fn

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2019

or

 

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

For the transition period from              to             

 

Commission File Number: 1-7525

 

The Goldfield Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

88-0031580

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1684 W. Hibiscus Boulevard

Melbourne, Florida 32901

(Address of principal executive offices) (Zip Code)

 

(321) 724-1700

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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, a 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 (Do not check if a smaller reporting company)

 

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  

The number of shares of the Registrant’s Common Stock outstanding as of November 1, 2019 was 24,522,534.

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 $0.10 per share

 

GV

 

NYSE American

 

 

 


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

1

 

 

Item 1. Financial Statements (Unaudited).

1

 

 

Consolidated Balance Sheets

1

 

 

Consolidated Statements of Operations

2

 

 

Consolidated Statements of Cash Flows

3

 

 

Consolidated Statements of Stockholders’ Equity

4

 

 

Notes to Consolidated Financial Statements

5

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

17

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

30

 

 

Item 4. Controls and Procedures.

30

 

 

PART II. OTHER INFORMATION

31

 

 

Item 1. Legal Proceedings.

31

 

 

Item 1A. Risk Factors.

31

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

31

 

 

Item 3. Defaults Upon Senior Securities.

31

 

 

Item 4. Mine Safety Disclosures.

31

 

 

Item 5. Other Information.

31

 

 

Item 6. Exhibits.

32

 

 

SIGNATURES

33

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED).

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,619,343

 

 

$

11,376,373

 

Accounts receivable and accrued billings

 

 

23,168,109

 

 

 

22,236,071

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

13,188,343

 

 

 

12,030,000

 

Income taxes receivable

 

 

1,484,034

 

 

 

1,220,527

 

Residential properties under construction

 

 

1,405,876

 

 

 

8,244,995

 

Prepaid expenses

 

 

1,122,788

 

 

 

634,069

 

Other current assets

 

 

165,684

 

 

 

1,835,743

 

Total current assets

 

 

61,154,177

 

 

 

57,577,778

 

Property, buildings and equipment, at cost, net of accumulated depreciation of

$49,784,143 in 2019 and $43,060,083 in 2018

 

 

55,034,429

 

 

 

48,927,055

 

Deferred charges and other assets

 

 

 

 

 

 

 

 

Land and land development costs

 

 

4,985,078

 

 

 

4,680,080

 

Cash surrender value of life insurance

 

 

544,437

 

 

 

547,009

 

Restricted cash

 

 

 

 

 

25,980

 

Goodwill

 

 

101,407

 

 

 

101,407

 

Intangibles, net of accumulated amortization of $369,760 in 2019 and

   $324,634 in 2018

 

 

644,040

 

 

 

689,166

 

Operating lease right-of-use assets

 

 

5,831,810

 

 

 

 

Other assets

 

 

40,000

 

 

 

 

Total deferred charges and other assets

 

 

12,146,772

 

 

 

6,043,642

 

Total assets

 

$

128,335,378

 

 

$

112,548,475

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

16,144,324

 

 

$

15,999,157

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

936,314

 

 

 

1,165,002

 

Current portion of operating lease liability

 

 

2,158,058

 

 

 

 

Current portion of other long-term debt

 

 

 

 

 

113,855

 

Current portion of notes payable, net

 

 

7,615,041

 

 

 

7,161,890

 

Accrued remediation costs

 

 

70,528

 

 

 

60,101

 

Total current liabilities

 

 

26,924,265

 

 

 

24,500,005

 

Deferred income taxes

 

 

7,746,552

 

 

 

6,061,042

 

Accrued remediation costs, less current portion

 

 

404,036

 

 

 

436,982

 

Other long-term debt, less current portion, net

 

 

 

 

 

183,744

 

Notes payable, less current portion, net

 

 

26,360,490

 

 

 

21,731,024

 

Other accrued liabilities

 

 

3,695,143

 

 

 

30,246

 

Total liabilities

 

 

65,130,486

 

 

 

52,943,043

 

Commitments and contingencies (notes 4 and 6)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 5,000,000 shares authorized, none issued

 

 

 

 

 

 

 

 

Common stock, $.10 par value, 40,000,000 shares authorized; 27,813,772

   shares issued 24,522,534 shares outstanding in 2019 and 24,590,243

   shares outstanding in 2018

 

 

2,781,377

 

 

 

2,781,377

 

Additional paid-in capital

 

 

18,481,683

 

 

 

18,481,683

 

Retained earnings

 

 

45,381,936

 

 

 

41,621,191

 

Treasury stock, 3,291,238 shares in 2019 and 3,223,529 shares in 2018, at cost

 

 

(3,440,104

)

 

 

(3,278,819

)

Total stockholders’ equity

 

 

63,204,892

 

 

 

59,605,432

 

Total liabilities and stockholders’ equity

 

$

128,335,378

 

 

$

112,548,475

 

 

See accompanying notes to consolidated financial statements

1


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electrical construction

 

$

43,182,197

 

 

$

29,514,965

 

 

$

123,773,883

 

 

$

99,842,651

 

Real estate development

 

 

1,550,684

 

 

 

1,777

 

 

 

12,819,473

 

 

 

1,620,031

 

Total revenue

 

 

44,732,881

 

 

 

29,516,742

 

 

 

136,593,356

 

 

 

101,462,682

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electrical construction

 

 

36,789,515

 

 

 

26,122,915

 

 

 

105,597,926

 

 

 

82,192,792

 

Real estate development

 

 

1,031,373

 

 

 

1,956

 

 

 

9,360,449

 

 

 

1,009,061

 

Selling, general and administrative

 

 

2,162,360

 

 

 

1,444,983

 

 

 

7,033,244

 

 

 

5,673,506

 

Depreciation and amortization

 

 

2,728,988

 

 

 

2,141,684

 

 

 

8,048,549

 

 

 

6,031,426

 

Gain on sale of property and equipment

 

 

(45,504

)

 

 

(89,846

)

 

 

(77,571

)

 

 

(155,062

)

Total costs and expenses

 

 

42,666,732

 

 

 

29,621,692

 

 

 

129,962,597

 

 

 

94,751,723

 

Total operating income (loss)

 

 

2,066,149

 

 

 

(104,950

)

 

 

6,630,759

 

 

 

6,710,959

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

28,311

 

 

 

12,020

 

 

 

71,082

 

 

 

28,861

 

Interest expense, net of amount capitalized

 

 

(367,244

)

 

 

(205,203

)

 

 

(1,130,798

)

 

 

(602,502

)

Other income, net

 

 

27,199

 

 

 

23,128

 

 

 

91,736

 

 

 

60,495

 

Total other expense, net

 

 

(311,734

)

 

 

(170,055

)

 

 

(967,980

)

 

 

(513,146

)

Income before income taxes

 

 

1,754,415

 

 

 

(275,005

)

 

 

5,662,779

 

 

 

6,197,813

 

Income tax provision

 

 

592,413

 

 

 

(81,851

)

 

 

1,902,034

 

 

 

1,833,800

 

Net income (loss)

 

$

1,162,002

 

 

$

(193,154

)

 

$

3,760,745

 

 

$

4,364,013

 

Net income (loss) per share of common stock — basic and diluted

 

$

0.05

 

 

$

(0.01

)

 

$

0.15

 

 

$

0.17

 

Weighted average shares outstanding — basic and diluted

 

 

24,522,534

 

 

 

25,451,354

 

 

 

24,523,731

 

 

 

25,451,354

 

 

See accompanying notes to consolidated financial statements

2


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

3,760,745

 

 

$

4,364,013

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,048,549

 

 

 

6,031,426

 

Amortization of debt issuance costs

 

 

22,500

 

 

 

31,221

 

Deferred income taxes

 

 

1,685,510

 

 

 

988,787

 

Gain on sale of property and equipment

 

 

(77,571

)

 

 

(155,062

)

Other losses

 

 

2,572

 

 

 

2,319

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable and accrued billings

 

 

(932,038

)

 

 

3,927,406

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

(1,158,343

)

 

 

(8,929,638

)

Residential properties under construction

 

 

6,839,119

 

 

 

(4,392,107

)

Income taxes receivable

 

 

(263,507

)

 

 

(100,669

)

Prepaid expenses and other assets

 

 

1,141,340

 

 

 

348,553

 

Land and land development costs

 

 

(304,998

)

 

 

(763,139

)

Accounts payable and accrued liabilities

 

 

1,878,771

 

 

 

4,554,308

 

Operating leases

 

 

(18,609

)

 

 

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(228,688

)

 

 

163,144

 

Accrued remediation costs

 

