MATRIX SERVICE CO 10-K

Item 8. Financial Statements and Supplementary Data Financial Statements of the Company Management’s Report on Internal Control Over Financial Reporting 45 Reports of Independent Registered Public Accounting Firm 46 Consolidated Statements of Income for the Fiscal Years Ended June 30, 2021, June 30, 2020, and June 30, 2019 50 Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2021, June 30, 2020, and June 30, 2019 51 Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020 52 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021, June 30, 2020, and June 30, 2019 54 Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2021, June 30, 2020, and June 30, 2019 56 Notes to Consolidated Financial Statements 57 Quarterly Financial Data (Unaudited) 85 Schedule II—Valuation and Qualifying Accounts 86 Financial Statement Schedules The financial statement schedule is filed as a part of this report under Schedule II – Valuation and Qualifying Accounts for the three fiscal years ended June 30, 2021, June 30, 2020 and June 30, 2019 immediately following Quarterly Financial Data (Unaudited). All other schedules are omitted because they are not applicable or the required information is shown in the financial statements, or notes thereto, included herein. 44 Table of Contents MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Matrix Service Company and its wholly-owned subsidiaries (the “Company”) are responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. All internal control systems, no matter how well designed, have inherent limitations and cannot provide absolute assurance that all objectives will be met. Internal control over financial reporting is a process that involves diligence and is subject to lapses in judgment and human error. Internal control over financial reporting can also be circumvented by collusion or management override of controls. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. In making this assessment, the Company’s management used the criteria established in Internal Control—Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Management’s assessment included an evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, overall control environment and information systems control environment. Based on this assessment, the Company’s management has concluded that the Company’s internal control over financial reporting as of June 30, 2021 was effective. Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. Deloitte & Touche LLP’s report on the Company’s internal control over financial reporting is included herein. /s/ John R. Hewitt /s/ Kevin S. Cavanah John R. Hewitt Kevin S. Cavanah President and Chief Executive Officer Vice President and Chief Financial Officer September 13, 2021 45 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Matrix Service Company Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Matrix Service Company and subsidiaries (the “Company”) as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2021, of the Company and our report dated September 13, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Tulsa, Oklahoma September 13, 2021 46 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Matrix Service Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Matrix Service Company and subsidiaries (the "Company") as of June 30, 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 13, 2021 expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. 47 Table of Contents 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. 48 Table of Contents 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 Tulsa, Oklahoma September 13, 2021 We have served as the Company's auditor since 2006. 49 Table of Contents Matrix Service Company Consolidated Statements of Income (In thousands, except per share data) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 Revenue $ 673,398 $ 1,100,938 $ 1,416,680 Cost of revenue 640,633 998,762 1,284,729 Gross profit 32,765 102,176 131,951 Selling, general and administrative expenses 69,756 86,276 94,021 Goodwill and other intangible asset impairment — 38,515 — Restructuring costs 6,756 14,010 — Operating income (loss) ( 43,747 ) ( 36,625 ) 37,930 Other income (expense): Interest expense ( 1,559 ) ( 1,597 ) ( 1,296 ) Interest income 126 1,270 1,167 Other 1,917 308 611 Income (loss) before income tax expense ( 43,263 ) ( 36,644 ) 38,412 Provision (benefit) for federal, state and foreign income taxes ( 12,039 ) ( 3,570 ) 10,430 Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982 Basic earnings (loss) per common share $ ( 1.18 ) $ ( 1.24 ) $ 1.04 Diluted earnings (loss) per common share $ ( 1.18 ) $ ( 1.24 ) $ 1.01 Weighted average common shares outstanding: Basic 26,451 26,621 26,891 Diluted 26,451 26,621 27,587 See accompanying notes 50 Table of Contents Matrix Service Company Consolidated Statements of Comprehensive Income (In thousands) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982 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 See accompanying notes 51 Table of Contents Matrix Service Company Consolidated Balance Sheets (In thousands) June 30, 2021 June 30, 2020 Assets Current assets: Cash and cash equivalents $ 83,878 $ 100,036 Accounts receivable, less allowances (2021 - $898; 2020 - $905) 148,030 160,671 Costs and estimated earnings in excess of billings on uncompleted contracts 30,774 59,548 Inventories 7,342 6,460 Income taxes receivable 16,965 3,919 Other current assets 4,230 4,526 Total current assets 291,219 335,160 Property, plant and equipment, at cost: Land and buildings 41,633 42,695 Construction equipment 94,453 94,154 Transportation equipment 50,510 55,864 Office equipment and software 42,706 39,356 Construction in progress 493 4,427 Total property, plant and equipment - at cost 229,795 236,496 Accumulated depreciation ( 160,388 ) ( 155,748 ) Property, plant and equipment - net 69,407 80,748 Operating lease right-of-use assets 22,412 21,375 Goodwill 60,636 60,369 Other intangible assets 6,614 8,837 Deferred income taxes 5,295 5,988 Other assets 11,973 4,833 Total assets $ 467,556 $ 517,310 See accompanying notes 52 Table of Contents Matrix Service Company Consolidated Balance Sheets (continued) (In thousands, except share data) June 30, 2021 June 30, 2020 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 60,920 $ 73,094 