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, 2017
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission File Number:
1-7525The 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 ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒x No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 | ☐ | 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 ☒x
The number of shares of the Registrant’s Common Stock outstanding as of November 2, 2017
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 |
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017
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PART I. FINANCIALFINANCIAL INFORMATION
THE GOLDFIELD CORPORATION AND SUBSIDIARIES
(UNAUDITED)
|
| March 31, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 26,975,770 |
|
| $ | 23,272,156 |
|
Accounts receivable and accrued billings |
|
| 21,844,254 |
|
|
| 23,930,655 |
|
Real estate inventory |
|
| 983,380 |
|
|
| — |
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 19,841,766 |
|
|
| 9,321,368 |
|
Income taxes receivable |
|
| 2,319,659 |
|
|
| 1,482,618 |
|
Residential properties under construction |
|
| 61,900 |
|
|
| 2,060,364 |
|
Prepaid expenses |
|
| 1,924,210 |
|
|
| 924,733 |
|
Other current assets |
|
| 221,632 |
|
|
| 46,186 |
|
Total current assets |
|
| 74,172,571 |
|
|
| 61,038,080 |
|
Property, buildings and equipment, at cost, net of accumulated depreciation of $54,491,653 in 2020 and $51,904,568 in 2019 |
|
| 58,069,461 |
|
|
| 55,073,579 |
|
Deferred charges and other assets |
|
|
|
|
|
|
|
|
Land and land development costs |
|
| 5,099,126 |
|
|
| 5,060,581 |
|
Cash surrender value of life insurance |
|
| 542,429 |
|
|
| 543,433 |
|
Goodwill |
|
| 101,407 |
|
|
| 101,407 |
|
Intangibles, net of accumulated amortization of $399,843 in 2020 and $384,801 in 2019 |
|
| 613,957 |
|
|
| 628,999 |
|
Operating lease right-of-use assets |
|
| 10,532,835 |
|
|
| 6,861,099 |
|
Other assets |
|
| 50,000 |
|
|
| 60,000 |
|
Total deferred charges and other assets |
|
| 16,939,754 |
|
|
| 13,255,519 |
|
Total assets |
| $ | 149,181,786 |
|
| $ | 129,367,178 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 15,155,454 |
|
| $ | 13,881,277 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| 672,416 |
|
|
| 731,492 |
|
Current portion of operating lease liability |
|
| 2,210,264 |
|
|
| 1,880,957 |
|
Current portion of notes payable, net |
|
| 8,895,427 |
|
|
| 7,769,497 |
|
Accrued remediation costs |
|
| 78,045 |
|
|
| 75,545 |
|
Total current liabilities |
|
| 27,011,606 |
|
|
| 24,338,768 |
|
Deferred income taxes |
|
| 9,813,889 |
|
|
| 9,008,765 |
|
Accrued remediation costs, less current portion |
|
| 395,964 |
|
|
| 398,877 |
|
Notes payable, less current portion, net |
|
| 35,834,901 |
|
|
| 24,402,926 |
|
Other accrued liabilities |
|
| 8,474,697 |
|
|
| 5,047,088 |
|
Total liabilities |
|
| 81,531,057 |
|
|
| 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 |
|
| 49,827,773 |
|
|
| 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 |
|
| 67,650,729 |
|
|
| 66,170,754 |
|
Total liabilities and stockholders’ equity |
| $ | 149,181,786 |
|
| $ | 129,367,178 |
|
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 20,431,327 | $ | 20,599,648 | |||
Accounts receivable and accrued billings | 18,406,579 | 19,094,407 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 7,317,033 | 7,313,099 | |||||
Income taxes receivable | 1,552,590 | 533,837 | |||||
Residential properties under construction | 2,716,566 | 1,552,131 | |||||
Prepaid expenses | 1,296,655 | 1,037,715 | |||||
Other current assets | 1,158,160 | 1,298,044 | |||||
Total current assets | 52,878,910 | 51,428,881 | |||||
Property, buildings and equipment, at cost, net of accumulated depreciation of $37,480,172 in 2017 and $33,140,214 in 2016 | 37,203,801 | 33,245,947 | |||||
Deferred charges and other assets | |||||||
Land and land development costs | 4,429,394 | 4,930,331 | |||||
Cash surrender value of life insurance | 550,280 | 550,672 | |||||
Restricted cash | 102,011 | 173,041 | |||||
Goodwill | 101,407 | 101,407 | |||||
Intangibles, net of accumulated amortization of $247,759 in 2017 and $201,634 in 2016 | 766,041 | 812,166 | |||||
Other assets | 466,096 | 59,712 | |||||
Total deferred charges and other assets | 6,415,229 | 6,627,329 | |||||
Total assets | $ | 96,497,940 | $ | 91,302,157 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | $ | 9,044,016 | $ | 11,386,119 | |||
Billings in excess of costs and estimated earnings on uncompleted contracts | 152,302 | 845,057 | |||||
Current portion of notes payable, net | 6,098,675 | 6,101,855 | |||||
Accrued remediation costs | 120,770 | 102,526 | |||||
Total current liabilities | 15,415,763 | 18,435,557 | |||||
Deferred income taxes | 7,802,301 | 8,204,324 | |||||
Accrued remediation costs, less current portion | 206,375 | 112,380 | |||||
Notes payable, less current portion, net | 18,876,921 | 16,231,373 | |||||
Other accrued liabilities | 919,985 | 67,961 | |||||
Total liabilities | 43,221,345 | 43,051,595 | |||||
Commitments and contingencies (notes 3 and 5) | — | — | |||||
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 and 25,451,354 shares outstanding | 2,781,377 | 2,781,377 | |||||
Additional paid-in capital | 18,481,683 | 18,481,683 | |||||
Retained earnings | 33,321,722 | 28,295,689 | |||||
Treasury stock, 2,362,418 shares, at cost | (1,308,187 | ) | (1,308,187 | ) | |||
Total stockholders’ equity | 53,276,595 | 48,250,562 | |||||
Total liabilities and stockholders’ equity | $ | 96,497,940 | $ | 91,302,157 |
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(UNAUDITED)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenue |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 43,065,392 |
|
| $ | 41,387,318 |
|
Real estate development |
|
| 1,774,116 |
|
|
| 6,092,938 |
|
Total revenue |
|
| 44,839,508 |
|
|
| 47,480,256 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
Electrical construction |
|
| 36,472,260 |
|
|
| 35,292,012 |
|
Real estate development |
|
| 1,203,075 |
|
|
| 4,189,654 |
|
Selling, general and administrative |
|
| 2,603,208 |
|
|
| 2,528,321 |
|
Depreciation and amortization |
|
| 2,892,812 |
|
|
| 2,581,079 |
|
Loss (gain) on sale of property and equipment |
|
| 68,457 |
|
|
| (25,851 | ) |
Total costs and expenses |
|
| 43,239,812 |
|
|
| 44,565,215 |
|
Total operating income |
|
| 1,599,696 |
|
|
| 2,915,041 |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
Interest income |
|
| 23,421 |
|
|
| 11,552 |
|
Interest expense, net of amount capitalized |
|
| (285,849 | ) |
|
| (351,992 | ) |
Other income, net |
|
| 36,793 |
|
|
| 32,284 |
|
Total other expense, net |
|
| (225,635 | ) |
|
| (308,156 | ) |
Income before income taxes |
|
| 1,374,061 |
|
|
| 2,606,885 |
|
Income tax provision |
|
| (105,914 | ) |
|
| 827,264 |
|
Net income |
| $ | 1,479,975 |
|
| $ | 1,779,621 |
|
Net income per share of common stock — basic and diluted |
| $ | 0.06 |
|
| $ | 0.07 |
|
Weighted average shares outstanding — basic and diluted |
|
| 24,522,534 |
|
|
| 24,526,165 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | |||||||||||||||
Electrical construction | $ | 23,616,373 | $ | 29,653,625 | $ | 81,869,487 | $ | 95,385,820 | |||||||
Other | 890,842 | 1,000,538 | 2,471,473 | 3,283,799 | |||||||||||
Total revenue | 24,507,215 | 30,654,163 | 84,340,960 | 98,669,619 | |||||||||||
Costs and expenses | |||||||||||||||
Electrical construction | 20,299,375 | 23,161,561 | 63,718,948 | 70,096,028 | |||||||||||
Other | 600,597 | 663,320 | 1,691,601 | 2,298,227 | |||||||||||
Selling, general and administrative | 1,625,027 | 1,532,689 | 4,959,782 | 4,607,106 | |||||||||||
Depreciation and amortization | 1,824,875 | 1,590,233 | 5,386,364 | 4,672,078 | |||||||||||
Loss (gain) on sale of property and equipment | 18,594 | (19,056 | ) | 30,158 | (914 | ) | |||||||||
Total costs and expenses | 24,368,468 | 26,928,747 | 75,786,853 | 81,672,525 | |||||||||||
Total operating income | 138,747 | 3,725,416 | 8,554,107 | 16,997,094 | |||||||||||
Other income (expense), net | |||||||||||||||
Interest income | 10,320 | 10,009 | 23,509 | 25,369 | |||||||||||
Interest expense, net of amount capitalized | (202,054 | ) | (146,022 | ) | (474,512 | ) | (457,313 | ) | |||||||
Other income, net | 14,810 | 12,903 | 45,277 | 42,363 | |||||||||||
Total other expense, net | (176,924 | ) | (123,110 | ) | (405,726 | ) | (389,581 | ) | |||||||
(Loss) income from continuing operations before income taxes | (38,177 | ) | 3,602,306 | 8,148,381 | 16,607,513 | ||||||||||
Income tax provision | 15,345 | 1,298,420 | 3,018,861 | 6,089,367 | |||||||||||
(Loss) income from continuing operations | (53,522 | ) | 2,303,886 | 5,129,520 | 10,518,146 | ||||||||||
Loss from discontinued operations, net of income tax benefit of $61,556, $0, $61,556 and $66,077, respectively | (103,487 | ) | — | (103,487 | ) | (108,007 | ) | ||||||||
Net (loss) income | $ | (157,009 | ) | $ | 2,303,886 | $ | 5,026,033 | $ | 10,410,139 | ||||||
Net (loss) income per share of common stock — basic and diluted | |||||||||||||||
Continuing operations | $ | — | $ | 0.09 | $ | 0.20 | $ | 0.41 | |||||||
Discontinued operations | — | — | — | — | |||||||||||
Net (loss) income | $ | (0.01 | ) | $ | 0.09 | $ | 0.20 | $ | 0.41 | ||||||
Weighted average shares outstanding — basic and diluted | 25,451,354 | 25,451,354 | 25,451,354 | 25,451,354 |
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 1,479,975 |
|
| $ | 1,779,621 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 2,892,812 |
|
|
| 2,581,079 |
|
Amortization of debt issuance costs |
|
| 7,905 |
|
|
| 6,741 |
|
Deferred income taxes |
|
| 805,124 |
|
|
| 676,182 |
|
Loss (gain) on sale of property and equipment |
|
| 68,457 |
|
|
| (25,851 | ) |
Other losses |
|
| 1,004 |
|
|
| 875 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable and accrued billings |
|
| 2,086,401 |
|
|
| (4,919,444 | ) |
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| (10,520,398 | ) |
|
| (2,186,479 | ) |
Residential properties under construction |
|
| 1,998,464 |
|
|
| 8,041,920 |
|
Real estate inventory |
|
| (983,380 | ) |
|
| (5,137,139 | ) |
Income taxes receivable |
|
| (837,041 | ) |
|
| 151,082 |
|
Prepaid expenses and other assets |
|
| (1,164,923 | ) |
|
| (4,280,488 | ) |
Land and land development costs |
|
| (38,545 | ) |
|
| 118,338 |
|
Accounts payable and accrued liabilities |
|
| 242,750 |
|
|
| 5,755,489 |
|
Operating leases |
|
| 95,180 |
|
|
| (3,057 | ) |
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| (59,076 | ) |
|
| (73,282 | ) |
Accrued remediation costs |
|
| (413 | ) |
|
| (10,492 | ) |
Net cash (used in) provided by operating activities |
|
| (3,925,704 | ) |
|
| 2,475,095 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from disposal of property and equipment |
|
| 101,260 |
|
|
| 93,364 |
|
Purchases of property, buildings and equipment |
|
| (5,021,942 | ) |
|
| (12,366,181 | ) |
Net cash used in investing activities |
|
| (4,920,682 | ) |
|
| (12,272,817 | ) |
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 |
|
| (1,950,000 | ) |
|
| (1,794,000 | ) |
Other long-term debt repayments |
|
| — |
|
|
| (27,844 | ) |
Debt issuance costs |
|
| — |
|
| �� | (57,883 | ) |
Net cash provided by financing activities |
|
| 12,550,000 |
|
|
| 13,458,988 |
|
Net increase in cash and cash equivalents |
|
| 3,703,614 |
|
|
| 3,661,266 |
|
Cash and cash equivalents at beginning of the period |
|
| 23,272,156 |
|
|
| 11,402,353 |
|
Cash and cash equivalents at end of the period |
| $ | 26,975,770 |
|
| $ | 15,063,619 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
| $ | 278,799 |
|
| $ | 307,113 |
|
Supplemental disclosure of non-cash investing |
|
|
|
|
|
|
|
|
Liability for equipment acquired |
| $ | 1,145,605 |
|
| $ | 192,505 |
|
Equipment funded by other long-term debt |
| $ | — |
|
| $ | 269,755 |
|
Right-of-use asset obtained in exchange for operating lease obligations |
| $ | 4,476,843 |
|
| $ | — |
|
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 5,026,033 | $ | 10,410,139 | |||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||
Depreciation and amortization | 5,386,364 | 4,672,078 | |||||
Amortization of debt issuance costs | 17,748 | 17,498 | |||||
Deferred income taxes | (402,023 | ) | (7,787 | ) | |||
Loss (gain) on sale of property and equipment | 30,158 | (914 | ) | ||||
Other losses (gains) | 392 | (908 | ) | ||||
Changes in operating assets and liabilities | |||||||
Accounts receivable and accrued billings | 687,828 | (1,297,006 | ) | ||||
Costs and estimated earnings in excess of billings on uncompleted contracts | (3,934 | ) | (1,752,507 | ) | |||
Residential properties under construction | (1,164,435 | ) | (2,622,924 | ) | |||
Income taxes receivable | (1,018,753 | ) | (639,379 | ) | |||
Prepaid expenses and other assets | (525,440 | ) | 287,611 | ||||
Land and land development costs | 500,937 | (67,796 | ) | ||||
Restricted cash | 71,030 | 134,069 | |||||
Income taxes payable | — | (483,763 | ) | ||||
Accounts payable and accrued liabilities | (1,413,997 | ) | 1,658,621 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (692,755 | ) | 38,126 | ||||
Accrued remediation costs | 112,239 | (7,706 | ) | ||||
Net cash provided by operating activities | 6,611,392 | 10,337,452 | |||||
Cash flows from investing activities | |||||||
Proceeds from disposal of property and equipment | 128,423 | 91,571 | |||||
Proceeds from notes receivable | — | 56,048 | |||||
Purchases of property, buildings and equipment | (9,532,756 | ) | (2,913,230 | ) | |||
Net cash used in investing activities | (9,404,333 | ) | (2,765,611 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from notes payable | 22,600,000 | 3,950,000 | |||||
Repayments on notes payable | (19,967,255 | ) | (6,076,742 | ) | |||
Debt issuance costs | (8,125 | ) | (3,350 | ) | |||
Net cash provided by (used in) financing activities | 2,624,620 | (2,130,092 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (168,321 | ) | 5,441,749 | ||||
Cash and cash equivalents at beginning of period | 20,599,648 | 11,374,238 | |||||
Cash and cash equivalents at end of period | $ | 20,431,327 | $ | 16,815,987 | |||
Supplemental disclosure of cash flow information | |||||||
Interest paid, net of amounts capitalized | $ | 438,000 | $ | 419,330 | |||
Income taxes paid, net | $ | 4,378,081 | $ | 7,154,219 | |||
Supplemental disclosure of non-cash investing | |||||||
Liability for equipment acquired | $ | 89,621 | $ | 54,084 |
See accompanying notes to consolidated financial statements
3
THE GOLDFIELD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,479,975 |
|
|
|
|
|
|
| 1,479,975 |
|
Balance as of March 31, 2020 |
| 27,813,772 |
|
| $ | 2,781,377 |
|
| $ | 18,481,683 |
|
| $ | 49,827,773 |
|
| $ | (3,440,104 | ) |
| $ | 67,650,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,779,621 |
|
|
|
|
|
|
| 1,779,621 |
|
Balance as of March 31, 2019 |
| 27,813,772 |
|
| $ | 2,781,377 |
|
| $ | 18,481,683 |
|
| $ | 43,400,812 |
|
| $ | (3,440,104 | ) |
| $ | 61,223,768 |
|
See accompanying notes to consolidated financial statements
4
(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.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 mid-AtlanticTexas-Southwest regions of the United States and Texas.
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, 2016,2019, 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, 2016.
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
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 (“GAAP”).principles. Actual results could differ from those estimates. Management considers the most significant estimates in preparing these consolidated financial statements to be the estimated cost to completecosts at completion of electrical construction contracts in progress, the adequacy of the accrued remediation costs and the realizability of deferred tax assets.
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, and other current liabilities.
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
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 Branch
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”) Topic 360-10,
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, 2016,2019, the Company assessed the recoverability of its long-lived assets and goodwill, by reviewing relevant events and believed that there were no events or circumstances present that would require a test of recoverability on those assets.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 corporate costs are not allocated to the electrical construction segment.
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.
6
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 currently assessingnot 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.
COVID-19
The Company did not incur significant disruptions to its operations during the first quarter of 2020 from COVID-19. At this time, the Company is unable to predict the impact that adoptionCOVID-19 will have on its consolidated financial statements however,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 1A. Risk Factors for an additional Risk Factor added by the Company doesregarding COVID-19.
Note 2 – Contract Assets and Contract Liabilities
On January 1, 2018 the Company adopted the accounting standard ASC 606 and all the related amendments (the “revenue standard”) to all applicable contracts using the modified retrospective method. Applicable contracts did not expectinclude 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 ASUstandard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a significantmaterial impact on its consolidated financial statements or disclosures.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:
| March 31, 2020 |
|
| December 31, 2019 |
|
| $ Change |
| ||||
Contract assets (1) |
| $ | 19,841,766 |
|
| $ | 9,321,368 |
|
| $ | 10,520,398 |
|
Contract liabilities (2) |
|
| (1,288,535 | ) |
|
| (1,008,679 | ) |
|
| (279,856 | ) |
Net contract assets |
| $ | 18,553,231 |
|
| $ | 8,312,689 |
|
| $ | 10,240,542 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
(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.” |
|
The following table presents the changes in the net contract assets and liabilities for the electrical construction operations for the three months ended March 31, 2020:
|
| $ Change |
| |
| $ | 1,009,673 |
| |
Cumulative adjustment due to changes in estimated costs at completion |
|
| (515,157 | ) |
Revenue recognized in the period |
|
| 33,822,038 |
|
Amounts reclassified to receivables |
|
| (23,737,080 | ) |
Impairment of contract assets (2) |
|
| (338,932 | ) |
Total |
| $ | 10,240,542 |
|
|
|
|
| |
(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 three months ended March 31, 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.
7
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 three months ended March 31, 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 three and nine month periods ended September 30dates as indicated:
| Three Months Ended March 31, |
| |||||
2020 |
|
| 2019 |
| |||
Income tax provision | $ | (105,914 | ) |
| $ | 827,264 |
|
Effective income tax rate |
| (7.7 | )% |
|
| 31.7 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income tax provision | $ | 15,345 | $ | 1,298,420 | $ | 3,018,861 | $ | 6,089,367 | |||||||
Effective income tax rate | 40.2 | % | 36.0 | % | 37.0 | % | 36.7 | % |
Prior to the enactment of the CARES Act, the Company’s expected tax rate for the year ending December 31, 2017,2020, which was calculated based on the estimated annual operating results for the year, was 29.6%. However, due to the favorable impact of discrete items of 4.8%, the majority of which are related to the CARES Act, the resulting expected annual rate is 37.0%24.8%. The expected tax rate differs from the federal statutory rate of 34%21% due to nondeductible expenses and state income taxes, and nondeductible expenses offset by the domestic production activities deduction (“DPAD”).
