NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollar amounts in thousands, except per share amounts or as otherwise noted)
The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of March 31, 2019, and its results of operations for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018 have been included.
The Company adopted Accounting Standard Update No.
2016-02 (“ASU 2016-02”),
Leases (Topic 842)
and subsequently issued other Accounting Standard Updates related to the Accounting Standards Codification Topic 842 (collectively, “ASC 842”) on January 1, 2019. The Financial Accounting Standards Board (“FASB”) issued ASC 842 to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted ASC 842 using the package of practical expedients that allowed entities to retain the classification of lease contracts existing as of the date of adoption. Additionally, the Company has elected to combine lease and non-lease components, such as common area maintenance costs, in calculating the operating lease assets and operating lease liabilities for all asset groups except for the Company’s dredges. Further, the Company adopted ASC 842 using the transition method under which entities initially applied ASC 842 at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this method, the comparative periods presented in the financial statements prior to the adoption date were not adjusted to apply ASC 842. Upon the adoption of ASC 842, the Company recorded a cumulative net adjustment of $2,802 to the beginning retained earnings balance.
The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized.
The Company has one operating segment which is also the Company’s reportable segment and reporting unit of which the Company tests goodwill for impairment. The historical environmental & infrastructure segment has been retrospectively presented as discontinued operations and assets and liabilities held for sale and is no longer reflected in continuing operations. The Company performed its most recent annual test of impairment as of July 1, 2018 with no indication of impairment as of the test date. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2019 should no triggering events occur which would require a test prior to the next annual test.
The condensed consolidated results of operations and comprehensive income for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.
Recent accounting pronouncements
In January 2017, the FASB issued Accounting Standard Update No. 2017-04 (“ASU 2017-04”),
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The amendment removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The guidance is effective for fiscal years beginning after December 15, 2019.
The Company does not anticipate that the adoption of ASU 2017-04 will have a material effect on the Company’s consolidated financial statements.
9
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
The computations for basic and diluted earnings (loss) per share are as follows:
|
|
Three Months Ended
|
|
(shares in thousands)
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
20,548
|
|
|
$
|
(7,007
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
(3,380
|
)
|
|
|
(2,314
|
)
|
Net income (loss)
|
|
|
17,168
|
|
|
|
(9,321
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding — basic
|
|
|
62,882
|
|
|
|
61,815
|
|
Effect of stock options and restricted stock units
|
|
|
1,687
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding — diluted
|
|
|
64,569
|
|
|
|
61,815
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations — basic
|
|
$
|
0.33
|
|
|
$
|
(0.11
|
)
|
Earnings (loss) per share from continuing operations — diluted
|
|
$
|
0.32
|
|
|
$
|
(0.11
|
)
|
For the three months ended March 31, 2018 the following amounts of stock options (“NQSO”) and restricted stock units (“RSU”) were excluded from the diluted weighted-average common shares outstanding as the Company incurred a loss during the period:
|
|
Three Months Ended
|
|
|
(shares in thousands)
|
|
March 31,
|
|
|
|
|
2018
|
|
|
Effect of stock options and restricted stock units
|
|
|
781
|
|
|
For the three months ended March 31, 2019 and 2018 the following amounts of NQSOs and RSUs were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method, as such NQSOs and RSUs were determined to be anti-dilutive:
|
|
Three Months Ended
|
|
(shares in thousands)
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Effect of stock options and restricted stock units
|
|
|
66
|
|
|
|
1,906
|
|
