What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-27 · 367 added, 310 removed, 851 unchanged (44% of the section changed)

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Mistras Group, Inc.:

Opinion on the Consolidated Financial Statements

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mistras Group, Inc.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S.

We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 27, 2020 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 2013.

Short Hills, New Jersey

March 27, 2020

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Mistras Group, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Mistras Group, Inc.

and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated March 27, 2020 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material weaknesses have been identified and included in management’s assessment related to risk assessment not sufficiently considering changes in business processes and not having a sufficient complement of trained resources with knowledge of financial reporting processes and internal control related to accounting for income taxes.

As a consequence, process level controls over the completeness, existence, accuracy, valuation and presentation of the income tax provision, including deferred tax assets and liabilities and valuation allowance, were not effective.

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired New Century Software, LLC during 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, New Century Software, LLC’s internal control over financial reporting associated with total assets of 0.2% and total revenues of 0.3% included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of New Century Software, LLC.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of goodwill for the services and European reporting units

As discussed in Note 1 to the consolidated financial statements, the company tests goodwill for impairment annually on October 1 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The company considers the income and market approaches to estimate the fair value of its reporting units.

As of December 31, 2020, the Company had goodwill of $206.0 million, of which a portion related to the services and European reporting units.

During the year ended December 31, 2020, the Company recognized goodwill impairment charges of $77.1 million, of which $57.2 million pertained to the services reporting unit and $19.3 million pertained to the European reporting unit.

We identified the evaluation of goodwill impairment for the services and European reporting units as a critical audit matter.

Auditor judgment was required to evaluate the selection of discount rates, revenue growth rates, gross margins, and selling, general, and administrative expense used in the income approach as they represented subjective determinations of future market or economic conditions.

Additionally, the audit effort associated with the evaluation of goodwill for impairment for the services and European reporting units required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment evaluation process, including controls related to management’s selection of discount rates, revenue growth rates, gross margins, and selling, general, and administrative expense.

We evaluated the reasonableness of management’s forecasted revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the forecasts to historical revenue growth rates, gross margins, and selling, general, and administrative expense and relevant industry reports.

We evaluated the Company’s ability to accurately estimate future revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the historical projected revenue growth rates, gross margins, and selling, general, and administrative expense to actual results for the same period.

In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:

• evaluating the Company’s methodology used to estimate the discount rates

• evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities

• testing the estimate of fair value of the services and European reporting units by using the Company’s projected cash flows as well as our discount rate range and comparing the results to the Company’s fair values.

Assessment of impairment of a certain asset group within the services segment

As discussed in Note 1 to the consolidated financial statements, the company reviews the recoverability of its long-lived asset groups whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable.

The assessment for potential impairment is based on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows.

If the total expected future undiscounted cash flows are less than the carrying amount of the assets, an impairment loss is recognized for the amount by which the carrying amount of the asset group exceeds its fair value.

The company considers the income and market approaches to estimate the fair value of its asset groups.

During the year ended December 31, 2020, the Company recognized long-lived asset impairment charges of $28.8 million of which $28.5 million related to a certain asset group within the services segment.

We identified the assessment of impairment of a certain asset group as a critical audit matter.

Auditor judgment was required to evaluate the selection of the discount rate, revenue growth rates, gross margins, and selling, general, and administrative expense used in the income approach as they represented subjective determinations of future market or

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economic conditions.

Additionally, the audit effort associated with the evaluation of the asset group for impairment required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s long-lived asset impairment evaluation process, including controls related to management’s selection of the discount rate, revenue growth rates, gross margins, and selling, general, and administrative expense.

We evaluated management’s forecasted revenue growth rates, gross margins, and selling, general, and administrative expense by comparing them to historical revenue growth rates, gross margins, and selling, general, and administrative expense and relevant industry reports.

In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:

• evaluating the Company’s methodology used to estimate the discount rate

• evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities

• testing the estimate of fair value of the asset group by using the Company’s projected cash flows as well as our discount rate range and comparing the results to the Company’s fair value.

We have served as the Company’s auditor since 2013

Short Hills, New Jersey

March 16, 2021

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Mistras Group, Inc.

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Additional paid-in capital 234,638 229,205

Retained earnings 77,613 71,553

Retained earnings (deficit) ( 21,848 ) 77,613

Accumulated other comprehensive loss ( 16,061 ) ( 21,285 )

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

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Mistras Group, Inc.

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Acquisition-related expense, net 337 875 532

Litigation charges — — 1,600

Income from operations 24,137 22,221 4,160

Income (loss) from operations ( 101,217 ) 24,137 22,221

Interest expense 12,955 13,698 7,950

Income (loss) before provision for income taxes ( 114,172 ) 10,439 14,271

Provision for income taxes 4,359 7,426 1,942

Provision (benefit) for income taxes ( 14,706 ) 4,359 7,426

Net income (loss) ( 99,466 ) 6,080 6,845

net income attributable to noncontrolling interests, net of taxes 20 9 7

net income (loss) attributable to noncontrolling interests, net of taxes ( 5 ) 20 9

Net income (loss) attributable to Mistras Group, Inc.

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

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Mistras Group, Inc.

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Comprehensive income (loss) ( 94,239 ) 12,355 ( 3,912 )

net income attributable to noncontrolling interests 20 9 7

net income (loss) attributable to noncontrolling interests ( 5 ) 20 9

Foreign currency translation adjustments attributable to noncontrolling interests 3 3 ( 5 )

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

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Mistras Group, Inc.

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(in thousands)

Common Stock Treasury Stock Additional

Common Stock Additional

paid-in capital

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Noncontrolling Interest

Shares Amount Shares Amount Total Equity

Shares Amount Total Equity

Balance at December 31, 2017 28,295 $ 282 $ 222,425 $ 64,717 $ ( 16,805 ) $ 270,619 $ 173 $ 270,792

Net loss — — — — — ( 2,175 ) — ( 2,175 ) 7 ( 2,168 )

Other comprehensive income, net of tax — — — — — — 12,919 12,919 4 12,923

Net income — — — 6,836 — 6,836 9 6,845

Other comprehensive loss, net of tax — — — — ( 10,752 ) ( 10,752 ) ( 5 ) ( 10,757 )

Share-based payments 243 3 6,106 — — 6,109 — 6,109

Net settlement on vesting of restricted stock units — — ( 2,188 ) — — ( 2,188 ) — ( 2,188 )

Retirement of treasury stock ( 1,146 ) ( 12 ) 1,146 24,923 — ( 24,911 ) — — — —

Purchase of treasury stock — — ( 726 ) ( 15,923 ) — — — ( 15,923 ) — ( 15,923 )

Exercise of stock options 25 — 273 — — 273 — 273

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Balance at December 31, 2019 28,945 $ 289 $ 229,205 $ 77,613 $ ( 21,285 ) $ 285,822 $ 200 $ 286,022

Net income — — — — — 6,060 — 6,060 20 6,080

Net loss — — — ( 99,461 ) — ( 99,461 ) ( 5 ) ( 99,466 )

Other comprehensive income, net of tax — — — — 5,224 5,224 3 5,227

Share-based payments — — 5,930 — — 5,930 — 5,930

Net settlement of options and restricted stock units 349 4 — — ( 3,202 ) — — ( 3,198 ) — ( 3,198 )

Exercise of stock options 3 — — — 32 — — 32 — 32

Net settlement of restricted stock units 289 3 ( 497 ) — — ( 494 ) — ( 494 )

Balance at December 31, 2020 29,234 $ 292 $ 234,638 $ ( 21,848 ) $ ( 16,061 ) $ 197,021 $ 198 $ 197,219

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

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Mistras Group, Inc.

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Impairment charges 106,062 — —

Bad debt provision for troubled customers 3,038 650 1,200

Bad debt provision for troubled customers, net of recoveries — 3,038 650

Foreign currency (gain) loss 3,010 ( 535 ) 1,311

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Other 2,398 1,804 462

Changes in operating assets and liabilities, net of effect of acquisitions

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions

Accounts receivable 27,313 8,298 ( 10,349 )

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Payment of contingent consideration for business acquisitions ( 2,091 ) ( 852 ) ( 2,277 )

Purchases of treasury stock — — ( 15,923 )

Taxes paid related to net share settlement of share-based awards ( 494 ) ( 3,198 ) ( 2,185 )

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Supplemental disclosure of cash paid

Interest $ 14,158 $ 7,751 $ 4,264

Income taxes $ 6,096 $ 10,983 $ 3,063

Interest, net $ 12,465 $ 14,158 $ 7,751

Income taxes, net $ ( 543 ) $ 6,096 $ 10,983

Noncash investing and financing

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

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Mistras Group, Inc.

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Mistras Group, Inc.

and subsidiaries (the Company) is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial, public infrastructure and commercial aerospace components.

The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI), non-destructive testing (NDT) and mechanical services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management.

These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters.

and subsidiaries (the Company) is a leading “OneSource™” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for civilization's most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, the Company helps clients in the oil and gas, aerospace and defense, power generation, infrastructure, and manufacturing industries towards achieving and maintaining operational excellence.

By supporting these organizations that help fuel our vehicles and power our society;

inspecting components that are trusted for commercial, defense, and space craft;

and building real-time monitoring equipment to enable safe travel across bridges, the Company helps the world at large.

The Company enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions.

The company's core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, commercial aerospace and defense, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries, and research and engineering institutions.

Principles of Consolidation

The Company follows guidance on the consolidation of variable interest entities (VIEs) that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE.

The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct the activities that most significantly impact the VIE’s economic performance, including powers granted to the VIE’s program manager, powers contained in the VIE governing board and, to a certain extent, a company’s economic interest in the VIE.

The Company analyzes its joint ventures and classifies them as either:

• a VIE that must be consolidated because the Company is the primary beneficiary, or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners;

• a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest.

As part of the above analysis, if it is determined that the Company has the power to direct the activities that most significantly impact the joint venture’s economic performance, the Company considers whether or not it has the obligation to absorb losses or rights to receive benefits of the VIE that could potentially be significant to the VIE.

The Company became the primary beneficiary in July 2020 of a VIE in which the Company has a 49 % interest in a limited partnership, and a 49 % shareholder in the corporate general partner of the limited partnership.

The Company consolidated the financial statements of the VIE with the financial statements of the Company.

As of and the for the year ended December 31, 2020, the VIE had immaterial assets and had no revenue.

The Company is the primary sub-contractor of the VIE.

The accompanying audited consolidated financial statements include the accounts of Mistras Group, Inc.

and its wholly and majority-owned subsidiaries.

as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated VIE.

For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying consolidated balance sheets.

The non-controlling interests in net income, net of tax, is classified separately in the accompanying consolidated statements of income (loss).

The non-controlling interests in net results, net of tax, is classified separately in the accompanying consolidated

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statements of income (loss).

All significant intercompany accounts and transactions have been eliminated in consolidation.

The results of operations of companies acquired are included from the date of acquisition.

Reclassifications

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The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated net of an allowance for doubtful accounts and sales allowances.

Outstanding accounts receivable balances are reviewed periodically, and allowances are provided at such time that management believes it is probable that such balances will not be collected within a reasonable period of time, to the extent reasonably estimable.

The Company extends credit to its customers based upon credit evaluations in the normal course of business, primarily with 30-day terms.

Bad debts are provided for based on historical experience and management’s evaluation of outstanding accounts receivable.

Accounts are written off when they are deemed uncollectible under GAAP accounting standards.

Accounts Receivable and Allowance for Credit Losses (formerly Allowance for Doubtful Accounts)

The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable.

Beginning January 1, 2020, when evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms (primarily with 30 day terms), geographic location, historical loss experience, current information, and future expectations (generally considered one year which is consistent with expected collectability of the Company's trade receivables).

The Company monitors and considers whether historical loss rates are consistent with expectation of supportable forward-looking estimates for its trade receivables noting no current or future economic considerations that would require adjusting the Company’s historical loss experience.

Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis.

Changes to the allowance for credit losses are adjusted through credit loss expense, which is presented within Selling, general and administrative expenses in the Consolidated statements of income.

During the year ended December 31, 2020, the Company recorded a net provision for expected credit losses of $ 0.7 million.

Concentration of Credit Risk

For each of the years ended December 31, 2020 and 2019, no customer represented 10% or more of the Company's revenue.

One customer represented 11 % of the Company's revenue for the year ended December 31, 2017, which was primarily generated from the Services segment.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

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Capitalized costs are amortized on a straight-line basis over three years , the estimated useful life of the software.

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Property, Plant and Equipment

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Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary.

If the Company concludes otherwise, the Company is required to perform a quantitative impairment test.

If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired.

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The Company considers the income and market approaches to estimating the fair value of our reporting units, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors.

See Note 8- Goodwill for additional information related to the Company's goodwill impairment tests during 2020.

Impairment of Long-lived Assets

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Advertising, Promotions and Marketing

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The costs for advertising, promotion and marketing programs are expensed as incurred and are included in selling, general and administrative expenses.

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Income and expenses are translated at the average exchange rate during the period.

Translation gains and losses are reported as a component of other comprehensive (loss) income for the period and included in accumulated other comprehensive (loss) income within stockholders’ equity.

Translation gains and losses are reported as a component of other comprehensive income (loss) for the period and included in accumulated other comprehensive income (loss) within stockholders’ equity.

Foreign currency (gains) and losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in selling, general and administrative expenses, and were approximately $ 3.1 million, $( 0.5 ) million, and $ 1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The value of services received from employees and directors in exchange for an award of an equity instrument is measured based on the grant-date fair value of the award.

Such value is recognized as a non-cash expense on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of awards with graded vesting that contain an internal performance measure where each tranche is recognized on a straight-line basis over its vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned.

Such value is recognized as a non-cash expense on a straight-line basis over the minimum period the individual provides services, which is typically the vesting period of the award with the exception of awards with graded vesting that contain an internal performance measure where each tranche is recognized on a straight-line basis over its vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned.

Awards to certain employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award.

As share-based compensation expense is based on awards ultimately expected to vest, the amount of expense is reduced for estimated forfeitures.

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A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized.

Financial accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

These standards also provide guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required.

A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.

US GAAP prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

US GAAP also provides guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required.

Interest and penalties related to unrecognized tax positions are recognized as incurred within “provision for income taxes” in the consolidated statements of income.

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In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020.

The CARES Act, among other things, includes tax provisions relating to deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The ultimate impact of the CARES Act may differ from the estimated impact the Company recorded during this period due to changes in interpretations and guidance that may be issued and actions the Company may take in response to the CARES Act.

The Company will continue to assess the impact that various provisions of the CARES Act, and how they are interpreted and effected, will have on its business.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.

2016-02, Leases (Topic 842) , which the Company adopted as of January 1, 2019.

Topic 842 requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet.

The Company elected the modified retrospective method permitted by the standard, upon which prior-period information has not been restated.

The standard provided for several practical expedient options for use in transition.

The Company elected to utilize the “package of practical expedients,” which permits the Company not to reassess previous conclusions reached on lease identification, lease classification and initial direct costs.

The Company also elected to utilize the practical expedient available to not separate lease and non-lease components within the lease and has therefore accounted for all lease components as a single lease component.

Adoption of the new standard resulted in the recording of a right-of-use (ROU) asset and liability related to the Company’s operating leases of approximately $ 38 million as of January 1, 2019.

The new standard did not have a material impact to our statements of income or cash flows.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other (Topic 350).

This amendment eliminates Step Two of the goodwill impairment test.

Under the amendments in this update, entities should perform the annual goodwill impairment test by comparing the carrying value of their reporting units to their fair value.

An entity should record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

Tax deductibility of goodwill should be considered in evaluating any reporting unit's impairment loss to be taken.

ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company early adopted ASU 2017-04 in the third quarter of 2017 for its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

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Early adoption is permitted, with any adjustments reflected as of the beginning of the fiscal year of adoption.

If early adoption is elected, all changes as a result of the standard must be adopted in the same period.

The Company did not elect early adoption and is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows.

The majority of the Company's revenues are derived from providing services on a time and material basis and are short-term in

The Company derives the majority of its revenue by providing services on a time and material basis and are short-term in

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Performance Obligations

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A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The majority of our contracts have 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 is, therefore, not distinct.

The majority of the Company's contracts have 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 is, therefore, not distinct.

The Company provides highly integrated and bundled inspection services to its customers.

Some of our contracts have multiple performance obligations, most commonly due to the contract providing both goods and services.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company's best estimate of the standalone selling price of each distinct good or service in the contract.

The primary method used to estimate standalone selling price is a relative selling price based on price lists.

Contract modifications are not routine in the performance of our contracts.

Contract modifications are not routine in the performance of the Company's contracts.

Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided.

In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract.

Our performance obligations are satisfied over time as work progresses or at a point in time.

The majority of our revenue recognized over time as work progresses is related to our service deliverables, which includes providing testing, inspection and mechanical services to our customers.

The Company's performance obligations are satisfied over time as work progresses or at a point in time.

The majority of the Company's revenue recognized over time as work progresses is related to the Company's service deliverables, which includes providing testing, inspection and mechanical services to our customers.

Revenue is recognized over time based on time and material incurred to date which best portrays the transfer of control to the customer.

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Revenue is recognized on a cost-to-cost method tracked on an input basis.

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The majority of our revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer.

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Contract Estimates

The majority of our revenues are short-term in nature.

The Company has many Master Service Agreements (MSAs) that specify an overall framework and terms of contract when the Company and customers agree upon services or products to be provided.

The majority of the Company's revenues are short-term in nature.

The Company has many master service agreements (MSAs) that specify an overall framework and contract terms when the Company and customers agree upon services or products to be provided.

The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided.

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This includes contract estimates of costs to be incurred for the performance of the contract.

Cost estimation is based upon the professional knowledge and experience of our project managers, engineers and financial professionals.

Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in our project performance and the recoverability of any claims.

Cost estimation is based upon the professional knowledge and experience of the Company's project managers, engineers and financial professionals.

Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company's project performance and the recoverability of any claims.

Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Revenue by category

The following series of tables present our disaggregated revenues:

The following series of tables present our disaggregated revenues by segment:

Revenue by industry was as follows:

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Total $ 595,130 $ 144,271 $ 18,583 $ ( 9,398 ) $ 748,586

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Year ended December 31, 2018 Services International Products & Systems Corp/Elim Total

Oil & Gas $ 378,904 $ 37,953 $ 1,255 $ — $ 418,112

Aerospace & Defense 50,500 54,853 2,355 — 107,708

Industrials 60,594 26,209 3,097 — 89,900

Power generation & Transmission 30,687 8,522 4,904 — 44,113

Other Process Industries 26,425 9,497 124 — 36,046

Infrastructure, Research & Engineering 11,283 9,032 5,246 — 25,561

Other 16,226 7,382 6,445 ( 9,139 ) 20,914

Total $ 574,619 $ 153,448 $ 23,426 $ ( 9,139 ) $ 742,354

Revenue per key geographic location was as follows:

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Total $ 595,130 $ 144,271 $ 18,583 $ ( 9,398 ) $ 748,586

Year ended December 31, 2018 Services International Products & Systems Corp/Elim Total

United States $ 478,853 $ 568 $ 11,493 $ ( 3,500 ) $ 487,414

Other Americas 90,823 7,995 1,068 ( 1,638 ) 98,248

Europe 4,252 138,948 3,958 ( 3,846 ) 143,312

Asia-Pacific 691 5,937 6,907 ( 155 ) 13,380

Total $ 574,619 $ 153,448 $ 23,426 $ ( 9,139 ) $ 742,354

Contract Balances

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Generally, billing occurs subsequent to revenue recognition, resulting in contract assets.

However, the Company sometimes receives advances or deposits from our customers before revenue is recognized, resulting in contract liabilities.

However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities.

These assets and liabilities are aggregated on an individual contract basis and reported on the consolidated balance sheet at the end of each reporting period within accounts receivables or accrued expenses and other current liabilities.

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Changes in the contract asset and liability balances during the years ended December 31, 2020 and 2019, were not impacted by any other factors.

The Company applies the practical expedient to expense incremental costs incurred related to obtaining a contract when the asset that the Company otherwise would have recognized is one year or less.

The Company applies the practical expedient to expense incremental

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costs incurred related to obtaining a contract when the asset that the Company otherwise would have recognized is one year or less.

Earnings per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period.

Diluted earnings per share is computed by dividing net income attributable to common stockholders by the sum of (1) the weighted average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method.

Basic earnings (loss) per share is computed by dividing net income by the weighted average number of shares outstanding during the period.

Diluted earnings per share is computed by dividing net by the sum of (1) the weighted average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method.

With respect to the number of weighted average shares outstanding (denominator), diluted shares reflect:

(i) only the exercise of options to acquire common

stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

(i) the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

The following table sets forth the computations of basic and diluted earnings per share:

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Total 795 47 6

(1) For the twelve months ended December 31, 2017, 805 and 351 shares related to stock options and RSUs/PSUs, respectively, were excluded from the calculation of diluted EPS due to the net loss for the period.

(1) For the twelve months ended December 31, 2020, 254 shares related to RSUs/PSUs, were excluded from the calculation of diluted EPS due to the net loss for the period.

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Accounts Receivable

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Trade accounts receivable $ 115,841 $ 144,282

Allowance for doubtful accounts ( 8,285 ) ( 4,187 )

Allowance for credit losses ( 8,213 ) ( 8,285 )

Accounts receivable, net $ 107,628 $ 135,997

The Company had $ 11.9 million and $ 22.2 million of unbilled revenues accrued as of December 31, 2020 and December 31, 2019, respectively, which is included within the trade accounts receivable balance above.

Unbilled revenues as of December 31, 2019 are expected to be billed in the first quarter of 2020.

In the fourth quarter of 2018, the Company recorded a reserve of $ 0.7 million for a renewable energy industry customer, based in part on the available information about the financial difficulties of the customer.

This customer filed for a voluntary

insolvency proceeding on April 9, 2019 at which time payments under the previously agreed upon payment plan ceased.

As a result, during the first quarter of 2019, the Company recorded an additional charge of $ 5.7 million to fully reserve for the amount of the exposure related to this customer.

During the second quarter of 2019, the Company reversed $ 1.0 million of this reserve based on additional information obtained during the quarter.

There were no changes during the third and fourth quarters of 2019.

During 2019, the Company sold to an unaffiliated third party, without recourse, its remaining outstanding receivables owed from a customer which filed for bankruptcy, and for which the Company had initially recorded a charge during the second quarter of 2017.

During the first quarter of 2019, the Company recorded a recovery of $ 0.2 million and during the second quarter of 2019, the Company recorded a recovery $ 1.7 million, related to a bad debt provision for the receivables due from this customer.

This matter is considered fully resolved.

Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition.

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer.

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The Company filed a lawsuit to recover the $ 1.4 million and other amounts due to the Company and the customer filed a counterclaim, alleging breach of contract and seeking its damages.

Accordingly, the Company recorded a full reserve in the amount of $ 1.4 million during 2019 for these past due receivables.

Accordingly, the Company recorded a reserve of $ 1.4 million during the twelve months ended December 31, 2019 for these past due receivables.

The status of this situation has not changed during 2020.

See Note 18-Commitments and Contingencies for additional details.

During the first quarter of 2019, the Company recorded an additional charge of $ 5.7 million to fully reserve for the amount of the exposure related to this customer.

This customer filed for a voluntary insolvency proceeding on April 9, 2019.

During the second quarter of 2019, the Company reversed $ 1.0 million of this reserve based on additional information obtained during the quarter.

The status of the dispute has not changed since the second quarter of 2019.

This matter is considered fully resolved.

Inventories consist of the following:

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Inventories $ 13,134 $ 13,413

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Property, Plant and Equipment

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Acquisitions and Disposition

During the year ended December 31, 2019, the Company completed one acquisition that provides pipeline integrity management software and services to energy transportation companies.

The Company did no t complete any acquisitions during the year ended December 31, 2020.

During September 2019, the Company completed one acquisition that provides pipeline integrity management software and services to energy transportation companies.

The Company acquired all the equity interest of the acquiree in exchange for aggregate consideration of $ 4.4 million in cash, contingent consideration of up to $ 4.3 million to be earned based upon the acquired business achieving specific performance metrics over the initial three years of operations from the acquisition date and working capital adjustments.

The goodwill recorded is primarily attributable to expected synergies and is generally fully deductible for tax purposes.

The Company is still in the process of completing its valuation of the assets acquired and liabilities assumed.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed, the Company's allocation of purchase price and any subsequent adjustments made during the year ended December 31, 2019 for the 2019 acquisition:

The goodwill recorded is primarily attributable to expected synergies and is generally deductible for tax purposes.

The Company accounted for this transaction in accordance with the acquisition method of accounting for business combinations.

The following table summarizes the final fair value of the assets acquired and liabilities assumed and the Company's allocation of purchase price:

Cash paid $ 4,380

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Net assets acquired $ 5,570

The results of operations of the business acquired in September 2019 have been included in the Services segment within the Consolidated Statements of Income (Loss) from the transaction closing date and approximates $ 2.0 million of revenues and an operating loss of $ 0.4 million for the year ended December 31, 2019.

During the year ended December 31, 2018, the Company completed one acquisition that performs inline inspection services, with headquarters in Canada and a location in the U.S.

The acquired company has been included in the Services segment and primarily provides services to the midstream area within the oil and gas industry.

The Company acquired 100 % of the equity interests of the acquiree's Canadian and U.S.

entities in exchange for aggregate consideration of $ 143.1 million in cash.

The goodwill recorded is primarily attributable to expected synergies and the assembled workforce and is not deductible for tax purposes.

The Company has filed a claim with the seller and the Company's insurance carrier.

See Note 18– Commitments and Contingencies to these consolidated financial statements for further discussion.

During 2019, the Company finalized valuations for of the assets acquired and liabilities assumed related to the 2018 acquisition and adjusted provisional amounts as follows:

• The Company increased the $ 59.6 million provisional fair value of intangibles by $ 4.8 million with a corresponding decrease to goodwill.

• The Company decreased the $ 8.5 million provisional fair value of property, plant and equipment by $ 0.7 million with a corresponding increase to goodwill.

• The Company increased the $ 5.0 million provisional fair value of debt and other liabilities by $ 0.4 million with a corresponding increase to goodwill.

• The Company increased the $ 12.7 million provisional fair value of the deferred tax liability by $ 1.4 million with a corresponding increase to goodwill.

The Company accounted for the acquisitions completed in 2019 and 2018 in accordance with the acquisition method of accounting for business combinations.

allocation, using available information and making assumptions management believes are reasonable.

The amortization period for the intangible assets acquired range from one to eighteen years .

The Company accounted for the acquisition completed in 2019 in accordance with the acquisition method of accounting for business combinations.

Assets and liabilities of the acquired businesses were included in the consolidated balance sheet based on their respective estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable.

The amortization periods for the intangible assets acquired range from one year to eighteen years .

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During the third quarter of 2018, substantially all of the assets and liabilities of a subsidiary in the Products and Systems segment were sold for approximately $ 4.3 million.

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Balance at December 31, 2019 $ 247,215 $ 35,195 $ — $ 282,410

Goodwill acquired during the year 1,535 — — 1,535

Impairment charges ( 57,227 ) ( 19,862 ) — ( 77,089 )

Adjustments to preliminary purchase price allocations 200 — — 200

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Balance at December 31, 2020 $ 190,112 $ 15,896 $ — $ 206,008

The Company conducted its annual goodwill impairment test of its reporting units as of October 1, 2019 and concluded that there was no impairment.

As of December 31, 2019, the Company did not identify any changes in circumstances that would indicate the remaining carrying value of goodwill may not be recoverable.

The Company's cumulative goodwill impairment as of December 31, 2019 and December 31, 2018 was $ 23.1 million, of which $ 13.2 million is related to the Products and Systems segment and $ 9.9 million is related to the International segment.

The Company reviews goodwill for impairment on a reporting unit basis on October 1 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

During the first quarter of 2020, the Company’s market capitalization declined significantly compared to the fourth quarter of 2019.

Over the same period, the equity value of the Company’s peer group, and the overall U.S.

stock market also declined significantly amid market volatility.

In addition, oil prices had dropped significantly.

These declines were driven in large part by the uncertainty surrounding the COVID-19 pandemic and other macroeconomic events such as the geopolitical tensions between OPEC and Russia.

Based on these factors, the Company concluded that multiple triggering events occurred and, accordingly, an interim quantitative goodwill impairment test was performed for each reporting unit as of March 31, 2020.

During the first quarter of 2020, the Company also performed an analysis to determine any impairment of long-lived assets (see Note 9-Intangible Assets ) based on the triggering events noted above.

In performing the interim quantitative goodwill impairment test and consistent with prior practice, the Company determined the fair value of each of the reporting units using a combination of the income approach and the market approach by assessing each

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of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting.

Under the income approach, the fair value for each of the reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

The Company used internal forecasts, updated for recent events, to estimate future cash flows with cash flows beyond the specific operating plans estimated using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on the Company’s most recent views of the long-term outlook for each reporting unit.

The internal forecasts include assumptions about future market recovery, including the expected demand for the Company’s goods and services.

Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts.

The Company derived the discount rates using a capital asset pricing model and analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing.

The Company used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts, updated for recent events.

The market approach valuations were derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.

The selection of comparable businesses was based on the markets in which the reporting units operate considering risk profiles, size, geography, and diversity of products and services.

Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $ 77.1 million, which included $ 57.2 million in the services reporting unit within the Services segment, and $ 19.3 million in the European reporting unit and $ 0.6 million in the Brazilian reporting unit, both within the International segment.

The impairment was calculated based on the difference between the estimated fair value and the carrying value of the reporting units and are included in Impairment charges on the Consolidated Statements of Income (Loss) for the year ended December 31, 2020.

The Company's cumulative goodwill impairment as of December 31, 2020 was $ 100.2 million, of which $ 57.2 million related to the Services segment, $ 29.8 million related to the International segment and $ 13.2 million related to the Products and Systems segment.

The Company's cumulative goodwill impairment as of December 31, 2019 was $ 23.1 million, of which $ 13.2 million related to the Products and Systems segment and $ 9.9 million related to the International segment.

The Company elected to perform a qualitative assessment of goodwill on October 1, 2020.

The Company's qualitative assessment considered relevant events and circumstances occurring since the interim quantitative goodwill impairment test performed as of March 31, 2020 (see previous paragraphs).

Specifically, the Company considered changes in macroeconomic conditions, industry and market conditions, internal forecasts of future revenue and expenses, the Company's stock price, any significant events affecting the Company and actual changes in the carrying values of its net assets.

After considering all positive and negative evidence for the assessment as of October 1, 2020, the Company concluded that it was not more likely than not that the carrying values of each reporting unit exceeded their respective fair values and as such, no additional impairment was indicated.

Subsequent to October 1, 2020 through December 31, 2020, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.

Significant adverse changes in future periods could negatively affect the Company's key assumptions and may result in future goodwill impairment charges which could be material.

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Intangible Assets

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Amount Accumulated

Amortization Net

Amortization Impairment Net

Amount Accumulated

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Total $ 217,380 $ ( 119,944 ) $ ( 28,794 ) $ 68,642 $ 215,383 $ ( 105,846 ) $ 109,537

As described in Note 8- Goodwill , during the first quarter of 2020, there were negative market indicators that were determined to be triggering events indicating a potential impairment of certain long-lived assets within asset groups in the Services, International, Products and Corporate segments.

The asset groups are groupings of assets and liabilities determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability testing indicated that certain intangible assets and right of use assets (See Note 17-Leases ) were potentially impaired.

For asset groups that required an impairment measurement, similar to the valuations performed to determine the goodwill impairment, the Company used income and market approaches to estimate the fair value of the long-lived assets, which requires significant judgment in evaluation of the useful lives of the assets, economic and industry trends, estimated future cash flows, discount rates, and other factors.

The result of the analysis was an aggregate impairment charge of $ 28.8 million, which included $ 25.9 million to software/technology, $ 2.2 million to customer relationships, $ 0.5 million to other intangibles and $ 0.2 million to covenants not to compete, all of which are in the Services reporting unit within the Services segment and are included in Impairment charges on the consolidated statements of income (loss) for the year ended December 31, 2020.

Amortization expense for the years ended December 31, 2020, 2019 and 2018, was approximately $ 11.0 million, $ 14.3 million, and $ 10.2 million, respectively, including amortization of software/technology for these periods of $ 3.6 million, $ 5.6 million, and $ 1.4 million, respectively.

Amortization expense in each of the five years and thereafter subsequent to December 31, 2020 related to the Company’s intangible assets is expected to be as follows:

2020 $ 13,864

Thereafter 27,623

Total $ 68,642

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Accrued Expenses and Other Current Liabilities

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Senior credit facility $ 120,312 $ 151,773

Senior secured term loan, net of debt issuance costs of $ 0.1 million

Senior secured term loan, net of unamortized debt issuance costs of $ 0.3 million and $ 0.1 million

89,745 94,919

Notes payable — 68

Other 10,159 8,021

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Senior Credit Facility

The Company's revolving credit agreement with its banking group (“Credit Agreement”) provides the Company with a

$ 300 million revolving line of credit, which, under certain circumstances, can be increased to $ 450 million with the approval of the banks.

In addition, the Credit Agreement provides the Company with a $ 100 million senior secured term loan A facility.

The Company has a credit agreement with its banking group (“Credit Agreement”) which provides the Company with a revolving line of credit and a $ 100 million senior secured term loan A facility.

Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 300 million to $ 175 million.

Both the revolving line of credit and the term loan A facility under the Credit Agreement have a maturity date of December 12, 2023.

On May 15, 2020, the Company entered into the Third Amendment (the “Amendment”) to the Credit Agreement.

The amendment was needed because the Company determined that as a result of the uncertain impact of the COVID-19 pandemic and the significant drop in oil prices, it would not meet the then existing financial covenants in the Credit Agreement for upcoming quarters.

Accordingly, the Amendment modified the financial covenants to provide for:

i) elimination of the Funded Debt Leverage Ratio (as defined in the Credit Agreement) for the quarters ended June 30 and September 30, 2020 and increased the Funded Debt Leverage ratio to no greater than 5.25 to 1 beginning for the quarter ending December 31, 2020 and decreasing each successive quarter to no greater than 3.50 to 1 for the quarter ended September 30, 2021, and all quarterly periods thereafter;

ii) an elimination of the minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement for the quarters ended June 30, September 30 and December 31, 2020), a decrease to 1.0 to 1 for the quarter ending March 31, 2021 and returning to 1.25 to 1 for the quarter ending June 30, 2021 and thereafter;

iii) the addition of a minimum EBITDA covenant requiring $ 3.44 million for the three months ending June 30, 2020, $ 24.25 million for the six months ending September 30, 2020, and $ 38.55 million for the nine months ending December 31, 2020, with no requirement thereafter;

and iv) the addition of a minimum Liquidity (as defined in the Amendment) covenant of not less than $ 20.0 million at all times through September 30, 2020 and ceasing thereafter.

In addition, the Amendment set a LIBOR floor of 1.0 % applicable to all LIBOR loans, and increased the LIBOR margin range to 1.50 % to 4.15 %, in addition to certain other modifications of the Credit Agreement.

The Amendment also requires that the Company promptly prepay the outstanding amount under the revolving credit facility in an amount equal to the difference between (a) the aggregate sum of cash and cash equivalents of the Company and its subsidiaries held in the United States minus (b) $ 10.0 million if, for a period of two ( 2 ) consecutive business days, (i) the outstanding amount under the revolving credit facility exceeds $ 75.0 million and (ii) the sum of such cash and cash equivalents exceeds $ 10.0 million.

