Notes to Consolidated Financial Statements
(tabular dollars in thousands, except per share data)
1. Description of Business and Basis of Presentation
Description of Business
Mistras Group, Inc. and subsidiaries (the Company) is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI), non-destructive testing (NDT) and mechanical services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, commercial aerospace and defense, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries and research and engineering institutions.
Principles of Consolidation
The accompanying audited consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly and majority-owned subsidiaries. For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying consolidated balance sheets. The non-controlling interests in net income, net of tax, is classified separately in the accompanying consolidated statements of income.
On January 3, 2017, the Company's Board of Directors approved a change in the Company's fiscal year from May 31 to December 31, effective December 31, 2016. In connection with this change, we previously filed a Transition Report on Form 10-K to report the results of the seven-month transition period from June 1, 2016 to December 31, 2016. In this Annual Report, the periods presented are the year ended December 31, 2017, the seven-month transition period from June 1, 2016 to December 31, 2016 and the years ended May 31, 2016 and 2015. The Company has also included unaudited data for the year ended December 31, 2016 and for the seven months ended December 31, 2015 (See Note 21).
All significant intercompany accounts and transactions have been eliminated in consolidation. For fiscal 2016 and 2015, Mistras Group, Inc.’s and its subsidiaries’ fiscal years ended on May 31 except for the subsidiaries in the International segment, which ended on April 30. Accordingly, the Company’s International segment subsidiaries were consolidated on a
one
-month lag. Therefore, in the quarter and year of acquisition, results of acquired subsidiaries in the International segment were generally included in consolidated results for
one
less month than the actual number of months from the acquisition date to the end of the reporting period. As discussed in Note 7 -
Acquisitions and Dispositions
, during the lag period in fiscal 2015, the Company sold an international subsidiary, and decided to sell
two
additional international subsidiaries. Effective December 31, 2016, the Company's International segment is no longer consolidated on a one month lag, and such change for the seven month transition period ended December 31, 2016 was not material.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company's financial condition or results of operations as previously reported.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue is generally recognized when persuasive evidence of an arrangement exists, services have been rendered or products have been delivered, the fee is fixed or determinable, and collectability is reasonably assured. Shipping and handling costs are included in cost of revenues. Taxes collected from customers and remitted to governmental authorities are presented in the consolidated statements of income on a net basis.
One
customer accounted for
11%
and
12%
of our revenues for the year ended December 31, 2017 and the transition period ended December 31, 2016, which primarily were generated from the Services
segment.
One
customer accounted for
10%
of our revenues in
fiscal 2016
, which primarily were generated from the Services segment.
No
customer accounted for
10%
or more of our revenues in
fiscal 2015
. The following revenue recognition policies define the manner in which we account for specific transaction types:
Services
Most of our projects are short-term in nature and revenue is primarily derived from providing services on a time and material basis. Service arrangements generally consist of inspection professionals working under contract for a fixed period of time or on a specific customer project. Revenue is generally recognized when the service is performed in accordance with terms of each customer arrangement, upon completion of the earnings process and when collection is reasonably assured. At the end of any reporting period, earned revenue is accrued for services that have been provided which have not yet been billed. Reimbursable costs, including those related to travel and out-of-pocket expenses, are included in revenue, and equivalent amounts of reimbursable costs are included in cost of services.
Products and Systems
Sales of products and systems are recorded when the sales price is fixed and determinable and the risks and rewards of ownership are transferred (generally upon shipment) and when collectability is reasonably assured.
These arrangements occasionally contain multiple elements or deliverables, such as hardware, software (that is essential to the functionality of the hardware) and related services. The Company recognizes revenue for delivered elements as separate units of accounting, when the delivered elements have standalone value, uncertainties regarding customer acceptance are resolved and there are no refund or return rights for the delivered elements. The Company establishes the selling prices for each deliverable based on vendor-specific objective evidence (“VSOE”), if available, third-party evidence, if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor third-party evidence is available. The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately and, in rare instances, using the price established by management having the relevant authority. Third-party evidence of selling price is established by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. The Company determines ESP, by considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies and industry technology life cycles. When determining ESP, the Company applies management judgment to establish margin objectives and pricing strategies and to evaluate market conditions and product life cycles. Changes in the aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements and therefore may change the pattern and timing of revenue recognition for these elements, but will not change the total revenue recognized for the arrangement.
A portion of the Company’s revenue is generated from engineering and manufacturing of custom products under long-term contracts that may last from several months to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting revenues are recognized as work is performed. The percentage of completion at any point in time is generally based on total costs or total labor dollars incurred to date in relation to the total estimated costs or total labor dollars estimated at completion. The percentage of completion is then applied to the total contract revenue to determine the amount of revenue to be recognized in the period. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct materials, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in our project performance and the recoverability of any claims. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires that the Company make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future
events and their effects cannot be determined with precision, actual results could differ significantly from these estimates, which may cause the Company’s future results to be significantly affected.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are stated net of an allowance for doubtful accounts and sales allowances. Outstanding accounts receivable balances are reviewed periodically, and allowances are provided at such time that management believes it is probable that such balances will not be collected within a reasonable period of time. The Company extends credit to its customers based upon credit evaluations in the normal course of business, primarily with 30-day terms. Bad debts are provided for based on historical experience and management’s evaluation of outstanding accounts receivable. Accounts are written off when they are deemed uncollectible.
One
customer accounted for
7%
and
11%
of our accounts receivable as of December 31, 2017 and December 31, 2016, respectively.
Inventories
Inventories are stated at the lower of cost, as determined by using the first-in, first-out method, or market. Work in process and finished goods inventory include material, direct labor, variable costs and overhead.
Purchased and Internal-Use Software
The Company capitalizes certain costs that are incurred to purchase or to create and implement internal-use software, which includes software coding, installation and testing. Capitalized costs are amortized on a straight-line basis over
three years
, the estimated useful life of the software.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of property, plant and equipment is computed utilizing the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the shorter of the remaining lease term or estimated useful life. Repairs and maintenance costs are expensed as incurred.
Goodwill
Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets. We test goodwill for impairment at a “reporting unit” level (which for the Company is represented by (i) our Services segment, (ii) our Products and Systems segment, and (iii) the European component and (iv) Brazilian component of our International segment). Our annual impairment test is conducted on the first day of our fourth quarter. In connection with the change in our fiscal year to December 31, our annual test date is October 1. For the transition period ended December 31, 2016, a December 1 date was used and historically, prior to the fiscal year end change, the Company tested for impairment annually as of March 1. Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During the third quarter of 2017, there was a triggering event in the Products and Systems segment that resulted in a
$13.2 million
goodwill impairment charge. See Note 8 for further details.
If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired. As a result of the Company adopting ASU 2017-04, impairment will be recorded in the amount that fair value is less than carrying value, as the ASU eliminated step two of goodwill impairment process. The Company considers the income and market approaches to estimating the fair value of our reporting units, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors.
Impairment of Long-lived Assets
The Company reviews the recoverability of its long-lived assets (or asset groups) on a periodic basis in order to identify indicators of a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to
recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total expected future undiscounted cash flows are less than the carrying amount of the assets, a loss is recognized for the difference between fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets. During the third quarter of 2017, there was a triggering event in the Products and Systems segment that resulted in a
$2.6 million
impairment charge of long-lived assets. See Note 9 for further details.
Research and Engineering
Research and product development costs are expensed as incurred.
Advertising, Promotions and Marketing
The costs for advertising, promotion and marketing programs are expensed as incurred and are included in selling, general and administrative expenses. Advertising expense was approximately
$1.9 million
,
$1.2 million
,
$1.8 million
and
$2.2 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and fiscal 2016 and
2015
, respectively.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other financial current assets and liabilities approximate fair value based on the short-term nature of the items. The carrying value of long-term debt approximates fair value due to the variable-rate structure of the debt. The fair value of the Company’s notes payable and capital lease obligations approximate their carrying amounts as those obligations bear interest at rates which management believes would currently be available to the Company for similar obligations.
Foreign Currency Translation
The financial position and results of operations of the Company’s foreign subsidiaries are measured using their functional currencies, which are their local currencies. Assets and liabilities of foreign subsidiaries are translated into the U.S. Dollar at the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate during the period. Translation gains and losses are reported as a component of other comprehensive (loss) income for the period and included in accumulated other comprehensive (loss) income within stockholders’ equity.
Foreign currency (gains) and losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in SG&A expenses, and were approximately
$0.6 million
,
$(0.7) million
,
$(0.1) million
and
$1.5 million
for the year ended December 31, 2017, transition period ended December 31, 2016 and fiscal
2016
and
2015
, respectively.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions.
Self-Insurance
The Company is self-insured for certain losses relating to workers’ compensation and health benefits claims. The Company maintains third-party excess insurance coverage for all workers' compensation and health benefit claims in excess of approximately
$0.3 million
per occurence to reduce its exposure from such claims. Self-insured losses are accrued when it is probable that an uninsured claim has been incurred but not reported and the amount of the loss can be reasonably estimated at the balance sheet date.
Share-based Compensation
The value of services received from employees and directors in exchange for an award of an equity instrument is measured based on the grant-date fair value of the award. Such value is recognized as a non-cash expense on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of awards with graded vesting that contain an internal performance measure where each tranche is recognized on a straight-line basis over its vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares
expected to be earned. As share-based compensation expense is based on awards ultimately expected to vest, the amount of expense has been reduced for estimated forfeitures. The cost of these awards is recorded in selling, general and administrative expense in the Company’s consolidated statements of income.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. Financial accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. These standards also provide guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required. Interest and penalties related to unrecognized tax positions are recognized as incurred within “provision for income taxes” in the consolidated statements of income.
Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
which defers the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 will become effective for the Company beginning 2018. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The Company adopted ASU 2014-09 along with the related additional ASU’s on Topic 606 on January 1, 2018, utilizing the cumulative catch-up method. The result of adoption is immaterial to the Company's consolidated financial statements, largely because most of our projects are short-term in nature and billed on a time and material basis. The Company utilizes a practical expedient that provides for revenue to be recognize in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. The Company will make the additional required disclosures under Topic 606, starting with the Company's condensed consolidated financial statements in the first quarter of 2018.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.
This amendment will simplify the presentation of deferred tax assets and liabilities on the balance sheet and require all deferred tax assets and liabilities to be treated as non-current. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance prospectively beginning in the first quarter of 2017, which did not have a material impact on the consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842).
This amendment supersedes previous accounting guidance (
Topic 840)
and requires all leases, with the exception of leases with a term of 12 months or less, to be recorded on the balance sheet as lease assets and lease liabilities. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. The standard requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Stock Compensation (Topic 718).
This amendment simplifies certain aspects of accounting for share-based payment transactions, which include accounting for income taxes and the related impact on the statement of cash flows, an option to account for forfeitures when they occur in addition to the existing guidance to estimate the forfeitures of awards, classification of awards as either equity or liabilities and classification on the statement of cash flows for employee taxes paid to tax authorities on shares withheld for vesting. ASU 2016-09 is effective for fiscal years,
and interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance prospectively beginning in the first quarter of 2017, and accordingly, is recording excess tax benefits and tax deficiencies as a component of income tax expense.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230).
This amendment will provide guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect that ASU 2016-15 will have a material impact on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230).
This amendment will clarify the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending cash balances on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect that ASU 2016-18 will have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350).
This amendment eliminates Step Two of the goodwill impairment test. Under the amendments in this update, entities should perform the annual goodwill impairment test by comparing the carrying value of its reporting units to their fair value. An entity should record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Tax deductibility of goodwill should be considered in evaluating any reporting unit's impairment loss to be taken. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company early adopted ASU 2017-04 in the third quarter of 2017 for its consolidated financial statements and related disclosures. See Notes 8 and 9 for information on the impairment of assets in the Products and Systems reporting unit during the three months ended September 30, 2017.
In May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting.
This amendment provides guidance concerning which changes to the terms or conditions of a share-based payment require an entity to apply modification accounting. Certain changes to stock awards, notably administrative changes, do not require modification accounting. There are three specific criteria that need to be met in order to prove that modification accounting is not required. ASU 2017-09 is effective for fiscal years, and interim period within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expect that ASU 2017-09 will have a material impact on its consolidated financial statements and related disclosures.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the "Tax Act"). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company considers the accounting for the Tax Act to be provisional as of December 31, 2017. The Company will complete the accounting for the tax effects of all of the provisions of the Tax Act within the required measurement period not to extend beyond one year from the enactment date.
3. Earnings per Share
Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common shareholders by the sum of (1) the weighted average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects: (i) only the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.
The following table sets forth the computations of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the transition period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Basic (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Mistras Group, Inc.
|
$
|
(2,175
|
)
|
|
$
|
9,568
|
|
|
$
|
24,654
|
|
|
$
|
16,081
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
28,422
|
|
|
28,989
|
|
|
28,856
|
|
|
28,613
|
|
Basic (loss) earnings per share
|
$
|
(0.08
|
)
|
|
$
|
0.33
|
|
|
$
|
0.85
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income attributable to Mistras Group, Inc.
|
$
|
(2,175
|
)
|
|
$
|
9,568
|
|
|
$
|
24,654
|
|
|
$
|
16,081
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
28,422
|
|
|
28,989
|
|
|
28,856
|
|
|
28,613
|
|
Dilutive effect of stock options outstanding
|
—
|
|
|
791
|
|
|
712
|
|
|
719
|
|
Dilutive effect of restricted stock units outstanding
|
—
|
|
|
345
|
|
|
323
|
|
|
258
|
|
|
28,422
|
|
|
30,125
|
|
|
29,891
|
|
|
29,590
|
|
Diluted (loss) earnings per share
|
$
|
(0.08
|
)
|
|
$
|
0.32
|
|
|
$
|
0.82
|
|
|
$
|
0.54
|
|
The following potential common shares were excluded from the computation of diluted earnings per share, as the effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the transition period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Potential common stock attributable to stock options outstanding
|
810
|
|
(1
|
)
|
—
|
|
|
5
|
|
|
6
|
|
Potential common stock attributable to restricted stock units (RSUs) and performance stock units (PSUs) outstanding
|
353
|
|
(2
|
)
|
2
|
|
|
24
|
|
|
1
|
|
Total
|
1,163
|
|
|
2
|
|
|
29
|
|
|
7
|
|
(1) -
805
shares related to stock options were excluded from the calculation of diluted EPS due to the net loss for the period.
(2) -
351
shares related to RSUs and PSUs were excluded from the calculation of diluted EPS due to the net loss for the period.
4. Accounts Receivable, net
Accounts receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2017
|
|
2016
|
Trade accounts receivable
|
$
|
141,952
|
|
|
$
|
133,704
|
|
Allowance for doubtful accounts
|
(3,872
|
)
|
|
(2,852
|
)
|
Accounts receivable, net
|
$
|
138,080
|
|
|
$
|
130,852
|
|
The Company had
$14.4 million
and
$16.8 million
of unbilled revenues accrued as of
December 31, 2017
and December 31, 2016, respectively. Unbilled revenues as of
December 31, 2017
are expected to be billed in the first quarter of
2018
.
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2017
|
|
2016
|
Raw materials
|
$
|
5,105
|
|
|
$
|
5,054
|
|
Work in progress
|
1,192
|
|
|
1,246
|
|
Finished goods
|
2,746
|
|
|
2,335
|
|
Services-related consumable supplies
|
1,460
|
|
|
1,382
|
|
Inventory
|
$
|
10,503
|
|
|
$
|
10,017
|
|
6. Property, Plant and Equipment, net
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
Useful Life
|
2017
|
|
2016
|
|
(Years)
|
|
|
|
Land
|
|
$
|
2,414
|
|
|
$
|
1,714
|
|
Building and improvements
|
30-40
|
24,003
|
|
|
19,261
|
|
Office furniture and equipment
|
5-8
|
14,230
|
|
|
9,069
|
|
Machinery and equipment
|
5-7
|
191,721
|
|
|
169,928
|
|
|
|
232,368
|
|
|
199,972
|
|
Accumulated depreciation and amortization
|
|
(145,225
|
)
|
|
(126,823
|
)
|
Property, plant and equipment, net
|
|
$
|
87,143
|
|
|
$
|
73,149
|
|
Depreciation expense was approximately
$22.4 million
,
$14.0 million
,
$22.9 million
and
$22.2 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and fiscal 2016 and
2015
, respectively.
7. Acquisitions and Dispositions
Acquisitions
During the year ended December 31, 2017, the Company completed
three
acquisitions,
one
that performs mechanical services at height, located in Canada, a company located in the U.S. that primarily performs chemical and specialty process services and a company in the U.S. that performs a wide variety of non-destructive testing services. Both U.S. companies primarily provide services to the aerospace industry.
In these acquisitions, the Company acquired
100%
of the equity interests of the entity based in Canada and one of the entities based in the U.S. in exchange for aggregate consideration of
$79.5 million
in cash, contingent consideration up to
$2.4 million
to be earned based upon the acquired business achieving specific performance metrics over the initial
three
years of operations from the acquisition date and
$0.2 million
for working capital adjustments yet to be finalized. The Company acquired the assets of
one
of the U.S. based entities noted above in exchange for aggregate consideration of
$4.5 million
in cash and contingent consideration up to
$3.5 million
to be earned based upon the acquired business achieving specific performance metrics over the initial
three
years of operations from the acquisition date. The Company accounted for these transactions in accordance with the acquisition method of accounting for business combinations.
During the transition period ended December 31, 2016, the Company completed
three
acquisitions. The Company purchased three companies,
two
that provide NDT services, located in Canada and
one
that provides mechanical services, located in the U.S.
For the Canadian acquisitions, the Company acquired
100%
of the common stock of both acquirees in exchange for aggregate consideration of
$1.3 million
in cash,
$0.3 million
of notes payable and contingent consideration up to
$0.6 million
to be earned based upon the acquired businesses achieving specific performance metrics over their initial
three
years of operations
from their acquisition dates. For the U.S. acquisition, the Company acquired assets of the acquiree in exchange for aggregate consideration of
$7.0 million
in cash and contingent consideration up to
$2.0 million
to be earned based upon the acquired businesses achieving specific performance metrics over the initial
three
years of operations from its acquisition date. The Company accounted for these three transactions in accordance with the acquisition method of accounting for business combinations.
