What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 131 added, 103 removed, 150 unchanged (61% of the section changed)

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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.

First Quarter 2021 Recap and 2021 Outlook

In the quarter ended March 31, 2021, we recorded revenues of $153.3 million, of which $72.1 million was attributable to our marine segment and the remaining $81.2 million to our concrete segment.

Second Quarter 2021 Recap and 2021 Outlook

In the quarter ended June 30, 2021, we recorded revenues of $145.9 million, of which $63.9 million was attributable to our marine segment and the remaining $81.9 million to our concrete segment.

In addition, we ended the quarter with a consolidated backlog of $394.4 million.

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● Continued investment in warehouse/distribution space in the Dallas-Fort Worth region;

● COVID-19 driven shift of populous moving from the inner cities to suburban areas;

● COVID-19 driven shift of people moving from the inner cities to suburban areas;

● 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):

June 30, 2021

March 31, 2021

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June 30, 2020

March 31, 2020

Marine segment

Concrete segment

A previously reported backlog amount has 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 for the period ended March 31, 2020.

The recent trend of declining backlog is due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors.

We, however, remain optimistic in our end-markets and in the opportunities that are emerging

across our various market places as evidenced by the $1.9 billion of quoted bids outstanding at quarter end, of which $134 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the quarter ended March 31, 2021.

Although backlog increased during the current quarter, the primary driver related to weather impacts that negatively impacted the amount we were able to progress on our jobs in backlog.

The general trend of declining backlog over the past year is due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors, which has slowed the timing of project awards.

We, however, remain optimistic in our end-markets and in the opportunities that are emerging across our various market places as evidenced by

the $2.0 billion of quoted bids outstanding at quarter end, of which $30 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the quarter ended June 30, 2021.

These estimates are subject to fluctuations based upon the scope of services to be provided, as well as factors affecting the time required to complete the project.

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

Three months ended March 31, 2021, compared with three months ended March 31, 2020

Three months ended March 31,

Delays in decisions on pending awards also have a negative impact on the timing and amount by which we are able to increase backlog.

Three months ended June 30, 2021, compared with three months June 30, 2020

Three months ended June 30,

(dollar amounts in thousands)

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Income before income tax expense

Income tax expense

Income tax (benefit) expense

Contract Revenues.

Contract revenues for the three months ended March 31, 2021 of $153.3 million decreased $13.3 million or 8.0% as compared to $166.6 million in the prior year period.

The decrease was primarily driven by severe winter weather that shut down most of Texas for seven to ten days in the 2021 period and the timing and mix of projects in the marine segment in the prior period.

Contract revenues for the three months ended June 30, 2021 of $145.9 million decreased $37.8 million or 20.6% as compared to $183.7 million in the prior year period.

The decrease was primarily driven by a reduction in project activity compared to the prior year in the marine segment and decreased production volumes in the concrete segment due to weather related impacts.

Gross Profit.

Gross profit was $15.5 million for the three months ended March 31, 2021, compared to $19.8 million in the prior year period, a decrease of $4.3 million or 21.8%.

Gross profit in the first quarter was 10.1% of total contract revenues as compared to 11.9% in the prior year period.

The decrease in gross profit dollars and percentage was primarily driven by decreased equipment and labor utilization as the result of the aforementioned winter weather delays.

Gross profit was $12.3 million for the three months ended June 30, 2021, compared to $20.7 million in the prior year period, a decrease of $8.4 million or 40.7%.

Gross profit in the second quarter was 8.4% of total contract revenues as compared to 11.3% in the prior year period.

The decrease in gross profit dollars and percentage was driven by the decreased activity and volumes which negatively impacted revenue and contributed to an under recovery of indirect costs primarily related to decreased labor and equipment utilization.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $14.6 million for the three months ended March 31, 2021 compared to $15.9 million in the prior year period.

As a percentage of total contract revenues, SG&A expenses remained flat.

The decrease in SG&A dollars was driven in part by reduced business development, based on timing of project pursuits, and travel related costs in the current year period.

Selling, general and administrative ("SG&A") expenses were $13.7 million for the three months ended June 30, 2021 compared to $16.5 million in the prior year period.

As a percentage of total contract revenues, SG&A expenses increased from 9.0% to 9.4%.

The decrease in SG&A dollars was driven primarily by a decrease in bonus expense as compared to the prior year period.

Gain on Disposal of Assets, net.

During the three months ended March 31, 2021 and 2020, we realized $1.6 million and $1.0 million, respectively, of net gains on disposal of assets.

During the three months ended June 30, 2021 and 2020, we realized $8.1 million and $0.4 million, respectively, of net gains on disposal of assets.

