TEAM INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL TABLE OF CONTENTS Reports of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) 48 Consolidated Balance Sheets as of December 31, 2021 and 2020 51 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 52 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019 53 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 54 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 55 Notes to Consolidated Financial Statements 57 47 Table of Content Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Team, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Team, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 16, 2022 expressed an unqualified opinion on those consolidated 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 Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 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/ KPMG LLP Houston, Texas March 16, 2022 48 Table of Content Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Team, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Team, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 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 March 16, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill impairment analysis of the Quest Integrity reporting unit As discussed in Note 8 to the consolidated financial statements, the Company has three reporting units and performs a goodwill impairment test at a reporting unit level on an annual basis on December 1 and whenever there are sufficient indicators that the carrying value of a reporting unit exceeds its fair value. This involves estimating the fair value of the reporting units using discounted cash flow model analyses and market approaches for comparable companies. The Company experienced forecasted revenue and earnings declines due to lower activity and pricing pressure for its products and services and sustained declines in their stock price. Accordingly, the Company performed a quantitative goodwill impairment assessment on December 1, 2021. The carrying amount of the Quest Integrity reporting unit exceeded its fair value and the Company recorded a partial goodwill impairment charge to the Quest Integrity reporting unit (“Quest”) of $8.8 million. We identified the evaluation of the goodwill impairment analysis of Quest as a critical audit matter. Evaluating the assumptions used in the discounted cash flow model analysis used to estimate the fair value of Quest required the involvement of valuation professionals and a high degree of auditor judgment. Specifically, the forecasted revenue, revenue growth rates, and the discount rate assumptions used in the assessment of the fair value of Quest required 49 Table of Content subjective auditor judgment as they are sensitive to variation based on future market and economic conditions and could have an effect on the Company’s determination of the impairment charge. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment process. This included controls related to the determination of the forecasted revenue, revenue growth rates, and discount rate assumptions used to determine the fair value of Quest. To assess the Company’s ability to accurately forecast, we compared the Company’s historical forecasted revenue and revenue growth rates related to Quest to actual results. We performed sensitivity analyses related to forecasted revenue assumptions to assess the impact of changes in those assumptions on the Company’s determination of fair value. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data. Assessment of the Company’s ability to continue as a going concern As discussed in Note 1 to the consolidated financial statements, the Company prepares its consolidated financial statements on a going concern basis. The Company has incurred recurring operating losses as a result of the COVID-19 pandemic, related economic repercussions, and difficult market conditions. The Company has incurred losses of $186 million for the year ended December 31, 2021 and presented an accumulated deficit of $375 million as of December 31, 2021. Management evaluated the Company’s liquidity within one year after the date of issuance of the consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In the preparation of the liquidity assessment, management applied judgment to estimate the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, and (iii) excess availability levels under the Company’s existing debt arrangements. The cash flow projections were based on known or planned cash requirements for operating and financing costs. Management believes, based on the Company’s forecast, that current working capital and capital expenditure financing is sufficient to fund operations and satisfy the Company’s obligations as they come due within one year after the date of issuance of the consolidated financial statements. We identified the assessment of the Company’s ability to continue as a going concern and related disclosures as a critical audit matter. There was a high degree of subjectivity and significant auditor judgment involved in assessing management’s cash flow forecast, specifically forecasted revenue and operating costs, and excess availability levels under the Company’s existing debt arrangements due to the uncertainty in the estimate of cash inflows and outflows. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to management’s assessment of the Company’s ability to continue as a going concern, including controls related to the cash flow forecast and review of excess availability levels under the Company’s existing debt arrangements. We assessed management’s ability to forecast revenue and operating costs by comparing prior years’ forecasts to actual results. We performed sensitivity analyses over management’s forecasted revenue and operating costs used in the cash flow forecast and excess availability levels under various scenarios to assess the impact of changes in those assumptions on the Company’s assessment of its ability to continue as a going concern. We compared management’s forecasts to the actual results of operations and excess availability levels for the available period after year-end. We examined the related debt agreements to identify terms that may impact availability of funds. We assessed the adequacy of the disclosures related to the application of the going concern assessment. /s/ KPMG LLP We have served as the Company’s auditor since 2002. Houston, Texas March 16, 2022 50 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 65,315 $ 24,586 Receivables, net of allowance of $ 8,912 and $ 9,918 188,772 194,066 Inventory 35,754 36,854 Income tax receivable 3,349 1,474 Prepaid expenses and other current assets 59,868 26,752 Total current assets 353,058 283,732 Property, plant and equipment, net 161,359 170,309 Intangible assets, net of accumulated amortization of $ 124,197 and $ 111,318 89,898 103,282 Operating lease right-of-use assets 60,700 63,869 Goodwill 25,243 91,351 Defined benefit pension asset 2,902 — Other assets, net 10,533 11,642 Deferred income taxes 792 6,790 Total assets $ 704,485 $ 730,975 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt and finance lease obligations $ 669 $ 337 Current portion of operating lease obligations 16,176 17,375 Accounts payable 46,181 42,148 Other accrued liabilities 121,099 73,144 Total current liabilities 184,125 133,004 Deferred income taxes 4,185 4,375 Long-term debt and finance lease obligations 405,191 312,159 Operating lease obligations 49,221 52,207 Defined benefit pension liability — 5,282 Other long-term liabilities 9,896 9,345 Total liabilities 652,618 516,372 Commitments and contingencies Equity: Preferred stock, 500,000 shares authorized, no ne issued — — Common stock, par value $ 0.30 per share, 60,000,000 shares authorized; 31,214,714 and 30,874,437 shares issued 9,359 9,257 Additional paid-in capital 444,824 422,589 Accumulated deficit ( 375,584 ) ( 189,565 ) Accumulated other comprehensive loss ( 26,732 ) ( 27,678 ) Total equity 51,867 214,603 Total liabilities and equity $ 704,485 $ 730,975 See accompanying notes to consolidated financial statements. 51 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Twelve Months Ended December 31, 2021 2020 2019 Revenues $ 874,553 $ 852,539 $ 1,163,314 Operating expenses 660,118 613,828 835,570 Gross margin 214,435 238,711 327,744 Selling, general and administrative expenses 272,869 260,920 328,214 Restructuring and other related charges, net (see Note 17) 2,916 3,365 1,676 Goodwill impairment charge (see Note 8) 64,632 191,788 — Operating loss ( 125,982 ) ( 217,362 ) ( 2,146 ) Interest expense, net ( 46,308 ) ( 29,818 ) ( 29,713 ) Loss on warrants ( 59 ) — — Loss on debt extinguishment and modification — ( 2,224 ) ( 279 ) Other income (expense), net ( 2,461 ) ( 2,514 ) ( 715 ) Loss before income taxes ( 174,810 ) ( 251,918 ) ( 32,853 ) Benefit (provision) for income taxes (see Note 10) ( 11,209 ) 14,715 436 Net loss $ ( 186,019 ) $ ( 237,203 ) $ ( 32,417 ) Loss per common share: Basic and Diluted $ ( 6.01 ) $ ( 7.74 ) $ ( 1.07 ) See accompanying notes to consolidated financial statements. 52 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Twelve Months Ended December 31, 2021 2020 2019 Net loss $ ( 186,019 ) $ ( 237,203 ) $ ( 32,417 ) Other comprehensive income (loss) before tax: Foreign currency translation adjustment ( 2,213 ) 3,697 3,865 Foreign currency hedge — ( 1,198 ) 282 Defined benefit pension plans: Net actuarial gain (loss) arising during period 4,048 — ( 421 ) Settlement cost during period 67 — 226 Amortization of prior service cost 33 — 33 Other comprehensive income (loss), before tax 1,935 2,499 3,985 Tax (provision) benefit attributable to other comprehensive income (loss) ( 989 ) 13 217 Other comprehensive income (loss), net of tax 946 2,512 4,202 Total comprehensive loss $ ( 185,073 ) $ ( 234,691 ) $ ( 28,215 ) See accompanying notes to consolidated financial statements. 53 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands) Common Shares Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance at December 31, 2018 30,184 9,053 $ 400,989 $ 81,450 $ ( 34,392 ) $ 457,100 Adoption of new accounting principles, net of tax — — — ( 360 ) — ( 360 ) Net loss — — — ( 32,417 ) — ( 32,417 ) Foreign currency translation adjustment, net of tax — — — — 4,258 4,258 Foreign currency hedge, net of tax — — — — 213 213 Defined benefit pension plans, net of tax — — — — ( 269 ) ( 269 ) Non-cash compensation — — 10,055 — — 10,055 Net settlement of vested stock awards 335 100 ( 2,010 ) — — ( 1,910 ) Balance at December 31, 2019 30,519 9,153 $ 409,034 $ 48,673 $ ( 30,190 ) $ 436,670 Adoption of new accounting principles, net of tax — — — ( 1,035 ) — ( 1,035 ) Net loss — — — ( 237,203 ) — ( 237,203 ) Foreign currency translation adjustment, net of tax — — 2 — 3,357 3,359 Foreign currency hedge, net of tax — — — — ( 904 ) ( 904 ) Defined benefit pension plans, net of tax — — — — 59 59 Non-cash compensation — — 6,307 — — 6,307 Net settlement of vested stock awards 355 104 ( 1,093 ) — — ( 989 ) Extinguishment of convertible debt — — ( 14,044 ) — — ( 14,044 ) Issuance of warrant, net — — 22,383 — — 22,383 Balance at December 31, 2020 30,874 9,257 $ 422,589 $ ( 189,565 ) $ ( 27,678 ) $ 214,603 Net loss — — — ( 186,019 ) — ( 186,019 ) Foreign currency translation adjustment, net of tax — — — — ( 2,214 ) ( 2,214 ) Defined benefit pension plans, net of tax — — — — 3,160 3,160 Non-cash compensation — — 7,013 — — 7,013 Net settlement of vested stock awards 340 102 ( 342 ) — — ( 240 ) Issuance of warrant, net — — 15,564 — — 15,564 Balance at December 31, 2021 31,214 9,359 $ 444,824 $ ( 375,584 ) $ ( 26,732 ) $ 51,867 See accompanying notes to consolidated financial statements. 54 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Twelve Months Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 186,019 ) $ ( 237,203 ) $ ( 32,417 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 41,518 45,908 49,059 Loss on debt extinguishment and modification 415 2,224 279 Loss on Warrants 59 — — Amortization of debt issuance costs and debt discounts 13,784 8,829 7,695 Allowance for credit losses 1,943 1,612 ( 2,573 ) Foreign currency loss 5,674 2,758 494 Deferred income taxes 4,521 ( 3,974 ) 3,795 (Gain) loss on asset disposal ( 2,981 ) 1,161 ( 187 ) Goodwill impairment charges 64,632 191,788 — Non-cash compensation cost 7,013 6,307 10,055 Other, net ( 4,844 ) ( 3,994 ) ( 2,409 ) Changes in operating assets and liabilities: Accounts receivable 700 46,147 27,194 Inventory 528 2,702 9,551 Prepaid expenses and other current assets 4,190 ( 210 ) 494 Accounts payable 1,178 3,782 ( 5,356 ) Other accrued liabilities 11,631 ( 12,798 ) ( 8,378 ) Income taxes 605 ( 2,275 ) 1,540 Net cash (used in) provided by operating activities ( 35,453 ) 52,764 58,836 Cash flows from investing activities: Capital expenditures 1 ( 17,605 ) ( 19,958 ) ( 29,035 ) Business acquisitions, net of cash acquired — ( 1,013 ) — Proceeds from disposal of assets 3,528 2,645 934 Other — 25 — Net cash used in investing activities ( 14,077 ) ( 18,301 ) ( 28,101 ) Cash flows from financing activities: Net payments under Credit Facility revolver — ( 76,638 ) ( 82,396 ) Borrowings under ABL Facility, net 62,000 — — Borrowings under ABL Facility, gross 128,000 44,000 — Payments under ABL Facility, gross ( 137,000 ) ( 35,000 ) — Net borrowings under Subordinated Term Loan 50,000 — — Borrowings (payments) under Credit Facility term loan, net of debt discount — ( 50,000 ) 49,745 Borrowings under Term Loan, net of discount — 242,500 — Repurchase of convertible debt — ( 135,501 ) — Contingent consideration payments — — ( 428 ) Payments for debt issuance costs ( 10,457 ) ( 9,113 ) ( 1,524 ) Taxes paid related to net share settlement of share-based awards ( 240 ) ( 990 ) ( 1,911 ) Payments for debt extinguishment and equity reacquisition costs — ( 2,447 ) — Other ( 453 ) ( 272 ) ( 291 ) Net cash provided by (used in) financing activities 91,850 ( 23,461 ) ( 36,805 ) Effect of exchange rate changes on cash ( 1,591 ) 1,409 ( 43 ) Net increase (decrease) in cash and cash equivalents 40,729 12,411 ( 6,113 ) Cash and cash equivalents at beginning of period 24,586 12,175 18,288 Cash and cash equivalents at end of period $ 65,315 $ 24,586 $ 12,175 Supplemental disclosure of cash flow information: Cash paid (refunded) during the year for: Interest $ 28,176 $ 23,623 $ 22,697 Income taxes $ 5,829 $ ( 9,996 ) $ ( 3,536 ) _____________ 1 Excludes accrued capital expenditures for the years ended December 31, 2021, 2020 and 2019. See accompanying notes to consolidated financial statements. 55 Table of Content 56 Table of Content TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES Description of Business. Unless otherwise indicated, the terms “we”, “our” and “us” are used in this report to refer to either Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. We are a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability, and operational efficiency for our clients’ most critical assets. We conduct operations in three segments: Inspection and Heat Treating (“IHT”), Mechanical Services (“MS”) and Quest Integrity. Through the capabilities and resources in these three segments, we believe that we are uniquely qualified to provide integrated solutions involving: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that we are unique in our ability to provide services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services, and (iii) nested or run-and-maintain services. IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities. IHT also provides advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services. MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. Our onstream services include our range of standard to custom-engineered leak repair and composite solutions; emissions control and compliance; hot tapping and line stopping; and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. These critical services include on-site field machining; bolted-joint integrity; vapor barrier plug testing; and valve management solutions. Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass three broadly-defined disciplines: (1) highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; and (2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support. We market our services to companies in a diverse array of heavy industries which include: • Energy (refining, power, renewables, nuclear and liquefied natural gas); • Manufacturing and Process (chemical, petrochemical, pulp and paper industries, manufacturing, automotive and mining); • Midstream and Others (valves, terminals and storage, pipeline and offshore oil and gas); • Public Infrastructure (amusement parks, bridges, ports, construction and building, roads, dams, and railways); and • Aerospace and Defense. Recent Financing Transactions. On February 11, 2022, we entered into a credit agreement with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (“Eclipse”) (such agreement, the “ABL Credit Agreement”). Available funding commitments to the Company under the ABL Credit Facility, subject to certain conditions, include a revolving credit line in an amount of up to $ 130.0 million to be provided by certain affiliates of Eclipse (the “Revolving Credit Loans”), with a $ 35.0 million sublimit for swingline borrowings and a $ 26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $ 35.0 million (the “Delayed Draw Term Loans”) to be provided by Corre (as defined below). The ABL Credit Facility matures and all outstanding amounts become due 57 Table of Content and payable on February 11, 2025, however, if our Notes, which mature on August 1, 2023, have an aggregate principal amount of $ 10 million or more outstanding 120 days prior to their maturity date (the “Trigger Date”), the ABL Credit Facility will be terminated as of the Trigger Date. The proceeds of the loans under the ABL Credit Agreement were used to, among other things, pay off the amounts owed under the existing credit agreement (as defined in Note 11 - Long-Term Debt) dated as of December 18, 2020 (as amended from time to time), among the Company, the lenders party thereto and Citibank, N.A. as agent, which was repaid and terminated in full on February 11, 2022. In connection with the transactions contemplated by the ABL Credit Agreement, Corre Partners Management, LLC and certain of its affiliates (collectively, “Corre”), agreed to provide the Company incremental financing (the “Incremental Financing”), totaling approximately $ 55.0 million, consisting of (i) $ 35.0 million Delayed Draw Term Loans under the ABL Credit Facility as discussed above; (ii) $ 10.0 million from Corre in the form of the February 2022 Delayed Draw Term Loan (as defined in the Subordinated Term Loan Credit Agreement (as defined below)) on a pari passu basis with the existing loans issued pursuant to the Subordinated Term Loan Credit Agreement; and (iii) $ 10.0 million through an issuance of 11,904,762 shares (the “PIPE Shares”) of our common stock, to Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon II Fund, LP (the “Corre Holders”) at a price of $ 0.84 per share (the “Equity Issuance”). Ongoing Effects of COVID-19. The impact of the COVID-19 pandemic continues to affect our workforce and operations, as well as the operations of our clients, suppliers, and contractors. During this period, we have continued to focus on the following key priorities: • the health and safety of our employees and business continuity; • the alignment of our business to the near term market dynamics and demand for our services; and • our end market revenue diversification strategy. The ultimate duration and economic impact of the COVID-19 pandemic remains unclear. However, we believe the increased availability and administration of COVID-19 vaccines, easing of pandemic related restrictions, reopening of economies, and increasing commodity prices are positive signs of broader economic recovery. The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), impact of the new COVID-19 variants and the continued rollout and acceptance of COVID-19 vaccines, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. Under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), we qualified to defer the employer portion of social security taxes incurred through the end of calendar 2020. As of December 31, 2021, we have deferred employer payroll taxes of $ 14.1 million. We paid $ 7.0 million of the deferred payroll taxes in January 2022 with the remaining balance due at the end of 2022. Additionally, other governments in jurisdictions where we operate passed legislation to provide employers with relief programs, which include wage subsidy grants and deferral of certain payroll related expenses and tax payments and other benefits. We elected to treat qualified government subsidies from Canada and other governments as offsets to the related expenses. As a result, we recognized $ 6.2 million and $ 1.5 million as a reduction to operating expenses and selling, general and administrative expenses, respectively, during the twelve months ended December 31, 2021. As of December 31, 2021, we also deferred certain payroll related expenses and tax payments of $ 3.2 million under other foreign government programs which will be due starting in 2022. Consolidation. The consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies. All material intercompany accounts and transactions have been eliminated in consolidation. Related Party Transactions. A related party transaction is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the Company or any of its subsidiaries is a participant, and (2) any Related Party (as defined herein) has or will have a direct or indirect material interest. A Related Party is any person who is, or, at any time since the beginning of the Company’s last fiscal year, was (1) an executive officer, director or nominee for election as a director of the Company or any of its subsidiaries, (2) a person with greater than five percent (5%) beneficial interest in the Company, (3) an immediate family member of any of the individuals or entities identified in (1) or (2) of this paragraph, and (4) any firm, corporation or other entity in which any of the foregoing individuals or entities is employed or is a general partner or principal or in a similar position or in which such person or entity has a five percent (5%) or greater beneficial interest. Immediate family members includes a person’s spouse, parents, 58 Table of Content stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone residing in such person’s home, other than a tenant or employee. Going Concern. These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. We have suffered recurring operating losses related to the COVID-19 pandemic, related economic repercussions, and difficult market conditions and prior to the Recent Financing Transactions discussed below, the Company required additional liquidity to continue its operations over the next twelve months. During the year, revenues and margins continued to decline against forecast along with margin pressures from inflationary costs including labor, materials, and transportation resulting in further operating losses. As of December 31, 2021, we are in compliance with our debt covenants; however, our financial forecasts as of December 31, 2021 indicated insufficient cash flows from operations to address our near-term liquidity needs and maintain compliance with our debt covenants within one year following the date that our financial statements are issued. As discussed in Note 1 – Recent Financing Transactions, on February 11, 2022, the Company successfully closed on financing transactions that provided improved liquidity and runway to execute our business turnaround, support working capital needs and pursue potential strategic alternatives. Following the Recent Financing Transactions, we evaluated the Company’s liquidity within one year after the date of issuance of these consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, and (iii) excess availability level under the Company’s existing debt arrangements. The cash flow projections were based on known or planned cash requirements for operating and financing costs. We believe, based on the Company’s forecast, that current working capital and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants, and satisfy the Company’s obligations as they come due within one year after the date of issuance of these financial statements. While the Recent Financing Transactions provide us with additional funding to meet our near-term liquidity needs and included a waiver of our debt covenants through March 31, 2023, there can be no assurance that (i) our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen, or (ii) that we will generate adequate liquidity to fund our operations, or to satisfy the obligations under our convertible debt and potential acceleration of debt maturities that may become due on April 3, 2023 related to the Trigger Date. Use of estimates. Our accounting policies conform to Generally Accepted Accounting Principles (“GAAP”) in the United States. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect our reported financial position and results of operations. We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition, (2) valuation of acquisition related tangible and intangible assets and assessments of all long-lived assets for possible impairment, (3) estimating various factors used to accrue liabilities for workers’ compensation, auto, medical and general liability, (4) establishing an allowance for uncollectible accounts receivable, (5) estimating the useful lives of our assets, (6) assessing future tax exposure and the realization of tax assets, (7) selecting assumptions used in the measurement of costs and liabilities associated with defined benefit pension plans, (8) assessments of fair value and (9) managing our foreign currency risk in foreign operations. Our most significant accounting policies are described below. Fair value of financial instruments . As defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosur e (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are 59 Table of Content observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include those that are unobservable and of a highly subjective measure. Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair value of our ABL Facility and Term Loans (defined below) is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt. The fair value of our 5.00 % Convertible Senior Notes due 2023 (the “Notes”) as of December 31, 2021 and 2020 was $ 84.0 million and $ 91.9 million, respectively, (inclusive of the fair value of the conversion option) and are a “Level 2” measurement, determined based on the observed trading price of these instruments. For additional information regarding our ABL Facility, Atlantic Park Term Loan, Subordinated Term Loan and Notes, see Note 11- Long-Term Debt. Cash and cash equivalents . Cash and cash equivalents consist of all demand deposits and funds invested in highly liquid short-term investments with original maturities of three months or less. Inventory. Except for certain inventories that are valued based on weighted-average cost, we use the first-in, first-out method to value our inventory. Inventory includes material, labor, and certain fixed overhead costs. Inventory is stated at the lower of cost and net realizable value. Inventory quantities on hand are reviewed periodically and carrying cost is reduced to net realizable value for inventories for which their cost exceeds their utility. The cost of inventories consumed or products sold are included in operating expenses. Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the shorter of their respective useful life or the lease term. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets: Classification Useful Life Buildings 20 - 40 years Enterprise Resource Planning (“ERP”) System 15 years Leasehold improvements 2 - 15 years Machinery and equipment 2 - 12 years Furniture and fixtures 2 - 10 years Computers and computer software 2 - 5 years Automobiles 2 - 5 years Goodwill and intangible assets. We allocate the purchase price of acquired businesses to their identifiable tangible assets and liabilities, such as accounts receivable, inventory, property, plant and equipment, accounts payable and accrued liabilities. We also allocate a portion of the purchase price to identifiable intangible assets, such as client relationships, non-compete agreements, trade names, technology, and licenses. Allocations are based on estimated fair values of assets and liabilities. We use all available information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows. Certain estimates and judgments are required in the application of the fair value techniques, including estimates of future cash flows, selling prices, replacement costs, economic lives, and the selection of a discount rate, as well as the use of “Level 3” measurements as defined in ASC 820. Deferred taxes are recorded for any differences between the assigned values and tax bases of assets and liabilities. Estimated deferred taxes are based on available information concerning the tax bases of assets acquired and liabilities assumed and loss carryforwards at the acquisition date, although such estimates may change in the future as additional information becomes known. Any remaining excess of cost over allocated fair values is recorded as goodwill. We typically engage third-party valuation experts to assist in determining the fair values for both the identifiable tangible and intangible assets. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, could materially impact our results of operations. Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles—Goodwill and Other (“ASC 350”). Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in 60 Table of Content accordance with ASC 350. We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments. Each reporting unit has goodwill relating to past acquisitions. If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Our goodwill annual test date is December 1 of each year. Income taxes. We follow the guidance of ASC 740 Income Taxes (“ASC 740”), which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable or receivable and related tax expense or benefit together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be realized and, to the extent we believe it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available evidence to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes the reversal of existing taxable temporary differences, taxable income in prior carryback years if carryback is permitted by tax law, information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance and tax planning strategies. We regularly assess whether it is more likely than not that we will realize the deferred tax assets in the jurisdictions we operate in. Management believes future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize the deferred tax assets for which no valuation allowance has been established. Our valuation allowance primarily relates to net operating loss carryforwards. While we have considered these factors in assessing the need for additional valuation allowance, there is no assurance that additional valuation allowance would not need to be established in the future if information about future years change. Any changes in valuation allowance would impact our income tax provision and net income (loss) in the period in which such a determination is made. As of December 31, 2021, our deferred tax assets were $ 119.8 million, less a valuation allowance of $ 89.2 million. As of December 31, 2021, our deferred tax liabilities were $ 34.0 million. Significant judgment is required in assessing the timing and amounts of deductible and taxable items for tax purposes. In accordance with ASC 740-10, we establish reserves for uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that it is not more likely than not that the position will be sustained upon challenge. When facts and circumstances change, we adjust these reserves through our provision for income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense (benefit) in our consolidated statements of operations. As of December 31, 2021, our gross unrecognized tax benefits, excluding penalties and interest related to uncertain tax positions, were $ 1.3 million. Workers’ compensation, auto, medical and general liability accruals. In accordance with ASC 450 Contingencies (“ASC 450”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation, our self-insured retention is $ 1.0 million and our automobile liability self-insured retention is currently $ 1.0 million per occurrence. For general liability claims, we have an effective self-insured retention of $ 1.0 million and a deductible of $ 2.0 million per occurrence. For medical claims, our self-insured retention is $ 350,000 per individual claimant determined on an annual basis. For environmental liability claims, our self-insured retention is $ 1.0 million per occurrence. We maintain insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations, and exclusions that may not fully compensate us for all losses. Our estimates and judgments could change based on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts. Allowance for credit losses. In the ordinary course of business, a portion of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we performed and other various reasons. We 61 Table of Content establish an allowance to account for those accounts receivable that we estimate will eventually be deemed uncollectible. The allowance for credit losses is based on a combination of our historical experience and management’s review of long outstanding accounts receivable. Concentration of credit risk. No single customer accounts for more than 10% of consolidated revenues. Earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of share-based compensation using the treasury stock method and (3) the dilutive effect of the assumed conversion of our Notes under the treasury stock method. Our current intent is to settle the principal amount of our Notes in cash upon conversion. If the conversion value exceeds the principal amount, we may elect to deliver shares of our common stock with respect to the remainder of our conversion obligation in excess of the aggregate principal amount (the “conversion spread”). Accordingly, the conversion spread is included in the denominator for the computation of diluted earnings per common share using the treasury stock method and the numerator is adjusted for any recorded gain or loss, net of tax, on the embedded derivative associated with the conversion feature. Amounts used in basic and diluted loss per share, for all periods presented, are as follows (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Weighted-average number of basic shares outstanding 30,975 30,638 30,310 Stock options, stock units and performance awards — — — Convertible senior notes — — — Total shares and dilutive securities 30,975 30,638 30,310 For the years ended December 31, 2021, 2020 and 2019, all outstanding share-based compensation awards were excluded from the calculation of diluted loss per share because their inclusion would be antidilutive due to the loss from continuing operations in those periods. Also, the effect of our Notes was excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods. For information on our Notes and our share-based compensation awards, refer to Note 11 and Note 13, respectively. Non-cash investing and financing activities. Non-cash investing and financing activities are excluded from the consolidated statements of cash flows and are as follows (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Assets acquired under finance lease $ 1,016 $ 60 $ 326 Also, we had $ 4.1 million, $ 1.2 million, and $ 4.0 million of accrued capital expenditures as of December 31, 2021, 2020 and 2019, respectively, which are excluded from the consolidated statements of cash flows until paid. Foreign currency . For subsidiaries whose functional currency is not the U.S. Dollar, assets and liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction gains and losses are included in our statements of operations. We utilize monthly foreign currency swap contracts to reduce exposures to changes in foreign currency exchange rates related to our largest exposures including, but not limited to, the Australian Dollar, Canadian Dollar, Brazilian Real, British Pound, Euro, Malaysian Ringgit and Mexican Peso. The impact from these swap contracts were not material as of December 31, 2021 or 2020 or for the years ended December 31, 2021, 2020 and 2019. Defined benefit pension plans. Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, 62 Table of Content mortality rates and retirement rates. These rates are reviewed annually and adjusted to reflect current conditions. These rates are determined based on reference to yields. The expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense. Reclassifications. Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have any effect on our financial condition or results of operations as previously reported. Newly Adopted Accounting Standards ASU No. 2019-12. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , that simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes as well as clarifies aspects of existing guidance to promote more consistent application. ASU 2019-12 clarifies and amends existing guidance related to intraperiod tax allocation and calculations, recognition of deferred taxes for change in ownership group, evaluation of a step-up in the tax basis of goodwill and other clarifications. Our adoption of this ASU as of January 1, 2021 did not have a material impact to our financial statements. Accounting Standards Not Yet Adopted ASU No. 2020-04. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The guidance in ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848): Scope , which was issued in January 2021, provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. While we are currently determining whether we will elect the optional expedients, we do not expect our adoption of these ASU’s to have a significant impact on our consolidated financial position, results of operations, and cash flows. ASU No. 2020-06. In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating certain separation models and will generally be reported as a single liability at its amortized cost. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. We expect to adopt ASU 2020-06 beginning January 1, 2022, at which time we would utilize the if-converted method, which would require us to assume the Notes would be settled entirely in shares of common stock for purposes of calculating diluted earnings per share, if the effect would be dilutive. We are still evaluating the other impacts this ASU may have on our financial statements. 2. REVENUE In accordance with ASC Topic 606, Revenue from Contracts with Customers , (“ASC 606”), we follow a five-step process to recognize revenue: 1) identify the contract with the customer, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations and 5) recognize revenue when the performance obligations are satisfied. Most of our contracts with customers are short-term in nature and billed on a time and materials basis, while certain other contracts are at a fixed price. Certain contracts may contain a combination of fixed and variable elements. We act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors. Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties, such as taxes assessed by governmental authorities. Generally, in contracts where the amount of consideration is variable, the amount is determinable each period based on our right to invoice (as discussed further below) the customer for services performed to date. As most of our contracts contain only one performance obligation, the allocation of a contracts transaction price to multiple performance obligations is generally not applicable. Customers are generally billed as we satisfy our performance obligations and payment terms typically range from 30 to 90 days from the invoice date. Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may require 63 Table of Content advance customer payment. Our contracts do not include significant financing components since the contracts typically span less than one year. Contracts generally include an assurance type warranty clause to guarantee that the services comply with agreed specifications. The warranty period typically is twelve months or less from the date of service. Revenue is recognized as (or when) the performance obligations are satisfied by transferring control over a service or product to the customer. Revenue recognition guidance prescribes two recognition methods (over time or point in time). Most of our performance obligations qualify for recognition over time because we typically perform our services on customer facilities or assets and customers receive the benefits of our services as we perform. Where a performance obligation is satisfied over time, the related revenue is also recognized over time using the method deemed most appropriate to reflect the measure of progress and transfer of control. For our time and materials contracts, we are generally able to elect the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. For our fixed price contracts, we typically recognize revenue using the cost-to-cost method, which measures the extent of progress towards completion based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Under this method, revenue is recognized proportionately as costs are incurred. For contracts where control is transferred at a point in time, revenue is recognized at the time control of the asset is transferred to the customer, which is typically upon delivery and acceptance by the customer. Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands): Twelve Months Ended December 31, 2021 United States and Canada Other Countries Total Revenue: IHT $ 405,007 $ 10,364 $ 415,371 MS 256,806 122,020 378,826 Quest Integrity 47,511 32,845 80,356 Total $ 709,324 $ 165,229 $ 874,553 Twelve Months Ended December 31, 2020 United States and Canada Other Countries Total Revenue: IHT $ 365,847 $ 8,893 $ 374,740 MS 278,882 113,602 392,484 Quest Integrity 49,117 36,198 85,315 Total $ 693,846 $ 158,693 $ 852,539 Twelve Months Ended December 31, 2021 Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 325,204 $ 467 $ 59,855 $ 29,845 $ 415,371 MS — 374,885 806 3,135 378,826 Quest Integrity 80,356 — — — 80,356 Total $ 405,560 $ 375,352 $ 60,661 $ 32,980 $ 874,553 64 Table of Content Twelve Months Ended December 31, 2020 Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 294,838 $ 206 $ 50,220 $ 29,476 $ 374,740 MS — 388,313 1,088 3,083 392,484 Quest Integrity 85,315 — — — 85,315 Total $ 380,153 $ 388,519 $ 51,308 $ 32,559 $ 852,539 _________________ For additional information on our reportable operating segments and geographic information, refer to Note 15. Contract balances. The timing of revenue recognition, billings, and cash collections results in trade accounts receivable, contract assets and contract liabilities on the consolidated balance sheets. Trade accounts receivable include billed and unbilled amounts currently due from customers and represent unconditional rights to receive consideration. The amounts due are stated at their net estimated realizable value. Refer to Notes 1 and 3 for additional information on our trade receivables and the allowance for credit losses. Contract assets include unbilled amounts typically resulting from sales under fixed-price contracts when the cost-to-cost method of revenue recognition is utilized, the revenue recognized exceeds the amount billed to the customer and the right to payment is conditional on something other than the passage of time. Amounts may not exceed their net realizable value. If we receive advances or deposits from our customers, a contract liability is recorded. Additionally, a contract liability arises if items of variable consideration result in less revenue being recorded than what is billed. Contract assets and contract liabilities are generally classified as current. The following table provides information about trade accounts receivable, contract assets and contract liabilities as of December 31, 2021 and 2020 (in thousands): December 31, 2021 December 31, 2020 Trade accounts receivable, net 1 $ 188,772 $ 194,066 Contract assets 2 $ 1,602 $ 5,242 Contract liabilities 3 $ 313 $ 930 _________________ 1 Includes billed and unbilled amounts, net of allowance for credit losses. See Note 3 for details. 2 Included in the “Prepaid expenses and other current assets” line on the consolidated balance sheet. 3 Included in the “Other accrued liabilities” line of the consolidated balance sheet. The $ 0.6 million decrease in contract liabilities is due to our completion of performance obligations during the year ended December 31, 2021 associated with contracts under which customers had paid for all or a portion of the consideration in advance of the work being performed. Due to the short-term nature of our contracts, contract liability balances as of the end of any period are generally recognized as revenue in the following quarter. Accordingly, essentially all of the contract liability balance at December 31, 2020 was recognized as revenue during the year ended December 31, 2021. Contract costs. We recognize the incremental costs of obtaining contracts as selling, general and administrative expenses when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. Costs to fulfill a contract are recorded as assets if they relate directly to a contract or a specific anticipated contract, the costs to generate or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. Costs to fulfill recognized as assets primarily consist of labor and materials costs and generally relate to engineering and set-up costs incurred prior to the satisfaction of performance obligations begins. Assets recognized for costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the consolidated balance sheets and were not material as of December 31, 2021 and 2020. Such assets are recognized as expenses as we transfer the related goods or services to the customer. All other costs to fulfill a contract are expensed as incurred. Remaining performance obligations. As of December 31, 2021 and 2020, there were no material amounts of remaining performance obligations that are required to be disclosed. As permitted by ASC 606, we have elected not to disclose information about remaining performance obligations where i) the performance obligation is part of a contract that has an original expected duration of one year or less or ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient. 65 Table of Content 3. RECEIVABLES A summary of accounts receivable as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 2020 Trade accounts receivable $ 161,751 $ 157,513 Unbilled revenues 35,933 46,471 Allowance for credit losses ( 8,912 ) ( 9,918 ) Total $ 188,772 $ 194,066 ASC 326 applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses. Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts. For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate. We have identified the following factors that primarily impact the collectability of our receivables and therefore determine the pools utilized to calculate expected credit losses: (i) the aging of the receivable, (ii) any identification of known collectability concerns with specific receivables and (iii) variances in economic risk characteristics across geographic regions. For trade receivables, customers typically are provided with payment due date terms of 30 days upon issuance of an invoice. We have tracked historical loss information for our trade receivables and compiled historical credit loss percentages for different aging categories. We believe that the historical loss information we have compiled is a reasonable basis on which to determine expected credit losses for trade receivables because the composition of the trade receivables is consistent with that used in developing the historical credit-loss percentages as typically our customers and payment terms do not change significantly. Generally, a longer outstanding receivable equates to a higher percentage of the outstanding balance as current expected credit losses. We update the historical loss information for current conditions and reasonable and supportable forecasts that affect the expected collectability of the trade receivable using a loss-rate approach. We have not seen a negative trend in the current economic environment that significantly impacts our historical credit-loss percentages; however, we will continue to monitor for changes that would indicate the historical loss information is no longer a reasonable basis for the determination of our expected credit losses. Our forecasted loss rates inherently incorporate expected macroeconomic trends. A loss-rate method for estimating expected credit losses on a pooled basis is applied for each aging category for receivables that continue to exhibit similar risk characteristics. To measure expected credit losses for individual receivables with specific collectability risk, we identify specific factors based on customer-specific facts and circumstances that are unique to each customer. Customer accounts with different risk characteristics are separately identified and a specific reserve is determined for these accounts based on the assessed credit risk. We have also identified the following geographic regions in which to distinguish our trade receivables: the (i) United States, (ii) Canada, (iii) the European Union, (iv) the United Kingdom, and (v) other countries. These geographic regions are considered appropriate as they each operate in different economic environments with different foreign currencies, and therefore share similar economic risk characteristics. For each geographic region we evaluate the historical loss information and determine credit-loss percentages to apply to each aging category and individual receivable with specific risk characteristics. We estimate future expected credit losses based on forecasted changes in gross domestic product and oil demand for each region. We consider one year from the financial statement reporting date as representing a reasonable forecast period as this period aligns with the expected collectability of our trade receivables. Financial distress experienced by our customers could have an adverse impact on us in the event our customers are unable to remit payment for the products or services we provide or otherwise fulfill their obligations to us. In determining the current expected credit losses, we review macroeconomic conditions, market specific conditions, and internal forecasts to identify potential changes in our assessment. 66 Table of Content The following table shows a rollforward of the allowance for credit losses: Twelve Months Ended December 31, 2021 2020 2019 Balance at beginning of period $ 9,918 $ 9,990 $ 15,182 Adoption of account pronouncement ASC 326 1 — 1,410 — Provision for expected credit losses 2,193 1,612 ( 2,573 ) Write-offs ( 3,143 ) ( 3,193 ) ( 2,673 ) Foreign exchange effects ( 56 ) 99 54 Balance at end of period $ 8,912 $ 9,918 $ 9,990 _________________ 1 Due to the initial adoption of ASC 326 as of January 1, 2020. 4. INVENTORY A summary of inventory as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 2020 Raw materials $ 7,641 $ 7,395 Work in progress 2,725 2,890 Finished goods 25,388 26,569 Total $ 35,754 $ 36,854 5. PREPAID AND OTHER CURRENT ASSETS A summary of p repaid and other current assets as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 2020 Insurance receivable $ 39,000 $ — Prepaid expenses 12,645 12,936 Other current assets 8,223 13,816 Total $ 59,868 $ 26,752 The insurance receivable relates to the receivable from our third-party insurance providers for a legal claim that is recorded in other accrued liabilities, refer to Note 9. These receivables will be covered by our third-party insurance providers for a litigation matter that has been settled or are pending settlements where the deductibles have been satisfied. The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period. The other current assets primarily include items such as contract assets and other accounts receivables. 67 Table of Content 6. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 2020 Land $ 5,743 $ 5,805 Buildings and leasehold improvements 58,972 57,632 Machinery and equipment 306,366 302,886 Furniture and fixtures 11,642 11,450 Capitalized ERP system development costs 45,917 45,917 Computers and computer software 22,243 20,508 Automobiles 4,356 4,518 Construction in progress 16,565 8,329 Total 471,804 457,045 Accumulated depreciation and amortization ( 310,445 ) ( 286,736 ) Property, plant, and equipment, net $ 161,359 $ 170,309 Included in the table above are assets under finance leases of $ 6.7 million and $ 5.7 million and accumulated amortization of $ 1.6 million and $ 0.9 million as of December 31, 2021 and 2020, respectively. Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $ 27.6 million, $ 31.5 million and $ 34.4 million, respectively. 7. INTANGIBLE ASSETS A summary of intangible assets as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 175,156 $ ( 88,783 ) $ 86,373 Non-compete agreements 5,503 ( 5,503 ) — Trade names 24,743 ( 22,252 ) 2,491 Technology 7,843 ( 6,885 ) 958 Licenses 850 ( 774 ) 76 Total $ 214,095 $ ( 124,197 ) $ 89,898 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 175,418 $ ( 76,541 ) $ 98,877 Non-compete agreements 5,569 ( 5,569 ) — Trade names 24,870 ( 21,794 ) 3,076 Technology 7,879 ( 6,691 ) 1,188 Licenses 864 ( 723 ) 141 Total $ 214,600 $ ( 111,318 ) $ 103,282 Amortization expense on intangible assets for the years ended December 31, 2021, 2020 and 2019 was $ 13.9 million, $ 14.0 million and $ 14.3 million, respectively. Amortization expense for intangible assets is forecast to be approximately $ 13 million per year from 2022 through 2025. 68 Table of Content The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of December 31, 2021. The weighted-average amortization period as of December 31, 2021 is 13.7 years for customer relationships, 5.0 years for non-compete agreements, 15.6 years for trade names, 10.0 years for technology and 10.5 years for licenses. 8. GOODWILL AND IMPAIRMENT CHARGES Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles-Goodwill and Other (“ASC 350”). Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 350. We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments. If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. We test for impairment of our reporting units annually on December 1, and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired. We performed our annual impairment test as of December 1, 2020 and concluded that there was no impairment based upon a qualitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair values of the reporting units were less than their respective carrying values as of the reporting date. As a result of forecasted revenue and earnings declines and sustained declines in our stock price through September 30, 2021, we determined that a triggering event had occurred as it was more likely than not that the carrying values of our reporting units exceeded their fair values. Our revenue growth and profitability are influenced by several industry trend factors, including end markets capital spending levels, supply and demand levels and technology. With oil prices and demand increasing, refiners (represents approximately 40 % of our customers) are recovering; however, as capital expenditures have not fully recovered resulting in lower current activity and pricing pressure for our products and services, primarily in our IHT and MS reporting units, accordingly, we performed a quantitative assessment of the fair value of goodwill as of September 30, 2021. We determined the fair value for each reporting unit in our goodwill impairment assessment using both a discounted cash flow analysis and a multiples-based market approach for comparable companies. We utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including short-term and long-term forecast of operating performance, discount rates based on our weighted average cost of capital, revenue growth rates, profitability margins, capital expenditures and the timing of future cash flows. These impairment assessments incorporate inherent uncertainties, including supply and demand for our services, utilization forecasts, pricing forecasts and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the assumptions utilized in our forecasts. Based upon our impairment assessment, we determined the carrying amount of our MS reporting unit exceeded the fair value. As a result, we recorded $ 55.8 million in goodwill impairment charges on our MS reporting unit during the three months ended September 30, 2021. The fair value of the Quest Integrity reporting unit exceeded its carrying value at September 30, 2021. Our IHT reporting unit has no goodwill associated as it was determined to be fully impaired on March 31, 2020. For our annual goodwill impairment test as of December 1, 2021, we elected to perform a quantitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit was less than its carrying value as of the test date. Based on the quantitative assessment, we concluded that the carrying amount of our Quest Integrity reporting unit exceeded the fair value. As a result, we recorded $ 8.8 million in goodwill impairment charges on our Quest Integrity reporting unit during the three months ended December 31, 2021. We will continue to evaluate our goodwill and long-lived assets for potential triggering events as conditions warrant. 69 Table of Content There was $ 25.2 million and $ 91.4 million of goodwill at December 31, 2021 and 2020, respectively. A summary of goodwill is as follows (in thousands): IHT MS Quest Integrity Consolidated Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net Balance at December 31, 2019 $ 214,356 $ ( 21,140 ) $ 193,216 $ 109,510 $ ( 54,101 ) $ 55,409 $ 33,381 $ — $ 33,381 $ 357,247 $ ( 75,241 ) $ 282,006 FX Adjustments ( 1,428 ) — ( 1,428 ) 1,211 — 1,211 854 — 854 637 — 637 Impairment charge — ( 191,788 ) ( 191,788 ) — — — — — — — ( 191,788 ) ( 191,788 ) Additions — — — — — — 496 — 496 496 — 496 Balance at December 31, 2020 $ 212,928 $ ( 212,928 ) $ — $ 110,721 $ ( 54,101 ) $ 56,620 $ 34,731 $ — $ 34,731 $ 358,380 $ ( 267,029 ) $ 91,351 FX Adjustments — — — ( 783 ) — ( 783 ) ( 693 ) — ( 693 ) ( 1,476 ) — ( 1,476 ) Impairment charge — — — — ( 55,837 ) ( 55,837 ) — ( 8,795 ) ( 8,795 ) — ( 64,632 ) ( 64,632 ) Additions — — — — — — — — — — — — Balance at December 31, 2021 $ 212,928 $ ( 212,928 ) $ — $ 109,938 $ ( 109,938 ) $ — $ 34,038 $ ( 8,795 ) $ 25,243 $ 356,904 $ ( 331,661 ) $ 25,243 9. OTHER ACCRUED LIABILITIES A summary of other accrued liabilities as of December 31, 2021 and 2020 is as follows (in thousands): December 31, 2021 2020 Payroll and other compensation expenses $ 44,284 $ 42,668 Legal and professional accruals 46,762 4,135 Insurance accruals 7,314 6,659 Property, sales and other non-income related taxes 8,018 8,722 Accrued commission 1,111 1,048 Accrued interest 6,469 2,437 Other 7,141 7,475 Total $ 121,099 $ 73,144 Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims, refer to Note 15. Certain legal claims are covered by insurance and the related insurance receivable for these claims is recorded in prepaid expenses and other current assets, refer to Note 5. Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses. Insurance accruals primarily relate to accrued medical and workers compensation costs. Property, sales and other non-income related taxes includes accruals for items such as sales and use tax, property tax and other related tax accruals. Accrued interest relates to the interest accrued on our long-term debt. Other accrued liabilities includes items such as contract liabilities and other accrued expenses. 70 Table of Content 10. INCOME TAXES For the year ended December 31, 2021, our income tax provision resulted in an effective tax rate of 6.4 %. For the years ended December 31, 2020 and 2019, our income tax benefit on the loss from continuing operations resulted in an effective tax rate of 5.8 % and 1.3 %, respectively. Our income tax provision for the year ended December 31, 2021 was $ 11.2 million, and an income tax benefit for December 31, 2020 and 2019 was $ 14.7 million and $ 0.4 million, respectively, and includes federal, state and foreign taxes. The components of our tax provision and benefit on continuing operations were as follows (in thousands): Current Deferred Total Twelve months ended December 31, 2021: U.S. Federal $ 1,460 $ ( 1,115 ) $ 345 State & local 590 150 740 Foreign jurisdictions 4,350 5,774 10,124 $ 6,400 $ 4,809 $ 11,209 Twelve months ended December 31, 2020: U.S. Federal $ ( 14,853 ) $ ( 1,228 ) $ ( 16,081 ) State & local 1,113 ( 1,010 ) 103 Foreign jurisdictions 2,942 ( 1,679 ) 1,263 $ ( 10,798 ) $ ( 3,917 ) $ ( 14,715 ) Twelve months ended December 31, 2019: U.S. Federal $ ( 105 ) $ ( 4,349 ) $ ( 4,454 ) State & local 519 ( 1,230 ) ( 711 ) Foreign jurisdictions 2,340 2,389 4,729 $ 2,754 $ ( 3,190 ) $ ( 436 ) The components of pre-tax income (loss) from continuing operations for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Domestic $ ( 157,778 ) $ ( 240,064 ) $ ( 34,720 ) Foreign ( 17,032 ) ( 11,854 ) 1,867 $ ( 174,810 ) $ ( 251,918 ) $ ( 32,853 ) 71 Table of Content The income tax provision in 2021 and benefit in 2020 and 2019 attributable to the loss from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate ( 21 % in 2021, 2020 and 2019) to pre-tax loss from continuing operations as a result of the following (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Pre-tax loss from continuing operations $ ( 174,810 ) $ ( 251,918 ) $ ( 32,853 ) Computed income taxes at statutory rate ( 36,710 ) ( 52,903 ) ( 6,899 ) State income taxes, net of federal benefit 561 ( 114 ) ( 820 ) Foreign tax rate differential 613 404 ( 300 ) Non-cash compensation 842 926 323 Deferred taxes on investment in foreign subsidiaries ( 1,939 ) 525 18 Non-deductible expenses 767 518 658 Non-deductible compensation ( 522 ) 89 559 Foreign withholding 1,708 1,063 670 Prior year tax adjustments 993 707 954 Convertible debt — ( 2,949 ) — Goodwill impairment 9,892 12,586 — Valuation allowance 34,284 32,957 3,682 Cares Act rate benefit — ( 7,267 ) — Rate change ( 186 ) ( 551 ) 684 Other 906 ( 706 ) 35 Total expense (benefit) for income tax on continuing operations $ 11,209 $ ( 14,715 ) $ ( 436 ) _____________ 72 Table of Content The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands): December 31, 2021 2020 Deferred tax assets: Accrued compensation and benefits $ 7,831 $ 9,058 Receivables 1,345 1,551 Inventory 316 336 Share based compensation 271 256 Other accrued liabilities 3,467 2,109 Tax credit carry forward 3,613 3,642 Interest expense limitation 22,312 7,040 Goodwill and intangible costs 9,221 6,754 Net operating loss carry forwards 68,972 58,759 Other 2,428 1,013 Deferred tax assets 119,776 90,518 Less: Valuation allowance ( 89,191 ) ( 53,417 ) Deferred tax assets, net 30,585 37,101 Deferred tax liabilities: Property, plant and equipment ( 20,267 ) ( 23,783 ) Unremitted earnings of foreign subsidiaries ( 3,944 ) ( 5,918 ) Convertible debt ( 7,359 ) ( 1,755 ) Other ( 2,408 ) ( 3,230 ) Deferred tax liabilities ( 33,978 ) ( 34,686 ) Net deferred tax asset (liability) $ ( 3,393 ) $ 2,415 Management evaluates all available evidence, both positive and negative, to determine whether sufficient future taxable income will be generated to allow for the realization of the existing deferred tax assets. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. A significant factor of negative evidence evaluated was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2021. This objective evidence limits the ability to consider other subjective positive evidence, such as our projections for future pre-tax income. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $ 89.2 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. This valuation allowance relates primarily to the deferred tax assets for federal, foreign and state tax net operating loss carryforwards. The amount of deferred tax asset considered realizable could be adjusted if there are changes to net operating loss carryforward periods or there is a change to the weight assessed on various sources of positive and negative evidence. The current year increase in the valuation allowance is primarily attributable to our U.S. operations. In the previous quarter, we did record a significant increase in the valuation allowance on certain foreign subsidiaries that historically were profitable. In the current quarter, we were able to release $ 0.9 million of valuation allowance based on all available evidence, including forecasted income for these entities. The release of the valuation allowance is primarily attributable to our UK, Germany and Canada subsidiaries. At December 31, 2021, we had net operating loss carryforwards for U.S. federal income tax purposes of $ 221.9 million. Of this amount, $ 96.2 million expires in various dates through 2037 and $ 125.7 million has an indefinite carryforward period. These carryforwards are available, subject to certain limitations, to offset future taxable income. Further, we have state net operating loss carryforwards of $ 212.7 million with $ 178.9 million expiring on various dates through 2041 and $ 33.8 million with an indefinite carryforward period. 73 Table of Content As of December 31, 2021, we had interest expense carryforward for U.S. income tax purposes of $ 92.7 million. The entire $92.7 million has an indefinite carryforward period. These carryforwards are available, subject to certain limitations, to offset future taxable income. The Company has $ 3.3 million of tax credits that will expire on various dates through 2037 if not utilized. As of December 31, 2021, we had foreign net operating loss carryforwards totaling $ 37.9 million. Of this amount, $ 4.4 million will expire in various dates through 2030 and $ 33.5 million has an unlimited carryforward period. At December 31, 2021, none of our undistributed earnings of foreign operations were considered to be permanently reinvested overseas. As of December 31, 2021, the deferred tax liability related to undistributed earnings of foreign subsidiaries was $ 3.9 million. As of December 31, 2021, $ 1.9 million of unrecognized tax benefits would affect our effective tax rate. We estimate the uncertain tax benefits that may be recognized within the next twelve months will not be material. Our policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. We file income tax returns in the U.S. federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. Federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2016. We are currently under audit in one of the states in which we do substantial business. We have recorded a $ 0.5 million tax liability in our uncertain positions related to this audit due to retroactive changes included in final regulations issued by the state this quarter. Certain Netherlands entities are also under audit. We do not anticipate any material adjustments related to these examinations. Periodic examinations of our tax filings occur by the taxing authorities for the jurisdictions in which we conduct business. These examinations review the significant positions taken on our returns, including the timing and amount of income and deductions reported, as well as the allocation of income among multiple taxing jurisdictions. We do not expect any material adjustments to result from positions taken on our income tax returns. The following table summarizes the Company’s reconciliation of gross unrecognized tax benefits, excluding penalties and interest, for the year ended December 31, 2021, 2020 and 2019 (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Unrecognized tax benefits - January 1 $ 1,610 $ 1,547 $ 1,749 Additions based on current year tax positions — 7 — Additions based on tax positions related to prior years 543 89 227 Reductions based on tax positions related to prior years ( 415 ) Settlements — — — Reductions resulting from a lapse of the applicable statute of limitations ( 868 ) ( 33 ) ( 14 ) Unrecognized tax benefits - December 31 $ 1,285 $ 1,610 $ 1,547 _____________ We have recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2021, 2020 and 2019, the total amount of accrued interest and penalties related to unrecognized tax benefits was $ 0.6 million, $ 0.4 million and $ 0.3 million, respectively. There were approximately $ 0.2 million, $ 0.1 million and $( 0.1 ) million, respectively, of interest and penalties related to unrecognized tax benefits that are recorded in income tax expense for the periods ended December 31, 2021, 2020 and 2019. 74 Table of Content 11. LONG-TERM DEBT As of December 31, 2021 and 2020, our long-term debt and finance lease obligations are summarized as follows (in thousands): December 31, 2021 2020 ABL Facility $ 62,000 $ 9,000 Term Loan 214,191 213,809 Subordinated Term Loan 36,358 — Total 312,549 222,809 Convertible Debt 1 87,662 84,534 Finance lease obligations 5,649 5,153 Total debt and finance lease obligations 405,860 312,496 Current portion of long-term debt and finance lease obligations ( 669 ) ( 337 ) Total long-term debt and finance lease obligations, less current portion $ 405,191 $ 312,159 _________________ 1 Comprised of principal amount outstanding, less unamortized discount and issuance costs. See Convertible Debt section below for additional information. Future contractual maturities of long-term debt, excluding finance leases, are as follows (in thousands): December 31 2022 $ — 2023 93,130 2024 62,000 2025 — 2026 300,215 Thereafter — Total $ 455,345 For information on our finance lease obligations, see footnote 12. ABL Facility On December 18, 2020, we entered into an asset-based credit agreement (such agreement, as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) led by Citibank, N.A. (“Citibank”), as agent, which provides for available borrowings up to $ 150 million (the “ABL Facility”). The ABL Facility matures and all outstanding amounts become due and payable on December 18, 2024. However, if our Notes, which mature on August 1, 2023, have an aggregate principal amount of $ 10 million (updated from $ 50.0 million to $ 10.0 million as part of the Third Amendment to the Term Loan) or more outstanding 120 days prior to their maturity date (the “Trigger Date”), or if there are Notes in an aggregate principal amount of less than $ 10 million outstanding and we do not have sufficient availability of more than 20 % under the ABL Facility on the Trigger Date, the ABL Facility will terminate on the Trigger Date. The ABL Facility includes a $ 50 million sublimit for letters of credit issuance and $ 35 million sublimit for swingline borrowings. Additionally, subject to certain conditions, including obtaining additional commitments, the ABL Facility may be increased by an amount not to exceed $ 50 million. 