Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and majority-owned subsidiaries in which the Company is deemed to be the primary beneficiary. All significant intercompany transactions and balances have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

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):

	December 31,
	2020			2019
Currency translation adjustments (1)	$	(19,760	)	$	(27,241	)
Derivative hedging activity		(9,018	)		(4,522	)
Pension activity		(1,069	)		(931	)
Total accumulated other comprehensive loss	$	(29,847	)	$	(32,694	)

⁽¹⁾ During 2020 and 2019, as a result of selling or disposing of certain international entities, $0.3 million and $10.9million, respectively, 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 $0.8 million, $0.5 million and $0.6 million for 2020, 2019 and 2018, respectively, are included in “Other expense” in the Consolidated Statements of Operations.

Research and Development Expense, Policy [Policy Text Block]

Research and Development

The Company expenses research and development costs as incurred. Research and development costs of $4.9 million, $6.4 million and $5.6 million for 2020, 2019 and 2018, respectively, are included in “Operating expenses” in the Consolidated Statements of Operations.

Income Tax, Policy [Policy Text Block]

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.

In accordance with FASB ASC 740, tax benefits from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. In addition, this recognition model includes a measurement attribute that measures the position as the largest amount of tax that is greater than 50% likely of being realized upon ultimate settlement in accordance with FASB ASC 740. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company recognizes tax liabilities in accordance with FASB ASC 740 and adjusts these liabilities when judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. While the Company believes the resulting tax balances as of December 31, 2019 and 2018 were appropriately accounted for in accordance with FASB ASC 740, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to the consolidated financial statements and such adjustments could be material.

Earnings Per Share, Policy [Policy Text Block]

Earnings per Share

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

	Years Ended December 31,
	2020		2019		2018
Weighted average number of common shares used for basic EPS		30,731,882		31,130,222		32,345,382
Effect of dilutive stock options and restricted and deferred stock unit awards		509,253		—		—
Weighted average number of common shares and dilutive potential common stock used for dilutive EPS		31,241,135		31,130,222		32,345,382

The Company excluded 529,539 and 652,621 restricted and deferred stock units in 2019 and 2018, respectively, from the diluted earnings per share calculation for the Company’s common stock because of the reported net loss from continuing operations for the periods. The Company excluded 4,049 stock options in 2018 from the diluted earnings per share calculations for the Company’s common stock because they were anti-dilutive as their exercise prices were greater than the average market price of common shares for the period.

Business Combinations Policy [Policy Text Block]

Purchase Price Accounting

The Company accounts for its acquisitions in accordance with FASB ASC 805, Business Combinations. The base cash purchase price plus the estimated fair value of any non-cash or contingent consideration given for an acquired business is allocated to the assets acquired (including identified intangible assets) and liabilities assumed based on the estimated fair values of such assets and liabilities. The excess of the total consideration over the aggregate net fair values assigned is recorded as goodwill. Contingent consideration, if any, is recognized as a liability as of the acquisition date with subsequent adjustments recorded in the consolidated statements of operations. Indirect and general expenses related to business combinations are expensed as incurred.

The Company typically determines the fair value of tangible and intangible assets acquired in a business combination using independent valuations that rely on management’s estimates of inputs and assumptions that a market participant would use. Key assumptions include cash flow projections, growth rates, asset lives, and discount rates based on an analysis of weighted average cost of capital.

Classification of Current Assets and Liabilities [Policy Text Block]

Classification of Current Assets and Current Liabilities

The Company includes in current assets and current liabilities certain amounts realizable and payable under construction contracts that may extend beyond one year. The construction periods on projects undertaken by the Company generally range from less than one month to 24 months.

Cash and Cash Equivalents, Policy [Policy Text Block]

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):

	December 31,
Balance sheet data	2020		2019
Cash and cash equivalents	$	94,848	$	64,874
Restricted cash		765		1,348
Cash, cash equivalents and restricted cash	$	95,613	$	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.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Actual cost is used to value raw materials and supplies. Standard cost, which approximates actual cost, is used to value work-in-process, finished goods and construction materials. Standard cost includes direct labor, raw materials and manufacturing overhead based on normal capacity. For certain businesses within our Corrosion Protection segment, the Company uses actual costs or average costs for all classes of inventory.

Retainage [Policy Text Block]

Retainage

Many of the contracts under which the Company performs work contain retainage provisions. Retainage refers to that portion of revenue earned by the Company but held for payment by the customer pending satisfactory completion of the project. The Company generally invoices its customers periodically as work is completed. Under ordinary circumstances, collection from municipalities is made within 60 to 90 days of billing. In most cases, 5% to 15% of the contract value is withheld by the municipal owner pending satisfactory completion of the project. Collections from other customers are generally made within 30 to 45 days of billing. Unless reserved, the Company believes that all amounts retained by customers under such provisions are fully collectible. Retainage on active contracts is classified as a current asset regardless of the term of the contract. Retainage is generally collected within one year of the completion of a contract, although collection can extend beyond one year from time to time. As of December 31, 2020, retainage receivables aged greater than 365 days approximated 14% of the total retainage balance and collectability was assessed as described in the allowance for doubtful accounts section below.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Credit Losses

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable, including retainage, is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectable.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

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 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 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 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 the Energy Services reporting unit revised 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 experienced significant activity reductions and pricing pressure for its services, which management 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 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.

Impairment Review – Fourth Quarter 2020

In December 2020, the Company’s board of directors approved a plan to sell its Energy Services operating segment. The decision to divest the segment represented a triggering event and the Company evaluated the fair value of the Energy Services disposal group in accordance with FASB ASC 360 and determined fair value exceeded carrying value less costs to sell; thus, no impairment was recorded.

The fair value estimates described above were determined using similar inputs as the fourth quarter 2020 Energy Services goodwill impairment analysis discussed below.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

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;

• significant negative industry or economic trends;

• significant changes in the strategy for a segment including extended slowdowns in the segment’s market;

• a decrease in market capitalization below the Company’s book value; and

• a significant change in regulations.

Whether during the annual impairment assessment or during a trigger-based impairment review, the Company estimates the fair value of its reporting units and compares such fair value to the carrying value of those reporting units to determine if there are any indications of goodwill impairment.

Fair value of reporting units is estimated using a combination of two valuation methods: a market approach and an income approach with each method given equal weight in estimating the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, the Company believes the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic outlooks, which are used to forecast future revenues, earnings and after-tax cash flows for each reporting unit. These assumptions are applied consistently for both methods.

The market approach estimates fair value by first determining earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples for comparable publicly-traded companies with similar characteristics of the reporting unit. The EBITDA multiples for comparable companies are based upon current enterprise value. The enterprise value is based upon current market capitalization and includes a control premium. The Company believes this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to its reporting units.

The income approach is based on forecasted future (debt-free) cash flows that are discounted to present value using factors that consider timing and risk of future cash flows. The Company believes this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on financial forecasts developed from operating plans and economic outlooks, revenue growth rates, EBITDA growth, estimates of future expected changes in operating margins, terminal value growth rates, future capital expenditures and changes in working capital requirements. Estimates of discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to business models, changes in the Company’s weighted average cost of capital, or changes in operating performance.

The discount rate applied to the estimated future cash flows is one of the most significant assumptions utilized under the income approach. The Company determines the appropriate discount rate for each of its reporting units based on the weighted average cost of capital (“WACC”) for each individual reporting unit. The WACC takes into account both the pre-tax cost of debt and cost of equity (including the risk-free rate on twenty year U.S. Treasury bonds), and certain other company-specific and market-based factors. As each reporting unit has a different risk profile based on the nature of its operations, the WACC for each reporting unit is adjusted, as appropriate, to account for company-specific risks. Accordingly, the WACC for each reporting unit may differ.

Impairment Review – Third Quarter 2020

Given the prolonged uncertainty in the oil and gas markets and the market assessment of the Energy Services reporting unit discussed above, the Company evaluated the goodwill of its Energy Services reporting unit during the third quarter of 2020 and determined that a triggering event had occurred. As such, the Company engaged a third-party valuation firm and performed a goodwill impairment review for its Energy Services reporting unit. In accordance with the provisions of FASB ASC 350, the Company determined the fair value of the reporting unit and compared such fair value to the carrying value of the reporting unit. For the Energy Services reporting unit, carrying value exceeded fair value by 31.3%.

Significant assumptions used in the Company’s goodwill review included discount rate, revenue growth rates, operating margins, EBITDA growth, terminal value growth rate and peer group EBITDA multiples.