The Company leases certain operating equipment and office facilities. Leases with an initial term greater than twelve months are recorded on the Company’s balance sheet as an operating lease asset and operating lease liability and are measured at the present value of lease payments over the lease term. Substantially all of the Company’s leases are classified as operating leases. Leases with an initial term of twelve months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The exercise of lease renewal options is at the Company’s sole discretion and is considered in the measurement of operating lease assets and operating lease liabilities when it is reasonably certain the Company will exercise the option. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
10
Lease cost
The Company’s lease costs are recorded in cost of contract revenues and general and administrative expenses. For the three months ended March 31, 2019, lease costs are as follows:
|
Three Months Ended
|
|
|
March 31, 2019
|
|
Operating lease cost
|
$
|
6,239
|
|
Short-term lease cost
|
|
15,568
|
|
Total lease cost
|
$
|
21,807
|
|
Lease terms and commitments
The Company’s maturity analysis of its operating lease liabilities, recorded on the balance sheet, as of March 31, 2019 is as follows:
|
|
|
|
|
|
|
2019
|
|
$
|
19,091
|
|
|
2020
|
|
|
23,055
|
|
|
2021
|
|
|
18,942
|
|
|
2022
|
|
|
13,501
|
|
|
2023
|
|
|
8,827
|
|
Thereafter
|
|
|
9,150
|
|
Minimum lease payments
|
|
|
92,566
|
|
Imputed interest
|
|
|
15,976
|
|
Present value of minimum operating lease payments
|
|
$
|
76,590
|
|
Future minimum operating lease payments at December 31, 2018, were as follows:
|
2019
|
|
$
|
26,554
|
|
|
2020
|
|
|
22,349
|
|
|
2021
|
|
|
18,430
|
|
|
2022
|
|
|
13,552
|
|
|
2023
|
|
|
9,041
|
|
Thereafter
|
|
|
8,697
|
|
Total minimum operating lease payments
|
|
$
|
98,623
|
|
As most of the Company’s leases do not provide an implicit rate, the Company used our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. At the date of adoption, the Company used the incremental borrowing rate as of December 31, 2018, for operating leases that commenced prior to that date.
Additional information related to the Company’s leases as of March 31, 2019 is as follows:
|
March 31, 2019
|
|
Weighted average remaining lease term
|
4.3 years
|
|
Weighted average discount rate
|
|
6.8
|
%
|
Supplemental information related to leases during the three months ended March 31, 2019 is as follows:
|
Three Months Ended
|
|
|
March 31, 2019
|
|
Operating cash flows from operating leases
|
$
|
(6,420
|
)
|
Operating lease liabilities arising from obtaining new operating lease assets
|
$
|
69
|
|
11
Accrued expenses at March 31, 2019 and December 31, 2018 are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
$
|
13,926
|
|
|
$
|
13,724
|
|
Interest
|
|
|
9,903
|
|
|
|
3,448
|
|
Contract reserves
|
|
|
4,732
|
|
|
|
1,709
|
|
Payroll and employee benefits
|
|
|
5,071
|
|
|
|
15,298
|
|
Fuel hedge contracts
|
|
|
999
|
|
|
|
4,710
|
|
Income and other taxes
|
|
|
756
|
|
|
|
1,175
|
|
Other
|
|
|
7,246
|
|
|
|
8,287
|
|
Total accrued expenses
|
|
$
|
42,633
|
|
|
$
|
48,351
|
|
Credit agreement
On December 30, 2016, the Company, Great Lakes Dredge & Dock Company, LLC, NASDI Holdings, LLC, Great Lakes Dredge & Dock Environmental, Inc., Great Lakes Environmental & Infrastructure Solutions, LLC and Great Lakes Environmental & Infrastructure, LLC (collectively, the “Credit Parties”) entered into a revolving credit and security agreement, as subsequently amended, (the “Credit Agreement”) with certain financial institutions from time to time party thereto as lenders, PNC Bank, National Association, as Agent, PNC Capital Markets, CIBC Bank USA, Suntrust Robinson Humphrey, Inc., Capital One, National Association and Bank of America, N.A., as Joint Lead Arrangers and Joint Bookrunners, Texas Capital Bank, National Association, as Syndication Agent and Woodforest National Bank, as Documentation Agent. The Credit Agreement, which replaced the Company’s former revolving credit agreement, provides for a senior secured revolving credit facility in an aggregate principal amount of up to $250,000, subfacilities for the issuance of standby letters of credit up to a $250,000 sublimit and swingline loans up to a $25,000 sublimit. The maximum borrowing capacity under the Credit Agreement is determined by a formula and may fluctuate depending on the value of the collateral included in such formula at the time of determination. The Credit Agreement also includes an increase option that will allow the Company to increase the senior secured revolving credit facility by an aggregate principal amount of up to $100,000. This increase is subject to lenders providing incremental commitments for such increase, the Credit Parties having adequate borrowing capacity and provided that no default or event of default exists both before and after giving effect to such incremental commitment increase.