Assets and liabilities of the acquired businesses were included in the consolidated balance sheets as of
December 31, 2017
based on their estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuation of the assets, both tangible and intangible, and liabilities acquired for two of the acquisitions completed during the year ended December 31, 2017. Goodwill of
$41.7 million
primarily relates to expected synergies and assembled workforce, of which
$39.7 million
is generally deductible for tax purposes. Other intangible assets, primarily related to customer relationships and covenants not to compete, were
$31.7 million
. The results of operations of each of the acquisitions completed during the year ended December 31, 2017 and the transition period ended December 31, 2016 are included in each respective operating segment’s results of operations from the date of acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed, the Company's allocation of purchase price and any subsequent adjustments made during the year ended December 31, 2017 and the transition period ended December 31, 2016:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
Transition Period
|
Number of entities
|
3
|
|
3
|
|
|
|
|
Cash paid
|
$
|
83,963
|
|
$
|
8,295
|
|
Working capital adjustments
|
150
|
|
—
|
|
Notes payable
|
—
|
|
325
|
|
Contingent consideration
|
3,407
|
|
1,630
|
|
Consideration paid
|
$
|
87,520
|
|
$
|
10,250
|
|
|
|
|
Current net assets
|
$
|
7,165
|
|
$
|
1,632
|
|
Debt and other long-term liabilities
|
(2,848
|
)
|
(214
|
)
|
Property, plant and equipment
|
11,115
|
|
953
|
|
Deferred tax asset (liability)
|
(1,278
|
)
|
392
|
|
Intangibles
|
31,671
|
|
3,367
|
|
Goodwill
|
41,695
|
|
4,120
|
|
Net assets acquired
|
$
|
87,520
|
|
$
|
10,250
|
|
The amortization period for intangible assets acquired ranges from
two
to
fourteen years
. The Company recorded
$41.7 million
and
$4.1 million
of goodwill in connection with its acquisitions for the year ended December 31, 2017 and the transition period ended December 31, 2016, respectively, reflecting the strategic fit and revenue and earnings growth potential of these businesses.
Revenue included in the consolidated statement of income for the year ended December 31,
2017
from the three businesses acquired in 2017 for the period subsequent to the closing of the transactions was approximately
$17.9 million
. Aggregate income from operations included in the consolidated statement of income for the year ended December 31,
2017
from the acquisitions for the period subsequent to the closing of each transaction was
$0.8 million
, inclusive of
$0.9 million
of acquisition-related expense. As these acquisitions were immaterial on an individual basis and in the aggregate, no unaudited pro forma financial information has been included in this report.
Dispositions
On May 22, 2015, the Company completed the sale of
one
of its Russian subsidiaries and recognized a loss of
$0.4 million
. On July 31, 2015, the Company completed the sale of its other subsidiary in Russia, as well as its subsidiary in Japan. For the year ended May 31, 2015, the Company recognized impairment charges of $
2.1 million
related to these sales. Aggregate charges
associated with the exit of these
three
foreign operations was approximately
$2.5 million
and is included within selling, general and administrative expenses on the consolidated income statement for the year ended May 31, 2015. In the aggregate, the assets and liabilities of these subsidiaries represent
0.6%
and
0.3%
of consolidated assets and liabilities, respectively, and are included in their natural classifications on the consolidated balance sheet as of May 31, 2015.
During the fourth quarter of 2017, the Company began the process of marketing
one
of its subsidiaries in the Products and Systems segment for sale. The Company determined that the classification of being held for sale has been met as of December 31, 2017. For the year ended December 31, 2017, this subsidiary represented
0.6%
of consolidated revenues and loss from operations was
$3.5 million
, inclusive of a
$2.6 million
impairment charge for long-lived assets (See Note 9). In the aggregate, the assets and liabilities of this subsidiary represents
0.4%
and
0.2%
of consolidated assets and liabilities, respectively, and are included in their natural classifications on the consolidated balance sheet as of December 31, 2017.
Acquisition-Related expense
In the course of its acquisition activities, the Company incurs costs in connection with due diligence, professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are recorded as acquisition-related (benefit) expense, net, on the consolidated statements of income and were as follows for the year ended December 31, 2017, the transition period ended December 31, 2016 and fiscal 2016 and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Due diligence, professional fees and other transaction costs
|
$
|
945
|
|
|
$
|
231
|
|
|
$
|
629
|
|
|
$
|
215
|
|
Adjustments to fair value of contingent consideration liabilities
|
$
|
(463
|
)
|
|
$
|
265
|
|
|
$
|
(2,082
|
)
|
|
$
|
(5,382
|
)
|
Acquisition-related (benefit) expense, net
|
$
|
482
|
|
|
$
|
496
|
|
|
$
|
(1,453
|
)
|
|
$
|
(5,167
|
)
|
The Company’s contingent consideration liabilities are recorded on the balance sheet in accrued expenses and other liabilities.
8. Goodwill
The changes in the carrying amount of goodwill by segment is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
International
|
|
Products and Systems
|
|
Total
|
Balance at May 31, 2016
|
$
|
119,683
|
|
|
$
|
36,340
|
|
|
$
|
13,197
|
|
|
$
|
169,220
|
|
Goodwill acquired during the year
|
4,120
|
|
|
—
|
|
|
—
|
|
|
4,120
|
|
Adjustments to preliminary purchase price allocations
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Foreign currency translation
|
(392
|
)
|
|
(2,989
|
)
|
|
—
|
|
|
(3,381
|
)
|
Balance at December 31, 2016
|
$
|
123,392
|
|
|
$
|
33,351
|
|
|
$
|
13,197
|
|
|
$
|
169,940
|
|
Goodwill acquired during the year
|
41,695
|
|
|
—
|
|
|
—
|
|
|
41,695
|
|
Impairment charge
|
—
|
|
|
—
|
|
|
(13,197
|
)
|
|
(13,197
|
)
|
Adjustments to preliminary purchase price allocations
|
(211
|
)
|
|
—
|
|
|
—
|
|
|
(211
|
)
|
Foreign currency translation
|
925
|
|
|
4,286
|
|
|
—
|
|
|
5,211
|
|
Balance at December 31, 2017
|
$
|
165,801
|
|
|
$
|
37,637
|
|
|
$
|
—
|
|
|
$
|
203,438
|
|
During the second quarter of 2017, there were pending Products and Systems contract bids which management assessed as having a reasonable chance of success. During the third quarter of 2017, these contract bids were not awarded to the Company. As a result of this missed opportunity, the annual forecasting process was accelerated, resulting in lower expected future operating profits and cash flows. As such, during the third quarter of 2017, there were indicators that the carrying amount of the goodwill for the Products and Systems reporting unit may not have been recoverable due to the decline in the projected future cash flows.
The Company performed an analysis to determine any impairment of goodwill as well as long-lived assets (see Note 9). For the goodwill analysis, we used income and market approaches to estimate the fair value of the reporting unit, which required significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors, and compared that fair value to the carrying value, and determined that the fair value of the reporting unit was less than the carrying value. The Company recorded an impairment charge of
$13.2 million
, based on the difference between the fair value and the carrying value of the reporting unit, which resulted in an impairment of the entire amount of goodwill for the Products and Systems reporting unit.
The Company performed an impairment test of its remaining reporting units as of October 1, 2017 and concluded that there was
no
impairment.
F
or the year ended December 31, 2017, the Company reviewed goodwill for impairment on a reporting unit basis. As of
December 31, 2017
, the Company did not identify any changes in circumstances that would indicate the remaining carrying value of goodwill may not be recoverable.
The Company's cumulative goodwill impairment for the periods ended
December 31, 2017
was
$23.1 million
, of which
$13.2 million
related to the Products and Systems segment and
$9.9 million
related to the International segment. The Company's cumulative goodwill impairment as of December 31, 2016 was
$9.9 million
, all of which is within its International segment.
9. Intangible Assets
The gross carrying amount and accumulated amortization of intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Useful Life
(Years)
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Amount
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer relationships
|
5-14
|
|
$
|
113,299
|
|
|
$
|
(58,107
|
)
|
|
$
|
(170
|
)
|
|
$
|
55,022
|
|
|
$
|
81,559
|
|
|
$
|
(50,417
|
)
|
|
$
|
31,142
|
|
Software/Technology
|
3-15
|
|
19,523
|
|
|
(14,133
|
)
|
|
(2,411
|
)
|
|
2,979
|
|
|
18,128
|
|
|
(12,577
|
)
|
|
5,551
|
|
Covenants not to compete
|
2-5
|
|
12,510
|
|
|
(10,438
|
)
|
|
—
|
|
|
2,072
|
|
|
11,143
|
|
|
(9,647
|
)
|
|
1,496
|
|
Other
|
2-5
|
|
10,109
|
|
|
(6,411
|
)
|
|
(32
|
)
|
|
3,666
|
|
|
7,266
|
|
|
(5,448
|
)
|
|
1,818
|
|
Total
|
|
|
$
|
155,441
|
|
|
$
|
(89,089
|
)
|
|
$
|
(2,613
|
)
|
|
$
|
63,739
|
|
|
$
|
118,096
|
|
|
$
|
(78,089
|
)
|
|
$
|
40,007
|
|
Amortization expense for the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and
2015
was approximately
$9.0 million
,
$5.2 million
,
$9.6 million
and
$11.1 million
, respectively, including amortization of software/technology for these periods of
$0.7 million
,
$0.5 million
,
$1.0 million
and
$0.9 million
, respectively.
As described in Note 8, the Company performed an analysis to determine whether there was any impairment of long-lived
assets for the Products and Systems reporting unit. We used income and market approaches to estimate the fair value of the
long-lived assets, which requires significant judgment in evaluation of the useful lives of the assets, economic and industry
trends, estimated future cash flows, discount rates, and other factors. The result of the analysis was an impairment of
$2.4 million
to software/technology,
$0.2 million
to customer relationships and less than
$0.1 million
to other intangibles, which are
included in the impairment charges line on the consolidated statements of income for the year ended December 31, 2017.
