What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-09-13 compared with 2020-09-03 · 417 added, 398 removed, 898 unchanged (48% of the section changed)

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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").

We have audited the accompanying consolidated balance sheets of Matrix Service Company and subsidiaries (the "Company") as of June 30, 2021 and 2020, 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, 2021 and the related notes and the 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Revenue – Fixed Price Contracts – Refer to Notes 1 and 2 to the financial statements

Critical Audit Matter Description

The Company enters into contracts with customers to provide engineering, procurement, and fabrication and construction services, usually provided in association with capital projects, which commonly are fixed price contracts and are billed based on project milestones.

Revenue on performance obligations associated with fixed price contracts is recognized over time since these services create or enhance assets the customer controls as they are being created or enhanced.

The Company measures 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.

Due to the nature of work left to be performed on many of the Company’s contracts, the estimation of total cost at completion for fixed price contracts is complex, subject to many variables and requires significant judgment.

For the fiscal year ended June 30, 2021, revenue totaled $673.4 million, of which $444.0 million related to fixed price contracts.

Given the significant judgment necessary to estimate total costs at completion for fixed price contracts, auditing these estimates required extensive audit effort due to the volume and complexity of the fixed price contracts and a high degree of auditor judgment when evaluating the results of audit procedures, including the involvement of our capital projects specialists for one selected fixed price contract.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to estimated total costs at completion for fixed price contracts included the following, among others:

• We tested the effectiveness of controls over the recognition of revenue for fixed price contracts, including management’s controls over estimates of total costs at completion.

• We evaluated the appropriateness and consistency of the methods and assumptions used by management to estimate total costs on fixed price contracts.

• We evaluated management’s ability to accurately estimate contract costs by comparing current gross margin to historical gross margin for certain fixed price contracts open and completed during each quarter.

• We selected a sample of fixed price contracts and performed the following:

◦ Evaluated gross margin changes over time for each selected contract from bid date to the testing date to evaluate management’s historical and current estimates of total costs at completion.

◦ Evaluated management’s ability to estimate total costs at completion for each selected contract by performing corroborating inquiries with the Company’s project managers and personnel involved with the selected contracts, including inquiries related to the timeline to completion and estimates of future costs to complete the contract.

• Selected a sample of estimates of future costs to complete for certain selected fixed price contracts and evaluated management’s estimates of total costs at completion by performing one of the following:

◦ Comparing management’s estimates to documents such as management’s work plans, customer purchase orders, third-party invoices from suppliers, and subcontractor agreements.

◦ Developing independent estimates of total costs to completion and compared our estimates to management’s estimates.

Our independent estimates were based on information such as management’s work plans, customer purchase orders, third-party invoices from suppliers, subcontractor agreements, and similar historical project experience.

• For one selected fixed price contract, we used our capital projects specialists to assist us in evaluating (1) management’s ability to estimate total costs at completion and (2) management’s estimates of total costs at completion.

Goodwill – Certain Reporting Units – Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of management’s estimate of the fair value of each reporting unit to its carrying value.

The estimated fair value of each reporting unit was derived primarily by utilizing a discounted cash flow analysis based on the Company’s operating and capital budgets and strategic plan.

Significant judgments and assumptions including the revenue growth rate, forecasted gross margins, and discount rate are inherent in the fair value estimates.

The use of alternate judgments and/or assumptions could result in a fair value that differs from management’s estimate and could result in the recognition of additional impairment charges in the financial statements.

The Company performed its annual goodwill impairment test as of May 31, 2021, which resulted in no impairment.

The fiscal 2021 test indicated that four reporting units with a combined total of $37.7 million of goodwill as of June 30, 2021 were at higher risk of future impairment than others because their estimated fair values exceed their carrying values by 6% to 40%.

The Company’s total goodwill was $60.6 million as of June 30, 2021.

We identified goodwill for three of the four identified reporting units with a combined total of $35.0 million of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the revenue growth rate, forecasted gross margins, and discount rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the revenue growth rate, forecasted gross margins, and the discount rate used by management to estimate the fair value of the three identified reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the three identified reporting units, such as controls related to management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.

• We evaluated management’s ability to accurately forecast the revenue growth rate and future gross margins by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s revenue growth rate and forecasted gross margins by comparing the forecasts to:

◦ Historical revenue growth and gross margins.

◦ Internal communications to management and the Board of Directors, including other forward estimates prepared or used by management for other accounting estimates.

◦ Remaining performance obligations.

◦ Information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies and in industry outlooks.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) the discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ DELOITTE & TOUCHE LLP

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Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982

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 )

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss) (net of tax expense (benefit) of $223, $(88) and $27 for the fiscal years ended June 30, 2021, 2020 and 2019, respectively) 1,624 ( 622 ) ( 340 )

Comprehensive income (loss) $ ( 29,600 ) $ ( 33,696 ) $ 27,642

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Operating lease liabilities 5,747 7,568

Income taxes payable — 2,517

Other accrued expenses 5,327 7,890

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Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982

Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects of acquisitions:

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities, net of effects from disposals:

Depreciation and amortization 17,858 19,124 18,224

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Other 460 ( 7 ) 701

Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:

Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from disposals:

Accounts receivable 11,109 56,603 ( 15,374 )

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Accrued expenses 5,464 ( 17,398 ) 14,427

