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Item 5. Market for Registrant’s Common Equity

2021-03-02 compared with 2020-02-28 · 21 added, 423 removed, 55 unchanged (89% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on the New York Stock Exchange (“NYSE”) and trades under the symbol “ORN”.

As of February 19, 2021, we had approximately 6,340 stockholders of record including beneficial holders.

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Performance Graph*

The following graph shows the changes in the value of $100 invested in (1) the common stock of Orion Group Holdings, Inc., (2) the Standard & Poor’s 500 Stock Index and (3) the Dow Jones Heavy Construction Group Index.

The values of each investment are based on share price appreciation, with reinvestment of all dividends, assuming any were paid.

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Securities Authorized for Issuance Under Equity Compensation Plans

The information required by Item 201(d) of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

SELECTED FINANCIAL DATA

The following table presents selected financial data for each of the last five fiscal years.

This selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes beginning on page F‑1 of this Annual Report on Form 10‑K and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

This selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes beginning on page F-1 of this Annual Report on Form 10-K and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

These historical results are not necessarily indicative of the results of operations to be expected for any future period.

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GAAP operating performance measures of EBITDA and Adjusted EBITDA.

For a definition of EBITDA and Adjusted EBITDA and a reconciliation to net income calculated and presented in accordance with accounting principles generally accepted in the United States ("U.S.

GAAP"), please see “

GAAP Financial Measures”

immediately below.

For a definition of EBITDA and Adjusted EBITDA and a reconciliation to net income calculated and presented in accordance with accounting principles generally accepted in the United States ("U.S.

GAAP"), please see “ Non-U.S.

GAAP Financial Measures” immediately below.

Amounts in thousands, except share and per share information

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Other expense, net

Net (loss) income

Net (loss) income per share:

Net income (loss)

Net income (loss) per share:

Weighted average shares outstanding:

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Depreciation and amortization

Net cash (used in) provided by:

Net cash provided by (used in):

Operating activities

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Total debt, net of debt issuance costs

Total stockholders’

Total stockholders’ equity

GAAP Financial Measures

We include in this Annual Report on Form 10-K the non-U.S.

GAAP financial measure of EBITDA and Adjusted EBITDA.

GAAP financial measures of EBITDA and Adjusted EBITDA.

We define EBITDA as earnings before interest, income taxes, depreciation and amortization.

Adjusted EBITDA is a non-GAAP measure that represents EBITDA adjusted for project adjustments, accounts receivable reserves and goodwill impairment charges.

EBITDA and Adjusted EBITDA are used as supplemental operating performance measures

by our management and by external users of our financial statements such as investors, commercial banks and others, to assess:

Adjusted EBITDA is a non-GAAP measure that represents EBITDA adjusted for certain non-recurring project adjustments and expenses, changes in accounts receivable reserves and goodwill impairment charges.

EBITDA and Adjusted EBITDA are used as

supplemental operating performance measures by our management and by external users of our financial statements such as investors, commercial banks and others, to assess:

● the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness;

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Net income (loss)

Income tax (benefit) expense

Income tax expense (benefit)

Interest expense, net

Depreciation and amortization

Stock-based compensation

ERP implementation

ISG initiative

Gain on involuntary disposition of assets, net

Changes in cost estimates

Reserve on disputed accounts receivables

(Recovery) reserve on accounts receivable

Goodwill impairment charges

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Adjusted EBITDA

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F‑1 of this Annual Report on Form 10‑K.

Certain statements made in our discussion may be forward-looking.

Forward-looking statements involve risks and uncertainties and a number of other factors that could cause actual results or outcomes to differ materially from our expectations.

See “Forward-Looking Statements”

at the beginning of this Annual Report on Form 10‑K for additional discussion of some of these risks and uncertainties.

Unless the context requires otherwise, when we refer to “we”, “us”

and “our”, we are describing Orion Group Holdings, Inc.

and its consolidated subsidiaries.

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.

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.

Our contracts are obtained primarily through competitive bidding in response to “requests for proposals”

by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors.

Our bidding activity and strategies are affected by such factors as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations.

The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations.

Most of our revenue is derived from fixed-price contracts.

We generally record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract.

