0000353020 Aegion Corp false --12-31 Q1 2021 4,051 4,004 0.10 0.10 2,000,000 2,000,000 0 0 0.01 0.01 125,000,000 125,000,000 30,741,907 30,741,907 30,640,150 30,640,150 3 4 2.00 2.00 3.00 3.00 7.75 7.75 2000000 2000000 2 2 Includes activity from our Tite Liner® joint venture in Mexico, which was sold during the fourth quarter of 2019. For the quarter ended March 31, 2021, charges primarily related to certain wind-down costs, reversals of allowances for accounts receivable, 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. Operating income in the first quarter of 2020 includes charges of $0.5 million related to restructuring (see Note 4) and costs of $0.2 million primarily related to the divestiture of certain international operations. Amounts exclude contract assets of $9.0 million and contract liabilities of less than $0.1 million that were classified as held for sale at March 31, 2021 (see Note 5). 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 March 31, 2021 and 2020. During 2020 and 2019, as a result of selling or disposing of certain international entities, $0.3 million and $10.9 million, respectively, was reclassified out of accumulated other comprehensive loss to “Other expense” in the Consolidated Statements of Operations. Other income in the first quarter of 2021 includes gains of $0.1 million related to restructuring (see Note 4) and a gain of $0.2 million related to the divestiture of Bayou. Other income in the first quarter of 2020 includes $0.6 million of restructuring charges (see Note 4) and gains of $0.4 million related to divestitures of Insituform Australia and Insituform Spain (see Note 1). Revenues and gross profit are attributed to the country of origin Amounts exclude operating lease assets of $8.2 million, current liabilities of $2.3 and other liabilities of $6.8 million that were classified as held for sale at March 31, 2021 (see Note 5). Includes Energy Services and Environmental Techniques. For the quarter ended March 31, 2020, charges primarily related to certain wind-down costs, 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. Operating loss in the first quarter of 2020 includes $1.8 million of restructuring charges (see Note 4). Includes Energy Services, Environmental Techniques, Insituform Australia, Insituform Spain and land held at Corporate. Operating loss in the first quarters of 2021 and 2020 includes $0.2 million and $0.7 million, respectively, of restructuring charges (see Note 4) and $5.0 million and $0.7 million, respectively, of divestiture costs. There was no tax impact for the quarters ended March 31, 2021 and 2020 due to the cumulative loss position and full valuation allowance recognized. Amounts exclude contract assets of $9.3 million and contract liabilities of $0.2 million that were classified as held for sale at December 31,2020 (see Note 5). Amounts presented net of tax of $(2) and $13 for the quarters ended March 31, 2021 and 2020, respectively. Amounts exclude operating lease assets of $8.7 million, current liabilities of $2.3 million and other liabilities of $7.3 million that were classified as held for sale at December 31, 2020 (see Note 5). 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Table of Contents

 

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 March 31, 2021

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

 

 

aeghoriz_small.jpg

 

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 30,759,964 shares of Class A common stock, $0.01 par value per share, outstanding at May 3, 2021.

 

1

 

 
 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Consolidated Statements of Operations for the Quarters Ended March 31, 2021 and 2020

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Quarters Ended March 31, 2021 and 2020

4

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

5

 

 

 

 

Consolidated Statements of Equity for the Quarters Ended March 31, 2021 and 2020

6

 

 

 

 

Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2021 and 2020

7

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

Item 1.A.

Risk Factors

48

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

 

Item 4.

Mine Safety Disclosures

49

     
Item 6.

Exhibits

50

 

 

 

SIGNATURE

51

 

2

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

 

  

Quarters Ended March 31,

 
  

2021

  

2020

 

Revenues

 $181,191  $196,312 

Cost of revenues

  138,473   156,025 

Gross profit

  42,718   40,287 

Operating expenses

  36,986   39,023 

Acquisition and divestiture expenses

  4,971   852 

Restructuring and related charges (reversals)

  (25)  1,192 

Operating income (loss)

  786   (780)

Other income (expense):

        

Interest expense

  (2,034)  (2,519)

Interest income

  306   228 

Other

  219   425 

Total other expense

  (1,509)  (1,866)

Loss before tax benefit

  (723)  (2,646)

