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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended June 30, 2020

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 August 3, 2020 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 JUNE 30, 2020

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

1

 

 

Item 1. Consolidated Financial Statements (Unaudited).

1

 

 

Consolidated Balance Sheets

1

 

 

Consolidated Statements of Income

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.

18

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

31

 

 

Item 4. Controls and Procedures.

31

 

 

PART II. OTHER INFORMATION

32

 

 

Item 1. Legal Proceedings.

32

 

 

Item 1A. Risk Factors.

32

 

 

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

32

 

 

Item 3. Defaults Upon Senior Securities.

32

 

 

Item 4. Mine Safety Disclosures.

32

 

 

Item 5. Other Information.

33

 

 

Item 6. Exhibits.

33

 

 

SIGNATURES

34

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,721,070

 

 

$

23,272,156

 

Accounts receivable and accrued billings

 

 

22,861,493

 

 

 

23,930,655

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

20,270,178

 

 

 

9,321,368

 

Income taxes receivable

 

 

1,301,063

 

 

 

1,482,618

 

Residential properties under construction

 

 

648,426

 

 

 

2,060,364

 

Prepaid expenses

 

 

1,738,133

 

 

 

924,733

 

Other current assets

 

 

416,943

 

 

 

46,186

 

Total current assets

 

 

74,957,306

 

 

 

61,038,080

 

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

   $57,189,335 in 2020 and $51,904,568 in 2019

 

 

58,616,447

 

 

 

55,073,579

 

Deferred charges and other assets

 

 

 

 

 

 

 

 

Land and land development costs

 

 

4,633,990

 

 

 

5,060,581

 

Cash surrender value of life insurance

 

 

541,425

 

 

 

543,433

 

Goodwill

 

 

101,407

 

 

 

101,407

 

Intangibles, net of accumulated amortization of $414,884 in 2020 and

  $384,801 in 2019

 

 

598,916

 

 

 

628,999

 

Operating lease right-of-use assets

 

 

16,716,244

 

 

 

6,861,099

 

Other assets

 

 

90,000

 

 

 

60,000

 

Total deferred charges and other assets

 

 

22,681,982

 

 

 

13,255,519

 

Total assets

 

$

156,255,735

 

 

$

129,367,178

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

15,561,056

 

 

$

13,881,277

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

689,393

 

 

 

731,492

 

Current portion of operating lease liability

 

 

3,367,470

 

 

 

1,880,957

 

Current portion of notes payable, net

 

 

8,894,368

 

 

 

7,769,497

 

Accrued remediation costs

 

 

78,295

 

 

 

75,545

 

Total current liabilities

 

 

28,590,582

 

 

 

24,338,768

 

Deferred income taxes

 

 

9,780,523

 

 

 

9,008,765

 

Accrued remediation costs, less current portion

 

 

392,265

 

 

 

398,877

 

Notes payable, less current portion, net

 

 

33,613,271

 

 

 

24,402,926

 

Other accrued liabilities

 

 

13,766,899

 

 

 

5,047,088

 

Total liabilities

 

 

86,143,540

 

 

 

63,196,424

 

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 2020 and in 2019

 

 

2,781,377

 

 

 

2,781,377

 

Additional paid-in capital

 

 

18,481,683

 

 

 

18,481,683

 

Retained earnings

 

 

52,289,239

 

 

 

48,347,798

 

Treasury stock, 3,291,238 shares in 2020 and in 2019, at cost

 

 

(3,440,104

)

 

 

(3,440,104

)

Total stockholders’ equity

 

 

70,112,195

 

 

 

66,170,754

 

Total liabilities and stockholders’ equity

 

$

156,255,735

 

 

$

129,367,178

 

 

See accompanying notes to consolidated financial statements

1


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electrical construction

 

$

46,672,618

 

 

$

39,204,368

 

 

$

89,738,010

 

 

$

80,591,687

 

Real estate development

 

 

1,111,547

 

 

 

5,175,851

 

 

 

2,885,663

 

 

 

11,268,788

 

Total revenue

 

 

47,784,165

 

 

 

44,380,219

 

 

 

92,623,673

 

 

 

91,860,475

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electrical construction

 

 

37,929,501

 

 

 

33,516,400

 

 

 

74,401,761

 

 

 

68,808,411

 

Real estate development

 

 

740,110

 

 

 

4,139,420

 

 

 

1,943,185

 

 

 

8,329,075

 

Selling, general and administrative

 

 

2,344,358

 

 

 

2,342,561

 

 

 

4,947,564

 

 

 

4,870,883

 

Depreciation and amortization

 

 

3,001,503

 

 

 

2,738,483

 

 

 

5,894,314

 

 

 

5,319,562

 

(Gain) loss on sale of property and equipment

 

 

(39,711

)

 

 

(6,216

)

 

 

28,747

 

 

 

(32,067

)

Total costs and expenses

 

 

43,975,761

 

 

 

42,730,648

 

 

 

87,215,571

 

 

 

87,295,864

 

Total operating income

 

 

3,808,404

 

 

 

1,649,571

 

 

 

5,408,102

 

 

 

4,564,611

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6,273

 

 

 

31,218

 