There are a number of factors that can create variability in contract performance and therefore impact the results of our operations.

The most significant of these include the following:

completeness and accuracy of the original bid;

increases in commodity prices such as concrete, steel and fuel;

customer delays, work stoppages, and other costs due to weather and environmental restrictions;

availability and skill level of workers;

a change in availability and proximity of equipment and materials.

All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability.

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.

2019 Recap and 2020 Outlook

In 2019, we recorded revenues of $708.4 million, of which $369.1 million was attributable to our marine segment and the remaining $339.3 million to our concrete segment.

In addition, we ended 2019 with a consolidated backlog of $572.3 million.

Our revenues in 2019 increased by 36.0% as compared with 2018 and we recorded a net loss of $5.4 million, as compared with a net loss of $94.4 million in the prior year.

The net loss in 2018 was driven by the full impairment of goodwill of $69.5 million, unfavorable changes in cost estimates, the unfavorable impact of customer driven project disruptions and delays and weather patterns in the second half of 2018.

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

Marine Segment

Demand for our marine construction services remains strong.

We continue to see solid demand to help maintain and expand the infrastructure that facilitates the movement of goods and people on or over waterways.

Specifically, we continue to see bid opportunities from our private sector energy-related customers as they expand their marine facilities related to the storage, transportation and refining of domestically produced energy.

Over the long-term, we expect to see some bid opportunities in this sector from petrochemical-related businesses, energy exporters, and liquefied natural gas facilities.

Opportunities from local port authorities also remain solid, many of which are related to the completion of the Panama Canal expansion project.

Additionally, bid opportunities related to coastal restoration funded through the Resource and Ecosystems Sustainability, Tourist Opportunities and Revived Economies of the Gulf Coast States Act (the “RESTORE Act”) may arise throughout 2020.

We believe our current equipment fleet will allow us to better meet market demand for projects from both our public and private customers in the future.

In the long-term, we see positive trends in demands for our services in our end markets, including:

Continuing need to repair and improve degrading U.

marine infrastructure;

Improving economic conditions and increased activity in the petrochemical industry and energy-related companies will likely give rise to an increase in capital expenditures, including larger projects, as well as maintenance call-out work;

Expected increases in cargo volume and future demands from larger ships transiting the Panama Canal will require ports along the Gulf Coast and Atlantic Seaboard to expand port infrastructure as well as perform additional dredging services;

Possible work opportunities generated by the Water Resources Reform and Development Act (the “WRRDA Act”) authorizing expenditures for the conservation and development of the nation’s waterways as well as addressing funding deficiencies within the Harbor Maintenance Trust Fund;

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;

and nearly $5 billion of federal funding provided by the USACE in connection with disaster recovery in Texas.

Concrete Segment

Our concrete segment’s demand also remains strong.

The Texas building sector is in solid shape as its four major metropolitan areas, and expanding suburbs, continuously retain their positions as leading destinations for families and businesses.

Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments and new multi-family housing units.

In Houston, warehouse construction and new education facilities continue to comprise a large portion of project mix.

The Dallas-Fort Worth office continues to see opportunities from warehouse distribution centers and is targeting structural construction opportunities.

In the Central Texas office, retail facilities, warehouse, and structural construction are driving the project mix.

Long-term, we see sustained demand for concrete services in our markets.

Consolidated Results of Operations

Backlog Information

Our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed.

Given the typical duration of our contracts, which is generally less than a year, our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a twelve month period.

We have not been adversely affected by contract cancellations or modifications in the past, we may be in the future, especially in economically uncertain periods.

Consequently, backlog is not necessarily indicative of future results.

In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any time.

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

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

Marine segment

Concrete segment

Income Statement Comparisons

Year ended December 31,

(dollar amounts in thousands)

Contract revenues

Cost of contract revenues

Selling, general and administrative expenses

Amortization of intangible assets

Gain on sale of assets, net

Goodwill impairment charges

Other gain from continuing operations

Operating income (loss)

Other (expense) income:

Interest income

Interest expense

Other expense, net

Loss before income tax expense (benefit)

Income tax expense (benefit)

Net (loss) income

Year ended December 31, 2019 compared with year ended December 31, 2018

Contract Revenues.