The Company’s effective tax rate for the three and nine months ended September 30, 2017March 31, 2020 was 40.2%(7.7)% and 37.0%, respectively. differs from the federal statutory rate of 21% due to nondeductible expenses and state income taxes offset by the full impact of discrete items totaling $513,000 recorded in the first quarter of 2020. The discrete items were recorded in connection with the net operating loss carryback provisions of the CARES Act and to a lesser extent a state mandated income tax refund. The effective tax rate is lower than the expected annual tax rate of 24.8% due to the full impact of discrete items reported in the first quarter of 2020 which will reduce over the year. The effective tax rate for the three months ended September 30, 2017 differs from the statutory rate of 34% due to state income taxes and nondeductible expenses offset by a reduced DPAD. The cumulative reduction in the DPAD resulted in tax expense despite an operating loss for the quarter. The effective tax rate for the nine months ended September 30, 2017 reflects the annual expected tax rate for 2017. The effective tax rate for the three and nine months ended September 30, 2016 were 36.0% and 36.7%,March 31, 2019 was 31.7% which differsdiffered from the federal statutory rate of 35%21% due to nondeductible expenses and state income taxes andtaxes. The decrease in the 2020 expected tax rate when compared to 2019 is attributable to a decrease in the 2020 estimated nondeductible expenses offset byand the DPAD.
The Company accounts for income taxes in accordance with ASU No 2015-17, ourASC 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 consolidated 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 are netted and reported asof a non-current deferredchange in tax liability onrates is recognized in income in the balance sheet. Our non-currentperiod that includes the enactment date.
As of March 31, 2020, the Company’s deferred tax liabilities are primarily comprised of tax depreciation in excess of book depreciation and are offset by our deferred tax assets, largely comprised of state bonus depreciation carryovers, accrued vacation, accrued payables, accrued workers’ compensation claims, inventory adjustments, accrued remediation costs and capitalized acquisition costs.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 the duration of statutory carryforward periods, experience with loss carryforwards expiring unused, 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, 2017March 31, 2020 is approximately $2.8$3.1 million.
The Company has gross unrecognized tax benefits of $5,000$4,000 as of both September 30, 2017March 31, 2020 and December 31, 2016.2019. 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 20132015 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.
8
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.
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 $327,000 and $215,000,$0.5 million as of September 30, 2017both March 31, 2020 and December 31, 2016, respectively. During2019. No change to the nineprovision was required for either of the three months ended September 30, 2017, the Company increased the provision by $165,000 ($103,000, net of tax benefit of $62,000). Due to changes in the EPA’s financial assurance requirements this increase was necessary notwithstanding the success of the remediation work completed at the property in 2015. During the nine months ended September 30, 2016, the Company increased the provision by $174,000 ($108,000, net of tax benefit of $66,000). This increase in 2016 was related to costs associated with some corrective remediation efforts during the period.
The remaining balance of the accrued remediation costs as of September 30, 2017March 31, 2020 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.
Note 45 – Notes Payable
Notes Payable
The following table presents the balances of notes payable as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Rates |
| |||||
Truist Bank |
| Maturity Date |
| March 31, 2020 |
|
| December 31, 2019 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Working Capital Loan |
| November 28, 2021 |
| $ | 10,000,000 |
|
|
| — |
|
|
| 2.75 | % |
|
| — | % |
$38.2 Million Equipment Loan |
| March 9, 2024 |
|
| 30,294,000 |
|
|
| 32,244,000 |
|
|
| 2.75 | % |
|
| 3.52 | % |
$ 4.5 Million Equipment Loan |
| March 7, 2024 |
|
| 4,500,000 |
|
|
| — |
|
|
| 2.75 | % |
|
| — | % |
Total notes payable |
|
|
|
| 44,794,000 |
|
|
| 32,244,000 |
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs |
|
|
|
| 63,672 |
|
|
| 71,577 |
|
|
|
|
|
|
|
|
|
Total notes payable, net |
|
|
|
| 44,730,328 |
|
|
| 32,172,423 |
|
|
|
|
|
|
|
|
|
Less current portion of notes payable, net |
|
|
|
| 8,895,427 |
|
|
| 7,769,497 |
|
|
|
|
|
|
|
|
|
Notes payable net, less current portion |
|
|
| $ | 35,834,901 |
|
| $ | 24,402,926 |
|
|
|
|
|
|
|
|
|
Branch Banking and Trust Company | Maturity Date | September 30, 2017 | December 31, 2016 | Interest Rates | ||||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||||||
Working Capital Loan | November 28, 2019 | $ | 3,950,000 | $ | 3,950,000 | 3.06 | % | 2.44 | % | |||||||
$22.6 Million Equipment Loan | March 9, 2021 | 21,070,000 | — | 3.06 | % | — | % | |||||||||
$10.0 Million Equipment Loan | July 28, 2020 | — | 7,579,630 | — | % | 2.81 | % | |||||||||
$17.0 Million Equipment Loan | March 6, 2020 | — | 9,601,000 | — | % | 2.50 | % | |||||||||
$2.0 Million Equipment Loan | March 6, 2020 | — | 1,256,625 | — | % | 2.50 | % | |||||||||
Total notes payable | 25,020,000 | 22,387,255 | ||||||||||||||
Less unamortized debt issuance costs | 44,404 | 54,027 | ||||||||||||||
Total notes payable, net | 24,975,596 | 22,333,228 | ||||||||||||||
Less current portion of notes payable, net | 6,098,675 | 6,101,855 | ||||||||||||||
Notes payable net, less current portion | $ | 18,876,921 | $ | 16,231,373 |
As of September 30, 2017,March 31, 2020, 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 June 9, 2017May 24, 2018 (the “2017“2018 Master Loan Agreement”), with Branch Banking and Trust Company, now known as Truist Bank (the “Bank”), as amended on March 7, 2019 by the First Amendment to the 2018 Master Loan Agreement (the “Amendment”), and on December 6, 2019 by the Note Modification Agreement and related Addendum to Note Modification to the 2018 Master Loan Agreement (collectively, the “Ancillary Loan Document”).
As of September 30, 2017,March 31, 2020, the Company, had the Debtors and the Bank were parties to the Working Capital Loan, evidenced by a loan agreementpromissory note and a series of related ancillary agreements with the Bank, providing for a revolving line of credit loan for under the 2018 Master Loan Agreement and the Amendment, that has a maximum principal amount of $18.0$23.0 million. On March 23, 2020, the Company drew $10.0 million from its Working Capital Loan to be used as a “Working Capital Loan.”enhance liquidity in view of the uncertainties caused by the COVID-19 pandemic. As of both September 30, 2017 and DecemberMarch 31, 2016,2020, borrowings under the Working Capital Loan were $4.0$10.0 million. There were no borrowings under the Working Capital Loan as of December 31, 2019.
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 $420,000$0.6 million as of both September 30, 2017March 31, 2020 and December 31, 2016.
9
As of September 30, 2017,March 31, 2020, the Company, the Debtors had a loan agreement withand the Bank forwere parties to a $38.2 Million Equipment Loan. Under the $22.6documentation related to the $38.2 Million Equipment Loan, principal payments of $598,000 plus accrued interest commenced on March 9, 2019 and continued monthly thereafter until and including the payment due on December 9, 2019. Thereafter, equal monthly principal payments of $650,000, plus accrued interest, commenced on January 9, 2020, and will continue monthly thereafter until the March 9, 2024 maturity date. Borrowings under the $38.2 Million Equipment Loan were $30.3 million as of March 31, 2020 and $32.2 million as of December 31, 2019.
As of March 31, 2020, the Company, the Debtors and the Bank were also parties to a $4.5 Million Equipment Loan. 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 continued monthly through and including the payment due on March 7, 2020. Thereafter, principal payments of $93,750 plus accrued interest commenced on April 7, 2020, and will continue monthly thereafter until and including the payment due on March 7, 2024. As of March 31, 2020, the borrowings under the $4.5 Million Equipment Loan were $4.5 million, which isamount was drawn on March 2, 2020. There were no borrowings under the $4.5 Million Equipment Loan as of December 31, 2019.
As of March 31, 2020, all loan agreements between the Debtors and the Bank, under the 2018 Master Loan Agreement, the Amendment, and the Ancillary Loan Document are guaranteed by the Debtors and includesinclude 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, and the $22.6$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.
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
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.
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.
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 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
Note 8 – ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures
On January 1, 2018, the Company adopted the revenue standard ASC 606 and all the related amendments (the “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. Upon adoption the Company concluded that the cumulative effect of initially applying the revenue standard was immaterial and consequently did not record an adjustment to the opening balance of retained earnings.
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, 2019. The Company’s accounting policies as a result of adopting the 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 threepromised goods or services underlying each performance obligation.
The Company accounts for a contract when it has approval and nine month periods ended September 30, 2017commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and 2016.
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.
11
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.
The following table disaggregates the Company’s revenue for the dates indicated:
|
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| |||
Electrical construction operations (1) |
|
|
|
|
|
|
|
|
Southeast |
| $ | 19,376,187 |
|
| $ | 19,350,874 |
|
mid-Atlantic |
|
| 10,415,045 |
|
|
| 12,053,703 |
|
Texas-Southwest |
|
| 12,490,180 |
|
|
| 9,540,921 |
|
Other electrical construction (2) |
|
| 783,980 |
|
|
| 441,820 |
|
Total electrical construction operations |
|
| 43,065,392 |
|
|
| 41,387,318 |
|
Real estate development operations |
|
| 1,774,116 |
|
|
| 6,092,938 |
|
Total revenue |
| $ | 44,839,508 |
|
| $ | 47,480,256 |
|
|
|
|
|
|
|
|
| |
(1) Principal electrical construction operations include revenue from transmission lines, distribution systems, substations and drilled pier foundations. |
| |||||||
(2) Other electrical construction includes revenue from storm work, fiber optics and other miscellaneous electrical construction items. |
|
The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied as of March 31, 2020 is $81.6 million. Of this total, $71.3 million is expected to be satisfied within the next twelve months and the remaining balance of $10.3 million is expected to be satisfied thereafter.
Note 79 – Customer Concentration
For the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, the three largest customers accounted for 65%44.9% and 59%55.7%, respectively, of the Company’s total revenue. For the three months ended September 30, 2017 and 2016, three largest customers accounted for 65% and 57%, respectively, of the Company’s total revenue.
Note 910 – Goodwill and Other Intangible Assets
The following table presents the gross and net balances of our goodwill and intangible assets as of the dates indicated:
|
|
|
|
| March 31, 2020 |
|
| December 31, 2019 |
| |||||||||||||||||||
|
| Useful Life (Years) |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||||||
Indefinite-lived and non-amortizable acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Goodwill |
| Indefinite |
|
| $ | 101,407 |
|
| $ | — |
|
| $ | 101,407 |
|
| $ | 101,407 |
|
| $ | — |
|
| $ | 101,407 |
| |
Definite-lived and amortizable acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trademarks/Names |
|
| 15 |
|
| $ | 640,000 |
|
| $ | (266,668 | ) |
| $ | 373,332 |
|
| $ | 640,000 |
|
| $ | (256,001 | ) |
| $ | 383,999 |
|
Customer relationships |
|
| 20 |
|
|
| 350,000 |
|
|
| (109,375 | ) |
|
| 240,625 |
|
|
| 350,000 |
|
|
| (105,000 | ) |
|
| 245,000 |
|
Non-competition agreement |
|
| 5 |
|
|
| 10,000 |
|
|
| (10,000 | ) |
|
| — |
|
|
| 10,000 |
|
|
| (10,000 | ) |
|
| — |
|
Other |
|
| 1 |
|
|
| 13,800 |
|
|
| (13,800 | ) |
|
| — |
|
|
| 13,800 |
|
|
| (13,800 | ) |
|
| — |
|
Total |
|
|
|
|
| $ | 1,013,800 |
|
| $ | (399,843 | ) |
| $ | 613,957 |
|
| $ | 1,013,800 |
|
| $ | (384,801 | ) |
| $ | 628,999 |
|
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Indefinite-lived and non-amortizable acquired intangible assets | |||||||||||||||||||||||||
Goodwill | Indefinite | $ | 101,407 | $ | — | $ | 101,407 | $ | 101,407 | $ | — | $ | 101,407 | ||||||||||||
Definite-lived and amortizable acquired intangible assets | |||||||||||||||||||||||||
Trademarks/Names | 15 | $ | 640,000 | $ | (160,003 | ) | $ | 479,997 | $ | 640,000 | $ | (128,002 | ) | $ | 511,998 | ||||||||||
Customer relationships | 20 | 350,000 | (65,625 | ) | 284,375 | 350,000 | (52,500 | ) | 297,500 | ||||||||||||||||
Non-competition agreement | 5 | 10,000 | (8,331 | ) | 1,669 | 10,000 | (7,332 | ) | 2,668 | ||||||||||||||||
Other | 1 | 13,800 | (13,800 | ) | — | 13,800 | (13,800 | ) | — | ||||||||||||||||
Total intangible assets, net | $ | 1,013,800 | $ | (247,759 | ) | $ | 766,041 | $ | 1,013,800 | $ | (201,634 | ) | $ | 812,166 |
12
Amortization of definite-lived intangible assets will be approximately $61,000$60,000 annually for 20172020 through 2021.
Note 11 – Leases
In February 2016, the FASB issued ASU 2016-02, ASC 842 Leases to increase transparency and Analysiscomparability among organizations by recognizing all lease transactions (with terms in excess of Financial Condition12 months) on the balance sheet as a lease liability and Resultsa right-of-use asset (as defined). On January 1, 2019, the Company adopted the accounting pronouncement issued using the modified retrospective method. The Company elected the “package of Operations.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 also elected the practical expedient to not separate lease and non-lease components. Adoption of the new standard resulted in the recording of additional operating lease right-of-use assets and operating lease liabilities of approximately $4.3 million and $4.3 million, respectively, as of January 1, 2019. The adoption of this standard did not impact 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.
From time to time, the Company enters into leases primarily for the electrical construction operation’s equipment needs and to a lesser extent office facilities. These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of equipment rather than purchasing them. The Company’s leases have remaining terms ranging from months to seven years, some of which may include options to extend the lease term. Currently, all of the Company’s leases contain fixed payment terms. Additionally, all of our month-to-month leases are cancelable by the Company, at any time and are not included in our right-of-use asset or liability. At March 31, 2020, the Company had no leases with residual value guarantees. Typically, the Company has purchase options on the equipment underlying its long-term leases and many of its short-term rental arrangements. The Company has concluded that it is not reasonably certain that such options will be exercised as the Company does not currently have a compelling economic reason to exercise the options. However, the Company may exercise some of these purchase options when the need for equipment is on-going and the purchase option price is attractive.
Financing Leases
The Company currently does not have any leases that are classified as financing leases under ASC 842 Leases.
Operating Lease Right-of-Use Assets
Operating lease right-of-use assets are reported under “Operating lease right-of-use assets,” on the Company’s consolidated balance sheet. The current portion operating lease liabilities are reported under “Current portion of operating lease liability” and the non-current portion is reported under “Other accrued liabilities,” respectively on the Company’s consolidated balance sheet. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate to calculate present value, the Company determines this rate, by estimating the Company’s incremental borrowing rate, at the lease commencement date. The majority of the operating lease right-of-use assets are for equipment used in the Company’s electrical construction operations. The incremental borrowing rate used for these leases is based on the interest rate of the outstanding notes payable at the date of lease execution, which reflects the rate the Company would incur to finance the equipment. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
13
The following table presents a summary of the Company’s lease assets and lease liabilities as of the dates indicated:
|
| Classification |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Lease Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Operating lease right-of-use assets |
| $ | 10,532,835 |
|
| $ | 6,861,099 |
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liabilities |
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
| Current portion of operating lease liability |
| $ | 2,210,264 |
|
| $ | 1,880,957 |
|
Non-current operating lease liabilities |
| Other accrued liabilities |
|
| 8,424,697 |
|
|
| 4,987,088 |
|
Total lease liabilities |
|
|
| $ | 10,634,961 |
|
| $ | 6,868,045 |
|
The total weighted-average incremental borrowing rate and remaining lease term for the Company’s operating leases was 3.67% and 5.88 years, respectively, as of March 31, 2020. Operating lease costs for the three months ended March 31, 2020 were $0.7 million, which approximate the cash payments for this period.
The following table presents the Company’s maturity analysis of its operating lease liabilities as of the date indicated:
|
|
|
| March 31, 2020 |
| |
|
|
| $ | 1,755,204 |
| |
2021 |
|
|
|
| 1,964,927 |
|
2022 |
|
|
|
| 1,890,828 |
|
2023 |
|
|
|
| 1,847,400 |
|
2024 and beyond |
|
|
|
| 4,384,356 |
|
Total lease payments |
|
|
| $ | 11,842,715 |
|
Less: interest |
|
|
|
| (1,207,754 | ) |
Present value of lease liabilities |
|
|
| $ | 10,634,961 |
|
Note 12 – Business Segment Information
Segment
The Company is currently involved in two segments, electrical construction and real estate development. There were no material amounts of sales or transfers between segments and no material amounts of foreign sales. Any inter-segment sales have been eliminated.
14
The following table sets forth certain segment information for the dates indicated:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Continuing Operations |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 43,065,392 |
|
| $ | 41,387,318 |
|
Real estate development |
|
| 1,774,116 |
|
|
| 6,092,938 |
|
Total revenue |
| $ | 44,839,508 |
|
| $ | 47,480,256 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 40,363,663 |
|
| $ | 38,353,612 |
|
Real estate development |
|
| 1,511,546 |
|
|
| 4,888,792 |
|
Corporate |
|
| 1,364,603 |
|
|
| 1,322,811 |
|
Total operating expenses |
| $ | 43,239,812 |
|
| $ | 44,565,215 |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 2,701,729 |
|
| $ | 3,033,706 |
|
Real estate development |
|
| 262,570 |
|
|
| 1,204,146 |
|
Corporate |
|
| (1,364,603 | ) |
|
| (1,322,811 | ) |
Total operating income |
| $ | 1,599,696 |
|
| $ | 2,915,041 |
|
Other (expenses) income, net |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | (256,328 | ) |
| $ | (324,313 | ) |
Real estate development |
|
| — |
|
|
| (4,852 | ) |
Corporate |
|
| 30,693 |
|
|
| 21,009 |
|
Total other expenses, net |
| $ | (225,635 | ) |
| $ | (308,156 | ) |
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 2,445,401 |
|
| $ | 2,709,393 |
|
Real estate development |
|
| 262,570 |
|
|
| 1,199,294 |
|
Corporate |
|
| (1,333,910 | ) |
|
| (1,301,802 | ) |
Total net income before taxes |
| $ | 1,374,061 |
|
| $ | 2,606,885 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 4,974,021 |
|
| $ | 11,642,297 |
|
Real estate development |
|
| 139 |
|
|
| — |
|
Corporate |
|
| 47,782 |
|
|
| 723,884 |
|
Total |
| $ | 5,021,942 |
|
| $ | 12,366,181 |
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
Electrical construction |
| $ | 2,856,206 |
|
| $ | 2,552,235 |
|
Real estate development |
|
| 8,289 |
|
|
| 5,674 |
|
Corporate |
|
| 28,317 |
|
|
| 23,170 |
|
Total |
| $ | 2,892,812 |
|
| $ | 2,581,079 |
|
Operating income (loss) equals total operating revenue less operating costs and expenses inclusive of depreciation and amortization, and selling, general and administrative expenses. Operating costs and expenses also include any gains or losses on the sale of property and equipment. Operating income (loss) excludes interest expense, interest income, other income and income taxes.
