BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES (A SUBSIDIARY OF BRIDGE FABRICATION BANKER HOLDINGS L.L.C.) INTERIM CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2021 and for the three month period ended March 31, 2021 and 2020
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES TABLE OF CONTENTS FINANCIAL STATEMENTS Interim Consolidated Balance Sheets ............................................................................................................... 2-3 Interim Consolidated Statements of Operations ................................................................................................... 4 Interim Consolidated Statements of Changes in Members’ Equity ...................................................................... 5 Interim Consolidated Statements of Cash Flows.................................................................................................. 6 Notes to the Interim Consolidated Financial Statements ............................................................................... .7-20
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEETS MARCH 31, 2021 (UNAUDITED) AND DECEMBER 31, 2020 (IN THOUSANDS) The accompanying notes to the interim consolidated financial statements are an integral part of these statements. 2 March 31, 2021 December 31, 2020 (Unaudited) ASSETS Current Assets: Cash 149$ 1,799$ Contracts receivable, net 83,411 92,197 Retainages receivable 38,681 41,122 Costs and estimated earnings in excess of billings on uncompleted contracts 9,264 15,806 Materials inventory 6,843 8,049 Contract value, net of accumulated amortization 138 277 Other current assets 1,652 1,209 Total Current Assets 140,138 160,459 Property, Plant, and Equipment: Buildings and improvements 2,796 2,588 Machinery and equipment 51,264 41,505 Office furniture and equipment 989 889 55,049 44,982 Less accumulated depreciation 13,430 12,121 Total Property, Plant, and Equipment 41,619 32,861 Other Assets: Other 375 601 Goodwill 15,323 15,323 Tradename, net of accumulated amortization 481 525 Trademark, net of accumulated amortization 197 225 Total Other Assets 16,376 16,674 Total Assets 198,133$ 209,994$
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (IN THOUSANDS) The accompanying notes to the interim consolidated financial statements are an integral part of these statements. 3 March 31, 2021 December 31, 2020 (Unaudited) LIABILITIES AND MEMBERS' EQUITY Current Liabilities: Accounts payable 44,116$ 48,957$ Accrued expenses and other liabilities 12,436 14,466 Retainages payable 7,739 6,976 Revolving credit line, current 750 - Current Maturities: Notes payable 4,275 4,267 Billings in excess of costs and estimated earnings on uncompleted contracts 50,051 55,986 Total Current Liabilities 119,367 130,652 Long-Term Liabilities: Notes payable 13,253 14,227 Subordinated notes payable, related party 6,267 6,267 Deferred gain (Note 10) 8,066 8,187 Total Long-Term Liabilities 27,586 28,681 Total Liabilities 146,953 159,333 Commitments and Contingencies (Note 17) Members' Equity 51,180 50,661 Total Liabilities and Members’ Equity 198,133$ 209,994$
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY THREE MONTHS ENDED MARCH 31, 2021 AND 2020 UNAUDITED (IN THOUSANDS) The accompanying notes to the interim consolidated financial statements are an integral part of these statements. 4 2021 2020 Contract revenue 115,257$ 77,864$ Cost of revenue 106,417 65,264 Gross Profit 8,840 12,600 General and administrative expenses 6,571 8,504 Income from Operations 2,269 4,096 Other Income (Expense): Interest expense (436) (846) Other expense (1,314) (600) Total Other Expense (1,750) (1,446) Net Income 519$ 2,650$ Three Months Ended March 31,
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2021 AND 2020 UNAUDITED (IN THOUSANDS) The accompanying notes to the interim consolidated financial statements are an integral part of these statements. 5 2021 2020 Balance, beginning of period January 1, 50,661$ 36,668$ Net income 519 2,650 Balance, end of period 51,180$ 39,318$ Three Months Ended March 31,
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 UNAUDITED (IN THOUSANDS) The accompanying notes to the interim consolidated financial statements are an integral part of these statements. 6 2021 2020 Cash flows from operating activities: Net income 519$ 2,650$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,309 942 Amoritzation of software 33 187 Amortization of estimated gain 139 - Amortization of tradename 72 72 Accretion of deferred gain on lease back (121) (198) (Increase) decrease in operating assets: Contracts receivable 8,786 6,494 Retainages receivable 2,441 (3,146) Costs and estimated earnings in excess of billings on uncompleted contracts 6,542 (6,666) Materials inventory 1,206 1,444 Other current assets (443) (492) Other assets 111 (3) Increase (decrease) in operating liabilities: Accounts payable (4,841) (7,855) Accrued expenses and other liabilities (2,030) (1,241) Retainages payable 763 528 Billings in excess of costs and estimated earnings on uncompleted contracts (5,935) 9,500 Net cash provided by operating activities 8,551 2,216 Cash flows from investing activities: Purchase of property, plant, and equipment (9,985) (213) Purchase of software - (104) Net cash used in investing activities (9,985) (317) Cash flows from financing activities: Principal payments on term notes payable, bank (966) (1,096) Borrowings and repayments on revolving line of credit, net 750 2,809 Net cash (used in) provided by financing activities (216) 1,713 Net (decrease) increase in cash (1,650) 3,612 Cash, beginning of year 1,799 936 Cash, end of year 149$ 4,548$ Three Months Ended March 31,
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 7 Note 1—Nature of operations Banker Steel Holdco, L.L.C. (the “Company”), a Delaware limited liability company, through its subsidiaries, is engaged in various commercial, industrial, and highway steel fabrication and erection projects throughout the United States. The Company was formed on November 13, 2019, at which time the members contributed 100% of their interests in Banker Steel Company, L.L.C. (“BSC”) to the Company, thereby resulting in the Company becoming the reporting entity. Note 2—Summary of significant accounting policies Basis of Consolidation – The interim consolidated financial statements include the accounts of Banker Steel Holdco, L.L.C. and its wholly-owned subsidiaries, Banker Steel Company, L.L.C. and Derr & Isbell Construction, L.L.C. In these interim consolidated financial statements and related footnotes, Banker Steel Holdco, L.L.C.; Derr & Isbell Construction, L.L.C.; and Banker Steel Company, L.L.C.; including its subsidiaries Banker Steel South, L.L.C.; Banker Steel Co. NJ, L.L.C.; US Erectors L.L.C.; NYC Constructors, L.L.C.; Memco L.L.C.; NYCC Equipment, L.L.C.; Innovative Detailing Services Ltd.; Innovative Engineering Services, L.L.C.; Lynchburg Freight and Specialty, L.L.C.; and NYC Construction Services, Ltd.; are known collectively as the “Company.” All intercompany transactions have been eliminated. Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements. Significant items subject to such estimates include recognition of the amounts of revenue and earnings from construction contracts during the reporting period, the carrying amount of property, plant, and equipment; goodwill; carrying amount of accounts receivable; inventory; the determination of the fair value of certain assets and liabilities, including property, plant, and equipment; and intangible assets and the accounting for the sale-leaseback transaction and subsequent lease classification. Actual results could differ materially from these estimates. Revenue and Cost Recognition – On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, including the subsequent Accounting Standards Updates (“ASUs”) that amended and clarified the related guidance. The Company recognizes steel fabrication and erection revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer as a project is completed. The Company considers its fixed-fee and cost-plus contracts as a single deliverable (a single performance obligation), in accordance with the guidance. Such contracts with customers are for significant construction of buildings occurring over multiple months. The transaction price is allocated to the performance obligation and such revenue is recognized over time. The transaction price is recognized over time utilizing the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The Company believes, the percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Substantially all of the Company’s revenue is generated from fabrication and erection where costs (material and labor costs) incurred are a reasonable gauge for progress in line with industry standards. The Company also maintains relationships with the customers including general contractors and only recognizes revenue when collectability is reasonably assured.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 8 Note 2—Summary of significant accounting policies (continued) Variable consideration-contract modifications, through change orders are routine in the performance of the Company’s contracts to account for changes in the contract specifications or requirements. In most instances contract modifications are not distinct from existing contracts due to the significant integration of services provided in the contract and are accounted for as a modification to the existing contract and performance obligation. Either the Company or its customers initiate change orders, which may include changes in specifications, design, manner of performance, materials, and completion of the work. The Company estimates variable consideration for performance obligations at the most likely amount to which the Company expects to be entitled. Variable consideration includes contract change orders which depends on approval from the customer for an agreed-upon modification to the contract. The Company uses judgment to determine what the most likely amount to be recognized considering outstanding change orders that have been approved or are likely to be approved. From time to time the Company utilizes subcontractors to assist with construction activities. In these situations, gross subcontractor materials, labor, and equipment are included in revenue and cost of revenue as management believes the Company is acting as a principal rather than as an agent (e.g., the Company integrates the materials, labor, and equipment into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials, labor, and/or equipment). The Company views revenue by construction project end usage and disaggregated revenue into these categories. The recognition of revenue is related to earned revenue on existing projects and the table below is not indicative of the backlog of upcoming projects. Disaggregated Revenue (in thousands) for the three months ended: 2021 2020 Industrial 24,300$ 339$ Commercial 70,681 44,129 Government 739 3,565 Healthcare 8,461 7,162 Leisure 2,104 3,094 Convention 405 3,739 Transportation 8,567 15,836 115,257$ 77,864$ Three Months Ended March 31, Contract costs include all direct material and labor costs, indirect costs, and an allocable portion of selling, general, and administrative expenses. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Under typical payment terms, amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and customer payments are typically due within 30 to 60 days of billing, depending on the contract.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 9 Note 2—Summary of significant accounting policies (continued) The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Contracts and Retainages Receivable, Contract Assets, and Contract Liabilities – Contracts for performing steel fabrication and erection are based on contracted prices. Generally, the terms of the contracts permit monthly billings for materials purchased for the contract and work completed on the contract. Progress billings are usually approved by the customer prior to submission and included in contract receivables. In addition, receivables include retentions or amounts held back until project completion and acceptance by the customer. The Company has determined there are no significant financing components in our contracts as March 31, 2021. The Company records an allowance for doubtful accounts based on specifically identified amounts that management believes might be uncollectible. As of March 31, 2021 and December 31, 2020 no allowance for doubtful accounts were identified. Contract assets, which are classified as costs and estimated earnings in excess of billings on uncompleted contracts on the accompanying interim consolidated balance sheets, represent unbilled amounts where the right to payment is subject to more than merely the passage of time. The increase in contract assets was a result of normal business activity and not materially impacted by any other factors. Contract liabilities, which are classified as billings in excess of costs and estimated earnings on uncompleted contracts on the accompanying interim consolidated balance sheets, represent amounts