Net cash provided by operating activities 44,085 41,394 74,671

Net cash provided (used) by operating activities ( 2,971 ) 44,085 41,394

Investing activities:

Capital expenditures ( 4,354 ) ( 18,539 ) ( 19,558 )

Acquisitions, net of cash acquired — — ( 1,687 )

Proceeds from disposal of business (Note 3) — — 3,885

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Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 1,554 ) ( 3,524 ) ( 1,685 )

Repayment of principal portion of long-term liability ( 355 ) — —

Net cash used by financing activities ( 12,324 ) ( 16,039 ) ( 1,107 )

Effect of exchange rate changes on cash 1,401 ( 609 ) ( 181 )

Net increase in cash and cash equivalents 10,321 25,658 20,252

Net increase (decrease) in cash and cash equivalents ( 16,158 ) 10,321 25,658

Cash and cash equivalents, beginning of period 100,036 89,715 64,057

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Comprehensive

Income(Loss) Total

Balances, July 1, 2018 $ 279 $ 132,198 $ 211,494 $ ( 17,717 ) $ ( 7,411 ) $ 318,843

Net loss — — ( 11,480 ) — — ( 11,480 )

Net income — — 27,982 — — 27,982

Other comprehensive loss — — — — ( 340 ) ( 340 )

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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 income — — 27,982 — — 27,982

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

Exercise of stock options (12,500 shares) — ( 126 ) — 254 — 128

Issuance of deferred shares (542,279 shares) — ( 8,604 ) — 8,604 — —

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Net loss — — ( 31,224 ) — — ( 31,224 )

Other comprehensive loss — — — — ( 622 ) ( 622 )

Other comprehensive income — — — — 1,624 1,624

Treasury Shares Sold to Employee Stock Purchase Plan (29,171 shares) — ( 207 ) — 506 — 299

Exercise of stock options (34,150 shares) — ( 257 ) — 606 — 349

Issuance of deferred shares (515,218 shares) — ( 9,083 ) — 9,083 — —

Treasury shares repurchased to satisfy tax withholding obligations (170,629 shares) — — — ( 1,554 ) — ( 1,554 )

Open market purchases of treasury shares (1,047,606 shares) — — — ( 17,045 ) — ( 17,045 )

Stock-based compensation expense — 8,156 — — — 8,156

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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.

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”, the “Company” or “we”, “our”, and “us” are to Matrix Service Company and its subsidiaries), 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.

We operate in the United States, Canada, South Korea and Australia.

Our reportable segments are Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

Use of Estimates

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Actual results could materially differ from those estimates.

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.

Credit Losses

Adoption of Credit Losses Standard

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, which changed how we account for our 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 Consolidated Statements of Income 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 our current estimate of all expected credit losses.

In addition, current guidance limits the information we may consider in measuring a credit loss to our past events and current conditions.

The amendments in this update broaden the information we may consider in developing our expected credit loss estimate to include forecasted information.

We adopted the standard on July 1, 2020 with no material impact to our estimate of the allowance for uncollectible accounts.

Change in Reportable Segments

Due to changing markets facing our clients and to better align our financial reporting with our long-term strategic growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020.

The new reportable segments along with a description of each are as follows:

• Utility and Power Infrastructure :

consists of power delivery services provided to investor owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, 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, including natural gas fired facilities in simple or combined cycle configuration and provide engineering, fabrication, and construction services for LNG utility peak shaving facilities.

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.

• Process and Industrial Facilities :

primarily serves customers 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 serve customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers.

Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well work related to marine structures and truck and rail loading/offloading facilities.

Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, we offer tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

All prior period segment information has been restated to conform with our new reportable segments.

In addition, beginning July 1, 2020, we separately report corporate selling, general and administrative expenses and other corporate expenses that were previously allocated to the segments.

Revenue Recognition

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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 engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which are commonly fixed-price contracts that 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.

The elapsed time from award to completion of performance may exceed one year for capital projects.

Contract Identification

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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.

We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract.

This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.

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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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Determine Contract Price

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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.

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.

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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 do 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.

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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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Change Orders

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Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

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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 include 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, 2021 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.

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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.

Accounts receivable are carried on a gross basis, less the allowance for credit losses.

Our customers consist primarily of major integrated oil companies, independent refiners and marketers, power companies, petrochemical companies, pipeline companies, mining companies, contractors and engineering firms.

We are 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.

In addition, in most cases we can place liens against the property, plant or equipment constructed or terminate the contract if a material contract default occurs.

We estimate the allowance for credit losses based on existing economic conditions, the financial condition of our customers and the amount and age of past due accounts.

Accounts are written off against the allowance for credit losses only after all reasonable collection attempts have been exhausted.

Contract retentions collectible beyond one year are included in Other assets in the Consolidated Balance Sheets.

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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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions.

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Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We enter into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

We determine 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 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.

We consider 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.

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.

We evaluate 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.

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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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

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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.

As a test for reasonableness, we also consider the combined fair values of our reporting units to our market capitalization.

Other Intangible Assets

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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.

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.

We have issued stock options, nonvested deferred share awards and cash-settled restricted share units under our 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 time-based, nonvested deferred shares and cash-settled restricted share units is the value of our 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.

Cash-settled restricted share units must be settled in cash and are accounted for as liability-type awards and are remeasured at the end of each reporting period at fair value until settlement.

For all awards, expense is recognized over the requisite service period with forfeitures recorded as they occur.

