What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 114 added, 100 removed, 205 unchanged (51% of the section changed)

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We have based these forward-looking statements on our current expectations and assumptions about future events.

While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control, including unforeseen productivity delays and other difficulties encountered in project execution, levels of government funding or other governmental budgetary constraints, and contract cancellation at the discretion of the customer.

While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control, including the duration of the COVID19 pandemic and the resiliency of the economy thereafter, unforeseen productivity delays and other difficulties encountered in project execution, levels of government funding or other governmental budgetary constraints, and contract cancellation at the discretion of the customer.

These and other important factors, including those described under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”) may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

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Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, 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.

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.

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We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.

Second quarter 2020 Recap and 2020 Outlook

In the quarter ended June 30, 2020, we recorded revenues of $183.7 million, of which $91.7 million was attributable to our marine segment and the remaining $92.0 million to our concrete segment.

Third quarter 2020 Recap and 2020 Outlook

In the quarter ended September 30, 2020, we recorded revenues of $189.4 million, of which $112.9 million was attributable to our marine segment and the remaining $76.5 million to our concrete segment.

In addition, we ended the quarter with a consolidated backlog of $428.8 million.

Our revenues in the quarter increased by 10.7% as compared with the comparable prior year period and we recorded net income of $2.0 million, as compared with a net loss of $1.6 million in the comparable prior year period.

Our revenues in the quarter decreased by 5.0% as compared with the comparable prior year period and we recorded net income of $11.8 million, as compared with net income of $4.0 million in the comparable prior year period.

Looking toward the balance of 2020, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth and greenfield expansion.

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As the world uses tactics like “social distancing” and “stay at home orders” to slow and stop the spread of COVID-19, demand destruction has led to increased unemployment and to the weakening of consumer confidence.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, any delays in the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project

stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, any delays in the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.

Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy.

The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy.

Although little progress has been made to date and concerns have recently arisen that the impact of the COVID-19 pandemic may further delay or reduce its scope, the Company will continue to track and monitor any developments on a federal infrastructure bill which could potentially create bid opportunities for the Company.

Although little progress has been made to date and on a federal infrastructure bill concerns have recently arisen that the impact of the COVID-19 pandemic may further delay or reduce its scope, the Company will continue to track and monitor any developments on a federal infrastructure bill which could potentially create bid opportunities for the Company.

Marine Segment

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● Renewed focus on coastal rehabilitation along the Gulf Coast, particularly through the use of RESTORE Act funds based on fines collected related to the 2010 Gulf of Mexico oil spill;

● Funding for highways and transportation under the FAST Act, which provides authority through 2020;

● Funding for highways and transportation under successor Acts to the FAST Act;

● Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas;

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Backlog as of the periods ended below are as follows (in millions):

September 30, 2020

June 30, 2020

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September 30, 2019

June 30, 2019

Marine segment

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Previously reported backlog amounts have been adjusted in the accompanying table to correct for a clerical error in the underlying calculation file, as to which steps have been taken to prevent a recurrence.

Accordingly, reported backlog has been reduced by $17.6 million, $13.8 million, $10.0 million, and $15.8 million for the periods ended March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.

Three months ended June 30, 2020, compared with three months ended June 30, 2019

Three months ended June 30,

Accordingly, reported backlog has been reduced by $17.6 million, $13.8 million and $10.0 million for the periods ended March 31, 2020, December 31, 2019 and September 30, 2019, respectively.

The recent trends of declining backlog, reflect headwinds created by the COVID-19 pandemic in certain end market sectors and uncertainty around the US elections.

We, however, remain optimistic in our end-markets and in the opportunities that are emerging across our various market places as evidenced by the $1.1 billion of quoted bids outstanding, of which $108 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the third quarter of 2020.

Three months ended September 30, 2020, compared with three months ended September 30, 2019

Three months ended September 30,

(dollar amounts in thousands)

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Amortization of intangible assets

Gain on sale of assets, net

Operating income (loss)

Gain on disposal of assets, net

Operating income

Other (expense) income:

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Other expense, net

Loss before income tax expense (benefit)

Income tax expense (benefit)

Net (loss) income

Income before income tax expense

Income tax expense

Contract Revenues.

Contract revenues for the three months ended June 30, 2020 of $183.7 million increased approximately 10.7% as compared to $166.0 million in the prior year period.