 

 

29,694

 

 

 

42,770

 

Interest expense, net of amount capitalized

 

 

(260,206

)

 

 

(411,562

)

 

 

(546,057

)

 

 

(763,553

)

Other income, net

 

 

46,211

 

 

 

32,252

 

 

 

83,004

 

 

 

64,536

 

Total other expense, net

 

 

(207,722

)

 

 

(348,092

)

 

 

(433,359

)

 

 

(656,247

)

Income before income taxes

 

 

3,600,682

 

 

 

1,301,479

 

 

 

4,974,743

 

 

 

3,908,364

 

Income tax provision

 

 

1,139,216

 

 

 

482,357

 

 

 

1,033,302

 

 

 

1,309,621

 

Net income

 

$

2,461,466

 

 

$

819,122

 

 

$

3,941,441

 

 

$

2,598,743

 

Net income per share of common stock — basic and diluted

 

$

0.10

 

 

$

0.03

 

 

$

0.16

 

 

$

0.11

 

Weighted average shares outstanding — basic and diluted

 

 

24,522,534

 

 

 

24,522,534

 

 

 

24,522,534

 

 

 

24,524,339

 

 

See accompanying notes to consolidated financial statements

2


Table of Contents

 

THE GOLDFIELD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

3,941,441

 

 

$

2,598,743

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,894,314

 

 

 

5,319,562

 

Amortization of debt issuance costs

 

 

16,466

 

 

 

14,698

 

Deferred income taxes

 

 

771,758

 

 

 

1,138,701

 

Loss (gain) on sale of property and equipment

 

 

28,747

 

 

 

(32,067

)

Other losses

 

 

2,008

 

 

 

1,724

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable and accrued billings

 

 

1,069,162

 

 

 

(243,815

)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

(10,948,810

)

 

 

(3,240,062

)

Residential properties under construction

 

 

1,411,938

 

 

 

7,671,759

 

Real estate inventory

 

 

(242,895

)

 

 

(1,026,968

)

Income taxes receivable

 

 

181,555

 

 

 

(234,111

)

Prepaid expenses and other assets

 

 

(971,262

)

 

 

(65,920

)

Land and land development costs

 

 

426,591

 

 

 

62,158

 

Accounts payable and accrued liabilities

 

 

1,112,413

 

 

 

(427,817

)

Operating leases

 

 

321,179

 

 

 

(49,726

)

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(42,099

)

 

 

71,495

 

Accrued remediation costs

 

 

(3,862

)

 

 

(15,541

)

Net cash provided by operating activities

 

 

2,968,644

 

 

 

11,542,813

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from disposal of property and equipment

 

 

146,760

 

 

 

253,789

 

Purchases of property, buildings and equipment

 

 

(8,985,240

)

 

 

(14,335,772

)

Net cash used in investing activities

 

 

(8,838,480

)

 

 

(14,081,983

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Purchases of treasury stock

 

 

 

 

 

(161,285

)

Proceeds from notes payable

 

 

14,500,000

 

 

 

15,500,000

 

Repayments on notes payable

 

 

(4,181,250

)

 

 

(8,588,000

)

Other long-term debt repayments

 

 

 

 

 

(56,097

)

Debt issuance costs

 

 

 

 

 

(57,883

)

Net cash provided by financing activities

 

 

10,318,750

 

 

 

6,636,735

 

Net increase in cash and cash equivalents

 

 

4,448,914

 

 

 

4,097,565

 

Cash and cash equivalents at beginning of the period

 

 

23,272,156

 

 

 

11,402,353

 

Cash and cash equivalents at end of the period

 

$

27,721,070

 

 

$

15,499,918

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

552,924

 

 

$

735,292

 

Income taxes paid, net

 

$

79,989

 

 

$

405,000

 

Supplemental disclosure of non-cash investing

 

 

 

 

 

 

 

 

Liability for equipment acquired

 

$

721,544

 

 

$

224,166

 

Equipment funded by other long-term debt

 

$

 

 

$

241,502

 

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

 

$

11,080,647

 

 

$

3,490,319

 

 

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 June 30, 2020

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of March 31, 2020

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

49,827,773

 

 

$

(3,440,104

)

 

$

67,650,729

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

2,461,466

 

 

 

 

 

 

 

2,461,466

 

Balance as of June 30, 2020

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

52,289,239

 

 

$

(3,440,104

)

 

$

70,112,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of March 31, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

43,400,812

 

 

$

(3,440,104

)

 

$

61,223,768

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

819,122

 

 

 

 

 

 

 

819,122

 

Balance as of June 30, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

44,219,934

 

 

$

(3,440,104

)

 

$

62,042,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders’

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

Balance as of December 31, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

48,347,798

 

 

$

(3,440,104

)

 

$

66,170,754

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

3,941,441

 

 

 

 

 

 

 

3,941,441

 

Balance as of June 30, 2020

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

52,289,239

 

 

$

(3,440,104

)

 

$

70,112,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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

 

 

 

 

 

 

 

 

 

 

 

 

 

2,598,743

 

 

 

 

 

 

 

2,598,743

 

Balance as of June 30, 2019

 

27,813,772

 

 

$

2,781,377

 

 

$

18,481,683

 

 

$

44,219,934

 

 

$

(3,440,104

)

 

$

62,042,890

 

 

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. The Company is also engaged in real estate development operations. 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 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 consolidated financial statements presented herein are unaudited with the exception of the consolidated balance sheet as of December 31, 2019, 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, 2019.