75 Table of Content On December 7, 2021, the Company entered into Amendment No. 2 (the “ABL Amendment No. 2”) to the Credit Agreement. ABL Amendment No. 2, among other things, (i) revises the applicable margin to 4.25 % for LIBOR rate advances, (ii) provides that at all times beginning on the effective date of the ABL Amendment No. 2 and ending on the date Citibank shall have received and approved the borrowing base certificate for the calendar month ending December 31, 2021, the borrowing base shall not exceed the lesser of (a) the borrowing base calculated as set forth in the borrowing base certificate for the calendar month ending December 31, 2021 and (b) $ 108,500,000 , (iii) establishes an interest reserve account for certain payments due under the Term Loan Credit Agreement, (iv) provides that after giving effect to any borrowing and any disbursements to be made by the Company with the proceeds of such borrowing, within one business day of such borrowing, the Company and its U.S. subsidiaries may not have more than $ 5 million cash on hand, (v) provides for weekly variance testing to be delivered to Citibank, (vi) requires the Company to have used all of the proceeds borrowed under the Subordinated Term Loan Credit Agreement prior to borrowing under the Credit Agreement, and (vii) increases the amount of subordinated debt available to be incurred by the Company to account for (a) the additional $ 27.5 million borrowed under the Subordinated Term Loan Credit Agreement, (b) any additional amount borrowed under the Subordinated Term Loan Credit Agreement not to exceed $ 75 million in the aggregate, and (c) the payment of interest in the form of payment-in-kind interest with respect to the Initial Term Loans (as defined in the Subordinated Term Loan Credit Agreement). Our obligations under the ABL Facility are guaranteed by certain of our direct and indirect subsidiaries, as set forth in the ABL Facility agreement. The ABL Facility is secured on a first priority basis by, among other things, our accounts receivable, deposit accounts, securities accounts and inventory, including those of our direct and indirect subsidiary guarantors, and on a second priority basis by substantially all other assets of our direct and indirect subsidiary guarantors. Borrowing availability under the ABL Facility is based on a percentage of the value of accounts receivable and inventory, reduced for certain reserves. 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”) or a LIBOR rate, plus an applicable margin. The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) the federal funds rate plus 0.50 %, (ii) Citibank’s prime rate, and (iii) the one-month LIBOR rate plus 1.00 %. The applicable margin for LIBOR borrowings is 4.25 % and for Base Rate borrowings is 3.25 %. The all-in Base Rate floor is 1.75 % and for LIBOR rate borrowings, the LIBOR rate, exclusive of spread, has a 0.75 % LIBOR rate floor. Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR rate borrowings, as set forth in the ABL Facility agreement. The fee for undrawn amounts ranges from 0.375 % to 0.5 %, depending on usage 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, makes changes to the nature of our business, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distribution or redeem or repurchase capital stock. In the event that our excess availability is less than the greater of (i) $ 15.0 million and (ii) 10.00 % 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. Upon the occurrence of certain events of default, an additional 2.0 % interest maybe required on the outstanding loans under the ABL Facility. At December 31, 2021, we had $ 65.3 million of cash on hand, of which, $ 4.1 million was restricted for interest due on the Term Loan and about $ 4.0 million of cash is located in countries where currency restrictions exist. We had approximately $ 4.2 million of available borrowing capacity under the ABL Facility. Direct and incremental costs associated with the issuance of the ABL Facility were approximately $ 4.8 million and were capitalized as debt issuance costs. These costs are being amortized on a straight-line basis over the term of the ABL Facility. On February 11, 2022, we entered into the ABL Credit Agreement. Available funding commitments to us under the ABL Credit Agreement, subject to certain conditions, include the Revolving Credit Loans in an amount of up to $ 130.0 million, with a $ 35.0 million sublimit for swingline borrowings and a $ 26.0 million sublimit for issuances of letters of credit, and incremental Delayed Draw Term Loans of up to $ 35.0 million to be provided by Corre. The ABL Credit Facility matures and all outstanding amounts become due and payable on February 11, 2025, however, the ABL Credit Facility is subject to the Trigger Date as noted above. The proceeds of the loans under the ABL Credit Facility were used to, among other things, pay off the amounts owed under the Credit Agreement, which was repaid and terminated in full on February 11, 2022. Our obligations under the ABL Credit Agreement are guaranteed by certain of our direct and indirect subsidiaries (other than certain excluded subsidiaries) (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”). Our obligations under the ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties and are secured on a second priority basis by substantially all of the other assets of the ABL Loan Parties. Availability under the revolving credit line under ABL Credit Facility is based on the percentage of the value of accounts receivable and inventory, as reduced by certain reserves. 76 Table of Content Revolving Credit Loans under the ABL Credit Facility bear interest through maturity at a variable rate based upon an annual rate of a LIBOR Rate (or a Base Rate (as defined below) if the LIBOR Rate is unavailable for any reason), plus an applicable margin (“LIBOR Rate Loan” and “Base Rate Loan”, respectively). The “Base Rate” is defined as a fluctuating interest rate equal to the greatest of (1) the federal funds rate plus 0.50 %, (2) Wells Fargo Bank, National Association’s prime rate, and (3) the one-month LIBOR Rate. The “applicable margin” is defined as a rate of 3.15 %, 3.40 % or 3.65 % for Base Rate Loans with a 2.00 % Base Rate floor and a rate of 4.15 %, 4.40 % or 4.65 % for LIBOR Rate Loans with a 1.00 % LIBOR floor, in each case depending on the amount of EBITDA as of the most recent measurement period, as reported in a monthly compliance certificate. The Delayed Draw Term Loans shall bear interest through maturity at a rate of the LIBOR Rate plus 10.0 %, with a 1.00 % LIBOR floor. The fee for undrawn revolving amounts is 0.50 % and the fee for undrawn Delayed Draw Term Loan amounts is 3.00 %. Interest under the ABL Credit Facility is payable monthly. The Company will also be required to pay customary letter of credit fees, as necessary. The Company may make voluntary prepayments of the loans under the ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loans, to certain conditions. Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the ABL Credit Facility to the sum of the delayed draw term loans plus revolving facility usage outstanding is less than 130 %. Amounts repaid may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the ABL Credit Agreement, subject, in the case of the Delayed Draw Term Loan s to a maximum of four such borrowings in any 12-month period. Certain permanent repayments of the ABL Credit Facility loans are subject to the payment of a premium of 2.00 % during the first year of the facility, 1.00 % during the second year of the facility, and 0.50 % in the last year of the facility. The ABL Credit Agreement contains customary conditions to borrowings and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of certain debt. The ABL Credit Agreement also requires that we will not exceed $ 20.0 million in unfinanced capital expenditures in any calendar year; provided that this requirement will not apply if we maintain a net leverage ratio of less than or equal to 4.00 to 1.00 as of the end of the second and fourth fiscal quarter of each calendar year. In addition, the ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.0 % interest on the outstanding loans under the ABL Credit Agreement. Atlantic Park Term Loan On December 18, 2020, we also entered that certain Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed a $ 250.0 million term loan (the “Term Loan”). The Term Loan was issued with a 3 % original issuance discount (“OID”), such that total proceeds received were $ 242.5 million. The Term Loan matures, and all outstanding amounts become due and payable on December 18, 2026. However, certain conditions could result in an earlier maturity, including if the Notes have an aggregate principal amount outstanding of $ 10 million or more on the Trigger Date, in which case the Term Loan will terminate on the Trigger Date. As set forth in the Term Loan Credit Agreement, the Term Loan is secured by substantially all assets, other than those secured on a first lien basis by the ABL Facility, and we may increase the Term Loan by an amount not to exceed $ 100 million. The Term Loan bears an interest through maturity at a variable rate based upon, at our option, an annual rate of either a Base 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) the federal funds rate plus 0.50 %, (ii), the prime rate as specified in the Term Loan Credit Agreement, and (iii) one-month LIBOR rate plus 1.00 %. The applicable margin is defined as a rate of 6.50 % for Base rate borrowings with a 2.00 % Base rate floor and 7.50 % for LIBOR rate borrowings with a 1.00 % LIBOR rate floor. Interest is payable either (i) monthly for Base rate borrowings or (ii) the last day of the interest period for LIBOR rate borrowings, as set forth in the Term Loan Credit Agreement. The loans under the Term Loan were issued with an original issue discount of 3.00 %, and are, in whole or in part, prepayable any time and from time to time, at a prepayment premium (including a make whole during the first two years ) specified in the Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest. The effective interest rate on the Term Loan at December 31, 2021 was 20.90 %. The Term Loan contains customary payment penalties, events of default and covenants, including but not limited to, covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur additional indebtedness and guarantees, pay dividends, issue equity instruments and make distributions or redeem or repurchase capital stock. On October 19, 2021, we entered into Amendment No. 1 (the “First Amendment”) to the Term Loan Credit Agreement with the financial institutions party thereto from time to time (the “Lenders”) and APSC, as agent. The First Amendment, among other things, (i) deferred an October 19, 2021 interest payment until October 29, 2021; (ii) required that the Company use commercially reasonable efforts to appoint an additional independent director to our Board of Directors who is acceptable 77 Table of Content to the agent; (iii) provided the Lenders with additional information rights; and (iv) tightened certain negative covenants included in the Term Loan Credit Agreement until the deferred interest is made current. On October 29, 2021, we entered into Amendment No. 2 (the “Second Amendment”) to the Term Loan Credit Agreement with the Lenders and ASPC, as agent. The Second Amendment, among other things, (i) further deferred an October 29, 2021 interest payment until November 15, 2021; (ii) contained certain milestones; (iii) provided the Lenders with a ten-day right of first refusal regarding any refinancing of the Company’s obligations under the ABL Facility; (iv) obligated the Company to establish, pursuant to a charter to be adopted by the our Board of Directors and reasonably acceptable to the Agent, a special committee that shall have exclusive responsibility and authority to make recommendations to our Board of Directors regarding certain transactions; and (v) provided that the Company will not permit a covenant trigger event under the ABL Facility to occur. On November 8, 2021, we entered into Amendment No.3 (the “Third Amendment”) to the Term Loan Credit Agreement. The Third Amendment, among other things, (i) waived certain covenants until September 30, 2022 and modifies covenants thereafter to provide us with more flexibility and (ii) required us to seek shareholder approval (or an exception therefrom) to issue additional warrants to APSC, providing for the purchase of an aggregate of 1,417,051 shares of our common stock (the “APSC Warrants”), and to amend the warrants issued in December 2020 to APSC to purchase up to 3,582,949 shares of our common stock, which was initially exercisable at the holder’s option at any time, in whole or in part, until June 14, 2028, at an exercise price of $ 7.75 per share (the “Existing Warrant”), to provide for, an exercise price of $ 1.50 per share. The Third Amendment also reduced the amount of principal outstanding on the Notes on the Trigger Date from $ 50 million to $ 10 million. On December 2, 2021, and December 7, 2021, respectively, we entered into Amendment No. 4 (the “Fourth Amendment”) to the Term Loan Credit Agreement and Amendment No. 5 (the “Fifth Amendment”) to the Term Loan Credit Agreement, respectively. The Fourth Amendment extended the date upon which the Company must issue the APSC Warrants to December 7, 2021, and the Fifth Amendment extended the date upon which the Company must issue the APSC Warrants to December 8, 2021. The business purpose of these amendments was to further extend the Company’s liquidity runway while asset based lending field audit exams were completed in connection with the refinancing transactions completed on February 11, 2022. On February 11, 2022, we entered into Amendment No. 6 (the “Sixth Amendment”) to the Term Loan Credit Agreement. The Sixth Amendment, among other things and subject to the terms thereof, (i) permits the entry into the ABL Credit Agreement, (ii) permits certain interest payments due under the Term Loan Credit Agreement to be paid in kind, (iii) permits certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amends the financial covenants, such that the maximum net leverage ratio of 7.00 to 1.00 will not be tested until the fiscal quarter ending March 31, 2023, and the Company is not permitted to exceed $ 20.0 million in unfinanced capital expenditures in any calendar year; provided, that this unfinanced capital expenditures requirement will not apply if the Company maintains a net leverage ratio of less than or equal to 4.00 to 1.00 as of the end of the second and fourth fiscal quarter of each calendar year. Subordinated Term Loan Credit Agreement On November 9, 2021, we entered into a credit agreement (the “Subordinated Term Loan Credit Agreement”) with Corre Credit Fund, LLC (“Corre Fund”), as agent, and the lenders party thereto providing for an unsecured $ 50.0 million delayed draw subordinated term loan facility (the “Subordinated Term Loan”). Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $ 22.5 million on November 9, 2021, and an additional $ 27.5 million on December 8, 2021. The Subordinated Term Loan matures, and all outstanding amounts become due and payable, on the earlier of December 31, 2026 and the date that is two weeks later than the maturity or full repayment of the Term Loan. The stated interest rate on the Subordinated Term Loan is 12 %. Under the Subordinated Term Loan Credit Agreement, we are required to, among other things, (i) subject to certain conditions, issue the lenders Corre Warrants (described below), (ii) amend our charter, bylaws, and all other necessary corporate governance documents to reduce the size of our Board of Directors to seven directors, one of whom will include our Chief Executive Officer, and (iii) reconstitute our Board of Directors. The Subordinated Term Loan Credit Agreement also contains other customary prepayment provisions, events of default and covenants. On November 30, 2021, we entered into Amendment No. 1 (the “Corre Amendment 1”) to the Subordinated Term Loan Credit Agreement. The Corre Amendment 1 (i) extended the payment date for interest in the form of payment-in-kind interest (“PIK Interest”)with respect to the Initial Term Loans (as defined in the Subordinated Term Loan Credit Agreement), , (ii) extended the date upon which the Company must deliver a fully executed ABL Consent (as defined in the Subordinated Term Loan Credit Agreement) to, in each case, 11:59 P.M. on December 6, 2021 and (iii) extended the date upon which we must issue the Corre Warrants to 11:59 P.M. on December 7, 2021. 