Contract revenues for the year ended December 31, 2019 of $708.4 million increased approximately 36.0% as compared to $520.9 million in the prior year period.

The increase was primarily attributable to the execution on the larger volume of work in our backlog in the marine segment as well as increased cubic yard production in the concrete segment in the current year period as compared to the prior year period.

While overall revenues increased, we did experience a shift in the component mix of our marine segment revenue from the private sector to the public sector when comparing the 2019 period to 2018.

In particular, the 2019 period included a large project in the public sector that did not contribute to 2018 results.

By contrast, the 2018 period included a large project in our private sector that was not replicated in the 2019 period.

Gross Profit.

Gross profit was $64.0 million for the year ended December 31, 2019, compared to $16.8 million in the prior year period, an increase of $47.2 million.

Gross margin in 2019 was 9.0% of total contract revenues as compared to 3.2% in the prior year period.

The increase in gross profit dollars and percentage were primarily driven by an improvement in labor efficiency resulting from application of activities from the Invest, Scale, Growth or ISG process and improved utilization rates in our marine segment, along with improved man hours per cubic yards placed in our concrete segment.

Comparatively, 2018 included unfavorable changes in cost estimates and the unfavorable impact of project disruptions due to unanticipated delays in commencing work caused by customer schedules in the marine segment and unfavorable weather patterns in the concrete segment that impacted the second half of the year.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $61.0 million for the year ended December 31, 2019 compared to $53.2 million in the prior year period, an increase of $7.8 million, or

As a percentage of total contract revenues, SG&A expenses decreased as compared with the prior year, from 10.1% to 8.7%.

The increase in SG&A dollars was primarily attributable to expenses related to the ISG initiative.

Other Income, net of Expense.

Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.

During 2019, we recognized $0.5 million of other income related to previously accrued contingent consideration from the purchase of TBC that was never achieved.

Interest expense for 2019 also included a $0.4 million charge related to recognizing unamortized debt issuance costs as a result of the Sixth Amendment to the Credit Facility.

During 2018, we recognized $1.6 million of other income on the sale of easement rights for one of our properties in the Houston area.

Interest expense for 2018 included a $2.2 million charge related to recognizing unamortized debt issuance costs on early extinguishment of debt.

See Note 3 for additional discussion of the TBC acquisition contingent consideration.

See Note 12 for additional discussion of the amended syndicated credit agreement, also known as the Sixth Amendment, executed in May 2019.

Income Tax Expense (Benefit).

We recorded tax expense of $1.9 million in 2019, compared to tax benefit of $12.2 million in 2018.

Our effective tax rate in 2019 was (53.5)%, which differs from the statutory rate of 21% primarily due to the recording of an additional valuation allowance to offset net operating loss carryforwards and foreign tax credits generated during the period, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Year ended December 31, 2018 compared with year ended December 31, 2017

Contract Revenues.

Contract revenues for the year ended December 31, 2018 of $520.9 million decreased approximately 10.0% as compared to $578.6 million in the prior year period.

The decrease was primarily attributable to certain projects in the Marine segment, where we experienced unfavorable changes in cost estimates, the unfavorable impact of customer driven project disruptions and delays and weather patterns in the second half of 2018.

Gross Profit.

Gross profit was $16.8 million for the year ended December 31, 2018, compared to $62.2 million in the prior year period, a decrease of $45.4 million, or 73.0%.

Gross profit in 2018 was 3.2% of total contract revenues as compared to 10.8% in the prior year period.

The decrease in gross profit dollars and percentage was primarily attributable to unfavorable changes in cost estimates and the unfavorable impact of project disruptions due to weather events in the second half of 2018 in the marine segment as well as competitive pressure in the Houston market in the concrete segment.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $53.2 million for the year ended December 31, 2018 compared to $56.6 million in the prior year period, a decrease of $3.4 million, or 6.1%.

This decrease was driven by cost saving initiatives implemented in the fall of 2017 as well as a reduction in certain payroll-related costs in the third quarter of 2018.

Other Expense, Net of Income.

Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.

During 2018, we recognized $1.6 million of other income on the sale of easement rights for one of our properties in the Houston area.