Amortization expense in each of the five years and thereafter subsequent to
December 31, 2017
related to the Company’s intangible assets is expected to be as follows:
|
|
|
|
|
|
Expected
Amortization
Expense
|
|
|
|
2018
|
$
|
10,117
|
|
2019
|
8,952
|
|
2020
|
7,483
|
|
2021
|
6,411
|
|
2022
|
6,076
|
|
Thereafter
|
24,700
|
|
Total
|
$
|
63,739
|
|
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Accrued salaries, wages and related employee benefits
|
$
|
27,185
|
|
|
$
|
23,442
|
|
Contingent consideration
|
3,430
|
|
|
1,826
|
|
Accrued workers' compensation and health benefits
|
5,181
|
|
|
6,351
|
|
Deferred revenues
|
6,338
|
|
|
3,743
|
|
Legal settlement accrual
|
1,600
|
|
|
6,320
|
|
Other accrued expenses
|
21,827
|
|
|
17,015
|
|
Total accrued expenses and other current liabilities
|
$
|
65,561
|
|
|
$
|
58,697
|
|
11. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Senior credit facility
|
$
|
156,948
|
|
|
$
|
82,776
|
|
Notes payable
|
228
|
|
|
320
|
|
Other
|
9,702
|
|
|
4,200
|
|
Total debt
|
166,878
|
|
|
87,296
|
|
Less: Current portion
|
(2,358
|
)
|
|
(1,379
|
)
|
Long-term debt, net of current portion
|
$
|
164,520
|
|
|
$
|
85,917
|
|
Senior Credit Facility
On December 8, 2017, the Company entered into a Fourth Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement increased the Company’s revolving line of credit from
$175.0 million
to
$250.0 million
and provides that under certain circumstances the line of credit can be increased to
$300.0 million
. The Company may continue to borrow up to
$30.0 million
in non-U.S. Dollar currencies and use up to
$10.0 million
of the credit limit for the issuance of letters of credit. The maturity date of the Credit Agreement is December 7, 2022. At
December 31, 2017
, the Company had borrowings of
$156.9 million
and letters of credit of
$4.9 million
were outstanding under the Credit Agreement. The Company has capitalized costs of
$0.8 million
associated with debt modifications.
Loans under the Credit Agreement bear interest at
LIBOR
plus an applicable LIBOR margin ranging from
1%
to
2%
, or a
base rate
less a margin of
1.25%
to
0.375%
, at the option of the Company, based upon the Company’s Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-
bearing indebtedness as of the date of determination to (2) EBITDA (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus (h) certain amounts of EBITDA of acquired business for the prior twelve months, plus (i) certain expenses related to the closing of the Credit Agreement, plus (j) non-cash expenses which do not (in the current or any future period) represent a cash item (excluding non-cash gains which increase net income), plus (k) non-recurring charges (not to exceed
$5 million
in the
four
consecutive quarters immediately preceding the date of determination) for items such as severance, lease termination charges, asset write-offs and litigation settlements paid during the period, all determined for the period of
four
consecutive fiscal quarters immediately preceding the date of determination. The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than
0.5
to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than
2.75
to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional
2%
interest rate margin on any amounts not paid when due. Amounts borrowed under the Credit Agreement are secured by liens on substantially all of the assets of the Company and is guaranteed by some of our subsidiaries.
The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of no greater than
3.5
to 1 and an Interest Coverage Ratio of at least
3.0
to 1. Interest Coverage Ratio means the ratio, as of any date of determination, of (a) EBITDA for the
12
month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses of the Company and its subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the
12
month period immediately preceding the date of determination. The Company can elect to increase the Funded Debt Leverage Ratio to
3.75
to 1 temporarily for
four
fiscal quarters immediately following the fiscal quarter in which the Company acquires another business. The Company can make this election twice during the term of the Credit Agreement.
The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders or repurchase our stock, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.
As of
December 31, 2017
, the Company was in compliance with the terms of the Credit Agreement, and has undertaken to continuously monitor compliance with these covenants.
Notes Payable and Other Debt
In connection with certain of its acquisitions, the Company issued subordinated notes payable to the sellers. The maturity of the notes that remain outstanding are
three
years from the date of acquisition and bear interest at the prime rate for the Bank of Canada, currently
3.2%
as of December 31, 2017. Interest expense is recorded in the consolidated statements of income.
The Company's other debt includes local bank financing provided at the local subsidiary levels used to support working capital requirements and fund capital expenditures. At December 31, 2017, there was approximately
$9.7 million
outstanding, payable at various times from 2018 to 2029. Monthly payments range from
$1 thousand
to
$18 thousand
. Interest rates range from
0.6%
to
6.2%
.
The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value. The fair value of the Company’s notes payable and capital lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt.
Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to
December 31, 2017
are as follows:
|
|
|
|
|
2018
|
$
|
2,358
|
|
2019
|
1,664
|
|
2020
|
1,243
|
|
2021
|
892
|
|
2022
|
157,728
|
|
Thereafter
|
2,993
|
|
Total
|
$
|
166,878
|
|
12. Fair Value Measurements
The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as 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. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available.
Financial instruments measured at fair value on a recurring basis
The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant
inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The
significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected
future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the
obligation, and as calculated in accordance with the terms of the applicable acquisition agreements.
The following table represents the changes in the fair value of Level 3 contingent consideration:
|
|
|
|
|
|
Balance at May 31, 2016
|
|
$
|
2,075
|
|
Acquisitions
|
|
1,630
|
|
Payments
|
|
(795
|
)
|
Accretion of liability
|
|
136
|
|
Revaluation
|
|
126
|
|
Foreign currency translation
|
|
(78
|
)
|
Balance at December 31, 2016
|
|
$
|
3,094
|
|
Acquisitions
|
|
3,407
|
|
Payments
|
|
(560
|
)
|
Accretion of liability
|
|
272
|
|
Revaluation
|
|
(735
|
)
|
Foreign currency translation
|
|
30
|
|
Balance at December 31, 2017
|
|
$
|
5,508
|
|
Financial instruments not measured at fair value on a recurring basis
The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value
of its long-term debt approximates fair value. The fair value of the Company’s notes payable and capital lease obligations
approximates their carrying amounts based on anticipated interest rates which management believes would currently be
available to the Company for similar issuances of debt.
13. Share-Based Compensation
The Company has share-based incentive awards outstanding to its eligible employees and Directors under
three
employee stock ownership plans: (i) the 2007 Stock Option Plan (the 2007 Plan), (ii) the 2009 Long-Term Incentive Plan (the 2009 Plan) and (iii) the 2016 Long-Term Incentive Plan.
No
further awards may be granted under either the 2007 Plan or the 2009 Plan, although awards granted under the 2007 Plan and 2009 Plan remain outstanding in accordance with their terms. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights. The 2016 Plan allows for the grant of awards of up to approximately
1,700,000
shares of common stock, of which
1,438,000
shares were available for future grants as of
December 31, 2017
. As of
December 31, 2017
, there was an aggregate of approximately
2,130,000
stock options outstanding and approximately
724,000
unvested restricted stock units outstanding under the 2009 Plan and the 2007 Plan.
Stock Options
For the year ended December 31, 2017 and the transition period ended December 31, 2016, the Company did
no
t have any share-based compensation expense related to stock option awards. For each of the fiscal years ended May 31, 2016 and
2015
, the Company recognized share-based compensation expense related to stock option awards of less than
$0.1 million
.
No
stock options were granted during the year ended December 31, 2017, the transition period ended December 31, 2016 or the years ended May 31, 2016 and 2015. As of
December 31, 2017
,
no
unrecognized compensation costs remained related to stock option awards. Cash proceeds from, and the intrinsic value of stock options exercised during the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Cash proceeds from options exercised
|
$
|
275
|
|
|
$
|
604
|
|
|
$
|
543
|
|
|
$
|
750
|
|
Aggregate intrinsic value of options exercised
|
580
|
|
|
993
|
|
|
658
|
|
|
563
|
|
A summary of the stock option activity, weighted average exercise prices, and options outstanding and exercisable as of
December 31, 2017
, the transition period ended December 31, 2016 and the years ended May 31, 2016 and 2015 is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year:
|
2,167
|
|
|
$
|
13.33
|
|
|
2,232
|
|
|
$
|
13.21
|
|
|
2,287
|
|
|
$
|
13.13
|
|
|
2,352
|
|
|
$
|
13.09
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Exercised
|
(37
|
)
|
|
$
|
7.39
|
|
|
(65
|
)
|
|
$
|
9.27
|
|
|
(55
|
)
|
|
$
|
9.87
|
|
|
(65
|
)
|
|
$
|
11.54
|
|
|
Expired or forfeited
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding at end of year:
|
2,130
|
|
|
$
|
13.43
|
|
|
2,167
|
|
|
$
|
13.33
|
|
|
2,232
|
|
|
$
|
13.21
|
|
|
2,287
|
|
|
$
|
13.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Total
Options
Outstanding
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$10.00-$11.54
|
|
35
|
|
|
1.1
|
|
$
|
10.54
|
|
|
35
|
|
|
$
|
10.54
|
|
$13.46-$22.35
|
|
2,095
|
|
|
1.7
|
|
$
|
13.48
|
|
|
2,095
|
|
|
$
|
13.48
|
|
|
|
2,130
|
|
|
|
|
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value
|
|
$
|
21,374
|
|
|
|
|
|
|
|
$
|
21,374
|
|
|
|
|
Restricted Stock Unit Awards
The Company recognized approximately
$4.5 million
of share-based compensation for the year ended December 31, 2017,
$2.6 million
of share-based compensation for the transition period ended December 31, 2016,
$4.4 million
of share-based compensation in
fiscal 2016
and
$4.7 million
of share-based compensation in
fiscal 2015
related to restricted stock unit awards. As of
December 31, 2017
, there were approximately
$8.2 million
of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of
2.3 years
. Approximately
185,000
restricted stock units vested in the year ended December 31, 2017, of which the fair value of these units was
$3.4 million
. Approximately
207,000
restricted stock units vested in the transition period ended December 31, 2016, of which the fair value of these units was
$5.1 million
. Approximately
223,000
restricted stock units vested in
fiscal 2016
and
232,000
restricted stock units vested in
fiscal 2015
. The fair value of these units was
$3.5 million
and
$5.2 million
, respectively. Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.
