ORION GROUP HOLDINGS INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this Annual Report on Form 10-
K. Certainstatements made in our discussion may be forward-looking. Forward-looking statements involve risks and uncertainties and a number of other factors that could cause actual results or outcomes to differ materially from our expectations. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K for additional discussion of some of these risks and uncertainties. Unless the context requires otherwise, when we refer to "we", "us" and "our", we are describing Orion Group Holdings, Inc.and its consolidated subsidiaries.
Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, and the Caribbean Basin. The Company's marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial structural and other associated business areas. The Company is headquartered in Houston, Texaswith offices throughout its operating areas. Our contracts are obtained primarily through competitive bidding in response to "requests for proposals" by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors. Our bidding activity and strategies are affected by such factors as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations. The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations. Most of our revenue is derived from fixed-price contracts. We generally record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. There are a number of factors that can create variability in contract performance and therefore impact the results of our operations. The most significant of these include the following:
? the completeness and accuracy of the original offer;
? increases in commodity prices such as concrete, steel and fuel;
? customer delays, work stoppages and other costs due to weather conditions and
? availability and skill level of workers; and
? a change in the availability and proximity of equipment and materials.
All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability. We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.
2021 summary and 2022 outlook
In 2021, we recorded revenues of
$601.4 million, of which $263.9 millionwas attributable to our marine segment and the remaining $337.5 millionto our concrete segment. In addition, we ended 2021 with a consolidated backlog of $590.0 million. Our revenues in 2021 decreased by 15.3% as compared with 2020 and we recorded a net loss of $14.6 million, as compared with net income of $20.2 millionin the prior year.
Looking to 2022, the company continues to focus on developing opportunities in the infrastructure, industrial, and building sectors through organic growth, greenfield expansion, and expansion. opportunities for strategic acquisitions.
The spread of COVID-19 has impacted the global economy, leaving supply chains disrupted. As the world uses tactics like "social distancing" and "stay at home orders" to slow and stop the spread of COVID-19, demand destruction has led to increased unemployment and to the weakening of consumer confidence. Although to date the Company hasn't experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, any delays in the timing of future awards could create gaps in the Company's project delivery schedule across quarterly periods. Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy. The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy.
Demand for our marine construction services continues, given our differentiated capabilities and service offering within the space. We continue to see bid opportunities to help maintain and expand the infrastructure that facilitates the movement of goods and people on or over waterways. However, we have some concerns about the short-term outlook for and are closely monitoring the short and long-term cruise line capital expenditures as their current demand has been severely impacted by COVID-19. Further, while we currently see bid opportunities from our private sector energy-related customers as they expand their marine facilities related to the storage, transportation and refining of domestically produced energy, we recognize that the timing of project awards may be impacted as a result of volatility of oil prices due to COIVD-19 related uncertainties. Over the long-term, we expect to see bid opportunities in this sector from petrochemical-related businesses, energy exporters, and liquefied natural gas facilities. Opportunities from local port authorities will also remain over the long-term, many of which are related to the widened
Panama Canal. Additionally, bid opportunities related to coastal restoration funded through the Resource and Ecosystems Sustainability, opportunities under the Tourist Opportunities and Revived Economies of the Gulf Coast States Act (the "RESTORE Act") may arise into 2022. We believe our current equipment fleet will allow us to better meet market demand for projects from both our public and private customers.
Over the long term, we are seeing positive trends in demand for our services in our end markets, including:
? Continuing need to repair and improve deteriorating US marine infrastructure;
? Long-term demand from downstream energy companies will be boosted by
larger capital projects, as well as maintenance intervention works;
Expected increases in cargo volume and future demands of larger vessels
? transiting the
Atlantic Coast to expand the port infrastructure and carry out
Job opportunities generated by the reform of water resources and
? Development Act (the “WRRDA Act”) authorizing expenditures for conservation
and development of the nation's waterways as well as addressing funding deficiencies within the
Harbor Maintenance Trust Fund;
Renewed focus on coastal rehabilitation along the
? through the use of funds from the RESTORE Act based on the fines collected related to the
? Funding for highways and transportation under successor laws to the FAST Act;
disaster recovery in
? Potential opportunities related to the federal infrastructure bill.