Included in this amount is a net gain

of $6.8 million related to the sale of property in Tampa, Florida.

See Note 6 – Property and Equipment in this form 10-Q for a further description of the sale of property.

Other Income, net of Expense.

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

Income Tax Expense.

We recorded tax expense of $0.2 million in the three months ended March 31, 2021, compared to tax expense of $0.4 million in the prior year period.

Our effective tax rate for the three months ended March 31, 2021 was 13.9%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

During the quarter ended June 30, 2021 we fully extinguished the term loan portion of our credit facility, in part using proceeds of the sale of property in Tampa, Florida.

The extinguishment of the term loan reduced the Company’s exposure to variability in interest rates and eliminated future loan amortization payment commitments.

Interest expense for the current quarter included $2.1 million related to the extinguishment of our term loan and related interest rate swaps.

Income Tax (Benefit) Expense.

We recorded tax benefit of $0.8 million in the three months ended June 30, 2021, compared to tax expense of $1.0 million in the prior year period.

Our effective tax rate for the three months ended June 30, 2021 was (29.8)%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

Six months ended June 30, 2021, compared with six months June 30, 2020

Six months ended June 30,

(dollar amounts in thousands)

Contract revenues

Cost of contract revenues

Selling, general and administrative expenses

Amortization of intangible assets

Gain on disposal of assets, net

Operating income (loss) from operations

Other (expense) income:

Interest income

Interest expense

Other expense, net

Income before income taxes

Income tax (benefit) expense

Contract Revenues.

Contract revenues for the six months ended June 30, 2021 of $299.2 million decreased $51.1 million or 14.6% as compared to $350.3 million in the prior year period.

The decrease was primarily driven by severe winter weather that shut down most of Texas for seven to ten days in February 2021, a reduction in project activity compared to the prior year in the marine segment and decreased production volumes in the concrete segment due to weather related impacts in the second quarter of 2021.

Gross Profit.

Gross profit was $27.8 million for the six months ended June 30, 2021, compared to $40.5 million in the prior year period, a decrease of $12.7 million or 31.5%.

Gross profit in the period was 9.3% of total contract revenues as compared to 11.6% in the prior year period.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $28.3 million for the six months ended June 30, 2021 compared to $32.4 million in the prior year period.

As a percentage of total contract revenues, SG&A expenses increased from 9.3% to 9.5%.

The decrease in SG&A dollars was driven by a decrease in the current year period related to bonus expense, business development pursuant to timing of project pursuits and awards, and travel related costs.

Gain on Disposal of Assets, net.

During the six months ended June 30, 2021 and 2020, we realized $9.0 million and $1.4 million, respectively, of net gains on disposal of assets.

Included in this amount is a net gain of $6.8 million related to the sale of property in Tampa, Florida.

Other Income, net of Expense.

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

Interest expense for the current year period included $2.1 million related to the extinguishment of our term loan and related interest rate swaps.

Income Tax (Benefit) Expense.

We recorded tax benefit of $0.7 million in the six months ended June 30, 2021, compared to tax expense of $1.4 million in the prior year period.

Our effective tax rate for the six months ended June 30, 2021 was (17.4)%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other 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 March 31, 2021 compared with three months ended March 31, 2020.

Three months ended March 31,

In connection with the preparation of the financial statements for the quarter ended June 30, 2021, the Company has identified and corrected certain immaterial errors in segment reporting for all periods presented.

Specifically, certain corporate overhead costs previously recorded to the marine segment as part of operating income (loss) and allocated from the marine segment to the concrete segment below operating income in the other income (expense) line have been allocated from the marine segment to the concrete segment as part of the determination of operating income for each segment.

These corrections resulted in an offsetting change in operating income (loss) for each segment of $3.2 million for the three months ended June 30, 2020 and $2.9 million and $6.1 million for the six months ended June 30, 2021 and 2020, respectively.

Three months ended June 30, 2021 compared with three months ended June 30, 2020.

Three months ended June 30,

(dollar amounts in thousands)

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Marine Segment

Revenues for our marine segment for the three months ended March 31, 2021 were $72.1 million compared to $85.9 million for the three months ended March 31, 2020, a decrease of $13.8 million, or 16.1%.

The decrease was primarily attributable to the Texas winter storm and the timing and mix of projects.

Operating loss for our marine segment for the three months ended March 31, 2021 was less than $0.1 million, compared to operating income of $2.9 million for the three months ended March 31, 2020, a decrease of $2.9

This decrease in operating income was primarily due to the decrease in revenue, decreased equipment utilization and an increase in insurance premiums.

Revenues for our marine segment for the three months ended June 30, 2021 were $63.9 million compared to $91.7 million for the three months ended June 30, 2020, a decrease of $27.8 million, or 30.3%.