Tax benefit on loss

  (58)  (110)
Loss from continuing operations  (665)  (2,536)
Income from discontinued operations  2,026   1,233 

Net income (loss)

  1,361   (1,303)

Non-controlling interests income

  (524)  (329)

Net income (loss) attributable to Aegion Corporation

 $837  $(1,632)
         

Earnings (loss) per share attributable to Aegion Corporation:

        
Basic:        
Loss from continuing operations $(0.04) $(0.09)
Income from discontinued operations  0.07   0.04 
Net income (loss) $0.03  $(0.05)
Diluted:        
Loss from continuing operations $(0.04) $(0.09)

Income from discontinued operations

  0.07   0.04 

Net income (loss)

 $0.03  $(0.05)

 

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

 

3

 

 

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

 

  

Quarters Ended March 31,

 
  

2021

  

2020

 

Net income (loss)

 $1,361  $(1,303)

Other comprehensive income (loss):

        
Currency translation adjustments  (868)  (4,637)
Deferred gain (loss) on hedging activity, net of tax (1)  1,318   (5,936)
Pension activity, net of tax (2)  (9)  57 

Total comprehensive income (loss)

  1,802   (11,819)
Comprehensive income attributable to non-controlling interests  (452)  (66)

Comprehensive income (loss) attributable to Aegion Corporation

 $1,350  $(11,885)

 


 

(1) 

There was no tax impact for the quarters ended March 31, 2021 and 2020 due to the cumulative loss position and full valuation allowance recognized.

 

 

(2) 

Amounts presented net of tax of $(2) and $13 for the quarters ended March 31, 2021 and 2020, respectively.

 

 

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

 

4

Table of Contents

 

 

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

 

 

  

March 31, 2021

  

December 31, 2020

 

Assets

        

Current assets

        

Cash and cash equivalents

 $93,275  $94,848 

Restricted cash

  761   765 

Receivables, net of allowances of $4,051 and $4,004, respectively

  126,967   133,394 

Retainage

  30,355   32,807 

Contract assets

  46,924   44,026 

Inventories

  46,655   44,889 

Prepaid expenses and other current assets

  18,788   33,675 

Assets held for sale

  105,609   92,850 

Total current assets

  469,334   477,254 

Property, plant & equipment, less accumulated depreciation

  90,800   92,900 

Other assets

        

Goodwill

  210,125   210,665 

Intangible assets, less accumulated amortization

  56,510   58,869 

Operating lease assets

  52,703   52,421 

Deferred income tax assets

  451   448 

Other non-current assets

  9,033   8,890 

Total other assets

  328,822   331,293 

Total Assets

 $888,956  $901,447 
         

Liabilities and Equity

        

Current liabilities

        

Accounts payable

 $48,328  $51,469 

Accrued expenses

  54,406   59,664 
Operating lease liabilities  14,047   14,147 

Contract liabilities

  32,344   37,569 

Current maturities of long-term debt

  28,991   25,811 

Liabilities held for sale

  41,556   36,148 

Total current liabilities

  219,672   224,808 

Long-term debt, less current maturities

  186,585   193,988 
Other liabilities        

Operating lease liabilities

  39,089   38,724 

Deferred income tax liabilities

  10,143   10,344 

Other non-current liabilities

  23,752   25,218 
Total other liabilities  72,984   74,286 

Total liabilities

  479,241   493,082 
         

(See Commitments and Contingencies: Note 11)

          
         

Equity

        

Preferred stock, undesignated, $0.10 par – shares authorized 2,000,000; none outstanding

      

Common stock, $0.01 par – shares authorized 125,000,000; shares issued and outstanding 30,741,907 and 30,640,150, respectively

  307   306 

Additional paid-in capital

  101,548   102,001 

Retained earnings

  327,974   327,137 

Accumulated other comprehensive loss

  (29,334)  (29,847)

Total stockholders’ equity

  400,495   399,597 

Non-controlling interests

  9,220   8,768 

Total equity

  409,715   408,365 

Total Liabilities and Equity

 $888,956  $901,447 

 

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

 

5

Table of Contents

 

 

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands, except number of shares)

 

 

  

Quarters Ended March 31,

 
  

