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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 1-33891

ORION GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

State of Incorporation

26-0097459

IRS Employer Identification Number

12000 Aerospace Avenue, Suite 300

Houston, Texas 77034

Address of Principal Executive Office

(713) 852-6500

Registrant’s telephone number (including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common stock, $0.01 par value per share

ORN

The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:   Yes No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:    Yes No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:    Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files

Yes   No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer”, "accelerated filer", "small reporting" company and "emerging growth" company in Rule 12b-2 of the Exchange Act (Check One):

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company 

If an emerging growth company, initiate by check mark if the registrant has elected not to use the extended transition period for complying with any, new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes  No

There were 30,451,346 shares of common stock outstanding as of April 29, 2021.

Table of Contents

ORION GROUP HOLDINGS, INC.

Quarterly Report on Form 10-Q for the period ended March 31, 2021

Index

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021and 2020

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

43

Item 4.

Controls and Procedures

44

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

44

Item 3.

Defaults upon Senior Securities

45

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

45

SIGNATURES

46

2

Table of Contents

Part

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)

    

March 31,

    

December 31,

2021

    

2020

(Unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

4,642

$

1,589

Accounts receivable:

 

  

 

  

Trade, net of allowance for credit losses of $323 and $411, respectively

 

92,553

 

96,369

Retainage

 

38,043

 

36,485

Income taxes receivable

 

419

 

419

Other current

 

57,153

 

59,492

Inventory

 

1,680

 

1,548

Contract assets

 

21,797

 

32,271

Prepaid expenses and other

 

7,254

 

7,229

Total current assets

 

223,541

 

235,402

Property and equipment, net of depreciation

 

120,879

 

125,497

Operating lease right-of-use assets, net of amortization

17,480

18,874

Financing lease right-of-use assets, net of amortization

12,097

12,858

Inventory, non-current

 

6,249

 

6,455

Intangible assets, net of amortization

 

9,697

 

10,077

Deferred income tax asset

41

70

Other non-current

 

4,871

 

4,956

Total assets

$

394,855

$

414,189

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Current debt, net of debt issuance costs

$

4,348

$

4,344

Accounts payable:

 

 

Trade

 

38,242

 

48,252

Retainage

 

990

 

716

Accrued liabilities

 

77,701

 

84,637

Income taxes payable

 

776

 

639

Contract liabilities

 

33,150

 

33,135

Current portion of operating lease liabilities

4,777

4,989

Current portion of financing lease liabilities

2,878

3,901

Total current liabilities

162,862

180,613

Long-term debt, net of debt issuance costs

 

23,603

 

29,523

Operating lease liabilities

13,512

14,537

Financing lease liabilities

8,680

8,376

Other long-term liabilities

 

23,513

 

19,837

Deferred income tax liability

 

228

 

207

Interest rate swap liability

 

1,372

 

1,602

Total liabilities

 

233,770

254,695

Stockholders’ equity:

 

  

 

  

Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued

 

 

Common stock -- $0.01 par value, 50,000,000 authorized, 31,188,886 and 31,171,804 issued; 30,477,655 and 30,460,573 outstanding at March 31, 2021 and December 31, 2020, respectively

 

312

 

312

Treasury stock, 711,231 shares, at cost, as of March 31, 2021 and December 31, 2020, respectively

 

(6,540)

 

(6,540)

Accumulated other comprehensive loss

 

(1,372)

 

(1,602)

Additional paid-in capital

 

184,757

 

184,324

Retained loss

 

(16,072)

 

(17,000)

Total stockholders’ equity

 

161,085

 

159,494

Total liabilities and stockholders’ equity

$

394,855

$

414,189

The accompanying notes are an integral part of these condensed consolidated financial statements

3

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

(Unaudited)

Three months ended March 31,

    

2021

    

2020

    

Contract revenues

$

153,309

$

166,620

Costs of contract revenues

 

137,854

 

146,862

Gross profit

 

15,455

 

19,758

Selling, general and administrative expenses

 

14,630

 

15,869

Amortization of intangible assets

380

516

Gain on disposal of assets, net

 

(1,610)

 

(992)

Operating income

 

2,055

 

4,365

Other (expense) income:

 

  