The increase was primarily driven by an increase in production volumes in the concrete segment and a moderate year over year increase in the marine segment.

Contract revenues for the three months ended September 30, 2020 of $189.4 million decreased 5.0% as compared to $199.5 million in the prior year period.

The decrease was primarily driven by a decrease in production volume in the concrete segment due to tropical weather in Texas in the last few weeks of the current year quarter.

Gross Profit.

Gross profit was $20.7 million for the three months ended June 30, 2020, compared to $15.0 million in the prior year period, an increase of $5.7 million or 38.5%.

Gross profit in the second quarter was 11.3% of total contract revenues as compared to 9.0% in the prior year period.

The increase in gross profit dollars and percentage were primarily driven by the increased revenue and improved recovery of indirect project cost such as equipment and labor utilization.

Gross profit was $22.5 million for the three months ended September 30, 2020, compared to $20.9 million in the prior year period, an increase of $1.6 million or 7.7%.

Gross profit in the third quarter was 11.9% of total contract revenues as compared to 10.5% in the prior year period.

The increase in gross profit dollars and percentage was primarily driven by project execution related margin expansion in both segments and better labor utilization in the marine segment.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $16.5 million for the three months ended June 30, 2020 compared to $15.1 million in the prior year period, an increase of $1.4 million, or 9.2%.

As a percentage of total contract revenues, SG&A expenses decreased from 9.1% to 9.0%.

The increase in SG&A dollars was primarily attributable to the full ratable accrual of the annual incentive compensation plan in the 2020 period compared to zero accrual during the comparable 2019 period.

Selling, general and administrative ("SG&A") expenses were $15.3 million for the three months ended September 30, 2020 compared to $14.6 million in the prior year period, an increase of $0.7 million, or 4.7%.

As a percentage of total contract revenues, SG&A expenses increased from 7.3% to 8.1%.

The increase in SG&A dollars and percentage were primarily attributable to the full ratable accrual of the annual incentive compensation plan during the current year period compared to zero accrual during the comparable 2019 period.

Gain on Disposal of Assets, net.

During the three months ended September 30, 2020, we realized $3.5 million of net gains on sales of assets and $2.9 million of net gains on insurance recoveries.

There were no such material net gains realized during the prior year comparative period.

Other Income, net of Expense.

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See Note 11 for additional discussion of the amended syndicated credit agreement, also known as the Seventh Amendment, executed in June 2020.

Income Tax Expense (Benefit).

We recorded tax expense of $1.0 million in the three months ended June 30, 2020, compared to tax benefit of $0.1 million in the prior year period.

Our effective tax rate for the three months ended June 30, 2020 was 32.6%, which differs from the federal statutory rate of 21% primarily due to movement

in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Six months ended June 30, 2020, compared with six months ended June 30, 2019

Six months ended June 30,

Income Tax Expense.

We recorded tax expense of $0.3 million in the three months ended September 30, 2020, compared to tax expense of $0.5 million in the prior year period.

Our effective tax rate for the three months ended September 30, 2020 was 2.5%, which differs from the federal statutory rate of 21% primarily due to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Nine months ended September 30, 2020, compared with nine months ended September 30, 2019

Nine months ended September 30,

(dollar amounts in thousands)

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Amortization of intangible assets

Gain on sale of assets, net

Operating (loss) income from operations

Gain on disposal of assets, net

Operating income (loss) from operations

Other (expense) income:

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Other expense, net

(Loss) income before income taxes

Income (loss) before income taxes

Income tax expense

Net income (loss)

Contract Revenues.

Contract revenues for the six months ended June 30, 2020 of $350.3 million increased approximately 13.3% as compared to $309.1 million in the prior year period.

Contract revenues for the nine months ended September 30, 2020 of $539.8 million increased approximately 6.1% as compared to $508.6 million in the prior year period.

The increase was primarily attributable to the higher volume of work in both the marine and concrete segments.

Additionally, the execution on a few large projects in both segments boosted year over year results.

Additionally, the execution on a few large projects in both segments increased year over year results.

Gross Profit.

Gross profit was $40.5 million for the six months ended June 30, 2020, compared to $24.1 million in the prior year period, an increase of $16.4 million or 68.3%.

Gross profit in the six months ended June 30, 2020 was 11.6% of total contract revenues as compared to 7.8% in the prior year period.