Billings on uncompleted contracts in excess of costs and estimated earnings 53,832 63,889 Accrued wages and benefits 21,008 16,205 Accrued insurance 6,568 7,301 Operating lease liabilities 5,747 7,568 Other accrued expenses 5,327 7,890 Total current liabilities 153,402 175,947 Deferred income taxes 34 61 Operating lease liabilities 20,771 19,997 Borrowings under senior secured revolving credit facility — 9,208 Other liabilities 7,810 4,208 Total liabilities 182,017 209,421 Commitments and contingencies Stockholders’ equity: Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of June 30, 2021 and June 30, 2020; 26,549,438 and 26,141,528 shares outstanding as of June 30, 2021 and June 30, 2020 279 279 Additional paid-in capital 137,575 138,966 Retained earnings 175,178 206,402 Accumulated other comprehensive loss ( 6,749 ) ( 8,373 ) 306,283 337,274 Less treasury stock, at cost — 1,338,779 and 1,746,689 shares as of June 30, 2021 and June 30, 2020 ( 20,744 ) ( 29,385 ) Total stockholders' equity 285,539 307,889 Total liabilities and stockholders’ equity $ 467,556 $ 517,310 See accompanying notes 53 Table of Contents Matrix Service Company Consolidated Statements of Cash Flows (In thousands) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 Operating activities: Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982 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 Goodwill and other intangible asset impairment (Note 4) — 38,515 — Stock-based compensation expense 8,156 9,877 11,908 Operating lease, fixed asset, and other intangible asset impairments due to restructuring (Note 14) 454 5,215 — Deferred income tax 889 ( 3,630 ) 2,061 Gain on disposal of business (Note 3) — — ( 427 ) Gain on sale of property, plant and equipment ( 1,201 ) ( 767 ) ( 854 ) Provision for uncollectible accounts 85 1,158 5 Other 460 ( 7 ) 701 Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from disposals: Accounts receivable 11,109 56,603 ( 15,374 ) Costs and estimated earnings in excess of billings on uncompleted contracts 28,774 36,535 ( 19,809 ) Inventories ( 882 ) 1,557 ( 2,872 ) Other assets and liabilities ( 21,916 ) 11,029 ( 12,246 ) Accounts payable ( 12,387 ) ( 38,915 ) 32,651 Billings on uncompleted contracts in excess of costs and estimated earnings ( 8,610 ) ( 41,737 ) ( 14,983 ) Accrued expenses 5,464 ( 17,398 ) 14,427 Net cash provided (used) by operating activities ( 2,971 ) 44,085 41,394 Investing activities: Capital expenditures ( 4,354 ) ( 18,539 ) ( 19,558 ) Proceeds from disposal of business (Note 3) — — 3,885 Proceeds from asset sales 2,090 1,423 1,225 Net cash used by investing activities $ ( 2,264 ) $ ( 17,116 ) $ ( 14,448 ) See accompanying notes 54 Table of Contents Matrix Service Company Consolidated Statements of Cash Flows (continued) (In thousands) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 Financing activities: Advances under senior secured revolving credit facility $ 1,125 $ 18,567 $ 16,225 Repayments of advances under senior secured revolving credit facility ( 10,913 ) ( 14,357 ) ( 10,896 ) Payment of debt amendment fees ( 1,275 ) — — Open market purchase of treasury shares — ( 17,045 ) ( 5,190 ) Issuances of common stock 349 — 128 Proceeds from issuance of common stock under employee stock purchase plan 299 320 311 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 (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 Cash and cash equivalents, end of period $ 83,878 $ 100,036 $ 89,715 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 451 $ 6,394 $ 3,309 Interest $ 1,834 $ 2,148 $ 1,705 Non-cash investing and financing activities: Purchases of property, plant and equipment on account $ 106 $ 48 $ 2,686 See accompanying notes 55 Table of Contents Matrix Service Company Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balances, July 1, 2018 $ 279 $ 132,198 $ 211,494 $ ( 17,717 ) $ ( 7,411 ) $ 318,843 Net income — — 27,982 — — 27,982 Other comprehensive loss — — — — ( 340 ) ( 340 ) Treasury Shares sold to Employee Stock Purchase Plan (15,812 shares) — 38 — 273 — 311 Exercise of stock options (12,500 shares) — ( 126 ) — 254 — 128 Issuance of deferred shares (314,711 shares) — ( 6,306 ) — 6,306 — — Treasury shares repurchased to satisfy tax withholding obligations (79,111 shares) — — — ( 1,685 ) — ( 1,685 ) Open market purchases of treasury shares (310,532 shares) — — — ( 5,190 ) — ( 5,190 ) Stock-based compensation expense — 11,908 — — — 11,908 Balances, June 30, 2019 279 137,712 239,476 ( 17,759 ) ( 7,751 ) 351,957 Net loss — — ( 33,074 ) — — ( 33,074 ) Other comprehensive loss — — — — ( 622 ) ( 622 ) Treasury Shares sold to Employee Stock Purchase Plan (20,733 shares) — ( 19 ) — 339 — 320 Issuance of deferred shares (542,279 shares) — ( 8,604 ) — 8,604 — — Treasury shares repurchased to satisfy tax withholding obligations (181,081 shares) — — — ( 3,524 ) — ( 3,524 ) Open market purchases of treasury shares (1,047,606 shares) — — — ( 17,045 ) — ( 17,045 ) Stock-based compensation expense — 9,877 — — — 9,877 Balances, June 30, 2020 279 138,966 206,402 ( 29,385 ) ( 8,373 ) 307,889 Net loss — — ( 31,224 ) — — ( 31,224 ) 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 ) Stock-based compensation expense — 8,156 — — — 8,156 Balances, June 30, 2021 $ 279 $ 137,575 $ 175,178 $ ( 20,744 ) $ ( 6,749 ) $ 285,539 See accompanying notes 56 Table of Contents Matrix Service Company Notes to Consolidated Financial Statements Note 1— Summary of Significant Accounting Policies Organization and Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of Matrix Service Company and its subsidiaries (“Matrix”, 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. 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 The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We believe the most significant estimates and judgments are associated with revenue recognition, the recoverability tests that must be periodically performed with respect to our goodwill and other intangible assets, valuation reserves on our accounts receivable and deferred tax assets, and the estimation of loss contingencies, including liabilities associated with litigation and with the self-insured retentions on our insurance programs. Actual results could materially differ from those estimates. 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. 