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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from ________ to ________

Commission file number: 1-33891

ORION GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

State of Incorporation

26-0097459

IRS Employer Identification Number

12000 Aerospace Avenue, Suite 300

Houston, Texas 77034

Address of Principal Executive Office

(713) 852-6500

Registrant’s telephone number (including area code)

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

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common stock, $0.01 par value per share

ORN

The New York Stock Exchange

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

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

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

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

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

Yes   No

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

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company 

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

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

There were 30,911,558 shares of common stock outstanding as of July 29, 2021.

Table of Contents

ORION GROUP HOLDINGS, INC.

Quarterly Report on Form 10-Q for the period ended June 30, 2021

Index

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021and 2020

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

45

Item 4.

Controls and Procedures

45

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

46

Item 3.

Defaults upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

SIGNATURES

48

2

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Part

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)

    

June 30

    

December 31,

2021

    

2020

(Unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

2,410

$

1,589

Accounts receivable:

 

  

 

  

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

 

89,671

 

96,369

Retainage

 

38,388

 

36,485

Income taxes receivable

 

1,101

 

419

Other current

 

66,967

 

59,492

Inventory

 

2,102

 

1,548

Contract assets

 

23,112

 

32,271

Prepaid expenses and other

 

6,973

 

7,229

Total current assets

 

230,724

 

235,402

Property and equipment, net of depreciation

 

104,917

 

125,497

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

16,204

18,874

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

12,289

12,858

Inventory, non-current

 

4,839

 

6,455

Intangible assets, net of amortization

 

9,316

 

10,077

Deferred income tax asset

41

70

Other non-current

 

4,875

 

4,956

Total assets

$

383,205

$

414,189

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Current debt, net of debt issuance costs

$

6,139

$

4,344

Accounts payable:

 

 

Trade

 

44,189

 

48,252

Retainage

 

984

 

716

Accrued liabilities

 

83,638

 

84,637

Income taxes payable

 

101

 

639

Contract liabilities

 

28,363

 

33,135

Current portion of operating lease liabilities

4,395

4,989

Current portion of financing lease liabilities

2,085

3,901

Total current liabilities

169,894

180,613

Long-term debt, net of debt issuance costs

 

294

 

29,523

Operating lease liabilities

12,687

14,537

Financing lease liabilities

9,890

8,376

Other long-term liabilities

 

23,316

 

19,837

Deferred income tax liability

 

97

 

207

Interest rate swap liability

 

 

1,602

Total liabilities

 

216,178

254,695

Stockholders’ equity:

 

  

 

  

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

 

 

Common stock -- $0.01 par value, 50,000,000 authorized, 31,617,998 and 31,171,804 issued; 30,906,767 and 30,460,573 outstanding at June 30, 2021 and December 31, 2020, respectively

 

316

 

312

Treasury stock, 711,231 shares, at cost, as of June 30, 2021 and December 31, 2020, respectively

 

(6,540)

 

(6,540)

Accumulated other comprehensive loss

 

 

(1,602)

Additional paid-in capital

 

185,793

 

184,324

Retained loss

 

(12,542)

 

(17,000)

Total stockholders’ equity

 

167,027

 

159,494

Total liabilities and stockholders’ equity

$

383,205

$

414,189

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

3

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

(Unaudited)

Three months ended June 30, 

Six months ended June 30,

    

2021

    

2020

    

2021

    

2020

    

Contract revenues

$

145,875

$

183,713

$

299,184

$

350,333

Costs of contract revenues

 

133,574

 

162,969

 

271,428

 

309,831

Gross profit

 

12,301

 

20,744

 

27,756

 

40,502

Selling, general and administrative expenses

 

13,715

 

16,512

 

28,345

 

32,381

Amortization of intangible assets

381

517

761

1,033

Gain on disposal of assets, net

 

(7,361)

 

(369)

 

(8,971)

 

(1,361)

Operating income

 

5,566

 

4,084

 

7,621

 

8,449

Other (expense) income:

 

  

 

  

 

  

 

  

Other income

 

72

 

39

 

109

 

136

Interest income

 

25

 

54

 

51

 

94

Interest expense

 

(2,943)

 

(1,169)

 

(3,983)

 

(2,571)

Other expense, net

 

(2,846)

 

(1,076)

 

(3,823)

 

(2,341)

Income before income taxes

 

2,720

 

3,008

 

3,798

 

6,108

Income tax (benefit) expense

 

(810)

 

980

 

(660)

 

1,357

Net income

$

3,530

$

2,028

$

4,458

$

4,751

Basic earnings per share

$

0.12

$

0.07

$

0.15

$

0.16

Diluted earnings per share

$

0.11

$

0.07

$

0.15

$

0.16

Shares used to compute income per share:

 

  

 

  

 

  

 

  

Basic

 

30,671,952

 

30,031,188

 

30,569,284

 

29,842,298

Diluted

 

30,702,151

 

30,031,188

 

30,601,669

 

29,842,298

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

4

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In Thousands)

(Unaudited)

Three months ended June 30, 

Six months ended June 30,

    

2021

    

2020

    

2021

    

2020

    

Net income

$

3,530

$

2,028

$

4,458

$

4,751

Change in fair value of cash flow hedge, net of tax expense of $315 and $368 for the three and six months ended June 30, 2021, respectively and net of tax expense of $9 and tax benefit of $217 for the three and six months ended June 30, 2020, respectively.

1,057

 

31

 

1,234

 

(727)

Total comprehensive income

$

4,587

$

2,059

$

5,692

$

4,024

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

5

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information)

(Unaudited)

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings (Loss)

Total

Balance, December 31, 2020

31,171,804

$

312

(711,231)

$

(6,540)

$

(1,602)

$

184,324

$

(17,000)

$

159,494

Stock-based compensation

383

383

Exercise of stock options

23,755

86

86

Payments related to tax withholding for stock-based compensation

(6,673)

(36)

(36)

Cash flow hedge

230

230

Net income

 

928

928

Balance, March 31, 2021

31,188,886

$

312

 

(711,231)

$

(6,540)

$

(1,372)

$

184,757

$

(16,072)

$

161,085

Stock-based compensation

1,245

1,245

Issuance of restricted stock

489,850

5

(5)

Forfeiture of restricted stock

(27,983)

Payments related to tax withholding for stock-based compensation

(32,755)

(1)

(204)

(205)

Cash flow hedge

1,372

1,372

Net income

 

3,530

3,530

Balance, June 30, 2021

31,617,998

$

316

 

(711,231)

$

(6,540)

$

$

185,793

$

(12,542)

$

167,027

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings (Loss)

Total

Balance, December 31, 2019

 

30,303,395

$

303

 

(711,231)

$

(6,540)

$

(1,045)

$

182,523

$

(37,220)

$

138,021

Stock-based compensation

 

 

 

 

 

 

462

 

 

462

Issuance of restricted stock

 

185,356

 

2

 

 

 

 

(2)

 

 

Forfeiture of restricted stock

 

(3,351)

 

 

 

 

 

 

 

Cash flow hedge

 

 

 

 

 

(984)

 

 

 

(984)

Net income

 

 

 

 

 

 

 

2,723

 

2,723

Balance, March 31, 2020

 

30,485,400

$

305

 

(711,231)

$

(6,540)

$

(2,029)

$

182,983

$

(34,497)

$

140,222

Stock-based compensation

 

 

 

 

 

 

1,167

 

 

1,167

Issuance of restricted stock

 

638,938

 

6

 

 

 

 

(6)

 

 

Forfeiture of restricted stock

 

(54,510)

 

 

 

 

 

 

 

Payments related to tax withholding for stock-based compensation

(9,727)

(24)

(24)

Cash flow hedge

 

 

 

 

 

40

 

 

 

40

Net income

 

 

 

 

 

 

 

2,028

 

2,028

Balance, June 30, 2020

 

31,060,101

$

311

 

(711,231)

$

(6,540)

$

(1,989)

$

184,120

$

(32,469)

$

143,433

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

6

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Six months ended June 30,

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net income

$

4,458

$

4,751

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

 

 

  

Operating activities:

 

 

  

Depreciation and amortization

 

11,313

 

12,311

Amortization of ROU operating leases

2,794

3,066

Amortization of ROU finance leases

1,602

1,585

Write-off of debt issuance costs upon debt extinguishment

 

790

 

Amortization of deferred debt issuance costs

429

286

Deferred income taxes

 

(81)

 

(99)

Stock-based compensation

 

1,628

 

1,629

Gain on disposal of assets, net

 

(8,971)

 

(1,361)

Allowance for credit losses

 

 

411

Change in operating assets and liabilities:

 

 

Accounts receivable

 

5,147

 

23,645

Income tax receivable

 

(682)

 

(97)

Inventory

 

277

 

(172)

Prepaid expenses and other

 

337

 

900

Contract assets

 

9,159

 

5,050

Accounts payable

 

(3,754)

 

(23,680)

Accrued liabilities

 

(5,290)

 

2,818

Operating lease liabilities

(2,571)

(2,721)

Income tax payable

 

(538)

 

(296)

Contract liabilities

 

(4,772)

 

5,048

Net cash provided by operating activities

 

11,275

 

33,074

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of property and equipment

 

24,737

 

1,749

Purchase of property and equipment

 

(4,715)

 

(5,036)

Contributions to CSV life insurance

 

 

(99)