The following table sets forth assets by segment as of the dates indicated:
Assets |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Electrical construction |
| $ | 120,847,274 |
|
| $ | 111,064,071 |
|
Real estate development |
|
| 6,916,753 |
|
|
| 7,578,440 |
|
Corporate |
|
| 21,417,759 |
|
|
| 10,724,667 |
|
Total |
| $ | 149,181,786 |
|
| $ | 129,367,178 |
|
15
Forward-Looking Statements
We make “forward-looking statements” within the meaning of the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995 throughout this document. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” and “continue” or similar words. We have based these statements on our current expectations about future events. Although we believe that our expectations reflected in or suggested by our forward-looking statements are reasonable, we cannot assure you that these expectations will be achieved. Our actual results may differ materially from what we currently expect. Factors that may affect the results of our operations include, among others: the level of construction activities by public utilities; the concentration of revenue from a limited number of utility customers; the loss of one or more significant customers; the timing and duration of construction projects for which we are engaged; our ability to estimate accurately with respect to fixed-price construction contracts; and heightened competition in the electrical construction field, including intensification of price competition. Other factors that may affect the results of our operations include, among others: adverse weather; natural disasters; global pandemics; effects of climate changes; changes in generally accepted accounting principles; ability to obtain necessary permits from regulatory agencies; our ability to maintain or increase historical revenue and profit margins; general economic conditions, both nationally and in our region; adverse legislation or regulations; availability of skilled construction labor and materials and material increases in labor and material costs; and our ability to obtain additional and/or renew financing. Other important factors which could cause our actual results to differ materially from the forward-looking statements in this document include, but are not limited to, those discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed elsewhere in this report and as set forth from time to time in our other public filings and public statements. In addition to the other information included in this report and our other public filings and releases, a discussion of factors affecting our business is included in our Annual Report on Form 10-K for the year ended December 31, 20162019 under “Item 1A. Risk Factors” and should be considered while evaluating our business, financial condition, results of operations and prospects.
You should read this report in its entirety and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even in the event that our situation changes in the future, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
Overview
We are a provider of electrical construction services, primarily in the Southeast, mid-Atlantic and mid-AtlanticTexas-Southwest regions of the United StatesStates. To a lesser extent we are a developer of real estate residential properties on the east coast of Central Florida. We report our results under two reportable segments, electrical construction and Texas.real estate development. For the ninethree months ended September 30, 2017,March 31, 2020, our total consolidated revenue was $84.3$44.8 million, a 14.5%5.6% decrease from $98.7$47.5 million in the same period in 2016.
Through our subsidiaries, Power Corporation of America (“PCA”), Southeast Power Corporation (“Southeast Power”), and C and C Power Line, Inc. (“C&C”) and Precision Foundations, Inc. (“PFI”), we are engaged in the construction of electrical infrastructure for the utility industry and industrial customers. Southeast Power performs electrical contracting services including the construction of transmission lines, distribution systems, substations drilled pier foundations and other electrical services. Southeast Power is headquartered in Titusville, Florida and has additional officesfacilities in Bastrop and Cresson, Texas, Lancaster, Kentucky and Spartanburg, South Carolina. C&C, headquartered in Jacksonville, Florida, is a full service electrical contractor that provides similar services as Southeast Power with a unionized workforce.
The electrical construction business is highly competitive and fragmented. We compete with other independent contractors, including larger regional and national firms that may have financial, operational, technical and marketing resources that exceed our own. We also face competition from existing and prospective customers establishing or augmenting in-house services and organizations that employ personnel who perform similar services as those provided by us. In addition, a significant portion of our electrical construction revenue is derived from a small group of customers that account for a substantial portion of our revenue in any given year. The revenue contribution by any single customer or group of customers may significantly fluctuate from period-to-period. For example, for the ninethree months ended September 30, 2017March 31, 2020 and the year ended December 31, 2016,2019, three of our customers accounted for approximately 65%44.9% and 58%55.7% of our consolidated revenue, respectively. The loss of or decrease in current demand from one or more customers, if not replaced, may result in a material decrease in revenue, margin and profit.
16
Through our subsidiary Bayswater Development Corporation and its various subsidiaries (“Bayswater”), we are engaged in the acquisition, development, management and disposition of land and improved properties along the east coast of Central Florida. Bayswater is headquartered in Melbourne, Florida. Our customers are generally pre-retirement, retirement or second home buyers seeking higher quality, low maintenance residences.
When we use either of the terms “homes” or “units,” we mean our residential properties, which include detached single-family homes, townhomes and condominiums. References to our homebuilding revenues and similar references refer to revenues derived from the sales of our residential properties, in each case unless otherwise expressly stated or the context otherwise requires.
To date COVID-19 has not materially effected our electrical construction operations. We have adopted industry best practices to protect both our field workers and office administrative personnel, such as allowing administrative employees to work remotely from home whenever possible. There have been no changes to the nature of our controls, processes or procedures as a result of administrative personnel working remotely. We cannot predict with any certainty the future effects of a prolonged epidemic on our nation's economy, our utility customers or our electrical construction projects. With respect to our residential real estate construction activities, which represent a very small portion of our business, we anticipate that the economic uncertainties and damage caused by the pandemic may dampen customer demand for new units. Please refer to Item 1A. Risk Factors for an additional Risk Factor we added regarding COVID-19.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amountsamount of assets, liabilities, revenue and expenses,expense, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, includingparticularly those related to fixed-price electrical construction contracts, the adequacy of our accrued remediation costs
Revenue Recognition
Our significant accounting policies are detailed in “Note 1: Organization and Summary of Completion
Fixed-Price Electrical Construction Contracts
We account 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. We generally recognize revenue from fixed-price contracts on a percentage-of-completion basis, using primarilyover time as we perform because of continuous transfer of control to the cost-to-cost methodcustomer. Because of control transferring over time, revenue is recognized based on the percentageextent of total costprogress towards completion of the performance obligation. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our 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 in proportion to the total estimated cost to complete the contract. Total estimated cost, and thus contract income, is impacted by factors including, but not limited to: changes in productivity and scheduling, the cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, site conditions and scheduling that differ from those assumed in the original bid (to the extent contract remedies are unavailable), customer needs, customer delays in providing approvals and materials, the availability and skill level of workers in the geographic location of the project, a change in the availability and proximity of materials, and governmental regulation, may also affect the progress and estimated cost of a project’s completion and thus the timing of income and revenue recognition.
Due to the nature of the work underrequired to be performed on many of our performance obligations, the contract. Revenue from a change orderestimation of total revenue and cost at completion is includedcomplex, subject to many variables and requires significant judgment. We estimate variable consideration at the most likely amount which we expect to receive. We include estimated amounts in total estimated contract revenue only whenthe transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the change order will resultuncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an additionassessment of all information (historical, current and forecasted) that is reasonably available to us.
17
Contracts are often modified to account for changes in contract valuespecifications and canrequirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our 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.
We have 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 reliably estimated.
The accuracy of our revenue and profit recognition in a given period is almost solely dependent on the accuracy of our estimates of the cost to complete each project. Our projects can be complex and in almost every case the profit margin estimates for a project will either increase or decrease, to some extent, from the amount that was originally estimated at the time of bid. If a current estimate of total costs indicates a lossexceeds the total estimate of revenue to be earned, on a contract,performance obligation, the projected loss is recognized in full when determined. Accrued contract losses were $31,000$0.6 million as of September 30, 2017March 31, 2020 and insignificant$0.3 million as of December 31, 2016.2019. The accrued contract losses as of September 30, 2017March 31, 2020 resulted from weather and unexpected construction issues. The accrued contract losses as of December 31, 2019 are mainly attributable to transmission projects experiencing unexpected construction issues. Revenue from change orders, extra work, variations in
The following table disaggregates our revenue for the scope of work and claims is recognized when realization is probable and estimable.dates indicated:
|
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| |||
Electrical construction operations (1) |
|
|
|
|
|
|
|
|
Southeast |
| $ | 19,376,187 |
|
| $ | 19,350,874 |
|
mid-Atlantic |
|
| 10,415,045 |
|
|
| 12,053,703 |
|
Texas-Southwest |
|
| 12,490,180 |
|
|
| 9,540,921 |
|
Other electrical construction (2) |
|
| 783,980 |
|
|
| 441,820 |
|
Total electrical construction operations |
|
| 43,065,392 |
|
|
| 41,387,318 |
|
Real estate development operations |
|
| 1,774,116 |
|
|
| 6,092,938 |
|
Total revenue |
| $ | 44,839,508 |
|
| $ | 47,480,256 |
|
|
|
|
|
|
|
|
| |
(1) Principal electrical construction operations include revenue from transmission lines, distribution systems, substations and drilled pier foundations. |
| |||||||
(2) Other electrical construction includes revenue from storm work, fiber optics and other miscellaneous electrical construction items. |
|
The aggregate amount of the site,transaction price allocated to performance obligations that were unsatisfied as of
18
THREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2020 COMPARED TO NINETHREE MONTHS ENDED SEPTEMBER 30, 2016
The following table presents our segment operating income from continuing operations for the ninethree months ended September 30, 2017March 31, 2020 and 2016:2019:
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| |
Revenue |
| $ | 43,065,392 |
|
| $ | 41,387,318 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Costs of goods sold |
|
| 36,472,260 |
|
|
| 35,292,012 |
|
Selling, general and administrative |
|
| 966,809 |
|
|
| 535,535 |
|
Depreciation and amortization |
|
| 2,856,206 |
|
|
| 2,552,235 |
|
Loss (gain) on sale of property and equipment |
|
| 68,388 |
|
|
| (26,170 | ) |
Total costs and expenses |
|
| 40,363,663 |
|
|
| 38,353,612 |
|
Operating income |
| $ | 2,701,729 |
|
| $ | 3,033,706 |
|
|
|
|
|
|
|
|
|
|
Real estate development |
|
|
|
|
|
|
|
|
Revenue |
| $ | 1,774,116 |
|
| $ | 6,092,938 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Costs of goods sold |
|
| 1,203,075 |
|
|
| 4,189,654 |
|
Selling, general and administrative |
|
| 300,182 |
|
|
| 693,464 |
|
Depreciation and amortization |
|
| 8,289 |
|
|
| 5,674 |
|
Total costs and expenses |
|
| 1,511,546 |
|
|
| 4,888,792 |
|
Operating income |
| $ | 262,570 |
|
| $ | 1,204,146 |
|
2017 | 2016 | ||||||
Revenue | |||||||
Electrical construction | $ | 81,869,487 | $ | 95,385,820 | |||
Other | 2,471,473 | 3,283,799 | |||||
Total revenue | 84,340,960 | 98,669,619 | |||||
Costs and expenses | |||||||
Electrical construction | 63,718,948 | 70,096,028 | |||||
Other | 1,691,601 | 2,298,227 | |||||
Selling, general and administrative | 4,959,782 | 4,607,106 | |||||
Depreciation and amortization | 5,386,364 | 4,672,078 | |||||
Loss (gain) on sale of property and equipment | 30,158 | (914 | ) | ||||
Total costs and expenses | 75,786,853 | 81,672,525 | |||||
Total operating income | $ | 8,554,107 | $ | 16,997,094 |
Operating income equals total operating revenue less operating costs and expenses inclusive of depreciation and amortization, and selling, general and administrative expenses. Operating costs and expenses also include any gains or losses on the sale of property and equipment. Operating income excludes interest expense, interest income, other income and income taxes.