The decrease was primarily driven by a reduction in project activity compared to the prior year period.

Operating income for our marine segment for the three months ended June 30, 2021 was $8.6 million, compared to operating income of $3.8 million for the three months ended June 30, 2020, an increase of $4.8 million.

Excluding the impact of the sale of property in Tampa, Florida operating income was $1.8 million, compared to operating income of $3.8 million for the three months ended June 30, 2020, a decrease of $2.0 million, or 51.7%.

This decrease in operating income was primarily due to the decrease in revenue and related under recovery of indirect costs as a result of decreased labor and equipment utilization.

Concrete Segment

Revenues for our concrete segment for the three months ended March 31, 2021 were $81.2 million compared to $80.7 million for the three months ended March 31, 2021, an increase of $0.5 million, or 0.6%.

This increase in revenue was primarily driven by an increase in production volume.

Operating income for our concrete segment for the three months ended March 31, 2021 was $2.1 million, compared to $1.5 million for the three months ended March 31, 2020, an increase of $0.6 million, or 36.7%.

This increase in operating income was primarily due to an increase in effective project labor management.

Revenues for our concrete segment for the three months ended June 30, 2021 were $81.9 million compared to $92.0 million for the three months ended June 30, 2021, a decrease of $10.1 million, or 10.9%.

This decrease resulted from decreased production volumes due to weather related impacts.

Operating loss for our concrete segment for the three months ended June 30, 2021 was $3.0 million, compared to operating income of $0.3 million for the three months ended June 30, 2020, a decrease of $3.3 million.

This decrease in operating income was primarily due to the aforementioned decreased production volumes due to weather related impacts.

Six months ended June 30, 2021 compared with six months ended June 30, 2020.

Six months ended June 30,

(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

Marine Segment

Revenues for our marine segment for the six months ended June 30, 2021 were $136.1 million compared to $177.7 million for the six months ended June 30, 2020, a decrease of $41.6 million, or 23.4%.

The decrease was primarily attributable to the Texas winter storm in February 2021 and a reduction in project activity compared to the prior year period.

Operating loss for our marine segment for the six months ended June 30, 2021 was $11.5 million, compared to operating income of $9.6 million for the six months ended June 30, 2020, an increase of $1.9 million, or 19.8%.

Excluding the impact of the sale of property in Tampa, Florida operating income was $4.7 million, compared to operating income of $9.6 million for the six months ended June 30, 2020, a decrease of $4.9 million, or 51.0%.

This decrease in operating income was primarily due to the decrease in revenue and related under recovery of indirect costs as a result of decreased labor and equipment utilization.

Concrete Segment

Revenues for our concrete segment for the six months ended June 30, 2021 were $163.1 million compared to $172.7 million for the six months ended June 30, 2021, a decrease of $9.6 million, or 5.5%.

This decrease resulted from decreased production volumes due to job delays caused by bad weather.

Operating loss for our concrete segment for the six months ended June 30, 2021 was $3.8 million, compared to $1.1 million for the six months ended June 30, 2020, an increase in operating loss of $2.7 million.

This increase in operating loss was primarily due to the aforementioned decreased production volumes due to weather related impacts.

Liquidity and Capital Resources

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

At March 31, 2021, our working capital was $60.7 million, as compared with $54.8 million at December 31, 2020.

As of March 31, 2021, we had unrestricted cash on hand of $4.6 million.

Our borrowing capacity at March 31, 2021 was approximately $68.3 million.

At June 30, 2021, our working capital was $60.8 million, as compared with $54.8 million at December 31, 2020.

As of June 30, 2021, we had unrestricted cash on hand of $2.4 million.

Our borrowing capacity at June 30, 2021 was approximately $42.3 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 months ended March 31, 2021 and 2020:

The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2021 and 2020:

Three months ended

Six months ended

Adjustments to remove non-cash and non-operating items

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Operating Activities.

During the three months ended March 31, 2021, we generated approximately $9.1 million in cash from our operating activities.

The net cash inflow is comprised of $7.8 million of cash inflows from net income, after adjusting for non-cash items and $1.3 million of cash inflows related to changes in net working

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 $10.5 million inflow pursuant to the relative timing and significance of project progression and billings during the period and a $0.3 million inflow from other working capital items, partially offset by a $8.3 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $1.2 million decrease in operating lease liabilities during the period.

During the three months ended June 30, 2021, we generated approximately $2.2 million in cash from our operating activities.

The net cash inflow is comprised of $6.2 million of cash inflows from net income, after adjusting for non-cash items and $4.0 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 $6.1 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $1.4 million decrease in operating lease liabilities during the period and $0.9 million of other outflows, partially offset by a $4.4 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.