We use the asset and liability approach for financial accounting and reporting for income taxes.

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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.

We believe 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

The functional currencies of our 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.

The functional currency of our 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.

Translation gains and losses are reported in Accumulated Other Comprehensive 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 we dispose 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.

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.

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.

We had $ 365.6 million of remaining performance obligations yet to be satisfied as of June 30, 2021.

We expect to recognize approximately $ 297.6 million of our remaining performance obligations as revenue within the next twelve months.

Contract Balances

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Net contract liabilities $ ( 23,058 ) $ ( 4,341 ) $ ( 18,717 )

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.

The difference between the beginning and ending balances of our CIE and BIE primarily results from the timing of revenue recognized relative to its billings.

The amount of revenue recognized during the fiscal year ended June 30, 2021 that was included in the prior period BIE balance was $ 58.6 million.

This revenue consists primarily of work performed during the period on contracts with customers that had advance billings.

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Geographic Disaggregation:

Twelve months ended

Fiscal Years Ended

2021 June 30,

6 unchanged sentences

Contract Type Disaggregation:

Twelve months ended

Fiscal Years Ended

2021 June 30,

4 unchanged sentences

Total $ 673,398 $ 1,100,938 $ 1,416,680

Typically, the Company assumes more risk with fixed-price contracts since increases in cost to perform the work may not be recoverable.

Typically, we assume 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

Our results of operations in fiscal 2021 were materially impacted by increases in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment.

The project reduced gross profit by $ 5.8 million in fiscal 2021.

The changes in estimate were due to lower than previously forecasted productivity caused by excessive rain at the project site, the continuing impact of COVID-19, and rework which led to higher costs and schedule compression.

This project was nearly complete at year-end and we are performing start-up and commissioning work in the first quarter of fiscal 2022.

During the fourth quarter of fiscal 2021, we reached a settlement on a contract dispute over the construction of a crude oil terminal.

The project's financial impact for the fiscal year ended June 30, 2021 was a $ 2.9 million reduction to gross profit in the Storage and Terminal Solutions segment.

The settlement resulted in a cash receipt of $ 8.9 million in the first quarter of fiscal 2022, which enabled us to avoid future legal costs and litigation risk.

During the third quarter of fiscal 2021, we achieved mechanical completion of a large crude oil terminal project, demobilized from the project site and completed its assessment of additional recovery of unpriced change orders.

The project's financial impact for the fiscal year ended June 30, 2021 was a $ 3.8 million reduction to gross profit in the Storage and Terminal Solutions segment.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 3— 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.

In August 2018, we 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.

We 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 Process and Industrial Facilities segment, were not material.

Note 4— Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment are as follows:

Infrastructure Oil Gas &

Chemical Storage

Solutions Industrial Total

Utility and Power

Infrastructure Process and Industrial Facilities Storage and Terminal

Solutions Total

(In thousands)

Net balance at June 30, 2018 $ 31,848 $ 37,612 $ 26,702 $ 96,162

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 (1)

7 unchanged sentences

Net balance at June 30, 2020 6,905 26,846 26,618 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.

Translation adjustment (2)

79 32 156 267

Net balance at June 30, 2021 $ 6,984 $ 26,878 $ 26,774 $ 60,636

(1) In August 2018, we 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.

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.

None of the goodwill was considered impaired since we recorded a gain on the disposal.

(2) 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.

We performed our annual goodwill impairment test as of May 31, 2021, which resulted in no impairment.

The fiscal 2021 test indicated that four reporting units with a combined total of $ 37.7 million of goodwill as of June 30, 2021 were at higher risk of future impairment than others.

If our view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then we may be required to record an impairment.

In the second quarter of fiscal 2020, we concluded that a goodwill impairment indicator existed in the Utility and Power Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s downward acceleration of revenue and gross margin.

Accordingly, we 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, we concluded that a goodwill impairment indicator existed for a Process and Industrial Facilities 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.

As a result, the customer canceled other previously awarded work and we received no subsequent business from this customer.

Accordingly, we 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.

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.

The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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).

In the fourth quarter of fiscal 2020, we 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 our 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).

The impairment is included in restructuring costs in the Consolidated Statements of Income.

Also in the fourth quarter of fiscal 2020, we 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 of our 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.

In the second quarter of fiscal 2020, in connection with the factors disclosed for the Process and Industrial Facilities segment goodwill impairment above, we 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Information on the carrying value of other intangible assets is as follows:

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Customer based 6 to 15 17,354 ( 11,192 ) 6,162

Non-compete Agreements 4 1,453 ( 1,453 ) —

Total other intangible assets $ 19,837 $ ( 13,223 ) $ 6,614

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Customer based 6 to 15 21,840 ( 13,626 ) 8,214

Non-compete agreements 4 1,453 ( 1,438 ) 15

Total other intangible assets $ 24,419 $ ( 15,582 ) $ 8,837

Amortization expense totaled $ 2.3 million, $ 3.4 million, and $ 3.3 million in fiscal 2021, 2020, and 2019, respectively.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We estimate that future amortization of other intangible assets will be as follows (in thousands):

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June 30, 2026 555

Thereafter 555

Total estimated amortization expense $ 6,614

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.

ABL Credit Facility

On September 9, 2021 , we and our primary U.S.

and Canada operating subsidiaries entered into an asset-backed credit agreement (the "ABL Facility") as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line Lender, a Letter of Credit Issuer and a Lender.