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The Credit Agreement, as amended, provides that the Company may not make any acquisitions prior to June 30, 2021, and thereafter only if the Company's Funded Debt Leverage Ratio is less than 2.50 to 1, and after giving effect to such acquisition, its pro forma Funded Debt Leverage Ratio will not be greater than 3.25 to 1.

The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders or repurchase its stock, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements.

The Company may borrow up to $ 100 million in non-U.S.

Dollar currencies and use up to $ 20 million of the credit limit for the issuance of letters of credit.

At December 31, 2019, the Company had borrowings of $ 246.7 million and letters of credit of $ 3.7 million were outstanding under the Credit Agreement.

The Company had remaining capitalized costs of $ 0.8 million associated with debt modifications as of December 31, 2019, included in Other assets within the accompanying Consolidated Balance Sheets.

Loans under the Credit Agreement bear interest at the London Interbank Offered Rate ("LIBOR") plus an applicable LIBOR margin ranging from 1 % to 2 %, or a base rate less a margin of 1.25 % to 0.375 %, at the option of the Company, based upon the Company’s Funded Debt Leverage Ratio.

Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus (h) certain amounts of EBITDA of acquired business for the prior twelve months, plus (i) certain expenses related to the closing of the Credit Agreement, plus (j) non-cash expenses which do not (in the current or any future period) represent a cash item (excluding non-cash gains which increase net income), plus (k) non-recurring charges (not to exceed $ 10 million in the four consecutive quarters immediately preceding the date of determination) for items such as severance, lease termination charges, asset write-offs and litigation settlements paid, and multi-employer pension plan withdrawal liabilities, all determined for the period of four consecutive fiscal quarters immediately preceding the date of determination of EBITDA.

The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 1.0 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.25 to 1.

The Company will also bear additional costs for market disruption, regulatory changes affecting the lenders’ funding costs, and default pricing of an additional 2 % interest rate margin on any amounts not paid when due.

Amounts borrowed under the Credit Agreement are secured by liens on substantially all of the assets of the Company and is guaranteed by some of our subsidiaries.

The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of no greater than 4.25 to 1 through December 31, 2018, reducing to a maximum permitted ratio of 3.50 to 1 as of March 31, 2020 and all quarterly periods thereafter, and a Fixed Charge Coverage Ratio of at least 1.25 to 1.

Fixed Charge Coverage Ratio means the ratio, as of any date of determination, of (a) (i) EBITDA for the 12 month period immediately preceding the date of determination, taken together as one accounting period, less (ii) the aggregate amount of all capital expenditures made during the period, less (iii) taxes paid in cash during the period, less (iv) Restricted Payments (as defined in the Credit Agreement) paid in cash during the period, -to- (b) the sum of (i) all interest, premium payments, debt discount, fees, charges and related expenses of us and our subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case, to the extent treated as interest in accordance with GAAP and to the extent paid in cash during the period, (ii) the aggregate principal amount of all redemptions or similar acquisitions for value of outstanding debt for borrowed money or regularly scheduled principal payments made during the period, but excluding any such payments to the extent refinanced through the incurrence of additional Indebtedness otherwise expressly permitted under

the Credit Agreement, and (iii) payments made during the period under all leases that have been or should be, in accordance with GAAP as in effect for the Company's 2017 audited financial statement, recorded as capitalized leases.

Beginning in 2020, the Company can elect to increase the maximum Funded Debt Leverage Ratio to 4.0 to 1 for four fiscal quarters immediately following the fiscal quarter in which the Company acquires another business, with the maximum permitted ratio reducing back to 3.5 to 1 in the fifth fiscal quarter following such acquisition.

The Company can make this election twice during the term of the Credit Agreement.

The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders or repurchase our stock, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements.

The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.

As of December 31, 2019, the Company was in compliance with the terms of the Credit Agreement, and has undertaken to continuously monitor compliance with these covenants.

Subsequent Event

On March 9, 2020, the Credit Agreement was amended to provide that the maximum Funded Debt Leverage Ratio is 4.0 to 1 for the quarters ended December 31, 2019 through June 30, 2020;

3.75 to 1 for the quarter ending September 30, 2020;

and 3.5 to 1 for the quarter ending December 31, 2020 and or each quarter end thereafter, and increased the maximum LIBOR margin from 2.0 % to 2.25 % if the Funded Debt Leverage Ratio exceeds 3.75 to 1.

The amendment also requires that prior to the first time the Company makes an election to increase the Funded Debt Leverage Ratio to 4.0 to 1 in connection with an acquisition, the Company must obtain the consent of lenders (in their sole discretion) holding at least 66-2/3% of the credit exposure under the Credit Agreement.

The March 9, 2020 amendment to the Credit Agreement also provides that for acquisitions completed prior to April 1, 2021, (a) the aggregate consideration for all acquisitions made on or after March 9, 2020 and prior to April 1, 2021 shall not exceed $ 5,000,000 , and (b) prior to the first of any such acquisition, the Company shall have demonstrated a Funded Debt Leverage Ratio of not greater than 3.0 to 1.0 for two consecutive fiscal quarters immediately prior to such acquisition.

Notes Payable and Other Debt

As of December 31, 2020, the Company had borrowings of $ 210.1 million and a total of $ 4.3 million of letters of credit outstanding under the Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 1.1 million as of December 31, 2020, which is included in Other Assets on the consolidated balance sheet.

The Amendment reduced the Company's total available loan capacity, amongst other things, and as a result, the Company expensed approximately $ 0.6 million in capitalized debt issuance costs during the second quarter of 2020, which is included in Selling, general and administrative expenses on the consolidated statements of income (loss).

As of December 31, 2020, the Company was in compliance with the terms of the Credit Agreement, as amended, and will continuously monitor its compliance with the covenants contained in its Credit Agreement.

The Company believes that it is probable, based on the amended covenants, that the Company will be able to comply with the financial covenants in the Credit Agreement as modified by the Amendment and that sufficient credit remains available under the Credit Agreement to meet the Company's liquidity needs.

However, due to the uncertainties being caused by the COVID-19 pandemic, the significant volatility in oil prices, and volatility in the aerospace production, such matters cannot be predicted with certainty.

The Company's other debt includes local bank financing provided at the local subsidiary levels used to support working capital requirements and fund capital expenditures.

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Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to December 31, 2020 are as follows:

2021 $ 10,678

Thereafter 1,715

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Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.

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Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available.

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The following table represents the changes in the fair value of Level 3 contingent consideration:

Balance at December 31, 2017 $ 5,508

Acquisitions —

Payments ( 2,277 )

Accretion of liability 175

Revaluation ( 891 )

Foreign currency translation ( 150 )

Balance at December 31, 2018 $ 2,365

Balance at the beginning of the period:

$ 3,216 $ 2,365

Acquisitions 200 1,142

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Foreign currency translation ( 22 ) 50

Balance at December 31, 2019 $ 3,216

Balance at the end of the period:

$ 1,640 $ 3,216

Financial instruments not measured at fair value on a recurring basis

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Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights.

The 2016 Plan allows for the grant of awards of up to approximately 1,700,000 shares of common stock, of which 718,000 shares were available for future grants as of December 31, 2019.

As of December 31, 2019, there was

an aggregate of approximately 5,000 stock options outstanding and approximately 101,000 unvested restricted stock units outstanding under the 2009 Plan.

At the annual shareholders meeting on May 19, 2020, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 2,000,000 , for a total of 3,700,000 shares that may be issued under the 2016 Plan, of which 1,787,000 shares were available for future grants as of December 31, 2020.

As of December 31, 2020, there was an aggregate of approximately 5,000 stock options outstanding under the 2009 Plan.

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Stock Options

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Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

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A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:

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Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one -year period based on three metrics, as defined:

The PRSU awards granted in 2019 included three performance metrics, as defined:

(1) Operating Income, (2) Adjusted EBITDAS (defined as net income attributable to MISTRAS Group, Inc.

interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration) and (3) Revenue.

There is a discretionary portion of the PRSUs based on individual performance, at the discretion of the Compensation Committee (Discretionary PRSUs).

There also is a discretionary portion of the 2019 PRSUs based on individual performance, granted at the discretion of the Compensation Committee (Discretionary PRSUs).

PRSUs and Discretionary PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

For 2020 awards, the Compensation Committee changed the criteria for the PRSUs to four metrics, with no discretionary portion.

Revenue and Adjusted EBITDAS were retained, and two additional metrics, free cash flow as a percentage of revenue and return on average book equity, replaced Operating Income.

These two newly-added metrics are relative metrics, the performance of which are based upon how the Company performs relative to a peer group.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant, assuming that the target performance conditions will be achieved.

Cumulative compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.

Discretionary PRSUs are liability-classified and adjusted to fair value (with a corresponding adjustment to compensation expense) based upon the targeted number of shares to be awarded and the fair value of the underlying stock each reporting period until approved by the Compensation Committee, at which point they are classified as equity.

Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.

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A summary of the Company's PRSU activity is presented below (in thousands, except per share amounts):

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For the year ended December 31, 2020, 292,000 PRSUs were granted.

There was a 99,000 net unit reduction to these awards, which represents Company performance against target (including an increase of 1,000 units due to the Compensation Committee approving the final calculation of the award metrics for calendar year 2019), during the year ended December 31, 2020.

For the year ended December 31, 2019, 190,000 PRSUs were granted.

There was a 103,000 unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2019.

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The discretionary portion of these awards were reclassified from a liability to equity on the consolidated balance sheet upon Compensation Committee approval.

For the year ended December 31, 2017, 128,000 PRSUs were granted.

There was a 65,000 unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2017.

The Compensation Committee approved these PRSUs in the first quarter of 2018, which increased them by 4,000 units.

The discretionary portion of these awards were reclassified from a liability to equity on the consolidated balance sheet upon Compensation Committee approval.

Compensation expense related to all PRSUs described above was $ 1.2 million, $ 1.3 million, and $ 1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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For the years ended December 31, 2020, 2019 and 2018, the income tax benefit recognized on all share based compensation arrangements referenced above was approximately $ 0.6 million, $ 2.1 million, and $ 1.0 million, respectively.

Income before provision for income taxes is as follows:

Income (loss) before provision for income taxes is as follows:

For the year ended December 31,

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Foreign operations ( 59,982 ) 3,105 4,418

Earnings (loss) before income taxes $ 10,439 $ 14,271 $ ( 226 )

Income (loss) before income taxes $ ( 114,172 ) $ 10,439 $ 14,271

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The provision for income taxes consists of the following:

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Reserve for uncertain tax positions ( 28 ) 99 337

Total current 7,902 5,484 6,799

Total current provision (benefit) ( 1,772 ) 7,902 5,484

Federal ( 2,781 ) 315 2,966

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Foreign ( 10,045 ) ( 4,095 ) ( 2,089 )

Total deferred ( 3,812 ) 1,276 ( 4,826 )

Total deferred provision (benefit) ( 14,070 ) ( 3,812 ) 1,276

Net change in valuation allowance 1,136 269 666

Net deferred ( 3,543 ) 1,942 ( 4,857 )

Provision for income taxes $ 4,359 $ 7,426 $ 1,942

The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows:

Net deferred provision (benefit) ( 12,934 ) ( 3,543 ) 1,942

Total provision (benefit) for income taxes $ ( 14,706 ) $ 4,359 $ 7,426

The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows:

For the years ended December 31,

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Foreign tax ( 815 ) 0.7 % 982 9.4 % 807 5.7 %

Contingent consideration 29 0.3 % ( 6 ) — % ( 63 ) 27.7 %

Goodwill impairment 10,003 ( 8.8 ) % — — % — — %

Nondeductible compensation 975 ( 0.9 ) % 1,581 15.2 % 183 1.3 %

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Transition tax, net of foreign tax credits — — % — — % 1,158 8.1 %

Federal tax rate change due to the Tax Act — — % 87 0.6 % ( 1,956 ) 864.0 %

Other 134 1.3 % 208 1.4 % 37 ( 16.3 ) %

Federal loss carryback ( 1,938 ) 1.7 % — — % — — %

Change in valuation allowance 1,136 ( 1.0 ) % 269 2.6 % 666 4.7 %

Impact of foreign tax rate changes 392 ( 0.3 ) % ( 1,882 ) ( 18.0 ) % — — %

Total provision for income taxes $ 4,359 41.8 % $ 7,426 52.0 % $ 1,942 ( 857.9 ) %

The permanent differences identified above include normal recurring differences, such as meals, entertainment and parking fringe benefits.

On June 28, 2019, the Canadian province of Alberta enacted the Job Creation Tax Cut which reduced the Alberta corporate income tax rate from 12% to 11% starting in 2019 with further annual reductions to 10% in 2020, 9% in 2021, and 8% in 2022.

This rate reduction had a favorable impact of approximately $ 1.9 million on the Company’s net deferred tax liabilities in this jurisdiction.

Other ( 308 ) 0.3 % 163 1.6 % 289 2.0 %

Total provision (benefit) for income taxes $ ( 14,706 ) 12.9 % $ 4,359 41.8 % $ 7,426 52.0 %

The permanent differences identified above include normal recurring differences, such as meals, entertainment and parking fringe benefits as well as a portion of the goodwill impairment charge.

On December 22, 2017, the United States enacted fundamental changes to the federal tax law following the passage of the Tax Cuts and Jobs Act (the "Tax Act").

The Tax Act is complex and significantly changes the U.S.

corporate tax system by, among other things, (a) reducing the federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, (b) replacing the prior system of taxing corporations on foreign earnings of their foreign subsidiaries when the earnings are repatriated with a partial territorial tax system that provides a 100% dividends-received deduction (DRD) to domestic corporations for foreign-sourced dividends received from 10%-or-more owned foreign corporations, (c) subjecting certain unrepatriated foreign earnings to a mandatory one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees.

The United States enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment.

The Company is currently evaluating the impact of the CARES Act on its consolidated financial position, results of operations, and cash flows.

For the financial statements for the year ended December 31, 2017, the Company had reasonably estimated the tax effects of the Tax Act.

The effect of the change in federal corporate tax rate from 35% to 21% was subject to change based on resolution of estimates used in determining the amounts of deferred tax assets and liabilities that were remeasured.

The Company's calculation of the transition tax was subject to further refinement as more information was gathered from its foreign subsidiaries, estimates used in the calculation were resolved, and as states provided guidance on how the transition tax may or may not apply in their respective jurisdictions.

The Company also anticipated that the deferred tax asset related to executive compensation would change based upon actual 2018 compensation as compared to its projections of compensation that were limited.

Finally, the Tax Act also imposes a minimum tax on certain foreign income deemed to be in excess of a routine return based on tangible asset investment, which is designed to discourage income shifting by subjecting certain foreign intangibles and other income to current US tax.

Effective for tax years beginning after 2017, US shareholders of certain foreign corporations are subject to current U.S.

tax on their global intangible low-taxed income (GILTI).

As of December 31, 2017, the Company had not yet evaluated its potential liability, if any, under the minimum tax for GILTI in 2018 or future years.

Accordingly, the Company had not yet made an accounting policy election either to account for these effects in the future period when the tax arises or to recognize them as part of the deferred taxes.

The impact on income tax expense related to the Tax Act for 2017 was $ 1.9 million.

This amount reflects a net tax benefit of $ 2.3 million as a result of the Tax Act due to the remeasurement of federal deferred tax assets and liabilities from 35% to 21%.

This amount also includes a charge of $ 3.9 million due to the transition tax.

Additionally, the Company incurred a charge attributable to reducing its deferred tax assets by $ 0.3 million due to changes made to executive compensation rules pursuant to the Tax Act.

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one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees.

During the year ended December 31, 2018, the Company completed its accounting for the effects of the Tax Act on the period ended December 31, 2017, which resulted in income tax expense of $ 1.7 million.

This consisted primarily of $ 0.1 million of an increase in the Company's net deferred tax liabilities due to the reduction in the federal corporate rate from 35% to 21%, an increase of $ 1.3 million in tax expense attributable to the transition tax and a decrease in deferred tax assets of $ 0.4 million due to changes made to executive compensation.

This rate reduction had a favorable impact of approximately $ 1.9 million on the Company’s net deferred tax liabilities in this jurisdiction in 2019.

As part of Alberta’s Recovery plan associated with the COVID-19 pandemic, Alberta accelerated the decrease in income tax rates from 10% in 2020 to 8% effective July 1, 2020.

The accelerated tax rate reduction did not have a material impact on the Company’s net deferred tax liabilities but did reduce current taxes.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

Some of these tax provisions are effective retroactively for years ending before the date of enactment.

The CARES Act provides a five-year carryback of net operating losses generated in years 2018 through 2020.

As the statutory federal income tax rate applicable to certain years within the carryback period is 35%, carryback to those years of our estimated 2020 annual federal tax loss provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in an increased income tax benefit of $ 1.9 million.

The Company expects that the income tax effects of the CARES Act will result in a cash refund of approximately $ 4.8 million in 2021 of taxes paid in prior years.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, (the "Appropriations Act") an additional stimulus package providing financial relief for individuals and small business.

The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit.

The Company does not currently expect the Appropriations Act to have a material impact on our consolidated financial position, results of operations, and cash flows .

In response to the COVID-19 pandemic, the American Rescue Plan Act was signed into law on March 11, 2021.

This act, among other things, provides economic relief provisions to individuals and funding to certain businesses and programs.

The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows, but does not expect it to have a material impact.

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Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows:

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Capital losses — 463

Deferred share-based compensation 1,145 3,728

Deferred stock based compensation 920 1,145

Interest carryforward — 1,372

Right-of-use liability 11,970 11,891

Credits 312 —

Other 1,507 398

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Net deferred income taxes ( 6,167 ) ( 19,504 )

As of December 31, 2019, the Company had federal net operating loss carry forwards (NOLs) in the amount of approximately $ 0.2 million which may be utilized subject to limitation under Internal Revenue Code section 382.