The Credit Agreement contains customary representations and affirmative and negative covenants, including a springing financial covenant that requires the Credit Parties to maintain a fixed charge coverage ratio (ratio of earnings before income taxes, depreciation and amortization, net interest expenses, non-cash charges and losses and certain other non-recurring charges, minus capital expenditures, income and franchise taxes, to net cash interest expense plus scheduled cash principal payments with respect to debt plus restricted payments paid in cash) of not more than 1.10 to 1.00. The Company is required to maintain this ratio if its availability under the Credit Agreement falls below $31,250 for five consecutive days or $25,000 for one day. The Credit Parties are also restricted in the amount of capital expenditures they may make in each fiscal year. The Credit Agreement also contains customary events of default (including non-payment of principal or interest on any material debt and breaches of covenants) as well as events of default relating to certain actions by the Company’s surety bonding providers. The obligations of the Credit Parties under the Credit Agreement will be unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or formed material direct and indirect domestic subsidiary of the Company. Borrowings under the Credit Agreement were or will be used to refinance existing indebtedness under the Company’s former revolving credit agreement, refinance existing indebtedness under the Company’s former term loan agreement, pay fees and expenses related to the Credit Agreement, finance acquisitions permitted under the Credit Agreement, finance ongoing working capital, and for other general corporate purposes. The Credit Agreement matures on December 30, 2019.
The obligations under the Credit Agreement are secured by substantially all of the assets of the Credit Parties. The outstanding obligations thereunder shall be secured by a valid first priority perfected lien on substantially all of the vessels of the Credit Parties and a valid perfected lien on all domestic accounts receivable and substantially all other assets of the Credit Parties, subject to the permitted liens and interests of other parties (including the Company’s surety bonding provider).
12
Interest on the senior secured revolving credit
facility of the Credit Agreement is equal to either a Base Rate option or LIBOR option, at the Company’s election. The Base Rate option is (1) the base commercial lending rate of PNC Bank, National Association, as publicly announced plus (2)(a) an interest
margin of 2.0% or (b) after the date on which a borrowing base certificate is required to be delivered under Section 9.2 of the Credit Agreement (commencing with the fiscal quarter ending December 31, 2017, the “Adjustment Date”), an interest margin rangi
ng between 1.5% and 2.0% depending on the quarterly average undrawn availability on the senior secured revolving credit facility. The LIBOR option is the sum of (1) LIBOR and (2)(a) an interest margin of 3.0% or (b) after the Adjustment Date, an interest r
ate margin ranging between 2.5% to 3.0% per annum depending on the quarterly average undrawn availability on the senior secured revolving credit facility. The Credit Agreement is subject to an unused fee ranging from 0.25% to 0.375% per annum depending on
the amount of average daily outstandings under the senior secured revolving credit facility.
As of March 31, 2019, the Company had no borrowings on the revolver, $37,748 of letters of credit outstanding and $206,008 of availability under the Credit Agreement. The availability under the Credit Agreement is suppressed by $6,244 as of March 31, 2019 as a result of certain limitations set forth in the Credit Agreement.
Senior Notes and subsidiary guarantors
In May 2017, the Company issued $325,000 of 8.000% senior notes (“8% Senior Notes”) due May 15, 2022. The interest is paid semi-annually.