During the year ended December 31, 2017, the Company granted approximately
21,000
shares of fully-vested common stock to its
five
non-employee directors, in connection with its non-employee director compensation plan, which shares had a grant date fair value of approximately
$0.4 million
. During the transition period ended December 31, 2016, the Company granted approximately
10,000
shares of fully-vested common stock to its
five
non-employee directors, in connection with its non-employee director compensation plan, which shares had a grant date fair value of approximately
$0.3 million
. During the years ended May 31, 2016 and
2015
, the Company granted approximately
28,000
and
21,000
shares, respectively, of fully-vested common stock to its
five
non-employee directors, in connection with its non-employee director compensation plan. These shares had a grant date fair value of approximately
$0.5 million
and
$0.4 million
, respectively, which is included in the share-based compensation expense recorded during the years ended May 31, 2016 and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the transition period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at beginning of period:
|
569
|
|
|
$
|
20.81
|
|
|
575
|
|
|
$
|
18.85
|
|
|
564
|
|
|
$
|
20.47
|
|
|
628
|
|
|
$
|
19.37
|
|
Granted
|
183
|
|
|
$
|
21.26
|
|
|
219
|
|
|
$
|
24.48
|
|
|
264
|
|
|
$
|
16.73
|
|
|
192
|
|
|
$
|
21.87
|
|
Released
|
(185
|
)
|
|
$
|
20.49
|
|
|
(207
|
)
|
|
$
|
19.40
|
|
|
(223
|
)
|
|
$
|
20.40
|
|
|
(232
|
)
|
|
$
|
18.17
|
|
Forfeited
|
(35
|
)
|
|
$
|
21.45
|
|
|
(18
|
)
|
|
$
|
19.55
|
|
|
(30
|
)
|
|
$
|
19.26
|
|
|
(24
|
)
|
|
$
|
20.57
|
|
Outstanding at end of period:
|
532
|
|
|
$
|
21.05
|
|
|
569
|
|
|
$
|
20.81
|
|
|
575
|
|
|
$
|
18.85
|
|
|
564
|
|
|
$
|
20.47
|
|
Performance Restricted Stock Units
The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a
one
-year period based on three metrics, as defined: (1) Operating Income, (2) Adjusted EBITDAS and (3) Revenue. There is a discretionary portion of the PRSUs based on individual performance, at the discretion of the Compensation Committee (Discretionary PRSUs). PRSUs and Discretionary
PRSUs generally vest ratably on each of the first
four
anniversary dates upon completion of the performance period, for a total requisite service period of up to
five
years and have no dividend rights.
PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant, assuming that the target performance conditions will be achieved. Cumulative compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.
Discretionary PRSUs are liability-classified and adjusted to fair value (with a corresponding adjustment to compensation expense) based upon the targeted number of shares to be awarded and the fair value of the underlying stock each reporting period until approved by the Compensation Committee, at which point they are classified as equity.
A summary of the Company's Performance Restricted Stock Unit activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017
|
|
For the Transition Period ended December 31, 2016
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at beginning of period:
|
290
|
|
|
$
|
16.01
|
|
|
328
|
|
|
$
|
17.02
|
|
Granted
|
128
|
|
|
$
|
20.42
|
|
|
105
|
|
|
$
|
24.90
|
|
Performance condition adjustments, net
|
(68
|
)
|
|
$
|
20.55
|
|
|
(54
|
)
|
|
$
|
24.49
|
|
Released
|
(72
|
)
|
|
$
|
15.82
|
|
|
(89
|
)
|
|
$
|
24.50
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at end of period:
|
278
|
|
|
$
|
17.00
|
|
|
290
|
|
|
$
|
16.01
|
|
In
fiscal 2014
, the company granted
one
-year,
two
-year and
three
-year PRSUs to its executive and certain other senior officers. These units had requisite service periods of
three years
and have no dividend rights. The actual payout of these units, before the fiscal 2016 modification as described below, was based on the Company’s performance over one, two and three-year periods (based on pre-established targets) and a market condition modifier based on total shareholder return (TSR) compared to an industry peer group. The
one
-year and
two
-year performance conditions of the
fiscal 2014
awards were evaluated before modification of the awards and not achieved. The
one
-year and
two
-year market conditions of the
fiscal 2014
awards were evaluated before modification of the awards and achieved. Compensation costs related to the TSR conditions for the one-year and two-year 2014 awards described above were fixed at the measurement date, and not subsequently adjusted. The
one
-year and
two
-year awards related to market conditions were paid at
170%
and
105%
, respectively, of target, upon vesting during the transition period ended December 31, 2016. The
three
-year performance and market condition awards were surrendered as part of the fiscal 2016 modification described below.
In fiscal
2015
, the company granted PRSUs to its executive and certain other senior officers. These units have requisite service periods of
three years
and have no dividend rights. The actual payout of these units, before the fiscal 2016 modification as described below, was based on the Company’s performance over the
three
-year period (based on pre-established targets) and a market condition modifier based on (TSR) compared to an industry peer group. The 2015 awards were surrendered as part of the fiscal 2016 modification described below.
In the first quarter of fiscal 2016, the Company modified its equity compensation program and granted
154,000
PRSUs to its executive and certain other senior officers. As a condition for receiving any awards under the revised fiscal 2016 plan, the executive and senior officers surrendered and released all rights to receive any shares under the
three
-year 2014 awards and
three
-year 2015 awards with a performance or market condition. The Company has accounted for the fiscal 2016 awards as modifications in accordance with ASC 718, Compensation - Stock Compensation. These units have requisite service periods of
five
years and have no dividend rights.
The fiscal 2016 PRSUs increased by approximately
104,000
units to a total of
258,000
units, which represents Company performance above target as well as individual performance, and was approved by the Compensation Committee in August 2016.
For the transition period ended December 31, 2016,
105,000
PRSUs were granted. There was a
73,000
unit reduction to these awards, which represents Company performance below target, during the transition period ended December 31, 2016. As of December 31, 2016, the aggregate liability related to
12,000
outstanding Discretionary PRSUs was less than
$0.1 million
and is classified within accrued expenses and other liabilities on the consolidated balance sheet. The Compensation Committee approved these PSUs in the first quarter of 2017, which reduced them by
3,000
units. The discretionary portion of these awards were reclassed from a liability to equity on the consolidated balance sheet upon Compensation Committee approval.
For the year ended December 31, 2017,
128,000
PRSUs were granted. There was a
65,000
unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2017. As of December 31, 2017, the aggregate liability related to
13,000
outstanding Discretionary PRSUs was less than
$0.1 million
and is classified within accrued expenses and other liabilities on the consolidated balance sheet.
Compensation expense related to all PRSUs described above was
$1.7 million
,
$1.7 million
,
$1.6 million
and
$1.5 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and 2015, respectively. At December 31, 2017, there was
$2.3 million
of total unrecognized compensation costs related to approximately
278,000
nonvested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately
2.0 years
.
For the year ended December 31, 2017, the transition period ended December 31, 2016 and the fiscal years ended May 31, 2016 and 2015, the income tax benefit recognized on all share based compensation arrangements referenced above was approximately
$2.2 million
,
$1.6 million
,
$2.2 million
and
$2.3 million
, respectively.
14. Income Taxes
Income before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
(Loss) income before provision for income taxes from:
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
$
|
(7,303
|
)
|
|
$
|
5,116
|
|
|
$
|
27,772
|
|
|
$
|
26,893
|
|
Foreign operations
|
7,077
|
|
|
10,365
|
|
|
10,643
|
|
|
(1,162
|
)
|
(Loss) Earnings before income taxes
|
$
|
(226
|
)
|
|
$
|
15,481
|
|
|
$
|
38,415
|
|
|
$
|
25,731
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
$
|
3,558
|
|
|
$
|
1,990
|
|
|
$
|
9,156
|
|
|
$
|
8,489
|
|
States and local
|
39
|
|
|
483
|
|
|
1,537
|
|
|
1,177
|
|
Foreign
|
3,131
|
|
|
3,569
|
|
|
3,672
|
|
|
1,493
|
|
Reserve for uncertain tax positions
|
71
|
|
|
(39
|
)
|
|
(529
|
)
|
|
(48
|
)
|
Total current
|
6,799
|
|
|
6,003
|
|
|
13,836
|
|
|
11,111
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
(3,857
|
)
|
|
6
|
|
|
82
|
|
|
(145
|
)
|
States and local
|
(810
|
)
|
|
(28
|
)
|
|
(51
|
)
|
|
(126
|
)
|
Foreign
|
(437
|
)
|
|
(514
|
)
|
|
(557
|
)
|
|
(2,416
|
)
|
Total deferred
|
(5,104
|
)
|
|
(536
|
)
|
|
(526
|
)
|
|
(2,687
|
)
|
Net change in valuation allowance
|
247
|
|
|
403
|
|
|
455
|
|
|
1,316
|
|
Net deferred
|
(4,857
|
)
|
|
(133
|
)
|
|
(71
|
)
|
|
(1,371
|
)
|
Provision for income taxes
|
$
|
1,942
|
|
|
$
|
5,870
|
|
|
$
|
13,765
|
|
|
$
|
9,740
|
|
The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition period ended December 31,
|
|
2017
|
|
2016
|
Federal tax at statutory rate
|
$
|
(79
|
)
|
|
35.0
|
%
|
|
$
|
5,418
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
(502
|
)
|
|
221.6
|
%
|
|
296
|
|
|
1.9
|
%
|
Foreign tax
|
217
|
|
|
(95.8
|
)%
|
|
(573
|
)
|
|
(3.7
|
)%
|
Contingent consideration
|
(63
|
)
|
|
27.7
|
%
|
|
(4
|
)
|
|
—
|
%
|
Permanent differences
|
377
|
|
|
(166.4
|
)%
|
|
373
|
|
|
2.4
|
%
|
Transition tax, net of foreign tax credits
|
3,942
|
|
|
(1,741.4
|
)%
|
|
—
|
|
|
—
|
%
|
Federal tax rate change due to the Tax Act
|
(1,956
|
)
|
|
864.0
|
%
|
|
—
|
|
|
—
|
%
|
Other
|
(241
|
)
|
|
106.5
|
%
|
|
(43
|
)
|
|
(0.3
|
)%
|
Change in valuation allowance
|
247
|
|
|
(109.1
|
)%
|
|
403
|
|
|
2.6
|
%
|
Total provision for income taxes
|
$
|
1,942
|
|
|
(857.9
|
)%
|
|
$
|
5,870
|
|
|
37.9
|
%
|
On December 22, 2017, the United States enacted fundamental changes to the federal tax law following the passage of the Tax Act.