2021

  

2020

 

Common Stock - Shares

        
Balance, beginning of period  30,640,150   30,715,959 
Issuance of shares pursuant to restricted stock units  167,638   152,596 
Issuance of shares pursuant to performance units  37,796   71,541 

Issuance of shares pursuant to deferred stock units

  2,043    
Shares repurchased and retired  (105,720)  (260,620)
Balance, end of period  30,741,907   30,679,476 
         

Common Stock - Amount

        
Balance, beginning of period $306  $307 
Issuance of shares pursuant to restricted stock units  2   2 
Issuance of shares pursuant to performance units     1 
Shares repurchased and retired  (1)  (3)

Balance, end of period

 $307  $307 
         

Additional Paid-In Capital

        
Balance, beginning of period $102,001  $101,148 
Shares repurchased and retired  (2,491)  (5,045)
Equity-based compensation expense  2,038   2,000 

Balance, end of period

 $101,548  $98,103 
         

Retained Earnings

        
Balance, beginning of period $327,137  $358,998 

Net income (loss) attributable to Aegion Corporation

  837   (1,632)

Balance, end of period

 $327,974  $357,366 
         

Accumulated Other Comprehensive Loss

        
Balance, beginning of period $(29,847) $(32,694)

Currency translation adjustment and derivative transactions, net

  513   (10,253)

Balance, end of period

 $(29,334) $(42,947)
         

Non-Controlling Interests

        

Balance, beginning of period

 $8,768  $7,334 

Net income

  524   329 

Currency translation adjustment, net

  (72)  (263)

Balance, end of period

 $9,220  $7,400 
         

Total Equity

        

Balance, beginning of period

 $408,365  $435,093 

Net income (loss)

  1,361   (1,303)

Issuance of shares pursuant to restricted stock units

  2   2 

Issuance of shares pursuant to performance units

     1 

Shares repurchased and retired

  (2,492)  (5,048)

Equity-based compensation expense

  2,038   2,000 

Currency translation adjustment and derivative transactions, net

  441   (10,516)

Balance, end of period

 $409,715  $420,229 

 

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

 

6

Table of Contents

 

 

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

  

Quarters Ended March 31,

 
  

2021

  

2020

 

Cash flows from operating activities:

        
Net income (loss) $1,361  $(1,303)
Income from discontinued operations  (2,026)  (1,233)
   (665)  (2,536)

Adjustments to reconcile to net cash provided by (used in) operating activities:

        
Depreciation and amortization  7,120   7,226 
Gain on sale of fixed assets  (119)  (32)
Equity-based compensation expense  2,038   2,000 
Deferred income taxes  (176)  (866)
Non-cash restructuring charges  (110)  463 
Gain on sale of businesses  (230)  (436)
(Gain) loss on foreign currency transactions  107   (588)
Other  389   145 

Changes in operating assets and liabilities:

        
Receivables net, retainage and contract assets  5,813   (54)
Inventories  (1,777)  4,431 
Prepaid expenses and other assets  6,512   (1,649)
Accounts payable  (3,596)  (1,710)
Accrued expenses  (5,909)  (12,327)
Operating lease liabilities  (130)  706 
Contract liabilities  (5,287)  2,357 
Other operating  (202)  (420)
Net cash provided by (used in) operating activities of continuing operations  3,778   (3,290)
Net cash used in operating activities of discontinued operations  (2,585)  (4,829)

Net cash provided by (used in) operating activities

  1,193   (8,119)
         

Cash flows from investing activities:

        
Capital expenditures  (2,748)  (5,457)
Proceeds from sale of fixed assets  285   125 
Patent expenditures  (50)  (86)
Proceeds from sale of businesses, net of cash disposed  8,444   3,358 
Net cash provided by (used in) investing activities of continuing operations  5,931   (2,060)
Net cash used in investing activities of discontinued operations  (1,628)  (677)

Net cash provided by (used in) investing activities

  4,303   (2,737)
         

Cash flows from financing activities:

        
Repurchase of common stock  (2,490)  (5,045)
Proceeds from notes payable  1,257    
Proceeds from line of credit, net     34,000 
Principal payments on long-term debt  (5,783)  (8,750)

Net cash provided by (used in) financing activities

  (7,016)  20,205 
Effect of exchange rate changes on cash  (57)  (1,291)

Net increase (decrease) in cash, cash equivalents and restricted cash for the period

  (1,577)  8,058 
Cash, cash equivalents and restricted cash, beginning of year  95,613   66,222 

Cash, cash equivalents and restricted cash, end of period

 $94,036  $74,280 
         
Supplemental disclosures of cash flow information:        
Noncash investing activities:        
Accruals for equipment received $543  $826 

 

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

 

7

Table of Contents

 

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, 2020, 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 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2021.