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 June 30, 2020 and December 31, 2019, 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, 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.

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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’s carrying value of long-term notes payable are estimated by management to approximate fair value since the interest rates prescribed by Truist Bank are variable market interest rates and are adjusted periodically, and as such, are classified as Level 2. 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 its land, land development costs or residential properties under construction carrying value for either of the three or six months ended June 30, 2020 and 2019.

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, 2019, 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. There were no events or changes in circumstances as of June 30, 2020 that would indicate that the carrying amounts may not be recoverable.

Reclassifications

Certain amounts associated with operating leases previously presented under the caption “Right-of-use asset amortization” on the Consolidated Statement of Cash Flows have been reclassified to “Operating leases” to conform to the change in the operating leases presentation on the Consolidated Statement of Cash Flows. This reclassification had no impact on the total amount of cash from operating activities for the six months ended June 30, 2019.

 

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Table of Contents

 

Recent Accounting Pronouncements

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 adopted ASU 2017-04 on January 1, 2020 and the adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.

In June 2016 the FASB issued ASU-2016-13, Financial Instruments – Credit Losses. This update required immediate recognition of management’s estimates of current expected credit losses. This update was effective for the Company in the first quarter of 2020. The adoption of ASU 2016-13 did not have a significant impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU-2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, which will be effective for the Company in fiscal year 2021. This update simplifies the accounting for interim period tax law changes and loss limitations, ownership changes in equity investments, intraperiod tax allocations and the step up of tax basis in goodwill that is not acquired during a business combination. ASU-2019-12 will be adopted in 2021 and is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of interbank offered rates including the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable and less susceptible to manipulation. The provisions of this ASU are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts and other contracts that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This ASU, among other things, provides optional expedients and exceptions to applying certain U.S. generally accepted accounting principles requirements in order to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this accounting guidance.

COVID-19

The Company did not incur significant disruptions to its operations during the six months ended June 30, 2020 from COVID-19. At this time, the Company is unable to predict the impact that COVID-19 will have on its consolidated financial statements in future periods due to numerous uncertainties. The Company is closely monitoring its efforts to manage the impact of the pandemic on all aspects of the Company’s business and consolidated financial statements. Please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A. Risk Factors for additional Risk Factors added by the Company regarding COVID-19.

 

Note 2 – Contract Assets and Contract Liabilities

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

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

$ Change

 

Contract assets (1)

 

$

20,270,178

 

 

$

9,321,368

 

 

$

10,948,810

 

Contract liabilities (2)

 

 

(784,741

)

 

 

(1,008,679

)

 

 

223,938

 

Net contract assets

 

$

19,485,437

 

 

$

8,312,689

 

 

$

11,172,748

 

______________________________________

 

 

 

 

 

 

 

 

 

 

 

 

(1) Contract assets consist of amounts 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.”

 

 

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Table of Contents

 

The following table presents the changes in the net contract assets and liabilities for the electrical construction operations for the six months ended June 30, 2020:

 

 

 

$ Change

 

Cumulative adjustment due to changes in contract values (1)

 

$

1,444,985

 

Cumulative adjustment due to changes in estimated costs at completion

 

 

(858,676

)

Revenue recognized in the period

 

 

72,882,569

 

Amounts reclassified to receivables

 

 

(62,477,969

)

Impairment of contract assets (2)

 

 

181,839

 

Total

 

$

11,172,748

 

______________________________________

 

 

 

 

(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 six months ended June 30, 2020, $0.4 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, 2019.

Note 3 – Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted as a response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes modifications for net operating loss carrybacks and carryforwards, limitations of business interest expense for tax, immediate refund of alternative minimum tax credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017 for qualified improvement property. Specifically, the CARES Act allows corporate taxpayers to carryback net operating losses originating during 2018 through 2020 for up to five years when the maximum tax rate was 35%. The enactment of the CARES Act has resulted in a material benefit to the Company’s income tax provision for the six months ended June 30, 2020.

The ultimate impact of the CARES Act may differ from this estimate due to changes in interpretations and assumptions, guidance that may be issued and actions the Company may take in response to the CARES Act. The Company will continue to assess the impact that various provisions will have on its business.

The following table presents the provision for income tax and the effective tax rates from continuing operations for the dates as indicated:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Income tax provision

 

$

1,139,216

 

 

$

482,357

 

 

$

1,033,302

 

 

$

1,309,621

 

Effective income tax rate

 

 

31.6

%

 

 

37.1

%

 

 

20.8

%

 

 

33.5

%

 

Prior to the enactment of the CARES Act, the Company’s expected tax rate for the year ending December 31, 2020, which was calculated based on the estimated annual operating results for the year, was 31.1%. However, due to the favorable impact of discrete items of 6.5%, the majority of which are related to the CARES Act, the resulting expected annual rate is