The ABL Facility is guaranteed by substantially all of our remaining U.S.

and Canadian subsidiaries.

The ABL Facility provides for available borrowings of up to $ 100.0 million, which may be increased further by an amount not to exceed $ 15.0 million, subject to certain conditions, including obtaining additional commitments.

The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes.

Our obligations under the ABL Facility are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves.

We are required to maintain a minimum of $ 25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

At September 9, 2021, availability under the ABL Facility was $ 25.9 million and there were $ 43.5 million in letters of credit outstanding.

The ABL Facility matures and any outstanding amounts become due and payable on September 9, 2026 .

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), CDOR rate or a LIBOR rate, plus an applicable margin.

The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50 %, and (iii) LIBOR rate for one month period plus 1.00 %.

Depending on the amount of average availability, the applicable margin is between 1.00 % to 1.50 % for Base Rate, which includes either U.S.

or Canadian prime rate, and between 2.00 % and 2.50 % for CDOR and LIBOR rate borrowings.

Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement.

The fee for undrawn amounts is 0.25 % per annum and is due quarterly.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our availability is less than the greater of (i) $ 15.0 million and (ii) 15.00 % of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

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.

• 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;

• 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:

2020 June 30,

(In thousands)

Senior Secured Revolving Credit Facility

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.

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.

The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the "Prior Credit Agreement"), that was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto.

The Prior Credit Agreement provided for a three-year senior secured revolving credit facility of $ 200.0 million that expired November 2, 2023 .

We had no borrowings and $ 41.3 million of letters of credit outstanding under the Prior Credit Agreement as of June 30, 2021.

We had $9.2 million of borrowings and $ 34.5 million of letters of credit outstanding under the Prior Credit Agreement as of June 30, 2020.

Each revolving borrowing under the Prior Credit Agreement bore interest at a rate per annum equal to a base rate, plus a margin of 1.00 % to 3.50 %.

The unused credit facility fee was between 0.35 % and 0.50 % based on the Leverage Ratio as defined in the Prior Credit Agreement.

The Prior Credit Agreement contained customary financial, negative and affirmative covenants and limited our borrowing availability based on our EBITDA, as it was defined in the Prior Credit Agreement.

The Prior Credit Agreement also limited our ability to make acquisitions, repurchase shares, make capital expenditures and dispose of assets.

Note 6— Income Taxes

8 unchanged sentences

• 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.

Through provisions in the CARES Act, we have an income tax benefit of $ 5.2 million from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate.

We estimate that we will receive a $ 13.0 million tax refund in connection with the carryback of the fiscal 2021 net operating loss, which is included in income taxes receivable in the Consolidated Balance Sheets.

We have deferred $ 11.1 million of U.S.

payroll tax as of June 30, 2021 through provisions of the CARES Act.

The deferred payroll taxes are included within other accrued expenses and other liabilities in the Consolidated Balance Sheets.

We must repay half of the deferred payroll tax by December 31, 2021 and the remainder by December 31, 2022.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Sources of pretax income (loss)

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Total $ ( 43,263 ) $ ( 36,644 ) $ 38,412

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Components of the provision for income tax expense (benefit)

6 unchanged sentences

Foreign ( 239 ) 23 ( 97 )

( 12,928 ) 59 8,378

Federal 774 ( 5,000 ) ( 528 )

3 unchanged sentences

$ ( 12,039 ) $ ( 3,570 ) $ 10,430

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Reconciliation between the expected income tax provision applying the domestic federal statutory tax rate and the reported income tax provision

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Impairment of non-deductible goodwill (1)

1,813 — 2,342

Charges without tax benefit 961 1,707 1,233

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Excess tax expense (benefit) on stock-based compensation 1,826 230 ( 296 )

Remeasurement of deferred taxes (3)

Research and development and other tax credits ( 1,707 ) ( 1,724 ) ( 1,972 )

Foreign tax differential ( 96 ) ( 132 ) ( 248 )

Federal rate differential net operating loss carryback (3)

( 5,223 ) — —

Change in uncertain tax positions ( 7 ) 20 22

1 unchanged sentence

Provision (benefit) for federal, state and foreign income taxes $ ( 12,039 ) $ ( 3,570 ) $ 10,430

(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.

(1) In fiscal 2020, we impaired $32.9 million of goodwill, which included $ 8.6 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.

(2) In fiscal 2021, we placed $2.8 million of valuation allowances, including $ 1.5 million on certain state net operating loss carryforwards due to a recent history of cumulative losses for a subsidiary.

In fiscal 2020, we placed $3.1 million of valuation allowances on net operating loss carryforwards and foreign tax credits primarily related to Canada.

In fiscal 2019, we placed $4.5 million of valuation allowances on net operating loss carryforwards and foreign tax credits generated by 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.

(3) Relates to fiscal 2021 net operating losses carried back under provisions of the CARES Act to fiscal years 2016 and 2017 which had a 35% federal tax rate.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Significant components of the Company’s deferred tax assets and liabilities

Significant components of our deferred tax assets and liabilities

2021 June 30,

9 unchanged sentences

Accrued compensation and pension 690 1,447

Prepaid insurance 27 —

Stock compensation expense on nonvested deferred shares 1,895 3,231

1 unchanged sentence

Restructuring reserve 725 1,381

Book over tax amortization 3,765 5,195

Deferred FICA 1,920 —

Foreign currency translation and other 665 843

2 unchanged sentences

Tax over book depreciation 10,315 11,313

Tax over book (book over tax) amortization ( 5,195 ) 1,770

Branch future liability — 74

9 unchanged sentences

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.

