During the three months ended August 31, 2016, the Compensation Committee approved an additional 19,000 units pertaining to the 2016 Discretionary PRSUs. There was no adjustment to the fiscal 2017 awards are recognized overduring the same five year requisite service period asthree months ended August 31, 2016.

As of August 31, 2016, the awards basedaggregate liability related to 21,000 outstanding Discretionary PRSUs was less than $0.1 million, and is classified within accrued expenses and other liabilities on the Company’s fiscal 2016 performance. condensed consolidated balance sheet.

3.                                     Earnings per Share

 

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income 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:

 

4.                                     Acquisitions

In the first half of fiscal 2016, the Company completed one acquisition. The Company purchased a company that provides unmanned aerial systems and NDT services, located in the U.S.

The assets and liabilities of the businessbusinesses acquired in fiscal 20162017 were included in the Company's condensed consolidated balance sheet based upon their estimated fair values on the date of acquisition as determined in a preliminary 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. The results of operations for this acquisition isthese acquisitions are included in the Services segment's results from the date of acquisition. The Company's preliminary purchase price allocations are included in the table below, summarizing the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

The Company did not complete any acquisitions in the first halfthree months of fiscal 2015, the Company completed three acquisitions. The Company purchased a company, located in Louisiana, a provider of maintenance and inspection services primarily on offshore platforms. This acquisition expanded the service offerings within the Services segment, allowing the Company to provide services to the upstream operations of its customers. The Company also purchased a group of asset protection businesses located in Quebec, Canada to complement service offerings within the Company’s Services segment and continue its market expansion strategy. The Company’s International Segment completed an acquisition of an asset inspection business located in the United Kingdom.

Acquisition-Related Expense 

During the three and six month periods ended November 30,August 31, 2016 and 2015, the Company incurred acquisition-related costs of less than $0.1 million, respectively, in connection with due diligence, professional fees, and other expenses for its acquisition activities. Additionally, the Company adjusted the fair value of certain previously recorded acquisition-related contingent consideration liabilities. These adjustments resulted in a net (increase) decrease of acquisition-related contingent consideration liabilities and

a corresponding (decrease) increase in income from operations of $0.2$(0.4) million and $1.1$0.9 million, for the three and six month periods ended November 30,August 31, 2016 and 2015, respectively. The Company’s aggregate acquisition-related contingent consideration liabilities were $5.7$2.0 million and $6.4$2.1 million as of November 30, 2015August 31, 2016 and May 31, 2015,2016, respectively.

 

 

5.                                     Accounts Receivable, net

 

Accounts receivable consisted of the following:

 

 

6.                                     Property, Plant and Equipment, net

 

Property, plant and equipment consisted of the following:

 

Depreciation expense for the three months ended November 30,August 31, 2016 and August 31, 2015 and 2014 was $5.5$5.8 million and $5.5$5.6 million, respectively. Depreciation expense for

Changes in the six months ended November 30, 2015 and 2014 was $11.1 million and $10.9 million, respectively.

 

7.8.                                     Intangible Assets

 

The gross amount, accumulated amortization and net carrying amount of intangible assets arewere as follows:

 

 

Amortization expense for the three months ended November 30,August 31, 2016 and August 31, 2015 and 2014 was $2.4$2.2 million and $2.9 million, respectively. Amortization expense for the six months ended November 30, 2015 and 2014 was $4.8 million and $5.8$2.4 million, respectively.

 

8.9.                                     Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consistconsisted of the following:

 

9.10.                              Long-Term Debt

 

Long-term debt consistsconsisted of the following:

 

 

On October 31, 2014, the Company entered into a Third Amendment and Modification Agreement toof its revolving line of credit, the Third Amended and Restated Credit Agreement (“Credit Agreement”), dated December 21, 2011, with Bank of America, N.A., as agent for the lenders and a lender, and JPMorgan Chase Bank, N.A., Keybank, National Association and TD Bank, N.A., as lenders.its lending group. The Credit Agreement provides the Company’sCompany with a $175.0 million revolving line of credit, which, under certain circumstances, the line of credit can be increased to $225.0 million. The Company may borrow up to $30.0 million in non-U.S. Dollar

 

Loans under the Credit Agreement bear interest at LIBOR plus an applicable LIBOR margin ranging from 1% to 1.75%, 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 or minus certain other adjustments) 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 2.0 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.

 

The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of no greater than 3.25 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 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, 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 November 30, 2015,August 31, 2016, the Company was in compliance with the terms of the Credit Agreement, and will continuously monitor its compliance with the covenants contained in its credit agreement.

 

 

In connection with certain of its acquisitions, through fiscal 2015, the Company issued subordinated notes payable to the sellers. The maturity of the notes that remain outstanding range from two to fiveare three years from the date of acquisition with statedand bear interest rates ranging from 0% to 4%. The Company has discounted these obligations to reflect a 2% to 4% market interest. Unamortized discount onat the notes was de minimisprime rate for Bank of Canada, currently 2.7% as of November 30, 2015 and MayAugust 31, 2015. Amortization2016. Interest expense is recorded as interest expense in the condensed consolidated statements of income.

 

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.

 

10.11.                              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:

 

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial liabilities that are required to be remeasured at fair value on a recurring basis:

 

 

 

The fair value of contingent consideration liabilities that was classified as Level 3 in the table above 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.

 

11.12.                              Commitments and Contingencies

 

 

The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. Although theThe Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it,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, except for the proceedings described below for which the Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability estimate.condition. The costs of defense and amounts that may be recovered against the Company in such matters may be covered by insurance except that the primary claims set forth in the purported class action case in California is excluded from insurance coverage.for certain matters.

 

During fiscal 2012 and 2013, the Company performed radiography work on the construction of a pipeline projectsproject in the U.S. The Company has received notice that the owner of the pipeline projectsproject contends that certain of the x-rayradiography images the Company’s technicians prepared regarding the projectsproject did not meet the code quality interpretation standards required by API (Americanthe American Petroleum Institute) 1103.Institute. The projects'project owner is claiming damages as a result of the alleged quality defects of the Company’s x-rayradiography images. No lawsuit has been filed at this time.time, but the Company received a demand for damages of approximately $6 million.  The Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability related to this matter, and accordingly, has not established any reserves for this matter.

 

 

12.13.                              Segment Disclosure

 

The Company’s three operating segments are:

AllocationsCosts incurred for general corporate services, including accounting, audit,finance, legal, and contract management,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.

 

Selected consolidated financial information by segment for the periods shown was as follows:follows (intercompany transactions are eliminated in Corporate and eliminations):

 

 

 

Income (loss) by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

 

Revenues by geographic area for the three and six months ended November 30,August 31, 2016 and 2015, and 2014, respectively, were as follows: