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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

 

For the quarterly period ended March 31, 2022

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: 001-33225

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-5336063

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

9811 Katy Freeway, Suite 1200, Houston, TX

 

77024

(Address of principal executive offices)

 

(Zip Code)

(346) 359-1010

(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 (Par Value $0.0001)

 

GLDD

 

Nasdaq Stock Market, LLC

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate 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 Exchange Act).    Yes      No  

 

As of April 29, 2022, 66,065,420 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 


 

 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2022

INDEX

 

 

 

 

 

Page

 

 

 

 

 

 

 

Part I Financial Information (Unaudited)

 

3

 

 

 

 

 

Item 1

 

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Equity for the Three Months ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2

 

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

 

15

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

Item 4

 

Controls and Procedures

 

22

 

 

 

 

 

 

 

Part II Other Information

 

23

 

 

 

 

 

Item 1

 

Legal Proceedings

 

23

 

 

 

 

 

Item 1A

 

Risk Factors

 

23

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

23

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

23

 

 

 

 

 

Item 5

 

Other Information

 

23

 

 

 

 

 

Item 6

 

Exhibits

 

24

 

 

 

 

 

 

 

Signature

 

25

 

 

 

 

 

 

 

 

2


 

 

PART I — Financial Information

Item 1.

Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

142,583

 

 

$

145,459

 

Accounts receivable—net

 

 

37,162

 

 

 

82,953

 

Contract revenues in excess of billings

 

 

74,535

 

 

 

39,844

 

Inventories

 

 

30,394

 

 

 

30,760

 

Prepaid expenses and other current assets

 

 

43,368

 

 

 

28,416

 

Total current assets

 

 

328,042

 

 

 

327,432

 

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT—Net

 

 

468,555

 

 

 

455,102

 

OPERATING LEASE ASSETS

 

 

63,345

 

 

 

62,233

 

GOODWILL

 

 

76,576

 

 

 

76,576

 

INVENTORIES—Noncurrent

 

 

71,117

 

 

 

65,049

 

OTHER

 

 

11,204

 

 

 

11,278

 

TOTAL

 

$

1,018,839

 

 

$

997,670

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

98,182

 

 

$

85,566

 

Accrued expenses

 

 

33,949

 

 

 

37,626

 

Operating lease liabilities

 

 

16,036

 

 

 

16,729

 

Billings in excess of contract revenues

 

 

3,687

 

 

 

14,814

 

Total current liabilities

 

 

151,854

 

 

 

154,735

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

 

321,108

 

 

 

320,971

 

OPERATING LEASE LIABILITIES—Noncurrent

 

 

47,839

 

 

 

45,986

 

DEFERRED INCOME TAXES

 

 

73,888

 

 

 

68,497

 

OTHER

 

 

8,746

 

 

 

8,484

 

Total liabilities

 

 

603,435

 

 

 

598,673

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 8)

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

Common stock—$.0001 par value; 90,000 authorized, 66,046 and 65,746 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

307,597

 

 

 

308,482

 

Retained earnings

 

 

101,426

 

 

 

90,369

 

Accumulated other comprehensive income

 

 

6,375

 

 

 

140

 

Total equity

 

 

415,404

 

 

 

398,997

 

TOTAL

 

$

1,018,839

 

 

$

997,670

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


 

 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

194,349

 

 

$

177,633

 

Costs of contract revenues

 

 

161,294

 

 

 

144,557

 

Gross profit

 

 

33,055

 

 

 

33,076

 

General and administrative expenses

 

 

14,604

 

 

 

16,322

 

(Gain) loss on sale of assets—net

 

 

(321

)

 

 

106

 

Operating income

 

 

18,772

 

 

 

16,648

 

Interest expense—net

 

 

(4,025

)

 

 

(6,586

)

Other income (expense)

 

 

(405

)

 

 

141

 

Income before income taxes

 

 

14,342

 

 

 

10,203

 

Income tax provision

 

 

(3,285

)

 

 

(1,389

)

Net income

 

$

11,057

 

 

$

8,814

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.17

 

 

$

0.14

 

Basic weighted average shares

 

 

65,847

 

 

 

65,269

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.17

 

 

$

0.13

 

Diluted weighted average shares

 

 

66,436

 

 

 

66,159

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


 

 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,057

 

 

$

8,814

 

Net change in cash flow derivative hedges—net of tax (1)

 

 

6,235

 

 

 

1,886

 

Comprehensive income

 

$

17,292

 

 

$

10,700

 

 

(1)

Net of income tax (provision) benefit of $(2,106) and $637 for the three months ended March 31, 2022 and 2021, respectively.

See notes to unaudited condensed consolidated financial statements.