 

(22,519

)

 

 

(23,458

)

Net cash provided by operating activities

 

 

20,372,833

 

 

 

6,047,104

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from disposal of property and equipment

 

 

399,817

 

 

 

943,336

 

Purchases of property, buildings and equipment

 

 

(16,156,893

)

 

 

(15,098,872

)

Net cash used in investing activities

 

 

(15,757,076

)

 

 

(14,155,536

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Purchases of treasury stock

 

 

(161,285

)

 

 

 

Proceeds from notes payable

 

 

15,500,000

 

 

 

13,275,451

 

Repayments on notes payable

 

 

(10,382,000

)

 

 

(10,115,451

)

Other long-term debt repayments

 

 

(297,599

)

 

 

(79,960

)

Debt issuance costs

 

 

(57,883

)

 

 

(23,313

)

Net cash provided by financing activities

 

 

4,601,233

 

 

 

3,056,727

 

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

 

 

9,216,990

 

 

 

(5,051,705

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

11,402,353

 

 

 

18,631,784

 

Cash, cash equivalents and restricted cash at end of the period

 

$

20,619,343

 

 

$

13,580,079

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

1,107,666

 

 

$

550,211

 

Income taxes paid, net

 

$

480,031

 

 

$

945,682

 

Supplemental disclosure of non-cash investing

 

 

 

 

 

 

 

 

Liability for equipment acquired

 

$

809,521

 

 

$

2,801,106

 

Equipment funded by other long-term debt

 

$

 

 

$

325,040

 

Right-of-use asset obtained in exchange for operating lease obligations

 

$

4,215,378

 

 

$

 

 

See accompanying notes to consolidated financial statements

3


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of June 30, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

44,219,934

 

 

$

(3,440,104

)

 

$

62,042,890

 

Net income

 

 

 

 

 

 

 

 

 

 

1,162,002

 

 

 

 

 

 

1,162,002

 

Balance as of September 30, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

45,381,936

 

 

$

(3,440,104

)

 

$

63,204,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of June 30, 2018

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

41,150,607

 

 

$

(1,308,187

)

 

$

61,105,480

 

Net loss

 

 

 

 

 

 

 

 

 

 

(193,154

)

 

 

 

 

 

(193,154

)

Balance as of September 30, 2018

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

40,957,453

 

 

$

(1,308,187

)

 

$

60,912,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of December 31, 2018

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

41,621,191

 

 

$

(3,278,819

)

 

$

59,605,432

 

Repurchase of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(161,285

)

 

 

(161,285

)

Net income

 

 

 

 

 

 

 

 

 

 

3,760,745

 

 

 

 

 

 

3,760,745

 

Balance as of September 30, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

45,381,936

 

 

$

(3,440,104

)

 

$

63,204,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of December 31, 2017

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

36,593,440

 

 

$

(1,308,187

)

 

$

56,548,313

 

Net income

 

 

 

 

 

 

 

 

 

 

4,364,013

 

 

 

 

 

 

4,364,013

 

Balance as of September 30, 2018

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

40,957,453

 

 

$

(1,308,187

)

 

$

60,912,326

 

 

See accompanying notes to consolidated financial statements

4


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 – Organization and Summary of Significant Accounting Policies

Overview

The Goldfield Corporation (the “Company”) was incorporated in Wyoming in 1906 and subsequently reincorporated in Delaware in 1968. The Company’s principal line of business is the construction of electrical infrastructure for the utility industry and industrial customers and to a lesser extent real estate development. The principal market for the Company’s electrical construction operation is primarily in the Southeast, mid-Atlantic and Texas-Southwest regions of the United States. The principal market for the Company’s real estate development operation is along the east coast of Central Florida.

Basis of Financial Statement Presentation

In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments necessary to present fairly the Company’s financial position, results of operations, and changes in cash flows for the interim periods reported. These adjustments are of a normal recurring nature. All financial statements presented herein are unaudited with the exception of the consolidated balance sheet as of December 31, 2018, which was derived from the audited consolidated financial statements. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year. These statements should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on customer specific information and historical write-off experience. The Company reviews its allowance for doubtful accounts quarterly. Account balances are charged off against the allowance after reasonable means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2019 and December 31, 2018, upon its review, management determined it was not necessary to record an allowance for doubtful accounts due to the majority of accounts receivable being generated by electrical utility customers whom the Company considers creditworthy based on timely collection history and other considerations.

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates. Management considers the most significant estimates in preparing these consolidated financial statements to be the estimated costs at completion of electrical construction contracts in progress.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable and accrued billings, restricted cash collateral deposited with insurance carriers, cash surrender value of life insurance policies, accounts payable and notes payable.

Fair value is the price that would be received to sell 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. The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value.

The three levels of inputs that may be used are:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Observable market based inputs or other observable inputs.

Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data. These values are generally determined using valuation models incorporating management’s estimates of market participant assumptions.

5


Table of Contents

 

Fair values of financial instruments are estimated through the use of public market prices, quotes from financial institutions, and other available information. Management considers the carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable and accrued billings, accounts payable and accrued liabilities, to approximate fair value due to the immediate or short-term maturity of these financial instruments. The Company has determined the  carrying value of cash surrender value of life insurance is considered by management to approximate fair value as the carrying value is based on the current settlement value under the contract, as provided by the carrier and as such, is classified as Level 2.

Land and Land Development Costs and Residential Properties Under Construction

The costs of a land purchase and any development expenses up to the initial construction phase of any residential property development project are recorded under the asset “land and land development costs.” Once construction commences, both the land development costs and construction costs are recorded under the asset “residential properties under construction.” The assets “land and land development costs” and “residential properties under construction” relating to specific projects are recorded as current assets when the estimated project completion date is less than one year from the date of the consolidated financial statements, or as non-current assets when the estimated project completion date is one year or more from the date of the consolidated financial statements.

In accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-lived Assets, land and residential properties under construction are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount or basis is not expected to be recovered, impairment losses are recorded and the related assets are adjusted to their estimated fair value. The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, other than in a forced or liquidation sale. The Company also complies with ASC 820, Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company did not record an impairment write-down to either of its land, land development costs or residential properties under construction carrying value for either of the three or nine months ended September 30, 2019 and 2018.

Restricted Cash

The Company’s restricted cash includes cash deposited in a secured interest bearing bank account, as required by the Collateral Trust Agreement in connection with the Company’s previous workers’ compensation insurance policy, as described in note 10 Restricted Cash. On September 12, 2019, the Company was reimbursed the cash deposited and classified as restricted cash. Therefore, as of September 30, 2019 the Company no longer holds restricted cash reported under “Deferred charges and other assets” on its consolidated balance sheet.

Goodwill and Intangible Assets

Intangible assets with finite useful lives recorded in connection with a historical acquisition are amortized over the term of the related contract or useful life, as applicable. Intangible assets held by the Company with finite useful lives include customer relationships and trademarks. The Company reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations annually or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. As of December 31, 2018, the Company assessed the recoverability of its long-lived assets and goodwill, by reviewing relevant events and circumstances to evaluate the qualitative factors in addition to the quantitative impairment test. As a result, there was no impairment of the carrying amounts of such assets.

Reclassifications

Certain amounts associated with deferred income tax assets allocated in each segment were reflected as of December 31, 2018 in the assets table within note 13 Business Segment Information and have been reclassified to conform to the total assets presentation as of September 30, 2019. This reclassification had no impact on the total assets reported as of December 31, 2018.

 

6


Table of Contents

 

Recent Accounting Pronouncements

In February 2016, Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updates (“ASU”) 2016-02, ASC  842 Leases to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. On January 1, 2019, the Company adopted the accounting pronouncement issued using the modified retrospective method. The Company elected the “package of practical expedients” permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company did not recognize right-of-use assets or lease liabilities, including not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company adopted this pronouncement utilizing the transition practical expedient added by the FASB, which eliminates the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption. The Company also elected the practical expedient to not separate lease and non-lease components. Expenses associated with leases will continue to be recognized in a manner similar to previous accounting guidance. The adoption of this accounting pronouncement resulted in the recognition of operating lease right-of-use assets and associated lease liabilities on our balance sheet of $4.3 million and $4.3 million, respectively, as of January 1, 2019. Additional required disclosures have been included within note 12 Leases. The adoption of this standard did not have an impact on the Company’s retained earnings, liquidity, results of operations or its compliance with its debt covenants. The Company modified existing controls and processes to support the adoption of the new lease accounting standard that the Company adopted as of January 1, 2019.