57 Matrix Service Company Notes to Consolidated Financial Statements (continued) • 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 General Information about our Contracts with Customers Our revenue comes from contracts to provide engineering, procurement, fabrication and construction, repair and maintenance and other services. Our engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which 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 exceed one year for capital projects. Step 1: Contract Identification We do not recognize revenue unless we have identified a contract with a customer. A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility is probable. We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period. Step 2: Identify Performance Obligations Next, we identify each performance obligation in the contract. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately for each performance obligation in the contract. Many of our contracts have one clearly identifiable performance obligation. However, many of our contracts provide the customer an integrated service that includes two or more of the following services: engineering, procurement, fabrication, construction, repair and maintenance services. For these contracts, we do not consider the integrated services to be distinct within the context of the contract when the separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly, we generally identify one performance obligation in our contracts. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period. 58 Matrix Service Company Notes to Consolidated Financial Statements (continued) Step 3: Determine Contract Price After determining the performance obligations in the contract, we determine the contract price. The contract price is the amount of consideration we expect to receive from the customer for completing the performance obligation(s). In a fixed-price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials expended in completing the performance obligation(s) in the contract. A number of our contracts contain various cost and performance incentives and penalties that can either increase or decrease the contract price. These variable consideration amounts are generally earned or incurred based on certain performance metrics, most commonly related to project schedule or cost targets. We estimate variable consideration at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that meeting the variable condition is probable. We include estimated amounts of variable consideration in the contract price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the contract price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We reassess the amount of variable consideration each accounting period until the uncertainty associated with the variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for prospectively as a cumulative adjustment to revenue recognized in the current period. Step 4: Assign Contract Price to Performance Obligations After determining the contract price, we assign such price to the performance obligation(s) in the contract. If a contract has multiple performance obligations, we assign the contract price to each performance obligation based on the stand-alone selling prices of the distinct services that comprise each performance obligation. Step 5: Recognize Revenue as Performance Obligations are Satisfied We record revenue for contracts with our customers as we satisfy the contracts' performance obligations. We recognize revenue on performance obligations associated with fixed-price contracts for engineering, procurement, fabrication and construction services over time since these services create or enhance assets the customer controls as they are being created or enhanced. We measure progress of satisfying these performance obligations by using the percentage-of-completion method, which is based on costs incurred to date compared to the total estimated costs at completion, since it best depicts the transfer of control of assets being created or enhanced to the customer. We recognize revenue over time for reimbursable and time and material based repair and maintenance contracts since the customer simultaneously receives and consumes the benefit of those services as we perform work under the contract. As a practical expedient allowed under the revenue accounting standards, we record revenue for these contracts in the amount to which we have a right to invoice for the services performed provided that we have a right to consideration from the customer in an amount that corresponds directly with the value of the performance completed to date. Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked. Typically, customer contracts will include standard warranties that provide assurance that products and services will function as expected. 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. Due to the nature of the work left to be performed on many of our contracts, the estimation of total cost at completion for fixed-price contracts is complex, subject to many variables and requires significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated. 59 Matrix Service Company Notes to Consolidated Financial Statements (continued) Change Orders Contracts are often modified through change orders, which are changes to the agreed upon scope of work. Most of our change orders, which may be priced or unpriced, are for goods or services that are not distinct from the existing contract due to the significant integration of services provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a change order on the contract price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. For unpriced change orders, we estimate the increase or decrease to the contract price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above. Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies. Claims Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred by us. Recognition of amounts as additional contract price related to claims is appropriate only if there is a legal basis for the claim. The determination of our legal basis for a claim requires significant judgment. We estimate the change to the contract price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above. Claims are more fully discussed in Note 7 - Commitments and Contingencies. Cash and Cash Equivalents 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. The United States Dollar equivalent of Canadian, South Korean and Australian deposits totaled $ 14.1 million as of June 30, 2021. Accounts Receivable 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 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. Retentions Contract retentions collectible beyond one year are included in Other assets in the Consolidated Balance Sheets. Accounts payable retentions are generally settled within one year. Loss Contingencies Various legal actions, claims and other contingencies arise in the normal course of our business. Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, “Loss Contingencies”. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable. We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known. We believe that any amounts exceeding our recorded accruals should not materially affect our financial position, results of operations or liquidity. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity. 60 Matrix Service Company Notes to Consolidated Financial Statements (continued) Inventories Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions. Cost is determined primarily using the average cost method and inventories are stated at the lower of cost or net realizable value. Depreciation Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. Depreciable lives are as follows: buildings— 40 years, construction equipment— 3 to 15 years, transportation equipment— 3 to 5 years, and office equipment and software— 3 to 10 years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term. Leases 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 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. 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 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. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and, to the extent the carrying value exceeds the fair value of the assets, recording a loss provision. For assets identified to be disposed of in the future, the carrying value of the assets are compared to the estimated fair value less the cost of disposal to determine if an impairment has occurred. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change. Goodwill Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. In accordance with current accounting guidance, goodwill is not amortized and is tested at least annually for impairment at the reporting unit level, which is a level below our reportable segments. We perform our annual impairment test in the fourth quarter of each fiscal year, or in between annual tests whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine whether an impairment exists and to determine the amount of headroom. We define "headroom" as the percentage difference between the fair value of a reporting unit and its carrying value. The goodwill impairment test involves comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the impairment may not exceed the balance of goodwill assigned to that reporting unit. 61 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. For the income approach, significant judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates, which are based on our operating and capital budgets and on our strategic plan. As a result, actual results may differ from the estimates utilized in our income approach. For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA and our forecasted EBITDA. The use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and could result in the recognition of additional impairment charges in the financial statements. As a test for reasonableness, we also consider the combined fair values of our reporting units to our market capitalization. Other Intangible Assets Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging from 6 years to 15 years. A finite intangible asset is considered impaired when its carrying amount is not recoverable and exceeds the asset's fair value. The carrying amount is deemed unrecoverable if it is greater than the sum of undiscounted cash flows expected to result from use and eventual disposition of the asset. An impairment loss is equal to the excess of the carrying amount over the fair value of the asset. If quoted market prices are not available, the fair values of the intangible assets are based on present values of expected future cash flows or royalties avoided using discount rates commensurate with the risks involved. Insurance Reserves We maintain insurance coverage for various aspects of our operations. However, we retain exposure to potential losses through the use of deductibles, coverage limits and self-insured retentions. We establish reserves for claims using a combination of actuarially determined estimates and case-by-case evaluations of the underlying claim data and update our evaluations as further information becomes known. Judgments and assumptions are inherent in our reserve accruals; as a result, changes in assumptions or claims experience could result in changes to these estimates in the future. If actual results of claim settlements are different than the amounts estimated we may be exposed to future gains and losses that could be material. Stock-Based Compensation 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 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. 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. Income Taxes We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results. 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. 