Demand for our concrete sector services continues, although the timing of some new projects may be delayed due to macroeconomic impacts related to COVID-19. We are currently seeing long-term demand for our concrete construction services in the
their positions as leading destinations for population and business growth. Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments, new multi-family housing units, and structural towers for business, residential or mixed-use purposes. The diversified
Texaseconomy provides us with multiple sources of bid opportunities. Additional demand for concrete services in our markets could be provided by work as part of the federal infrastructure bill.
Over the long term, we are seeing positive trends in demand for our services in our end markets, including:
?Population growth in the state of
?Continued investment in warehousing/distribution space in the
?Transfer of people driven by COVID-19 from city centers to suburban areas;
disaster recovery in
?Potential opportunities related to the federal infrastructure bill.
Consolidated operating results
Our backlog represents our estimate of the revenue we expect to realize from the portion of the contracts that remain to be performed. Given the typical duration of our contracts, which is generally less than one year, our order backlog at any given time is generally only a portion of the revenue we expect to achieve in a twelve month period. We have not been adversely affected by contract cancellations or changes in the past, but we may be in the future, particularly during times of economic uncertainty.
Backlog for the periods ended below is as follows (in millions):
December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 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
The increase in backlog during the quarter is primarily driven by new jobs we won. The general trend of declining backlog over the past year through
June 2021is due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors, which has slowed the timing of project awards. We, however, remain optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $2.6 billionof quoted bids outstanding at quarter end, of which $138 millionwe are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal year ended December 31, 2021. These estimates are subject to fluctuations based upon the scope of services to be provided, as well as factors affecting the time required to complete the project. Backlog is not necessarily indicative of future results. In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any given time. Delays in decisions on pending awards also have a negative impact on the timing and amount by which we are able to increase backlog. 28 Table of Contents Income Statement Comparisons Year ended December 31, 2021 2020 2019 Amount Percent Amount Percent Amount Percent (dollar amounts in thousands) Contract revenues $ 601,360100.0 % $ 709,942100.0 % $ 708,390100.0 %
Cost of contract revenues 560,393 93.2 % 625,239
88.1 % 644,349 91.0 % Gross profit 40,967 6.8 % 84,703 11.9 % 64,041 9.0 % Selling, general and administrative expenses 60,181 10.0 % 65,091 9.3 % 61,012 8.7 %
Amortization of intangible assets 1,521 0.3 % 2,070 0.3 % 2,640 0.4 % Gain on disposal of assets, net (11,418) (2.0) (9,044)
(1.4) (1,804) (0.3) % Operating (loss) income (9,317) (1.5) % 26,586 3.7 % 2,193 0.3 % Other (expense) income: Other income 199 - % 347 - % 771 0.1 % Interest income 136 - % 183 - % 353 - % Interest expense (5,076) (0.8) % (4,920) (0.6) % (6,808) (0.9) % Other expense, net (4,741) (0.8) % (4,390) (0.6) % (5,684) (0.8) % (Loss) income before income tax expense (14,058) (2.3) % 22,196 3.1 % (3,491) (0.5) % Income tax expense 502 0.1 % 1,976 0.3 % 1,868 0.3 % Net (loss) income
$ (14,560)(2.4) % $ 20,2202.8 % $ (5,359)(0.8) %
Contract Revenues. Contract revenues for the year ended
December 31, 2021of $601.4 milliondecreased $108.5 millionor 15.3% as compared to $709.9 millionin the prior year period. The decrease was primarily driven by a reduction in project activity compared to the prior year in the marine segment as a result of reduced and/or delayed bid opportunities due to the continued impacts from COVID 19 on the industries in which we serve. Gross Profit. Gross profit was $41.0 millionfor the year ended December 31, 2021, compared to $84.7 millionin the prior year period, a decrease of $43.7 millionor 51.6%. Gross profit in the period was 6.8% of total contract revenues as compared to 11.9% in the prior year period. The decrease in gross profit dollars and percentage was driven by the decreased activity and volumes which negatively impacted revenue and contributed to an under recovery of indirect costs primarily related to decreased labor and equipment utilization. We also incurred decreased project performance in our concrete segment. Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $60.2 millionfor the year ended December 31, 2021compared to $65.1 millionin the prior year period, a decrease of $4.9 millionor 7.5%. As a percentage of total contract revenues, SG&A expenses increased from 9.3% to 10.0% primarily as a result of the reduced revenue noted above. The decrease in SG&A dollars was driven by a decrease in the current year period related to bonus expense, business development costs pursuant to timing of project pursuits and awards and travel related costs. Gain on Disposal of Assets, net. During the year ended December 31, 2021and 2020, we realized $11.4 millionand $9.0 million, respectively, of net gains on disposal of assets. Included in the current year amount is a net gain of $6.7 millionrelated to the sale of property in Tampa, Florida. See Note 6 in this form 10-K for a further description of the sale of property. Included in the prior year amount is a $2.9 millionnet gain on insurance recoveries.