Gross profit was $63.0 million for the nine months ended September 30, 2020, compared to $45.0 million in the prior year period, an increase of $18.0 million or 40.2%.

Gross profit in the nine months ended September 30, 2020 was 11.7% of total contract revenues as compared to 8.8% in the prior year period.

The increase in gross profit dollars and percentage were primarily driven by revenue and margin expansion as the result of improved fixed and labor related cost recovery.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $32.4 million for the six months ended June 30, 2020 compared to $30.1 million in the prior year period, an increase of $2.3 million, or 7.6%.

As a percentage of total contract revenues, SG&A expenses decreased from 9.7% to 9.3%.

The increase in SG&A dollars was primarily attributable to the full ratable accrual of the incentive compensation plan in the 2020 period compared to zero accrual during the comparable 2019 period.

Selling, general and administrative ("SG&A") expenses were $47.7 million for the nine months ended September 30, 2020 compared to $44.7 million in the prior year period, an increase of $3.0 million, or 6.7%.

As a percentage of total contract revenues, SG&A expenses increased from 8.7% to 8.8%.

The increase in SG&A dollars and percentage were primarily attributable to the full ratable

accrual of the incentive compensation plan in the 2020 period compared to zero accrual during the comparable 2019 period.

Gain on Disposal of Assets, net.

During the nine months ended September 30, 2020, we realized $4.8 million of net gains on sales of assets and $2.9 million of net gains on insurance recoveries.

This compared to realizing $1.2 million of net gains on the assets we sold during the 2019 comparative period.

Other Income, net of Expense.

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See Note 11 for additional discussion of the amended syndicated credit agreement, also known as the Seventh Amendment, executed in June 2020.

Income Tax Expense (Benefit).

We recorded tax expense of $1.4 million in the six months ended June 30, 2020, compared to tax expense of $0.5 million in the prior year period.

Our effective tax rate for the six months ended June 30, 2020 was 22.2%, which differs from the federal statutory rate of 21% primarily due to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Income Tax Expense.

We recorded tax expense of $1.7 million in the nine months ended September 30, 2020, compared to tax expense of $0.9 million in the prior year period.

Our effective tax rate for the nine months ended September 30, 2020 was 9.1%, which differs from the federal statutory rate of 21% primarily due to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Segment Results

The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating (loss) income as a percentage of segment revenues:

Three months ended June 30, 2020 compared with three months ended June 30, 2019

Three months ended June 30,

Three months ended September 30, 2020 compared with three months ended September 30, 2019

Three months ended September 30,

(dollar amounts in thousands)

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Concrete segment total

Operating income (loss)

Operating income

Marine segment

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Marine Segment

Revenues for our marine segment for the three months ended June 30, 2020 were $91.7 million compared to $89.0 million for the three months ended June 30, 2019, an increase of $2.7 million, or 3.0%.

This increase is primarily attributable to execution on the larger volume of work in our backlog and significant project material purchases in the period.

Operating income for our marine segment for the three months ended June 30, 2020 was $0.6 million, compared to an operating income of less than $0.1 million for the three months ended June 30, 2019, an increase of $0.6 million.

This increase in operating income was primarily due to execution on the larger volume of work in our backlog and improved recovery of equipment and labor related project costs.

Revenues for our marine segment for the three months ended September 30, 2020 were $112.9 million compared to $107.4 million for the three months ended September 30, 2019, an increase of $5.5 million, or 5.1%.

The increase was primarily attributable to the higher volume of work in the marine segment.

Additionally, the execution on a few large projects boosted year over year results.

Operating income for our marine segment for the three months ended September 30, 2020 was $9.0 million, compared to $4.9 million for the three months ended September 30, 2019, an increase of $4.1 million.

This increase in operating income was primarily due to an increase in net gains on disposal of assets of $6.1 million.

Such gains were derived from a combination of asset sales and insurance recovery proceeds.

Excluding the increase related to the net gain on disposal of assets, net operating income for our marine segment for the three months ended September 30, 2020 was $2.7 million compared to $4.7 million for the comparative prior year quarter, a decrease of $2.0 million.

Concrete Segment

Revenues for our concrete segment for the three months ended June 30, 2020 were $92.0 million compared to $77.0 million for the three months ended June 30, 2019, an increase of $15.0 million, or 19.5%.

This increase in revenue was primarily due to higher volume of projects and an increase in the number of large structural projects in the current year period.