 

  

Other income

 

37

 

97

Interest income

 

26

 

40

Interest expense

 

(1,040)

 

(1,402)

Other expense, net

 

(977)

 

(1,265)

Income before income taxes

 

1,078

 

3,100

Income tax expense

 

150

 

377

Net income

$

928

$

2,723

Basic earnings per share

$

0.03

$

0.09

Diluted earnings per share

$

0.03

$

0.09

Shares used to compute income per share:

 

  

 

  

Basic

 

30,465,475

 

29,653,409

Diluted

 

30,499,978

 

29,655,557

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In Thousands)

(Unaudited)

Three months ended March 31, 

    

2021

    

2020

    

Net income

$

928

$

2,723

Change in fair value of cash flow hedge, net of tax expense of $53 and net of tax benefit of $226 for the three months ended March 31, 2021 and March 31, 2020, respectively.

 

177

 

(758)

Total comprehensive income

$

1,105

$

1,965

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information)

(Unaudited)

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings (Loss)

Total

Balance, December 31, 2020

31,171,804

$

312

(711,231)

$

(6,540)

$

(1,602)

$

184,324

$

(17,000)

$

159,494

Stock-based compensation

383

383

Exercise of stock options

23,755

86

86

Payments related to tax withholding for stock-based compensation

(6,673)

(36)

(36)

Cash flow hedge

230

230

Net income

 

928

928

Balance, March 31, 2021

31,188,886

$

312

 

(711,231)

$

(6,540)

$

(1,372)

$

184,757

$

(16,072)

$

161,085

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings (Loss)

Total

Balance, December 31, 2019

 

30,303,395

$

303

 

(711,231)

$

(6,540)

$

(1,045)

$

182,523

$

(37,220)

$

138,021

Stock-based compensation

 

 

 

 

 

 

462

 

 

462

Issuance of restricted stock

 

185,356

 

2

 

 

 

 

(2)

 

 

Forfeiture of restricted stock

 

(3,351)

 

 

 

 

 

 

 

Cash flow hedge

 

 

 

 

 

(984)

 

 

 

(984)

Net income

 

 

 

 

 

 

 

2,723

 

2,723

Balance, March 31, 2020

 

30,485,400

$

305

 

(711,231)

$

(6,540)

$

(2,029)

$

182,983

$

(34,497)

$

140,222

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three months ended March 31,

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net income

$

928

$

2,723

Adjustments to reconcile net income to net cash used in operating activities:

 

 

  

Operating activities:

 

 

  

Depreciation and amortization

 

5,704

 

6,192

Amortization of ROU operating leases

1,348

1,673

Amortization of ROU finance leases

781

700

Amortization of deferred debt issuance costs

239

123

Deferred income taxes

 

50

 

13

Stock-based compensation

 

383

 

462

Gain on disposal of assets, net

 

(1,610)

 

(992)

Allowance for credit losses

 

 

411

Change in operating assets and liabilities:

 

 

Accounts receivable

 

3,837

 

13,511

Income tax receivable

 

 

(192)

Inventory

 

74

 

(218)

Prepaid expenses and other

 

60

 

1,540

Contract assets

 

10,474

 

9,956

Accounts payable

 

(9,735)

 

(22,911)

Accrued liabilities

 

(2,371)

 

(543)

Operating lease liabilities

(1,196)

(1,348)

Income tax payable

 

137

 

(278)

Contract liabilities

 

15

 

4,631

Net cash provided by operating activities

 

9,118

 

15,453

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of property and equipment

 

1,950

 

1,302

Purchase of property and equipment

 

(1,618)

 

(2,753)

Contributions to CSV life insurance

 

 

(38)

Insurance claim proceeds related to property and equipment

440

1,164

Net cash provided by (used in) investing activities

 

772

 

(325)

Cash flows from financing activities:

 

 

Borrowings from Credit Facility

 

5,000

 

5,000

Payments made on borrowings from Credit Facility

 

(11,155)

 

(6,750)

Payments of finance lease liabilities

(732)

(942)

Payments related to tax withholding for stock-based compensation

(36)

Exercise of stock options

 

86

 

Net cash used in financing activities

 

(6,837)

 

(2,692)