Other income, net of expenses. Other expenses primarily reflect interest on our borrowings, partially offset by interest income and non-operating gains or losses. Debit interest for the current period of the year included
related to the extinguishment of our term loan and related interest rate swaps.
Income Tax Expense. We recorded tax expense of
$0.5 millionin the year ended December 31, 2021, compared to tax expense of $2.0 millionin the prior year period. Our effective tax rate for the year ended December 31, 2021was (3.6)%, 29 Table of Contents
which differs from the federal statutory rate of 21% primarily due to the valuation allowance related to the current year net loss.
Contract Revenues. Contract revenues for the year ended
December 31, 2020of $709.9 millionincreased approximately 0.2% as compared to $708.4 millionin the prior year period. Gross Profit. Gross profit was $84.7 millionfor the year ended December 31, 2020, compared to $64.0 millionin the prior year period, an increase of $20.7 millionor 32.3%. Gross profit for the year ended December 31, 2020was 11.9% of total contract revenues as compared to 9.0% in the prior year period. The increase in gross profit dollars and percentage were primarily driven by margin improvement on projects and efficiencies in labor and equipment utilization. Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $65.1 millionfor the year ended December 31, 2020compared to $61.0 millionin the prior year period, an increase of $4.1 million, or 6.4%. As a percentage of total contract revenues, SG&A expenses increased from 8.7% to 9.3%. The increase in both dollars and percentage was primarily attributable to the increased accrual of the annual incentive compensation plan during the current year period as compared to the prior year period. Gain on Disposal of Assets, net. During the year ended December 31, 2020, we realized $6.2 millionof net gains on sales of assets and $2.9 millionof net gains on insurance recoveries from involuntary dispositions of assets. This compared to realizing $1.8 millionof net gains on the assets we sold during the 2019 comparative period.
Other income, net of expenses. Other expenses primarily reflect interest on our borrowings, partially offset by interest income and non-operating gains or losses.
Income Tax Expense. We recorded tax expense of
$2.0 millionfor the year ended December 31, 2020, compared to tax expense of $1.9 millionin the prior year period. Our effective tax rate for the year ended December 31, 2020was 8.9%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items. 30 Table of Contents Segment Results The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating income (loss) as a percentage of segment revenues. In connection with the preparation of the financial statements for the year ended December 31, 2021, the Company has identified and corrected certain immaterial errors in segment reporting for all periods presented. Specifically, certain corporate overhead costs previously recorded to the marine segment as part of operating income (loss) and allocated from the marine segment to the concrete segment below operating income in the other income (expense) line have been allocated from the marine segment to the concrete segment as part of the determination of operating income for each segment. These corrections resulted in an offsetting change in operating income (loss) for each segment of $12.9 millionand $11.8 millionfor the years ended December 31, 2020and December 31, 2019, respectively. Year ended December 31, 2021 2020 2019 Amount Percent Amount Percent Amount Percent (dollar amounts in thousands) Contract revenues Marine segment Public sector $ 164,63662.4 % $ 240,35361.9 % $ 258,03969.9 % Private sector 99,279 37.6 % 147,820 38.1 % 111,099 30.1 % Marine segment total $ 263,915100.0 % $ 388,173100.0 % $ 369,138100.0 % Concrete segment Public sector $ 14,9454.4 % $ 41,85313.0 % $ 49,17514.5 % Private sector 322,500 95.6 % 279,916 87.0 % 290,077 85.5 % Concrete segment total $ 337,445100.0 % $ 321,769100.0 % $ 339,252100.0 % Total $ 601,360 $ 709,942 $ 708,390Operating income (loss) Marine segment $ 5,7602.2 % $ 29,8157.7 % $ 12,8413.5 % Concrete segment (15,077) (4.5) % (3,229) (1.0) % (10,648) (3.1) % Total $ (9,317) $ 26,586 $ 2,193
Revenues for our marine segment for the year ended
December 31, 2021were $263.9 millioncompared to $388.2 millionfor the year ended December 31, 2020, a decrease of $124.3 million, or 32.0%. The decrease was primarily attributable to a reduction in project activity compared to the prior year period. Operating income for our marine segment for the year ended December 31, 2021was $5.8 million, compared to operating income of $29.8 millionfor the year ended December 31, 2020, a decrease of $24.0 million. Excluding the impact of the sale of property in Tampa, Floridain the current year and the net gain on insurance recoveries and the recovery on a disputed receivable in the prior year operating loss was $0.6 millionfor the year ended December 31, 2021, compared to operating income of $26.1 millionfor the year ended December 31, 2020, a decrease of $26.7 million. This decrease in operating income was primarily due to the decrease in revenue noted above and related under recovery of indirect costs as a result of decreased labor and equipment utilization.