 

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 of the current goodwill impairment test. A goodwill impairment loss will instead be measured at the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the recorded amount of goodwill allocated to that reporting unit. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company is currently assessing the impact that adoption will have on its consolidated financial statements: however, the Company does not expect this ASU to have a significant impact on its consolidated financial statements.

Note 2 – Contract Assets and Contract Liabilities

On January 1, 2018 the Company adopted the new accounting standard ASC 606 and all the related amendments (“new revenue standard”) to all applicable contracts using the modified retrospective method. Applicable contracts did not include contracts considered substantially complete. Contracts that were modified before the beginning of the earliest period presented were not retrospectively restated. Instead, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price as of the date of adoption. Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows.

The following table presents the net contract assets and liabilities for the electrical construction operations as of the dates indicated:

 

 

 

September 30,

2019

 

 

December 31,

2018

 

 

$ Change

 

Contract assets (1)

 

$

13,188,343

 

 

$

12,030,000

 

 

$

1,158,343

 

Contract liabilities (2)

 

 

(1,265,783

)

 

 

(1,845,049

)

 

 

579,266

 

Net contract assets

 

$

11,922,560

 

 

$

10,184,951

 

 

$

1,737,609

 

______________________________________

 

 

 

 

 

 

 

 

 

 

 

 

(1) Contract assets are included under the caption “Costs and estimated earnings in excess of billings on uncompleted contracts.”

 

(2) Contract liabilities consist of the aggregate of amounts presented under the caption “Billings in excess of costs and estimated earnings on uncompleted contracts” and any contract loss accruals included in “Accounts payable and accrued liabilities.”

 

 

7


Table of Contents

 

The following table presents the changes in the net contract assets and liabilities for the electrical construction operations for the nine months ended September 30, 2019:

 

 

 

$ Change

Nine Months

Ended

September 30, 2019

 

Cumulative adjustment due to changes in contract values (1)

 

$

2,181,108

 

Cumulative adjustment due to changes in estimated costs at completion

 

 

(3,543,060

)

Revenue recognized in the period

 

 

95,269,782

 

Amounts reclassified to receivables

 

 

(92,520,798

)

Impairment of contract assets (2)

 

 

350,577

 

Total

 

$

1,737,609

 

______________________________________

 

 

 

 

(1) Amount attributable to contract modifications accounted for on a cumulative catch-up basis where the customer has approved a change in the scope or price of the contract, where the modification is treated as part of the existing contract and where the remaining goods and services are not distinct.

 

(2) Adjustment amount due to changes in contract losses.

 

 

For the nine months ended September 30, 2019, $1.0 million of the total revenue recognized in the current period was attributable to the contract liability billings in excess of costs and estimated earnings on uncompleted contracts’ balance as of December 31, 2018.

Note 3 – Income Taxes

The following table presents the provision for income tax and the effective tax rates from continuing operations for the three and nine months ended September 30 as indicated:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Income tax provision

 

$

592,413

 

 

$

(81,851

)

 

$

1,902,034

 

 

$

1,833,800

 

Effective income tax rate

 

 

33.8

%

 

 

(29.8

)%

 

 

33.6

%

 

 

29.6

%

 

The Company’s expected tax rate for the year ending December 31, 2019, which was calculated based on the estimated annual operating results for the year, is 33.6%. The expected tax rate differs from the federal statutory rate of 21% due to nondeductible expenses and state income taxes.

The Company’s effective tax rate for the three months ended September 30, 2019 was 33.8% and differs from the federal statutory rate of 21% due to nondeductible expenses and state income taxes. It is higher than our expected tax rate of 33.6% due to the adjustment of the prior year tax return to provision offset by a decrease of nondeductible expenses in relation to expected income from the prior quarter. The effective tax rate for the nine months ended September 30, 2019 was 33.6% and reflects the annual expected tax rate for 2019. The effective tax rates for the three and nine months ended September 30, 2018 were (29.8)% and 29.6%, respectively, which differed from the federal statutory rate of 21% due to nondeductible expenses and state income taxes. The increase in the 2019 expected tax rate when compared to 2018 is attributable to an increase in the 2019 estimated nondeductible expenses.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which establishes the recognition requirements. Deferred tax assets and liabilities are recognized for the future tax effects attributable to temporary differences and carryforwards between the financial statement carrying amounts of existing assets and liabilities and the 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. 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.