We have 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, 2021 and June 30, 2020 reduces the recognized tax benefit of these carryforwards to an amount that is more likely than not to be realized.

1 unchanged sentence

Operating Loss Carryforwards Expiration Period Amount (in thousands)

State net operating losses June 2024 to June 2040 $ 19,676

State net operating losses June 2025 to indefinite $ 57,786

Foreign net operating losses June 2029 to June 2041 $ 33,242

2 unchanged sentences

Tax Credit Carryforwards Expiration Period Amount (in thousands)

State tax credits June 2032 to June 2035 $ 877

State tax credits June 2033 to indefinite $ 578

Federal tax credits June 2041 $ 1,087

Federal foreign tax credits June 2023 to June 2025 $ 655

Foreign tax credits June 2035 to June 2041 $ 687

In general, it is the practice and intention of the Company to reinvest the earnings of its foreign subsidiaries in its foreign operations.

In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in our 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.

We file tax returns in multiple domestic and foreign taxing jurisdictions.

With a few exceptions, we are no longer subject to examination by taxing authorities through fiscal 2016.

At June 30, 2021, we updated our evaluation of our open tax years in all known jurisdictions.

As of June 30, 2021, we have a $ 0.3 million liability for unrecognized tax positions and the payment of related interest and penalties.

3 unchanged sentences

Insurance Reserves

The Company maintains insurance coverage for various aspects of its operations.

We maintain insurance coverage for various aspects of our 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.

We 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.

We maintain a performance and payment bonding line sufficient to support the business.

We generally require our subcontractors to indemnify us and our customer and name us 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 us, 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.

2 unchanged sentences

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.

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.

Generally we expect collection of amounts related to unpriced change orders and claims within twelve months.

However, customers may not pay these amounts until final resolution of related claims, which may extend beyond one year.

During the fourth quarter of fiscal 2021, we settled a contract dispute over the construction of a crude oil terminal, which resulted in a reduction of gross profit of $ 2.9 million.

The settlement resulted in a cash receipt of $ 8.9 million in the first quarter of fiscal 2022, which enabled us to avoid future legal costs and litigation risk.

During the third quarter of fiscal 2020, we commenced litigation in an effort to collect accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter of fiscal 2020.

The unpaid receivable balance at June 30, 2021 was $ 17.0 million.

Litigation is unpredictable, however, based on the terms of the contract with this customer, we believe we are entitled to collect the full amount owed under the contract.

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.

We and our 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 our 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.

We enter into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

Real estate leases accounted for approximately 94 % of all right-of-use assets as of June 30, 2021.

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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.

We recorded $ 0.5 million of impairments to right-of-use assets related to leased office space that was closed in connection with our 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)

Fiscal Years Ended

June 30, 2021 June 30, 2020

Lease expense Location of Expense in Consolidated Statements of Income (in thousands)

Operating lease expense Cost of revenue and selling, general and administrative expenses $ 8,386 $ 12,274

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(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:

The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in our Consolidated Balance Sheets, were as follows:

June 30, 2021

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Operating leases $ 8,342

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.

We have 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2021 or June 30, 2020.

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.

The terms of our Credit Agreement limit share repurchases to $ 2.5 million per fiscal year provided that that we do not violate our Fixed Charge Coverage Ratio financial covenant (see Note 5 - Debt for more information about our Credit Agreement).

We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018.

Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares.

We may repurchase our stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and are not obligated to purchase any shares.

The program will continue unless and until it is modified or revoked by the Board of Directors.

We made no repurchases under the program in fiscal 2021 and have no current plans to repurchase stock in the near-term.

There were 1,349,037 shares available for repurchase under the November 2018 Program as of June 30, 2021.

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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

In addition to the stock buyback program, we may withhold shares of common stock to satisfy the tax withholding obligations upon vesting of an employee’s deferred shares.

We withheld 170,629 and 181,081 shares of common stock during fiscal 2021 and 2020, respectively, to satisfy these obligations.

These shares were returned to our pool of treasury shares.

We have 1,338,779 treasury shares as of June 30, 2021 and intend to utilize these treasury shares in connection with equity awards under our incentive plans and for sales to the Employee Stock Purchase Plan.

Note 10— Stock-Based Compensation

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Measured but unrecognized stock-based compensation expense at June 30, 2021 was $ 8.6 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.

We recognized excess tax expense of $ 1.8 million and $ 0.2 million related to stock-based compensation vesting for the fiscal years ended June 30, 2021 and 2020, respectively.

We recognized excess tax benefits of $0.3 million for the fiscal year ended June 30, 2019 related to stock-based compensation vesting.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

In November 2020, our stockholders approved the Matrix Service Company 2020 Stock and Incentive Compensation Plan (the "2020 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.

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The 2018 Plan was preceded by the 2016 Stock Incentive Plan ("2016 Plan"), which was frozen upon approval of the 2018 Plan with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2016 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.

Shares awarded under either the 2018 Plan or 2016 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 2020 Plan.