Operating income for our concrete segment for the three months ended June 30, 2020 was $3.5 million, compared to an operating loss of $0.4 million for the three months ended June 30, 2019, an increase of $3.9 million.

This increase in operating income was primarily due to the higher revenue and improved recovery of equipment and labor related project costs.

Six months ended June 30, 2020 compared with six months ended June 30, 2019

Six months ended June 30,

Revenues for our concrete segment for the three months ended September 30, 2020 were $76.6 million compared to $92.1 million for the three months ended September 30, 2019, a decrease of $15.5 million, or 16.9%.

This decrease in revenue was primarily driven by a decrease in production volume due to tropical weather in Texas in the last few weeks of the current year quarter.

Operating income for our concrete segment for the three months ended September 30, 2020 was $4.1 million, compared to $1.2 million for the three months ended September 30, 2019, an increase of $2.9 million.

This increase in operating income was primarily due to improved recovery of equipment and labor related project costs.

Nine months ended September 30, 2020 compared with nine months ended September 30, 2019

Nine months ended September 30,

(dollar amounts in thousands)

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Concrete segment total

Operating (loss) income

Operating income (loss)

Marine segment

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Marine Segment

Revenues for our marine segment for the six months ended June 30, 2020 were $177.7 million compared to $150.5 million for the six months ended June 30, 2019, an increase of $27.2 million, or 18.0%.

This increase is primarily attributable to execution on the larger volume of work in our backlog, the mix of additional dredging work, and significant project material purchases in the current year period.

Operating income for our marine segment for the six months ended June 30, 2020 was $3.5 million, compared to an operating loss of $6.4 million for the six months ended June 30, 2019, an increase of $9.9 million.

This increase in operating income was primarily due to improved project execution and cost recovery as well as the completion of several projects with lower margin in the prior year period.

Revenues for our marine segment for the nine months ended September 30, 2020 were $290.5 million compared to $257.9 million for the nine months ended September 30, 2019, an increase of $32.6 million, or 12.7%.

This increase is primarily attributable to execution on the larger volume of work in our backlog and significant uninstalled material purchases in the current year period which gross up revenue and costs when purchased but only contribute to gross margin as they are installed.

Operating income for our marine segment for the nine months ended September 30, 2020 was $12.4 million, compared to an operating loss of $1.6 million for the nine months ended September 30, 2019, an increase of $14.0 million.

This increase in operating income included $6.5M of net gains on disposal of assets.

Excluding the increase in net gains on disposal of assets, net operating income for our marine segment for the nine months ended September 30, 2020 was $5.2 million compared to an operating loss of $2.3 million for the nine months ended September 30, 2019, an increase of $7.5 million.

This increase in operating income was primarily due to

improved project execution and cost recovery as well as the completion of several projects with lower margin in the prior year period.

Concrete Segment

Revenues for our concrete segment for the six months ended June 30, 2020 were $172.7 million compared to $158.6 million for the six months ended June 30, 2019, an increase of $14.1 million, or 8.9%.

This increase in

revenue was primarily due to an overall increase in cubic yard production on our projects and higher volume of work.

Operating income for our concrete segment for the six months ended June 30, 2020 was $5.0 million, compared to an operating loss of $0.2 million for the six months ended June 30, 2019, an increase of $5.2 million.

This increase in operating income was primarily due to higher revenue, the improvement in man-hours per cubic yard production, and increased recovery of project related costs such as labor and equipment.

Revenues for our concrete segment for the nine months ended September 30, 2020 were $249.2 million compared to $250.7 million for the nine months ended September 30, 2019, a decrease of $1.5 million, or 0.6%.

Operating income for our concrete segment for the nine months ended September 30, 2020 was $9.1 million, compared to operating income of $1.1 million for the nine months ended September 30, 2019, an increase of $8.0 million.

This increase in operating income was primarily due to the improvement in man-hours per cubic yard production, and increased recovery of project related costs such as labor and equipment.

Liquidity and Capital Resources

Our primary liquidity needs are to finance our working capital, fund capital expenditures, and pursue strategic acquisitions.

Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our Credit Facility (as defined below).

Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our credit facilities.

Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects.

At June 30, 2020, our working capital was $54.0 million, as compared with $62.2 million at December 31, 2019.

As of June 30, 2020, we had unrestricted cash on hand of $10.3 million.