The Tax Act is complex and significantly changes the U.S. corporate tax system by, among other things, (a) reducing the federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, (b) replacing the prior system of taxing corporations on foreign earnings of their foreign subsidiaries when the earnings are repatriated with a partial territorial tax system that provides a 100% dividends-received deduction (DRD) to domestic corporations for foreign-sourced dividends received from 10%-or-more owned foreign corporations, (c) subjecting certain unrepatriated foreign earnings to a mandatory one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees.
Our income tax expense for 2017 was
$1.9 million
. This amount reflects a net tax benefit of
$2.3 million
as a result of the Tax Act due to the remeasurement of federal deferred tax assets and liabilities from 35% to 21%. This amount also includes a
charge of
$3.9 million
due to the transition tax. Additionally, we incurred a charge attributable to reducing our deferred tax assets by
$0.3 million
due to changes made to executive compensation rules pursuant to the Tax Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended May 31,
|
|
2016
|
|
2015
|
Federal tax at statutory rate
|
$
|
13,445
|
|
|
35.0
|
%
|
|
$
|
9,006
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
966
|
|
|
2.5
|
%
|
|
683
|
|
|
2.7
|
%
|
Foreign tax
|
(610
|
)
|
|
(1.6
|
)%
|
|
(517
|
)
|
|
(2.0
|
)%
|
Contingent consideration
|
(425
|
)
|
|
(1.1
|
)%
|
|
(914
|
)
|
|
(3.6
|
)%
|
Permanent differences
|
245
|
|
|
0.6
|
%
|
|
196
|
|
|
0.8
|
%
|
Other
|
(311
|
)
|
|
(0.8
|
)%
|
|
(30
|
)
|
|
(0.1
|
)%
|
Change in valuation allowance
|
455
|
|
|
1.2
|
%
|
|
1,316
|
|
|
5.1
|
%
|
Total provision for income taxes
|
$
|
13,765
|
|
|
35.8
|
%
|
|
$
|
9,740
|
|
|
37.9
|
%
|
Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Deferred income tax assets
|
|
|
|
Allowance for doubtful accounts
|
$
|
838
|
|
|
$
|
969
|
|
Inventory
|
265
|
|
|
236
|
|
Intangible assets
|
2,255
|
|
|
2,529
|
|
Accrued expenses
|
2,560
|
|
|
5,157
|
|
Net operating loss carryforward
|
3,729
|
|
|
4,094
|
|
Capital lease obligations
|
1,004
|
|
|
1,140
|
|
Capital losses
|
463
|
|
|
719
|
|
Foreign tax credit carryover
|
618
|
|
|
—
|
|
Deferred share-based compensation
|
4,080
|
|
|
5,802
|
|
Other
|
484
|
|
|
285
|
|
Deferred income tax assets
|
16,296
|
|
|
20,931
|
|
Valuation allowance
|
(4,044
|
)
|
|
(3,896
|
)
|
Net deferred income tax assets
|
12,252
|
|
|
17,035
|
|
Deferred income tax liabilities
|
|
|
|
Property and equipment
|
(6,893
|
)
|
|
(8,655
|
)
|
Goodwill
|
(6,578
|
)
|
|
(13,586
|
)
|
Intangible assets
|
(5,972
|
)
|
|
(5,051
|
)
|
Other
|
(6
|
)
|
|
(11
|
)
|
Deferred income tax liabilities
|
(19,449
|
)
|
|
(27,303
|
)
|
Net deferred income taxes
|
$
|
(7,197
|
)
|
|
$
|
(10,268
|
)
|
As of
December 31, 2017
, the Company had federal net operating loss carry forwards (NOLs) in the amount of approximately
$0.2 million
which may be utilized subject to limitation under Internal Revenue Code section 382. The federal NOLs expire at various times from 2031 to 2033. In addition, as of
December 31, 2017
, the Company had state and foreign NOLs of
$38.4 million
and
$11.0 million
, respectively. The state NOLs expire at various times from 2020 to 2037. Approximately
$0.7 million
of the foreign NOLs expire at various times from 2022 to 2037, while the remainder of the Company's foreign NOLs do not expire.
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax planning strategies. At
December 31, 2017
and December 31, 2016, the Company has a valuation
allowance of approximately
$4.0 million
and
$3.9 million
, respectively, primarily against certain state and foreign NOLs, capital losses generated by the disposals of certain foreign subsidiaries and other specific deferred tax assets. The increase of
$0.1 million
is primarily attributable to a
$0.2 million
increase in against state deferred tax assets and a net
$0.1 million
decrease in federal valuation allowance attributable to the Tax Act. Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets.
The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties:
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
267
|
|
|
$
|
303
|
|
Additions for tax positions related to the current fiscal period
|
11
|
|
|
8
|
|
Additions for tax positions related to prior years
|
188
|
|
|
—
|
|
Decreases for tax positions related to prior years
|
—
|
|
|
(11
|
)
|
Impact of foreign exchange fluctuation
|
10
|
|
|
—
|
|
Settlements
|
(198
|
)
|
|
—
|
|
Reductions related to the expiration of statutes of limitations
|
(122
|
)
|
|
(33
|
)
|
Balance at end of period
|
$
|
156
|
|
|
$
|
267
|
|
The Company has recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of
December 31, 2017
and December 31, 2016, there were approximately
$0.2 million
and
$0.3 million
of unrecognized tax benefits, respectively, including penalties and interest that if recognized would favorably affect the effective tax rate. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense and are not significant for the year ended December 31, 2017, the transition period ended December 31, 2016 and the fiscal years ended May 31, 2016 and
2015
. The Company anticipates a decrease to its unrecognized tax benefits of less than
$0.1 million
excluding interest and penalties within the next 12 months.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before May 31, 2015 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before May 31, 2014.
Net income (loss) of foreign subsidiaries was
$4.1 million
,
$6.9 million
,
$7.5 million
and
$(0.8) million
for the year ended December 31, 2017, the transition period ended December 31, 2016, fiscal 2016 and
2015
, respectively. Generally, it has been our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As previously noted, the Tax Act made significant changes to the taxation of undistributed earnings, requiring that all previously untaxed earnings and profits of our controlled foreign operations be subjected to the transition tax. Since these earnings have now been subjected to U.S. federal tax they would only be potentially subject to limited other taxes, including foreign withholding and certain state taxes. As of December 31, 2017, the Company has not recognized U.S. tax expense on its undistributed international earnings or losses of its foreign subsidiaries since it intends to indefinitely reinvest the earnings outside the United States.
The Company considers the accounting of the effects of the Tax Act to be estimates. The provisional amounts recorded are based on the Company’s current interpretation and understanding of the Tax Act and may change as the Company receives additional clarification and implementation guidance and finalizes their analysis of all impacts and positions with regard to the Tax Act. The Company will continue to gather and evaluate the data and guidance to refine the income tax impact of the Tax Act. The effect of the change in federal corporate tax rate from 35% to 21% is subject to change based on resolution of estimates used in determining the amounts of deferred tax assets and liabilities that were remeasured. Our calculation of the transition tax is subject to further refinement as more information is gathered from our foreign subsidiaries, estimates used in the calculation are resolved, and as states provide guidance on how the transition tax may or may not apply in their respective jurisdictions. The reduction of the deferred tax asset related to executive compensation may be changed based upon actual 2018 compensation as compared to our projections of compensation that may be limited. Finally, the Tax Act also imposes a minimum tax on certain foreign subsidiaries deemed to be in excess of a routine return based on tangible asset investment, which is designed to discourage income shifting by subjecting certain foreign intangibles and other income to current U.S. tax.
Effective for tax years beginning after 2017, U.S. shareholders of certain foreign corporations are subject to current U.S. tax on their global intangible low-taxes income (GILTI). We have not yet evaluated our potential liability, if any, under the minimum tax for GILTI in 2018 or future years. Accordingly, we have not yet made an accounting policy election either to account for these effects in the future period when the tax arises or to recognize them as part of the deferred taxes. Pursuant to SAB 118, the Company will complete the accounting for the tax effects of all of the provisions of the Tax Act within the required measurement period not to extend beyond one year from the enactment date.