This was offset by a $2.2 million charge to interest expense related to recognizing unamortized debt issuance costs on early extinguishment of debt in the third quarter of 2018.

Our 2017 period only included the recurring interest expense on our borrowings.

Income Tax Benefit.

We recorded tax benefit of $12.2 million in 2018, compared to tax benefit of $4.5 million in 2017.

Our effective tax rate in 2018 was 11.5%, which differs from the statutory rate of 21% primarily due to valuation allowances taken on net operating losses.

See Note 14 for additional discussion of income taxes.

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:

Segment Comparison

Year ended December 31,

(dollar amounts in thousands)

Contract revenues

Marine segment

Public sector

Private sector

Marine segment total

Concrete segment

Public sector

Private sector

Concrete segment total

Operating income (loss)

Marine segment

Concrete segment

Year ended December 31, 2019 compared with year ended December 31, 2018

Marine Segment

Revenues for our marine segment for the year ended December 31, 2019 were $369.1 million compared to $243.9 million for the year ended December 31, 2018, an increase of $125.2 million, or 51.4%.

This increase is primarily attributable to the execution on the larger volume of work in our backlog in the current year as compared to the prior year where we experienced $22.8 million of unfavorable changes in cost estimates on certain projects as well as unanticipated delays in commencing certain work due to customer schedules in the second half of 2018.

Operating income for our marine segment for the year ended December 31, 2019 was $1.1 million, compared to an operating loss of $61.0 million for the year ended December 31, 2018, an increase of $62.1 million.

This increase in operating income (loss) was primarily due to the prior year full impairment of goodwill in the marine segment of $33.8 million, certain projects in the prior year where we experienced unfavorable changes in cost estimates and to unanticipated delays in commencing certain work due to customer schedules in the second half of 2018.

As a percentage of total contract revenues, operating income for our marine segment was 0.3% for the year ended December 31, 2019, compared to operating loss of 25.0% for the year ended December 31, 2018.

The prior year period included $33.8 million of goodwill impairment charges, $22.8 million of unfavorable changes in cost estimates and a $4.3 million reserve on disputed accounts receivable, partially offset by the recognition of a $5.4 million gain on the settlement of a legal matter which did not repeat in the current period.

The current year included $3.0 million of ISG expenses compared to none in the prior year.

After allowing for the comparative $52.4 million of non-recurring items between the periods, marine segment operating income (loss) improved by $9.7 million.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2019 were $339.3 million compared to $277.0 million for the year ended December 31, 2018, an increase of $62.3 million, or 22.5%.

This This increase in revenue was primarily due to an overall increase in cubic yard production on our projects.

Operating income for our concrete segment for the year ended December 31, 2019 was $1.1 million, compared to operating loss of $39.5 million for the year ended December 31, 2018, an increase of $40.6 million.

This increase in operating income was primarily due to the prior year full impairment of goodwill in the concrete segment of $35.7 million and production delays resulting from unfavorable weather patterns experienced during the first and third quarters of 2018.

As a percentage of revenues, operating income for our concrete segment was 0.3% for the year ended December 31, 2019, compared to operating loss of 14.3% for the year ended December 31, 2018.

The prior year period included $35.7 million of goodwill impairment charges .

The current year included $2.3 million of ISG expenses compared to none in the prior period.

After allowing for the comparative $33.4 million of non-recurring items between the periods, concrete segment operating income improved by $7.2 million.

The increase was primarily driven by production efficiencies in man hours per cubic yard in our markets.

Year ended December 31, 2018 compared with year ended December 31, 2017

Marine Segment

Revenues for our marine segment for the year ended December 31, 2018 were $243.9 million compared to $285.7 million for the year ended December 31, 2017, a decrease of $41.9 million, or 14.6%.

This decrease is primarily attributable to certain projects where we experienced unfavorable changes in cost estimates and to unanticipated delays in commencing certain work due to customer schedules in the second half of 2018.

Operating loss for our marine segment for the year ended December 31, 2018 was $61.0 million, compared to $18.4 million for the year ended December 31, 2017, an increase of $42.6 million, or 231.5%.