The Company’s obligations under these Senior Notes are guaranteed by certain of the Company’s 100% owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several. The parent company issuer has no independent assets or operations and all non-guarantor subsidiaries have been determined to be minor.
|
6.
|
Fair value measurements
|
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has been established by GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance describes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At times, the Company holds certain derivative contracts that it uses to manage foreign currency risk or commodity price risk. The Company does not hold or issue derivatives for speculative or trading purposes. The fair values of these financial instruments are summarized as follows:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Description
|
|
At March 31, 2019
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel hedge contracts
|
|
$
|
999
|
|
|
$
|
—
|
|
|
$
|
999
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Description
|
|
At December 31, 2018
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel hedge contracts
|
|
$
|
4,710
|
|
|
$
|
—
|
|
|
$
|
4,710
|
|
|
$
|
—
|
|
13
Fuel hedge contracts
The Company is exposed to certain market risks, primarily commodity price risk as it relates to diesel fuel purchase requirements, which occur in the normal course of business. The Company enters into heating oil commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices could have an adverse impact on cash flows associated with its domestic dredging contracts. The Company’s goal is to hedge approximately 80% of the fuel requirements for work in domestic backlog.
As of March 31, 2019, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through March 2020. As of March 31, 2019, there were 11.2 million gallons remaining on these contracts which represent approximately 80% of the Company’s forecasted domestic fuel purchases through March 2020. Under these swap agreements, the Company will pay fixed prices ranging from $1.91 to $2.34 per gallon.
At March 31, 2019 and December 31, 2018, the fair value assets of the fuel hedge contracts were estimated to be $999 and $4,710, respectively, and are recorded in accrued expenses. For fuel hedge contracts considered to be highly effective, the losses reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the three months ended March 31, 2019 were $891. The remaining gains and losses included in accumulated other comprehensive loss at March 31, 2019 will be reclassified into earnings over the next twelve months, corresponding to the period during which the hedged fuel is expected to be utilized. Changes in the fair value of fuel hedge contracts not considered highly effective are recorded as cost of contract revenues in the Statement of Operations. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.
The Company is exposed to counterparty credit risk associated with non-performance of its various derivative instruments. The Company’s risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher. In addition, all counterparties are monitored on a continuous basis.
The fair value of the fuel hedge contracts outstanding as of March 31, 2019 and December 31, 2018 is as follows:
|
|
|
|
Fair Value at
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Balance Sheet Location
|
|
2019
|
|
|
2018
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Fuel hedge contracts
|
|
Accrued expenses
|
|
$
|
999
|
|
|
$
|
4,710
|
|
Accumulated other comprehensive income
Changes in the components of the accumulated balances of other comprehensive income (loss) are as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cumulative translation adjustments—net of tax
|
|
$
|
—
|
|
|
$
|
1,361
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Reclassification of derivative (gains) losses to earnings—net of tax
|
|
|
891
|
|
|
|
(732
|
)
|
Change in fair value of derivatives—net of tax
|
|
|
1,849
|
|
|
|
(2
|
)
|
Net change in cash flow derivative hedges—net of tax
|
|
|
2,740
|
|
|
|
(734
|
)
|
Total other comprehensive income
|
|
$
|
2,740
|
|
|
$
|
627
|
|
|
|
|
|
|
|
|
|
|
14
Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
Statement of Operations Location
|
|
2019
|
|
|
2018
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Fuel
hedge contracts
|
|
Costs of contract revenues
|
|
$
|
1,207
|
|
|
$
|
(992
|
)
|
|
|
Income tax (provision) benefit
|
|
|
316
|
|
|
|
(260
|
)
|
|
|
|
|
$
|
891
|
|
|
$
|
(732
|
)
|
During the three months ended March 31, 2018, the Company substantially completed the closeout of its Brazil operations. This liquidation resulted in the reversal of the Company’s cumulative translation adjustment. Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:
|
|
|
|
Three Months Ended
|
|
|
|
Statement of Operations Location
|
|
March 31, 2018
|
|
Cumulative translation adjustment:
|
|
Other expense
|
|
$
|
(2,015
|
)
|
|
|
Income tax benefit
|
|
|
527
|
|
|
|
|
|
$
|
(1,487
|
)
|
Other financial instruments
The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. Based on timing of the cash flows and comparison to current market interest rates, the carrying value of our revolving credit agreement approximates fair value. In May 2017, the Company issued a total of $325,000 of 8% senior notes due May 15, 2022, which were outstanding at March 31, 2019 (see Note 5, Long-term debt). The 8% Senior Notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the 8% Senior Notes. The fair value of the senior notes was $340,438 at March 31, 2019, which is a Level 1 fair value measurement as the senior notes’ value was obtained using quoted prices in active markets. It is impracticable to determine the fair value of outstanding letters of credit or performance, bid and payment bonds due to uncertainties as to the amount and timing of future obligations, if any.
|
7
.
|
Share-based compensation
|
On May 11, 2017, the Company’s stockholders approved the Great Lakes Dredge & Dock Corporation 2017 Long-Term Incentive Plan (the “Incentive Plan”), which previously had been approved by the Company’s board of directors subject to stockholder approval. The Incentive Plan permits the granting of stock options, stock appreciation rights, restricted stock and restricted stock units to the Company’s employees and directors for up to 3.3 million shares of common stock, plus an additional 1.7 million shares underlying equity awards issued under the 2007 Long-Term Incentive Plan.
During the three months ended March 31, 2019, the Company granted 490 thousand restricted stock units to certain employees. In addition, all non-employee directors on the Company’s board of directors are paid a portion of their board-related compensation in stock grants or restricted stock units. Compensation cost charged to expense related to share-based compensation arrangements was $2,000 and $851 for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019, the Company had $575,189 of remaining performance obligations, which the Company refers to as total backlog. Approximately 66% of the Company’s backlog will be completed in 2019 with the remaining balance expected to be completed by 2020.
Revenue by category
The following series of tables presents our revenue disaggregated by several categories.
Domestically, our work generally is performed in coastal waterways and deep water ports. The U.S. dredging market consists of four primary types of work: capital, coastal protection, maintenance and rivers & lakes.
Foreign projects typically involve capital work.
15
The Company’s contract revenues by type of work, for the periods indicated, were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Revenues
|
|
2019
|
|
|
2018
|
|
Dredging:
|
|
|
|
|
|
|
|
|
Capital—U.S.
|
|
$
|
92,744
|
|
|
$
|
76,952
|
|
Capital—foreign
|
|
|
8,329
|
|
|
|
5,523
|
|
Coastal protection
|
|
|
33,743
|
|
|
|
41,861
|
|
Maintenance
|
|
|
29,649
|
|
|
|
7,803
|
|
Rivers & lakes
|
|
|
28,172
|
|
|
|
1,484
|
|
Total revenues
|
|
$
|
192,637
|
|
|
$
|
133,623
|
|
The Company’s contract revenues by type of customer, for the periods indicated, were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Revenues
|
|
2019
|
|
|
2018
|
|
Dredging:
|
|
|
|
|
|
|
|
|
Federal government
|
|
$
|
170,155
|
|
|
$
|
76,694
|
|
State and local government
|
|
|
14,103
|
|
|
|
46,625
|
|
Private
|
|
|
50
|
|
|
|
4,781
|
|
Foreign
|
|
|
8,329
|
|
|
|
5,523
|
|
Total revenues
|
|
$
|
192,637
|
|
|
$
|
133,623
|
|
Contract balances
Accounts receivable at March 31, 2019 and December 31, 2018 are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Completed contracts
|
|
$
|
3,911
|
|
|
$
|
8,592
|
|
Contracts in progress
|
|
|
24,655
|
|
|
|
48,418
|
|
Retainage
|
|
|
6,128
|
|
|
|
7,969
|
|
|
|
|
34,694
|
|
|
|
64,979
|
|
Allowance for doubtful accounts
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
Total accounts receivable—net
|
|
$
|
34,494
|
|
|
$
|
64,779
|
|
16
The components of contracts in progress at March 31, 2019 and December 31, 2018 are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Costs and earnings in excess of billings:
|
|
|
|
|
|
|
|
|
Costs and earnings for contracts in progress
|
|
$
|
415,987
|
|
|
$
|
433,093
|
|
Amounts billed
|
|
|
(401,038
|
)
|
|
|
(416,956
|
)
|
Costs and earnings in excess of billings for contracts in progress
|
|
|
14,949
|
|
|
|
16,137
|
|
Costs and earnings in excess of billings for completed contracts
|
|
|
3,578
|
|
|
|
3,928
|
|
Total contract revenues in excess of billings
|
|
$
|
18,527
|
|
|
$
|
20,065
|
|
|
|
|
|
|
|
|
|
|