78 Table of Content On December 6, 2021, we entered into Amendment No. 2 (the “Corre Amendment 2”) to the Subordinated Term Loan Credit Agreement. The Corre Amendment 2 (i) extended the payment date in the form of PIK Interest with respect to the Initial Term Loans, and (ii) extended the date upon which we must deliver a fully executed ABL Consent to, in each case, 11:59 P.M. on December 7, 2021. On December 7, 2021, we entered into Amendment No. 3 (the “Corre Amendment 3”) to the Subordinated Term Loan Credit Agreement. The Corre Amendment 3, among other things, (i) extended the payment date for interest in the form of PIK Interest with respect to the Initial Term Loans, (ii) extended the date upon which we must deliver a fully executed ABL Consent and (iii) extended the date upon which we must issue the Corre Warrants to, in each case, 11:59 P.M. on December 8, 2021. The business purpose of the Corre Amendments was to further extend the liquidity runway of the Company and support ongoing negotiations of the financing transactions completed on February 11, 2022. On December 8, 2021, we entered into Amendment No. 4 (the “Corre Amendment 4”) to the Subordinated Term Loan Credit Agreement. The Corre Amendment 4 appointed Cantor Fitzgerald Securities as successor Agent. In connection with the transactions contemplated by the ABL Credit Agreement on February 11, 2022, Corre, agreed to provide the Company with the Incremental Financing, totaling approximately $ 55.0 million, consisting of (i) $ 35.0 million Delayed Draw Term Loans under the ABL Credit Facility; (ii) $ 10.0 million from Corre in the form of the February 2022 Delayed Draw Term Loan (as defined in the Subordinated Term Loan Credit Agreement) on a pari passu basis with the existing loans issued pursuant to the Subordinated Term Loan Credit Agreement; and (iii) $ 10.0 million through an issuance the PIPE Shares to the Corre Holders at a price of $ 0.84 per share. On February 11, 2022, we entered into Amendment No. 5 (the “Corre Amendment 5”) to the Subordinated Term Loan Credit Agreement with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent. The Corre Amendment 5, among other things, (i) provides for an additional commitment of $ 10.0 million in subordinated delayed draw term loans to be available for borrowing by the Company until July 1, 2022, (ii) permits the entry into the ABL Credit Facility, (iii) permits certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amends the financial covenants, such that the maximum net leverage ratio of 7.00 to 1.00 will not be tested until the fiscal quarter ending March 31, 2023, and the Company is not permitted to exceed $ 20.0 million in unfinanced capital expenditures in any calendar year; provided, that this unfinanced capital expenditures requirement will not apply if the Company maintains a net leverage ratio of less than or equal to 4.00 to 1.00 as of the end of the second and fourth fiscal quarter of each calendar year. Our ability to maintain compliance with the financial covenants contained in the ABL Credit Agreement, the Term Loan Credit Agreement and the Subordinated Term Loan Credit Agreement is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. The effects of the COVID-19 pandemic and the resulting economic repercussions could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers. Additionally, these events may, among other factors, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, and affect our future need or ability to borrow under our ABL Credit Facility. In addition to our current sources of funding our business, the effects of such events may impact our liquidity or our need to revise our allocation or sources of capital, implement further cost reduction measures and/or change our business strategy. Although the COVID-19 pandemic and resulting economic repercussions could have a broad range of effects on our liquidity sources, the effects will depend on future developments and cannot be predicted at this time. In order to secure our casualty insurance programs, we are required to post letters of credit generally issued by a bank as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. We were contingently liable for outstanding stand-by letters of credit totaling $ 23.5 million at December 31, 2021 and $ 19.5 million at December 31, 2020. Outstanding letters of credit reduced amounts available under our ABL Facility and are considered as having been funded for purposes of calculating our financial covenants. Warrants On December 18, 2020, in connection with the execution of the Term Loan, we issued to APSC the Existing Warrant. In connection with execution of the Subordinated Term Loan Credit Agreement and Third Amendment, on November 9, 2021, we entered into an Amended and Restated Common Stock Purchase Warrant (the “A&R Warrant”) with APSC Holdco II, L.P. (“APSC Holdco”) pursuant to which the Existing Warrant was amended and restated to provide for the purchase of up 79 Table of Content to 4,082,949 shares of Company common stock (which includes 500,000 of the shares of common stock issuable pursuant to the APSC Warrant) and to reduce the exercise price to $ 1.50 per share. In connection with execution of the Subordinated Term Loan Credit Agreement and the amendments to the Term Loan Credit Agreement, on December 8, 2021 we entered into the Second Amended and Restated Common Stock Purchase Warrant No. 1 (the “Second A&R Warrant”) with APSC Holdco, pursuant to which the A&R Warrant was amended and restated to provide for the purchase of up to 5,000,000 shares of our common stock (including 4,082,949 shares of Common Stock issuable pursuant to the A&R Warrant) exercisable at the holder’s option at any time, in whole or in part, until December 8, 2028, at an exercise price of $ 1.50 per share, and (ii) entered into the Common Stock Purchase Warrants (together with the Second A&R Warrant, the “Warrants”) with each of Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon Fund II, LP providing for the purchase of an aggregate of 5,000,000 shares of our common stock, exercisable at such holder’s option at any time, in whole or in part, until December 8, 2028, at an exercise price of $ 1.50 per share. The exercise price and the number of shares of our common stock issuable on exercise of the Warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions. In connection with the Subscription Agreement discussed below, on February 11, 2022, the Company, the Corre Holders and APSC Holdco entered into those certain Team, Inc. Waivers of Anti-Dilution Adjustments and Cash Transaction Exercise (collectively, the “Warrant Waivers”) with respect to each of the Warrants. Pursuant to the Warrant Waivers, the Corre Holders and APSC Holdco agreed with respect to such holders’ Warrant, subject to certain terms and conditions set forth therein (and for only so long as the applicable provisions remain in effect), among other things, (i) to irrevocably waive certain anti-dilution adjustments set forth in such Warrant in connection with the Proposed Equity Financing (as defined in the Warrant Waivers); (ii) to not exercise such Warrant, in whole or in part, if the Company determines that such exercise will cause an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (assuming, among other things, that the ownership change threshold is 47% rather than 50%); and (iii) to only exercise such Warrant in a “cashless” or “net-issue” exercise. Subscription Agreement In connection with the Incremental Financing and Equity Issuance, on February 11, 2022, we entered into a common stock subscription agreement (the “Subscription Agreement”) with the Corre Holders, pursuant to which the Company issued and sold the PIPE Shares to the Corre Holders on February 11, 2022. Pursuant to the Subscription Agreement, subject to certain exceptions, each of the Corre Holders has agreed not to sell its portion of the PIPE Shares until the earliest to occur of (i) the date that is 180 days from the date of the Subscription Agreement, and (ii) such date on which the Company completes a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Common Stock for cash, securities or other property, without consent of the Company. Pursuant to and subject to the terms and conditions of the Subscription Agreement, our Board of Directors is required to create a vacancy for one qualified nominee of the Corre Holders to the Board, who shall be designated by the Corre Holders and qualify as an independent director (a “Board Nominee”), and the Board is required to appoint such initial Board Nominee as a Class II director within seven business days of the date of the Subscription Agreement. For so long as the Corre Holders and their affiliates collectively beneficially own at least 10 % of the outstanding shares of our common stock , pursuant to and subject to the terms and conditions of the Subscription Agreement, we will nominate the initial Board Nominee, or a successor Board Nominee chosen by the Corre Holders, for re-election as a Class II director at the first annual meeting of the Company’s stockholders to be held after the Equity Issuance and at the end of each subsequent term of such Board Nominee. If at any time, the Corre Holders and their affiliates beneficially own less than 10 % of the outstanding shares of common stock, then, if requested by the Company, the Board Nominee then on the Board will resign from his or her directorship, effective as of our next annual meeting of stockholders or such earlier date reasonably requested by the Company. Convertible Debt Description of the Notes On July 31, 2017, we issued $ 230.0 million principal amount of senior unsecured 5.00 % Convertible Senior Notes due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the Securities Act (the “Offering”). As discussed above, in December 2020, we retired $ 136.9 million par value of our Notes, and as of December 31, 2020, the principal amount of Notes outstanding was $ 93.1 million. 80 Table of Content The Notes bear interest at rate of 5.0 % per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018. The Notes mature on August 1, 2023 unless repurchased, redeemed or converted in accordance with their terms prior to such date. The Notes are convertible at an initial conversion rate of 46.0829 shares of our common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $ 21.70 per share, which represents a conversion premium of 40 % to the last reported sale price of $ 15.50 per share on the NYSE on July 25, 2017, the date the pricing of the Notes was completed. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the Notes. Holders may convert their Notes at their option prior to the close of business on the business day immediately preceding May 1, 2023, but only under the following circumstances: • during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; • during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on such trading day; • if we call any or all of the Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or; • upon the occurrence of specified corporate events described in the indenture governing the Notes. On or after May 1, 2023 until the close of business on the business day immediately preceding the maturity date, holders may, at their option, convert their Notes at any time, regardless of the foregoing circumstances. The Notes were initially convertible into 10,599,067 shares of common stock. Previously, because the Notes could be convertible in full into more than 19.99 % of our outstanding common stock, we were required by the listing rules of the NYSE to obtain the approval of the holders of our outstanding shares of common stock before the Notes could be converted. At our annual shareholders’ meeting, held on May 17, 2018, our shareholders approved the issuance of shares of common stock upon conversion of the Notes. As a result of the redemption and extinguishment of the Notes discussed above, the Notes are convertible into 4,291,705 shares of common stock. The Notes will be convertible into, subject to various conditions, cash or shares of our common stock or a combination of cash and shares of our common stock, in each case, at our election. If holders elect to convert the Notes in connection with certain fundamental change transactions described in the indenture governing the Notes, we will, under certain circumstances described in the indenture governing the Notes, increase the conversion rate for the Notes so surrendered for conversion. As per the agreement, we may not redeem the Notes prior to August 5, 2021. The agreement noted that we will have the option to redeem all or any portion of the Notes on or after August 5, 2021, if certain conditions are met (including that our common stock is trading at or above 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption) at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Net proceeds received from the Offering were approximately $ 222.3 million after deducting discounts, commissions and expenses and were used to repay outstanding borrowings under the Credit Facility. On January 13, 2022, we entered into a supplemental indenture with Truist Bank, as trustee, (the “Supplemental Indenture”) to the indenture (the “Indenture”) governing the Notes to effect certain amendments (the “Amendments”) to the Indenture and to modify the Notes held by consenting holders (the “Consenting Holders”) of $ 51,969,000 in aggregate principal amount of the Notes (such modified Notes, the “PIK Securities”). 81 Table of Content The Supplemental Indenture amends the Indenture to, among other things: (i) allow for interest payable on the PIK Securities on February 1, 2022 to be paid in PIK Interest (as defined in the Supplemental Indenture) and on subsequent interest payment dates to be payable, at the Company’s option, at a rate of 5.00 % per annum entirely in cash or at a rate of 8.00 % per annum in PIK Interest; (ii) provide for additional changes to the Indenture to allow for the payment of PIK Interest and for the PIK Securities to be issued in denominations of $ 1,000 and integral multiples thereof (or if PIK Interest has been paid with respect to the PIK Securities, in minimum denominations of $ 1.00 and integral multiples of $ 1.00 in excess thereof); (iii) clarify that the unmodified Notes and PIK Securities will be treated as a single series of Notes for all purposes under the Indenture, other than the option of the Company to pay PIK Interest on the PIK Securities; and (iv) make certain conforming changes, including conforming modifications to certain definitions and cross-references as a result of such amendments. Notes held by holders other than the Consenting Holders were not modified and interest on such Notes will continue to be paid in cash at a rate of 5.00 % per annum as set forth in the Indenture. Accounting Treatment of the Notes As of December 31, 2021 and 2020, the Notes were recorded in our consolidated balance sheet as follows (in thousands): December 31, 2021 2020 Liability component: Principal $ 93,130 $ 93,130 Unamortized issuance costs ( 916 ) ( 1,440 ) Unamortized discount ( 4,552 ) ( 7,156 ) Net carrying amount of the liability component 1 87,662 84,534 Equity component: Carrying amount of the equity component, net of issuance costs 2 $ 7,969 $ 7,969 Carrying amount of the equity component, net of issuance costs 3 $ 37,276 $ 37,276 _________________ 1 Included in the “Long-term debt and finance lease obligations” line of the consolidated balance sheets. 2 Relates to the portion of the Notes accounted for under ASC 470-20 (defined below) and is included in the “Additional paid-in capital” line of the consolidated balance sheets. 3 Relates to the portion of the Notes accounted for under ASC 815-15 (defined below) and is included in the “Additional paid-in capital” line of the consolidated balance sheets. Under ASC 470-20, Debt with Conversion and Other Options, (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion (such as the Notes) in a manner that reflects the issuer’s economic interest cost. However, entities must first consider the guidance in ASC 815-15, Embedded Derivatives (“ASC 815-15”), to determine if an instrument contains an embedded feature that should be separately accounted for as a derivative. As the Notes were initially convertible into more than 19.99 % of our outstanding common stock and shareholder approval in accordance with the NYSE rules (as described above) had not yet been obtained at the time the Notes were issued, we concluded that embedded derivative accounting under ASC 815-15 was applicable to approximately 60 % of the Notes, while the remaining 40 % of the Notes were subject to ASC 470-20. As a result of obtaining shareholder approval on May 17, 2018, the embedded derivative met the criteria to be classified in stockholders’ equity, effective on the date of the approval. Accordingly, we recorded the change in fair value of the embedded derivative liability in our results of operations through May 17, 2018 and then reclassified the embedded derivative liability, which totaled $ 45.4 million to stockholders’ equity during the second quarter of 2018. The related income tax effects of the reclassification charged directly to stockholders’ equity were $ 7.8 million. As a result of the reclassification to stockholders’ equity, the embedded derivative is no longer marked to fair value each period. Losses on the embedded derivative liability recognized in the consolidated statements of operations were $ 24.8 million for the twelve months ended December 31, 2018 (incurred in the first and second quarters of 2018). 82 Table of Content The following table sets forth interest expense information related to the Notes (dollars in thousands): Twelve Months Ended December 31, 2021 2020 Coupon interest $ 4,657 $ 11,329 Amortization of debt discount and issuance costs 3,129 6,938 Total interest expense $ 7,786 $ 18,267 Effective interest rate 9.12 % 9.12 % 12. LEASES We adopted ASC 842 effective January 1, 2019 and elected the modified retrospective transition method. We determine if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use (‘ROU’) assets”, “operating lease liabilities” and “current portion of operating lease obligations” on our consolidated balance sheets. Finance leases are included in “property, plant and equipment, net”, “current portion of long-term debt and finance lease obligations” and “long-term debt and finance lease obligations” on our consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments and short-term lease payments (leases with initial terms less than twelve months) are expensed as incurred. We have lease agreements with lease and non-lease components for certain equipment, office, and vehicle leases. We have elected the practical expedient to not separate lease and non-lease components and account for both as a single lease component. We have operating and finance leases primarily for equipment, real estate, and vehicles. Our leases have remaining lease terms of 1 year to 14 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year. The components of lease expense are as follows (in thousands): Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Operating lease costs $ 27,773 $ 26,431 Variable lease costs 5,546 5,440 Finance lease costs: Amortization of right-of-use assets 666 441 Interest on lease liabilities 344 320 Total lease cost $ 34,329 $ 32,632 83 Table of Content Other information related to leases are as follows (in thousands): Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Supplemental cash flow information: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 17,887 $ 20,883 Operating cash flows from finance leases 346 327 Financing cash flows from finance leases 517 278 Right-of-use assets obtained in exchange for lease obligations Operating leases 8,106 4,624 Finance leases 1,016 60 Amounts recognized in the condensed consolidated balance sheet are as follows (in thousands): December 31, 2021 December 31, 2020 Operating Leases: Operating lease right-of-use assets $ 60,700 $ 63,869 Current portion of operating lease obligations 16,176 17,375 Operating lease obligations (non-current) 49,221 52,207 Finance Leases: Property, plant and equipment, net $ 5,123 $ 4,779 Current portion of long-term debt and finance lease obligations 669 337 Long-term debt and finance lease obligations 4,980 4,816 Weighted average remaining lease term Operating leases 6 years 6 years Finance leases 10 years 12 years Weighted average discount rate Operating leases 6.8 % 6.7 % Finance lease 6.4 % 6.2 % As of December 31, 2021, we have no material additional operating and finance leases that have not yet commenced. 84 Table of Content As of December 31, 2021, future minimum lease payments under non-cancellable (excluding short-term leases) are as follows (in thousands): Twelve Months Ended December 31, Operating Leases Finance Lease 2022 $ 19,348 $ 982 2023 15,193 893 2024 11,967 732 2025 8,668 569 2026 6,874 555 Thereafter 18,423 4,003 Total future minimum lease payments 80,473 7,734 Less: Interest 15,076 2,085 Present value of lease liabilities $ 65,397 $ 5,649 Total rent expense resulting from operating leases, including short-term leases, for the years ended December 31, 2021, 2020 and 2019 were $ 39.4 million, $ 38.8 million and $ 43.0 million, respectively. 13. SHARE-BASED COMPENSATION We have adopted stock incentive plans and other arrangements pursuant to which our Board of Directors (the “Board”) may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance awards to officers, directors and key employees. At December 31, 2021, there were approximately 1.7 million restricted stock units, performance awards and stock options outstanding to officers, directors and key employees. The exercise price, terms and other conditions applicable to each form of share-based compensation under our plans are generally determined by the Compensation Committee of our Board at the time of grant and may vary. In May 2021, our shareholders approved the amendment and restatement to the 2018 Team, Inc. Equity Incentive Plan (the “2018 Plan”). The 2018 Plan replaced the 2016 Team, Inc. Equity Incentive Plan. The amendment and restatement to the 2018 Plan increased the shares available for issuance by 3.0 million shares of Common Stock. Shares issued in connection with our share-based compensation are issued out of authorized but unissued common stock. Compensation expense related to share-based compensation totaled $ 7.0 million, $ 6.3 million and $ 10.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Share-based compensation expense reflects an estimate of expected forfeitures. At December 31, 2021, $ 7.3 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of 1.6 years. The recognized income tax benefit totaled $ 0.7 million, $ 0.4 million and $ 2.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash. We determine the fair value of each stock unit based on the market price on the date of grant. Stock units generally vest in annual installments over three or four years and the expense associated with the units is recognized over the same vesting period. We also grant common stock to our directors which typically vests immediately. Compensation expense related to stock units and director stock grants totaled $ 4.4 million, $ 4.6 million, $ 5.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Transactions involving our stock units and director stock grants for the twelve months ended December 31, 2021 are summarized below: 85 Table of Content Twelve Months Ended December 31, 2021 No. of Stock Units Weighted Average Fair Value (in thousands) Stock and stock units, beginning of year 854 $ 12.55 Changes during the year: Granted 464 $ 2.78 Vested and settled ( 414 ) $ 11.97 Cancelled ( 100 ) $ 12.17 Stock and stock units, end of year 804 $ 7.27 The weighted-average grant date fair value related to stock units and director stock grants during the years ended December 31, 2020 and 2019 was $ 12.55 and $ 17.35 , respectively. The intrinsic value of stock units and director stock grants vested during the years ended December 31, 2021, 2020 and 2019 was $ 1.2 million, $ 2.3 million and $ 5.7 million, respectively. We have a performance stock unit award program whereby we grant Long-Term Performance Stock Unit (“LTPSU”) awards to our executive officers. Under this program, we communicate “target awards” to the executive officers during the first year of a performance period. LTPSU awards cliff vest with the achievement of the performance goals and completion of the required service period. Settlement occurs with common stock as soon as practicable following the vesting date. LTPSU awards granted in 2019 (the “2019 Awards”), in 2020 (the “2020 Awards”) and in 2021 (the “2021 Awards”) are subject to a two-year performance period and a concurrent two-year service period. For the LTPSU awards, the performance goal is separated into two independent performance factors based on (i) relative shareholder return (“RTSR”) as measured against a designated peer group and (ii) results of operations over the two-year performance period, with possible payouts ranging from 0 % to 200 % of the target awards for each of the two performance factors. The 2019 Awards vested as of March 15, 2021 at the RTSR performance target level of 25 % and the results of operations performance metric at 0 % of the target level. The RTSR and the stock price milestone factors are considered to be market conditions under GAAP. For performance units subject to market conditions, we determine the fair value of the performance units based on the results of a Monte Carlo simulation, which uses market-based inputs as of the date of grant to simulate future stock returns. Compensation expense for awards with market conditions is recognized on a straight-line basis over the longer of (i) the minimum required service period and (ii) the service period derived from the Monte Carlo simulation, separately for each vesting tranche. For performance units subject to market conditions, because the expected outcome is incorporated into the grant date fair value through the Monte Carlo simulation, compensation expense is not subsequently adjusted for changes in the expected or actual performance outcome. For performance units not subject to market conditions, we determine the fair value of each performance unit based on the market price of our common stock on the date of grant. For these awards, we recognize compensation expense over the vesting term on a straight-line basis based upon the performance target that is probable of being met, subject to adjustment for changes in the expected or actual performance outcome. Compensation expense related to performance awards totaled $ 2.6 million, $ 1.7 million and $ 4.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. 86 Table of Content Transactions involving our performance awards during the twelve months ended December 31, 2021 are summarized below: Twelve Months Ended December 31, 2021 Performance Units Subject to Market Conditions Performance Units Not Subject to Market Conditions No. of Stock Units 1 Weighted Average Fair Value No. of Stock Units 1 Weighted Average Fair Value (in thousands) (in thousands) Performance stock units, beginning of period 554 $ 13.69 274 $ 12.55 Changes during the period: Granted 575 $ 6.70 109 $ 11.69 Vested and settled ( 28 ) $ 25.24 — $ — Cancelled ( 417 ) $ 14.68 ( 164 ) $ 15.50 Performance stock units, end of period 684 $ 6.30 219 $ 9.91 __________________________ 1 Performance units with variable payouts are shown at target level of performance. The weighted-average grant date fair value related to performance stock units during the year ended December 31, 2020 was $ 13.31 and during the year ended December 31, 2019 was $ 16.66 . The intrinsic value of performance stock unit awards vested during the years ended December 31, 2021, 2020 and 2019 were $ 0.3 million, $ 1.3 million and $ 1.0 million, respectively. We determine the fair value of each stock option at the grant date using a Black-Scholes model and recognize the resulting expense of our stock option awards over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. There was no compensation expense related to stock options for the years ended December 31, 2021, 2020 and 2019. Our options typically vest in equal annual installments over a four-year service period. Expense related to an option grant is recognized on a straight-line basis over the specified vesting period for those options. Stock options generally have a ten-year term. Transactions involving our stock options for the twelve months ended December 31, 2021 are summarized below: Twelve Months Ended December 31, 2021 No. of Options Weighted Average Exercise Price (in thousands) Shares under option, beginning of year 19 $ 36.90 Changes during the year: Exercised — $ — Cancelled — $ — Expired ( 2 ) $ 32.69 Shares under option, end of year 17 $ 37.27 Exercisable at end of year 17 $ 37.27 No stock options were granted during the years ended December 31, 2021, 2020 and 2019. Options exercisable at December 31, 2021 had a weighted-average remaining contractual life of 1.6 years, and exercise prices ranging from $ 32.05 to $ 50.47 . The intrinsic value of stock option awards exercised was insignificant for the years ended December 31, 2021, 2020 and 2019. 87 Table of Content 14 . EMPLOYEE BENEFIT PLANS Defined contribution plan. Under the Team, Inc. Salary Deferral Plan (the “Plan”), contributions are made to the Plan by qualified employees at their election and our matching contributions to the Plan are made at specified rates. We did not incur any contribution expense in 2021 as forfeitures were used for the company match. Our contributions for the plan years ended December 31, 2020 and 2019 were approximately $ 2.1 million and $ 9.8 million, respectively. The decrease from 2019 to 2020 was due to the suspension of our matching contribution as of March 2020 due to the COVID-19 pandemic. Defined benefit plans. In connection with our acquisition of Furmanite, we assumed liabilities associated with the defined benefit pension plans of two foreign subsidiaries, one plan covering certain United Kingdom employees (the “U.K. Plan”) and the other covering certain Norwegian employees (the “Norwegian Plan”). In connection with the sale of our Norwegian operations in 2018, all assets and liabilities associated with the Norwegian Plan were transferred to the buyer. Benefits for the U.K. Plan are based on the average of the employee’s salary for the last three years of employment. The U.K. Plan has had no new participants added since the plan was frozen in 1994 and accruals for future benefits ceased in connection with a plan curtailment in 2013. Plan assets are primarily invested in unitized pension funds managed by U.K. registered fund managers. The most recent valuation of the U.K. Plan was performed as of December 31, 2021. Estimated defined benefit pension plan contributions for 2022 are expected to be approximately $ 4.1 million. Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates. The discount rate assumption used to determine end of year benefit obligations was 2.0 % as of December 31, 2021. These rates are reviewed annually and adjusted to reflect current conditions. These rates are determined appropriate based on reference to yields. The expected return on plan assets of 2.8 % for 2022 is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense. Net pension cost (credit) included the following components (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Service cost $ — $ — $ — Interest cost 1,282 1,764 2,323 Settlement cost 70 257 221 Expected return on plan assets ( 2,006 ) ( 2,309 ) ( 2,378 ) Amortization of prior service cost 32 32 32 Amortization of net actuarial (gain) loss — — — Net pension cost (credit) $ ( 622 ) $ ( 256 ) $ 198 The weighted-average assumptions used to determine benefit obligations at December 31, 2021 and 2020 are as follows: December 31, 2021 2020 Discount rate 2.0 % 1.3 % Rate of compensation increase 1 Not applicable Not applicable Inflation 3.3 % 2.9 % ______________ 1 Not applicable due to plan curtailment. 88 Table of Content The weighted-average assumptions used to determine net periodic benefit cost (credit) for the years ended December 31, 2021 and 2020 are as follows: Twelve Months Ended December 31, 2021 2020 Discount rate 1.3 % 2.0 % Expected long-term return on plan assets 2.1 % 2.9 % Rate of compensation increase 1 Not applicable Not applicable Inflation 2.9 % 3.0 % _______________ 1 Not applicable due to plan curtailment. The plan actuary determines the expected return on plan assets based on a combination of expected yields on equity securities and corporate bonds and considering historical returns. The expected long-term rate of return on invested assets for 2021 is determined based on the weighted average of expected returns on asset investment categories as follows: 2.8 % overall, 4.9 % for equities and 2.1 % fo r debt securities. The following table sets forth the changes in the benefit obligation and plan assets for the years ended December 31, 2021 and 2020 (in thousands): Twelve Months Ended December 31, 2021 2020 Projected benefit obligation: Beginning of year $ 100,244 $ 92,407 Service cost — — Interest cost 1,282 1,764 Actuarial (gain) loss ( 4,237 ) 8,717 Benefits paid ( 5,137 ) ( 6,288 ) Prior service cost — — Disposal of Norwegian Plan — — Foreign currency translation adjustment and other ( 890 ) 3,644 End of year 91,262 100,244 Fair value of plan assets: Beginning of year 94,962 83,086 Actual gain (loss) on plan assets 1,195 10,854 Employer contributions 4,118 3,851 Benefits paid ( 5,137 ) ( 6,288 ) Foreign currency translation adjustment and other ( 974 ) 3,459 End of year 94,164 94,962 Excess projected obligation under (over) fair value of plan assets at end of year $ 2,902 $ ( 5,282 ) Amounts recognized in accumulated other comprehensive loss: Net actuarial loss $ ( 4,624 ) $ ( 7,347 ) Prior service cost ( 601 ) ( 674 ) Total $ ( 5,225 ) $ ( 8,021 ) The accumulated benefit obligation for the U.K. Plan was $ 91.3 million and $ 100.2 million at December 31, 2021 and 2020, respectively. 89 Table of Content At December 31, 2021, expected future benefit payments are as follows for the years ended December 31, (in thousands): 2022 $ 4,086 2023 4,177 2024 4,073 2025 4,256 2026 4,198 2027-2031 21,680 Total $ 42,470 The following tables summarize the plan assets of the U.K. Plan measured at fair value on a recurring basis (at least annually) as of December 31, 2021 and 2020 (in thousands): December 31, 2021 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) (a) Significant Unobservable Inputs (Level 3) Cash $ 2,411 $ 2,411 $ — $ — Equity securities: Diversified growth fund (b) 23,582 — 23,582 — Global equity fund (c) — — — — Fixed income securities: U.K. government fixed income securities (d) 9,487 — 9,487 — U.K. government index-linked securities (e) 16,393 — 16,393 — Global absolute return bond fund (f) 12,111 — 12,111 — Corporate bonds (g) 30,297 — 30,297 — Total $ 94,281 $ 2,411 $ 91,870 $ — December 31, 2020 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) (a) Significant Unobservable Inputs (Level 3) Cash $ 15,600 $ 15,600 $ — $ — Equity securities: Diversified growth fund (b) 22,640 — 22,640 — Global equity fund (c) 2,922 — 2,922 — Fixed income securities: U.K. government fixed income securities (d) 17,478 — 17,478 — U.K. government index-linked securities (e) 15,331 — 15,331 — Global absolute return bond fund (f) 12,235 — 12,235 — Corporate bonds (g) 8,755 — 8,755 — Total $ 94,961 $ 15,600 $ 79,361 $ — ______________________________ a) The net asset value of the commingled equity and fixed income funds are determined by prices of the underlying securities, less the funds’ liabilities, and then divided by the number of shares outstanding. As the funds are not traded in active markets, the commingled funds are classified as Level 2 assets. The net asset value is corroborated by observable market data (e.g., purchase or sale activities). b) This category includes investments in a diversified portfolio of equity, bonds, alternatives and cash markets that aims to achieve capital growth returns. 