 

5


 

 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Total

 

BALANCE—January 1, 2022

 

 

65,746

 

 

$

6

 

 

$

308,482

 

 

$

90,369

 

 

$

140

 

 

$

398,997

 

Share-based compensation

 

 

9

 

 

 

 

 

552

 

 

 

 

 

 

 

552

 

Vesting of restricted stock units and impact of shares withheld for taxes

 

 

212

 

 

 

 

 

(1,827

)

 

 

 

 

 

 

(1,827

)

Exercise of options and purchases from employee stock plans

 

 

79

 

 

 

 

 

390

 

 

 

 

 

 

 

390

 

Net income

 

 

 

 

 

 

 

 

11,057

 

 

 

 

 

11,057

 

Other comprehensive loss—net of tax

 

 

 

 

 

 

 

 

 

 

6,235

 

 

 

6,235

 

BALANCE—March 31, 2022

 

 

66,046

 

 

$

6

 

 

$

307,597

 

 

$

101,426

 

 

$

6,375

 

 

$

415,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Total

 

BALANCE—January 1, 2021

 

 

65,023

 

 

$

6

 

 

$

304,757

 

 

$

40,937

 

 

$

968

 

 

$

346,668

 

Share-based compensation

 

 

63

 

 

 

 

 

1,766

 

 

 

 

 

 

 

1,766

 

Vesting of restricted stock units and impact of shares withheld for taxes

 

 

410

 

 

 

 

 

(3,784

)

 

 

 

 

 

 

(3,784

)

Exercise of options and purchases from employee stock plans

 

 

124

 

 

 

 

 

1,260

 

 

 

 

 

 

 

1,260

 

Net income

 

 

 

 

 

 

 

 

8,814

 

 

 

 

 

8,814

 

Other comprehensive income—net of tax

 

 

 

 

 

 

 

 

 

 

1,886

 

 

 

1,886

 

BALANCE—March 31, 2021

 

 

65,620

 

 

$

6

 

 

$

303,999

 

 

$

49,751

 

 

$

2,854

 

 

$

356,610

 

 

See notes to unaudited condensed consolidated financial statements.

 

6


 

 

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

11,057

 

 

$

8,814

 

Adjustments to reconcile net income to net cash flows provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,316

 

 

 

10,053

 

Deferred income taxes

 

 

3,285

 

 

 

1,389

 

(Gain) loss on sale of assets

 

 

(321

)

 

 

106

 

Amortization of deferred financing fees

 

 

317

 

 

 

403

 

Share-based compensation expense

 

 

552

 

 

 

1,766

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

45,791

 

 

 

(26,742

)

Contract revenues in excess of billings

 

 

(34,691

)

 

 

3,188

 

Inventories

 

 

(5,703

)

 

 

(3,379

)

Prepaid expenses and other current assets

 

 

(6,612

)

 

 

(832

)

Accounts payable and accrued expenses

 

 

12,247

 

 

 

(10,303

)

Billings in excess of contract revenues

 

 

(11,126

)

 

 

6,055

 

Other noncurrent assets and liabilities

 

 

205

 

 

 

242

 

Cash (used in) provided by operating activities

 

 

26,317

 

 

 

(9,240

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(28,866

)

 

 

(27,038

)

Proceeds from dispositions of property and equipment

 

 

1,110

 

 

 

Cash used in investing activities

 

 

(27,756

)

 

 

(27,038

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Taxes paid on settlement of vested share awards

 

 

(1,827

)

 

 

(3,784

)

Exercise of options and purchases from employee stock plans

 

 

390

 

 

 

1,260

 

Cash used in financing activities

 

 

(1,437

)

 

 

(2,524

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(2,876

)

 

 

(38,802

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

147,459

 

 

 

216,510

 

Cash, cash equivalents and restricted cash at end of period

 

$

144,583

 

 

$

177,708

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

142,583

 

 

$

177,708

 

Restricted cash included in other long-term assets

 

 

2,000

 

 

 

 

Cash, cash equivalents and restricted cash at end of period

 

$

144,583

 

 

$

177,708

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

100

 

 

$

106

 

Cash paid for income taxes

 

$

58

 

 

$

58

 

 

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Property and equipment purchased but not yet paid

 

$

10,319

 

 

$

5,855

 

 

See notes to unaudited condensed consolidated financial statements.

 

7


 

 

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

1.

Basis of presentation

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, 2021. 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, 2022 and December 31, 2021, and its results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021 have been included.

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 Company performed its most recent annual test of impairment as of July 1, 2021 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 2022.  

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.

2.

Earnings per share

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 per share are as follows: 

 

 

 

Three Months Ended

 

`

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,057

 

 

$

8,814

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — basic

 

 

65,847

 

 

 

65,269

 

Effect of stock options and restricted stock units

 

 

589

 

 

 

890

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — diluted

 

 

66,436

 

 

 

66,159

 

 

 

 

 

 

 

 

 

 

Earnings per share — basic

 

$

0.17

 

 

$

0.14

 

Earnings per share — diluted

 

$

0.17

 

 

$

0.13

 

 

8


 

 

3.

Accrued expenses

Accrued expenses at March 31, 2022 and December 31, 2021 were as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

Insurance

 

$

13,355

 

 

$

12,821

 

Payroll and employee benefits

 

 

6,525

 

 

 

13,533

 

Interest

 

 

5,726

 

 

 

1,460

 

Other

 

 

5,220

 

 

 

6,427

 

Income and other taxes

 

 

2,903

 

 

 

2,941

 

Contract reserves

 

 

220

 

 

 

444

 

Total accrued expenses

 

$

33,949

 

 

$

37,626

 

 

4.

Long-term debt

 

Credit agreement

As of March 31, 2022 and December 31, 2021, the Company had no borrowings outstanding under our $200,000 amended and restated revolving credit and security agreement (as amended, the “Amended Credit Agreement”). There were $21,527 and $25,127 of letters of credit outstanding and $178,146 and $174,546 of availability under the Amended Credit Agreement as of March 31, 2022 and December 31, 2021, respectively. The availability under the Amended Credit Agreement is suppressed by $327 as of March 31, 2022 and December 31, 2021, as a result of certain limitations set forth in the Amended Credit Agreement.

 

Senior Notes and subsidiary guarantors

In May 2021, the Company sold $325,000 of unsecured 5.25% Senior Notes (the “2029 Notes”) pursuant to a private offering.  The 2029 Notes were priced to investors at par and will mature on June 1, 2029.  The Company used the net proceeds from the offering, together with cash on hand, to redeem all $325,000 aggregate principal amount of its outstanding 8.000% Senior Notes due 2022 (the “8% Notes”).   

The Company’s obligations under these 2029 Notes are guaranteed by each of the Company’s existing and future 100% owned domestic subsidiaries that are co-borrowers or guarantors under the Amended Credit Agreement. 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.

5.

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.

9


 

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 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, 2022

 

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

 

Significant Other Observable Inputs (Level 2)

 

 

Significant Unobservable Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

$

8,971

 

 

$

-

 

 

$

8,971

 

 

$

-

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

At December 31, 2021

 

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

 

Significant Other Observable Inputs (Level 2)

 

 

Significant Unobservable Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

$

630

 

 

$

-

 

 

$

630

 

 

$

-

 

 

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 typical goal is to hedge approximately 80% of the eligible fuel requirements for work in domestic backlog.

As of March 31, 2022, the Company was party to various swap arrangements to hedge a portion of the price of its diesel fuel purchase requirements for work in its backlog to be performed through March 2023. As of March 31, 2022, there were 7.1 million gallons remaining on these contracts representing forecasted domestic fuel purchases through March 2023. Under these swap agreements, the Company will pay fixed prices ranging from $1.64 to $3.50 per gallon.

At March 31, 2022 and December 31, 2021, the fair value asset of the fuel hedge contracts were estimated to be $8,971 and $630, respectively, and are recorded in prepaid expenses and other current assets. For fuel hedge contracts considered to be highly effective, the gains reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the three months ended March 31, 2022 were $2,481. The remaining gains and losses included in accumulated other comprehensive loss at March 31, 2022 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, 2022 and December 31, 2021 is as follows:

 

 

 

 

 

Fair Value at

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

Balance Sheet Location

 

2022

 

 

2021

 

Asset derivatives:

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

Prepaid expenses and other current assets

 

$

8,971

 

 

$

630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

 

Accumulated other comprehensive income (loss)

Changes in the components of the accumulated balances of other comprehensive income (loss) are as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Derivatives:

 

 

 

 

 

 

 

 

Reclassification of derivative gains to earnings—net of tax

 

 

(2,481

)

 

 

(1,526

)

Change in fair value of derivatives—net of tax

 

 

8,716

 

 

 

3,412

 

Net change in cash flow derivative hedges—net of tax

 

$

6,235

 

 

$

1,886

 

 

 

 

 

 

 

 

 

 

Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

 

Statement of Operations Location

 

2022

 

 

2021

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Fuel hedge contracts

 

Costs of contract revenues

 

$

(3,319

)

 

$

(2,041

)

 

 

Income tax provision

 

 

(838

)

 

 

(515

)

 

 

 

 

$

(2,481

)

 

$

(1,526

)

 

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 2021, the Company sold $325,000 of the 2029 Notes, which were outstanding at March 31, 2022 (see Note 4, Long-term debt). The 2029 Notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the 2029 Notes. The fair value of the 2029 Notes was $