This increase in operating loss was primarily due to the full impairment of goodwill in the marine segment of $33.8 million, certain projects where we experienced unfavorable changes in cost estimates and to unanticipated delays in commencing certain work due to customer schedules in the second half of 2018.

As a percentage of total contract revenues, operating loss for our marine segment was 25.0% for the year ended December 31, 2018, compared to 6.4% for the year ended December 31, 2017.

The current year period included $33.8 million of goodwill impairment charges, $22.8 million of unfavorable changes in cost estimates and a $4.3 million reserve on disputed accounts receivable, partially offset by the recognition of a $5.4 million gain on the settlement of a legal matter.

After allowing for the $55.4 million of non-recurring items for the year ended December 31, 2018, marine segment operating loss decreased by $12.8 million.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2018 were $277.0 million compared to $292.8 million for the year ended December 31, 2017, a decrease of $15.8 million, or 5.4%.

This decrease was attributable to production delays resulting from unfavorable weather patterns experienced during the third and fourth quarters of 2018.

Operating loss for our concrete segment for the year ended December 31, 2018 was $39.5 million, compared to operating income of $19.9 million for the year ended December 31, 2017, a decrease of $59.5 million, or 298.2%.

This decrease was primarily driven by the full impairment of goodwill in the concrete segment of $35.7 million, production delays resulting from unfavorable weather patterns experienced during the first and third quarters of 2018 as well as continued competitive pressure in the Houston market.

As a percentage of revenues, operating loss for our concrete segment was 14.3% for the year ended December 31, 2018, compared to operating income of 6.8% for the year ended December 31, 2017.

The prior year period included $35.7 million of goodwill impairment charges .

After allowing for the $35.7 million of goodwill impairment charges for the year ended December 31, 2018, concrete segment operating loss was $3.9 million for the year ended December 31, 2018, compared to operating income of $19.9 million for the year ended December 31, 2017.

Critical Accounting Estimates

The consolidated financial statements contained in this report were prepared in accordance with U.S.

The preparation of these financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect both the Company’s carrying values of its assets and liabilities, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Although our significant accounting policies are described in more detail in Note 2 of the Notes to Consolidated Financial Statements ;

we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

Revenue Recognition from Construction Contracts;

Long Lived Assets;

Income Taxes;

Insurance Coverage, Litigation, Claims and Contingencies.

Revenue Recognition

We adopted ASU 2014‑09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018, using the modified retrospective method.

We recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings.

Contracts with customers that were not substantially complete in both our marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Our revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services.

Our projects are typically short in duration and usually span a period of less than one year.

We determine the appropriate accounting treatment for each contract before work begins and generally record 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.

Our contracts and related change orders typically represent a single performance obligation because individual goods and services are not separately identifiable and we provide a significantly integrated service.

Revenue is recognized over time because control is continuously transferred to the customer.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our 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 incurring 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.

Long-Lived Assets

Our long-lived assets consist primarily of equipment used in our operations.

Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from one to 30 years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes.

The carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted.

If events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis

related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists.

If we identify a potential impairment, we will estimate the fair value of the asset through known market transactions of similar equipment and other valuation techniques, which could include the use of similar projections on a discounted cash flow basis.

We will report a loss to the extent that the carrying value of the impaired assets exceeds their fair values.

We determine our 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.

We must make significant assumptions, judgments and estimates to determine our current provision for income taxes, our 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 our 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 we do not expect to realize.

The factors used to assess the likelihood of realization include our forecast of future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and available tax planning strategies that could be implemented to realize the net deferred tax assets.

We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax assets in accordance with ASC 740.

Available evidence includes historical financial information supplemented by currently available information about future years.

Generally, historical financial information is more objectively verifiable than projections of future income and is therefore given more weight in our assessment.

We consider cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in considering whether a valuation allowance is required.

Conversely, we consider a cumulative income position over the most resent twelve quarters, to be significant positive evidence that a valuation allowance may not be required.

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 our financial position and results of operations.

We compute 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.

We account for uncertain tax positions in accordance with the provisions of the FASB’s ASC 740‑10, which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on our consolidated tax return.

We evaluate and record any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the tax jurisdictions in which we operate.