The 2016 Plan was preceded by the 2012 Stock Incentive Plan ("2012 Plan") and the 2004 Stock Incentive Plan ("2004 Plan"), which were frozen upon approval of the 2016 Plan and 2012 Plan, respectively, with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2012 Plan and 2004 Plan.

There are no outstanding awards under the 2012 Plan, but there were stock option awards outstanding under the 2004 Plan as of June 30, 2021 - see Stock Options section below.

Awards totaling 1,725,000 shares have been authorized under the 2020 Plan.

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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 options are granted at the market value of our common stock on the grant date and expire after 10 years.

Our policy is to issue shares upon the exercise of stock options from its treasury shares, if available.

We did not award any new stock options in fiscal years 2021, 2020, or 2019.

The options outstanding as of June 30, 2021 expire on November 17, 2021.

Stock option activity and related information for the fiscal year ended June 30, 2021 is as follows:

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Exercisable at June 30, 2021 19,550 0.4 $ 10.19 $ 6

The total intrinsic value of stock options exercised was $ 0.1 million and $ 0.3 million during fiscal year 2019 and fiscal 2018, respectively.

The total intrinsic value of stock options exercised was $ 0.1 million during fiscal year 2021 and fiscal 2019.

No stock options were exercised in fiscal 2020.

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:

We have 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.

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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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

• Market-based awards—These awards are in the form of performance units which vest 3 years after the grant date only if our 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.

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As of June 30, 2021, there are approximately 147,000 , 174,000 , and 369,000 performance units that are scheduled to vest in fiscal 2022, fiscal 2023, and fiscal 2024, 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.

All awards under the 2020 Plan vest upon the death or disability of the participant or upon a change of control of the Company, provided that the successor company fails to assume or replace the awards in connection with that change of control event.

If the successor company does assume the awards, then vesting of the awards will be accelerated in the event of an involuntary termination or other material adverse event that occurs in connection with or following the change of control.

All awards prior to the 2020 Plan 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 our 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.

For the fiscal 2021 grant, the model estimated the fair value of the award based on approximately 100,000 simulations of the future prices of our 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.

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Shares granted 665,597 $ 10.60

Performance shares earned in excess of target 15,314 $ —

Shares vested and released ( 515,218 ) $ 16.99

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There were 542,279 and 314,711 deferred shares that vested and were released in fiscal 2020 and 2019 with weighted average fair values of $ 19.43 and $ 16.23 per share, respectively.

Cash-Settled Restricted Share Units

In fiscal 2021, we granted 238,848 cash-settled restricted share units with a grant date fair value of $ 2.3 million.

No cash-settled restricted share units were granted in fiscal years 2020 and 2019 and no settlements have occurred.

The grant date fair value of these awards is based on the price of our common stock and the number of shares awarded on the date of grant.

The award must be settled in cash and is accounted for as a liability-type award.

The expense is recognized over the requisite service period with remeasurement at the end of each reporting period at fair value until settlement.

The requisite service period is based on the vesting provisions of the awards which generally occur in four equal annual installments beginning one year after the grant date.

These awards contain the same retirement provisions described for time-based awards in the nonvested deferred shares section above.

We recognized $ 1.0 million of expense in fiscal 2021 for cash-settled restricted share units, which was included in selling, general and administrative expenses and cost of revenue in the Consolidated Statements of Income.

As of June 30, 2021, the liability for cash-settled restricted share units was $ 1.0 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.

Matrix Service Company

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Defined Contribution Plans

The Company sponsors defined contribution savings plans for all eligible employees meeting length of service requirements.

We sponsor 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.

We match 100 % of the first 3 % of employee contributions and 50 % of the next 2 % of employee contributions.

Our matching contributions vest immediately.

Our matching contributions were $ 5.4 million in the fiscal year ended June 30, 2021, and $ 6.2 million in each of the fiscal years ended June 30, 2020 and June 30, 2019.

Matrix Service Company

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Multiemployer Pension Plans

The Company contributes to various union sponsored multiemployer benefit plans in the U.S.

We contribute to a number of multiemployer defined benefit pension plans in the U.S.

and Canada under the terms of collective-bargaining agreements that cover our union-represented employees, who are represented by more than 90 local unions.

The related collective-bargaining agreements between those organizations and us, which specify the rate at which we must contribute to the multi-employer defined pension plan, expire at different times between 2021 and 2024.

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:

For us, 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.

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Fiscal Year Surcharge

Imposed Expiration

2021 2020 2021 2020 2019

(In thousands)

Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Yellow Red Implemented $ 6,634 $ 12,434 $ 8,525 No Described below (1)

Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Yellow Yellow Implemented $ 4,003 $ 6,634 $ 12,434 No

Joint Pension Fund Local Union 164 IBEW 22-6031199/001 Described below (1)

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)

Described below (1)

Implemented 1,958 1,560 2,180 No

Joint Pension Fund of Local Union No 102 IBEW 22-1615726/001 Described below (1)

Green NA 1,341 1,227 1,610 No

IBEW Local 456 Pension Plan 22-6238995/001 Green Green NA 595 427 574 No

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)

22-3417366/001 Described below (1)

Green NA 479 1,709 2,025 No

Steamfitters Local Union No 420 Pension Plan 23-2004424/001 Described below (1)

Red Implemented 442 1,523 639 Yes

IBEW Local Union 98 Pension Plan 23-1990722/001 Red Red Implemented 195 352 828 Yes