15. Employee Benefit Plans
The Company provides a 401(k) savings plan for eligible U.S. based employees. Employee contributions are discretionary up to the IRS limits each year and catch up contributions are allowed for employees
50 years
of age or older. Under the 401(k) plan, employees become eligible to participate on the first day of the month after
three months
of continuous service. Under this plan, the Company matches
50%
of the employee’s contributions up to
6%
of the employee’s annual compensation, as defined by the plan. There is a
five
-year vesting schedule for the Company match. The Company’s contribution to the plan was
$3.7 million
,
$2.0 million
,
$3.5 million
and
$3.0 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and
2015
, respectively.
The Company participates with other employers in contributing to the Boilermaker-Blacksmith National Pension Trust (EIN 48-6168020) (“Boilermakers”) and Plumbers and Pipefitters National Pension Fund (EIN 52-6152779) (“Pipefitters”), multi-employer defined benefit pension plans, which covers certain U.S. based union employees. The plans provide multiple plan benefits with corresponding contribution rates that are collectively bargained between participating employers and their affiliated Boilermakers and Pipefitters local unions. Both the Boilermakers and Pipefitters plans are between 65 percent and 80 percent funded as of the latest Form 5500 filed.
The Company’s contributions to the Boilermakers and Pipefitters plans, collectively, were
$2.4 million
,
$1.5 million
,
$2.5 million
and
$2.5 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and 2015. These contributions represented less than
five
percent of total contributions made to the plans.
The Company has benefit plans covering certain employees in selected foreign countries. Amounts charged to expense under these plans were not significant in any year.
16. Related Party Transactions
On August 17, 2016, the Company entered into an agreement with its then Chairman, CEO and Director, Dr. Sotirios Vahaviolos, to purchase up to
1 million
of his shares, commencing in October 2016. Refer to Note 20 for further details of the treasury stock repurchases from Dr. Vahaviolos.
The Company leases its headquarters under an operating lease from a shareholder and officer of the Company. On August 1, 2014, the Company extended its lease at its headquarters requiring monthly payments through October 2024. Total rent payments made during the year ended December 31, 2017 were approximately
$0.9 million
. See Note 18 —
Commitments and Contingencies
for further detail related to operating leases.
The Company has a lease for office space located in France, which is partly owned by a shareholder and officer. Total rent payments made during the year ended December 31,
2017
were approximately
$0.2 million
.
The Company has a lease for office space located in Brazil, which is partly owned by a shareholder and officer. Total rent payments made during the year ended December 31, 2017 were approximately
$0.1 million
.
The Company receives benefits consulting services from Capital Management Enterprise (“CME”), which is owned by
one
of its non-employee directors, Manuel N. Stamatakis. The Company does not pay any fees directly to CME. Any compensation CME receives is from third-party benefit providers.
17. Obligations under Capital Leases
The Company leases certain office space, and service equipment under capital leases, requiring monthly payments ranging from less than
$1 thousand
to
$73 thousand
, including effective interest rates that range from approximately
1%
to
7%
expiring through June 2029. The net book value of assets under capital lease obligations was
$19.5 million
and
$17.6 million
at
December 31, 2017
and December 31, 2016, respectively.
Scheduled future minimum lease payments subsequent to
December 31, 2017
are as follows:
|
|
|
|
|
2018
|
$
|
5,899
|
|
2019
|
3,788
|
|
2020
|
2,485
|
|
2021
|
1,778
|
|
2022
|
634
|
|
Thereafter
|
760
|
|
Total minimum lease payments
|
15,344
|
|
Less: amount representing interest
|
(731
|
)
|
Present value of minimum lease payments
|
14,613
|
|
Less: current portion of obligations under capital leases
|
(5,875
|
)
|
Obligations under capital leases, net of current portion
|
$
|
8,738
|
|
18. Commitments and Contingencies
Operating Leases
The Company is party to various non-cancelable operating lease agreements, primarily for its international and domestic office and lab space. Future minimum lease payments under noncancelable operating leases in each of the five years and thereafter subsequent to
December 31, 2017
are as follows:
|
|
|
|
|
2018
|
$
|
11,542
|
|
2019
|
8,888
|
|
2020
|
6,902
|
|
2021
|
4,881
|
|
2022
|
4,304
|
|
Thereafter
|
12,915
|
|
Total
|
$
|
49,432
|
|
Total rent expense was
$11.8 million
,
$6.6 million
,
$11.2 million
and
$10.6 million
for the year ended December 31, 2017, the transition period ended December 31, 2016 and the years ended May 31, 2016 and
2015
, respectively.
Legal Proceedings and Government Investigations
The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. The Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it. Except for the matters described below, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs of defense and amounts that may be recovered against the Company may be covered by insurance for certain matters.
Litigation and Commercial Claims
The Company was a defendant in a consolidated class and collective action,
Edgar Viceral and David Kruger v Mistras Group, et al
, pending in the U.S. District Court for the Northern District of California, originally filed in April 2015. The Company settled the consolidated class and collective action that resulted in the Company recording a pre-tax charge of
$6.3 million
in the fourth quarter of fiscal 2016, and the Company paid the settlement in the quarter ended March 31, 2017.
The Company was a defendant in the lawsuit AGL Services Company v. Mistras Group, Inc., pending in U.S. District Court for
the Northern District of Georgia, filed November 2016. The case involved radiography work performed by the Company in
2012 on the construction of a pipeline project in the U.S. The owner of the pipeline project claimed damages of approximately
$5.8 million
. At a trial concluded on October 26, 2017, the jury awarded the plaintiff its damage claim plus interest, which the Company believes is fully covered by insurance.
The Company’s subsidiary in France has been involved in a dispute with a former owner of a business in France purchased by the Company’s French subsidiary. The former owner received a judgment in his favor in the amount of approximately
$0.4 million
for payment of the contingent consideration portion of the purchase price for the business. The Company recorded a reserve for the full amount of the judgment during the three months ended June 30, 2016. The Company’s subsidiary appealed the judgment and the entire judgment was overturned on appeal, however the full appeals process is not yet completed, and therefore, we have not adjusted the reserve as of December 31, 2017.
The Company was a defendant in a lawsuit, Triumph Aerostructures, LLC d/b/a Triumph Aerostructures-Vought Aircraft Division
v. Mistras Group, Inc
., pending in Texas State district court, 193rd Judicial District, Dallas County, Texas, filed September 2016. The plaintiff alleged that in 2014 Mistras delivered a defective Ultrasonic inspection system and alleged damages of approximately
$2.3 million
, the amount it paid for the system. In January 2018, the Company agreed to settle this matter for a payment of
$1.6 million
and Mistras subsequently obtained ownership of the underlying ultrasonic inspection system. A charge for
$1.6 million
was recorded in 2017 and payment was made in February 2018.
Government Investigations
In May 2015, the Company received a notice from the U.S. Environmental Protection Agency (“EPA”) that it performed a preliminary assessment at a leased facility the Company operates in Cudahy, California. Based upon the preliminary assessment, the EPA is conducting an investigation of the site, which includes taking groundwater and soil samples. The purpose of the investigation is to determine whether any hazardous materials were released from the facility. The Company has been informed that certain hazardous materials and pollutants have been found in the ground water in the general vicinity of the site and the EPA is attempting to ascertain the origination or source of these materials and pollutants. Given the historic industrial use of the site, the EPA determined that the site of the Cudahy facility should be examined, along with numerous other sites in the vicinity. At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any reserves for this matter.
Other Potential Contingencies
Some the Company’s workforce is unionized and the terms of employment for these workers are governed by collective bargaining agreements, or CBAs. Under these CBAs, the Company’s subsidiaries are required to contribute to the national pension funds for the unions representing these employees, which are multi-employer pension plans. The Company was notified that a significant project was awarded to another contractor in early 2018, and as a result, the Company and its subsidiaries may experience a significant reduction in the number of its employees covered by CBAs. Under certain circumstances, such a reduction in the number of employees participating in a multi-employer pension plan could result in a complete or partial withdrawal liability to these multi-employer pension plans under ERISA. Presently, the Company is uncertain when or whether its subsidiaries will incur withdrawal liability and, if such liability is incurred, whether it will be material.
Acquisition-related contingencies
The Company is liable for contingent consideration in connection with certain of its acquisitions. As of
December 31, 2017
, total potential acquisition-related contingent consideration ranged from
zero
to
$8.5 million
and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next
2.5
years of operations. See Note 7 -
Acquisitions
to these consolidated financial statements for further information with respect to the Company’s acquisitions completed during the year ended December 31, 2017 and the transition period ended December 31, 2016.
19. Segment Disclosure
The Company’s
three
operating segments are:
|
|
•
|
Services.
This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of non-destructive testing, and inspection
|
and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.
|
|
•
|
International.
This segment offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.
|
|
|
•
|
Products and Systems.
This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
|
Costs incurred for general corporate services, including finance, legal, and certain other costs that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment. All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.
The accounting policies of the reportable segments are the same as those described in Note 2 —
Summary of Significant Accounting Policies
. Segment income from operations is one of the primary performance measures used by the Chief Executive Officer, who is the chief operating decision maker, to assess the performance of each segment and make decisions as to resource allocations. Certain general and administrative costs such as human resources, information technology and training are allocated to the segments. Segment income from operations excludes interest and other financial charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.