Insurance Coverage, Litigation, Claims and Contingencies

We maintain insurance coverage for our 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 our 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.

This excess loss coverage responds to most of its liability 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.

This excess loss coverage responds to most of its liability policies when a primary limit of $1 million has been exhausted.

Separately, our marine segment employee health care is provided through a trust administered by a third party.

Funding of the trust is based on current claims.

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 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 consolidated results of operations in the period in which they become known.

Our 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, expects to receive a partial refund after the policy expiration.

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).

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

At December 31, 2019, our working capital was $62.2 million, as compared with $50.8 million at December 31, 2018.

As of December 31, 2019, we had unrestricted cash on hand of $0.1 million.

Our borrowing capacity at December 31, 2019 was approximately $12.6 million.

We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases 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 years ending December 31, 2019, 2018 and 2017:

Cash flows (used in) provided by operating activities

Cash flows used in investing activities

Cash flows provided by (used in) financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During 2019, we used approximately $0.7 million in cash from our operating activities.

The net cash outflow is comprised of $30.1 million of cash inflows from net income, after adjusting for non-cash items and $30.8 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 Consolidated Statements of Cash Flows, were primarily driven by a $22.9 million increase in our net position of accounts receivable and accounts payable.

The increases in accounts receivable and accounts payable were consistent with our increased project activity year over year.

The year over year increase in accounts receivable is more pronounced than accounts payable due to the longer cycle times on the accounts receivable, which also include retainage whereas accounts payable typically turn in 30 days.

The changes in net working capital also included a net outflow of $5.2 million from the net change in costs and estimated earnings in excess of billings on uncompleted contracts, offset by the change in billings in excess of costs and estimated earnings on uncompleted contracts.

These changes were driven by the timing and execution of the underlying projects.

During 2018, our operations provided approximately $21.9 million in net cash inflows.

The net cash inflow is comprised of inflows of $27.6 million related to changes in working capital, partially offset by $5.7 million of net loss after adjusting for non-cash items.

The changes in net working capital were primarily driven by a net inflow of $24.6 million of cash from the net change in costs and estimated earnings in excess of billings on uncompleted contracts, offset by the change in

billings in excess of costs and estimated earnings on uncompleted contracts.

These changes were driven by the timing and execution of the underlying projects.

During 2017, our operations provided approximately $34.1 million in net cash inflows.

The net cash inflow is comprised of $28.6 million of net income after adjusting for non-cash items and inflows of $5.5 million related to changes in net working capital.

The changes in net working capital were primarily driven by a decrease in accounts receivable, partially offset by a decrease in accounts payable.

Investing Activities.

Capital asset additions and betterments to our fleet were $17.2 million in 2019, as compared with $17.7 million and $10.7 million in 2018 and 2017, respectively.

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

Financing Activities.

During 2019, we drew down $63.0 million from our revolving line of credit.

Additionally, we repaid $49.0 million on this draw, as well as made regularly scheduled debt payments on the term loan of $3.0 million and an additional principal paydown of $18.2 million with proceeds from a sale-leaseback arrangement.

During 2018, we drew down $39.9 million from our revolving line of credit.

Additionally, we repaid $27.9 million on this draw, as well as made debt payments on the term loan of $20.2 for a total of $48.1 million in debt payments.

During 2017, in connection with our new Credit Facility, we drew down $72.0 million from our revolving line of credit.

Additionally, we repaid $70.0 million on this draw, as well as made regularly scheduled debt payments and additional payments on the term loan of $17.8 million for a total of $87.8 million in debt payments.

Sources of Capital

The Company entered into an amended syndicated credit agreement (the “Credit Agreement”

also known as the “Fourth Amendment”) on July 31, 2018, with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Baking and Trust Company.

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, and executed the Sixth Amendment during May 2019.

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”).

The Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance capital expenditures, to refinance existing indebtedness, to finance permitted acquisitions and associated fees, and to pay for all related expenses to the Credit Facility.

Interest is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin).

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.

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

The Credit Facility matures on July 31, 2023.

See Note 12 in the Notes to the Financial Statements (Part IV, Item 15 of this Form 10‑K) for further discussion on the Company’s Debt.