90 Table of Content c) This category includes investments in a diversified portfolio of equity, bonds, money markets, alternatives and credit markets to achieve a return with downside protection through monthly put options. d) This category includes investments in funds with the objective to provide a leveraged return to U.K. government fixed income securities (gilts) that have maturity periods ranging from 2030 to 2060. e) This category includes investments in funds with the objective to provide a leveraged return to various U.K. government indexed-linked securities (gilts), with maturity periods ranging from 2022 to 2062. The funds invest in U.K. government bonds and derivatives. f) This category includes investments in funds predominantly in a wide range of fixed and floating rate investment grade and below investment grade debt instruments traded on regulated markets worldwide with the objective to achieve a return of 3 % above 1 month LIBOR over a 3 -year basis. g) This category includes investments in a diversified pool of debt and debt like assets to generate capital and income returns. Investment objectives for the U.K. Plan, as of December 31, 2021, are to: • optimize the long-term return on plan assets at an acceptable level of risk • maintain a broad diversification across asset classes • maintain careful control of the risk level within each asset class The trustees of the U.K. Plan have established a long-term investment strategy comprising global investment weightings targeted at 27.5 % (range of 25 % to 30 %) for equity securities/diversified growth funds and 72.5 % (range of 70 % to 75 %) for debt securities. Diversified growth funds are actively managed absolute return funds that hold a combination of debt and equity securities. Selection of the targeted asset allocation was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations and the timing of benefit payments and contributions. The following table sets forth the weighted-average asset allocation and target asset allocations as of December 31, 2021 and 2020 by asset category: Asset Allocations Target Asset Allocations 2021 2020 2021 2020 Equity securities and diversified growth funds 1 24.9 % 26.9 % 27.5 % 27.5 % Debt securities 2 72.5 % 56.7 % 72.5 % 72.5 % Other 2.6 % 16.4 % — % — % Total 100 % 100 % 100 % 100 % ______________________________ 1 Diversified growth funds refer to actively managed absolute return funds that hold a combination of equity and debt securities. 2 Includes investments in funds with the objective to provide leveraged returns to U.K. government fixed income securities, U.K. government indexed-linked securities, global bonds, and corporate bonds. 91 Table of Content 15. COMMITMENTS AND CONTINGENCIES Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, which will only be resolved when one or more future events occur or fail to occur. Team’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, Team’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. We may increase or decrease our legal accruals in the future, on a matter-by-matter basis, to account for developments in such matter. Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events. Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our consolidated financial statements. California Wage and Hour Litigation - On June 24, 2019 and August 26, 2020, two putative class action complaints were filed against Team Industrial Services, Inc. in the Superior Court for the County of Los Angeles, California. The plaintiff in the first filed action is Michael Thai (the “Thai action”). The plaintiff in the second filed action is Alex Esqueda (the “Esqueda action”). All of the claims pleaded in the Esqueda action were also pleaded in the Thai action. Each of the plaintiffs assert claims for alleged wage and hour violations under the California Labor Code (for alleged unpaid wages, failure to provide meal and rest breaks, and derivative related claims). The Thai action also asserts a putative class claim for violation of the Fair Credit Reporting Act. Both cases were stayed shortly after filing to allow the parties to mediate the claims. On February 23, 2021, the Los Angeles Superior Court designated the Thai and Esqueda actions as related cases. While the parties mediated on March 18, 2021, the cases did not settle. On April 16, 2021, Team Industrial Services, Inc. moved both the Thai and Esqueda actions to the United States District Court for the Central District of California. Plaintiff’s motion for remand was denied, and these matters remain in federal court. In November 2021, the parties agreed in principle to settle all claims in this litigation. All class action settlements of this nature are subject to approval of the court, which can take several months after the final settlement agreement is executed by the parties. The parties anticipate court approval of the settlement agreement on or before August 31, 2022. Notice of Potential Environmental Violation - On April 20, 2021, Team Industrial Services, Inc. received Notices of Potential Violation from the U.S. Environmental Protection Agency (“EPA”) alleging noncompliance with various waste determination, reporting, training, and planning obligations under the Resource Conservation and Recovery Act at seven of our facilities located in Texas and Louisiana. The allegations largely relate to spent film developing solutions generated through our mobile radiographic inspection services and that the claims relate to the characterization and quantities of those wastes and related notices, reporting, training, and planning. On February 9, 2022, TEAM and the EPA agreed to settle all the claims related to this matter. The parties anticipate finalization of the settlement agreement on or before March 31, 2022. Kelli Most Litigation - On November 13, 2018, Kelli Most filed a lawsuit against Team Industrial Services, Inc., individually and as a personal representative of the estate of Jesse Henson, in the 268th District Court of Fort Bend County, Texas (the “Most litigation”). The complaint asserted claims against Team for negligence resulting in the wrongful death of Jesse Henson. A jury trial commenced on this matter on May 4, 2021. On June 1, 2021, the jury rendered a verdict against Team for $ 222 million in compensatory damages. We believe that the jury verdict is not supported by the facts of the case or applicable law, is the result of significant trial error, and there are strong grounds for appeal. We will seek to overturn the verdict in post-trial motions before the District 92 Table of Content Court and, if necessary, to appeal to the Court of Appeals for the State of Texas. We intend to vigorously challenge the judgment through all appropriate post-trial motions and appeal processes. As a result, we believe that the likelihood that the amount of the judgment will be affirmed is not probable. We have taken into consideration the events that have occurred after the reporting period and before the financial statements were issued. We currently estimate a range of possible outcomes between $ 13 million and approximately $ 51 million, and we have accrued a liability as of December 31, 2021 which is the amount we believe is the most likely estimate for a probable loss on this matter. We have also recorded a related receivable from our third-party insurance providers in other current assets with the corresponding liability of the same amount in other accrued liabilities. Such amounts are treated as non-cash operating activities. The Most litigation is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $ 3 million self-insured retention and deductible. All retentions and deductibles have been met, accordingly, we believe pending the final settlement, all further claims will be fully funded by our insurance policies. We will continue to evaluate the possible outcomes of this case in light of future developments and their potential impact on factors relevant to our assessment of any possible loss. On January 25, 2022, the trial judge entered a Final Judgment in this matter. TEAM immediately filed a supersedeas bond, to prevent execution on the judgment, while it prepares to file motions to appeal the judgment. Simon, Vige, and Roberts Matter – On February 19, 2019, a personal injury claim was filed by the plaintiffs against several counterparties including Team Industrial Services Inc., in the 295th District Court of Harris County, Texas. The plaintiffs filed the action seeking monetary damages for personal injury, and emotional and mental distress. This matter was settled in July 2021. This claim is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $ 3 million self-insured retention and deductible. All retentions and deductibles have been met, accordingly this claim has been fully funded by our insurance policies. Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $ 44 million as of December 31, 2021, of which approximately $ 5 million is not covered by our various insurance policies. In addition to legal matters discussed above, we are subject to various lawsuits, claims and proceedings encountered in the normal conduct of business (“Other Proceedings”). Management believes that based on its current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our consolidated financial statements. 93 Table of Content 16. SEGMENT AND GEOGRAPHIC DISCLOSURES ASC 280, Segment Reporting , requires we disclose certain information about our operating segments where operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in three segments: IHT, MS and Quest Integrity. Segment data for our three operating segments are as follows (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Revenues: IHT $ 415,371 $ 374,740 $ 512,950 MS 378,826 392,484 535,372 Quest Integrity 80,356 85,315 114,992 Total $ 874,553 $ 852,539 $ 1,163,314 Twelve Months Ended December 31, 2021 2020 2019 Operating income (loss): IHT 1 $ 12,997 $ ( 174,638 ) $ 24,084 MS 2 ( 47,728 ) 25,879 55,385 Quest Integrity 3 900 16,474 28,757 Corporate and shared support services ( 92,151 ) ( 85,077 ) ( 110,372 ) Total $ ( 125,982 ) $ ( 217,362 ) $ ( 2,146 ) ______________ 1 Includes goodwill impairment loss of $ 191.8 million for IHT for the year ended December 31, 2020. 2 Includes goodwill impairment loss of $ 55.8 million for MS for the year ended December 31, 2021. 3 Includes goodwill impairment loss of $ 8.8 million for Quest for the year ended December 31, 2021. Twelve Months Ended December 31, 2021 2020 2019 Capital expenditures 1 : IHT $ 11,742 $ 3,218 $ 7,983 MS 3,692 8,767 10,755 Quest Integrity 3,600 3,743 4,550 Corporate and shared support services 1,464 1,939 8,446 Total $ 20,498 $ 17,667 $ 31,734 ______________ 1 Excludes finance leases. Totals may vary from amounts presented in the consolidated statements of cash flows due to the timing of cash payments. 94 Table of Content Twelve Months Ended December 31, 2021 2020 2019 Depreciation and amortization: IHT $ 12,959 $ 14,891 $ 17,616 MS 20,500 21,854 21,835 Quest Integrity 2,616 3,587 3,557 Corporate and shared support services 5,443 5,576 6,051 Total $ 41,518 $ 45,908 $ 49,059 Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. A geographic breakdown of our revenues for the years ended December 31, 2021, 2020 and 2019 and our total long-lived assets as of December 31, 2021, 2020 and 2019 are as follows (in thousands): Total Revenues 1 Total Long-lived Assets 2 Twelve months ended December 31, 2021 United States $ 600,665 $ 270,684 Canada 108,659 8,595 Europe 108,433 27,295 Other foreign countries 56,796 5,383 Total $ 874,553 $ 311,957 Twelve months ended December 31, 2020 United States $ 606,818 $ 289,507 Canada 87,028 8,291 Europe 104,667 34,674 Other foreign countries 54,026 4,988 Total $ 852,539 $ 337,460 Twelve months ended December 31, 2019 United States $ 838,385 $ 328,832 Canada 127,574 8,625 Europe 126,794 32,517 Other foreign countries 70,561 6,044 Total $ 1,163,314 $ 376,018 ______________ 1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work. 2 Excludes goodwill, intangible assets not being amortized that are to be held and used, financial instruments and deferred tax assets. 95 Table of Content 17. RESTRUCTURING AND OTHER RELATED CHARGES Our restructuring and other related charges, net for the years ended December 31, 2021, 2020 and 2019 are summarized by segment as follows (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Operating Group Reorganization and other continuing restructuring measures Severance and related costs IHT $ 459 $ — $ — MS 514 — — Quest Integrity 381 — — Corporate and shared support services 1,562 — — Total 2,916 — — Grand total $ 2,916 $ — $ — Operating Group Reorganization. In January 2021, we announced a new strategic organizational structure to better position ourselves for the recovery, continue sector diversification, and enhance client value (the “Operating Group Reorganization”). In connection with the Operating Group Reorganization, we announced certain executive leadership changes and the appointment of experienced new talent to our leadership team. For the twelve months ended December 31, 2021, we incurred severance charges of $ 2.9 million, which represents all costs cumulatively incurred to date as a result of the Operating Group Reorganization. A rollforward of our accrued severance liability associated with this reorganization is presented below (in thousands): Twelve Months Ended December 31, 2021 Balance, beginning of period $ — Charges 2,916 Payments ( 2,204 ) Balance, end of period $ 712 For the twelve months ended December 31, 2021, we also incurred professional fees of $ 1.9 million associated with the Operating Group Reorganization. OneTEAM Program Beginning in 2017, we undertook a project (“OneTEAM”) to assess all aspects of our business for improvement and cost saving opportunities. We did not incur any severance costs under OneTEAM during the twelve months ended December 31, 2021. During the twelve months ended December 31, 2020, we incurred $ 3.4 million in severance charges associated with OneTEAM. We have incurred $ 11.8 million of OneTEAM severance charges cumulatively to date, and do not expect any further severance costs under this program. As of December 31, 2021, we had no remaining severance liability outstanding under OneTEAM. 96 Table of Content 18. ACCUMULATED OTHER COMPREHENSIVE LOSS A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands): Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Foreign Currency Translation Adjustments Foreign Currency Hedge Defined benefit pension plans Tax Provision Total Foreign Currency Translation Adjustments Foreign Currency Hedge Defined benefit pension plans Tax Provision Total Balance at beginning of year $ ( 23,045 ) $ 2,988 $ ( 8,021 ) $ 400 $ ( 27,678 ) $ ( 26,742 ) $ 4,186 $ ( 8,021 ) $ 387 $ ( 30,190 ) Other comprehensive income (loss) ( 2,213 ) — 4,148 ( 989 ) 946 3,697 ( 1,198 ) — 13 2,512 Balance at end of year $ ( 25,258 ) $ 2,988 $ ( 3,873 ) $ ( 589 ) $ ( 26,732 ) $ ( 23,045 ) $ 2,988 $ ( 8,021 ) $ 400 $ ( 27,678 ) The following table represents the related tax effects allocated to each component of other comprehensive income (loss) (in thousands): Twelve Months Ended December 31, 2021 2020 2019 Gross Amount Tax Effect Net Amount Gross Amount Tax Effect Net Amount Gross Amount Tax Effect Net Amount Foreign currency translation adjustments $ ( 2,213 ) $ ( 1 ) $ ( 2,214 ) $ 3,697 $ ( 340 ) $ 3,357 $ 3,865 $ 393 $ 4,258 Foreign currency hedge — — — ( 1,198 ) 294 ( 904 ) 282 ( 69 ) 213 Defined benefit pension plans 4,148 ( 988 ) 3,160 — 59 59 ( 162 ) ( 107 ) ( 269 ) Total $ 1,935 $ ( 989 ) $ 946 $ 2,499 $ 13 $ 2,512 $ 3,985 $ 217 $ 4,202 19. Related Party Transactions Alvarez & Marsal provides certain consulting services to the Company in connection with our Interim CFO position and other corporate support costs. The Company paid $ 8.0 million in fees to Alvarez & Marsal for the year ended December 31, 2021. In connection with the Company’s debt transactions, the Company engaged in transactions with Corre and Atlantic Park to provide funding as described in Note 11. 20. SUBSEQUENT EVENTS Refer to Note 1 for information on the Recent Financing Transactions and Note 11 for information on the amendments to the ABL Credit Facility, Incremental Financing and Equity Issuance we entered into on February 11, 2022. On March 7, 2022, the Company completed a transaction with Superior Plant Rentals (“SPR”) for the sale of certain assets for $ 3.0 million in cash. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements concerning accounting and financial disclosures with our independent accountants during any of the periods presented.