Selected financial information by segment for the periods shown was as follows (intercompany transactions are eliminated in Corporate and eliminations):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Revenues
|
|
|
|
|
|
|
|
|
|
Services
|
$
|
543,565
|
|
|
$
|
293,218
|
|
|
$
|
553,279
|
|
|
$
|
540,224
|
|
International
|
144,265
|
|
|
104,013
|
|
|
143,025
|
|
|
146,953
|
|
Products and Systems
|
23,297
|
|
|
14,541
|
|
|
30,293
|
|
|
31,255
|
|
Corporate and eliminations
|
(10,157
|
)
|
|
(7,611
|
)
|
|
(7,416
|
)
|
|
(7,180
|
)
|
|
$
|
700,970
|
|
|
$
|
404,161
|
|
|
$
|
719,181
|
|
|
$
|
711,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Gross profit
|
|
|
|
|
|
|
|
|
|
Services
|
$
|
139,160
|
|
|
$
|
75,784
|
|
|
$
|
145,262
|
|
|
$
|
135,201
|
|
International
|
38,974
|
|
|
34,210
|
|
|
43,613
|
|
|
34,572
|
|
Products and Systems
|
9,798
|
|
|
6,920
|
|
|
14,022
|
|
|
14,314
|
|
Corporate and eliminations
|
(220
|
)
|
|
90
|
|
|
111
|
|
|
646
|
|
|
$
|
187,712
|
|
|
$
|
117,004
|
|
|
$
|
203,008
|
|
|
$
|
184,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Income from operations
|
|
|
|
|
|
|
|
|
|
Services
|
$
|
46,677
|
|
|
$
|
22,411
|
|
|
$
|
52,552
|
|
|
$
|
49,142
|
|
International
|
3,537
|
|
|
10,597
|
|
|
9,293
|
|
|
(575
|
)
|
Products and Systems
|
(16,991
|
)
|
|
(254
|
)
|
|
2,688
|
|
|
2,461
|
|
Corporate and eliminations
|
(29,063
|
)
|
|
(15,221
|
)
|
|
(21,356
|
)
|
|
(20,675
|
)
|
|
$
|
4,160
|
|
|
$
|
17,533
|
|
|
$
|
43,177
|
|
|
$
|
30,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
Services
|
$
|
21,649
|
|
|
$
|
12,765
|
|
|
$
|
22,725
|
|
|
$
|
22,268
|
|
International
|
7,768
|
|
|
5,306
|
|
|
7,774
|
|
|
8,451
|
|
Products and Systems
|
2,180
|
|
|
1,372
|
|
|
2,323
|
|
|
2,426
|
|
Corporate and eliminations
|
(214
|
)
|
|
(244
|
)
|
|
(348
|
)
|
|
141
|
|
|
$
|
31,383
|
|
|
$
|
19,199
|
|
|
$
|
32,474
|
|
|
$
|
33,286
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Intangible assets, net
|
|
|
|
Services
|
$
|
46,864
|
|
|
$
|
19,550
|
|
International
|
13,899
|
|
|
14,139
|
|
Products and Systems
|
2,261
|
|
|
5,482
|
|
Corporate and eliminations
|
715
|
|
|
836
|
|
|
$
|
63,739
|
|
|
$
|
40,007
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Total assets
|
|
|
|
Services
|
$
|
377,585
|
|
|
$
|
291,539
|
|
International
|
150,779
|
|
|
130,427
|
|
Products and Systems
|
12,733
|
|
|
28,964
|
|
Corporate and eliminations
|
13,344
|
|
|
18,497
|
|
|
$
|
554,441
|
|
|
$
|
469,427
|
|
Revenue and long-lived assets by geographic area was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
For the Transition Period ended December 31,
|
|
For the year ended May 31,
|
|
2017
|
|
2016
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
466,683
|
|
|
$
|
256,926
|
|
|
$
|
519,361
|
|
|
$
|
491,818
|
|
Other Americas
|
86,870
|
|
|
41,777
|
|
|
67,809
|
|
|
68,628
|
|
Europe
|
132,421
|
|
|
91,847
|
|
|
118,566
|
|
|
137,071
|
|
Asia-Pacific
|
14,996
|
|
|
13,611
|
|
|
13,445
|
|
|
13,735
|
|
|
$
|
700,970
|
|
|
$
|
404,161
|
|
|
$
|
719,181
|
|
|
$
|
711,252
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Long-lived assets
|
|
|
|
United States
|
$
|
237,616
|
|
|
$
|
186,960
|
|
Other Americas
|
36,011
|
|
|
29,065
|
|
Europe
|
80,693
|
|
|
67,072
|
|
|
$
|
354,320
|
|
|
$
|
283,097
|
|
20. Repurchase of Common Stock
On October 7, 2015, the Company's Board of Directors approved a
$50 million
stock repurchase plan. As part of this plan, on August 17, 2016, the Company entered into an agreement with its Chairman and then CEO, Dr. Sotirios Vahaviolos, to purchase up to
1 million
of his shares, commencing in October 2016. Pursuant to the agreement, in general, the Company agreed to purchase from Dr. Vahaviolos up to
$2 million
of shares each month, at a
2%
discount to the average daily price of the Company's common stock for the preceding month. During the transition period ended December 31, 2016, the Company purchased approximately
274,000
shares from Dr. Vahaviolos at an average price of
$21.90
per share and an aggregate cost of
$6.0 million
as well as
146,000
shares in the open market at an average price of
$20.48
per share and an aggregate cost of approximately
$3.0 million
. During the year ended December 31, 2017, the Company purchased approximately
726,000
shares from Dr. Vahaviolos at an average price of
$21.93
per share and an aggregate cost of
$15.9 million
. From the inception of the plan through December 31, 2017, the Company purchased
1,000,000
shares from Dr. Vahaviolos at an average price of
$21.92
per share for an aggregate cost of approximately
$21.9 million
.
The Company retired all of its repurchased shares during the fourth quarter of 2017 and they are not included in common stock issued and outstanding as of December 31, 2017. As of December 31, 2017, approximately
$25.1 million
remained available to repurchase shares under the stock repurchase plan.
21. TWELVE MONTHS ENDED DECEMBER 31, 2016 AND SEVEN MONTHS ENDED DECEMBER 31, 2015 COMPARATIVE DATA (Unaudited)
The condensed consolidated statement of income for the twelve months ended December 31, 2016 and the seven months ended December 31, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2016
|
|
Seven Months Ended December 31, 2015
|
|
|
(unaudited)
|
Revenues
|
|
$
|
684,762
|
|
|
$
|
427,913
|
|
Cost of revenues
|
|
468,929
|
|
|
292,718
|
|
Depreciation
|
|
21,699
|
|
|
12,005
|
|
Gross profit
|
|
194,134
|
|
|
123,190
|
|
Selling, general and administrative expenses
|
|
148,914
|
|
|
81,117
|
|
Research and engineering
|
|
2,670
|
|
|
1,431
|
|
Depreciation and amortization
|
|
10,689
|
|
|
6,503
|
|
Litigation charges
|
|
6,320
|
|
|
—
|
|
Acquisition-related benefit, net
|
|
(5
|
)
|
|
(959
|
)
|
Income from operations
|
|
25,546
|
|
|
35,098
|
|
Interest expense, net
|
|
3,075
|
|
|
3,672
|
|
Income before provision for income taxes
|
|
22,471
|
|
|
31,426
|
|
Provision for income taxes
|
|
8,008
|
|
|
11,627
|
|
Net income
|
|
14,463
|
|
|
19,799
|
|
Less: Net income (loss) attributable to non-controlling interests
|
|
54
|
|
|
(15
|
)
|
Net income available to Mistras Group, Inc. shareholders
|
|
$
|
14,409
|
|
|
$
|
19,814
|
|
Net income per share: Basic
|
|
$
|
0.50
|
|
|
$
|
0.69
|
|
Net income per share: Diluted
|
|
$
|
0.48
|
|
|
$
|
0.67
|
|
Weighted average shares outstanding:
|
|
|
|
|
Basic
|
|
28,960
|
|
|
28,810
|
|
Diluted
|
|
30,114
|
|
|
29,676
|
|
22. Selected Quarterly Financial Information (unaudited)
The following is a summary of the quarterly results of operations for calendar years 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
December 31, 2017
|
|
September 30, 2017
|
|
June 30, 2017
|
|
March 31, 2017
|
Revenues
|
|
$
|
187,643
|
|
|
$
|
179,570
|
|
|
$
|
170,439
|
|
|
$
|
163,318
|
|
Gross Profit
|
|
50,319
|
|
|
47,897
|
|
|
46,343
|
|
|
43,153
|
|
Income (loss) from operations
|
|
6,282
|
|
|
(10,375
|
)
|
|
5,003
|
|
|
3,250
|
|
Net income (loss) attributable to Mistras Group, Inc.
|
|
$
|
884
|
|
|
$
|
(6,968
|
)
|
|
$
|
2,217
|
|
|
$
|
1,692
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ended
|
|
December 31, 2016
|
|
September 30, 2016
|
|
June 30, 2016
|
|
March 31, 2016
|
Revenues
|
|
$
|
170,156
|
|
|
$
|
168,811
|
|
|
$
|
178,340
|
|
|
$
|
167,455
|
|
Gross Profit
|
|
47,978
|
|
|
50,651
|
|
|
51,535
|
|
|
43,970
|
|
Income from operations
|
|
2,944
|
|
|
12,116
|
|
|
4,840
|
|
|
5,646
|
|
Net income attributable to Mistras Group, Inc.
|
|
$
|
963
|
|
|
$
|
7,238
|
|
|
$
|
2,761
|
|
|
$
|
3,447
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.25
|
|
|
$
|
0.10
|
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.24
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|