Net change in cash, cash equivalents and restricted cash

 

3,053

 

12,436

Cash, cash equivalents and restricted cash at beginning of period

 

1,589

 

1,086

Cash, cash equivalents and restricted cash at end of period

$

4,642

$

13,522

Cash and cash equivalents

$

4,642

$

12,591

Restricted cash

931

Total cash, cash equivalents and restricted cash shown above

$

4,642

$

13,522

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid during the period for:

 

  

 

  

Interest

$

443

$

942

Taxes, net of refunds

$

(37)

$

648

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in thousands, Except Share and per Share Amounts)

(Unaudited)

1.Description of Business and Basis of Presentation

Description of Business

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.

The tools used by the chief operating decision maker ("CODM") to allocate resources and assess performance are based on two reportable and operating segments: marine, which operates under the Orion brand and logo, and concrete, which operates under the TAS Commercial Concrete brand and logo.

Although we describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise two reportable segments pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting.

In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment. For the marine segment, the methods used, and the internal processes employed, to deliver marine construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment has the same customers with similar funding drivers, and it complies with regulatory environments driven through Federal agencies such as the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Occupational Safety and Health Administration ("OSHA"), among others. Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment complies with regulatory environments such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development, specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

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Basis of Presentation

The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this report should also read the Company’s consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2020 Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

2.Summary of Significant Accounting Policies

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Management’s estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates.

On an ongoing basis, the Company evaluates the significant accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to:

Revenue recognition from construction contracts;
Accounts receivable and allowance for credit losses;
Property, plant and equipment;
Leases;
Finite and infinite-lived intangible assets, testing for indicators of impairment;
Stock-based compensation;
Income taxes; and
Self-insurance

Revenue Recognition

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically short in duration and usually span

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a period of less than one year. The Company determines the appropriate accounting treatment for each contract before work begins and generally records revenue on contracts over time.

Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. The Company’s contracts and related change orders typically represent a single performance obligation because the Company provides an integrated service and individual goods and services are not separately identifiable. Revenue is recognized over time because control is continuously transferred to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period.

Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis. When losses on uncompleted contracts are anticipated, the entire loss is recognized in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer. The Company estimates variable consideration based on its assessment of the most likely amount to which it expects to be entitled. Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. A determination that the collection of a claim is probable is based upon compliance with the terms of the contract and the extent to which the Company performed in accordance therewith but does not guarantee collection in full.

Assets and liabilities derived from contracts with customers include the following:

Accounts Receivable: Trade, net of allowance - Represent amounts billed and currently due from customers and are stated at their estimated net realizable value.
Accounts Receivable: Retainage - Represent amounts which have not been billed to or paid by customers due to retainage provisions in construction contracts, which amounts generally become payable upon contract completion and acceptance by the customer.
Contract Assets - Represent revenues recognized in excess of amounts billed, which management believes will be billed and collected within one year of the completion of the contract and are recorded as a current asset, until such amounts are either received or written off.
Contract Liabilities - Represent billings in excess of revenues recognized and are recorded as a current liability, until the underlying obligation has been performed or discharged.

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Classification of Current Assets and Liabilities

The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at March 31, 2021 and December 31, 2020 consisted primarily of overnight bank deposits.

The Company had no restricted cash as of March 31, 2021 and December 31, 2020.  

Risk Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable.

The Company depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new and current governmental projects. Therefore, a portion of the Company’s operations is dependent upon the level and timing of government funding. Statutory mechanics liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.

Accounts Receivable

Accounts receivable are stated at the historical carrying value, net of allowances for credit losses. The Company has significant investments in billed and unbilled receivables as of March 31, 2021 and December 31, 2020. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts, which are included in contract assets, arise as revenues are recognized over time. Unbilled amounts on contracts represent recoverable costs and accrued profits not yet billed. Revenue associated with these billings is recorded net of any sales tax, if applicable.

Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. In establishing an allowance for credit losses, the Company evaluates its contract receivables and contract assets and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement is reached for an amount that is less than the carrying value. As of March 31, 2021, and December 31, 2020, the Company has recorded an allowance for credit losses of $0.3 million and $0.4 million, respectively.

Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at March 31, 2021 totaled $38.0 million, of which $4.3 million is expected to be collected beyond March 31, 2022. Retainage at December 31, 2020 totaled $36.5 million.

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The Company negotiates change orders and claims with its customers. Unsuccessful negotiations of claims could result in a change to contract revenue that is less than amounts previously recorded, which could result in the recording of a loss in the amount of the shortfall. Successful claims negotiations could result in the recovery of previously recorded losses. Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.

Advertising Costs

The Company primarily obtains contracts through the open bid process, and therefore advertising costs are not a significant component of expense. Advertising costs are expensed as incurred.

Environmental Costs

Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or provide future economic benefits, in which event the costs are capitalized. Environmental liabilities, if any, are recognized when the expenditure is considered probable and the amount can be reasonably estimated. The Company did not recognize any environmental liabilities as of March 31, 2021 or December 31, 2020.

Fair Value Measurements

The Company evaluates and presents certain amounts included in the accompanying condensed consolidated financial statements at “fair value” in accordance with U.S. GAAP, which requires the Company to base its estimates on assumptions that market participants, in an orderly transaction, would use to price an asset or liability, and to establish a hierarchy that prioritizes the information used to determine fair value. Refer to Note 8 for more information regarding fair value determination.

The Company generally applies fair value valuation techniques on a non-recurring basis associated with  (1) valuing assets and liabilities acquired in connection with business combinations and other transactions; (2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets.

Inventory

Current inventory consists of parts and small equipment held for use in the ordinary course of business and is valued at the lower of cost (using historical average cost) or net realizable value. Where shipping and handling costs are incurred by the Company, these charges are included in inventory and charged to cost of contract revenue upon use. Non-current inventory consists of spare parts (including engines, cutters and gears) that require special order or long-lead times for manufacture or fabrication, but must be kept on hand to reduce downtime and is valued at the lower of cost (using historical average cost) or net realizable value.

Property and Equipment

Property and equipment are recorded at cost. Ordinary maintenance and repairs that do not improve or extend the useful life of the asset are expensed as incurred. Major renewals and betterments of equipment are capitalized and depreciated generally over three to seven years until the next scheduled maintenance.

When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the respective

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period. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets for financial statement purposes, as follows:

Automobiles and trucks

    

3 to 5 years

Buildings and improvements

 

5 to 30 years

Construction equipment

 

3 to 15 years

Vessels and other equipment

 

1 to 15 years

Office equipment

 

1 to 5 years

The Company generally uses accelerated depreciation methods for tax purposes where appropriate.

Dry-docking costs are capitalized and amortized using the straight-line method over a period ranging from three to 15 years. Dry-docking costs include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel. Amortization related to dry-docking activities is included as a component of depreciation. These costs and the related amortization periods are periodically reviewed to determine if the estimates are accurate. If warranted, a significant upgrade of equipment may result in a revision to the useful life of the asset, in which case the change is accounted for prospectively.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated. There were no assets classified as held for sale as of March 31, 2021 or December 31, 2020.

Leases

Management determines if a contract is or contains a lease at inception of the contract or modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The expected lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.

The Company’s lease arrangements have lease and non-lease components. Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

See Note 18 for more information regarding leases.

Intangible Assets

Intangible assets that have finite lives are amortized. In addition, the Company evaluates the remaining useful life of intangible assets in each reporting period to determine whether events and circumstances warrant a revision of the remaining period of amortization. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of such asset is amortized prospectively over that revised remaining useful life. Intangible assets that have infinite lives are not amortized, but are subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset may be impaired.

The Company has one infinite-lived intangible asset, a trade name, which it tests for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable. Impairment is calculated as the excess of the trade name’s carrying value over its fair value. The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach. This method assumes that if a company owns intellectual property, it does not have to “rent” the asset and is, therefore, “relieved” from paying a royalty. Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables.

See Note 9 for additional discussion of intangible assets and trade name impairment testing.

Stock-Based Compensation

The Company recognizes compensation expense for equity awards over the vesting period based on the fair value of these awards at the date of grant. The computed fair value of these awards is recognized as a non-cash cost over the period the employee provides services, which is typically the vesting period of the award. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions in the computation. Changes in these assumptions can cause significant fluctuations in the fair value of the option award. The fair value of restricted stock grants is equivalent to the fair value of the stock issued on the date of grant and is measured as the closing price of the stock on the date of grant.