The federal NOLs expire at various times from 2032 to 2038.

As of December 31, 2020, the Company had federal net operating loss carry forwards (NOLs) of approximately $ 0.1 million expiring in 2032 which may be used subject to limitation under Internal Revenue Code section 382.

In addition, as of December 31, 2020, the Company had state and foreign NOLs of $ 14.8 million and $ 11.7 million, respectively.

The state NOLs expire at various times from 2025 to 2039.

Approximately $ 8.9 million of the state NOLs expire at various times from 2031 to 2040, while the remainder of the Company's state NOLs do not expire.

Approximately $ 0.1 million of the foreign NOLs expire at various times from 2023 to 2040, while the remainder of the Company's foreign NOLs do not expire.

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax planning strategies.

At December 31, 2019 and December 31, 2018, the Company has a valuation allowance of approximately $ 4.1 million and $ 4.0 million, respectively, primarily against certain state and foreign NOLs, capital losses generated by the disposals of certain foreign subsidiaries and other specific deferred tax assets.

The increase of $ 0.1 million is primarily attributable to foreign net operating losses.

Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on future reversals of existing taxable temporary differences, taxable income in prior carryback year(s) if carryback is permitted under the tax law, and an assessment of estimated future taxable income, exclusive of reversing temporary differences and carryforwards, that incorporates ongoing, prudent and feasible tax planning strategies.

At December 31, 2020 and December 31, 2019, the Company has a valuation allowance of approximately $ 4.5 million and $ 4.1 million, respectively, primarily against certain state and foreign NOLs and other specific deferred tax assets.

The valuation allowance as of December 31, 2019, also applied against capital losses generated by the disposals of certain foreign subsidiaries.

These losses expired in 2020, so no valuation allowance remains as of December 31, 2020.

The net increase in the valuation allowance of approximately $ 0.5 million is primarily attributable to state and foreign net operating losses and changes in foreign exchange rates, offset by a reduction of expiring losses.

Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets.

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The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties:

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As of December 31, 2020 and December 31, 2019, there were approximately $ 0.3 million and $ 0.4 million of unrecognized tax benefits, respectively, including penalties and interest.

If the Company recognized these unrecognized tax benefits, approximately $ 0.1 million would favorably affect the effective tax rate for both December 31, 2019 and 2018.

If the Company recognized these unrecognized tax benefits, approximately $ 0.2 million would favorably affect the effective tax rate for both December 31, 2020 and December 31, 2019.

Interest and penalties related to unrecognized tax benefits are recorded in income tax expense and are not significant for the years ended December 31, 2020, 2019 and 2018.

The Company anticipates a decrease to its unrecognized tax benefits of less than $ 0.1 million excluding interest and penalties within the next 12 months.

The Company anticipates a decrease to its unrecognized tax benefits of $ 0.2 million excluding interest and penalties within the next 12 months.

The Company is subject to taxation in the United States and various states and foreign jurisdictions.

The Company is no longer subject to U.S.

federal income tax examinations for years ending before May 31, 2016 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before May 31, 2016.

federal income tax examinations for years ending before December 31, 2017 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before December 31, 2016.

Net income (loss) of foreign subsidiaries was $( 55.7 ) million, $ 2.5 million, and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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There is a five-year vesting schedule for the Company match.

To respond to the economic downturn resulting from the COVID-19 pandemic, significant volatility in oil prices and decreased traffic in the aerospace industry, the Company temporarily suspended its 401(k) match effective with the second quarter of 2020.

The Company’s contribution to the plan was $ 1.1 million, $ 4.1 million, and $ 3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The Company's subsidiary participated with other employers in contributing to the Boilermaker-Blacksmith National Pension Trust (EIN 48-6168020) (“Boilermakers”) and Plumbers and Pipefitters National Pension Fund (EIN 52-6152779) (“Pipefitters”), multi-employer defined benefit pension plans, which covers certain U.S.

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Both the Boilermakers and Pipefitters plans are between 66 percent and 75 percent funded as of the latest Form 5500 filed.

The Company did no t make any contributions to the Boilermakers or Pipefitters plans during the year ended December 31, 2019.

The Company’s contributions to the Boilermakers and Pipefitters plans, collectively, were $ 0.6 million and $ 2.4 million for the years ended December 31, 2018 and 2017, respectively.

The Company did no t make any contributions to the Boilermakers during the years ended December 31, 2020 and 2019 while making de minimis contributions to the Pipefitters plan during the same periods.

The Company’s contributions to the Boilermakers and Pipefitters plans, collectively, were $ 0.6 million for the year ended December 31, 2018.

See Note 18-Commitments and Contingencies, Pension Related Contingencies, for additional detail.

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Total rent payments made during the year ended December 31, 2020 were approximately $ 0.7 million.

See Note 17– Leases for further detail.

The Company receives benefits consulting services from Capital Management Enterprise (“CME”), which is owned by one of its non-employee directors, Manuel N.

The Company does not pay any fees directly to CME.

Any compensation CME receives is from third-party benefit providers.

See 17-Leases for further detail.

The Company receives benefits consulting services from Capital Management Enterprise (“CME”).

Stamatakis, one of the Company's non-employee directors, is the Chief Executive Officer of CME.

The Company does no t pay any fees to CME and, any compensation CME receives related to work for the Company is received by commissions paid by the third-party benefit providers.

The Company leases certain office and operating facilities, machinery, equipment, and vehicles.

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The Company identified variable lease payments, such as maintenance payments based on actual activities performed or costs incurred, at lease commencement by assessing the nature of the payment provisions, including whether the payments are subject to a minimum charge.

Many of our leases include one or more options to renew.

When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining future lease payments.

Many of the Company's leases include one or more options to renew.

When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining future lease payments.

As the Company is unable to determine the discount rate implicit in its lease agreements, the Company uses its incremental borrowing rate on the commencement date to calculate the present value of future payments.

The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2019:

The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2020 and 2019:

Leases Classification 2020 2019

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Included within the balance of operating leases is a lease for the Company’s headquarters which is with a related party.

The ROU liability for this facility is approximately $ 4.5 million as of December 31, 2019 and total rent payments made during the year ended December 31, 2019 approximates $ 1.0 million.

As of December 31, 2019, the total ROU assets attributable to finance leases are approximately $ 19.2 million, which is included in Property, plant, and equipment, net on the Consolidated Balance Sheets.

The components of lease costs for the year ended December 31, 2019 is as follows:

The ROU liability for this facility is approximately $ 3.8 million as of December 31, 2020 and $ 4.5 million as of December 31,

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Total rent payments for this facility were approximately $ 0.7 million and $ 1.0 million during the years ended December 31, 2020 and 2019.

An agreement was reached with the related party to reduce rental payments by 20 % and defer payments for 90 days for the lease of the Company’s headquarters, starting in June 2020 through December 2020 as part of COVID-19 related lease concessions.

As of December 31, 2020 and 2019, the total ROU assets attributable to finance leases are approximately $ 15.8 million and $ 19.2 million, respectively, which is included in Property, plant, and equipment, net on the Consolidated Balance Sheets.

As described in Note 9-Intangible Assets , the Company performed an analysis to determine whether there was any impairment of long-lived assets, which included the ROU assets, within the Services, International, and Products and Systems operating segments as well as Corporate.

The result of the analysis was a $ 0.2 million impairment of a ROU asset in an asset group within the Services segment which is included in Impairment charges on the consolidated statements of income (loss) for the year ended December 31, 2020.

The components of lease costs for the year ended December 31, 2020 and 2019 are as follows:

Classification 2020 2019

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Total $ 19,678 $ 20,115

Additional information related to leases as of December 31, 2019 is as follows:

Additional information related to leases as of December 31, 2020 and 2019 is as follows:

Cash paid for amounts included in the measurement of lease liabilities for finance leases:

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Maturities of lease liabilities as of December 31, 2020 is as follows:

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Finance Operating

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Lease liability $ 14,880 $ 48,037

Pursuant to the Company’s adoption of the new lease accounting guidance using a modified retrospective transition approach, as permitted, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

As previously disclosed in its 2018 Annual Report, the following table presents the Company’s future minimum operating lease commitments as of December 31, 2018:

2019 $ 10,939

Thereafter 10,667

Total $ 45,762

Commitments and Contingencies

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The Company believes that any successful claim by the customer regarding the Company’s workmanship will be covered by insurance, subject to payment of a deductible.

At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any accruals for this matter.

A Company vehicle was involved in an accident in which individuals were injured, property was damaged, and businesses allegedly impacted by the accident have claimed economic losses.

One lawsuit has been filed by one of the injured individuals in the U.S.

District Court for the District of Colorado, McAllister v.

Mistras Group, Inc .

The Company has insurance for these types of matters.

Most of the claims have been settled, including the claims covered by the McAllister case, with the two remaining unresolved claims being for economic loss and property damage.