Our borrowing capacity at June 30, 2020 was approximately $49.9 million.

At September 30, 2020, our working capital was $56.8 million, as compared with $62.2 million at December 31, 2019.

As of September 30, 2020, we had unrestricted cash on hand of $2.7 million.

Our borrowing capacity at September 30, 2020 was approximately $57.9 million.

We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases, leases and major repairs, from funds generated by our operating activities for at least the next 12 months.

We believe our cash position is adequate for our general business requirements discussed above and to service our debt.

The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2020 and 2019:

The following table provides information regarding our cash flows and our capital expenditures for the three and nine months ended September 30, 2020 and 2019:

Three months ended

Six months ended

Nine months ended

September 30,

Net income (loss)

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Operating Activities.

During the three months ended June 30, 2020, we generated approximately $17.6 million in cash from our operating activities.

The net cash inflow is comprised of $11.3 million of cash inflows from net income, after adjusting for non-cash items and $6.3 million of cash inflows related to changes in net working capital.

related to other working capital changes, partially offset by a $4.6 million outflow pursuant to the relative timing and significance of project progression and billings during the period.

During the six months ended June 30, 2020, we generated approximately $33.1 million in cash from our operating activities.

During the three months ended September 30, 2020, we generated approximately $5.3 million in cash from our operating activities.

The net cash inflow is comprised of $13.3 million of cash inflows

from net income, after adjusting for non-cash items, partially offset by $8.0 million of cash outflows related to changes in net working capital.

The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a $19.7 million outflow pursuant to the relative timing and significance of project progression and billings during the period and a $1.4 million decrease in operating lease liabilities during the period, partially offset by a $13.1 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.

During the nine months ended September 30, 2020, we generated approximately $38.4 million in cash from our operating activities.

The net cash inflow is comprised of $35.9 million of cash inflows from net income, after adjusting for non-cash items and $2.5 million of cash inflows related to changes in net working capital.

The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a net inflow of $10.1 million pursuant to the relative timing and significance of project progression and billings during the period and $0.4 million related to other net working capital changes.

The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a $15.9 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities and $0.3 million of inflows related to other working capital changes, partially offset by a $9.6 million outflow pursuant to the relative timing and significance of project progression and billings during the period and a $4.1 million decrease in operating lease liabilities during the period.

Investing Activities.

Capital asset additions and betterments to our fleet were $2.3 million in the three months ended June 30, 2020, as compared with $4.3 million in the three months ended June 30, 2019.

Capital asset additions and betterments to our fleet were $5.0 million in the six months ended June 30, 2020, as compared with $8.1 million in the six months ended June 30, 2019.

Capital asset additions and betterments to our fleet were $4.4 million in the three months ended September 30, 2020, as compared with $4.9 million in the three months ended September 30, 2019.

Capital asset additions and betterments to our fleet were $9.4 million in the nine months ended September 30, 2020, as compared with $13.0 million in the nine months ended September 30, 2019.

The changes are primarily a result of the timing of purchase of capital assets.

Financing Activities.

During the three months ended June 30, 2020, we repaid $17.0 million on our revolving line of credit, as well as made the regularly scheduled debt payments on the term loan of $0.8 million.

During the six months ended June 30, 2020, we drew down $5.0 million from our revolving line of credit.

Additionally, we repaid $23.0 million on our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $1.5 million.

During the three months ended September 30, 2020, we drew down $5.0 million from our revolving line of credit and repaid $13.0 million on our revolving line of credit, as well as made the regularly scheduled debt payments on the term loan of $1.1 million and an additional principal paydown of $2.6 million with proceeds from the sale of equipment.

During the nine months ended September 30, 2020, we drew down $10.0 million from our revolving line of credit.

Additionally, we repaid $36.0 million on our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $2.6 million and an additional principal paydown of $2.6 million with proceeds from the sale of equipment.

Sources of Capital

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The primary purpose of the Credit Agreement was to provide the Company with greater flexibility as it provides for the calculation of Adjusted EBITDA that adds back various project specific costs.

Additionally, the Company executed the Fifth Amendment during March 2019, which was made effective as of December 31, 2018, executed the Sixth Amendment during May 2019 and executed the Seventh Amendment during June 2020.