The values derived from both the income approach and the market approach decreased from the October 1, 2019 annual goodwill impairment analysis. The fair value for the Energy Services reporting unit decreased $67.8 million, or 44.0%, from the previous analysis. The impairment analysis assumed a weighted average cost of capital of 15.0%, which is higher than the 13.0% utilized in the October 1, 2019 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. Offsetting the increase in company-specific risk factors were declining risk-free rates on twenty-year U.S. Treasury bonds. The impairment analysis also assumed an annual revenue growth rate of 3.2%, which was reduced from 3.4% used in the October 1, 2019 review primarily due to an expected continuation of reduced spending by certain customers in 2020 and into 2021. Expected gross margins decreased more than 100 basis points, particularly in the short and intermediate term, primarily due to pricing pressures for maintenance work and continued uncertainty in the demand for higher-margin construction and turnaround projects.

Based on the impairment analysis, the Company determined that recorded goodwill at the Energy Services reporting unit was impaired by $39.4 million, which was recorded to “Goodwill impairment” in the Consolidated Statement of Operations during the third quarter of 2020. As of September 30, 2020, the Company had remaining Energy Services goodwill of $7.3 million. See discussion below and in Note 6 for goodwill testing performed on the Energy Services disposal group during the fourth quarter of 2020.

Annual Impairment Assessment – October 1, 2020

The Company had six reporting units for purposes of assessing goodwill at October 1, 2020 as follows: Municipal Pipe Rehabilitation, Fyfe, Corrpro, United Pipeline Systems, Coating Services and Energy Services.

Significant assumptions used in the Company’s October 2020 goodwill review included: (i) discount rates ranging from 12.7% to 15.7%; (ii) annual revenue growth rates generally ranging from 2.2% to 8.9%; (iii) EBITDA growth; (iv) operating margin stability in the short term related to certain reporting units affected by COVID-19 and the Restructuring, but slightly increased operating margins long term; and (v) peer group EBITDA multiples.

The Company’s assessment of each reporting unit’s fair value in relation to its respective carrying value yielded: (i) no reporting units with a fair value below carrying value; (ii) one reporting unit with a fair value within 10 percent of its carrying value; and (iii) one reporting unit with a fair value within 15 percent of its carrying value. The reporting unit with a fair value within 10 percent of its carrying value was the Energy Services reporting unit, which recorded a partial goodwill impairment and adjusted its carrying value to fair value during the third quarter of 2020. The reporting unit with a fair value within 15 percent of its carrying value was the Fyfe reporting unit, which had $9.8 million of goodwill recorded at the impairment testing date. During 2020, the Fyfe reporting unit was negatively affected by COVID-19 and the impact it had on worldwide construction industries as well as extended stay-at-home orders and economic downturns in certain international operations. Projected cash flows were based on improvements in the construction industry during 2021 and into 2022, especially in certain Asian markets. If these assumptions do not materialize in a manner consistent with the Company’s expectations, there is risk of impairment to recorded goodwill.

Impairment Review – Fourth Quarter 2020

In December 2020, the Company’s board of directors approved a plan to sell its Energy Services operating segment. The decision to divest the segment represented a triggering event for the Energy Services reporting unit (disposal group) goodwill. See further discussion in Note 6.

Fair Value Measurement, Policy [Policy Text Block]

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;

• 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 2020, 2019 or 2018.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

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 2020.

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

	December 31,
Balance sheet data	2020			2019
Current assets	$	24,876	$	18,304
Non-current assets		7,513		7,635
Current liabilities		10,932		8,261
Non-current liabilities		3,279		1,962

	Years Ended December 31,
Statement of operations data		2020		2019(1)			2018(1)(2)
Revenue	$	31,930	$	28,403		$	49,809
Gross profit		10,862		9,508			9,898
Net (income) loss attributable to Aegion Corporation		1,209		(1,100	)		(1,374	)

(1)	Includes activity from our Tite Liner® joint venture in Mexico, which was sold during the fourth quarter of 2019.
(2)	Includes activity from our pipe coating and insulation joint venture in Louisiana, which was sold during the third quarter of 2018.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Standards Updates

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective immediately and can be applied prospectively to contract modifications and hedging relationships entered into or evaluated through December 31, 2022. The Company adopted this standard, the impact of which was not material on the Company’s consolidated financial statements.

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 improve 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 was 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 was 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, the Company is required to use a new forward-looking “expected” credit loss model based on historical loss rates that replaced the previous “incurred” credit loss model, which generally results 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.