62 Matrix Service Company Notes to Consolidated Financial Statements (continued) Foreign Currency 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 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 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. Note 2 – Revenue Remaining Performance Obligations 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 Contract terms with customers include the timing of billing and payment, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of each period and are classified as current. We present our contract assets in the balance sheet as Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ("CIE"). CIE consists of revenue recognized in excess of billings. We present our contract liabilities in the balance sheet as Billings on Uncompleted Contracts in Excess of Costs and Estimated Earnings ("BIE"). BIE consists of billings in excess of revenue recognized. The following table provides information about CIE and BIE: June 30, 2021 June 30, 2020 Change (In thousands) Costs and estimated earnings in excess of billings on uncompleted contracts $ 30,774 $ 59,548 $ ( 28,774 ) Billings on uncompleted contracts in excess of costs and estimated earnings ( 53,832 ) ( 63,889 ) 10,057 Net contract liabilities $ ( 23,058 ) $ ( 4,341 ) $ ( 18,717 ) 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. Progress billings in accounts receivable at June 30, 2021 and June 30, 2020 included retentions to be collected within one year of $ 19.9 million and $ 37.3 million, respectively. Contract retentions collectible beyond one year are included in other assets in the Consolidated Balance Sheets and totaled $ 3.1 million as of June 30, 2021 and $ 1.6 million as of June 30, 2020. 63 Table of Contents Disaggregated Revenue Revenue disaggregated by reportable segment is presented in Note 13 - Segment Information. The following series of tables presents revenue disaggregated by geographic area where the work was performed and by contract type: Geographic Disaggregation: Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) United States $ 604,739 $ 1,020,083 $ 1,367,844 Canada 61,703 70,133 41,410 Other international 6,956 10,722 7,426 Total $ 673,398 $ 1,100,938 $ 1,416,680 Contract Type Disaggregation: Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) Fixed-price contracts $ 444,042 $ 685,559 $ 748,007 Time and materials and other cost reimbursable contracts 229,356 415,379 668,673 Total $ 673,398 $ 1,100,938 $ 1,416,680 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. Other 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. 64 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 3— Disposals Sale of Process Heating Business 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 Goodwill The changes in the carrying amount of goodwill by segment are as follows: 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 Disposal of business (1) — ( 2,775 ) — ( 2,775 ) Translation adjustment (2) ( 8 ) 5 ( 16 ) ( 19 ) Net balance at June 30, 2019 31,840 34,842 26,686 93,368 Goodwill impairment ( 24,900 ) ( 7,981 ) — ( 32,881 ) Translation adjustment (2) ( 35 ) ( 15 ) ( 68 ) ( 118 ) Net balance at June 30, 2020 6,905 26,846 26,618 60,369 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 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 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. 65 Matrix Service Company Notes to Consolidated Financial Statements (continued) Other Intangible Assets 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 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 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. Information on the carrying value of other intangible assets is as follows: At June 30, 2021 Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Years) (In thousands) Intellectual property 10 to 15 $ 2,483 $ ( 2,031 ) $ 452 Customer based 6 to 15 17,354 ( 11,192 ) 6,162 Total other intangible assets $ 19,837 $ ( 13,223 ) $ 6,614 At June 30, 2020 Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Years) (In thousands) Intellectual property 10 to 15 $ 2,579 $ ( 1,956 ) $ 623 Customer based 6 to 15 21,840 ( 13,626 ) 8,214 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. 66 Matrix Service Company Notes to Consolidated Financial Statements (continued) We estimate that future amortization of other intangible assets will be as follows (in thousands): For year ending: June 30, 2022 $ 1,819 June 30, 2023 1,729 June 30, 2024 1,415 June 30, 2025 1,096 June 30, 2026 555 Total estimated amortization expense $ 6,614 Note 5— Debt 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. 67 Matrix Service Company Notes to Consolidated Financial Statements (continued) Senior Secured Revolving Credit Facility 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 Coronavirus Aid, Relief, and Economic Security Act On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act") was signed into law. The purpose of the CARES Act was to provide $ 2.2 trillion in funding to fight the COVID-19 pandemic and provide economic relief in the form of tax relief, government loans and grants. The CARES Act contains the following key provisions which affect income taxes: • Eliminates the 80 % of taxable income limitations by allowing corporations to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020; • Allows net operating losses generated in 2018, 2019 or 2020 to be carried back five years; • Increases the net interest expense deduction limit to 50 % of adjusted taxable income from 30 % for the 2019 and 2020 tax years; • Allows taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cuts and Jobs Act; and • Allows entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25 % from 10 %. 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. 68 Matrix Service Company Notes to Consolidated Financial Statements (continued) Sources of pretax income (loss) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) Domestic $ ( 38,867 ) $ ( 32,660 ) $ 46,032 Foreign ( 4,396 ) ( 3,984 ) ( 7,620 ) Total $ ( 43,263 ) $ ( 36,644 ) $ 38,412 Components of the provision for income tax expense (benefit) Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) Current: Federal $ ( 13,154 ) $ ( 376 ) $ 6,085 State 465 412 2,390 Foreign ( 239 ) 23 ( 97 ) ( 12,928 ) 59 8,378 Deferred: Federal 774 ( 5,000 ) ( 528 ) State ( 291 ) ( 1,091 ) 451 Foreign 406 2,462 2,129 889 ( 3,629 ) 2,052 $ ( 12,039 ) $ ( 3,570 ) $ 10,430 69 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 Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) Expected provision (benefit) for federal income taxes at the statutory rate $ ( 9,085 ) $ ( 7,695 ) $ 8,067 State income taxes, net of federal benefit ( 1,240 ) ( 768 ) 2,288 Impairment of non-deductible goodwill (1) — 1,813 — Charges without tax benefit 961 1,707 1,233 Change in valuation allowance (2) 2,797 3,062 4,512 Reversal of branch liability (2) — — ( 3,546 ) Excess tax expense (benefit) on stock-based compensation 1,826 230 ( 296 ) 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 Other ( 265 ) ( 83 ) 370 Provision (benefit) for federal, state and foreign income taxes $ ( 12,039 ) $ ( 3,570 ) $ 10,430 (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 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) 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. 