Current portion of contract revenues in excess of billings
|
|
$
|
16,415
|
|
|
$
|
17,953
|
|
Long-term contract revenues in excess of billings
|
|
|
2,112
|
|
|
|
2,112
|
|
Total contract revenues in excess of billings
|
|
$
|
18,527
|
|
|
$
|
20,065
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and earnings:
|
|
|
|
|
|
|
|
|
Amounts billed
|
|
$
|
(477,464
|
)
|
|
$
|
(260,691
|
)
|
Costs and earnings for contracts in progress
|
|
|
423,609
|
|
|
|
242,898
|
|
Total billings in excess of contract revenues
|
|
$
|
(53,855
|
)
|
|
$
|
(17,793
|
)
|
Revenue recognized for the three months ended March 31, 2019, that was included in the billings in excess of contract revenues balance at the beginning of the year was $16,125.
At March 31, 2019 and December 31, 2018, costs to fulfill a contract with a customer recognized as an asset were $11,318 and $13,129, respectively, and are recorded in other current assets and other noncurrent assets. These costs relate to pre-contract and pre-construction activities. During the three months ended March 31, 2019 and 2018, the company amortized $2,751 and $2,497 respectively, of pre-construction costs.
|
9
.
|
Restructuring charges
|
In 2017, a strategic review was begun to improve the Company's financial results in both domestic and international operations enabling debt reduction, improvements in return on capital and the continued renewal of our extensive fleet with new and efficient dredges to best serve our domestic and international clients. Management executed a plan to reduce general and administrative and overhead expenses, retire certain underperforming and underutilized assets, write-off pre-contract costs on a project that was never formally awarded and that the Company no longer intends to pursue and closeout the Company’s Brazil operations. The cumulative amounts incurred to date for restructuring charges, including amounts presented in discontinued operations, include severance of $3,549, asset retirements of $32,309, pre-contract costs of $6,441 and closeout costs of $4,194. Restructuring activities were substantially completed in 2018.
Restructuring charges recognized for the above actions for the year ended March 31, 2018 are summarized as follows:
|
|
Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
Costs of contract revenues—depreciation
|
|
$
|
2,992
|
|
Costs of contract revenues—other
|
|
|
1,267
|
|
General and administrative expenses
|
|
|
7
|
|
Loss on sale of assets—net
|
|
|
(7
|
)
|
Other expense
|
|
|
2,015
|
|
Total
|
|
$
|
6,274
|
|
The Company had accrued severance expense of $76 and $662 at March 31, 2019 and December 31, 2018, respectively, which are expected to be settled in 2019. Accrued severance is included in accrued expenses.
17
|
10.
|
Commitments and contingencies
|
Commercial commitments
Performance and bid bonds are customarily required for dredging and marine construction projects, as well as some environmental & infrastructure projects. The Company has bonding agreements with Argonaut Insurance Company, Berkley Insurance Company, Chubb Surety and Liberty Mutual Insurance Company, under which the Company can obtain performance, bid and payment bonds. The Company also has outstanding bonds with Travelers Casualty, Surety Company of America and Zurich American Insurance Company (“Zurich”). Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from $1,000 to $10,000. At March 31, 2019, the Company had outstanding performance bonds with a notional amount of approximately $1,291,106 of which $110,126 relates to projects from the Company’s historical environmental & infrastructure businesses. The revenue value remaining in backlog related to these projects totaled approximately $505,995.