During the six months ended June 30, 2021, we generated approximately $11.3 million in cash from our operating activities.

The net cash inflow is comprised of $14.0 million of cash inflows from net income, after adjusting for non-cash items and $2.7 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 $3.9 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, a $2.6 million decrease in operating lease liabilities during the period and $0.6 million of other outflows, partially offset by a $4.4 million inflow pursuant to the relative timing and significance of project progression and billings during the period.

Investing Activities.

Capital asset additions and betterments to our fleet were $1.6 million in the three months ended March 31, 2021, as compared with $2.8 million in the three months ended March 31, 2020.

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

Capital asset additions and betterments to our fleet were $3.1 million in the three months ended June 30, 2021, as compared with $2.3 million in the three months ended June 30, 2020.

Proceeds from the sale of property and equipment were $22.8 in the three months ended June 30, 2021, as compared with $0.4 million in the three months ended June 30, 2020.

Capital asset additions and betterments to our fleet were $4.7 million in the six months ended June 30, 2021, as compared with $5.0 million in the six months ended June 30, 2020.

Proceeds from the sale of property and equipment were $24.7 in the six months ended June 30, 2021, as compared with $1.7 million in the six months ended June 30, 2020.

The increase in proceeds from the sale of property and equipment for the three and six months ended June 30, 2021 is primarily related to the sale of our property in Tampa, Florida.

Financing Activities.

During the three months ended March 31, 2021, we drew down $5.0 million from our revolving line of credit and repaid $10 million on our revolving line of credit, as well as made the regularly scheduled debt payments on the term loan of $1.2 million.

During the three and six months ended June 30, 2021, we drew down $15.0 million and $20 million from our revolving line of credit and repaid $9 million and $19 million, respectively on our revolving line of credit.

During the three months ended June 30, 2021 we fully extinguished the term loan portion of our Credit Facility, in part using proceeds from the sale of property in Tampa, Florida.

The extinguishment of the term loan reduced our exposure to variability in interest rates and eliminated future loan amortization payment commitments.

Concurrent with extinguishing the term loan, we canceled the remaining open position on our interest rate swap, resulting in a $1.3 million loss on the mark to market value of the swap at the date of termination.

The $1.3 million was paid to the counterparty, cleared from the balance sheet as an interest rate swap liability, removed from Other Comprehensive Income and charged to interest expense during the quarter ended June 30, 2021.

Further, the remaining $0.8 million of unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan.

There were no penalties incurred related to early payment of the term loan.

Sources of Capital

We 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, we executed the Fifth Amendment during March 2019, which was made effective as of December 31, 2018, executed the Sixth Amendment during May 2019, executed the Seventh Amendment during June 2020 and executed the Eighth Amendment during October 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”).

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.

We entered into a new syndicated credit agreement (the “364-Day Revolving Credit Facility”) on June 8, 2020 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

Bank of America, N.A.

and BOKF, NA dba Bank of Texas.

Concurrent with this the Company executed an amendment to the Credit Agreement with its existing lenders (“also known as the “Seventh Amendment”) for the sole intent and outcome of executing the 364-Day Revolving Credit Facility.

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 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.

We have not made any borrowings under 364-Day Revolving Credit Facility.

Effective, October 9, 2020, the Company entered into an amendment (the "Eighth Amendment") to its syndicated credit agreement (the "Credit Agreement"

, with Regions Bank, as Administrative Agent and Collateral Agent and Bank of America, N.A., BOKF, NA dba Bank of Texas, Iberiabank, NBH Bank, Truist Bank, and Trustmark National Bank, as Lenders.

The Eighth Amendment provides for administrative revisions to the Credit Agreement, including changes to repayment requirements for involuntary asset dispositions and changes to the timing of repayment for voluntary asset dispositions.

As of June 30, 2021, our available sources of capital consist of the $50 million line of credit pursuant to our 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.

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

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, leases 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 March 31, 2021.

Derivative 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 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 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.

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 other comprehensive income (loss) 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 for the comparative periods ended March 31, 2021 and March 31, 2020, as reflected in accumulated other comprehensive loss in the Condensed Consolidated Statements of Stockholders’ Equity, is approximately $(0.2) million and $1.0 million.

The fair market value of the swaps as of March 31, 2021 is reflected as a liability of $1.4 million on the Condensed Consolidated Balance Sheets.

See Note 8 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

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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 March 31, 2021, the capacity under our current bonding arrangement was at least $500 million, with approximately $170 million of projects being bonded.

At June 30, 2021, the capacity under our current bonding arrangement was at least $500 million, with approximately $135 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.

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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