MATRIX SERVICE CO 10-K

Item 8. Financial Statements and Supplementary Data Financial Statements of the Company Management’s Report on Internal Control Over Financial Reporting 42 Reports of Independent Registered Public Accounting Firm 43 Consolidated Statements of Income for the Fiscal Years Ended June 30, 20 20 , June 30, 201 9 , and June 30, 201 8 45 Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2020, June 30, 2019, and June 30, 2018 46 Consolidated Balance Sheets as of June 30, 2020 and June 30, 2019 47 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2020, June 30, 2019, and June 30, 2018 49 Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2020, June 30, 2019, and June 30, 2018 51 Notes to Consolidated Financial Statements 52 Quarterly Financial Data (Unaudited) 80 Schedule II—Valuation and Qualifying Accounts 81 Financial Statement Schedules The financial statement schedule is filed as a part of this report under Schedule II – Valuation and Qualifying Accounts for the three fiscal years ended June 30, 2020, June 30, 2019 and June 30, 2018 immediately following Quarterly Financial Data (Unaudited). All other schedules are omitted because they are not applicable or the required information is shown in the financial statements, or notes thereto, included herein. 41 Table of Contents MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Matrix Service Company and its wholly-owned subsidiaries (the “Company”) are responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. 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 (iii) 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. All internal control systems, no matter how well designed, have inherent limitations and cannot provide absolute assurance that all objectives will be met. Internal control over financial reporting is a process that involves diligence and is subject to lapses in judgment and human error. Internal control over financial reporting can also be circumvented by collusion or management override of controls. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020. In making this assessment, the Company’s management used the criteria established in Internal Control—Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Management’s assessment included an evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, overall control environment and information systems control environment. Based on this assessment, the Company’s management has concluded that the Company’s internal control over financial reporting as of June 30, 2020 was effective. Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020. Deloitte & Touche LLP’s report on the Company’s internal control over financial reporting is included herein. /S/ John R. Hewitt /S/ Kevin S. Cavanah John R. Hewitt Kevin S. Cavanah President and Chief Executive Officer Vice President and Chief Financial Officer September 3, 2020 42 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Matrix Service Company Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Matrix Service Company and subsidiaries (the “Company”) as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2020 of the Company and our report dated September 3, 2020, expressed an unqualified opinion on those financial statements. 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 included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (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. 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. /S/ DELOITTE & TOUCHE LLP Tulsa, Oklahoma September 3, 2020 43 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Matrix Service Company Opinion on the Financial Statements We have audited the accompanying Consolidated Balance Sheets of Matrix Service Company and subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related Consolidated Statements of Income, Comprehensive Income, Cash Flows and Changes in Stockholders’ Equity for each of the three years in the period ended June 30, 2020 and the related notes and schedule listed in the Index at Item 8 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also 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 June 30, 2020, 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 September 3, 2020 expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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. 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion. /S/ DELOITTE & TOUCHE LLP Tulsa, Oklahoma September 3, 2020 We have served as the Company's auditor since 2006. 44 Table of Contents Matrix Service Company Consolidated Statements of Income (In thousands, except per share data) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 Revenue $ 1,100,938 $ 1,416,680 $ 1,091,553 Cost of revenue 998,762 1,284,729 999,617 Gross profit 102,176 131,951 91,936 Selling, general and administrative expenses 86,276 94,021 84,417 Goodwill and other intangible asset impairment 38,515 — 17,998 Restructuring costs 14,010 — — Operating income (loss) ( 36,625 ) 37,930 ( 10,479 ) Other income (expense): Interest expense ( 1,597 ) ( 1,296 ) ( 2,600 ) Interest income 1,270 1,167 381 Other 308 611 550 Income (loss) before income tax expense ( 36,644 ) 38,412 ( 12,148 ) Provision (benefit) for federal, state and foreign income taxes ( 3,570 ) 10,430 ( 668 ) Net income (loss) $ ( 33,074 ) $ 27,982 $ ( 11,480 ) Basic earnings (loss) per common share $ ( 1.24 ) $ 1.04 $ ( 0.43 ) Diluted earnings (loss) per common share $ ( 1.24 ) $ 1.01 $ ( 0.43 ) Weighted average common shares outstanding: Basic 26,621 26,891 26,769 Diluted 26,621 27,587 26,769 See accompanying notes 45 Table of Contents Matrix Service Company Consolidated Statements of Comprehensive Income (In thousands) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 Net income (loss) $ ( 33,074 ) $ 27,982 $ ( 11,480 ) Other comprehensive loss, net of tax: Foreign currency translation loss (net of tax expense (benefit) of ($88), $27 and ($24) for the fiscal years ended June 30, 2020, 2019 and 2018, respectively) ( 622 ) ( 340 ) ( 87 ) Comprehensive income (loss) $ ( 33,696 ) $ 27,642 $ ( 11,567 ) See accompanying notes 46 Table of Contents Matrix Service Company Consolidated Balance Sheets (In thousands) June 30, 2020 June 30, 2019 Assets Current assets: Cash and cash equivalents $ 100,036 $ 89,715 Accounts receivable, less allowances (2020 - $905; 2019 - $923) 160,671 218,432 Costs and estimated earnings in excess of billings on uncompleted contracts 59,548 96,083 Inventories 6,460 8,017 Income taxes receivable 3,919 29 Other current assets 4,526 5,034 Total current assets 335,160 417,310 Property, plant and equipment, at cost: Land and buildings 42,695 41,179 Construction equipment 94,154 91,793 Transportation equipment 55,864 52,526 Office equipment and software 39,356 43,632 Construction in progress 4,427 7,619 Total property, plant and equipment - at cost 236,496 236,749 Accumulated depreciation ( 155,748 ) ( 157,414 ) Property, plant and equipment - net 80,748 79,335 Operating lease right-of-use assets 21,375 — Goodwill 60,369 93,368 Other intangible assets 8,837 19,472 Deferred income taxes 5,988 2,683 Other assets 4,833 21,226 Total assets $ 517,310 $ 633,394 See accompanying notes 47 Table of Contents Matrix Service Company Consolidated Balance Sheets (continued) (In thousands, except share data) June 30, 2020 June 30, 2019 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 73,094 $ 114,647 Billings on uncompleted contracts in excess of costs and estimated earnings 63,889 105,626 Accrued wages and benefits 16,205 38,357 Accrued insurance 7,301 9,021 Operating lease liabilities 7,568 — Income taxes payable — 2,517 Other accrued expenses 7,890 5,331 Total current liabilities 175,947 275,499 Deferred income taxes 61 298 Operating lease liabilities 19,997 — Borrowings under senior secured revolving credit facility 9,208 5,347 Other liabilities 4,208 293 Total liabilities 209,421 281,437 Commitments and contingencies Stockholders’ equity: Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of June 30, 2020 and June 30, 2019; 26,141,528 and 26,807,203 shares outstanding as of June 30, 2020 and June 30, 2019 279 279 Additional paid-in capital 138,966 137,712 Retained earnings 206,402 239,476 Accumulated other comprehensive loss ( 8,373 ) ( 7,751 ) 337,274 369,716 Less treasury stock, at cost — 1,746,689 and 1,081,014 shares as of June 30, 2020 and June 30, 2019 ( 29,385 ) ( 17,759 ) Total stockholders' equity 307,889 351,957 Total liabilities and stockholders’ equity $ 517,310 $ 633,394 See accompanying notes 48 Table of Contents Matrix Service Company Consolidated Statements of Cash Flows (In thousands) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 Operating activities: Net income (loss) $ ( 33,074 ) $ 27,982 $ ( 11,480 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects of acquisitions: Depreciation and amortization 19,124 18,224 20,347 Goodwill and other intangible asset impairment (Note 4) 38,515 — 17,998 Stock-based compensation expense 9,877 11,908 8,618 Operating lease, fixed asset, and other intangible asset impairments due to restructuring (Note 14) 5,215 — — Deferred income tax ( 3,630 ) 2,061 ( 1,186 ) Gain on disposal of business (Note 3) — ( 427 ) — Gain on sale of property, plant and equipment ( 767 ) ( 854 ) ( 662 ) Provision for uncollectible accounts 1,158 5 107 Other ( 7 ) 701 397 Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions: Accounts receivable 56,603 ( 15,374 ) 5,504 Costs and estimated earnings in excess of billings on uncompleted contracts 36,535 ( 19,809 ) 14,548 Inventories 1,557 ( 2,872 ) ( 1,415 ) Other assets and liabilities 11,029 ( 12,246 ) 369 Accounts payable ( 38,915 ) 32,651 ( 25,883 ) Billings on uncompleted contracts in excess of costs and estimated earnings ( 41,737 ) ( 14,983 ) 45,613 Accrued expenses ( 17,398 ) 14,427 1,796 Net cash provided by operating activities 44,085 41,394 74,671 Investing activities: Capital expenditures ( 18,539 ) ( 19,558 ) ( 8,711 ) Acquisitions, net of cash acquired — — ( 1,687 ) Proceeds from disposal of business (Note 3) — 3,885 — Proceeds from asset sales 1,423 1,225 1,062 Net cash used by investing activities $ ( 17,116 ) $ ( 14,448 ) $ ( 9,336 ) See accompanying notes 49 Table of Contents Matrix Service Company Consolidated Statements of Cash Flows (continued) (In thousands) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 Financing activities: Advances under senior secured revolving credit facility $ 18,567 $ 16,225 $ 85,317 Repayments of advances under senior secured revolving credit facility ( 14,357 ) ( 10,896 ) ( 130,248 ) Payment of debt amendment fees — — ( 364 ) Open market purchase of treasury shares ( 17,045 ) ( 5,190 ) — Issuances of common stock — 128 317 Proceeds from issuance of common stock under employee stock purchase plan 320 311 293 Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 3,524 ) ( 1,685 ) ( 627 ) Net cash used by financing activities ( 16,039 ) ( 1,107 ) ( 45,312 ) Effect of exchange rate changes on cash ( 609 ) ( 181 ) 229 Net increase in cash and cash equivalents 10,321 25,658 20,252 Cash and cash equivalents, beginning of period 89,715 64,057 43,805 Cash and cash equivalents, end of period $ 100,036 $ 89,715 $ 64,057 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 6,394 $ 3,309 $ 1,410 Interest $ 2,148 $ 1,705 $ 2,719 Non-cash investing and financing activities: Purchases of property, plant and equipment on account $ 48 $ 2,686 $ 156 See accompanying notes 50 Table of Contents Matrix Service Company Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income(Loss) Total Balances, July 1, 2017 $ 279 $ 128,419 $ 222,974 $ ( 22,539 ) $ ( 7,324 ) $ 321,809 Net loss — — ( 11,480 ) — — ( 11,480 ) Other comprehensive loss — — — — ( 87 ) ( 87 ) Treasury Shares sold to Employee Stock Purchase Plan (21,920 shares) — ( 130 ) — 423 — 293 Exercise of stock options (31,050 shares) — ( 240 ) — 557 — 317 Issuance of deferred shares (253,241 shares) — ( 4,469 ) — 4,469 — — Treasury shares repurchased to satisfy tax withholding obligations (52,950 shares) — — — ( 627 ) — ( 627 ) Stock-based compensation expense — 8,618 — — — 