In connection with the sale of our historical demolition business, the Company was obligated to keep in place the surety bonds on pending demolition projects for the period required under the respective contract for a project and issued Zurich a letter of credit related to this exposure. In February 2017, the Company was notified by Zurich of an alleged default triggered on a historical demolition surety performance bond in the aggregate of approximately $20,000 for failure of the contractor to perform in accordance with the terms of a project. In May 2017, Zurich drew upon the letter of credit in the amount of $20,881. In order to fund the draw on the letter of credit, the Company had to increase the borrowings on its revolving credit facility. As the outstanding letters of credit previously reduced our availability under the revolving credit facility, this draw down on our letter of credit does not impact our liquidity or capital availability.
Pursuant to the terms of sale of our historical demolition business, the Company received an indemnification from the buyer for losses resulting from the bonding arrangement. The Company intends to aggressively pursue enforcement of the indemnification provisions if the buyer of the historical demolition business is found to be in default of its obligations. The Company cannot estimate the amount or range of recoveries related to the indemnification or resolution of the Company’s responsibilities under the surety bond. The surety bond claim impact has been included in discontinued operations.
Certain foreign projects performed by the Company have warranty periods, typically spanning no more than one to three years beyond project completion, whereby the Company retains responsibility to maintain the project site to certain specifications during the warranty period. Generally, any potential liability of the Company is mitigated by insurance, shared responsibilities with consortium partners, and/or recourse to owner-provided specifications.
Legal proceedings and other contingencies
As is customary with negotiated contracts and modifications or claims to competitively bid contracts with the federal government, the government has the right to audit the books and records of the Company to ensure compliance with such contracts, modifications, or claims, and the applicable federal laws. The government has the ability to seek a price adjustment based on the results of such audit. Any such audits have not had, and are not expected to have, a material impact on the financial position, operations, or cash flows of the Company.
Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely to the Company. Although the Company is subject to various claims and legal actions that arise in the ordinary course of business, except as described below, the Company is not currently a party to any material legal proceedings or environmental claims. The Company records an accrual when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe any of these proceedings, individually or in the aggregate, would be expected to have a material effect on results of operations, cash flows or financial condition.
On April 23, 2014, the Company completed the sale of NASDI, LLC (“NASDI”) and Yankee Environmental Services, LLC (“Yankee”), which together comprised the Company’s historical demolition business, to a privately owned demolition company. Legal actions brought by the Company to enforce the buyer’s obligations under the sale agreement are described below.
On January 14, 2015, the Company and our subsidiary, NASDI Holdings, LLC, brought an action in the Delaware Court of Chancery to enforce the terms of the Company’s agreement to sell NASDI and Yankee. Under the terms of the agreement, the Company received cash of $5,309 and retained the right to receive additional proceeds based upon future collections of outstanding accounts receivable and work in process existing at the date of close. The Company seeks specific performance of the buyer’s obligation to collect and to remit the additional proceeds, and other related relief. Defendants have filed counterclaims alleging that the Company misrepresented the quality of its contracts and receivables prior to the sale. The Company denies defendants’ allegations and intends to vigorously defend against the counterclaims.
18
The
Company
i
s
in
the
process
of
negotiating
a
Consent
Order
with
the
Florida
Department of
Environmental
Protection
regarding
alleged
impacts
to
a
seagrass
habitat
in
connection with
a
project
in
Charlotte
County,
Florida.
The
Company
estimates
the
range
of
potential
loss
related
to
this
matter
as
between
$200
and $250.
In
September
2018, the EPA Region
4
informed
the
Company
of
the
EPA’s
intent to file
an
administrative
complaint
against
the
Company relating
to
a
project
the Company performed
at PortMiami
from
2013-2015, although no
complaint has
been filed
to date. The EPA is alleging violations of
Section 103 of
the Marine
Protection,
Research,
and
Sanctuaries Act
(“MPRSA”)
and
failure
to report violations of
the
MPRSA. In December 2018, EPA proposed a tolling agreement to provide additional time for EPA to assess the case and possible resolution. EPA and Great Lakes negotiated and executed a tolling agreement that suspends the running of any statute of limitations until May 15, 2019.