Revenues for our concrete segment for the year ended
December 31, 2021were $337.5 millioncompared to $321.8 millionfor the year ended December 31, 2020, an increase of $15.7 million, or 4.9%. This increase resulted from increased production volumes in the current year period. 31
Operating loss for our concrete segment for the year ended
December 31, 2021was $15.1 million, compared to $3.2 millionfor the year ended December 31, 2020, an increase in operating loss of $11.9 million. This increase in operating loss was primarily due to decreased project performance and lower margins on several projects during the 2021 period.
Revenues from our marine segment for the year ended
Operating income for our marine segment for the year ended
December 31, 2020was $29.8 million, compared to operating income of $12.8 millionfor the year ended December 31, 2019, an increase of $17.0 million. This increase in operating income included $6.7 millionof net gains on disposal of assets. Excluding the increase in net gains on disposal of assets, net operating income for our marine segment for the year ended December 31, 2020was $21.7 millioncompared to operating income of $11.5 millionfor the year ended December 31, 2019, an increase of $10.2 million. This increase in operating income was primarily due to project execution related margin improvement and non-direct cost recovery compared to the prior year period.
Revenues from our concrete segment for the year ended
Operating loss for our concrete segment for the year ended
December 31, 2020was $3.2 million, compared to an operating loss of $10.6 millionfor the year ended December 31, 2019, a decrease in operating loss of $7.4 million. This decrease in operating loss was primarily due to the improvement in project margins.
Critical accounting estimates
The consolidated financial statements contained in this report were prepared in accordance with
U.S.GAAP. The preparation of these financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect both the Company's carrying values of its assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Although our significant accounting policies are described in more detail in Note 2 of the Notes to Consolidated Financial Statements; we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:
? Recognition of revenue from construction contracts;
? Long Lived Assets; ? Income Taxes;
? Insurance Coverage, Disputes, Claims and Contingencies.
We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on
January 1, 2018, using the modified retrospective method. We recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings. Contracts with customers that were not substantially complete in both our marine and concrete segments were evaluated in order to determine the impact as of the date of adoption. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Our revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. Our projects are typically short in duration and usually span a period of less than one year. We determine the appropriate accounting treatment for each contract before work begins and generally record revenue on contracts over time. 32
Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. Our contracts and related change orders typically represent a single performance obligation because individual goods and services are not separately identifiable and we provide a significantly integrated service. Revenue is recognized over time because control is continuously transferred to the customer. For contracts with multiple performance obligations, we allocate the contract's transaction price to each performance obligation using our best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as incurring costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis. When losses on uncompleted contracts are anticipated, the entire loss is recognized in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of
the customer, if applicable. Long-Lived Assets Our long-lived assets consist primarily of equipment used in our operations. Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from one to 30 years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes. The carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted. If events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists. If we identify a potential impairment, we will estimate the fair value of the asset through known market transactions of similar equipment and other valuation techniques, which could include the use of similar projections on a discounted cash flow basis. We will report a loss to the extent that the carrying value of the impaired assets exceeds their fair values. Income Taxes We determine our consolidated income tax provision using the asset and liability method prescribed by
U.S.GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. We must make significant assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and our interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that we do not expect to realize. The factors used to assess the likelihood of realization include our forecast of future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and available tax planning strategies that could be implemented to realize the net deferred tax assets. We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax assets in accordance with ASC 740. Available evidence includes historical financial information supplemented by currently available information about future years. Generally, historical financial information is more objectively verifiable than projections of future income and is therefore given more weight in our assessment. We consider cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in considering whether a valuation allowance is required. Conversely, we consider a cumulative income position over the most resent twelve quarters, to be significant positive evidence that a valuation allowance may not be required. 33
Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting our financial position and results of operations. We compute deferred income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We account for uncertain tax positions in accordance with the provisions of the FASB's ASC 740-10, which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on our consolidated tax return. We evaluate and record any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the tax jurisdictions in which we operate.
Insurance coverage, disputes, claims and contingencies
We maintain insurance coverage for our business and operations. Insurance related to property, equipment, automobile, general liability and a portion of workers' compensation is provided through traditional policies, subject to a deductible or deductibles. A portion of our workers' compensation exposure is covered through a mutual association, which is subject to supplemental calls. The marine segment maintains five levels of excess loss insurance coverage, totaling
$200 millionin excess of primary coverage. This excess loss coverage responds to most of its liability policies when a primary limit of $1 millionhas been exhausted; provided that the primary limit for Contingent Maritime Employer's Liability is $10 millionand the Watercraft Pollution Policy primary limit is $5 million. The concrete segment maintains five levels of excess loss insurance coverage, totaling $200 millionin excess of primary coverage. This excess loss coverage responds to most of its liability policies when a primary limit of $1 millionhas been exhausted. 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 industry averages to determine the best estimate of the ultimate expected loss. Actual claims may vary from estimates. Any adjustments to such reserves are included in the Consolidated Results of Operations in the period in which they become known. 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.
Cash and capital resources
Our primary liquidity needs are to finance our working capital, fund capital expenditures, and pursue strategic acquisitions. Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our credit facilities. The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company has adequate liquidity to operate. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, costs, and capital expenditures. Based on a careful assessment of these factors management believes that the Company will have adequate liquidity for its operations for at least the next 12 months. Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects. At
December 31, 2021, our working capital was $36.2 million, as compared with $54.8 millionat December 31, 2020. As of December 31, 2021, we had unrestricted cash on hand of $12.3 million. Our borrowing capacity at December 31, 2021was approximately $9.3 million. 34 Table of Contents
Ninth Amendment to the Revolving Credit Facility
March 1, 2022, we entered into an amended revolving line of credit and swingline loan agreement (the "Ninth Amendment") to, among other things, waive covenant defaults, reset the revolver limit, implement an anti-cash hoarding provision and institute temporary covenant requirements. For further details of the Ninth Amendment, see Note 20 in the Notes to the Financial Statements (of this Form 10-K). We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases, leases and major repairs, from funds generated by our operating activities for at least the next 12 months. Although our line of credit is reduced, we believe our cash position is adequate for our general business requirements discussed above and to service our debt.
The following table provides information about our cash flows and capital expenditures for the years ending
2021 2020 2019 Net (loss) income
$ (14,560) $ 20,220 $ (5,359)Adjustments to remove non-cash and non-operating items
22,726 26,338 35,457 Cash flow from net income after adjusting for non-cash and non-operating items
8,166 46,558 30,098 Change in operating assets and liabilities (working capital) (8,097)
(526) (30,814) Cash flows provided by (used in) operating activities $ 69
$ 46,032 $ (716)Cash flows provided by (used in) investing activities $ 10,629 $ (3,129) $ (13,331)Cash flows provided by (used in) financing activities $
Capital expenditures (included in investing activities above)
Operating Activities. During 2021, we generated approximately
$0.1 millionin cash from our operating activities. The net cash inflow is comprised of $8.2 millionof cash inflows from net income, after adjusting for non-cash items and $8.1 millionof cash outflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $2.4 millionoutflow pursuant to the relative timing and significance of project progression and billings during the period, a $1.3 millionoutflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $4.9 milliondecrease in operating lease liabilities during the period, partially offset by $0.5 millionof other cash inflows. During 2020, we generated approximately $46.0 millionin cash from our operating activities. The net cash inflow is comprised of $46.5 millionof cash inflows from net income, after adjusting for non-cash items, partially offset by $0.5 millionof cash outflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $6.5 millionoutflow pursuant to the relative timing and significance of project progression and billings during the period, a $5.4 milliondecrease in operating lease liabilities during the period and $1.3 millionof other outflows, partially offset by a $12.7 millioninflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period. During 2019, we used approximately $0.7 millionin cash from our operating activities. The net cash outflow is comprised of $30.1 millionof cash inflows from net income, after adjusting for non-cash items and $30.8 millionof cash outflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $22.9 millionincrease in our net position of accounts