Compensation expense is recognized only for stock-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. This assessment is updated on a periodic basis. See Note 15 for further discussion of the Company’s stock-based compensation plan.

Income Taxes

The Company determines its consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company must make significant assumptions, judgments and estimates to determine its current provision for income taxes, its

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deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and the Company’s interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that the Company does not expect to realize. Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting the Company’s financial position and results of operations. The Company computes deferred income taxes using the liability method. Under the liability method, deferred 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. Deferred 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. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, Income Taxes which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its consolidated tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.

See Note 13 for additional discussion of income taxes.

Insurance Coverage

The Company maintains insurance coverage for its business and operations. Insurance related to property, equipment, automobile, general liability, and a portion of workers’ compensation is provided through traditional policies, subject to a deductible or deductibles. A portion of the Company’s workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.

The marine segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The marine segment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted; provided that the primary limit for Contingent Maritime Employer’s Liability is $10 million and the Watercraft Pollution Policy primary limit is $5 million. The concrete segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The concrete segment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted.

If a claim arises and a potential insurance recovery is probable, the impending gain is recognized separately from the related loss. The recovery will only be recognized up to the amount of the loss once the recovery of the claim is deemed probable and any excess gain will fall under contingency accounting and will only be recognized once it is realized. The Company does not net insurance recoveries against the related claim liability as the amount of the claim liability is determined without consideration of the anticipated insurance recoveries from third parties.

Separately, the Company’s marine segment employee health care is paid for by general assets of the Company and currently administered by a third party. The administrator has purchased appropriate stop-loss coverage. Losses on these policies up to the deductible amounts are accrued based upon known claims incurred and an estimate of claims incurred but not reported. The accruals are derived from known facts, historical trends and

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industry averages to determine the best estimate of the ultimate expected loss.  Actual claims may vary from estimates. Any adjustments to such reserves are included in the Condensed Consolidated Results of Operations in the period in which they become known. The Company’s concrete segment employee health care is provided through two policies. A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents. The self-funded plan is funded to the maximum exposure and, as a result, is expected to receive a partial refund after the policy expiration.

The total accrual for insurance claims liabilities was $59.2 million and $60.4 million at March 31, 2021 and December 31, 2020, respectively, reflected as a component of accrued liabilities in the condensed consolidated balance sheet. The total accrual for insurance claims receivable was $54.9 million and $57.0 million at March 31, 2021 and December 31, 2020, respectively, reflected as a component of other current accounts receivable in the condensed consolidated balance sheet.

Accounting Standards Adopted in 2021

The Financial Accounting Standards Board (“FASB”) issues accounting standards and updates (each, an "ASU") from time to time to its Accounting Standards Codification (‘ASC’), which is the primary source of U.S. GAAP. The Company regularly monitors ASUs as they are issued and considers applicability to its business. All ASUs are adopted by their respective due dates and in the manner prescribed by the FASB.

In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (Topic 740).  This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within that year.

3.Revenue

Contract revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table represents a disaggregation of the Company’s contract revenues by service line for the marine and concrete segments:

Three months ended March 31,

    

2021

    

2020

Marine Segment

 

  

 

  

Construction

$

43,936

$

53,140

Dredging

 

24,682

 

30,899

Specialty Services

 

3,528

 

1,910

Marine segment contract revenues

$

72,146

$

85,949

Concrete Segment

 

  

 

  

Structural

$

16,661

$

21,236

Light Commercial

 

64,495

 

59,433

Other

 

7

 

2

Concrete segment contract revenues

$

81,163

$

80,671

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Total contract revenues

$

153,309

$

166,620

The Company has determined that it has two reportable segments pursuant to FASB ASC Topic 280, Segment Reporting, but has disaggregated its contract revenues in the above chart in terms of services provided within such segments. In making this determination, the Company considered the similar characteristics of its operations as discussed in Note 1. Additionally, as discussed, both the marine and concrete segments have limited contracts with multiple performance obligations. The Company’s contracts are often estimated and bid as one project and evaluated as to performance as one project, not by individual services performed by each. Both the marine and concrete segments have a single Executive Vice President responsible for the entire segment, not by service lines of the segments. Resources are allocated by segment and financial and budgetary information is compiled and reviewed by segment, not service line.