 

Strategic Initiatives/Acquisitions/Divestitures

 

Pending Merger

 

On February 16, 2021, the Company entered into a definitive agreement and plan of merger with affiliates of New Mountain Capital, L.L.C., a leading growth-oriented investment firm headquartered in New York (the “Merger Agreement”). The Merger Agreement was amended on March 13, 2021 and April 13, 2021. The transaction is valued at approximately $1.1 billion, or $30.00 per common share, and was unanimously approved by the Company’s board of directors. Upon completion of the transaction, Aegion will become a private company and shares of Aegion common stock will no longer be listed on any public market. All necessary regulatory approvals have been completed and the transaction is expected to close shortly following a special meeting of the Company’s stockholders that has been called in order for the stockholders to vote on, among other things, the adoption of the Merger Agreement. The stockholder meeting is currently scheduled for May 14, 2021. In connection with the merger, any unvested restricted stock units and performance stock units will become fully vested at the time of the completed transaction and convert into the right to receive a cash payment equal to the per share merger consideration. This conversion could be material. The Merger Agreement also includes customary termination provisions for both parties, subject, in certain circumstances, to the payment by the Company of a termination fee of $50,000,000.

 

Discontinued Operations

 

In December 2020, the Company’s board of directors approved a divestiture plan for the Energy Services reportable segment (“Energy Services”). This decision reflects an advancement of the Company’s strategy to expand its focus on core water and wastewater markets, while reducing its exposure to the oil and gas markets. The results of the former Energy Services segment are presented as discontinued operations and have been excluded from both continuing operations and segment results for the quarters ended March 31, 2021 and 2020. The Company has classified Energy Services’s assets and liabilities as held for sale on the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. See Note 5.

 

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 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.

 

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.

 

During 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 March 31, 2021 and December 31, 2020. The Company temporarily suspended the sales process for Environmental Techniques due to COVID-19 and expects to recommence the process during the second half of 2021. See Note 5.

 

Corrosion Protection Segment (“Corrosion Protection”)

 

In August 2018, the Company sold substantially all of the assets of its wholly-owned subsidiary, The Bayou Companies, LLC and its fifty-one percent (51%) interest in Bayou Wasco Insulation, LLC (collectively “Bayou”). The sale price included an $8 million fully secured loan payable to Aegion. During the first quarter of 2021, the loan was paid in full.

 

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):

 

  

March 31, 2021

  

December 31, 2020

 

Currency translation adjustments

 $(20,556) $(19,760)
Derivative hedging activity  (7,700)  (9,018)
Pension activity  (1,078)  (1,069)

Total accumulated other comprehensive loss

 $(29,334) $(29,847

)

 

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 $0.1 million and gains of $0.6 million in the first quarters of 2021 and 2020, 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 valuation allowances recorded against net deferred tax assets.

 

Earnings per Share

 

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

 

  

Quarters Ended March 31,

 
  

2021

  

2020

 

Weighted average number of common shares used for basic EPS

  30,676,888   30,716,802 

Effect of dilutive stock options and restricted and deferred stock unit awards

      

Weighted average number of common shares and dilutive potential common stock used for dilutive EPS

  30,676,888   30,716,802 

 

The Company excluded 637,420 and 553,766 restricted and deferred stock units for the quarters ended March 31, 2021 and 2020, 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.

 

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.

 

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 quarters ended March 31, 2021 and 2020.

 

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.

 

In the first quarter of 2021, the Company entered into an agreement with STS International Holdings LTD (“STS”) to form a joint venture, United Special Technical Services Arabia Company Limited (“USTS-Saudi Arabia”) for the purpose of executing pipeline, piping and flowline high-density polyethylene lining services primarily in Saudi Arabia. Pursuant to the agreement, the Company will hold a fifty-one percent (51%) equity interest in USTS-Saudi Arabia and STS will hold the other forty-nine percent (49%) equity interest. Certain business in Saudi Arabia is currently conducted by the Company’s Omani joint venture with STS and will be migrated to USTS-Saudi Arabia. The Company expects USTS-Saudi Arabia to be operational by the second half of 2021. There were no other changes in the Company’s VIEs during the quarter ended March 31, 2021.

 

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

 

Balance sheet data

 

March 31, 2021

  

December 31, 2020

 

Current assets

 $26,575  $24,876 

Non-current assets

  7,724   7,513 

Current liabilities

  11,824   10,932 

Non-current liabilities

  3,438   3,279 

 

  

Quarters Ended March 31,

 

Statement of operations data

 

2021

  

2020

 

Revenue

 $9,092  $7,729 

Gross profit

  3,009   2,303 

Net income attributable to Aegion Corporation

  481   285 

 

Newly Issued Accounting Pronouncements

 

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.

 

10

 
 

3.

REVENUES

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in FASB ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts in which construction, engineering and installation services are provided, there is generally a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The bundle of goods and services represents the combined output for which the customer has contracted. For product sales contracts with multiple performance obligations where each product is distinct, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good in the contract. For royalty license agreements whereby intellectual property is transferred to the customer, there is a single performance obligation as the license is not separately identifiable from the other goods and services in the contract.

 

The Company’s performance obligations are satisfied over time as work progresses or at a point in time. Revenues from products and services transferred to customers over time accounted for 86.3% and 86.5% of revenues for the quarters ended March 31, 2021 and 2020, respectively. Revenues from construction, engineering and installation services are recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress toward satisfying performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, general and administrative expenses. Revenues from maintenance contracts are structured such that the Company has the right to consideration from a customer in an amount that corresponds directly with the performance completed to date. Therefore, the Company utilizes the practical expedient in FASB ASC 606-55-255, which allows the Company to recognize revenue in the amount to which it has the right to invoice. Applying this practical expedient, the Company is not required to disclose the transaction price allocated to remaining performance obligations under these agreements. Revenues from royalty license arrangements are recognized either at contract inception when the license is transferred or when the royalty has been earned, depending on whether the contract contains fixed consideration. Revenues from stand-alone product sales are recognized at a point in time, when control of the product is transferred to the customer. Revenues from these types of contracts accounted for 13.7% and 13.5% of revenues for the quarters ended March 31, 2021 and 2020, respectively.

 

On March 31, 2021, the Company had $446.6 million of remaining performance obligations from construction, engineering and installation services. The Company estimates that approximately $440.1 million, or 98.5%, of the remaining performance obligations at March 31, 2021 will be realized as revenues in the next 12 months.

 

Contract Estimates

 

Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract, and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that sometimes span multiple years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.

 

The Company’s contracts do not typically contain variable consideration or other provisions that increase or decrease the transaction price. In rare situations where the transaction price is not fixed, the Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. For royalty license agreements, the Company applies the sales-based and usage-based royalty exception and recognizes royalties at the later of: (i) when the subsequent sale or usage occurs; or (ii) the satisfaction or partial satisfaction of the performance obligation to which some or all of the sales-or usage-based royalty has been allocated. For contracts in which a portion of the transaction price is retained and paid after the good or service has been transferred to the customer, the Company does not recognize a significant financing component. The primary purpose of the retainage payment is often to provide the customer with assurance that the Company will perform its obligations under the contract, rather than to provide financing to the customer.

 

The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.