Indiana Laborers Pension Fund 35-6027150/001 Described below (1)

Green NA 1,604 3,349 3,542 No Described below (3)

Green NA 20 1,604 3,349 No

Iron Workers Mid-America Pension Plan, Local 395 36-6488227/001 Described below (1)

Green NA — 840 2,596 No

Pipe Fitters Retirement Fund, Local 597 62-6105084/001 Green Green NA 835 3,469 3,682 No Described below (4)

Pipefitters Retirement Fund, Local 597 62-6105084/001 Green Green NA — 835 3,469 No

Iron Workers Pension Plan of Western Pennsylvania, Local 3 25-1283169/001 Described below (1)

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 (1)

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)

Implemented — 500 2,317 No

Iron Workers Pension Plan, Local 55 34-6682351/001 Described below (1)

Green NA — 2,951 4,333 No

National Electrical Benefit Fund, IBEW locals 71, 126, 488, and 1319 53-0181657/001 Described below (1)

Green NA 1,865 2,674 5,893 No

Connecticut Plumbers and Pipefitters Pension Fund, Local 777 06-6050353/001 Green Green NA — — 3,307 No

Northwestern Ohio Plumbers and Pipefitters Pension, Local 50 34-6502487/001 Described below (1)

Green NA — 2,504 1,161 No

Ohio Carpenters' Pension Fund, Locals 1090 and 351 34-6574360/001 Red Red Implemented 3,042 2,962 318 Yes 4/30/2021

Ohio Carpenters' Pension Fund, Locals 1090 and 351 34-6574360/001 Described below (1)

Red Implemented — 3,042 2,962 Yes

IBEW Local 654 Pension Plan 23-6538183/001 Described below (1)

Described below (2)

NA 1,021 1,006 1,620 No 6/3/2023

Green NA 818 1,021 1,006 No

Contributions to other multiemployer plans 3,653 8,000 13,703

Total contributions made $ 15,369 $ 37,403 $ 64,386

(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.

(1) For the Local 164 IBEW Pension Plan, Local IBEW 102 IBEW Pension Plan, Local 351 IBEW Pension Plan, Steamfitters Local Union No.

420 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, National Electrical Benefit Fund for Locals 71/126/488/1319, Local 777 Connecticut Plumbers and Pipefitters Pension Fund, Local 50 Northwestern Ohio Plumbers and Pipefitters Pension, and Local 654 IBEW Pension Plan, we have not received a funding notification that covers our fiscal year 2021 during the preparation of this Form 10-K.

For Local 164 IBEW Pension Plan and Local 3 Iron Workers Pension Plan of Western Pennsylvania, we have not received a funding notification that covers our fiscal year 2020 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.

We 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/2021-funding-status-notices#2020-c-and-d.

Matrix Service Company

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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.

Share purchases are limited to an aggregate market value of no greater than $ 60,000 per calendar year per participant and are purchased from us 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 .

We have 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 once the plan shares are exhausted.

Shares are issued from Treasury Stock under the ESPP.

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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:

The new reportable segments along with a description of each are as follows:

• 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.

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;

Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, we offer tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

All prior period segment information has been restated to conform with our new reportable segments.

In addition, beginning July 1, 2020, we separately report corporate selling, general and administrative expenses and other corporate expenses that were previously allocated to the segments.

We evaluate performance and allocate resources based on operating income.

We record intersegment sales and transfers 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.

Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets.

Matrix Service Company

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(In thousands)

Infrastructure Oil Gas &

Chemical Storage

Solutions Industrial Unallocated Corporate Total

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal

Solutions Corporate Total

Fiscal year ended June 30, 2021

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Consolidated revenue 210,052 199,917 263,429 — 673,398

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 )

Gross profit 1,506 17,642 13,617 — 32,765

Selling, general and administrative expenses 9,882 14,756 18,644 26,474 69,756

Restructuring costs 1,312 3,807 1,391 246 6,756

Operating loss ( 9,688 ) ( 921 ) ( 6,418 ) ( 26,720 ) ( 43,747 )

Segment assets 81,717 106,619 160,782 118,438 467,556

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Consolidated revenue 212,001 421,871 467,066 — 1,100,938

Gross profit 15,470 35,987 56,011 24,483 — 131,951

Gross profit (loss) 7,081 36,349 61,413 ( 2,667 ) 102,176

Selling, general and administrative expenses 10,047 24,266 26,386 25,577 86,276

Intangible asset impairments and restructuring costs 27,625 22,914 1,066 920 52,525

Operating income 3,668 12,984 14,097 7,181 — 37,930

Operating income (loss) ( 30,591 ) ( 10,831 ) 33,961 ( 29,164 ) ( 36,625 )

Segment assets 67,398 138,734 187,167 124,011 517,310

5 unchanged sentences

Consolidated revenue 249,867 654,014 512,799 — 1,416,680

Gross profit 18,300 33,423 25,778 14,435 — 91,936

Intangible asset impairments and restructuring costs 17,281 717 — — — 17,998

Gross profit (loss) 21,161 58,853 54,600 ( 2,663 ) 131,951

Selling, general and administrative expenses 9,842 26,932 30,319 26,928 94,021

Operating income (loss) 11,319 31,921 24,281 ( 29,591 ) 37,930

2 unchanged sentences

Depreciation and amortization expense 2,567 8,232 7,132 293 18,224

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Geographical information is as follows:

7 unchanged sentences

$ 176,337 $ 182,150 $ 216,084

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

Consolidated Utility and Power

Infrastructure Process and Industrial Facilities Storage and Terminal

Fiscal Year ended June 30, 2021

3 unchanged sentences

Customer four 4.4 % — % — % 11.2 %

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, 2020

4 unchanged sentences

Customer five 2.0 % 10.5 % — % — %

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, 2019

12 unchanged sentences

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.

During the third quarter of fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure related to:

• our strategic initiative to exit the domestic iron and steel industry;

• the implementation of business improvements in the power delivery portion of the Utility and Power Infrastructure segment;

• the decline in revenue caused by the ongoing effects of the COVID-19 pandemic and related market disruptions.

The business improvement plan consists of discretionary cost reductions, workforce reductions, reduction of capital expenditures and the reduction in size or closure of certain offices in order to increase the utilization of our staff and bring the cost structure of the business in line with revenue volume.

We incurred $14.0 million of restructuring costs during fiscal 2020 and $6.8 million during fiscal 2021.

The restructuring costs consist primarily of severance costs, facility closure costs, lease and fixed asset impairments, other intangible asset impairments and other liabilities as a result of exiting certain operations.

In fiscal 2021, we engaged a third party consultant to help us perform a strategic review of our end markets in support of updating our business strategy and to ensure that our organizational structure is properly designed to support our updated strategy.

Based on the preliminary results of this review, we believe there are opportunities for us to be more competitive, which will require organizational and process changes and will likely result in additional restructuring costs.

We expect to substantially complete this initiative in fiscal 2022.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Restructuring costs incurred are classified as follows:

Fiscal Year Ended

June 30, 2020

June 30, 2021 Since Inception of Business Improvement Plan

(in thousands)

Electrical Infrastructure

Severance costs and other benefits $ 1,571

Utility and Power Infrastructure

Severance and other personnel-related costs $ 1,199 $ 2,539

Facility costs 113 348

Other intangible asset impairments — 1,150

Total Electrical Infrastructure $ 2,955

Oil Gas & Chemical

Severance costs and other benefits $ 1,767

Total Utility and Power Infrastructure $ 1,312 $ 4,037

Process and Industrial Facilities

Severance and other personnel-related costs $ 2,951 $ 9,118

Facility costs 431 3,188

Other intangible asset impairments — 375

Total Oil Gas & Chemical $ 3,850

Storage Solutions

Severance costs and other benefits $ 576

Other costs 426 426

Total Process and Industrial Facilities $ 3,808 $ 13,107

Storage and Terminal Solutions

Severance and other personnel-related costs $ 1,231 $ 1,578

Facility costs 159 879

Other intangible asset impairments —

Total Storage Solutions $ 1,296

Severance costs and other benefits $ 4,861

Total Storage and Terminal Solutions $ 1,390 $ 2,457

Severance and other personnel-related costs $ 164 $ 1,083

Facility costs 82 82

Other intangible asset impairments — —

Total Industrial $ 5,909

Total Corporate $ 246 $ 1,165

Total restructuring costs $ 6,756 $ 20,766

Restructuring Costs by Type:

Total severance costs and other benefits $ 8,775

Severance and other personnel-related costs $ 5,545 $ 14,318

Total facility costs 785 4,497

Total other intangible asset impairments — 1,525

Other costs 426 426

Total restructuring costs $ 6,756 $ 20,766

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

The restructuring reserve is included in other accrued expenses and other liabilities in the Consolidated Balance Sheets.

The table below is a reconciliation of the beginning and ending restructuring reserve balance (in thousands):

1 unchanged sentence

Restructuring costs incurred 4,026

Non-cash restructuring costs ( 5,215 )

Cash payments ( 3,484 )

Adjustment to liability ( 510 )

Balance as of June 30, 2021 $ 2,435

(1) The restructuring reserve is included within other accrued expenses in the Consolidated Balance Sheets .

Matrix Service Company

8 unchanged sentences

Gross profit 14,350 15,313 1,560 1,542

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:

Restructuring costs ( 320 ) 5,045 1,860 171

Operating loss ( 3,458 ) ( 6,456 ) ( 17,479 ) ( 16,354 )

Net loss ( 3,037 ) ( 4,591 ) ( 12,873 ) ( 10,723 )

Loss per common share:

Basic ( 0.12 ) ( 0.17 ) ( 0.49 ) ( 0.40 )

3 unchanged sentences

Gross profit 32,465 30,001 20,477 19,233

Operating income 2,220 5,527 12,794 17,389

Net income 2,305 3,932 8,933 12,812

Earnings per common share:

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 )

23 unchanged sentences

Total 7,965 4,599 — ( 6,682 ) 5,882

(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.

(A) Primarily relates to a $0.1 million reserve that was recognized as a credit loss and ultimately written off within fiscal 2021.

(B) Relates to $ 1.1 million of foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions, partially offset by $ 0.6 million of fully reserved tax credits that expired in fiscal 2021.

(C) Primarily relates to a $ 0.6 million reserve that was recognized as a credit loss and ultimately settled and written off within fiscal 2020 and $ 0.3 million of payments received on a balance that was fully reserved.

(D) Relates to foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions.

(E) 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.

(F) 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, we 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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data