70 Matrix Service Company Notes to Consolidated Financial Statements (continued) Significant components of our deferred tax assets and liabilities June 30, 2021 June 30, 2020 (In thousands) Deferred tax assets: Warranty reserve $ 206 $ 206 Bad debt reserve 231 233 Paid-time-off accrual 747 669 Insurance reserve 1,229 1,221 Legal reserve 146 207 Net operating loss benefit and credit carryforwards 14,966 10,354 Valuation allowance ( 11,104 ) ( 7,763 ) Accrued compensation and pension 690 1,447 Prepaid insurance 27 — Stock compensation expense on nonvested deferred shares 1,895 3,231 Accrued losses 64 96 Restructuring reserve 725 1,381 Book over tax amortization 3,765 5,195 Deferred FICA 1,920 — Foreign currency translation and other 665 843 Total deferred tax assets 16,172 17,320 Deferred tax liabilities: Tax over book depreciation 10,315 11,313 Branch future liability — 74 Receivable holdbacks and other 596 6 Total deferred tax liabilities 10,911 11,393 Net deferred tax asset $ 5,261 $ 5,927 As reported in the Consolidated Balance Sheets: June 30, 2021 June 30, 2020 (In thousands) Deferred income tax assets 5,295 5,988 Deferred income tax liabilities ( 34 ) ( 61 ) Net deferred tax asset 5,261 $ 5,927 Operating loss and 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. These carryforwards will generally expire as shown below: Operating Loss Carryforwards Expiration Period Amount (in thousands) State net operating losses June 2025 to indefinite $ 57,786 Foreign net operating losses June 2029 to June 2041 $ 33,242 71 Matrix Service Company Notes to Consolidated Financial Statements (continued) Tax Credit Carryforwards Expiration Period Amount (in thousands) 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 Other 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. 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. We treat the related interest and penalties as income tax expense. Due to the uncertainties related to these tax matters, we are unable to make a reasonably reliable estimate as to when cash settlement with a taxing authority will occur. Note 7— Commitments and Contingencies Insurance Reserves 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. 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. Unpriced Change Orders and Claims As of June 30, 2021 and June 30, 2020, costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change orders and claims of $ 14.6 million and $ 14.5 million, respectively. The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings. 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. Other 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. 72 Matrix Service Company Notes to Consolidated Financial Statements (continued) 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 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. Most real estate and information technology equipment leases generally have fixed payments that follow an agreed upon payment schedule and have remaining lease terms ranging from less than a year to 15 years. Construction equipment leases generally have "month-to-month" lease terms that automatically renew as long as the equipment remains in use. 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 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 Short-term lease expense (1) Cost of revenue 25,912 37,371 Total lease expense $ 34,298 $ 49,645 (1) Primarily represents the lease expense of construction equipment that is subject to month-to-month rental agreements with expected rental durations of less than one year. The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in our Consolidated Balance Sheets, were as follows: June 30, 2021 Maturity Analysis: (in thousands) Fiscal 2022 $ 6,548 Fiscal 2023 4,684 Fiscal 2024 3,600 Fiscal 2025 3,143 Fiscal 2026 2,866 Thereafter 11,224 Total future operating lease payments 32,065 Imputed interest ( 5,547 ) Net present value of future lease payments 26,518 Less: current portion of operating lease liabilities 5,747 Non-current operating lease liabilities $ 20,771 73 Matrix Service Company Notes to Consolidated Financial Statements (continued) The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of June 30, 2021: Weighted-average remaining lease term (in years) 7.3 years Weighted-average discount rate 5.3 % Supplemental cash flow information related to leases is as follows: Fiscal Year Ended June 30, 2021 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating lease payments $ 9,922 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 8,342 Note 9— Stockholders’ Equity Preferred Stock 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 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, 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 Total stock-based compensation expense for the fiscal years ended June 30, 2021, June 30, 2020, and June 30, 2019 was $ 8.2 million, $ 9.9 million and $ 11.9 million, respectively. 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. 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. 74 Matrix Service Company Notes to Consolidated Financial Statements (continued) Plan Information 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. Upon approval of the 2020 Plan, the 2018 Stock and Incentive Compensation Plan ("2018 Plan") was frozen with the exception of normal vesting and other activity associated with awards previously granted under the 2018 Plan. 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 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. There were 1,769,487 shares available for grant under the 2020 Plan as of June 30, 2021. Stock Options 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: Number of Options Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price Aggregate Intrinsic Value (Years) (In thousands) Outstanding at June 30, 2020 53,700 1.4 $ 10.19 $ — Granted — — — Exercised ( 34,150 ) $ 10.19 82 Canceled — — — Outstanding at June 30, 2021 19,550 0.4 $ 10.19 $ 6 Vested at June 30, 2021 19,550 0.4 $ 10.19 $ 6 Exercisable at June 30, 2021 19,550 0.4 $ 10.19 $ 6 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. Nonvested Deferred Shares 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. Beginning in fiscal 2019, the award agreements contain a provision that accelerates the vesting for retirement eligible participants and participants that become retirement eligible during the vesting period and who elect to retire more than one year after the date of the award. The award is forfeited if retirement occurs before the first anniversary of the award. Settlement still occurs on the normal vesting schedules. Director awards vest one year after the grant date. 75 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. These awards are settled in stock. 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 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 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. Nonvested deferred share activity for the fiscal year ended June 30, 2021 is as follows: Shares Weighted Average Grant Date Fair Value per Share Nonvested shares at June 30, 2020 1,234,918 $ 20.89 Shares granted 665,597 $ 10.60 Performance shares earned in excess of target 15,314 $ — Shares vested and released ( 515,218 ) $ 16.99 Shares canceled ( 119,904 ) $ 20.67 Nonvested shares at June 30, 2021 1,280,707 $ 17.07 There were 490,322 and 602,148 deferred shares granted in fiscal 2020 and 2019 with average grant date fair values of $ 21.79 and $ 25.10 per share, respectively. 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. 76 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 11— Earnings per Common Share Basic earnings per share (“EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includes the dilutive effect of employee and director stock options and nonvested deferred shares. Stock options are considered dilutive whenever the exercise price is less than the average market price of the stock during the period and antidilutive whenever the exercise price exceeds the average market price of the common stock during the period. Nonvested deferred shares are considered dilutive (antidilutive) whenever the average market value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the shares vest. Stock options and nonvested deferred shares are considered antidilutive in the event we report a net loss. The computation of basic and diluted EPS is as follows: Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands, except per share data) Basic EPS: Net income (loss) $ ( 31,224 ) $ ( 33,074 ) $ 27,982 Weighted average shares outstanding 26,451 26,621 26,891 Basic earnings (loss) per share $ ( 1.18 ) $ ( 1.24 ) $ 1.04 Diluted EPS: Weighted average shares outstanding—basic 26,451 26,621 26,891 Dilutive stock options — — 28 Dilutive nonvested deferred shares — — 668 Diluted weighted average shares 26,451 26,621 27,587 Diluted earnings (loss) per share $ ( 1.18 ) $ ( 1.24 ) $ 1.01 The following securities are considered antidilutive and have been excluded from the calculation of diluted earnings (loss) per share: Fiscal Years Ended June 30, 2021 June 30, 2020 June 30, 2019 (In thousands of shares) Stock options 3 19 — Nonvested deferred shares 399 662 160 Total antidilutive securities 402 681 160 Note 12— Employee Benefit Plans Defined Contribution Plans 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. 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. 77 Matrix Service Company Notes to Consolidated Financial Statements (continued) Multiemployer Pension Plans 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 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. • If a participating employer discontinues contributions to a plan, the unfunded obligations of the plan may be borne by the remaining participating employers. • If a participating employer chooses to stop participating in a plan, a withdrawal liability may be created based on the unfunded vested benefits for all employees in the plan. Under federal legislation regarding multiemployer pension plans, in the event of a withdrawal from a plan or plan termination, companies are required to continue funding their proportionate share of such plan’s unfunded vested benefits. We are a participant in multiple union sponsored multiemployer plans, and, as a plan participant, our potential obligation could be significant. The amount of the potential obligation is not currently ascertainable because the information required to determine such amount is not identifiable or readily available. Our participation in significant plans for the fiscal year ended June 30, 2021 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three digit plan number. The zone status is based on the latest information that the Company received from the plan and is certified by the plan’s actuary. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are generally less than 80 percent funded, and plans in the green zone are generally at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions. The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. 78 Matrix Service Company Notes to Consolidated Financial Statements (continued) Pension Fund EIN/Pension Plan Number Pension Protection Act Zone Status FIP/RP Status Pending or Implemented Company Contributions Fiscal Year Surcharge Imposed 2021 2020 2021 2020 2019 (In thousands) 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) 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 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 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 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) Described below (1) 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 Described below (1) Red Implemented — 3,042 2,962 Yes IBEW Local 654 Pension Plan 23-6538183/001 Described below (1) 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) 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. 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. 79 Matrix Service Company Notes to Consolidated Financial Statements (continued) Employee Stock Purchase Plan The Matrix Service Company 2011 Employee Stock Purchase Plan (“ESPP”) was effective January 1, 2011. The ESPP allows employees to purchase shares through payroll deductions and members of the Board of Directors to purchase shares from amounts withheld from their cash retainers. Share purchases are limited to an aggregate market value of no greater than $ 60,000 per calendar year per participant and are purchased from 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. 