Revenue
Total revenue for the ninethree months ended September 30, 2017March 31, 2020 was
Electrical construction operations revenue was $43.1 million, an increase of $1.7 million, or 4.1%, from $41.4 million for the same period in 2019. The increase in electrical construction revenue was mainly attributable to fewer bid opportunities issued by our customersincreases in projects awarded and the substantial completion of certain large, higher margin fixed-price contractswork completed in the first and second quartersTexas-Southwest region of 2016. The decrease was$2.9 million partially offset by storm restoration workdecreases in the 2017 third quarter.
Revenue from real estate development operations included under the caption “Other,” decreased to $2.5$1.8 million for the ninethree months ended September 30, 2017March 31, 2020 from $3.3$6.1 million in 2016. This decline was due to the decreased number and mix of properties sold in the nine months ended September 30, 2017, compared to the same period in 2016.
19
Our backlog represents future services to be performed under existing project-specific fixed-price and maintenance contracts and the estimated value of future services that we expect to provide under our existing MSAs.
The following table presents our total backlog
as of
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||||||||||
| 12-Month |
|
| Total |
|
| 12-Month |
|
| Total |
| |||||
Project-Specific Firm Contracts (1) |
| $ | 74,924,104 |
|
| $ | 85,220,310 |
|
| $ | 41,955,472 |
|
| $ | 41,955,472 |
|
Estimated MSAs |
|
| 98,242,662 |
|
|
| 387,789,892 |
|
|
| 57,048,120 |
|
|
| 166,256,453 |
|
Total |
| $ | 173,166,766 |
|
| $ | 473,010,202 |
|
| $ | 99,003,592 |
|
| $ | 208,211,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) Amount includes firm contract awards under MSA agreements. |
|
Backlog as of | Backlog as of | |||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||
Electrical Construction Operations | 12-Month | Total | 12-Month | Total | ||||||||||||
Project-Specific Firm Contracts(1) | $ | 34,059,145 | $ | 36,394,651 | $ | 32,449,751 | $ | 32,449,751 | ||||||||
Estimated MSAs | 59,496,990 | 166,532,990 | 43,474,491 | 137,841,991 | ||||||||||||
Total | $ | 93,556,135 | $ | 202,927,641 | $ | 75,924,242 | $ | 170,291,742 | ||||||||
(1)Amount includes firm contract awards under MSA agreements. |
Our total backlog as of September 30, 2017 was $202.9March 31, 2020 increased $264.8 million, or 127.2% to $473.0 million, compared to $170.3$208.2 million as of September 30, 2016, anMarch 31, 2019. The increase in total backlog is due to the increase in the total amount of 19.2%.
Our 12-month backlog as of September 30, 2017March 31, 2020 increased 74.9% to $93.6$173.2 million, compared to $75.9from $99.0 million as of September 30, 2016. Our estimated MSA backlog increased $28.7 million to $166.5 millionMarch 31, 2019, mainly due to the successful renewalincrease in firm MSA project activity, as well as an increase in the amount of anestimated MSA agreement offset by existing MSA backlog run off and adjustmentswork attributable to existing MSA backlog estimates.
Backlog is estimated at a particular point in time and is not determinative of total revenue in any particular period. It does not reflect future revenue from a significant number of short-term projects undertaken and completed between the estimated dates.
The estimated amount of backlog for work under MSAs is calculated by using recurring historical trends inherent in current MSAs and projected customer needs based upon ongoing communications with the customer. Our estimated backlog also assumes exercise of existing customer renewal options. Certain MSAs are not exclusive to the Company and, therefore, the size and amountnumber of projects we may be awarded cannot be determined with certainty. Accordingly, the amount of future revenue from MSA contracts may vary substantially from reported backlog. Even if we realize all the revenue from the projects in our backlog, there is no guarantee of profit from the projects awarded under MSAs.
As of September 30, 2017March 31, 2020 and 2016,2019, estimated MSAs accounted for approximately 82.1%82.0% and 80.9%79.8% of total backlog, respectively. We plan to continue to grow our MSA business. MSA contracts are generally multi-year and shouldwe believe provide improved operating efficiencies.
Reconciliation of Electrical Construction Backlog to our Remaining Unsatisfied Performance Obligation
The following table presents a reconciliation of our total backlog as of March 31, 2020 to our remaining unsatisfied performance obligation as defined under GAAP:
|
|
|
|
|
| March 31, 2020 |
| |
|
|
|
|
| $ | 473,010,202 |
| |
Estimated MSAs |
|
|
|
|
|
| (387,789,892 | ) |
Estimated firm (1) |
|
|
|
|
|
| (3,579,073 | ) |
Total unsatisfied performance obligation |
|
|
|
|
| $ | 81,641,237 |
|
|
|
|
|
|
|
|
| |
(1) Represents estimated backlog contract value as of March 31, 2020, on projects awarded. |
|
20
Backlog is not a term recognized under U.S. generally accepted accounting principles, butnon-GAAP financial measure however it is a common measurement used in our industry.We believe this measure enables management to more effectively forecast our future capital needs and results and better identify future operating trends that may not otherwise be apparent. We believe this measure is also useful for investors in forecasting our future results and comparing us to our competitors. While we believe that our methodology of calculation is appropriate, such methodology may not be comparable to that employed by some other companies. Given the duration of our contracts and MSAs and our method of calculating backlog, our backlog at any point in time may not accurately represent the revenue that we expect to realize during any period and our backlog as of the end of a fiscal year may not be indicative of the revenue we expect to earn in the following fiscal year and should not be viewed or relied upon as a stand-alone indicator. Consequently, we cannot provide assurance as to our customers’ requirements or our estimates of backlog.
The amount of backlog differs from the amount of our remaining unsatisfied performance obligations partially satisfied as of March 31, 2020 and as described in note 8 to the consolidated financial statements, primarily due to the inclusion of estimates of future revenue under MSA and other service agreements within our backlog estimates, as described above.
Revenue estimates included in our backlog may be subject to change as a result of project accelerations, additions, cancellations or delays due to various factors, including but not limited to: commercial issues, material deficiencies, permitting, regulatory requirements and adverse weather. Our customers are not contractually committed to a specific level of services under our MSAs. While we did not experience any material cancellations during the current period, most of our contracts may be terminated, even if we are not in default under the contract.
Operating Results
Total operating income for the ninethree months ended September 30, 2017March 31, 2020 was $8.6$1.6 million, a decrease of $8.4$1.3 million, or 49.7%45.1%, from
Gross margin on electrical construction operations for the ninethree months ended September 30, 2017 was 22.2%March 31, 2020 grew to 15.3%, compared to 26.5%from 14.7% for the same period in 2016. 2019. The increase in gross margin was primarily attributable to the expansion of our service lines in the Texas-Southwest region. Also contributing to the increase in gross margin was higher foundation construction activity with improved margins across multiple service regions. These increases were partially offset by lower transmission project activity in both our Southeast and mid-Atlantic regions, due to lower crew capacity in the Southeast and delays in the start-up of a newly awarded MSA in the mid-Atlantic region.
Such gross margin represents electrical construction revenue less electrical construction costs and expenses (excluding depreciation and amortization, selling, general and administrative expenses, and (gain) lossany gains or losses on the sale of property and equipment), divided by electrical construction revenue.
Gross margin on real estate development for the three months ended March 31, 2020 increased to 32.2%, from 31.2% for the same period in 2019. This increase was due to the amount and type of units sold in the three months ended March 31, 2020 when compared to the same period in 2019.
Such gross margin represents real estate revenue less real estate costs and expenses (excluding depreciation and amortization, selling, general and administrative expenses, and gains or losses on sale of property and equipment), divided by real estate development revenue.
The following table provides a reconciliation of our net income to EBITDA (a non-GAAP financial measure) for the ninethree months ended September 30, 2017March 31, 2020 and 2016:2019:
|
| 2020 |
|
| 2019 |
| ||
| $ | 1,479,975 |
|
| $ | 1,779,621 |
| |
Interest expense, net of amount capitalized |
|
| 285,849 |
|
|
| 351,992 |
|
Provision for income taxes |
|
| (105,914 | ) |
|
| 827,264 |
|
Depreciation and amortization (1) |
|
| 2,892,812 |
|
|
| 2,581,079 |
|
EBITDA |
| $ | 4,552,722 |
|
| $ | 5,539,956 |
|
|
|
|
|
|
|
|
| |
(1) Depreciation and amortization includes depreciation on property, plant and equipment and amortization of finite-lived intangible assets. |
|
2017 | 2016 | |||||||
Net income (GAAP as reported) | $ | 5,026,033 | $ | 10,410,139 | ||||
Interest expense, net of amount capitalized | 474,512 | 457,313 | ||||||
Provision for income taxes, net (1) | 2,957,305 | 6,023,290 | ||||||
Depreciation and amortization (2) | 5,386,364 | 4,672,078 | ||||||
EBITDA | $ | 13,844,214 | $ | 21,562,820 | ||||
___________ | ||||||||
(1) Provision for income tax, net is equal to the total amount of tax provision, which includes the tax benefit for discontinued operations. (2) Depreciation and amortization includes depreciation on property, plant and equipment and amortization of finite-lived intangible assets. |
21
EBITDA, a non-GAAP performance measure used by management, is defined as net income plus: interest expense, provision (benefit) for income taxes and depreciation and amortization, as shown in the table above. EBITDA, a non-GAAP financial measure, does not purport to be an alternative to net income as a measure of operating performance or to net cash flows provided by operating activities as a measure of liquidity. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly-titled measures of other companies. We use, and we believe investors benefit from the presentation of, EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our consolidated financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.