8


Table of Contents

 

As of September 30, 2019, the Company’s deferred tax liabilities are primarily comprised of tax depreciation in excess of book depreciation and are offset by deferred tax assets, largely comprised of federal net operating loss carryovers, state bonus depreciation carryovers, accrued vacation, inventory adjustments, accrued remediation costs and accrued workers’ compensation claims. The carrying amounts of deferred tax assets are reduced by a valuation allowance, if based on the available evidence, it is more likely than not such assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the deferred tax assets are expected to be recovered or settled. In the assessment for a valuation allowance, appropriate consideration is given to positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and tax planning alternatives. If the Company determines it will not be able to realize all or part of the deferred tax assets, a valuation allowance would be recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

Based on assumptions with respect to forecasts of future taxable income and tax planning, among others, the Company anticipates being able to generate sufficient taxable income to utilize the deferred tax assets. Therefore, the Company has not recorded a valuation allowance against deferred tax assets. The minimum amount of future taxable income required to be generated to fully realize the deferred tax assets as of September 30, 2019 is approximately $8.6 million.

The Company has gross unrecognized tax benefits of $4,000 and $5,000 as of September 30, 2019 and December 31, 2018, respectively. The Company believes that it is reasonably possible that the liability for unrecognized tax benefits related to certain state income tax matters may be settled within the next twelve months. The federal statute of limitation has expired for tax years prior to 2015 and relevant state statutes vary. The Company is currently not under any income tax audits or examinations and does not expect the assessment of any significant additional tax in excess of amounts provided.

The Company accrues interest and penalties related to unrecognized tax benefits as interest expense and other general and administrative expenses, respectively, and not as a component of income taxes.

Note 4 – Commitments and Contingencies Related to Discontinued Operations

Discontinued operations represent former mining activities, the last of which ended in 2002. Pursuant to an agreement with the United States Environmental Protection Agency (the “EPA”), the Company performed certain remediation actions at a property sold over fifty years ago. This remediation work was completed by September 30, 2015. The Company has established a contingency provision related to discontinued operations, which was $0.5 million as of both September 30, 2019 and December 31, 2018. No change to the provision was required for either of the three or nine months ended September 30, 2019 or 2018.

The remaining balance of the accrued remediation costs as of September 30, 2019 mainly represents estimated future charges for EPA response costs, monitoring of the property, and legal costs. The total costs to be incurred in future periods may vary from this estimate. The amounts recorded in the aforementioned contingency provision are not discounted. The provision will be reviewed periodically based upon facts and circumstances available at the time.

Note 5 – Notes Payable and Other Long-Term Debt

Notes Payable

The following table presents the balances of notes payable as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rates

 

Branch Banking and Trust Company

 

Maturity Date

 

September 30,

2019

 

 

December 31,

2018

 

 

September 30,

2019

 

 

December 31,

2018

 

Working Capital Loan

 

November 28, 2020

 

$

 

 

$

5,000,000

 

 

 

%

 

 

4.31

%

$38.2 Million Equipment Loan

 

March 9, 2024

 

 

34,038,000

 

 

 

23,920,000

 

 

 

3.84

%

 

 

4.31

%

$ 4.5 Million Equipment Loan

 

March 7, 2024

 

 

 

 

 

 

 

 

%

 

 

%

Total notes payable

 

 

 

 

34,038,000

 

 

 

28,920,000

 

 

 

 

 

 

 

 

 

Less unamortized debt issuance costs

 

 

 

 

62,469

 

 

 

27,086

 

 

 

 

 

 

 

 

 

Total notes payable, net

 

 

 

 

33,975,531

 

 

 

28,892,914

 

 

 

 

 

 

 

 

 

Less current portion of notes payable, net

 

 

 

 

7,615,041

 

 

 

7,161,890

 

 

 

 

 

 

 

 

 

Notes payable net, less current portion

 

 

 

$

26,360,490

 

 

$

21,731,024

 

 

 

 

 

 

 

 

 

 

9


Table of Contents

 

As of September 30, 2019, the Company, and the Company’s wholly owned subsidiaries Southeast Power Corporation (“Southeast Power”), Pineapple House of Brevard, Inc. (“Pineapple House”), Bayswater Development Corporation (“Bayswater”), Power Corporation of America (“PCA”), Precision Foundations, Inc. (“PFI”) and C and C Power Line, Inc. (“C&C”), collectively (the “Debtors,”) were parties to a Master Loan Agreement, dated May 24, 2018 (the “2018 Master Loan Agreement”), with Branch Banking and Trust Company (the “Bank”). On March 7, 2019, the Company, the Debtors and the Bank entered into a First Amendment to the 2018 Master Loan Agreement (the “Amendment”). The Amendment reflects new loans and modifications of loans, which are governed by the 2018 Master Loan Agreement and which were also entered into on March 7, 2019.