 
11

 

Revenue by Category

 

The following tables summarize revenues by segment and geography (in thousands):

 

  

Quarter Ended March 31, 2021

  

Quarter Ended March 31, 2020

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Total

  

Infrastructure Solutions

  

Corrosion Protection

  

Total

 

Geographic region:

                        

United States

 $97,362  $27,746  $125,108  $103,418  $38,739  $142,157 

Canada

  15,545   8,551   24,096   11,023   10,832   21,855 

Europe

  6,203   3,023   9,226   7,642   3,029   10,671 

Other foreign

  7,452   15,309   22,761   8,161   13,468   21,629 

Total revenues

 $126,562  $54,629  $181,191  $130,244  $66,068  $196,312 

 

The following tables summarize revenues by segment and contract type (in thousands):

 

  

Quarter Ended March 31, 2021

  

Quarter Ended March 31, 2020

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Total

  

Infrastructure Solutions

  

Corrosion Protection

  

Total

 

Contract type:

                        

Fixed fee

 $109,047  $34,221  $143,268  $112,511  $44,255  $156,766 

Time and materials

     13,075   13,075      12,970   12,970 

Product sales

  17,504   7,333   24,837   17,733   8,843   26,576 

License fees

  11      11          

Total revenues

 $126,562  $54,629  $181,191  $130,244  $66,068  $196,312 

 

12

 

Contract Balances

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets and contract liabilities on the Consolidated Balance Sheets. Contract assets represent work performed that could not be billed either due to contract stipulations or the required contractual documentation has not been finalized. Substantially all unbilled amounts are expected to be billed and collected within one year.

 

For fixed fee and time-and-materials based contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. For some royalty license arrangements, minimum amounts are billed over the license term as quarterly royalty amounts are determined. This results in contract assets as the Company recognizes revenue for the license when the license is transferred to the customer at contract inception. The Company’s contract liabilities consist of advance payments, billings in excess of revenue recognized and deferred revenue.

 

The Company’s contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Advance payments, billings in excess of revenue recognized and deferred revenue are each classified as current.

 

Net contract assets (liabilities) consisted of the following (in thousands):

 

  

March 31, 2021 (1)

  

December 31, 2020 (2)

 

Contract assets – current

 $46,924  $44,026 

Contract liabilities – current

  (32,344)  (37,569)

Net contract assets

 $14,580  $6,457 

 

 (1)Amounts exclude contract assets of $9.0 million and contract liabilities of less than $0.1 million that were classified as held for sale at March 31, 2021 (see Note 5).
 (2)Amounts exclude contract assets of $9.3 million and contract liabilities of $0.2 million that were classified as held for sale at December 31, 2020 (see Note 5).

 

Substantially all of the $37.6 million and $37.5 million contract liabilities balances at December 31, 2020 and December 31, 2019, respectively, were recognized in revenues during the first quarters of 2021 and 2020, respectively.

 

13

 
 

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 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 was temporarily suspended due to COVID-19, but the Company expects to recommence the sale process during the second half of 2021.

 

As part of efforts to optimize the cathodic protection operations in North America, management initiated plans during 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 expected 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 2019, the Company reduced corporate headcount and took other actions to reduce corporate costs.

 

Although not part of the original outlined restructuring plan, during 2020, the Company executed additional headcount reductions and office closings across the Company related to business slowdowns and to balance the effects of COVID-19. The Company also implemented further actions at its cathodic protection operations in North America to reduce exposure to construction activities, including additional headcount reductions and office closures. Additionally, the Company dissolved its specialty turnaround services business, P2S ServTech, LLC (“P2S”), which is reported within discontinued operations.

 

Total pre-tax restructuring and related impairment charges since inception were $188.8 million ($171.7 million post-tax) and consisted of cash charges totaling $57.5 million and non-cash charges totaling $131.3 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) $44.9 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 830 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.

 

14

 

During the quarters ended March 31, 2021 and 2020, the Company recorded pre-tax expenses related to the Restructuring as follows (in thousands):

 

  

Quarter Ended March 31, 2021

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Corporate

  

Continuing Operations

  

Discontinued Operations

  

Total

 

Severance and benefit related costs

 $  $(60) $(4) $(64) $  $(64)

Contract termination costs

     38      38      38 

Relocation and other moving costs

     1      1      1 

Other restructuring costs (1)

  (94)  12   206   124      124 

Total pre-tax restructuring charges

 $(94) $(9) $202  $99  $  $99 

 

 

(1) 

For the quarter ended March 31, 2021, charges primarily related to certain wind-down costs, reversals of allowances for accounts receivable, 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.