All of the claims, including the two that have not yet been resolved, have been or are expected to be fully covered by the Company's insurance.

Government Investigations

In May 2015, the Company received a notice from the U.S.

Environmental Protection Agency (“EPA”) that it performed a preliminary assessment at a leased facility the Company operates in Cudahy, California and would be investigating the site.

The purpose of the investigation was to determine whether any hazardous materials were released from the facility.

The Company has been informed that certain hazardous materials and pollutants have been found in the ground water in the general vicinity of the site and the EPA is attempting to ascertain the origination or source of these materials and pollutants.

Given the historic industrial use of the site, the EPA determined that the site of the Cudahy facility should be examined, along with numerous other sites in the vicinity.

The Company has not received any further notices from EPA regarding this matter.

In addition, in 2018, the California Department of Toxic Substances Control notified the owner of the property that it will be performing an additional investigation at the property.

At this time, the Company is unable to determine whether it has any liability in

connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any accruals for this matter.

Accordingly, the Company recorded a reserve of $ 1.4 million during the twelve months ended December 31, 2019 for these past due receivables.

See 4-Accounts Receivable for additional details.

Two proceedings have been filed in California Superior Court for the County of Los Angeles regarding alleged violations of California Labor Code.

Both cases are captions Justin Price v.

Mistras Group, Inc., one being a purported class action lawsuit on behalf of current and former Mistras employees in California and the other was filed on behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations.

Both cases are requesting payment of all damages, including unpaid wages, and various fines and penalties available under California law.

As a result of continued legal proceedings through March 2021, the Company established a liability of $ 0.8 million at December 31, 2020 for a probable loss on this matter.

However, no assurance can be given that this will be the limit of the loss, or that the loss will not be materially more than the $ 0.8 million liability.

An estimate of the total possible loss or range of the total possible loss cannot be made at this time as matters are in preliminary stages.

Pension Related Contingencies

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The Company was notified that a significant project was awarded to another contractor in January 2018, and as a result, one of the Company’s subsidiaries experienced a significant reduction in the number of its employees covered by one of the CBAs.

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Under certain circumstances, such a reduction in the number of employees participating in multi-employer pension plans pursuant to this CBA could result in a complete or partial withdrawal liability to these multi-employer pension plans under the Employee Retirement Income Security Act of 1974 ("ERISA").

Management explored options to retain a level of union work that would avoid withdrawal liability to the pension plans, but concluded during the third quarter of 2018 that the Company's subsidiaries probably would not obtain sufficient union work to avoid withdrawal liability.

Therefore, the Company determined that it is probable that its subsidiary will incur a withdrawal liability related to these multi-employer pension plans.

Therefore, the Company determined that it is probable that its subsidiary would incur a withdrawal liability related to these multi-employer pension plans.

Accordingly, the Company recorded a charge of $ 5.9 million during 2018 and $ 0.8 million during 2019 for this potential withdrawal liability.

The Company’s subsidiary reached an agreement with one of the pension funds in September 2019 and made a final payment of $ 0.9 million in complete satisfaction of the withdrawal liability of the subsidiary.

Excluding the settlement payment, the Company has made monthly payments totaling $ 3.3 million through December 31, 2019.

Excluding the settlement payment, the Company made monthly payments totaling $ 3.3 million through the time of final settlement payment, for total payments of $ 4.2 million.

The balance of the estimated total amount of this potential liability as of December 31, 2020 is approximately $ 2.5 million.

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No other assets or liabilities other than those employee benefits related to employees working on the customer contracts were included in the sale.

As of December 31, 2019, the Company accrued approximately $ 0.8 million for estimated severance payment obligations, which takes into account the Company's estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers.

The $ 0.8 million of estimated obligations is net of $ 0.2 million in payments and $ 0.5 million in reversals due to employees being transitioned to customer contracts.

As of December 31, 2020, the Company has approximately $ 0.2 million of accrued estimated severance payment obligations, which takes into account the Company's estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers.

The $ 0.2 million of estimated obligations is net of $ 0.4 million in payments made and $ 1.0 million in reversals due to employees being transitioned to customer contracts.

During 2018, the Company recorded approximately $ 1.2 million in charges related to labor claims against its Brazilian subsidiary, which are included within selling, general and administrative expenses.

These claims related to employees in a company acquired by the Brazilian subsidiary in a prior period.

The Company believes it is entitled to indemnification from the sellers of the acquired company for most of these charges but has not recorded the expected recovery of indemnification for these labor claims as the amount and timing of collection is uncertain as of December 31, 2019.

The Company is entitled to indemnification from the sellers of the acquired company for most of these charges and won an arbitration award against the seller in 2020.

The Company and the seller subsequently entered into a settlement agreement for $ 1.0 million, which provides for payment in two installments, the first for approximately 31 % of the settlement and the second for the remaining 69 %.

The first installment in the amount of $ 0.3 million was paid by the sellers in December 31, 2020 and recognized as a gain in selling, general and administrative expenses in the same period.

The remaining payment is due in the first quarter of 2021, and the recovery resulting from this second payment will be recorded upon receipt.

Acquisition and disposition related contingencies

The Company is liable for contingent consideration in connection with certain of its acquisitions.

The Company is liable for contingent consideration in connection with one of its acquisitions.

As of December 31, 2020, total potential acquisition-related contingent consideration ranged from zero to approximately $ 4.3 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next 1.75 years.

With respect to the acquisition made in 2018, the Company has filed a claim with the sellers and the Company's insurance carrier through which the Company has representations and warranty insurance concerning certain matters that may impact the purchase price.

This matter is currently being investigated and discussed with the sellers and the Company's insurance carrier.

With respect to the acquisition made in 2018, the Company filed a claim with the sellers and the Company's insurance carrier through which the Company has representations and warranty insurance.

The Company received release of escrow funds from the Seller and is still pursuing its claim with the insurance carrier.

During 2018, the Company sold a subsidiary in the Products and Systems segment.

As part of the sale, the Company entered into a three -year agreement to purchase products from the buyer, with a cumulative commitment of $ 2.3 million, of which

$ 1.4 million is remaining as of December 31, 2019.

As part of the sale, the Company entered into a three-year agreement to purchase products from the buyer, with a cumulative commitment of $ 2.3 million, of which $ 1.2 million is remaining as of December 31, 2020.

The agreement is based on third party pricing and the Company's planned purchase requirements over the three-year purchase period to meet the minimum contractual purchases.

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The Company’s three operating segments are:

This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT and inspection and engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.

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This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.

PCMS software and pipeline related software and data analysis solutions are included in this segment.

• International.

This segment offers services as well as products and systems, similar to those of the other segments, to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

This segment offers services, products and systems, similar to those of the other segments, to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

• Products and Systems.

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Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment.

All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.

The accounting policies of the reportable segments are the same as those described in Note 1-Summary of Significant Accounting Policies and Practices .

Segment income from operations is one of the primary performance measures used by the Chief Executive Officer, who is the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions.

Segment income from operations is one of the primary performance measures used by the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions.

Certain general and administrative costs such as human resources, information technology and training are allocated to the segments.

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$ 178,531 $ 217,297 $ 207,874

Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations .

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For the year ended December 31,

2020 2019 2018

Income from operations

Income (loss) from operations

Services $ ( 44,222 ) $ 49,593 $ 47,126

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$ 367,331 $ 490,554

United States $ 466,683

Other Americas 86,870

Europe 132,421

Asia-Pacific 14,996

Refer to Note 2– Revenue , for revenues by geographic area for the years ended December 31, 2019 and 2018.

Repurchase of Common Stock

On October 7, 2015, the Company's Board of Directors approved a $ 50 million stock repurchase plan.

The Company retired all of its repurchased shares during the fourth quarter of 2017.

The Board of Directors approved the termination of the stock repurchase plan effective April 1, 2019.

There were no repurchases of common stock under the stock repurchase plan during 2019 and 2018.

Refer to Note 2-Revenue , for revenues by segment and by geographic area for the years ended December 31, 2020, 2019, and 2018.

Selected Quarterly Financial Information (unaudited)

The following is a summary of the quarterly results of operations for calendar years 2020, 2019, and 2018.

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Quarter ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020

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Diluted $ ( 0.04 ) $ ( 0.04 ) $ 0.20 $ 0.10

Subsequent Events

In March 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic.

The coronavirus outbreak has severely restricted the level of economic activity around the world.

In response to this coronavirus outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forgo their time outside of their homes.

Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily or restricted access to their premises.

Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses.

A significant portion of the Company’s business and revenue is derived from our technicians and service people being physically located on site at our customer’s facilities.

It is unclear at this point, as a result of government impositions and those of our customers, whether our personnel will be able to travel and gain admittance to our customer’s sites.

In addition, to the extent COVID-19 impacts the financial performance of our customers, these customers may likewise look to further control their outside expenditures, including with respect to services performed by and products of the Company.

As a result, the coronavirus outbreak may have a material adverse impact on the Company’s financial position, operations and cash flows in 2020.

Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably predicted or estimated at this time.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data