As of September 30, 2019, the Company had a promissory note and a series of related ancillary agreements with the Bank, under the 2018 Master Loan Agreement and the Amendment, providing for a revolving line of credit loan for a maximum principal amount of $18.0 million (the “Working Capital Loan”). Borrowings under the Working Capital Loan were $0.0 and $5.0 million, as of September 30, 2019 and December 31, 2018, respectively.

As a credit guarantor to the Bank, the Company is contingently liable for the guaranty of a subsidiary obligation under an irrevocable letter of credit related to workers’ compensation. The amount of this letter of credit was $0.6 million as of both September 30, 2019 and December 31, 2018.

On March 7, 2019, the Company, the Debtors and the Bank entered into a modification of the $27.49 Million Equipment Loan, increasing it to a $38.2 million equipment loan (as increased, the “$38.2 Million Equipment Loan”) and a new $4.5 million equipment promissory note (the “$4.5 Million Equipment Loan”).

Borrowings of $22.7 million, outstanding as of March 7, 2019, plus accrued interest under the $27.49 Million Equipment Loan continue under the $38.2 Million Equipment Loan. The $15.5 million balance remaining on the $38.2 Million Equipment Loan was drawn by the Company on March 8, 2019 for equipment purchases that were made on or after August 1, 2018. Borrowings under the $38.2 Million Equipment Loan were $34.0 million as of September 30, 2019 and borrowings under the $27.49 Million Equipment Loan (as predecessor to the $38.2 Million Equipment Loan) were $23.9 million as of December 31, 2018.

Under the documentation related to the $38.2 Million Equipment Loan, principal payments of $598,000 plus accrued interest commenced on March 9, 2019 and will continue monthly thereafter until and including the payment due on December 9, 2019. Thereafter, equal monthly principal payments of $650,000, plus accrued interest, will commence on January 9, 2020, and continue monthly thereafter until the March 9, 2024 maturity date.

Under the documentation related to the $4.5 Million Equipment Loan, borrowings will be made only for the purchase of equipment currently held by the Company under master lease agreements and will not exceed the cost of the lease buy-out. Interest only payments on any amounts drawn commenced on April 7, 2019, and will continue monthly through and including the payment due on March 7, 2020. Thereafter, principal payments on any amounts drawn of $93,750 plus accrued interest will commence on April 7, 2020, and continue monthly thereafter until and including the payment due on March 7, 2024. As of September 30, 2019, there were no borrowings under the $4.5 Million Equipment Loan.

As of September 30, 2019, all loan agreements between the Debtors and the Bank, under the 2018 Master Loan Agreement and the Amendment, are guaranteed by the Debtors and include the grant of a continuing security interest in all now owned and after acquired and wherever located personal property of the Debtors.

The Working Capital Loan, the $38.2 Million Equipment Loan and the $4.5 Million Equipment Loan each bear interest at a rate per annum equal to one month LIBOR (as defined in the documentation related to each loan) plus 1.80%, which will be adjusted monthly and subject to a maximum rate as described in the documentation related to each loan.

The Company’s debt arrangements contain various financial and other covenants including, but not limited to: minimum tangible net worth, maximum debt to tangible net worth ratio and fixed charge coverage ratio. Other loan covenants prohibit, among other things, a change in legal form of the Company, and entering into a merger or consolidation. The loans also have cross-default provisions whereby any default under any loans of the Company (or its subsidiaries) with the Bank, will constitute a default under all of the other loans of the Company (and its subsidiaries) with the Bank.

10


Table of Contents

 

Other Long-Term Debt

As of December 31, 2018, the Company had an equipment purchase loan agreement, maturing on June 14, 2021 for a specialty piece of equipment to be used in the Company’s electrical construction operations in the amount of $405,000 plus interest and sales tax. The agreement required monthly payments of $10,687 plus interest at a 5.85% fixed rate. On August 29, 2019, the Company paid the loan in full prior to its maturity.