 

  

Quarter Ended March 31, 2020

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Corporate

  

Continuing Operations

  

Discontinued Operations

  

Total

 

Severance and benefit related costs

 $  $863  $275  $1,138  $  $1,138 

Contract termination costs

     54      54   62   116 

Relocation and other moving costs

              34   34 

Other restructuring costs (1)

  361   979   995   2,335      2,335 

Total pre-tax restructuring charges

 $361  $1,896  $1,270  $3,527  $96  $3,623 

 

 (1)For the quarter ended March 31, 2020, charges primarily related to certain wind-down costs, 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.

 

Restructuring costs related to severance, other termination benefit costs and early contract termination costs were less than $0.1 million and $1.2 million for the quarters ended March 31, 2021 and 2020, respectively, and are reported on a separate line in the Consolidated Statements of Operations.

 

15

 

The following tables summarize all charges related to the Restructuring recognized in the quarters ended March 31, 2021 and 2020 as presented in their affected line in the Consolidated Statements of Operations (in thousands):

 

  

Quarter Ended March 31, 2021

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Corporate

  

Continuing Operations

  

Discontinued Operations

  

Total (1)

 

Cost of revenues

 $  $8  $  $8  $  $8 

Operating expenses

  10   4   206   220      220 

Restructuring and related charges (reversals)

     (21)  (4)  (25)     (25)

Other expense

  (104)        (104)     (104)

Total pre-tax restructuring charges

 $(94) $(9) $202  $99  $  $99 

 

 

(1) 

Total pre-tax restructuring charges for the quarter ended March 31, 2021 include cash charges of $0.2 million and a non-cash benefit of $0.1 million. Cash charges consist of charges incurred during the quarter that will be settled in cash, either during the current period or future periods.

 

  

Quarter Ended March 31, 2020

 
  

Infrastructure Solutions

  

Corrosion Protection

  

Corporate

  

Continuing Operations

  

Discontinued Operations

  

Total (1)

 

Cost of revenues

 $17  $306  $  $323  $  $323 

Operating expenses

  449   551   381   1,381      1,381 

Restructuring and related charges (reversals)

     917   275   1,192      1,192 

Other expense

  (105)  122   614   631      631 

Income from discontinued operations

              96   96 

Total pre-tax restructuring charges

 $361  $1,896  $1,270  $3,527  $96  $3,623 

 

 

(1) 

Total pre-tax restructuring charges for the quarter ended March 31, 2020 include cash charges of $3.1 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.

 

16

 

The following tables summarize restructuring activity during the first quarters of 2021 and 2020 (in thousands):

 

              

Utilized in 2021

     
  Reserves at December 31, 2020  

2021 Charge to Income

  

Foreign Currency Translation

  

Cash(1)

  

Non-Cash

  

Reserves at March 31, 2021

 
Severance and benefit related costs $1,777  $(64) $15  $1,067  $  $661 
Contract termination costs  25   38      63       
Relocation and other moving costs  123   1      61      63 
Other restructuring costs  2,082   124   (72)  704   (110)  1,540 

Total pre-tax restructuring charges

 $4,007  $99  $(57) $1,895  $(110) $2,264 

 

 

(1) 

Refers to cash utilized to settle charges during the first quarter of 2021.

 

 

              

Utilized in 2020

     
  Reserves at December 31, 2019  

2020 Charge to Income

  

Foreign Currency Translation

  

Cash(1)

  

Non-Cash

  

Reserves at March 31, 2020

 

Severance and benefit related costs

 $4,389  $1,138  $(16) $1,973  $  $3,538 

Contract termination costs

  953   116   (6)  177      886 

Relocation and other moving costs

  367   34   3   70      334 

Other restructuring costs

  2,379   2,335   (21)  3,042   463   1,188 

Total pre-tax restructuring charges

 $8,088  $3,623  $(40) $5,262  $463  $5,946 

 

 

(1) 

Refers to cash utilized to settle charges during the first quarter of 2020.

 

 

17

 
 

5.

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 represented 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 had historically been a separate reportable segment with exclusive operations in the United States. 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 quarters ended March 31, 2021 and 2020. Financial information included in net income from discontinued operations for the former Energy Services segment is as follows:

 

  

Quarters Ended March 31,

 
  

2021