Insurance claim proceeds related to property and equipment

440

1,342

Net cash provided by (used in) investing activities

 

20,462

 

(2,044)

Cash flows from financing activities:

 

 

Borrowings from Credit Facility

 

20,000

 

5,000

Payments made on borrowings from Credit Facility

 

(49,086)

 

(24,500)

Loan costs from Credit Facility

 

 

(391)

Payments of finance lease liabilities

(1,675)

(1,858)

Payments related to tax withholding for stock-based compensation

(241)

(24)

Exercise of stock options

 

86

 

Net cash used in financing activities

 

(30,916)

 

(21,773)

Net change in cash, cash equivalents and restricted cash

 

821

 

9,257

Cash, cash equivalents and restricted cash at beginning of period

 

1,589

 

1,086

Cash, cash equivalents and restricted cash at end of period

$

2,410

$

10,343

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid during the period for:

 

  

 

  

Interest

$

2,064

$

2,130

Taxes, net of refunds

$

640

$

1,663

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

7

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

1.Description of Business and Basis of Presentation

Description of Business

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

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

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

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

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

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Basis of Presentation

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

2.Summary of Significant Accounting Policies

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

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

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

Revenue Recognition

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically brief in duration and usually span a period of less than one year. The Company determines the appropriate accounting treatment for each contract

9

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before work begins and, subject to qualifications discussed in the next paragraph, generally records contract over time.

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

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

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

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

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

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Classification of Current Assets and Liabilities

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

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at June 30, 2021 and December 31, 2020 consisted primarily of overnight bank deposits.

The Company had no restricted cash as of June 30, 2021 and December 31, 2020.  

Risk Concentrations

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

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

Accounts Receivable

Accounts receivable are stated at the historical carrying value, net of allowances for credit losses. The Company has significant investments in billed and unbilled receivables as of June 30, 2021 and December 31, 2020. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts, which are included in contract assets, arise as revenues are recognized over time. Unbilled amounts on contracts represent recoverable costs and accrued profits not yet billed. Revenue associated with these billings is recorded net of any sales tax, if applicable.

Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. In establishing an allowance for credit losses, the Company evaluates its contract receivables and contract assets and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than the carrying value. As of June 30, 2021, and December 31, 2020, the Company has recorded an allowance for credit losses of $0.3 million and $0.4 million, respectively.

Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at June 30, 2021 totaled $38.4 million, of which $3.0 million is expected to be collected beyond June 30, 2022. Retainage at December 31, 2020 totaled $36.5 million.

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

Advertising Costs

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

Environmental Costs

Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or provide future economic benefits, in which event the costs are capitalized. Environmental liabilities, if any, are recognized when the liability is considered probable and the amount can be reasonably estimated. The Company did not recognize any environmental liabilities as of June 30, 2021 or December 31, 2020.

Fair Value Measurements

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

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

Inventory

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

Property and Equipment

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

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

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

Automobiles and trucks

    

3 to 5 years

Buildings and improvements

 

5 to 30 years

Construction equipment

 

3 to 15 years

Vessels and other equipment

 

1 to 15 years

Office equipment

 

1 to 5 years

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

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

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated. There were no assets classified as held for sale as of June 30, 2021 or December 31, 2020.

Leases

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

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

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

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

See Note 18 for more information regarding leases.

Intangible Assets

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

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

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

Stock-Based Compensation

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

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

Income Taxes

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

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deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and the Company’s interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that the Company does not expect to realize. Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting the Company’s financial position and results of operations. The Company computes deferred income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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

See Note 13 for additional discussion of income taxes.

Insurance Coverage

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

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

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

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

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

The total accrual for insurance claims liabilities was $68.8 million and $60.4 million at June 30, 2021 and December 31, 2020, respectively, reflected as a component of accrued liabilities in the condensed consolidated balance sheet. The total accrual for insurance claims receivable was $64.7 million and $57.0 million at June 30, 2021 and December 31, 2020, respectively, reflected as a component of other current accounts receivable in the condensed consolidated balance sheet.

Accounting Standards Adopted in 2021

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

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

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3.Revenue

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

Three months ended June 30,

Six months ended June 30,

    

2021

    

2020

    

2021

    

2020

Marine Segment

 

  

 

  

 

  

 

  

Construction

$

38,859

$

65,814

$

82,795

$

118,954

Dredging

 

20,672

 

24,230

 

45,354

 

55,129

Specialty Services

 

4,411

 

1,675

 

7,939

 

3,585

Marine segment contract revenues

$

63,942

$

91,719

$

136,088

$

177,668

Concrete Segment

 

  

 

  

 

  

 

  

Structural

$

17,545

$

24,541

$

34,206

$

45,777

Light Commercial

 

64,388

 

67,442

 

128,883

 

126,875

Other

 

 

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