Additionally, the Company executed the Fifth Amendment during March 2019, which was made

effective as of December 31, 2018, executed the Sixth Amendment during May 2019 and executed the Seventh Amendment during June 2020.

The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”).

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Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans.

Principal balances drawn under the

Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty.

Principal balances drawn under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty.

Amounts repaid under the revolving line of credit may be re-borrowed.

The Credit Facility matures on July 31, 2023.

The Company has a maximum borrowing availability under the 364-day revolving loan of $20.0 million.

The 364-day revolving loans may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $1.0 million and integral multiples of $250,000 in excess of that amount.

The Company has a maximum borrowing availability under the 364-Day Revolving Credit Facility of $20.0 million.

Borrowings may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $1.0 million and integral multiples of $250,000 in excess of that amount.

The Company may convert, change, or modify rate designations from time to time.

The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the 364-day revolving line of credit.

The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the 364-Day Revolving Credit Facility.

The commitment fee, which is due quarterly in arrears, is equal to the Applicable Margin of the actual daily amount by which the Aggregate Revolving Commitments exceeds the Total Revolving Outstanding.

The revolving line of credit termination date is the earlier of the Credit Facility termination date, June 7, 2021, or the date the outstanding balance is permanently reduced to zero, in accordance with the terms of the 364-Day Revolving Credit Facility.

See Note 11 in the Notes to the Financial Statements (of this Form 10-Q) for further discussion on the Company’s Debt.

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The Company believes that its cash position and available borrowings together with cash flow from its operations is adequate for general business requirements and to service its debt.

The Company was in compliance with all financial covenants as of June 30, 2020.

The Company was in compliance with all financial covenants as of September 30, 2020.

Derivative Financial Instruments

1 unchanged sentence

There was a total of five sequential interest rate swaps to achieve the hedged position and each year on August 31, with the exception of the final swap, the existing interest rate swap was scheduled to expire and be immediately replaced with a new interest rate swap until the expiration of the final swap on July 31, 2020.

On December 6, 2018, the Company entered

into a sixth receive-variable, pay-fixed interest rate swap to hedge the variability of interest payments.

The sixth swap will begin with a notional amount of $27.0 million on July 31, 2020 and will hedge the variability in the interest payments on the aggregate scheduled principal amount of the Regions Term Loan outstanding.

On December 6, 2018, the Company entered into a sixth receive-variable, pay-fixed interest rate swap to hedge the variability of interest payments.

The sixth swap began with a notional amount of $27.0 million on July 31, 2020 and hedges the variability in the interest payments on the aggregate scheduled principal amount of the Regions Term Loan outstanding.

The sixth swap is scheduled to expire on July 31, 2023.

1 unchanged sentence

Gains and losses from hedge ineffectiveness are recognized in current earnings.

The change in fair market value of the swaps for the comparative periods ended June 30, 2020 and March 31, 2019, as reflected in accumulated other comprehensive loss in the Condensed Consolidated Statements of Stockholders’ Equity, is approximately $0.9 million and $1.0 million.

The fair market value of the swaps as of June 30, 2020 is reflected as a liability of $2.0 million on the Condensed Consolidated Balance Sheets.

The change in fair market value of the swaps for the comparative periods ended September 30, 2020 and September 30, 2019, as reflected in accumulated other comprehensive loss in the Condensed Consolidated Statements of Stockholders’ Equity, is approximately $0.8 million and $1.2 million.

The fair market value of the swaps as of September 30, 2020 is reflected as a liability of $1.8 million on the Condensed Consolidated Balance Sheets.

See Note 8 for more information regarding the fair value of the Company’s derivative instruments.

6 unchanged sentences

The Company recorded a liability for the amounts received, will continue to depreciate the non-land portion of the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease term.

Concurrently with the sale, the Company paid $18.2 million as an additional principal payment towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

Concurrently with the sale, the Company

paid $18.2 million as an additional principal payment towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

Bonding Capacity

1 unchanged sentence

Our ability to obtain surety bonds depends on our capitalization, working capital, past performance and external factors, including the capacity of the overall surety market.

At June 30, 2020, the capacity under our current bonding arrangement was at least $500 million, with approximately $265 million of projects being bonded.

At September 30, 2020, the capacity under our current bonding arrangement was at least $500 million, with approximately $230 million of projects being bonded.

We believe our strong balance sheet and working capital position will allow us to continue to access our bonding capacity.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis