Orion (ORN) - 2021 Q4 - Annual Report

PART I Item 1. Business Orion Group Holdings, Inc. is a specialty construction company operating in infrastructure, industrial, and building sectors through marine and concrete segments General Background - Orion Group Holdings, Inc. is a leading specialty construction company serving infrastructure, industrial, and building sectors in the continental United States, Alaska, Canada, and the Caribbean Basin[10] - The company operates through a marine segment (construction and dredging) and a concrete segment (turnkey concrete construction)[10] History and Growth - Founded in 1994 as a marine construction project management business, Orion Group Holdings, Inc. expanded through organic growth and acquisitions, including T.A.S. Commercial Concrete Construction, LLC (2015) and Tony Bagliore Concrete, Inc. (2017)[12] - Strategic acquisitions diversified end markets, customer base, enhanced operational capabilities, expanded geographic reach, and added to the equipment fleet[12] Operating Principles and Guiding Beliefs - Core operating principles include safety, quality, production, integrity, and sustainability[13][15] Business Strategy - Key business strategies include adding construction capabilities, expanding into new markets and complementary services, selectively pursuing strategic acquisitions, capitalizing on favorable long-term industry trends, diversification, reinvesting in core operations, attracting and developing employees, and owning equipment[18] Services Provided - The company offers Marine Construction Services (construction, restoration, dredging, maintenance, repair of marine facilities, pipelines, bridges, environmental structures) and Concrete Construction Services (turnkey concrete for commercial, industrial, institutional, and residential projects)[16][24] Industry and Market Overview - Marine segment markets include port expansion, bridges, marine infrastructure, recreational waterside, Department of Defense, energy, coastal/wetland restoration, hurricane repair, and environmental remediation[33][34][35][36][38][39][41][42][43][44] - Concrete segment markets are driven by population growth in Texas metropolitan areas, supporting industrial, institutional, structural, retail, and recreational developments[45][46][47][48][49][50][51] Customers - Marine segment customers include federal, state, and local governmental agencies, as well as private commercial and industrial enterprises in the United States and the Caribbean Basin[52] - Concrete segment customers include general contractors, owners/developers of medical facilities, religious developments, sports complexes, school districts, and industrial/commercial/residential buildings in Texas metropolitan areas[52] Contract Revenue by Customer Type (2019-2021) | | 2021 | % | 2020 | % | 2019 | % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Federal Government | $54,480 | 9 % | $51,793 | 7 % | $46,425 | 6 % | | State Governments | 4,790 | 1 % | 27,574 | 4 % | 47,831 | 7 % | | Local Governments | 120,311 | 20 % | 202,839 | 29 % | 212,958 | 30 % | | Private Companies | 421,779 | 70 % | 427,736 | 60 % | 401,176 | 57 % | | Total contract revenues | $601,360 | 100 % | $709,942 | 100 % | $708,390 | 100 % | Fluctuations in Quarterly Results - Quarterly revenues and results of operations can fluctuate significantly due to project mix, size, scope, schedules, permitting, weather delays, labor productivity, and equipment utilization[55][56] Competition - Both marine and concrete segments operate in highly fragmented markets, competing with regional and national companies[57][58] - Competitive advantages include turnkey capability, expertise, reputation for safety and quality, versatile equipment fleet, financial strength, surety bonding capacity, local market knowledge, and project management abilities[58] Insurance and Bonding - The company maintains various insurance policies and provides surety bonds for public and private sector contracts[59][60] - As of December 31, 2021, bonding capacity was at least $750 million, with approximately $110 million of projects bonded[60] Trade Names - The company operates under various trade names, consolidating under 'Orion Group Holdings, Inc.', and relies on state and common law protections for trademarks[61] Equipment - Orion owns a large, diverse fleet of well-maintained construction equipment for both marine and concrete segments, including barges, dayboats, tugs, dredges, cranes, pump trucks, and laser screeds[62][65][68] - Ownership of equipment ensures availability and lower costs, with a strategy to deploy the fleet as needed and extend useful life through capital refurbishment[65] Equipment Certification - Marine segment equipment requires certification by the U.S. Coast Guard and, for larger vessels, by the American Bureau of Shipping (ABS) to ensure operational capability and mobility[66] Government Regulations - The company must comply with federal, state, and local regulations, including workplace safety, labor relations, licensing for shipping/dredging, and permitting for marine construction[67][69] - Marine segment operations are specifically subject to the Dredging Act, Jones Act, Shipping Act, and Vessel Documentation Act, requiring U.S. ownership, control, and crews for certain vessels[67][70] - Both segments are subject to OSHA and EPA requirements[71] Environmental Matters - Operations are subject to stringent environmental laws and regulations covering air emissions, water quality, waste management, marine/bird species habitats, and wetlands[73] - Compliance with environmental laws is not expected to have a material adverse effect, but future laws or regulations could increase costs[75] - Specific regulations include RCRA (waste management), CERCLA (site remediation), CWA and OPA (water discharges), CAA (air emissions), and ESA (endangered species)[76][77][81][82][84][87] Human Capital Management - As of December 31, 2021, the marine segment had 845 employees (277 salaried) and the concrete segment had 1,602 employees (101 salaried)[88] - Approximately 4.2% of the total workforce is represented by labor unions, primarily in the marine segment in the Pacific Northwest and Alaska, and certain concrete segment employees[89] Financial Information About Geographic Areas - Marine segment operations are primarily along U.S. coastal regions, with minor revenues (0.5% in 2021) from the Caribbean Basin and Mexico[90] - Concrete segment operations are concentrated in Texas metropolitan areas[90] Access to the Company's Filings - The company's SEC filings are available free of charge on its website, www.oriongroupholdingsinc.com, and the SEC's website, www.sec.gov[91](index=91&type=chunk) Item 1A. Risk Factors The company faces various risks, including intense competition, regulatory challenges, adverse weather, and financial risks from indebtedness and restrictive covenants Risk Factors Relating to Our Business - Government contracts are highly competitive and regulated, with reduced funding or delays leading to intense competition and pricing pressure[94] - The COVID-19 pandemic has caused project delays, supply chain disruptions, labor market impacts, and decreased operational efficiency[99][101][102] - The company faces risks from inaccurate cost estimates on fixed-price contracts, potential penalties for late completion, and dependence on third-party subcontractors and suppliers[115][117][118] Risk Factors Relating to Our Employees - Potential risks include unionization, work stoppages, slowdowns, or increased labor costs, as only a small percentage of the workforce is currently unionized[138] - Marine segment employees are covered by federal maritime laws (Jones Act, USL&H, Seaman's Wage Act), which can lead to greater exposure for job-related injury claims compared to state workers' compensation limits[139] General Risk Factors - Growth through strategic acquisitions carries risks such as integration difficulties, termination of key personnel/customer relationships, financial challenges, and potential environmental liabilities[141][144] - Systems and information technology interruptions, failures, or data security breaches could adversely impact operations, intellectual property, and expose the company to financial losses and reputational harm[145][146] Risk Factors Relating to Our Indebtedness and Financing Plans - Bonding requirements may limit the ability to incur additional indebtedness, impacting potential acquisitions and operations[147] - Indebtedness requires significant debt service payments and includes restrictive covenants that can limit the company's flexibility in business operations and future investments[148][150][151] - Variable rate indebtedness exposes the company to interest rate risk, potentially increasing debt service obligations[153] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments were reported[154] Item 2. Properties Orion Group Holdings, Inc. maintains its corporate headquarters and other facilities, with some real estate assets pledged as collateral - Corporate headquarters are leased in Houston, Texas (24,746 sq ft), with other leased offices in Alaska, Louisiana, Florida, Texas, and Washington[154] - The company owns 35.3 acres for waterfront maintenance and dock facilities, including an equipment yard in Texas, and 340 acres in the Houston Ship Channel for dredge material placement[157] - Existing facilities are considered adequate, and no single facility is material to operations; some real estate assets are pledged as collateral[158] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 17 of the Financial Statements - Legal proceedings information is detailed in Note 17 of the Financial Statements[159] Item 4. Mine Safety Disclosure Mine safety disclosure is not applicable to the company's operations - Mine Safety Disclosure is not applicable[160] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Orion Group Holdings, Inc.'s common stock is listed on the NYSE, with no equity repurchases during the period - Common stock is listed on the NYSE under the symbol 'ORN'[161] - As of February 18, 2022, there were approximately 5,894 stockholders of record[162] - No issuer repurchases of equity securities occurred[163] Performance Graph (2016-2021) - Value of $100 Investment | | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Orion Group Holdings, Inc. | 100.00 | 78.69 | 43.12 | 52.16 | 49.85 | 37.89 | | S&P 500 | 100.00 | 119.42 | 111.97 | 144.31 | 167.77 | 212.89 | | Dow Jones US Heavy Civil Construction | 100.00 | 104.51 | 76.67 | 102.11 | 123.25 | 184.05 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, revenues decreased by 15.3% to $601.4 million, resulting in a net loss of $14.6 million, while backlog increased to $590.0 million Overview - Orion Group Holdings, Inc. provides specialty construction services in infrastructure, industrial, and building sectors across the continental U.S., Alaska, and the Caribbean Basin, through marine and concrete segments[169] - Contracts are primarily obtained through competitive bidding and negotiation, with most revenue derived from fixed-price contracts recognized over time based on costs incurred[170][171] 2021 Recap and 2022 Outlook 2021 Financial Performance | Metric | Value (in millions) | | :--- | :--- | | Revenues | $601.4 | | Net Loss | $(14.6) | | Consolidated Backlog | $590.0 | - The company aims for organic growth, greenfield expansion, and strategic acquisitions in 2022, while monitoring COVID-19 impacts on project timing and supply chains[173][176] - Long-term demand for marine services is driven by degrading U.S. marine infrastructure, port expansion, and government-funded projects (WRRDA Act, RESTORE Act, federal infrastructure bill)[178][179] - Long-term demand for concrete services is supported by population growth in Texas, corporate relocations, and investments in warehouse/distribution, education, office, retail, multi-family housing, and federal infrastructure projects[180][181][184] Consolidated Results of Operations Consolidated Backlog (in millions) | Segment | Dec 31, 2021 | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Marine segment | $376.9 | $379.9 | $170.2 | $154.8 | $202.6 | | Concrete segment | $213.1 | $192.9 | $224.2 | $210.0 | $236.9 | | Consolidated | $590.0 | $572.8 | $394.4 | $364.8 | $439.5 | - Backlog increased during Q4 2021 due to new job wins, reversing a declining trend earlier in the year caused by COVID-19 impacts[183] Consolidated Income Statement Summary (2019-2021, in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Contract revenues | $601,360 | $709,942 | $708,390 | | Cost of contract revenues | $560,393 | $625,239 | $644,349 | | Gross profit | $40,967 | $84,703 | $64,041 | | SG&A expenses | $60,181 | $65,091 | $61,012 | | Operating (loss) income | $(9,317) | $26,586 | $2,193 | | Net (loss) income | $(14,560) | $20,220 | $(5,359) | | Basic (loss) earnings per share | $(0.47) | $0.67 | $(0.18) | - Contract revenues decreased by 15.3% in 2021 compared to 2020, primarily due to reduced project activity in the marine segment from COVID-19 impacts[185] - Gross profit decreased by 51.6% in 2021, driven by lower activity, under-recovery of indirect costs, and decreased project performance in the concrete segment[186] - SG&A expenses decreased by 7.5% in 2021, but increased as a percentage of revenue due to lower revenue[187] Segment Results Segment Contract Revenues and Operating Income (2019-2021, in thousands) | Segment | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | :--- | | Marine | Contract revenues | $263,915 | $388,173 | $369,138 | | | Operating income | $5,760 | $29,815 | $12,841 | | Concrete | Contract revenues | $337,445 | $321,769 | $339,252 | | | Operating income (loss) | $(15,077) | $(3,229) | $(10,648) | | Total | Contract revenues | $601,360 | $709,942 | $708,390 | | | Operating (loss) income | $(9,317) | $26,586 | $2,193 | - Marine segment revenues decreased by 32.0% in 2021 due to reduced project activity, leading to a $24.0 million decrease in operating income[200][201] - Concrete segment revenues increased by 4.9% in 2021, but operating loss increased by $11.9 million due to decreased project performance and lower margins[203][204] Critical Accounting Estimates - Critical accounting estimates include revenue recognition from construction contracts, long-lived assets, income taxes, and insurance coverage, litigation, claims, and contingencies[209][212] - Revenue is recognized over time for construction contracts, measured by the percentage of actual costs incurred to total estimated costs, with revisions recognized in the period determined[210][214][215] - Long-lived assets are depreciated over estimated useful lives and reviewed for impairment based on future cash flows[216] - Income tax provision uses the asset and liability method, requiring significant assumptions for deferred tax assets/liabilities and valuation allowances[217][218] - Insurance coverage for liabilities is maintained, with self-insured portions accrued based on known claims and estimates for incurred but not reported claims[222][224] Liquidity and Capital Resources - Primary liquidity needs are for working capital, capital expenditures, and strategic acquisitions, historically funded by operating activities and credit facilities[225] Cash Flow Summary (2019-2021, in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating activities | $69 | $46,032 | $(716) | | Investing activities | $10,629 | $(3,129) | $(13,331) | | Financing activities | $6 | $(42,400) | $6,449 | | Capital expenditures | $(16,975) | $(14,694) | $(17,199) | - As of December 31, 2021, working capital was $36.2 million, unrestricted cash was $12.3 million, and borrowing capacity on the revolving line of credit was $9.3 million[226] - The company executed a Ninth Amendment in March 2022 to waive covenant defaults, reset the revolver limit to $42.5 million, and institute temporary covenant requirements[228][243][483][484] - Bonding capacity was at least $750 million as of December 31, 2021, with $110 million of projects bonded[244] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from commodity price fluctuations and variable interest rates, impacting costs and debt service - Operations are subject to commodity price risk for materials like concrete, steel, and fuel, which can impact fixed-price contracts[249] - Variable rate indebtedness exposes the company to interest rate risk; a 100 basis-point increase in LIBOR would increase annual interest expense by approximately $0.4 million based on $39.0 million outstanding at December 31, 2021[250] Item 8. Financial Statements and Supplementary Data The consolidated financial statements and supplementary data are provided in a separate section starting on page F-1 - Financial statements and supplementary data are incorporated by reference, starting on page F-1[251] Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the reported period - No changes in or disagreements with accountants on accounting and financial disclosure were reported[252] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Disclosure controls and procedures were effective as of December 31, 2021[253] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 Framework[257] - No material changes to internal control over financial reporting occurred during the year ended December 31, 2021[255] - Control systems have inherent limitations, providing only reasonable assurance against errors and fraud[260] Item 9B. Other Information Mark R. Stauffer, CEO, assumed Interim CFO duties following the previous CFO's departure - Mark R. Stauffer, CEO, assumed Interim CFO duties after the previous CFO's departure on October 29, 2021[261] Item 9C. Covered Issuer This item is not applicable to the company - Item 9C is not applicable[262] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement[264][269] Key Directors and Executive Officers | Name | Age | Position with the Company | | :--- | :--- | :--- | | Austin J. Shanfelter | 64 | Chairman of the Board | | Mark R. Stauffer | 59 | President, Chief Executive Officer, Interim Chief Financial Officer and Director | | Peter R. Buchler | 75 | Executive Vice President, Chief Administrative Officer, Chief Compliance Officer, General Counsel and Secretary | - The company has adopted a code of ethics for its chief executive, chief financial, and principal accounting officers, and corporate governance guidelines, available on its website[267] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the definitive proxy statement - Executive compensation details are incorporated by reference from the definitive proxy statement[270] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the definitive proxy statement - Security ownership information is incorporated by reference from the definitive proxy statement[271] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the definitive proxy statement - Information on related transactions and director independence is incorporated by reference from the definitive proxy statement[272] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the definitive proxy statement - Principal accounting fees and services information is incorporated by reference from the definitive proxy statement[273] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - The report includes Consolidated Financial Statements for the three years ended December 31, 2021, and Schedule II – Schedule of Valuation and Qualifying Accounts[275][276] - A comprehensive list of exhibits is provided, covering corporate governance documents, equity incentive plans, employment agreements, and various amendments to the Credit Agreement[276][278][279][280][282] SIGNATURES SIGNATURES The Annual Report on Form 10-K was signed on March 7, 2022, by Mark R. Stauffer and other directors - The report was signed on March 7, 2022, by Mark R. Stauffer (President, CEO, Interim CFO, Director) and other directors[285][287] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on the financial statements and internal control over financial reporting, noting estimated costs at completion as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2021, in conformity with U.S. GAAP[291] - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[291][300] - A critical audit matter was the evaluation of estimated costs at completion for certain long-term, fixed-priced construction contracts in the Marine segment, due to variability and estimation uncertainty[294][297] Consolidated Balance Sheets Total assets decreased from $414.2 million in 2020 to $351.8 million in 2021, driven by reductions in current assets and property and equipment Consolidated Balance Sheet Summary (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $197,934 | $235,402 | | Property and equipment, net | $106,654 | $125,497 | | Total assets | $351,750 | $414,189 | | Total current liabilities | $161,737 | $180,613 | | Long-term debt, net | $259 | $29,523 | | Total liabilities | $203,652 | $254,695 | | Total stockholders' equity | $148,098 | $159,494 | - Cash and cash equivalents increased significantly from $1.6 million in 2020 to $12.3 million in 2021[307] - Current debt increased from $4.3 million in 2020 to $39.1 million in 2021, while long-term debt decreased substantially from $29.5 million to $0.3 million[307] Consolidated Statements of Operations The company reported a net loss of $14.6 million in 2021, a significant decline from $20.2 million net income in 2020, with revenues decreasing by 15.3% Consolidated Statements of Operations (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Contract revenues | $601,360 | $709,942 | $708,390 | | Gross profit | $40,967 | $84,703 | $64,041 | | Operating (loss) income | $(9,317) | $26,586 | $2,193 | | Net (loss) income | $(14,560) | $20,220 | $(5,359) | | Basic (loss) earnings per share | $(0.47) | $0.67 | $(0.18) | - Contract revenues decreased by $108.5 million (15.3%) in 2021 compared to 2020[185] - Gross profit decreased by $43.7 million (51.6%) in 2021, with the gross profit margin falling from 11.9% to 6.8%[186] Consolidated Statements of Comprehensive Income (Loss) Total comprehensive loss was $13.3 million in 2021, a shift from $19.8 million income in 2020, primarily due to the net loss Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net (loss) income | $(14,560) | $20,220 | $(5,359) | | Change in fair value of cash flow hedge, net of tax | $1,234 | $(429) | $(765) | | Total comprehensive (loss) income | $(13,326) | $19,791 | $(6,124) | - The company reported a total comprehensive loss of $13.3 million in 2021, a significant shift from the $19.8 million income in 2020[310] Consolidated Statement of Stockholders' Equity Total stockholders' equity decreased by $11.4 million from 2020 to 2021, mainly due to the net loss incurred in 2021 Consolidated Stockholders' Equity Summary (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | :--- | | Common Stock (Amount) | $317 | $312 | $303 | | Treasury Stock (Amount) | $(6,540) | $(6,540) | $(6,540) | | Accumulated Other Comprehensive Loss | $0 | $(1,602) | $(1,045) | | Additional Paid-In Capital | $185,881 | $184,324 | $182,523 | | Retained (Loss) Earnings | $(31,560) | $(17,000) | $(37,220) | | Total Stockholders' Equity | $148,098 | $159,494 | $138,021 | - Total stockholders' equity decreased by $11.4 million from 2020 to 2021, mainly due to the net loss of $14.6 million in 2021[313] - Stock-based compensation added $2.4 million to additional paid-in capital in 2021[313] Consolidated Statements of Cash Flows Operating cash flow significantly decreased to $0.1 million in 2021, while investing activities provided $10.6 million, primarily from asset sales Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $69 | $46,032 | $(716) | | Net cash provided by (used in) investing activities | $10,629 | $(3,129) | $(13,331) | | Net cash provided by (used in) financing activities | $6 | $(42,400) | $6,449 | | Net change in cash, cash equivalents and restricted cash | $10,704 | $503 | $(7,598) | | Cash, cash equivalents and restricted cash at end of period | $12,293 | $1,589 | $1,086 | - Operating activities generated $0.1 million in cash in 2021, a sharp decrease from $46.0 million in 2020, driven by changes in net working capital[230][231] - Investing activities provided $10.6 million in cash in 2021, primarily from $27.2 million in proceeds from asset sales, including property in Tampa, Florida[235] - Financing activities resulted in a net cash inflow of $6 thousand in 2021, including $53.0 million in borrowings and $49.1 million in repayments on the revolving line of credit, and the full extinguishment of the term loan[236][237] Notes to Consolidated Financial Statements The notes provide detailed disclosures on business, accounting policies, revenue, risk, contracts, assets, liabilities, debt, taxes, EPS, compensation, benefits, commitments, segments, leases, and subsequent events 1. Description of Business and Basis of Presentation - Orion Group Holdings, Inc. provides specialty construction services in infrastructure, industrial, and building sectors through marine and concrete segments[318] - The company's operations comprise two reportable segments: marine (Orion brand) and concrete (TAS Commercial Concrete brand), based on similar economic characteristics and operational processes[319][320][321][322] - Management believes the company has adequate liquidity for operations for at least the next 12 months, based on forecasted sales, costs, capital expenditures, and working capital management[327] 2. Summary of Significant Accounting Policies - Revenue from construction contracts is recognized over time, measured by the percentage of actual costs incurred to total estimated costs, with changes in estimates recognized on a cumulative catch-up basis[329][330][332][334] - Property and equipment are recorded at cost and depreciated using the straight-line method over estimated useful lives (3-40 years), with impairment reviews conducted when circumstances indicate[352][353][355] - The company determines its income tax provision using the asset and liability method, making significant assumptions for deferred tax assets/liabilities and valuation allowances[366] - Insurance coverage includes traditional policies with deductibles and self-insurance for workers' compensation and employee health care, with accruals based on known and estimated claims[370][371][373] 3. Revenue Contract Revenues by Service Line (in thousands) | Segment | Service Line | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | :--- | | Marine | Construction | $169,554 | $272,870 | $242,527 | | | Dredging | $80,831 | $106,647 | $112,303 | | | Specialty Services | $13,530 | $8,656 | $14,308 | | | Marine segment total | $263,915 | $388,173 | $369,138 | | Concrete | Structural | $58,420 | $85,904 | $54,497 | | | Light Commercial | $279,018 | $235,835 | $284,624 | | | Other | $7 | $30 | $131 | | | Concrete segment total | $337,445 | $321,769 | $339,252 | | Total contract revenues | | $601,360 | $709,942 | $708,390 | - Marine segment construction revenues decreased significantly from $272.9 million in 2020 to $169.6 million in 2021[378] - Concrete segment light commercial revenues increased from $235.8 million in 2020 to $279.0 million in 2021[378] 4. Concentration of Risk and Enterprise Wide Disclosures Concentrations of Current Receivables (in thousands) | Customer Type | Dec 31, 2021 | % | Dec 31, 2020 | % | | :--- | :--- | :--- | :--- | :--- | | Federal Government | $6,563 | 5 % | $4,826 | 4 % | | State Governments | $61 | - % | $0 | - % | | Local Governments | $11,923 | 9 % | $17,823 | 13 % | | Private Companies | $111,328 | 86 % | $110,616 | 83 % | | Gross receivables | $129,875 | 100 % | $133,265 | 100 % | | Allowance for credit losses | $(323) | | $(411) | | | Net receivables | $129,552 | | $132,854 | | Concentrations of Contract Revenue by Customer Type (in thousands) | Customer Type | 2021 | % | 2020 | % | 2019 | % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Federal Government | $54,480 | 9 % | $51,793 | 7 % | $46,425 | 6 % | | State Governments | $4,790 | 1 % | $27,574 | 4 % | $47,831 | 7 % | | Local Government | $120,311 | 20 % | $202,839 | 29 % | $212,958 | 30 % | | Private Companies | $421,779 | 70 % | $427,736 | 60 % | $401,176 | 57 % | | Total contract revenues | $601,360 | 100 % | $709,942 | 100 % | $708,390 | 100 % | - No single customer accounted for more than 10.0% of total current receivables at December 31, 2021 and 2020, or total contract revenues in 2021 and 2019[382][384][385] 5. Contracts in Progress Contracts in Progress (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Costs incurred on uncompleted contracts | $1,138,298 | $1,151,987 | | Estimated earnings | $168,861 | $202,369 | | Less: Billings to date | $(1,305,628) | $(1,355,220) | | Net | $1,531 | $(864) | | Contract assets | $28,529 | $32,271 | | Contract liabilities | $(26,998) | $(33,135) | - Remaining performance obligations totaled approximately $590.0 million as of December 31, 2021, with 77% expected to be recognized in the next 12 months[388] - Contract assets include $3.8 million (2021) and $3.1 million (2020) related to claims and unapproved change orders[387] 6. Property and Equipment Property and Equipment, Net (in thousands) | Asset Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Automobiles and trucks | $2,337 | $2,379 | | Building and improvements | $34,796 | $44,324 | | Construction equipment | $137,786 | $142,661 | | Vessels and other equipment | $82,455 | $79,499 | | Office equipment | $6,430 | $5,577 | | Less: Accumulated depreciation | $(191,542) | $(186,615) | | Net book value of depreciable assets | $72,262 | $87,825 | | Construction in progress | $6,507 | $1,809 | | Land | $27,885 | $35,863 | | Total | $106,654 | $125,497 | - The company sold land, building, and improvements in Tampa, Florida, in 2021, recognizing a net gain of $6.7 million[389] - Depreciation expense was $21.1 million in 2021, $21.8 million in 2020, and $23.5 million in 2019, primarily included in the cost of contract revenue[390] 7. Other Current Accounts Receivable Other Current Accounts Receivable (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Insurance claims receivable | $13,273 | $57,021 | | Accident loss receivables | $3,760 | $1,448 | | Other current receivables | $552 | $1,023 | | Total | $17,585 | $59,492 | - Insurance claims receivable decreased significantly from $57.0 million in 2020 to $13.3 million in 2021[393] 8. Fair Value Recurring Fair Value Measurements (in thousands) | Category | Dec 31, 2021 (Carrying Value) | Dec 31, 2020 (Carrying Value) | | :--- | :--- | :--- | | Cash surrender value of life insurance policy | $2,813 | $3,169 | | Derivatives | $0 | $1,602 | - Derivatives (interest rate swaps) were valued using Level 2 inputs and were eliminated in 2021 upon extinguishment of the term loan[396][429] - The fair value of the company's debt approximated its carrying value ($39.4 million in 2021, $35.1 million in 2020) and would be classified as Level 2 in the fair value hierarchy[401] 9. Intangible Assets Intangible Assets, Net (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Net finite-lived intangible assets | $1,664 | $3,185 | | Infinite-lived intangible assets | $6,892 | $6,892 | | Total net intangible assets | $8,556 | $10,077 | - Finite-lived intangible assets, primarily customer relationships from TAS and TBC acquisitions, are amortized over eight years using an accelerated method[402] - Amortization expense for finite-lived intangible assets was $1.5 million in 2021, $2.1 million in 2020, and $2.6 million in 2019[402] - The infinite-lived trade name was tested for impairment annually, with no impairment recorded in 2021 or 2020[403] 10. Accrued Liabilities Accrued Liabilities (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Accrued salaries, wages and benefits | $9,879 | $15,071 | | Accrued liabilities expected to be covered by insurance | $19,818 | $60,365 | | Sales taxes | $5,113 | $5,909 | | Property taxes | $1,047 | $908 | | Sale-leaseback arrangement | $743 | $676 | | Accounting and audit fees | $413 | $344 | | Interest | $23 | $22 | | Equipment purchase | $0 | $461 | | Other accrued expenses | $1,558 | $881 | | Total | $38,594 | $84,637 | - Accrued liabilities decreased significantly from $84.6 million in 2020 to $38.6 million in 2021, primarily due to a reduction in accrued liabilities expected to be covered by insurance[405] - The company deferred $7.6 million in employer Social Security taxes under the CARES Act, with $3.8 million paid in December 2021 and the remaining $3.8 million due in December 2022[406] 11. Long-term Debt and Line of Credit - The Credit Facility, guaranteed by subsidiaries and secured by assets, matures on July 31, 2023, and provides for a revolving line of credit and a term loan[407][408] Debt Obligations (in thousands) | Category | Dec 31, 2021 (Principal) | Dec 31, 2020 (Principal) | | :--- | :--- | :--- | | Revolving line of credit | $39,000 | $0 | | Term loan - current | $0 | $4,500 | | Other debt | $141 | $0 | | Total current debt | $39,141 | $4,500 | | Revolving line of credit (long-term) | $0 | $5,000 | | Term loan - long-term | $0 | $25,586 | | Other debt (long-term) | $259 | $0 | | Total long-term debt | $259 | $30,586 | | Total debt | $39,400 | $35,086 | - The term loan component of the Credit Facility was fully extinguished in Q2 2021, using proceeds from asset sales, eliminating future amortization payments and resulting in a $1.3 million loss on the interest rate swap termination[237][421] - As of December 31, 2021, $39.0 million was outstanding under the revolving line of credit, with $9.3 million available borrowing capacity[419] - The company executed the Ninth Amendment in March 2022 to waive financial covenant defaults as of December 31, 2021, and reset the revolving line of credit commitment to $42.5 million[424][484] 12. Other Long-Term Liabilities Other Long-Term Liabilities (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Sale-leaseback arrangement | $15,969 | $16,712 | | Deferred compensation | $2,759 | $2,818 | | Accrued liabilities expected to be covered by insurance | $214 | $307 | | Total | $18,942 | $19,837 | - The sale-leaseback arrangement for the Channelview, Texas property, recorded as a failed sale-leaseback, resulted in a liability of $16.0 million at December 31, 2021[431] 13. Income Taxes Consolidated Income Tax Expense (in thousands) | Component | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | U.S. Federal | $0 | $0 | $0 | | State and local | $223 | $602 | $820 | | Foreign | $279 | $1,374 | $1,048 | | Total | $502 | $1,976 | $1,868 | - The effective tax rate for 2021 was (3.6%), differing from the federal statutory rate of 21% primarily due to a valuation allowance related to the current year net loss[190][191][434] - The company has federal net operating loss carryforwards of $30.2 million (indefinite carryforward, 80% taxable income limit) and state net operating losses of $124.3 million[436] - A valuation allowance of $15.4 million was maintained at December 31, 2021, due to a history of losses, increasing by $3.0 million during the year[437] 14. Earnings Per Share Basic and Diluted Earnings Per Share (EPS) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Basic (loss) earnings per share | $(0.47) | $0.67 | $(0.18) | | Diluted (loss) earnings per share | $(0.47) | $0.67 | $(0.18) | | Weighted average shares outstanding (Basic) | 30,763,527 | 30,122,362 | 29,322,054 | | Total weighted average shares outstanding assuming dilution | 30,763,527 | 30,122,362 | 29,322,054 | - Basic and diluted EPS were $(0.47) in 2021, reflecting the net loss for the year[308] - Potentially dilutive securities (stock options) were antidilutive and not included in EPS calculations for periods with a net loss or when the exercise price exceeded the market price[441] 15. Stock-Based Compensation Restricted Stock Activity | Metric | Number of Shares (2021) | Weighted Average Fair Value Per Share (2021) | | :--- | :--- | :--- | | Nonvested at January 1 | 950,436 | $3.04 | | Granted | 916,531 | $4.58 | | Vested | (690,676) | $3.43 | | Forfeited shares | (234,232) | $4.22 | | Nonvested at December 31 | 942,059 | $3.97 | - In 2021, the company awarded 916,531 restricted stock shares and 240,000 performance-based units to directors, officers, and executives[445][448][453] - Total unrecognized compensation expense related to unvested stock was approximately $3.2 million as of December 31, 2021, expected to be recognized over 2.2 years[460] - Compensation expense for stock-based awards was $2.4 million in 2021, $2.0 million in 2020, and $2.8 million in 2019[458] 16. Employee Benefits - The marine segment's 401(k) Retirement Plan includes a 100% match on the first 2% and 50% on the next 2% of eligible compensation, with employer contributions vesting over four years[462] - The concrete segment's 401(k) Retirement Plan matches 50% on the first 6% of eligible compensation, with employer contributions vesting over five years[463][464] Multi-Employer Defined Pension Plan Contributions (in thousands) | Pension Trust Fund | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | International Union of Operating Engineers | $1,297 | $2,480 | $3,021 | | Washington Laborers | $244 | $236 | $30 | | Carpenters Retirement Plan of Western Washington | $1,700 | $1,898 | $695 | | Cement Masons & Plasterers Trust Funds | $32 | $39 | $2 | | Western Conference of Teamsters Pension Trust Fund | $44 | $15 | $0 | | Total (selected plans) | $3,317 | $4,668 | $3,748 | 17. Commitments and Contingencies - A dredge fire incident in August 2020 resulted in five fatalities, injuries, and an oil discharge, leading to multiple lawsuits and a limitation of liability action[468] - As of December 31, 2021, $206.7 million in total liabilities were recognized for the incident, including $192.0 million paid (settlements, wreck removal) and $14.6 million in accruals for outstanding claims[472] - All claims from the August 2020 incident have been settled within insurance coverage limits, with $189.6 million reimbursed by carriers to date[472] - The company is involved in other legal proceedings, but management believes these will not materially affect financial condition, results of operations, or cash flows[473] 18. Segment Information Segment Financial Performance (in thousands) | Segment | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | :--- | | Marine | Contract revenues | $263,915 | $388,173 | $369,138 | | | Operating income | $5,760 | $29,815 | $12,841 | | | Depreciation and amortization expense | $(17,287) | $(18,369) | $(19,889) | | | Total assets | $236,773 | $290,372 | | | | Property and equipment, net | $93,383 | $109,298 | | | Concrete | Contract revenues | $337,445 | $321,769 | $339,252 | | | Operating income (loss) | $(15,077) | $(3,229) | $(10,648) | | | Depreciation and amortization expense | $(8,143) | $(8,848) | $(8,519) | | | Total assets | $114,977 | $123,817 | | | | Property and equipment, net | $13,271 | $16,199 | | - Marine segment revenues decreased by 32.0% in 2021, while concrete segment revenues increased by 4.9%[200][203] - Corporate overhead costs were reallocated between segments for all periods presented, resulting in offsetting changes in operating income for each segment[198][475] 19. Leases Leases Recorded on Balance Sheet (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Operating lease right-of-use assets, net | $14,686 | $18,874 | | Financing lease right-of-use assets, net | $14,561 | $12,858 | | Total assets | $29,247 | $31,732 | | Current operating lease liabilities | $3,857 | $4,989 | | Current financing lease liabilities | $3,406 | $3,901 | | Noncurrent operating lease liabilities | $11,637 | $14,537 | | Noncurrent financing lease liabilities | $10,908 | $8,376 | | Total liabilities | $29,808 | $31,803 | Total Lease Cost (in thousands) | Lease Cost Component | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating lease cost | $5,814 | $6,430 | $6,930 | | Short-term lease cost | $1,607 | $3,871 | $2,001 | | Interest on finance lease liabilities | $491 | $548 | $362 | | Amortization of ROU assets (finance) | $2,822 | $3,324 | $2,312 | | Total lease cost | $10,734 | $14,173 | $11,605 | - The weighted average remaining lease term for operating leases was 4.90 years (2021) and for financing leases was 4.70 years (2021)[480] 20. Subsequent Event - In March 2022, the company executed the Ninth Amendment to its Credit Agreement, waiving financial covenant defaults as of December 31, 2021[483] - The amendment reset the revolving line of credit commitment to $42.5 million and instituted temporary covenant requirements for minimum consolidated EBITDA and consolidated leverage/fixed charge coverage ratios[484] - New debt issuance costs of approximately $1.0 million related to the Ninth Amendment will be amortized through the maturity date[484] SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Schedule II details changes in allowance for credit losses and reserve for losses on uncompleted contracts from 2019 to 2021 Schedule II - Valuation and Qualifying Accounts (in thousands) | Description | Balance at Beginning of Period (2019) | Charged to Revenue, Cost or Expense (2019) | Deduction (2019) | Balance at End of Period (2019) | | :--- | :--- | :--- | :--- | :--- | | Allowance for credit losses | $4,280 | $0 | $1,680 | $2,600 | | Reserve for losses on uncompleted contracts | $22,770 | $2,455 | $14,300 | $10,925 | | | | | | | | Description | Balance at Beginning of Period (2020) | Charged to Revenue, Cost or Expense (2020) | Deduction (2020) | Balance at End of Period (2020) | | :--- | :--- | :--- | :--- | :--- | | Allowance for credit losses | $2,600 | $(487) | $1,702 | $411 | | Reserve for losses on uncompleted contracts | $10,925 | $543 | $9,995 | $1,473 | | | | | | | | Description | Balance at Beginning of Period (2021) | Charged to Revenue, Cost or Expense (2021) | Deduction (2021) | Balance at End of Period (2021) | | :--- | :--- | :--- | :--- | :--- | | Allowance for credit losses | $411 | $0 | $88 | $323 | | Reserve for losses on uncompleted contracts | $1,473 | $33 | $1,472 | $34 | - The allowance for credit losses decreased from $411 thousand at the beginning of 2021 to $323 thousand at year-end[486] - The reserve for losses on uncompleted contracts significantly decreased from $1,473 thousand at the beginning of 2021 to $34 thousand at year-end[486]