The
Company disagrees with the
EPA on whether
a
violation occurred and,
if
a
violation
did occur,
the
appropriate
penalty
calculation,
and we
will
defend ourselves
vigorously.
Except as noted above, the Company has not accrued any amounts with respect to the above matters, as the Company does not believe, based on information currently known to it, that a loss relating to these matters is probable, and an estimate of a range of potential losses relating to these matters cannot reasonably be made.
|
11.
|
Business dispositions
|
Discontinued operations
Businesses or asset groups are reported as discontinued operations when the Company commits to a plan to divest the business or group and the sale of the business or asset group is deemed probable within the next twelve months. Further, the disposal must represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. In the fourth quarter of 2018, the management team proposed, and the Board of Directors approved, a plan to sell the Company’s historical environmental & infrastructure business. The Company has retained a financial advisor to assist with the process and expects to finalize disposition of the environmental & infrastructure business in the first half of 2019. The disposal group of the historical environmental & infrastructure business has therefore been classified as discontinued operations and assets and liabilities held for sale for all periods presented.
Included in assets held for sale as of March 31, 2019 are provisions of $14,425 to reduce the net assets of the historical environmental & infrastructure business to fair value less costs to sell. Fair values were determined using expected sales terms and an evaluation of working capital. The loss on disposition of assets held for sale is subject to change prior to completion of the disposition and could differ materially from the Company’s estimate.
To the extent the Company incurs liabilities for exit costs, including severance, other employee benefit costs and operating lease obligations, the liabilities will be measured at fair value and recorded when incurred.
The results of the business have been reported in discontinued operations as follows:
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
9,184
|
|
|
$
|
12,970
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from discontinued operations
|
|
(4,193
|
)
|
|
|
(3,134
|
)
|
Loss on disposal of assets held for sale
|
|
(315
|
)
|
|
|
—
|
|
Income tax benefit
|
|
1,128
|
|
|
|
820
|
|
Loss from discontinued operations, net of income taxes
|
$
|
(3,380
|
)
|
|
$
|
(2,314
|
)
|
19
The major classes of assets and liabilities of businesses reported as discontinued operations are shown below:
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
Accounts receivable—net
|
$
|
11,388
|
|
|
$
|
13,943
|
|
Contract revenues in excess of billings
|
|
2,793
|
|
|
|
9,971
|
|
Other current assets
|
|
1,570
|
|
|
|
865
|
|
Assets held for sale
|
$
|
15,751
|
|
|
$
|
24,779
|
|
|
|
|
|
|
|
|
|
Property and equipment—net
|
|
6,672
|
|
|
|
6,612
|
|
Operating lease assets
|
|
1,603
|
|
|
|
—
|
|
Goodwill
|
|
7,000
|
|
|
|
7,000
|
|
Other intangible assets—net
|
|
372
|
|
|
|
372
|
|
Other assets
|
|
697
|
|
|
|
1,699
|
|
Reserve for loss on disposal
|
|
(14,425
|
)
|
|
|
(14,110
|
)
|
Assets held for sale—noncurrent
|
$
|
1,919
|
|
|
$
|
1,573
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
2,863
|
|
|
$
|
8,343
|
|
Accrued expenses
|
|
3,417
|
|
|
|
4,380
|
|
Operating lease liabilities
|
|
376
|
|
|
|
—
|
|
Other current liabilities
|
|
1,292
|
|
|
|
1,217
|
|
Liabilities held for sale
|
$
|
7,948
|
|
|
$
|
13,940
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
48
|
|
|
|
146
|
|
Operating lease liabilities—noncurrent
|
|
1,227
|
|
|
|
—
|
|
Liabilities held for sale—noncurrent
|
$
|
1,275
|
|
|
$
|
146
|
|
20