Financial covenants

Restrictive financial covenants under the Credit Facility include:

A consolidated Fixed Charge Coverage Ratio to not be less than the following during each noted period:

-Fiscal Quarter Ending December 31, 2019 and each Fiscal Quarter thereafter, to not be less than 1.25 to 1.00.

A consolidated Leverage Ratio to not exceed the following during each noted period:

-Fiscal Quarter Ending December 31, 2019, to not exceed 4.00 to 1.00;

-Fiscal Quarter Ending March 31, 2020 and each Fiscal Quarter thereafter, to not exceed 3.00 to 1.00.

A consolidated Adjusted EBITDA to not be less than the following during each noted period:

- Fiscal Year Ending December 31, 2019 :

$21.7 million.

In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees;

breaches of representations and warranties that are not timely cured;

violation of covenants;

bankruptcy and insolvency events;

and events constituting a change of control.

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

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 December 31, 2019.

De rivative Financial Instruments

On September 16, 2015, the Company entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the Regions Term Loan outstanding, beginning with a notional amount of $67.5 million.

There were 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.

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

At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in accumulated other comprehensive (loss) income and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

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

The change in fair market value of the swaps as of December 31, 2019 is approximately $1.0 million.

The fair market value of the swaps as of December 31, 2019 is reflected as a liability of $1.0 million on the Consolidated Balance Sheets.

See Note 9 for more information regarding the fair value of the Company’s derivative instruments.

Sale-Leaseback Arrangement

On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”).

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million.

Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $1.5 million, subject to annual rent increases of 2.0%.

Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such option.

This transaction was recorded as a failed sale-leaseback.

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.

Bonding Capacity

We are often required to provide various types of surety bonds that provide additional security to our customers for our performance under certain government and private sector contracts.

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 December 31, 2019, the capacity under our current bonding arrangement was at least $500 million, with approximately $280 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.

Effect of Inflation

We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel.

Due to the relative short-term duration of our projects, we are generally able to include anticipated price increases in the cost of our bids.

Off Balance Sheet Arrangements

Currently our only off balance sheet arrangements are those discussed above under “Bonding Capacity”

and those which arise in the normal course of business.

These arrangements are not reasonably likely to have an effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

See Note 18 –

Commitments and Contingencies of Notes to Consolidated Financial Statements beginning on page F‑1 of this Annual Report on Form 10‑K.

Contractual Obligations

The following table sets forth information about our contractual obligations and commercial commitments as of December 31, 2019:

Payment Due by Period

(in thousands)

Debt obligations

Lease obligations

Sale-leaseback arrangement (1)

Purchase obligations (2)

See Note 13 in the Notes to the Financial Statements (Part IV, Item 15 of this Form 10‑K) for further discussion on the Company’s Sale-leaseback arrangement.

Commitments pursuant to open purchase orders and subcontracts related to construction contracts are not included since such amounts are expected to be funded under contract billings.

To manage risks of changes in the material prices and subcontracting costs used in tendering bids for construction contracts, we routinely obtain firm quotations from our suppliers and subcontractors before submitting a bid.

These quotations do not include any quantity guarantees, and we have no obligation for materials or subcontract services beyond those required to complete the contracts that we are awarded for which quotations have been provided.

A summary of debt and other contractual obligations as of December 31, 2019 and December 31, 2018 is as follows:

December 31, 2019

December 31, 2018

Credit facility, non-current maturities

Credit facility, current maturities

Total long-term debt

Outstanding letters of credits

Leasing arrangements

Other long-term liabilities

The maturity date for amounts drawn under the revolving line of credit is the earlier of the Facility termination date of July 31, 2023, or the date the outstanding balance is permanently reduced to zero.

Prior to the fourth quarter of 2018, the Company classified amounts drawn as current liabilities based on an intent and ability to repay the amounts using current assets within the next twelve months.

During the fourth quarter of 2018, the Company determined it no longer has the intent to repay amounts drawn within the next twelve months.

Therefore, the Company has classified the entire outstanding balance of the revolving line of credit as non-current.

Recently Issued Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Principles of the Notes to the Financial Statements (Part IV, Item 15 of this Form 10‑K) for further discussion.

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-K

Item 5. Market for Registrant’s Common Equity