8,618 Balances, June 30, 2018 279 132,198 211,494 ( 17,717 ) ( 7,411 ) 318,843 Net income — — 27,982 — — 27,982 Other comprehensive loss — — — — ( 340 ) ( 340 ) Treasury Shares sold to Employee Stock Purchase Plan (15,812 shares) — 38 — 273 — 311 Exercise of stock options (12,500 shares) — ( 126 ) — 254 — 128 Issuance of deferred shares (314,711 shares) — ( 6,306 ) — 6,306 — — Treasury shares repurchased to satisfy tax withholding obligations (79,111 shares) — — — ( 1,685 ) — ( 1,685 ) Open market purchases of treasury shares (310,532 shares) — — — ( 5,190 ) — ( 5,190 ) Stock-based compensation expense — 11,908 — — — 11,908 Balances, June 30, 2019 279 137,712 239,476 ( 17,759 ) ( 7,751 ) 351,957 Net loss — — ( 33,074 ) — — ( 33,074 ) Other comprehensive loss — — — — ( 622 ) ( 622 ) Treasury Shares Sold to Employee Stock Purchase Plan (20,733 shares) — ( 19 ) — 339 — 320 Issuance of deferred shares (542,279 shares) — ( 8,604 ) — 8,604 — — Treasury shares repurchased to satisfy tax withholding obligations (181,081 shares) — — — ( 3,524 ) — ( 3,524 ) Open market purchases of treasury shares (1,047,606 shares) — — — ( 17,045 ) — ( 17,045 ) Stock-based compensation expense — 9,877 — — — 9,877 Balances, June 30, 2020 $ 279 $ 138,966 $ 206,402 $ ( 29,385 ) $ ( 8,373 ) $ 307,889 See accompanying notes 51 Table of Contents Matrix Service Company Notes to Consolidated Financial Statements Note 1— Summary of Significant Accounting Policies Organization and Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of Matrix Service Company and its subsidiaries (“Matrix” or the “Company”), all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation. The Company operates in the United States, Canada, South Korea and Australia. The Company’s reportable segments are Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We believe the most significant estimates and judgments are associated with revenue recognition, the recoverability tests that must be periodically performed with respect to our goodwill and other intangible assets, valuation reserves on our accounts receivable and deferred tax assets, and the estimation of loss contingencies, including liabilities associated with litigation and with the self-insured retentions on our insurance programs. Actual results could materially differ from those estimates. Leases Adoption of New Leases Standard In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under this guidance, lessees are required to recognize virtually all leases on the balance sheet as a right-of-use asset and an associated operating lease liability or finance lease liability. The right-of-use asset represents the lessee's right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee's obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as operating leases or finance leases. Operating lease liabilities and right-of-use assets are adjusted to result in a single straight-line lease expense over the life of the lease. Finance lease liabilities and right-of-use assets, which contain provisions similar to capital leases under the prior accounting standards, result in the recognition of interest expense on the lease liability and amortization expense on the right-of-use asset over the term of the lease. On July 1, 2019, the Company adopted the standard using the modified retrospective method. The modified retrospective method permits the Company to record right-of-use assets and lease liabilities for existing leases as of the date of adoption rather than at the beginning of the earliest period presented. The Company recorded operating lease right-of-use assets of $ 24.6 million and operating lease liabilities of $ 25.8 million as of July 1, 2019. The adoption of the standard did not have a material impact on the Company’s retained earnings, Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows. Financial results reported in prior periods are unchanged and reflect the prior lease accounting standards in place at the time. The Company elected the package of practical expedients permitted under the transition guidance for the new standard, which among other things, allowed the Company to carry forward the historical lease classification of its existing leases. All of the Company's existing leases were classified as operating leases prior to adoption and have retained this classification after adoption. In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases at adoption. 52 Matrix Service Company Notes to Consolidated Financial Statements (continued) Lease Accounting Policy The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business. The Company determines if an arrangement is or contains a lease at inception of the arrangement. An arrangement is determined to be a lease if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration. Operating lease right-of-use assets are recognized as the present value of future lease payments over the lease term as of the commencement date, plus any lease payments made prior to commencement, and less any lease incentives received. Operating lease liabilities are recognized as the present value of the future lease payments over the lease term as of the commencement date. Operating lease expense is recognized based on the undiscounted future lease payments over the remaining lease term on a straight-line basis. Lease expense related to short-term leases is recognized on a straight-line basis over the lease term. Determinations with respect to lease term (including any renewals and terminations), incremental borrowing rate used to discount lease payments, variable lease expense and future lease payments require the use of judgment based on the facts and circumstances related to each lease. The Company considers various factors, including economic incentives, intent, past history and business need, to determine the likelihood that a renewal option will be exercised. Right-of-use assets are evaluated for impairment in accordance with our policy for impairment of long-lived assets. Revenue Recognition General Information about our Contracts with Customers Our revenue comes from contracts to provide engineering, procurement, fabrication and construction, repair and maintenance and other services. Our engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which commonly are fixed price contracts and are billed based on project milestones. Our repair and maintenance services typically are cost reimbursable or time and material based contracts and are billed monthly or, for projects of short duration, at the conclusion of the project. The elapsed time from award to completion of performance may be in excess of one year for capital projects. Step 1: Contract Identification We do not recognize revenue unless we have identified a contract with a customer. A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility is probable. We also evaluate whether a contract should be combined with other contracts and accounted for as one single contract. This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period. Step 2: Identify Performance Obligations Next, we identify each performance obligation in the contract. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately for each performance obligation in the contract. Many of our contracts have one clearly identifiable performance obligation. However, many of our contracts provide the customer an integrated service that includes two or more of the following services: engineering, procurement, fabrication, construction, repair and maintenance services. For these contracts, we do not consider the integrated services to be distinct within the context of the contract when the separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly, we generally identify one performance obligation in our contracts. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period. Step 3: Determine Contract Price After determining the performance obligations in the contract, we determine the contract price. The contract price is the amount of consideration we expect to receive from the customer for completing the performance obligation(s). In a fixed price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials expended in completing the performance obligation(s) in the contract. 53 Matrix Service Company Notes to Consolidated Financial Statements (continued) A number of our contracts contain various cost and performance incentives and penalties that can either increase or decrease the contract price. These variable consideration amounts are generally earned or incurred based on certain performance metrics, most commonly related to project schedule or cost targets. We estimate variable consideration at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that meeting the variable condition is probable. We include estimated amounts of variable consideration in the contract price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the contract price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We reassess the amount of variable consideration each accounting period until the uncertainty associated with the variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for prospectively as a cumulative adjustment to revenue recognized in the current period. Step 4: Assign Contract Price to Performance Obligations After determining the contract price, we assign such price to the performance obligation(s) in the contract. If a contract has multiple performance obligations, we assign the contract price to each performance obligation based on the stand-alone selling prices of the distinct services that comprise each performance obligation. Step 5: Recognize Revenue as Performance Obligations are Satisfied We record revenue for contracts with our customers as we satisfy the contracts' performance obligations. We recognize revenue on performance obligations associated with fixed price contracts for engineering, procurement, fabrication and construction services over time since these services create or enhance assets the customer controls as they are being created or enhanced. We measure progress of satisfying these performance obligations by using the percentage-of-completion method, which is based on costs incurred to date compared to the total estimated costs at completion, since it best depicts the transfer of control of assets being created or enhanced to the customer. We recognize revenue over time for reimbursable and time and material based repair and maintenance contracts since the customer simultaneously receives and consumes the benefit of those services as we perform work under the contract. As a practical expedient allowed under the revenue accounting standards, we record revenue for these contracts in the amount to which we have a right to invoice for the services performed provided that we have a right to consideration from the customer in an amount that corresponds directly with the value of the performance completed to date. Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked. Typically, customer contracts will include standard warranties that provide assurance that products and services will function as expected. The Company does not sell separate warranties. We have numerous contracts that are in various stages of completion which require estimates to determine the forecasted costs at completion. Due to the nature of the work left to be performed on many of our contracts, the estimation of total cost at completion for fixed price contracts is complex, subject to many variables and requires significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of costs to complete fixed price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated. Change Orders Contracts are often modified through change orders, which are changes to the agreed upon scope of work. Most of our change orders, which may be priced or unpriced, are for goods or services that are not distinct from the existing contract due to the significant integration of services provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a change order on the contract price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. For unpriced change orders, we estimate the increase or decrease to the contract price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above. Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies. 54 Matrix Service Company Notes to Consolidated Financial Statements (continued) Claims Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred by us. Recognition of amounts as additional contract price related to claims is appropriate only if there is a legal basis for the claim. The determination of our legal basis for a claim requires significant judgment. We estimate the change to the contract price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above. Claims are more fully discussed in Note 7 - Commitments and Contingencies. Cash and Cash Equivalents The Company includes as cash equivalents all investments with original maturities of three months or less which are readily convertible into cash. We have cash on deposit at June 30, 2020 with banks in the United States, Canada, South Korea and Australia in excess of Federal Deposit Insurance Corporation ("FDIC"), Canada Deposit Insurance Corporation ("CDIC"), Korea Deposit Insurance Corporation ("KDIC") and Financial Claims Scheme ("FCS") protection limits, respectively. The United States Dollar equivalent of Canadian, South Korean and Australian deposits totaled $ 13.5 million as of June 30, 2020. Accounts Receivable Accounts receivable are carried on a gross basis, less the allowance for uncollectible accounts. The Company’s customers consist primarily of major integrated oil companies, independent refiners and marketers, power companies, petrochemical companies, pipeline companies, mining companies, contractors and engineering firms. The Company is exposed to the risk of individual customer defaults or depressed cycles in our customers’ industries. To mitigate this risk many of our contracts require payment as projects progress or advance payment in some circumstances. In addition, in most cases the Company can place liens against the property, plant or equipment constructed or terminate the contract if a material contract default occurs. Management estimates the allowance for uncollectible accounts based on existing economic conditions, the financial condition of its customers and the amount and age of past due accounts. Accounts are written off against the allowance for uncollectible accounts only after all reasonable collection attempts have been exhausted. Retentions Contract retentions collectible beyond one year are included in Other assets in the Consolidated Balance Sheets. Accounts payable retentions are generally settled within one year. Loss Contingencies Various legal actions, claims and other contingencies arise in the normal course of our business. Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, “Loss Contingencies”. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable. We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known. We believe that any amounts exceeding our recorded accruals should not materially affect our financial position, results of operations or liquidity. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity. Legal costs are expensed as incurred. Inventories Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions. Cost is determined primarily using the average cost method and inventories are stated at the lower of cost or net realizable value. Depreciation Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. Depreciable lives are as follows: buildings— 40 years, construction equipment— 3 to 15 years, transportation equipment— 3 to 5 years, and office equipment and software— 3 to 10 years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term. 55 Matrix Service Company Notes to Consolidated Financial Statements (continued) Impairment of Long-Lived Assets The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets used in operations may not be recoverable. The determination of whether an impairment has occurred is based on management’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and, to the extent the carrying value exceeds the fair value of the assets, recording a loss provision. For assets identified to be disposed of in the future, the carrying value of the assets are compared to the estimated fair value less the cost of disposal to determine if an impairment has occurred. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change. Goodwill Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. In accordance with current accounting guidance, goodwill is not amortized and is tested at least annually for impairment at the reporting unit level, which is a level below our reportable segments. We perform our annual impairment test in the fourth quarter of each fiscal year, or in between annual tests whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine whether an impairment exists and to determine the amount of headroom. We define "headroom" as the percentage difference between the fair value of a reporting unit and its carrying value. The goodwill impairment test involves comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the impairment may not exceed the balance of goodwill assigned to that reporting unit. We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as a market approach, to determine the estimated fair value of our reporting units. For the income approach, significant judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates, which are based on our operating and capital budgets and on our strategic plan. As a result, actual results may differ from the estimates utilized in our income approach. For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA and our forecasted EBITDA. The use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and could result in the recognition of additional impairment charges in the financial statements. As a test for reasonableness, we also consider the combined carrying values of our reporting units to our market capitalization. Other Intangible Assets Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging from 6 years to 15 years. A finite intangible asset is considered impaired when its carrying amount is not recoverable and exceeds the asset's fair value. The carrying amount is deemed unrecoverable if it is greater than the sum of undiscounted cash flows expected to result from use and eventual disposition of the asset. An impairment loss is equal to the excess of the carrying amount over the fair value of the asset. If quoted market prices are not available, the fair values of the intangible assets are based on present values of expected future cash flows or royalties avoided using discount rates commensurate with the risks involved. Insurance Reserves We maintain insurance coverage for various aspects of our operations. However, we retain exposure to potential losses through the use of deductibles, coverage limits and self-insured retentions. We establish reserves for claims using a combination of actuarially determined estimates and case-by-case evaluations of the underlying claim data and update our evaluations as further information becomes known. Judgments and assumptions are inherent in our reserve accruals; as a result, changes in assumptions or claims experience could result in changes to these estimates in the future. If actual results of claim settlements are different than the amounts estimated we may be exposed to future gains and losses that could be material. 56 Matrix Service Company Notes to Consolidated Financial Statements (continued) Stock-Based Compensation The Company has issued stock options and nonvested deferred share awards under its long-term incentive compensation plans. The fair value of these awards is calculated at grant date. The fair value of time-based, nonvested deferred shares is the value of the Company’s common stock at the grant date. The fair value of market-based nonvested deferred shares is based on several factors, including the probability that the market condition specified in the grant will be achieved, which is calculated using a Monte Carlo model. The fair value of stock options is determined based on the Black-Scholes option pricing model. For all stock-based awards, expense is recognized over the requisite service period with forfeitures recorded as they occur. Income Taxes We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results. Company management believes that realization of deferred tax assets in excess of the valuation allowance is more likely than not. Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities. Foreign Currency The functional currencies of the Company’s operations in Canada, South Korea and Australia are the Canadian Dollar, South Korean Won and U.S. Dollar, respectively. The functional currency of the Company's Australian operations is the U.S. Dollar since its sales are primarily denominated in that currency. For subsidiaries with operations using a foreign functional currency, assets and liabilities are translated at the year-end exchange rates and the income statement accounts are translated at average exchange rates throughout the year. Translation gains and losses are reported in Accumulated Other Comprehensive Income (Loss), net of tax, in the Consolidated Statements of Changes in Stockholders’ Equity and in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income. Translation gains and losses are reversed from Accumulated Other Comprehensive Income (Loss) and are recognized in current period income in the event the Company disposes of an entity with accumulated translation gains or losses. Transaction gains and losses are reported as a component of Other income (expense) in the Consolidated Statements of Income. Recently Issued Accounting Standards Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, which will change how the Company accounts for its allowance for uncollectible accounts. The amendments in this update require a financial asset (or a group of financial assets) to be presented at the net amount expected to be collected. The income statement will reflect any increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Previous GAAP delays the recognition of the full amount of credit losses until the loss is probable of occurring. The amendments in this update eliminate the probable initial recognition threshold and, instead, reflect the Company's current estimate of all expected credit losses. In addition, current guidance limits the information the Company may consider in measuring a credit loss to its past events and current conditions. The amendments in this update broaden the information the Company may consider in developing its expected credit loss estimate to include forecasted information. The Company adopted the standard on July 1, 2020 with no material impact to its estimate of the allowance for uncollectible accounts. 57 Table of Contents Note 2 – Revenue Remaining Performance Obligations The Company had $ 566.4 million of remaining performance obligations yet to be satisfied as of June 30, 2020. The Company expects to recognize approximately $ 429.0 million of its remaining performance obligations as revenue within the next twelve months. Contract Balances Contract terms with customers include the timing of billing and payment, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of each period and are classified as current. We present our contract assets in the balance sheet as Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ("CIE"). CIE consists of revenue recognized in excess of billings. We present our contract liabilities in the balance sheet as Billings on Uncompleted Contracts in Excess of Costs and Estimated Earnings ("BIE"). BIE consists of billings in excess of revenue recognized. The following table provides information about CIE and BIE: June 30, 2020 June 30, 2019 Change (In thousands) Costs and estimated earnings in excess of billings on uncompleted contracts $ 59,548 $ 96,083 $ ( 36,535 ) Billings on uncompleted contracts in excess of costs and estimated earnings ( 63,889 ) ( 105,626 ) 41,737 Net contract liabilities $ ( 4,341 ) $ ( 9,543 ) $ 5,202 The difference between the beginning and ending balances of the Company's CIE and BIE primarily results from the timing of revenue recognized relative to its billings. The amount of revenue recognized during the twelve months ended June 30, 2020 that was included in the prior period BIE balance was $ 104.4 million. This revenue consists primarily of work performed during the period on contracts with customers that had advance billings. Progress billings in accounts receivable at June 30, 2020 and June 30, 2019 included retentions to be collected within one year of $ 37.3 million and $ 21.9 million, respectively. Contract retentions collectible beyond one year are included in other assets in the Consolidated Balance Sheets and totaled $ 1.6 million as of June 30, 2020 and $ 17.7 million as of June 30, 2019. Disaggregated Revenue Revenue disaggregated by reportable segment is presented in Note 13 - Segment Information. The following series of tables presents revenue disaggregated by geographic area where the work was performed and by contract type: Geographic Disaggregation: Twelve months ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) United States $ 1,020,083 $ 1,367,844 $ 981,292 Canada 70,133 41,410 104,208 Other international 10,722 7,426 6,053 Total $ 1,100,938 $ 1,416,680 $ 1,091,553 58 Table of Contents Contract Type Disaggregation: Twelve months ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) Fixed-price contracts $ 685,559 $ 748,007 $ 588,039 Time and materials and other cost reimbursable contracts 415,379 668,673 503,514 Total $ 1,100,938 $ 1,416,680 $ 1,091,553 Typically, the Company assumes more risk with fixed-price contracts since increases in cost to perform the work may not be recoverable. However, these types of contracts typically offer higher profits than time and materials and other cost reimbursable contracts when completed at or below the costs originally estimated. The profitability of time and materials and other cost reimbursable contracts is typically lower than fixed-price contracts and is usually less volatile than fixed-price contracts since the profit component is factored into the rates charged for labor, equipment and materials, or is expressed in the contract as a percentage of the reimbursable costs incurred. The mix of revenue by contract type shifted since the third quarter of fiscal 2020 due to the Company's strategic initiative to exit the domestic iron and steel industry, which was comprised primarily of time and materials and other cost reimbursable contracts. Note 3— Acquisitions and Disposals Sale of Process Heating Business In August 2018, the Company sold non-core assets associated with a business that marketed process heating equipment for $ 3.9 million in cash, including $ 0.2 million of customary final post-closing adjustments paid in October 2018. The Company recognized a gain of $ 0.4 million on the sale, which was included in Other in the Consolidated Statements of Income. The revenue and operating results of the business, which were included in the Oil Gas & Chemical segment, were not material. Note 4— Goodwill and Other Intangible Assets Goodwill The changes in the carrying amount of goodwill by segment are as follows: Electrical Infrastructure Oil Gas & Chemical Storage Solutions Industrial Total (In thousands) Net balance at June 30, 2017 $ 42,152 $ 33,604 $ 16,764 $ 20,981 $ 113,501 Goodwill impairment ( 17,281 ) — — — ( 17,281 ) Translation adjustment (1) ( 45 ) — ( 4 ) ( 9 ) ( 58 ) Net balance at June 30, 2018 24,826 33,604 16,760 20,972 96,162 Disposal of business (2) — ( 2,775 ) — — ( 2,775 ) Translation adjustment (1) 4 — ( 24 ) 1 ( 19 ) Net balance at June 30, 2019 24,830 30,829 16,736 20,973 93,368 Goodwill impairment ( 24,900 ) — — ( 7,981 ) ( 32,881 ) Translation adjustment (1) 70 — ( 169 ) ( 19 ) ( 118 ) Net balance at June 30, 2020 $ — $ 30,829 $ 16,567 $ 12,973 $ 60,369 (1) The translation adjustments relate to the periodic translation of Canadian Dollar and South Korean Won denominated goodwill recorded as a part of prior acquisitions in Canada and South Korea, in which the local currency was determined to be the functional currency. (2) In August 2018, the Company disposed of a business that marketed process heating equipment. See Note 3 - Acquisitions and Disposals for more information about the disposal. The business disposed of constituted its own reporting unit and the amount of goodwill written off was all of the goodwill assigned to that reporting unit. None of the goodwill was considered impaired since the Company recorded a gain on the disposal. 59 Matrix Service Company Notes to Consolidated Financial Statements (continued) The Company performed its annual goodwill impairment test as of May 31, 2020, which resulted in no impairment. The fiscal 2020 test indicated that three reporting units with a combined total of $ 14.2 million of goodwill as of June 30, 2020 were at higher risk of future impairment than others. If the Company's view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then the Company may be required to record a material impairment of goodwill. During the third quarter of fiscal 2020, the Company concluded that goodwill impairment indicators existed based on the uncertainties caused by the COVID-19 pandemic and the significant decline in the price of crude oil. These uncertainties resulted in lowered revenue expectations for the remainder of fiscal 2020 and fiscal 2021 and led to significant volatility in the Company's stock price. Accordingly, the Company performed an interim test as of March 31, 2020, which did not result in any additional impairments. In the second quarter of fiscal 2020, the Company concluded that a goodwill impairment indicator existed in the Electrical Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s downward acceleration of revenue and gross margin. Accordingly, the Company performed an interim impairment test as of December 31, 2019, reflecting updated revenue and gross margin assumptions, and concluded that the reporting unit's $24.9 million of goodwill was fully impaired. Additionally, the Company concluded that a goodwill impairment indicator existed for an Industrial segment reporting unit based on several second quarter events. These events included the deterioration of our relationship with a significant customer in the iron and steel industry in the second quarter. As a result, the customer canceled other previously awarded work and the Company is expecting little to no new business from this customer in the foreseeable future. Accordingly, the Company performed an interim impairment test as of December 31, 2019 and concluded that the reporting unit's $8.0 million of goodwill was fully impaired. In fiscal 2018, the Company recorded a $17.3 million impairment of goodwill included in the Electrical Infrastructure segment. The impairment was triggered by lower financial projections as a result of the Company's decision to shift its strategy away from EPC power generation projects to smaller, individual packages that better fit the Company's strategy and risk profile, and sluggish maintenance and capital spending by some key clients in our Northeast and Mid-Atlantic high voltage markets. The estimated fair value of each reporting unit was derived primarily by utilizing a discounted cash flow analysis. The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies, Goodwill. Other Intangible Assets In the fourth quarter of fiscal 2020, the Company fully impaired a customer relationship intangible asset with a net book value of $ 1.2 million. The customer relationship primarily related to services which were impacted by the Company's performance improvement plan (see Note 14 - Restructuring Costs). As a result, the customer relationship intangible asset was no longer recoverable. As of June 30, 2020, this intangible asset had a remaining useful life of approximately 2 years, a gross carrying amount of $ 6.3 million and accumulated amortization of $ 5.1 million. The impairment is included in the restructuring costs caption in the Consolidated Statements of Income. Also in the fourth quarter of fiscal 2020, the Company fully impaired a customer relationship intangible asset with a net book value of $ 0.4 million in connection with the closure of an underperforming operating unit. The closure was part the Company's performance improvement plan (see Note 14 - Restructuring Costs). As of June 30, 2020, this intangible asset had a remaining useful life of approximately 4 years, a gross carrying amount of $ 0.9 million and accumulated amortization of $ 0.5 million. The impairment is included in the restructuring costs caption in the Consolidated Statements of Income. In the second quarter of fiscal 2020, in connection with the factors disclosed for the Industrial segment goodwill impairment above, the Company fully impaired a customer relationship with a net book value of $ 5.6 million. As of December 31, 2019, this intangible asset had a remaining useful life of 9 years, a gross carrying amount of $ 9.4 million and accumulated amortization of $ 3.8 million. The impairment is included within the goodwill and other intangible asset impairment caption in the Consolidated Statements of Income. In the fourth quarter of fiscal 2018, the Company recorded a $ 0.7 million impairment to a customer relationship intangible asset associated with an acquisition that was completed in fiscal 2013. The impairment was triggered by lower than anticipated revenue and operating income. The impairment is included in the Oil Gas & Chemical segment and is presented within the goodwill and other intangible asset impairment caption in the Consolidated Statements of Income. 60 Matrix Service Company Notes to Consolidated Financial Statements (continued) Information on the carrying value of other intangible assets is as follows: At June 30, 2020 Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Years) (In thousands) Intellectual property 10 to 15 $ 2,579 $ ( 1,956 ) $ 623 Customer based 6 to 15 21,840 ( 13,626 ) 8,214 Non-compete Agreements 4 1,453 ( 1,453 ) — Total other intangible assets $ 25,872 $ ( 17,035 ) $ 8,837 At June 30, 2019 Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Years) (In thousands) Intellectual property 10 to 15 $ 2,579 $ ( 1,779 ) $ 800 Customer based 6 to 15 38,572 ( 19,915 ) 18,657 Non-compete agreements 4 1,453 ( 1,438 ) 15 Total other intangible assets $ 42,604 $ ( 23,132 ) $ 19,472 Amortization expense totaled $ 3.4 million, $ 3.3 million, and $ 4.8 million in fiscal 2020, 2019, and 2018, respectively. We estimate that future amortization of other intangible assets will be as follows (in thousands): For year ending: June 30, 2021 $ 2,231 June 30, 2022 1,811 June 30, 2023 1,729 June 30, 2024 1,415 June 30, 2025 1,096 Thereafter 555 Total estimated amortization expense $ 8,837 Note 5— Debt On February 8, 2017, the Company entered into the Fourth Amended and Restated Credit Agreement (the "Credit Agreement"), by and among the Company and certain foreign subsidiaries, as Borrowers, various subsidiaries of the Company, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Bookrunner, and the other Lenders party thereto. The Credit Agreement provides for a five-year senior secured revolving credit facility of $ 300.0 million that expires February 8, 2022 . The credit facility may be used for working capital, acquisitions, capital expenditures, issuances of letters of credit and other lawful purposes. 61 Matrix Service Company Notes to Consolidated Financial Statements (continued) The credit facility includes a U.S. Dollar equivalent sublimit of $ 75.0 million for revolving loans denominated in Australian Dollars, Canadian Dollars, Euros and Pounds Sterling and letters of credit in Australian Dollars, Euros, and Pounds Sterling. The credit facility also includes a $ 200.0 million sublimit for total letters of credit. Each revolving borrowing under the Credit Agreement will bear interest at a rate per annum equal to: • The ABR or the Adjusted LIBO Rate, in the case of revolving loans denominated in U.S. Dollars; • The Canadian Prime Rate or the CDOR rate, in the case of revolving loans denominated in Canadian Dollars; • The Adjusted LIBO Rate, in the case of revolving loans denominated in Pounds Sterling or Australian Dollars; or • The EURIBO Rate, in the case of revolving loans denominated in Euros, in each case, plus the Applicable Margin, which is based on the Company's Leverage Ratio. The Applicable Margin on ABR loans ranges between 0.625 % and 1.625 %. The Applicable Margin for Adjusted LIBO, EURIBO and CDOR loans ranges between 1.625 % and 2.625 % and the Applicable Margin for Canadian Prime Rate loans ranges between 2.125 % and 3.125 %. The unused credit facility fee is between 0.25 % and 0.45 % based on the Leverage Ratio. At June 30, 2020, the Company was at the lowest margin tier for all categories of loans and the unused revolving credit facility fee under the Credit Agreement. The Credit Agreement includes the following covenants and borrowing limitations: • Our Leverage Ratio, determined as of the end of each fiscal quarter, may not exceed 3.00 to 1.00 . The Leverage Ratio covenant requires that Consolidated Funded Indebtedness, as defined in the Credit Agreement, as of the end of any fiscal quarter, may not exceed 3.0 times Consolidated EBITDA, as defined in the Credit Agreement, or "Covenant EBITDA," over the previous four quarters. • We are required to maintain a Fixed Charge Coverage Ratio, determined as of the end of each fiscal quarter, greater than or equal to 1.25 to 1.00 . The Fixed Charge Coverage Ratio covenant requires that, as of the end of any fiscal quarter, Covenant EBITDA, after deducting capital expenditures, dividends and share repurchases, for the previous four quarters may not be less than 1.25 times the total of interest expense and cash paid for income taxes over the previous four quarters and scheduled maturities of certain indebtedness for the next four quarters. • Asset dispositions (other than dispositions in which all of the net cash proceeds therefrom are reinvested into the Company and dispositions of inventory and obsolete or unneeded equipment in the ordinary course of business) are limited to $ 20.0 million per 12-month period. The Company is in compliance with all affirmative, negative, and financial covenants under the Credit Agreement. Availability under the senior secured revolving credit facility is as follows: June 30, 2020 June 30, 2019 (In thousands) Senior secured revolving credit facility $ 300,000 $ 300,000 Capacity constraint due to the Leverage Ratio 162,864 94,323 Capacity under the senior secured revolving credit facility 137,136 205,677 Letters of credit 34,529 48,147 Borrowings outstanding 9,208 5,347 Availability under the senior secured revolving credit facility $ 93,399 $ 152,183 (1) The Credit Agreement allows exclusion of letters of credit that support our workers' compensation programs when calculating availability under the credit facility. At June 30, 2020, there were $6.5 million of letters of credit that support our workers' compensation programs. 62 Matrix Service Company Notes to Consolidated Financial Statements (continued) The carrying value of the senior secured revolving credit facility approximates its fair value at each balance sheet date. Note 6— Income Taxes Coronavirus Aid, Relief, and Economic Security Act On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act") was signed into law. The purpose of the CARES Act was to provide $ 2.2 trillion in funding to fight the COVID-19 pandemic and provide economic relief in the form of tax relief, government loans and grants. The CARES Act contains the following key provisions which affect income taxes: • Eliminates the 80 % of taxable income limitations by allowing corporations to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020; • Allows net operating losses generated in 2018, 2019 or 2020 to be carried back five years; • Increases the net interest expense deduction limit to 50 % of adjusted taxable income from 30 % for the 2019 and 2020 tax years; • Allows taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cuts and Jobs Act; and • Allows entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25 % from 10 %. The income tax provisions in the CARES Act have not had a material impact on the Company as of June 30, 2020. The CARES Act also provides certain payroll tax credits and allows companies to defer payroll tax that would otherwise be due from enactment through December 31, 2020. The Company has recognized $ 0.8 million of payroll tax credits during fiscal 2020 and has deferred $ 3.8 million of payroll tax as of June 30, 2020. The payroll tax credits are included as a reduction of selling, general and administrative expenses in the Consolidated Statements of Income and the deferred payroll taxes are included within other liabilities in the Consolidated Balance Sheets. The Company must repay half of the deferred payroll tax by December 31, 2021 and the remainder by December 31, 2022. The Company has also received $ 1.1 million of subsidies in Canada during fiscal 2020 as part the Canada Emergency Wage Subsidy program, which was designed to compensate Canadian employers whose business has been affected by the COVID-19 pandemic. These subsidies are included as a reduction of selling, general and administrative expenses in the Consolidated Statements of Income. Sources of pretax income (loss) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) Domestic $ ( 32,660 ) $ 46,032 $ ( 2,656 ) Foreign ( 3,984 ) ( 7,620 ) ( 9,492 ) Total $ ( 36,644 ) $ 38,412 $ ( 12,148 ) 63 Matrix Service Company Notes to Consolidated Financial Statements (continued) Components of the provision for income tax expense (benefit) Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) Current: Federal $ ( 376 ) $ 6,085 $ ( 121 ) State 412 2,390 135 Foreign 23 ( 97 ) 504 59 8,378 518 Deferred: Federal ( 5,000 ) ( 528 ) 1,093 State ( 1,091 ) 451 ( 590 ) Foreign 2,462 2,129 ( 1,689 ) ( 3,629 ) 2,052 ( 1,186 ) $ ( 3,570 ) $ 10,430 $ ( 668 ) Reconciliation between the expected income tax provision applying the domestic federal statutory tax rate and the reported income tax provision Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) Expected provision (benefit) for federal income taxes at the statutory rate $ ( 7,695 ) $ 8,067 $ ( 3,408 ) State income taxes, net of federal benefit ( 768 ) 2,288 247 Impairment of non-deductible goodwill (1) 1,813 — 2,342 Charges without tax benefit 1,707 1,233 1,100 Change in valuation allowance (2) 3,062 4,512 1,173 Reversal of branch liability (2) — ( 3,546 ) — Excess tax expense (benefit) on stock-based compensation 230 ( 296 ) 511 Remeasurement of deferred taxes (3) — — ( 455 ) Research and development and other tax credits ( 1,724 ) ( 1,972 ) ( 1,665 ) Foreign tax differential ( 132 ) ( 248 ) ( 10 ) Change in uncertain tax positions 20 22 ( 7 ) Other ( 83 ) 370 ( 496 ) Provision (benefit) for federal, state and foreign income taxes $ ( 3,570 ) $ 10,430 $ ( 668 ) (1) In fiscal 2020, the Company impaired $32.9 million of goodwill, which included $ 8.6 million of non-deductible goodwill. In fiscal 2018, the Company impaired $17.3 million of goodwill, which included $ 8.3 million of non-deductible goodwill. See Note 4 - Goodwill and Other Intangible Assets for more information about the impairments. (2) In fiscal 2020, the Company placed $3.1 million of valuation allowances on net operating loss carryforwards and foreign tax credits primarily related to Canada. In fiscal 2019, the Company placed $4.5 million of valuation allowances on net operating loss carryforwards and foreign tax credits generated by its branch operations in Canada, which will likely not be utilized prior to their expiration. These valuation allowances were largely offset by the reversal $3.5 million of branch liabilities associated with the Canadian net operating loss carryforwards and foreign tax credits. (3) This represents the remeasurement of deferred taxes in connection with Tax Cuts and Jobs Act. 64 Matrix Service Company Notes to Consolidated Financial Statements (continued) Significant components of the Company’s deferred tax assets and liabilities June 30, 2020 June 30, 2019 (In thousands) Deferred tax assets: Warranty reserve $ 206 $ 206 Bad debt reserve 233 238 Paid-time-off accrual 669 616 Insurance reserve 1,221 1,577 Legal reserve 207 1 Net operating loss benefit and credit carryforwards 10,354 10,054 Valuation allowance ( 7,763 ) ( 4,959 ) Accrued compensation and pension 1,447 1,115 Stock compensation expense on nonvested deferred shares 3,231 3,679 Accrued losses 96 194 Restructuring reserve 1,381 — Foreign currency translation and other 843 833 Total deferred tax assets 12,125 13,554 Deferred tax liabilities: Tax over book depreciation 11,313 9,349 Tax over book (book over tax) amortization ( 5,195 ) 1,770 Branch future liability 74 34 Receivable holdbacks and other 6 16 Total deferred tax liabilities 6,198 11,169 Net deferred tax asset $ 5,927 $ 2,385 As reported in the Consolidated Balance Sheets: June 30, 2020 June 30, 2019 (In thousands) Deferred income tax assets 5,988 2,683 Deferred income tax liabilities ( 61 ) ( 298 ) Net deferred tax asset $ 5,927 $ 2,385 Operating loss and tax credit carryforwards The Company has state net operating loss carryforwards, state tax credit carryforwards, federal foreign tax credit carryforwards, foreign net operating loss carryforwards and foreign tax credit carryforwards. The valuation allowance at June 30, 2020 and June 30, 2019 reduces the recognized tax benefit of these carryforwards to an amount that is more likely than not to be realized. These carryforwards will generally expire as shown below: Operating Loss Carryforwards Expiration Period Amount (in thousands) State net operating losses June 2024 to June 2040 $ 19,676 Foreign net operating losses June 2029 to June 2040 $ 24,618 65 Matrix Service Company Notes to Consolidated Financial Statements (continued) Tax Credit Carryforwards Expiration Period Amount (in thousands) State tax credits June 2032 to June 2035 $ 877 Federal foreign tax credits June 2021 to June 2025 $ 1,239 Foreign tax credits June 2035 to June 2040 $ 627 Other In general, it is the practice and intention of the Company to reinvest the earnings of its foreign subsidiaries in its foreign operations. We do not provide for outside basis differences under the indefinite reinvestment assertion of ASC 740-30. The Company files tax returns in multiple domestic and foreign taxing jurisdictions. With a few exceptions, the Company is no longer subject to examination by taxing authorities through fiscal 2015. At June 30, 2020, the Company updated its evaluation of its open tax years in all known jurisdictions. As of June 30, 2020, we have a $ 0.5 million liability for unrecognized tax positions and the payment of related interest and penalties. We treat the related interest and penalties as income tax expense. Due to the uncertainties related to these tax matters, we are unable to make a reasonably reliable estimate as to when cash settlement with a taxing authority will occur. Note 7— Commitments and Contingencies Insurance Reserves The Company maintains insurance coverage for various aspects of its operations. However, exposure to potential losses is retained through the use of deductibles, self-insured retentions and coverage limits. Typically our contracts require us to indemnify our customers for injury, damage or loss arising from the performance of our services and provide warranties for materials and workmanship. The Company may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects. Matrix maintains a performance and payment bonding line sufficient to support the business. The Company generally requires its subcontractors to indemnify the Company and the Company’s customer and name the Company as an additional insured for activities arising out of the subcontractors’ work. We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of the Company, to secure the subcontractors’ work or as required by the subcontract. There can be no assurance that our insurance and the additional insurance coverage provided by our subcontractors will fully protect us against a valid claim or loss under the contracts with our customers. Unpriced Change Orders and Claims As of June 30, 2020 and June 30, 2019, costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change orders and claims of $ 14.5 million and $ 10.1 million, respectively. The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings. Generally, collection of amounts related to unpriced change orders and claims is expected within twelve months. However, customers may not pay these amounts until final resolution of related claims, and accordingly, collection of these amounts may extend beyond one year. Other During the third quarter of fiscal 2020, the Company commenced litigation in an effort to collect $ 17.8 million in accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter of fiscal 2020. Based on the terms of the contract with this customer, the Company is entitled to collect the full amount owed under the contract. However, the timing of collection is uncertain. 