Marine Segment

Construction services include construction, restoration, maintenance, dredging and repair of marine transportation facilities, marine pipelines, bridges and causeways and marine environmental structures. Dredging services generally enhance or preserve the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. Specialty services include design, salvage, demolition, surveying, towing, diving and underwater inspection, excavation and repair.

Concrete Segment

Structural services include elevated concrete pouring for products such as columns, elevated beams and structural walls. Light commercial services include horizontally poured concrete for products such as sidewalks, ramps, tilt walls and trenches. Other services comprise labor related to concrete pouring such as rebar installation and pumping services and typically support the Company’s structural and light commercial services.

4.Concentration of Risk and Enterprise Wide Disclosures

Accounts receivable in both reportable segments include amounts billed to governmental agencies and private customers and do not bear interest. Balances billed to customers but not paid pursuant to retainage provisions generally become payable upon contract completion and acceptance by the owner.

The table below presents the concentrations of accounts receivable from customers (trade and retainage) at March 31, 2021 and December 31, 2020, respectively:

March 31, 2021

December 31, 2020

 

Federal Government

    

$

4,341

    

3

%  

$

4,826

    

4

%

State Governments

 

220

 

-

%  

 

 

-

%

Local Governments

 

22,444

 

17

%  

 

17,823

 

13

%

Private Companies

 

103,914

 

79

%  

 

110,616

 

83

%

Gross receivables

130,919

99

%  

133,265

100

%

Allowance for credit losses

(323)

(411)

Net receivables

$

130,596

 

$

132,854

 

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At March 31, 2021 one customer in the Private Companies category accounted for 10.6% of total current receivables. At December 31, 2020, no single customer accounted for more than 10.0% of total current receivables.

Additionally, the table below represents concentrations of contract revenue by type of customer for the three months ended March 31, 2021 and 2020, respectively:

Three months ended March 31,

    

2021

    

%

    

2020

    

%

    

Federal Government

$

12,764

 

8

%  

$

5,319

 

3

%  

State Governments

 

168

 

-

%  

 

12,232

 

7

%  

Local Government

 

33,516

 

22

%  

 

52,012

 

31

%  

Private Companies

 

106,861

 

70

%  

 

97,057

 

59

%  

Total contract revenues

$

153,309

 

100

%  

$

166,620

 

100

%  

In the three months ended March 31, 2021 and 2020, no single customer exceeded 10.0% of total contract revenues.

The Company does not believe that the loss of any one of its customers would have a material adverse effect on the Company or its subsidiaries and affiliates since no single specific customer sustains such a large portion of receivables or contract revenue over time.

The concrete segment primarily purchases concrete from select suppliers. The loss of any one of these suppliers could adversely impact short-term operations.

Contract revenues generated outside the United States totaled 1.6% and 2.4% of total revenues for the three months ended March 31, 2021 and 2020, and were primarily located in the Caribbean Basin and Mexico.

5.Contracts in Progress

Contracts in progress are as follows at March 31, 2021 and December 31, 2020:

    

March 31,

    

December 31, 

2021

2020

Costs incurred on uncompleted contracts

$

1,255,413

$

1,151,987

Estimated earnings

 

228,140

 

202,369

 

1,483,553

 

1,354,356

Less: Billings to date

 

(1,494,906)

 

(1,355,220)

$

(11,353)

$

(864)

Included in the accompanying Condensed Consolidated Balance Sheets under the following captions:

 

  

 

  

Contract assets

$

21,797

$

32,271

Contract liabilities

 

(33,150)

 

(33,135)

$

(11,353)

$

(864)

Included in contract assets is approximately $3.6 million and $3.1 million at March 31, 2021 and December 31, 2020, respectively, related to claims and unapproved change orders. See Note 2 - Summary of Significant

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Accounting Policies to the Company’s condensed consolidated financial statements for discussion of the accounting for these claims.