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. There were 29,171 shares issued in fiscal 2021, 20,733 shares in fiscal 2020, and 15,812 shares in fiscal 2019. Note 13— Segment Information 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. • 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. 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, right-of-use lease assets, goodwill and other intangible assets. 80 Matrix Service Company Notes to Consolidated Financial Statements (continued) Results of Operations (In thousands) Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Corporate Total Fiscal year ended June 30, 2021 Gross revenue $ 210,052 $ 201,472 $ 267,982 $ — $ 679,506 Less: inter-segment revenue — 1,555 4,553 — 6,108 Consolidated revenue 210,052 199,917 263,429 — 673,398 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 Capital expenditures 1,183 834 1,136 1,201 4,354 Depreciation and amortization expense 4,127 6,018 7,456 257 17,858 Fiscal year ended June 30, 2020 Gross revenue $ 212,001 $ 424,710 $ 470,871 $ — $ 1,107,582 Less: inter-segment revenue — 2,839 3,805 — 6,644 Consolidated revenue 212,001 421,871 467,066 — 1,100,938 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 (loss) ( 30,591 ) ( 10,831 ) 33,961 ( 29,164 ) ( 36,625 ) Segment assets 67,398 138,734 187,167 124,011 517,310 Capital expenditures 3,285 7,523 4,921 2,810 18,539 Depreciation and amortization expense 3,054 8,014 7,743 313 19,124 Fiscal year ended June 30, 2019 Gross revenue $ 249,867 $ 656,137 $ 514,948 $ — $ 1,420,952 Less: inter-segment revenue — 2,123 2,149 — 4,272 Consolidated revenue 249,867 654,014 512,799 — 1,416,680 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 Segment assets 166,857 162,449 197,781 106,307 633,394 Capital expenditures 2,711 6,673 4,284 5,890 19,558 Depreciation and amortization expense 2,567 8,232 7,132 293 18,224 81 Matrix Service Company Notes to Consolidated Financial Statements (continued) Geographical information is as follows: Long-Lived Assets June 30, 2021 June 30, 2020 June 30, 2019 (In thousands) United States $ 157,442 $ 164,056 $ 193,472 Canada 6,523 5,659 10,110 Other international 12,372 12,435 12,502 $ 176,337 $ 182,150 $ 216,084 Information about Significant Customers: Significant Customers as a Percentage of Segment Revenue Consolidated Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Fiscal Year ended June 30, 2021 Customer one 12.9 % 41.3 % — % — % Customer two 9.9 % — % 33.3 % 0.1 % Customer three 7.0 % 22.5 % — % 0.1 % Customer four 4.4 % — % — % 11.2 % Fiscal Year ended June 30, 2020 Customer one 9.7 % — % 25.4 % — % Customer two 8.2 % 42.7 % — % — % Customer three 8.2 % — % — % 19.3 % Customer four 6.8 % — % — % 16.1 % Customer five 2.0 % 10.5 % — % — % Fiscal Year ended June 30, 2019 Customer one 9.7 % — % 21.0 % — % Customer two 7.6 % 42.7 % 0.2 % — % Customer three 7.6 % — % 16.4 % — % Customer four 7.2 % — % 15.1 % 0.6 % Customer five 7.1 % — % — % 19.7 % Customer six 5.0 % — % — % 13.8 % Customer seven 4.6 % 0.2 % 1.5 % 10.8 % Customer eight 3.4 % 19.5 % — % — % Customer nine 2.1 % 11.7 % — % — % Customer ten 2.0 % 11.3 % — % — % 82 Matrix Service Company Notes to Consolidated Financial Statements (continued) Note 14— Restructuring Costs 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; and • 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. 83 Matrix Service Company Notes to Consolidated Financial Statements (continued) Restructuring costs incurred are classified as follows: Fiscal Year Ended June 30, 2021 Since Inception of Business Improvement Plan (in thousands) 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 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 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 Total Storage and Terminal Solutions $ 1,390 $ 2,457 Corporate Severance and other personnel-related costs $ 164 $ 1,083 Facility costs 82 82 Other intangible asset impairments — — Total Corporate $ 246 $ 1,165 Total restructuring costs $ 6,756 $ 20,766 Restructuring Costs by Type: 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 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): Balance as of June 30, 2020 $ 2,403 Restructuring costs incurred 4,026 Cash payments ( 3,484 ) Adjustment to liability ( 510 ) Balance as of June 30, 2021 $ 2,435 84 Table of Contents Matrix Service Company Quarterly Financial Data (Unaudited) Fiscal Years Ended June 30, 2021 and June 30, 2020 First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands, except per share amounts) Fiscal Year 2021 Revenue $ 182,771 $ 167,468 $ 148,260 $ 174,899 Gross profit 14,350 15,313 1,560 1,542 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 ) Diluted ( 0.12 ) ( 0.17 ) ( 0.49 ) ( 0.40 ) Fiscal Year 2020 Revenue $ 338,097 $ 318,677 $ 248,327 $ 195,837 Gross profit 32,465 30,001 20,477 19,233 Intangible asset impairments and restructuring costs — 38,515 6,559 7,451 Operating income (loss) 8,774 ( 31,679 ) ( 5,800 ) ( 7,920 ) Net income (loss) 6,151 ( 28,008 ) ( 5,495 ) ( 5,722 ) Earnings (loss) per common share: Basic 0.23 ( 1.04 ) ( 0.21 ) ( 0.22 ) Diluted 0.22 ( 1.04 ) ( 0.21 ) ( 0.22 ) The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number of common shares outstanding and rounding. 85 Table of Contents Matrix Service Company Schedule II—Valuation and Qualifying Accounts June 30, 2021, June 30, 2020, and June 30, 2019 (In thousands) COL. A COL. B COL. C ADDITIONS COL. D COL. E Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts—Describe Deductions—Describe Balance at End of Period Fiscal Year 2021 Deducted from asset accounts: Allowance for doubtful accounts $ 905 $ 85 $ — $ ( 92 ) (A) $ 898 Valuation reserve for deferred tax assets 7,763 2,797 — 544 (B) 11,104 Total $ 8,668 $ 2,882 $ — $ 452 $ 12,002 Fiscal Year 2020 Deducted from asset accounts: Allowance for doubtful accounts 923 1,158 — ( 1,176 ) (C) 905 Valuation reserve for deferred tax assets 4,959 3,062 — ( 258 ) (D) 7,763 Total 5,882 4,220 — ( 1,434 ) 8,668 Fiscal Year 2019 Deducted from asset accounts: Allowance for doubtful accounts 6,327 5 — ( 5,409 ) (E) 923 Valuation reserve for deferred tax assets 1,638 4,594 — ( 1,273 ) (F) 4,959 Total 7,965 4,599 — ( 6,682 ) 5,882 (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. 86 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None