Using EBITDA as a performance measure has material limitations as compared to net income, or other financial measures as defined under U.S. GAAP as it excludes certain recurring items which may be meaningful to investors. EBITDA excludes interest expense; however, as we have borrowed money in order to finance transactions and operations, interest expense is an element of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenues, depreciation and amortization are a necessary element of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense, depreciation and amortization and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA and net income in each period, so as to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis. Using both EBITDA and net income to evaluate the business allows management and investors to (a) assess our relative performance against our competitors and (b) monitor our capacity to generate returns for our stockholders.
Costs and Expenses
Total costs and expenses decreased by $5.9$1.3 million to $75.8$43.2 million for the ninethree months ended September 30, 2017,March 31, 2020, from $81.7$44.6 million for the same period in 2016, primarily attributable to2019, commensurate with the decreaselower level of real estate development operations, offset by increases in electrical construction and “Other” revenue.
2017 | 2016 | ||||||
Electrical construction operations | $ | 1,153,930 | $ | 816,529 | |||
Other | 633,944 | 591,284 | |||||
Corporate | 3,171,908 | 3,199,293 | |||||
Total | $ | 4,959,782 | $ | 4,607,106 |
2017 | 2016 | ||||||
Electrical construction operations | $ | 5,286,764 | $ | 4,574,025 | |||
Other | 11,281 | 11,226 | |||||
Corporate | 88,319 | 86,827 | |||||
Total | $ | 5,386,364 | $ | 4,672,078 |
2017 | 2016 | ||||||
Income tax provision | $ | 3,018,861 | $ | 6,089,367 | |||
Effective income tax rate | 37.0 | % | 36.7 | % |
2017 | 2016 | ||||||
Revenue | |||||||
Electrical construction | $ | 23,616,373 | $ | 29,653,625 | |||
Other | 890,842 | 1,000,538 | |||||
Total revenue | 24,507,215 | 30,654,163 | |||||
Costs and expenses | |||||||
Electrical construction | 20,299,375 | 23,161,561 | |||||
Other | 600,597 | 663,320 | |||||
Selling, general and administrative | 1,625,027 | 1,532,689 | |||||
Depreciation and amortization | 1,824,875 | 1,590,233 | |||||
Loss (gain) on sale of property and equipment | 18,594 | (19,056 | ) | ||||
Total costs and expenses | 24,368,468 | 26,928,747 | |||||
Total operating income | $ | 138,747 | $ | 3,725,416 |
EBITDA | 2017 | 2016 | ||||||
Net (loss) income (GAAP as reported) | $ | (157,009 | ) | $ | 2,303,886 | |||
Interest expense, net of amount capitalized | 202,054 | 146,022 | ||||||
Provision for income taxes, net (1) | (46,211 | ) | 1,298,420 | |||||
Depreciation and amortization (2) | 1,824,875 | 1,590,233 | ||||||
EBITDA | $ | 1,823,709 | $ | 5,338,561 | ||||
___________ | ||||||||
(1) Provision for income tax, net is equal to the total amount of tax provision, which includes the tax benefit for discontinued operations. (2) Depreciation and amortization includes depreciation on property, plant and equipment and amortization of finite-lived intangible assets. |
The following table sets forth selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2017March 31, 2020 and 2016:2019:
| 2020 |
|
| 2019 |
| |||
Electrical construction |
| $ | 966,809 |
|
| $ | 535,535 |
|
Real estate development |
|
| 300,182 |
|
|
| 693,464 |
|
Corporate |
|
| 1,336,217 |
|
|
| 1,299,322 |
|
Total |
| $ | 2,603,208 |
|
| $ | 2,528,321 |
|
2017 | 2016 | ||||||
Electrical construction operations | $ | 407,287 | $ | 349,413 | |||
Other | 227,368 | 182,775 | |||||
Corporate | 990,372 | 1,000,501 | |||||
Total | $ | 1,625,027 | $ | 1,532,689 |
SG&A expenses increased 6.0%3.0% to $1.6$2.6 million for the three months ended September 30, 2017,March 31, 2020, from $1.5$2.5 million for the same period in 2019. This increase was mainly attributable to increases in electrical construction SG&A, due to a one-time severance charge. Also contributing to the increase were increases in corporate SG&A due to higher legal expenses partially offset by decreases in real estate development selling expenses and lower corporate executive accrued bonus expense for the three months ended September 30, 2016. The increase in SG&A expenses was primarily attributable to an increase in audit fees and expenses for the three months ended September 30, 2017, mainly dueMarch 31, 2020, when compared to the changesame period in our filing status to an accelerated filer, as of December 31, 2017. See Item 1A. “Risk Factors,” under Part II of this form for additional requirements now applicable. Also contributing to the increase was an increase in real estate selling expenses. These increases were partially offset by a reduction in salary and wage related expenses.2019. As a percentage of revenue, SG&A expenses increased to 6.6%5.8% for 2017,the three months ended March 31, 2020, from 5.0%5.3% for the same period in 2016,2019, due primarily to the aforementioned decrease in revenue during the current period.
The following table sets forth depreciation and amortization expense for the three months ended September 30, 2017March 31, 2020 and 2016:2019:
| 2020 |
|
| 2019 |
| |||
Electrical construction |
| $ | 2,856,206 |
|
| $ | 2,552,235 |
|
Real estate development |
|
| 8,289 |
|
|
| 5,674 |
|
Corporate |
|
| 28,317 |
|
|
| 23,170 |
|
Total |
| $ | 2,892,812 |
|
| $ | 2,581,079 |
|
2017 | 2016 | ||||||
Electrical construction operations | $ | 1,791,716 | $ | 1,553,104 | |||
Other | 3,742 | 4,617 | |||||
Corporate | 29,417 | 32,512 | |||||
Total | $ | 1,824,875 | $ | 1,590,233 |
22
Depreciation and amortization expense, which includes $15,000$0.02 million of amortization expense for acquired intangibles, increased $0.3 million, or 12.1%, to $1.8$2.9 million for the three months ended September 30, 2017,March 31, 2020, from $1.6$2.6 million for the three months ended September 30, 2016,March 31, 2019, as a result of an increase in capital expenditures, mainly attributable to purchasing opportunities and fleet upgrades.
Income Taxes
The following table presents our provision for income tax and effective income tax rate from continuing operations for the three months ended September 30, 2017March 31, 2020 and 2016:2019:
|
| 2020 |
|
| 2019 |
| ||
Income tax provision |
| $ | (105,914 | ) |
| $ | 827,264 |
|
Effective income tax rate |
|
| (7.7 | )% |
|
| 31.7 | % |
2017 | 2016 | ||||||
Income tax provision | $ | 15,345 | $ | 1,298,420 | |||
Effective income tax rate | 40.2 | % | 36.0 | % |
Prior to the enactment of the CARES Act, our expected tax rate for the year ending December 31, 2017,2020, which was calculated based on theour estimated annual operating results for the year, was 29.6%. However, due to the favorable impact of discrete items of 4.8%, the majority of which are related to the CARES Act, our resulting expected annual rate is 37.0%24.8%. Our expected tax rate differs from the federal statutory rate of 34%21% due to nondeductible expenses and state income taxes, and nondeductible expenses offset by the DPAD.
Our effective tax rate for the three months ended September 30, 2017March 31, 2020 was 40.2%(7.7)% and differs from the federal statutory rate of 21% due to nondeductible expenses and state income taxes offset by the full impact of discrete items totaling $513,000 recorded in the first quarter of 2020. The discrete items were recorded in connection with the net operating loss carryback provisions of the CARES Act and to a lesser extent a state mandated income tax refund. Our effective tax rate is lower than our expected annual tax rate of 24.8% due to the full impact of discrete items reported in the first quarter of 2020 which will reduce over the year. Our effective tax rate for the three months ended March 31, 2019 was 31.7% and differs from the federal statutory rate of 34%21% due to nondeductible expenses and state income taxes offset bytaxes. The decrease in our 2020 expected tax rate when compared to 2019 is attributable to a reduced DPAD. The cumulative reductiondecrease in the DPAD resulted in tax expense despite an operating loss for the quarter. The effective tax rate for the three months ended September 30, 2016 was 36.0% and differs from the federal statutory rate of 35% due to state income taxes and2020 estimated nondeductible expenses offset byand the DPAD.
Liquidity and Capital Resources
Working Capital Analysis
Our primary cash needs have been for capital expenditures and working capital. Our primary sources of cash have been cash flow from operations and borrowings under our lines of credit and equipment financing. As of
In addition to cash flow from operations, we have an $18.0a $23.0 million revolving line of credit, of which $13.6$12.4 million was available for borrowing as of
We anticipate that this cash on hand, our credit facilities and our future cash flows from operating activities will provide sufficient cash to enable us to meet our operating needs and debt requirements for the next twelve months.
Cash Flow Analysis
The following table presents our net cash flows for each of the ninethree months ended September 30, 2017March 31, 2020 and 2016:2019:
|
| 2020 |
|
| 2019 |
| ||
| $ | (3,925,704 | ) |
| $ | 2,475,095 |
| |
Net cash used in investing activities |
|
| (4,920,682 | ) |
|
| (12,272,817 | ) |
Net cash provided by financing activities |
|
| 12,550,000 |
|
|
| 13,458,988 |
|
Net increase in cash and cash equivalents |
| $ | 3,703,614 |
|
| $ | 3,661,266 |
|
2017 | 2016 | ||||||
Net cash provided by operating activities | $ | 6,611,392 | $ | 10,337,452 | |||
Net cash used in investing activities | (9,404,333 | ) | (2,765,611 | ) | |||
Net cash provided by (used in) financing activities | 2,624,620 | (2,130,092 | ) | ||||
Net (decrease) increase in cash and cash equivalents | $ | (168,321 | ) | $ | 5,441,749 |
Cash flows from operating activities are comprised of net income, (loss), adjusted to reflect the timing of cash receipts and disbursements therefrom. Our cash flows are influenced by the level of operations, operating margins and the types of services we provide, as well as the stages of our electrical construction projects.
Cash provided byused in our operating activities totaled
Investing Activities
Cash used in investing activities for the three months ended March 31, 2020, was $4.9 million, compared to cash used in investing activities of $12.3 million for the same period in 2019. The decrease in cash used in our investing activities for the three months ended March 31, 2020, when compared to 2019, is primarily attributable to the decrease in capital expenditures. Capital expenditures for the three months ended March 31, 2020 were $5.0 million, compared to capital expenditures of $12.4 million for the same period in 2019. Our capital spending for the three months ended March 31, 2020 of $5.0 million includes assets placed in service in 2019, but not paid until 2020 totaling $0.1 million. Our capital spending for the three months ended March 31, 2019 of $12.4 million includes assets placed in service in 2018, but not paid until 2019 totaling $2.5 million. Our capital spending for 2020 is expected to total approximately $13.7 million. Our capital expenditures are mainly for the purchases of equipment, primarily trucks and heavy machinery, used by our electrical construction operations for the upgrading and replacement of equipment. The majority of our capital budget is for continued expansion and upgrading of our fleet, conversion of leases and purchases of equipment, for our electrical construction operations. We plan to fund these purchases through our cash on hand and equipment financing, consistent with past practices.
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2020, was $12.6 million, compared to cash provided by financing activities of $13.5 million for the same period in 2019. Our financing activities for the current period consisted of borrowings of $10.0 million on our Working Capital Loan, borrowings of $4.5 million on our $4.5 Million Equipment Loan and repayments of $2.0 million on our $38.2 Million Equipment Loan (as these loans are defined in note 5 to the consolidated financial statements). Our financing activities for the three months ended March 31, 2019 consisted of borrowings of $15.5 million and repayments of $1.8 million on our $38.2 Million Equipment Loan (as defined in note 5 to the consolidated financial statements) and repayments of $28,000 on our other long-term debt, as well as debt issuance costs of $58,000. Our financing activities for the three months ended March 31, 2019, also included the repurchase of 67,709 shares of common stock totaling $161,000.
We have paid no cash dividends on our Common Stock since 1933, and it is not expected that we will pay any cash dividends on our Common Stock in the immediate future.
Days of Sales Outstanding Analysis
We evaluate fluctuations in our “accounts receivable and accrued billings” and “costs and estimated earnings in excess of billings on uncompleted contracts,” for our electrical construction operations, by comparing days of sales outstanding (“DSO”). We calculate DSO as of the end of any period by utilizing the respective quarter’s electrical construction revenue to determine sales per day. We then divide “accounts receivable and accrued billings, net of allowance for doubtful accounts” at the end of the period, by sales per day, to calculate DSO for accounts receivable. To calculate DSO for costs and estimated earnings in excess of billings, we divide “costs and estimated earnings in excess of billings on uncompleted contracts,” by sales per day.
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For the quarters ended September 30, 2017March 31, 2020 and 2016,2019, our DSO for accounts receivable and accrued billings were 7046 and 57,59, respectively, and our DSO for costs and estimated earnings in excess of billings on uncompleted contracts were 2942 and 37,31, respectively. The increase in our DSO for accounts receivable and accrued billings and the corresponding decrease in our costs and estimated earnings in excess of billings and the decrease in our DSO for accounts receivable for the quarter ended September 30, 2017,March 31, 2020, when compared to the same quarterly period in 20162019, was mainly due to the timing of project billings and cash collections. As of November 6, 2017,May 1, 2020, we have received approximately 88.4%78.4% of our September 30, 2017March 31, 2020 outstanding trade accounts receivable and have billed 50.4%51.6% of our costs and estimated earnings in excess of billings balance.
Income Taxes Paid
There were no income tax payments decreased to $4.4 million for either the ninethree months ended September 30, 2017 from $7.2 million for the nine months ended September 30, 2016March 31, 2020 or 2019 due to a decrease in expected taxable incomethe timing of filing extensions for 2017 as compared to 2016. Taxes paid for the nine months ended September 30, 2017 included approximately $500,000 for the 2016federal and state income tax liability and the remaining $3.9 million for the estimated 2017 income tax liability. Taxes paid for the nine months ended September 30, 2016 included $500,000 for the 2015 income tax liability and the remaining $6.7 million for the estimated 2016 income tax liability.
Debt Covenants
Our debt arrangements contain various financial and other covenants including cross-default provisions whereby any default under any loans of the Company (or its subsidiaries) with the lender, will constitute a default under all of the other loans of the Company (and its subsidiaries) with the lender. The most significant of the covenants are: maximum debt to tangible net worth ratio and fixed charge coverage ratio. We must maintain: a tangible net worth of at least
The following are computations of these most restrictivesignificant financial covenants:
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|
|
|
|
| Actual as of |
| |
Covenants Measured at Each Quarter End: |
| Covenant |
|
| March 31, 2020 |
| ||
Tangible net worth minimum |
| $ | 20,000,000 |
|
| $ | 66,935,365 |
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Outside debt not to exceed |
| $ | 2,000,000 |
|
| $ | — |
|
Maximum debt/tangible net worth ratio not to exceed |
| 2.50 : 1.00 |
|
| 1.22 : 1.00 |
| ||
Covenants Measured Only at Year End: |
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|
|
|
|
|
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Earnings to fixed charge coverage ratio must equal or exceed |
| 1.30 : 1.00 |
|
| 2.37 : 1.00 |
|
Actual as of | ||||||||
Covenants Measured at Each Quarter End: | Covenant | September 30, 2017 | ||||||
Tangible net worth minimum | $ | 20,000,000 | $ | 52,409,147 | ||||
Outside debt not to exceed | $ | 500,000 | $ | — | ||||
Maximum debt/tangible net worth ratio not to exceed | 2.5 : 1.0 | 0.82 : 1.0 | ||||||
Covenants Measured Only at Year End: | ||||||||
Earnings to fixed charge coverage ratio must equal or exceed | 1.3 : 1.0 | 3.95 : 1.00 |
Forecast
We anticipate our cash on hand and cash flows from operations and credit facilities will provide sufficient cash to enable us to meet our working capital needs, debt service requirements and planned capital expenditures, for at least the next twelve months. The amount of our planned capital expenditures will depend, to some extent, on the results of our future performance. However, our revenue, results of operations and cash flows, as well as our ability to seek additional financing, may be negatively impacted by factors including, but not limited to: a decline in demand for electrical construction services, general economic conditions, heightened competition, availability of construction materials, increased interest rates, and adverse weather conditions.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
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Not applicable to smaller reporting companies.
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission, and that such information is accumulated and communicated to our management in a timely manner. An evaluation was performed under the supervision and with the participation of our management, including John H. Sottile, our Chief Executive Officer (“CEO”), and Stephen R. Wherry, our Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017.March 31, 2020. Based upon this evaluation, our management, including our CEO and our CFO, concluded that our disclosure controls and procedures were effective, as of September 30, 2017,March 31, 2020, at the reasonable assurance level.
Our management, with the participation of our CEO and CFO, is responsible for evaluating changes in our internal control over financial reporting that occurred during the thirdfirst quarter of 20172020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. No changes in our internal control over financial reporting occurred during the thirdfirst quarter of 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the effectiveness of controls
A control system, no matter how well conceived and operated, can provide only reasonable assurance, not absolute assurance, that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that the design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The Company is not currently involved in any material legal proceedings, having substantially completed the Environmental Protection Agency remediation matter described in note 3 to the consolidated financial statements in this Form 10-Q.
Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, except that we will become an “accelerated filer” (as defined2019.
Our operations and results could be adversely affected by the global pandemic COVID-19
The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in Rule 12b-2financial markets. The global impact of the Securities Exchange Actoutbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Although some of 1934)the restrictions are beginning to be lifted in some states, many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on our results of operations, financial condition and cash flows due to, among other factors:
the decline in customer demand as of December 31, 2017. As a result of this changegeneral decline in status, among other things, (i) we will become subjectbusiness activity;
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delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including construction permits;
delay or inability to procure essential equipment, supplies or materials in adequate quantities and at acceptable prices;
difficulty accessing the requirementcapital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to provide an attestation by our independent registered public accounting firmcapital necessary to fund business operations or address maturing liabilities on a timely basis; and
negative impacts on the effectivenesshealth of our internal control overlabor force, including subcontractors.
The rapid development and fluidity of this situation means we are unable to predict the impact that COVID-19 will have on our consolidated financial reporting, (ii) we will be requiredstatements in future periods. Nevertheless, COVID-19 presents material uncertainty which could adversely and materially affect our results of operations, financial condition and cash flows. We are closely monitoring our efforts to acceleratemanage the impact of the pandemic on all aspects of our business, results of operation and consolidated financial reportingstatements.
To the extent COVID-19 adversely affects our business and disclosure,financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to our customer concentration and (iii) we will become subject to expanded disclosure requirements.
(a) None
(b) None
(c) The Company has had a stock repurchase plan since September 17, 2002, that was last amended by the Executive Committee on September 21, 2017 and subsequently ratified by the Board of Directors on October 5, 2017. This plan permits the purchase of up to 3,500,000 shares. There is currently available for purchase through September 30, 2018, a maximum of 1,154,940 shares. No shares have been purchased since 2006. Since the inception of the repurchase plan, we have repurchased 2,345,060 shares of our Common Stock at a cost of $1,289,467 (average cost of $0.55 per share). The Company may repurchase its shares either in the open market or through private transactions. The volume of the shares to be repurchased is contingent upon market conditions and other factors. The Company currently holds the repurchased stock as Treasury Stock, reported at cost. Also included as Treasury Stock are 17,358 shares purchased prior to the current stock repurchase plan at a cost of $18,720.
Item 3. |
None.
Not applicable.
Item 5. |
None.
31-1 | ||
31-2 | ||
32-1 (1) | ||
32-2 (1) | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
(1)These exhibits are furnished in accordance with Regulation S-K Item 601(b)(32) and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. These exhibits shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates them by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 6, 2020 | |||
THE GOLDFIELD CORPORATION | |||
By: | |||
/s/ JOHN H. SOTTILE | |||
John H. Sottile | |||
Chairman of the Board, President and Chief | |||
Executive Officer (Principal Executive Officer) | |||
/s/ STEPHEN R. WHERRY | |||
Stephen R. Wherry | |||
Senior Vice President, Chief Financial | |||
Officer, Treasurer and Assistant Secretary | |||
(Principal Financial and Accounting Officer) |
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