Remaining performance obligations represent the transaction price of firm orders or other written contractual commitments from customers for which work has not been performed or is partially completed and excludes unexercised contract options and potential orders. As of March 31, 2021, the aggregate amount of the remaining performance obligations was approximately $364.8 million. Of this amount, the current expectation of the Company is that it will recognize $328.6 million, or 90%, in the next 12 months and the remaining balance thereafter.

6.Property and Equipment

The following is a summary of property and equipment at March 31, 2021 and December 31, 2020:

    

March 31,

    

December 31, 

2021

2020

Automobiles and trucks

$

2,722

$

2,379

Building and improvements

 

44,325

 

44,324

Construction equipment

 

135,485

 

142,661

Vessels and other equipment

 

80,686

 

79,499

Office equipment

 

5,947

 

5,577

 

269,165

 

274,440

Less: Accumulated depreciation

 

(185,883)

 

(186,615)

Net book value of depreciable assets

 

83,282

 

87,825

Construction in progress

 

1,734

 

1,809

Land

 

35,863

 

35,863

$

120,879

$

125,497

For the three months ended March 31, 2021 and 2020, depreciation expense was $5.3 million and $5.7 million, respectively. Substantially all depreciation expense is included in the cost of contract revenue in the Company’s Condensed Consolidated Statements of Operations. Substantially all of the assets of the Company are pledged as collateral under the Company’s Credit Agreement (as defined in Note 11).

Substantially all of the Company’s long-lived assets are located in the United States.

See Note 2 to the Company’s condensed consolidated financial statements for further discussion of property and equipment.

7.Other Current Accounts Receivable

Other current accounts receivable at March 31, 2021 and December 31, 2020 consisted of the following:

    

March 31, 2021

    

December 31, 2020

Insurance claims receivable

$

54,922

$

57,021

Accident loss receivables

 

1,206

 

1,448

Other current receivables

1,025

 

1,023

Total other current accounts receivable

$

57,153

$

59,492

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8.Fair Value

Recurring Fair Value Measurements

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. Due to their short-term nature, the Company believes that the carrying value of its accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values.

The Company classifies financial assets and liabilities into the following three levels based on the inputs used to measure fair value in the order of priority indicated:

Level 1- fair values are based on observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2 - fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and
Level 3- fair values are based on unobservable inputs in which little or no market data exists.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.

The following table sets forth by level within the fair value hierarchy the Company’s recurring financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

Fair Value Measurements

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

March 31, 2021

  

  

  

  

Assets:

 

  

 

  

 

  

 

  

Cash surrender value of life insurance policy

$

3,256

 

 

3,256

 

Liabilities:

 

  

 

  

 

  

 

  

Derivatives

$

1,372

 

 

1,372

 

December 31, 2020

  

  

  

  

Assets:

 

  

 

  

 

  

 

  

Cash surrender value of life insurance policy

$

3,169

 

 

3,169

 

Liabilities:

 

  

 

  

 

  

 

  

Derivatives

$

1,602

 

 

1,602

 

The Company’s derivatives, which are comprised of interest rate swaps, are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves and credit risk adjustments that are necessary to reflect the probability of default by us or the counterparty. These derivatives are classified as a Level 2 measurement within the fair value hierarchy. See Note 11 for additional information on the Company’s derivative instrument.

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Our concrete segment has life insurance policies with a combined face value of $11.1 million as of March 31, 2021. The policies are invested in mutual funds and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance. These assets are included in the "Other noncurrent" asset section in the Company’s Condensed Consolidated Balance Sheets.

Non-Recurring Fair Value Measurements

The Company generally applies fair value valuation techniques on a non-recurring basis associated with (1) valuing assets and liabilities acquired in connection with business combinations and other transactions; (2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to the infinite-lived intangible asset.

Other Fair Value Measurements

The fair value of the Company’s debt at March 31, 2021 and December 31, 2020 approximated its carrying value of $28.9 million and $35.1 million, respectively, as interest is based on current market interest rates for debt with similar risk and maturity. If the Company’s debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

9.Goodwill and Intangible Assets

Intangible assets

The tables below present the activity and amortizations of finite-lived intangible assets:

    

March 31,

    

December 31,