66 Matrix Service Company Notes to Consolidated Financial Statements (continued) The Company and its subsidiaries are participants in various legal actions. It is the opinion of management that none of the other known legal actions, including a contract dispute with a customer involving the construction of a crude terminal, will have a material impact on the Company’s financial position, results of operations or liquidity. Note 8— Leases The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business. Real estate leases accounted for approximately 87 % of all right-of-use assets as of June 30, 2020. Most real estate and information technology equipment leases generally have fixed payments that follow an agreed upon payment schedule and have remaining lease terms ranging from less than a year to 16 years. Construction equipment leases generally have "month-to-month" lease terms that automatically renew as long as the equipment remains in use. The Company recorded $ 3.2 million of impairments to right-of-use assets related to leased office space that was closed in connection with the Company's restructuring activities, see Note 14 – Restructuring Costs for additional information. The components of lease expense in the Consolidated Statements of Income are as follows: Fiscal Year Ended June 30, 2020 Lease expense Location of Expense in Statements of Income (in thousands) Operating lease expense Cost of revenue and selling, general and administrative expenses $ 12,274 Short-term lease expense (1) Cost of revenue 37,371 Total lease expense $ 49,645 (1) Primarily represents the lease expense of construction equipment that is subject to month-to-month rental agreements with expected rental durations of less than one year. The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in the Company's Condensed Consolidated Balance Sheets, were as follows: June 30, 2020 Maturity Analysis: (in thousands) Fiscal 2021 $ 8,719 Fiscal 2022 5,430 Fiscal 2023 3,978 Fiscal 2024 3,010 Fiscal 2025 2,352 Thereafter 9,630 Total future operating lease payments 33,119 Less: imputed interest ( 5,554 ) Net present value of future lease payments 27,565 Less: current portion of operating lease liabilities 7,568 Non-current operating lease liabilities $ 19,997 67 Matrix Service Company Notes to Consolidated Financial Statements (continued) The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of June 30, 2020: Weighted-average remaining lease term (in years) 6.2 years Weighted-average discount rate 5.6 % Supplemental cash flow information related to leases is as follows: Fiscal Year Ended June 30, 2020 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating lease payments $ 12,798 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 36,984 During the third quarter of fiscal 2020, the Company received leasehold improvements of $ 2.5 million from a lessor as a tenant incentive. This incentive is considered to be a non-cash investing activity. Note 9— Stockholders’ Equity Preferred Stock The Company has 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2020 or June 30, 2019. Treasury Shares On November 6, 2018, the Board of Directors approved a stock buyback program (the "November 2018 Program"), which replaced the previous program that had been in place since December 2016 and was set to expire in December 2018. Under the November 2018 Program, the Company may repurchase common stock up to a maximum of $ 30.0 million per calendar year provided that the aggregate number of shares repurchased may not exceed 10 %, or approximately 2.7 million, of the Company's shares outstanding as of November 6, 2018. The Company may repurchase its stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and is not obligated to purchase any shares. The November 2018 Program will continue unless and until it is modified or revoked by the Board of Directors. In fiscal 2020, the Company repurchased 1,047,606 shares of its common stock for $ 17.0 million under the November 2018 Program. There were 1,349,037 shares available for repurchase under the November 2018 Program as of June 30, 2020. In addition to the stock buyback program, the Company may withhold shares of common stock to satisfy the tax withholding obligations upon vesting of an employee’s deferred shares. The Company withheld 181,081 and 79,111 shares of common stock during fiscal 2020 and 2019, respectively, to satisfy these obligations. These shares were returned to the Company’s pool of treasury shares. The Company has 1,746,689 treasury shares as of June 30, 2020 and intends to utilize these treasury shares in connection with equity awards under the Company’s stock incentive plans and for sales to the Employee Stock Purchase Plan. 68 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 10— Stock-Based Compensation Total stock-based compensation expense for the fiscal years ended June 30, 2020, June 30, 2019, and June 30, 2018 was $ 9.9 million, $ 11.9 million and $ 8.6 million, respectively. Measured but unrecognized stock-based compensation expense at June 30, 2020 was $ 11.9 million, all of which related to nonvested deferred shares which are expected to be recognized as expense over a weighted average period of 1.6 years. The Company recognized excess tax expense of $ 0.2 million and $ 0.5 million related to stock-based compensation vesting for the fiscal years ended June 30, 2020 and 2018, respectively. The Company recognized excess tax benefits of $0.3 million for the fiscal year ended June 30, 2019 related to stock-based compensation vesting. Plan Information In October 2018, the Company's stockholders approved the Matrix Service Company 2018 Stock and Incentive Compensation Plan (the "2018 Plan"), which provides stock-based and cash-based incentives for officers, directors and other key employees. Stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and cash-based awards can be issued under this plan. Upon approval of the 2018 Plan, the 2016 Stock and Incentive Compensation Plan ("2016 Plan") was frozen with the exception of normal vesting and other activity associated with awards previously granted under the 2016 Plan. The 2016 Plan was preceded by the 2012 Stock Incentive Plan ("2012 Plan"), which was frozen upon approval of the 2016 Plan with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2012 Plan. Shares awarded under either the 2016 Plan or the 2012 Plan that are subsequently forfeited or net settled for tax withholding purposes are returned to the treasury share pool and become available for grant under the 2018 Plan. The 2012 Plan was preceded by the 2004 Stock Incentive Plan ("2004 Plan"), which was frozen upon approval of the 2012 Plan with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2004 Plan. Awards totaling 1,600,000 shares have been authorized under the 2018 Plan. There were 1,473,424 shares available for grant under the 2018 Plan as of June 30, 2020. Stock Options Stock options are granted at the market value of the Company’s common stock on the grant date and expire after 10 years. The Company’s policy is to issue shares upon the exercise of stock options from its treasury shares, if available. The Company did not award any new stock options in fiscal years 2020, 2019, or 2018. Stock option activity and related information for the fiscal year ended June 30, 2020 is as follows: Number of Options Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price Aggregate Intrinsic Value (Years) (In thousands) Outstanding at June 30, 2019 53,700 2.4 $ 10.19 $ 541 Granted — — — Exercised — — — Canceled — — — Outstanding at June 30, 2020 53,700 1.4 $ 10.19 $ — Vested at June 30, 2020 53,700 1.4 $ 10.19 $ — Exercisable at June 30, 2020 53,700 1.4 $ 10.19 $ — The total intrinsic value of stock options exercised was $ 0.1 million and $ 0.3 million during fiscal year 2019 and fiscal 2018, respectively. No stock options were exercised in fiscal 2020. 69 Matrix Service Company Notes to Consolidated Financial Statements (continued) Nonvested Deferred Shares The Company has issued nonvested deferred shares under the following types of arrangements: • Time-based awards—Employee awards generally vest in four equal annual installments beginning one year after the grant date. Beginning in fiscal 2019, the award agreements contain a provision that accelerates the vesting for retirement eligible participants and participants that become retirement eligible during the vesting period and who elect to retire more than one year after the date of the award. The award is forfeited if retirement occurs before the first anniversary of the award. Settlement still occurs on the normal vesting schedules. Director awards vest one year after the grant date. • Market-based awards—These awards are in the form of performance units which vest 3 years after the grant date only if the Company’s common stock achieves certain levels of total shareholder return when compared to the total shareholder return of a peer group of companies as selected by the Compensation Committee of the Board of Directors. The payout can range from zero to 200 % of the original award depending on the Company's relative total shareholder return during the performance period. These awards are settled in stock. As of June 30, 2020, there are approximately 232,000 , 170,000 , and 200,000 performance units that are scheduled to vest in fiscal 2021, fiscal 2022, and fiscal 2023, respectively, assuming target performance. All awards vest upon the death or disability of the participant or upon a change of control of the Company. The grant date fair value of the time-based awards is determined by the market value of the Company's common stock on the grant date. The grant date fair value of stock options is determined based on the Black-Scholes option pricing model. The grant date fair value of the market-based awards is calculated using a Monte Carlo model. For the fiscal 2020 grant, the model estimated the fair value of the award based on approximately 100,000 simulations of the future prices of the Company's common stock compared to the future prices of the common stock of its peer companies based on historical volatilities. The model also took into account the expected dividends over the performance period of those peer companies which pay cash dividends. Nonvested deferred share activity for the fiscal year ended June 30, 2020 is as follows: Shares Weighted Average Grant Date Fair Value per Share Nonvested shares at June 30, 2019 1,459,511 $ 19.88 Shares granted 490,322 $ 21.79 Shares vested and released ( 542,279 ) $ 19.43 Shares canceled ( 172,636 ) $ 19.51 Nonvested shares at June 30, 2020 1,234,918 $ 20.89 There were 602,148 and 715,539 deferred shares granted in fiscal 2019 and 2018 with average grant date fair values of $ 25.10 and $ 13.64 per share, respectively. There were 314,711 and 253,241 deferred shares that vested and were released in fiscal 2019 and 2018 with weighted average fair values of $ 16.23 and $ 19.60 per share, respectively. 70 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 11— Earnings per Common Share Basic earnings per share (“EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includes the dilutive effect of employee and director stock options and nonvested deferred shares. Stock options are considered dilutive whenever the exercise price is less than the average market price of the stock during the period and antidilutive whenever the exercise price exceeds the average market price of the common stock during the period. Nonvested deferred shares are considered dilutive (antidilutive) whenever the average market value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the shares vest. Stock options and nonvested deferred shares are considered antidilutive in the event we report a net loss. The computation of basic and diluted EPS is as follows: Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands, except per share data) Basic EPS: Net income (loss) $ ( 33,074 ) $ 27,982 $ ( 11,480 ) Weighted average shares outstanding 26,621 26,891 26,769 Basic earnings (loss) per share $ ( 1.24 ) $ 1.04 $ ( 0.43 ) Diluted EPS: Weighted average shares outstanding—basic 26,621 26,891 26,769 Dilutive stock options — 28 — Dilutive nonvested deferred shares — 668 — Diluted weighted average shares 26,621 27,587 26,769 Diluted earnings (loss) per share $ ( 1.24 ) $ 1.01 $ ( 0.43 ) The following securities are considered antidilutive and have been excluded from the calculation of diluted earnings (loss) per share: Fiscal Years Ended June 30, 2020 June 30, 2019 June 30, 2018 (In thousands of shares) Stock options 19 — 31 Nonvested deferred shares 662 160 424 Total antidilutive securities 681 160 455 Note 12— Employee Benefit Plans Defined Contribution Plans The Company sponsors defined contribution savings plans for all eligible employees meeting length of service requirements. Under the primary plan, participants may contribute an amount up to 25 % of pretax annual compensation subject to certain limitations. The Company matches 100 % of the first 3 % of employee contributions and 50 % of the next 2 % of employee contributions. The Company matching contributions vest immediately. The Company’s matching contributions were $ 6.2 million in each of the fiscal years ended June 30, 2020 and 2019 and $ 5.8 million for the fiscal year ended June 30, 2018. 71 Matrix Service Company Notes to Consolidated Financial Statements (continued) Multiemployer Pension Plans The Company contributes to various union sponsored multiemployer benefit plans in the U.S. and Canada. Benefits under these plans are generally based on compensation levels and years of service. For the Company, the financial risks of participating in multiemployer plans are different from single-employer plans in the following respects: • Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. • If a participating employer discontinues contributions to a plan, the unfunded obligations of the plan may be borne by the remaining participating employers. • If a participating employer chooses to stop participating in a plan, a withdrawal liability may be created based on the unfunded vested benefits for all employees in the plan. Under federal legislation regarding multiemployer pension plans, in the event of a withdrawal from a plan or plan termination, companies are required to continue funding their proportionate share of such plan’s unfunded vested benefits. We are a participant in multiple union sponsored multiemployer plans, and, as a plan participant, our potential obligation could be significant. The amount of the potential obligation is not currently ascertainable because the information required to determine such amount is not identifiable or readily available. Our participation in significant plans for the fiscal year ended June 30, 2020 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three digit plan number. The zone status is based on the latest information that the Company received from the plan and is certified by the plan’s actuary. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are generally less than 80 percent funded, and plans in the green zone are generally at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions. The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. 72 Matrix Service Company Notes to Consolidated Financial Statements (continued) Pension Fund EIN/Pension Plan Number Pension Protection Act Zone Status FIP/RP Status Pending or Implemented Company Contributions Fiscal Year Surcharge Imposed Expiration Date of Collective- Bargaining Agreement 2020 2019 2020 2019 2018 (In thousands) Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Yellow Red Implemented $ 6,634 $ 12,434 $ 8,525 No Described below (1) Joint Pension Fund Local Union 164 IBEW 22-6031199/001 Described below (2) Yellow Implemented 1,560 2,180 2,391 No 5/31/2021 Joint Pension Fund of Local Union No 102 IBEW 22-1615726/001 Green Green NA 1,227 1,610 2,489 No 5/31/2022 IBEW Local 456 Pension Plan 22-6238995/001 Described below (2) Green NA 427 574 6,005 No 5/31/2021 Local 351 IBEW Pension Plan 22-3417366/001 Green Green NA 1,709 2,025 1,187 No 12/4/2021 Steamfitters Local Union No 420 Pension Plan 23-2004424/001 Red Red Implemented 1,523 639 1,558 Yes Described below (3) IBEW Local Union 98 Pension Plan 23-1990722/001 Red Red Implemented 352 828 1,106 Yes Described below (3) Indiana Laborers Pension Fund 35-6027150/001 Described below (2) Green NA 1,604 3,349 3,542 No Described below (3) Iron Workers Mid-America Pension Plan, Local 395 36-6488227/001 Described below (2) Green NA 840 2,596 4,412 No 5/31/2024 Pipe Fitters Retirement Fund, Local 597 62-6105084/001 Green Green NA 835 3,469 3,682 No Described below (4) Iron Workers Pension Plan of Western Pennsylvania, Local 3 25-1283169/001 Described below (2) Yellow Implemented 500 2,317 1,539 No 5/1/2021 Iron Workers Pension Plan, Local 55 34-6682351/001 Described below (2) Described below (2) NA 2,951 4,333 198 No 6/30/2024 National Electrical Benefit Fund, Locals 488 and 126 53-0181657/001 Green Green NA 1,502 4,577 824 No 1/1/2023 Connecticut Plumbers and Pipefitters Pension Fund, Local 777 06-6050353/001 Described below (2) Green NA — 3,307 115 No 6/1/2021 Northwestern Ohio Plumbers and Pipefitters Pension, Local 50 34-6502487/001 Described below (2) Green NA 2,504 1,161 61 No 3/31/2022 Ohio Carpenters' Pension Fund, Locals 1090 and 351 34-6574360/001 Red Red Implemented 3,042 2,962 318 Yes 4/30/2021 IBEW Local 654 Pension Plan 23-6538183/001 Described below (2) Described below (2) NA 1,021 1,006 1,620 No 6/3/2023 Contributions to other multiemployer plans 9,172 15,019 15,152 Total contributions made $ 37,403 $ 64,386 $ 54,724 (1) Our employees are members of several Boilermaker unions that participate in the Boilermaker-Blacksmith National Pension Trust. The most significant of these unions are Boilermakers Locals 549, 85, 92, 374, 363, and 128, which have collective bargaining agreements that expire on September 30, 2020, April 30, 2021, September 30, 2020, December 31, 2022, December 31, 2020 and April 30, 2022, respectively. (2) For the Local 164 IBEW Pension Plan, Local 456 IBEW Pension Plan, Indiana Laborers Pension Fund, Local 395 Iron Workers Mid-America Pension Plan, Local 3 Iron Workers Pension Plan of Western Pennsylvania, Iron Workers Pension Plan Local 55, Local 777 Connecticut Plumbers and Pipefitters Pension Fund, Local 50 Northwestern Ohio Plumbers and Pipefitters Pension, and Local 654 IBEW Pension Plan, the Company has not received a funding notification that covers the Company's fiscal year 2020 during the preparation of this Form 10-K. For Local 55 Iron Workers Pension Plan and Local 654 IBEW Pension Plan, the Company has not received a funding notification that covers the Company's fiscal year 2019 either. Under Federal pension law, if a multiemployer pension plan is determined to be in critical or endangered status, the plan must provide notice of this status to participants, beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation, and the Department of Labor. The Company also observed that these plans have not submitted any Critical or Endangered Status Notices to the Department of Labor for calendar years that we have not received notification. The Critical or Endangered Status Notices can be accessed at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/critical-status-notices. (3) At the time of the filing of this Form 10-K, the Company's collective bargaining agreements have expired for these unions and no new agreements are in place. (4) The Company's collective bargaining agreement with Pipe Fitters Local 597 does not have an expiration date. The agreement was last renegotiated in 2019. 73 Matrix Service Company Notes to Consolidated Financial Statements (continued) Employee Stock Purchase Plan The Matrix Service Company 2011 Employee Stock Purchase Plan (“ESPP”) was effective January 1, 2011. The ESPP allows employees to purchase shares through payroll deductions and members of the Board of Directors to purchase shares from amounts withheld from their cash retainers. Share purchases are limited to an aggregate market value of no greater than $ 60,000 per calendar year per participant and are purchased from the Company at the current market value with no discount to the participant. Contributions are with after tax earnings and are accumulated in non-interest bearing accounts for quarterly purchases of company stock. Upon the purchase of shares, the participants receive all stockholder rights including dividend and voting rights, and are permitted to sell their shares at any time. The Company has made 1,000,000 shares available under the ESPP. The ESPP can be terminated at any time at the discretion of the Board of Directors and will automatically terminate on January 2, 2021 . Shares are issued from Treasury Stock under the ESPP. There were 20,733 shares issued in fiscal 2020, 15,812 shares in fiscal 2019, and 21,920 shares in fiscal 2018. Note 13— Segment Information In fiscal 2020, we operated our business through four reportable segments: Electrical Infrastructure; Oil Gas & Chemical; Storage Solutions; and Industrial. The Electrical Infrastructure segment consists of power delivery services provided to investor owned utilities, including construction of new substations, upgrades of existing substations, short-run transmission line installations, distribution upgrades and maintenance, as well as emergency and storm restoration services. We also provide construction and maintenance services to a variety of power generation facilities, such as combined cycle plants and other natural gas fired power stations. The Oil Gas & Chemical segment serves customers primarily in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids. We also perform work in the petrochemical, and sulfur extraction, recovery and processing markets. Our services include plant maintenance, turnarounds, engineering and capital construction. We also offer industrial cleaning services, including hydro-blasting, hydro-excavating, advanced chemical cleaning and vacuum services. The Storage Solutions segment consists of work related to aboveground storage tanks ("AST") and terminals. Also included in this segment are cryogenic and other specialty storage tanks and terminals including liquefied natural gas, liquid nitrogen/liquid oxygen, liquid petroleum and other specialty vessels such as spheres as well as marine structures and truck and rail loading/offloading facilities. Our services include engineering, fabrication and construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals. Finally, we offer AST products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals. The Process and Industrial Facilities segment includes engineering, maintenance, turnarounds and capital projects for the refining, chemical and petrochemical industries; midstream natural gas processing; other industrial processing facilities including biofuels, fertilizer, and sulfur; mining and minerals infrastructure; and thermal vacuum chambers. This segment is similar to the former Oil Gas & Chemical segment described above, but includes mining and minerals, thermal vacuum chambers, and work in other industrial facilities which were historically reported in the Industrial segment. Due to changing markets facing our clients and to better align the financial reporting of the Company with our long-term strategic growth areas, we are changing our reporting segments. Beginning in fiscal 2021, the Company’s financial results will be reported under the following three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions. The services provided by each of these segments is described below. The Utility and Power Infrastructure segment includes services provided in power delivery and power generation, as well as natural gas utility peak shaving. This segment is similar to the former Electrical Infrastructure segment described above, but includes natural gas utility peak shaving facilities that have been historically reported in the Storage Solutions segment. The Process and Industrial Facilities segment includes engineering, maintenance, turnarounds and capital projects for the refining, chemical and petrochemical industries; midstream natural gas processing; other industrial processing facilities including biofuels, fertilizer, and sulfur; mining and minerals infrastructure; and thermal vacuum chambers. This segment is similar to the former Oil Gas & Chemical segment described above, but includes mining and minerals as well as thermal vacuum chambers, which were historically reported in the Industrial segment. 74 Matrix Service Company Notes to Consolidated Financial Statements (continued) The Storage and Terminal Solutions segment includes engineering, construction, maintenance and repair for aboveground storage tanks and terminals; LNG facilities for import/export fueling and bunkering; NGL and other specialty vessels; aboveground storage tank products; and other renewable energy storage and terminal solutions. This segment is similar to the former Storage Solutions segment described above, but does not include the natural gas utility peak shaving facilities, which will be reported as part of the Utility and Power Infrastructure segment. The Company evaluates performance and allocates resources based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at cost; therefore, no intercompany profit or loss is recognized. Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, goodwill and other intangible assets. 75 Matrix Service Company Notes to Consolidated Financial Statements (continued) Results of Operations (In thousands) Electrical Infrastructure Oil Gas & Chemical Storage Solutions Industrial Unallocated Corporate Total Fiscal year ended June 30, 2020 Gross revenue $ 112,890 $ 203,404 $ 562,439 $ 228,827 $ — $ 1,107,560 Less: inter-segment revenue — 2,454 3,240 928 — 6,622 Consolidated revenue 112,890 200,950 559,199 227,899 — 1,100,938 Gross profit (loss) ( 1,105 ) 15,822 71,934 15,525 — 102,176 Intangible asset impairments and restructuring costs 27,855 3,850 1,296 19,524 — 52,525 Operating income (loss) ( 36,503 ) ( 7,328 ) 27,306 ( 20,100 ) — ( 36,625 ) Segment assets 96,010 74,041 203,291 19,957 124,011 517,310 Capital expenditures 2,141 1,580 8,394 3,600 2,824 18,539 Depreciation and amortization expense 2,108 5,465 7,492 4,059 — 19,124 Fiscal year ended June 30, 2019 Gross revenue $ 217,417 $ 322,065 $ 524,330 $ 357,464 $ — $ 1,421,276 Less: inter-segment revenue — 2,198 2,398 — — 4,596 Consolidated revenue 217,417 319,867 521,932 357,464 — 1,416,680 Gross profit 15,470 35,987 56,011 24,483 — 131,951 Intangible asset impairments and restructuring costs — — — — — — Operating income 3,668 12,984 14,097 7,181 — 37,930 Segment assets 155,880 91,959 188,912 90,336 106,307 633,394 Capital expenditures 2,493 2,736 4,644 3,464 6,221 19,558 Depreciation and amortization expense 2,460 4,661 6,666 4,437 — 18,224 Fiscal year ended June 30, 2018 Gross revenue $ 255,931 $ 324,546 $ 319,106 $ 198,155 $ — $ 1,097,738 Less: inter-segment revenue — 1,774 4,410 1 — 6,185 Consolidated revenue 255,931 322,772 314,696 198,154 — 1,091,553 Gross profit 18,300 33,423 25,778 14,435 — 91,936 Intangible asset impairments and restructuring costs 17,281 717 — — — 17,998 Operating income (loss) ( 16,531 ) 8,798 ( 5,907 ) 3,161 — ( 10,479 ) Segment assets 161,207 111,064 149,695 58,816 77,251 558,033 Capital expenditures 493 1,514 3,346 — 3,358 8,711 Depreciation and amortization expense 4,359 5,904 6,623 3,461 — 20,347 Geographical information is as follows: Long-Lived Assets June 30, 2020 June 30, 2019 June 30, 2018 (In thousands) United States $ 164,056 $ 193,472 $ 174,241 Canada 5,659 10,110 13,738 Other international 12,435 12,502 13,008 $ 182,150 $ 216,084 $ 200,987 76 Matrix Service Company Notes to Consolidated Financial Statements (continued) Information about Significant Customers: Significant Customers as a Percentage of Segment Revenue Consolidated Electrical Infrastructure Oil Gas & Chemical Storage Solutions Industrial Fiscal Year ended June 30, 2020 Customer one 9.7 % — % — % — % 47.1 % Customer two 8.2 % — % — % 16.2 % — % Customer three 8.2 % — % — % 16.1 % — % Customer four 6.8 % — % — % 13.4 % — % Customer five 4.1 % — % 17.8 % 1.7 % — % Customer six 3.8 % — % 20.1 % 0.2 % — % Customer seven 3.2 % — % 10.7 % 2.5 % — % Customer eight 3.0 % — % 16.7 % — % — % Customer nine 2.4 % — % — % — % 11.4 % Customer ten 2.0 % 19.7 % — % — % — % Customer eleven 1.8 % 16.1 % — % 0.1 % 0.7 % Customer twelve 1.7 % 14.8 % — % — % 0.9 % Customer thirteen 1.5 % 14.6 % — % — % — % Fiscal Year ended June 30, 2019 Customer one 9.7 % — % — % — % 38.4 % Customer two 7.6 % 49.0 % — % — % 0.4 % Customer three 7.6 % — % — % — % 30.1 % Customer four 7.2 % — % 30.9 % 0.6 % — % Customer five 7.1 % — % — % 19.4 % — % Customer six 5.0 % — % — % 13.6 % — % Customer seven 4.6 % 0.3 % 3.1 % 10.6 % — % Customer eight 3.4 % 22.4 % — % — % — % Customer nine 3.1 % — % — % — % 12.3 % Customer ten 3.0 % — % — % — % 12.0 % Customer eleven 2.1 % 13.4 % — % — % — % Fiscal Year ended June 30, 2018 Customer one 11.4 % — % — % — % 62.9 % Customer two 8.6 % — % 29.0 % — % — % Customer three 6.4 % 26.5 % — % 0.6 % — % Customer four 6.0 % 25.4 % — % — % — % Customer five 4.2 % — % 12.0 % 2.2 % — % Customer six 3.2 % — % 10.8 % — % — % Customer seven 3.2 % — % — % 10.9 % — % Customer eight 3.0 % 12.9 % — % — % — % Customer nine 2.7 % — % — % — % 14.7 % Customer ten 2.3 % 10.0 % — % — % — % 77 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 14— Restructuring Costs In February 2020, the Company announced a business improvement plan for the Electrical Infrastructure segment and its strategic initiative to exit the domestic iron and steel industry. Planned activities under the business improvement plan and the wind down of the domestic iron and steel industry were expanded in the second half of the year due to lower revenue in fiscal 2020 and uncertainties caused by the COVID-19 pandemic. The business improvement plan consisted of discretionary cost reductions, workforce reductions and closures of certain offices in order to increase the utilization of the Company's staff and bring the cost structure of the business in line with the near-term revenue expectation. The restructuring costs are primarily comprised of severance and personnel-related costs related to reductions in workforce and impairments of operating lease right-of-use assets, other intangible assets and other fixed assets related to the closure of certain offices. The Company incurred $14.0 million of restructuring costs in fiscal 2020 and has substantially completed its business improvement plan and the wind down of the domestic iron and steel business as of June 30, 2020. Restructuring costs incurred are classified as follows: Fiscal Year Ended June 30, 2020 (in thousands) Electrical Infrastructure Severance costs and other benefits $ 1,571 Facility costs 234 Other intangible asset impairments 1,150 Total Electrical Infrastructure $ 2,955 Oil Gas & Chemical Severance costs and other benefits $ 1,767 Facility costs 1,708 Other intangible asset impairments 375 Total Oil Gas & Chemical $ 3,850 Storage Solutions Severance costs and other benefits $ 576 Facility costs 720 Other intangible asset impairments — Total Storage Solutions $ 1,296 Industrial Severance costs and other benefits $ 4,861 Facility costs 1,048 Other intangible asset impairments — Total Industrial $ 5,909 Total restructuring costs $ 14,010 Restructuring Costs by Type: Total severance costs and other benefits $ 8,775 Total facility costs 3,710 Total other intangible asset impairments 1,525 Total restructuring costs $ 14,010 78 Matrix Service Company Notes to Consolidated Financial Statements (continued) The table below is a reconciliation of the beginning and ending restructuring reserve balance (in thousands): Balance as of June 30, 2019 $ — Restructuring costs incurred 14,010 Non-cash restructuring costs ( 5,215 ) Cash payments ( 6,392 ) Balance as of June 30, 2020 (1) $ 2,403 (1) The restructuring reserve is included within other accrued expenses in the Consolidated Balance Sheets . 79 Table of Contents Matrix Service Company Quarterly Financial Data (Unaudited) Fiscal Years Ended June 30, 2020 and June 30, 2019 First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands, except per share amounts) Fiscal Year 2020 Revenue $ 338,097 $ 318,677 $ 248,327 $ 195,837 Gross profit 32,465 30,001 20,477 19,233 Intangible asset impairments and restructuring costs — 38,515 6,559 7,451 Operating income (loss) 8,774 ( 31,679 ) ( 5,800 ) ( 7,920 ) Net income (loss) 6,151 ( 28,008 ) ( 5,495 ) ( 5,722 ) Earnings (loss) per common share: Basic 0.23 ( 1.04 ) ( 0.21 ) ( 0.22 ) Diluted 0.22 ( 1.04 ) ( 0.21 ) ( 0.22 ) Fiscal Year 2019 Revenue $ 318,511 $ 340,568 $ 358,887 $ 398,714 Gross profit 23,421 27,886 36,906 43,738 Operating income 2,220 5,527 12,794 17,389 Net income 2,305 3,932 8,933 12,812 Earnings per common share: Basic 0.09 0.15 0.33 0.48 Diluted 0.08 0.14 0.33 0.47 The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number of common shares outstanding and rounding. 80 Table of Contents Matrix Service Company Schedule II—Valuation and Qualifying Accounts June 30, 2020, June 30, 2019, and June 30, 2018 (In thousands) COL. A COL. B COL. C ADDITIONS COL. D COL. E Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts—Describe Deductions—Describe Balance at End of Period Fiscal Year 2020 Deducted from asset accounts: Allowance for doubtful accounts $ 923 $ 1,158 $ — $ ( 1,176 ) (A) $ 905 Valuation reserve for deferred tax assets 4,959 3,062 — ( 258 ) (B) 7,763 Total $ 5,882 $ 4,220 $ — $ ( 1,434 ) $ 8,668 Fiscal Year 2019 Deducted from asset accounts: Allowance for doubtful accounts 6,327 5 — ( 5,409 ) (C) 923 Valuation reserve for deferred tax assets 1,638 4,594 — ( 1,273 ) (D) 4,959 Total 7,965 4,599 — ( 6,682 ) 5,882 Fiscal Year 2018 Deducted from asset accounts: Allowance for doubtful accounts 9,887 107 — ( 3,667 ) (E) 6,327 Valuation reserve for deferred tax assets 1,719 1,020 — ( 1,101 ) (F) 1,638 Total 11,606 1,127 — ( 4,768 ) 7,965 (A) Primarily relates to a $0.6 million reserve that was recognized as bad debt expense and ultimately settled and written off within fiscal 2020 and $0.3 million of payments received on a balance that was fully reserved. (B) Relates to foreign currency exchange rate differences for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions. (C) Primarily relates to a $5.2 million reversal of a previous reserved account receivable balance that was fully settled with an agreement with the customer. (D) Relates to the deferred tax asset of $0.8 million created by a stock-based compensation award with a market condition that was fully reserved in fiscal 2018. In fiscal 2019, upon the final determination that the award would not vest, the Company wrote off the deferred tax asset against the reserve. The remaining balance relates to $0.5 million of fully reserved tax credits that expired in fiscal 2019. (E) Primarily relates to the reversal of reserved account receivable that was fully settled with cash and future backlog. (F) Primarily relates to $0.8 million of stock-based compensation expense recognized in fiscal 2018 that was not deductible for tax purposes due to not meeting a market condition vesting requirement and to $0.3 million of foreign tax credits that expired. 81 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None