Note 6 – Commitments and Contingencies

Performance Bonds

In certain circumstances, the Company is required to provide performance bonds to secure its contractual commitments. Management is not aware of any performance bonds issued for the Company that have ever been called by a customer. As of September 30, 2019, outstanding performance bonds issued on behalf of the Company’s electrical construction subsidiaries amounted to approximately $47.1 million.

Collective Bargaining Agreements

C&C, one of the Company’s electrical construction subsidiaries, is party to collective bargaining agreements with unions representing workers performing field construction operations. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements. The agreements require the subsidiary to pay specified wages, provide certain benefits to their respective union employees and contribute certain amounts to multi-employer pension plans and employee benefit trusts. The subsidiary’s multi-employer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on such subsidiary’s union employee payrolls, which cannot be determined for future periods because contributions depend on, among other things, the number of union employees that such subsidiary employs at any given time; the plans in which it may participate vary depending on the projects it has ongoing at any time; and the need for union resources in connection with those projects. If the subsidiary withdraws from, or otherwise terminates its participation in, one or more multi-employer pension plans, or if the plans were to otherwise become substantially underfunded, such subsidiary could be assessed liabilities for additional contributions related to the underfunding of these plans. The Company is not aware of any amounts of withdrawal liability that have been incurred as a result of a withdrawal by C&C from any multi-employer defined benefit pension plans.

Legal Proceedings

The Company is involved in various legal claims arising in the ordinary course of business. The Company has concluded that the ultimate disposition of these matters should not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

Note 7 – Income (Loss) Per Share of Common Stock

Basic income (loss) per common share is computed by dividing net income by the weighted average number of common stock shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if common stock equivalents, such as stock options outstanding, were exercised into common stock that subsequently shared in the earnings of the Company.

As of September 30, 2019 and 2018, the Company had no common stock equivalents. For both the three and nine months ended September 30, 2019 the computation of the weighted average number of common stock shares outstanding excludes 3,291,238 shares of Treasury Stock. For both the three and nine months ended September 30, 2018, the computation of the weighted average number of common stock shares outstanding excludes 2,362,418 shares of Treasury Stock.

Note 8 – ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures

On January 1, 2018, the Company adopted the new revenue standard ASC 606 and all the related amendments (“new revenue standard”). Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows. The Company concluded that the cumulative effect of initially applying the new revenue standard was immaterial and consequently did not record an adjustment to the opening balance of retained earnings.

11


Table of Contents

 

The Company’s significant accounting policies are detailed in “Note 1: Organization and Summary of Significant Accounting Policies” within Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Company’s accounting policies as a result of adopting the new revenue standard are discussed below.

To determine the proper revenue recognition method for contracts for electrical construction services, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of the contracts, the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability. Hence, the entire contract is accounted for as one performance obligation. However, less likely, if a contract is separated into more than one performance obligation, the Company allocates the total transaction price for each performance obligation in an amount based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company generally recognizes revenue over time as it performs because of continuous transfer of control to the customer. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The cost-to-cost measure of progress is generally used for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred.

Due to the nature of the work required to be performed on many of the performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. The Company estimates variable consideration at the most likely amount which the Company expects to receive. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of all information (historical, current and forecasted) that is reasonably available to the Company.

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

The Company has a standard and disciplined quarterly estimated costs at completion process in which management reviews the progress and execution of our performance obligations. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), and execution by our subcontractors, among other variables. Based on this analysis, any quarterly adjustments to net revenue, cost of electrical construction revenue and the related impact to operating income are recognized as necessary in the period they become known.

12


Table of Contents

 

The following table disaggregates the Company’s revenue for the three and nine months ended September 30 as indicated:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Electrical construction operations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast

 

$

17,127,019

 

 

$

13,893,392

 

 

$

51,956,218

 

 

$

41,718,479

 

mid-Atlantic

 

 

11,897,347

 

 

 

10,412,435

 

 

 

41,366,308

 

 

 

30,273,368

 

Texas-Southwest

 

 

13,038,099

 

 

 

3,124,521

 

 

 

28,461,784

 

 

 

23,614,488

 

Other electrical construction (2)

 

 

1,119,732

 

 

 

2,084,617

 

 

 

1,989,573

 

 

 

4,236,316