receivable and accounts payable. The increases in accounts receivable and accounts payable were consistent with our increased project activity year over year. The year over year increase in accounts receivable is more pronounced than accounts payable due to the longer cycle times on the accounts receivable, which also include 35 Table of Contents retainage whereas accounts payable typically turn in 30 days. The changes in net working capital also included a net outflow of $5.2 millionfrom the net change in costs and estimated earnings in excess of billings on uncompleted contracts, offset by the change in billings in excess of costs and estimated earnings on uncompleted contracts. These changes were driven by the timing and execution of the underlying projects. Investing Activities. Capital asset additions and betterments to our fleet were $17.0 millionin 2021, as compared with $14.7 millionand $17.2 millionin 2020 and 2019, respectively. Proceeds from the sale of property and equipment were $27.1in the year ended December 31, 2021, as compared with $5.9 millionin the year ended December 31, 2020. The increase in proceeds from the sale of property and equipment for the year ended December 31, 2021is primarily related to the sale of our property in Tampa, Florida. Financing Activities. During the year ended December 31, 2021, we drew down $53 millionfrom our revolving line of credit. During the year ended December 31, 2021we repaid $19 millionon our revolving line of credit. During the year ended December 31, 2021we fully extinguished the term loan portion of our Credit Facility, in part using proceeds from the sale of property in Tampa, Florida. The extinguishment of the term loan reduced our exposure to variability in interest rates and eliminated future loan amortization payment commitments. Concurrent with extinguishing the term loan, we canceled the remaining open position on our interest rate swap, resulting in a $1.3 millionloss on the mark to market value of the swap at the date of termination. The $1.3 millionwas paid to the counterparty, cleared from the balance sheet as an interest rate swap liability, removed from Other Comprehensive Income and charged to interest expense during the year ended December 31, 2021. Further, the remaining $0.8 millionof unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan. There were no penalties incurred related to early payment of the term loan. During 2020, we drew down $10.0 millionfrom our revolving line of credit. Additionally, we repaid $41.0 millionon our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $3.8 millionand an additional principal paydown of $3.4 millionwith proceeds from the sale of equipment.
In 2019, we pulled
Sources of capital
December 31, 2021, our available sources of capital consist of borrowing availability on our revolving line of credit of $9.3 millionpursuant to our Credit Facility. Financial covenants
Financial covenants under the credit facility include:
• A minimum consolidated EBITDA requirement which must not be less than the following
during each noted period:
– End of fiscal quarter
– End of fiscal quarter
• A consolidated leverage ratio so as not to exceed the following elements during each
– End of fiscal quarter
• A consolidated fixed charge coverage ratio that must not be less than the following
during each noted period:
– End of fiscal quarter
In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees; breaches of representations and warranties that are not timely cured; violation of covenants; bankruptcy and insolvency events; and events constituting a change of control.
During the fourth quarter of 2021, the Company entered into discussions with the lead bank due to concerns that it would not meet financial covenants. The company has performed the Ninth Amendment for
36 Table of Contents execution of the aforementioned amendment, the Company obtained a waiver on the financial covenants as of
December 31, 2021. See Note 11 in the Notes to the Financial Statements (of this Form 10-K) for further discussion on the Company's Debt. Bonding Capacity
We are often required to provide various types of surety bonds that provide additional security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends on our capitalization, working capital, past performance and external factors, including the capacity of the overall surety market. At
December 31, 2021, the capacity under our current bonding arrangement was at least $750 million, with approximately $110 millionof projects being bonded. We believe our balance sheet and working capital position are sufficient to allow us to continue to access our bonding capacity.
Effect of inflation
We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel. Due to the relative short-term duration of our projects, we are generally able to include anticipated price increases in the cost of our bids.
Off-balance sheet arrangements
Currently our only off balance sheet arrangements are those discussed above under "Bonding Capacity" and those which arise in the normal course of business. These arrangements are not reasonably likely to have an effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. See Note 17 of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Recently issued accounting pronouncements
See Note 2 of the Notes to the Financial Statements (Part IV, Item 15 of this Form 10-K) for further discussion.
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