordingly, the relevant assets and liabilities for each of these entities was removed from held for sale and accounted for as held and used. These entities are now being exited as part of the Restructuring. See Note 4.

During 2019, the Company’s board of directors approved the action to sell several parcels of land located near its corporate headquarters. After unsuccessful targeted attempts to sell the land in 2019 and 2020, the Company determined the land no longer met the held for sale requirements of FASB ASC 205. As a result, the land was reclassified as held and used at December 31, 2020 and measured in accordance with FASB ASC 360, resulting in an impairment charge of $1.3 million during the fourth quarter of 2020 based on management’s estimate of fair value less cost to sell.

During 2019, the Company recorded an impairment of assets held for sale of $23.4 million in the Consolidated Statement of Operations. Impairment charges of $17.6 million were recorded for Insituform Australia, Insituform Spain and Insituform Netherlands, which are reported within the Infrastructure Solutions reportable segment, $2.9 million were recorded for Corrpower and United Mexico, which are reported within the Corrosion Protection reportable segment, and $2.9 million were recorded in Corporate based on management’s then estimate of fair value less cost to sell.

The relevant asset and liability balances at December 31, 2020 and 2019 are accounted for as held for sale and measured at the lower of carrying value or fair value less cost to sell. In the event the Company is unable to sell the assets and liabilities or sells them at a price or on terms that are less favorable than currently anticipated, the Company could incur impairment charges or a loss on disposal. In accordance with FASB ASC 205, the relevant asset and liability balances of Energy Services are presented as held for sale at December 31, 2020 and 2019.

The following table provides the components of assets and liabilities held for sale (in thousands):

	December 31,
		*2020(1)*		*2019(2)*
Assets held for sale:
Current assets
Receivables, net	$	26,901	$	43,256
Retainage		203		518
Contract assets		9,330		13,469
Inventories		60		2,097
Prepaid expenses and other current assets		2,652		3,379
Total current assets		39,146		62,719
Property, plant & equipment, less accumulated depreciation		7,962		17,167
Goodwill		2,640		52,201
Intangible assets, less accumulated amortization		33,718		38,481
Operating lease assets		8,734		11,546
Other non-current assets		650		663
Impairment of assets held for sale		—		(13,978	)
Total assets held for sale	$	92,850	$	168,799

Liabilities held for sale:
Current liabilities
Accounts payable	$	5,211	$	8,688
Accrued expenses		20,927		16,707
Operating lease liabilities		2,301		1,775
Contract liabilities		165		167
Total current liabilities		28,604		27,337
Operating lease liabilities		7,348		10,368
Other non-current liabilities		196		195
Total liabilities held for sale	$	36,148	$	37,900

	⁽¹⁾	Includes Energy Services and Environmental Techniques.
	⁽²⁾	Includes Energy Services, Environmental Techniques, Insituform Australia, Insituform Spain and land held at Corporate.