billed to clients in excess of revenue recognized to date. The Company anticipates that substantially all such amounts will be earned over the next 12 months. The increase in contract liabilities was a result of normal business activity and not materially impacted by any other factors. Shipping and Handling Costs – The Company recognizes shipping and handling costs of the fabricated steel and other products delivered to the job site in cost of revenue. Inventory – Inventory is stated at the lower of cost or net realizable value, cost being determined on the first-in, first-out (FIFO) method. Inventory consists primarily of raw materials not assigned to a specific contract. Materials that are purchased for specific contracts are charged at cost. The cost of materials charged to contracts is included in the calculation of costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. Property, Plant, and Equipment – The Company records property, plant, and equipment at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major renewals and betterments are capitalized and also depreciated on the straight-line method. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is reflected in the determination of net income.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 10 Note 2—Summary of significant accounting policies (continued) Goodwill and Goodwill Impairment – Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Management may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance, and economic conditions. Trademark – The Company amortizes its trademark value on a straight-line basis for a period of four years as established by an independent valuation at the time of the acquisition of Memco, Inc. on June 4, 2018. Tradename and Contract Value – The Company amortizes its tradename on a straight-line basis for a period of four years and contract value on a straight-line basis for a period of 18 months, as established by an independent valuation firm on behalf of management at the time of acquisition of Derr & Isbell Construction, L.L.C. on December 31, 2019. Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairments whenever events or changes in circumstances indicate the related carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such assets to future net undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value. No triggering events or indications of impairment were identified for the three months ended March 31, 2021 and 2020. Income Taxes – No provision is made in the accounts of the Company for federal or state income taxes because such taxes are generally liabilities of the Company’s individual members. Fair Value Measurements – The Company follows FASB ASC Topic 820, Fair Value Measurements, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction value hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 11 Note 2—Summary of significant accounting policies (continued) The standard describes three levels of inputs that may be used to measure fair value: Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date; Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and Level 3 – Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair Value of Financial Instruments – The carrying amounts of cash, contracts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying amount of long-term debt approximates fair value at December 31, 2020 and March 31, 2021, since a substantial portion of long-term debt is a variable rate, or at a rate consistent with market rates currently available to the Company. Derivative Financial Instruments – The Company from time to time enters into interest rate swap transactions to manage its exposures to movements in interest rates as well as hedging transactions to manage its exposure to steel prices. The Company does not use derivatives for trading or other speculative purposes. The risk management strategy of the Company does not meet the criteria for hedge accounting. Due to the immaterial nature of these swap and hedging transactions, the Company does not carry the value of these contracts on its interim consolidated financial statements. Upcoming Accounting Standard – In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), requiring lessees to recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. This ASU is effective for fiscal years beginning after December 15, 2021 for private companies. The Company is currently evaluating the impact and implementation strategy for the standard. Note 3—Concentrations of credit risk Substantially all of the Company’s receivables are due from companies engaged in the construction industry. Generally, the Company has the right to attach a lien on the property which it has sold or installed materials or make a claim against a payment bond if one has been furnished on the job. The Company performs ongoing credit evaluation of its customers and generally does not require collateral.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 12 Note 3—Concentrations of credit risk (continued) The Company maintains cash balances at several financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2020 and March 31, 2021, the Company had $4,285,000, and $135,600, respectively, in excess of the FDIC limit. The Company has not experienced significant losses in such accounts and does not believe it is exposed to any significant risk. Note 4—Costs and billings on uncompleted contracts March 31, 2021 December 31, 2020 (Unaudited) Costs incurred on uncompleted contracts 1,133,065$ 1,142,820$ Estimated earnings 106,938 107,081 1,240,003 1,249,901 Less billings to date 1,280,790 1,290,081 (40,787)$ (40,180)$ Included in the accompanying consolidated balance sheets under the following captions: March 31, 2021 December 31, 2020 (Unaudited) Costs and estimated earnings in excess of billings on uncompleted contracts 9,264$ 15,806$ Billings in excess of costs and estimated earnings on uncompleted contracts (50,051) (55,986) (40,787)$ (40,180)$ Note 5—Property, plant, and equipment Depreciation expense for the three months ended March 31, 2021 and 2020 was $1,309,000, and $942,000 respectively.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 13 Note 6—Intangible assets Intangible assets, including goodwill, at December 31, 2020 and March 31, 2021 consist of the following (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Goodwill 15,323$ 15,323$ Accumulated amortization 15,323$ 15,323$ Contract value (profit) 832$ 832$ Accumulated amortization 694 555 138$ 277$ Contract value (loss) (5,194)$ (5,194)$ Accumulated accretion 5,194 5,194 -$ -$ Tradename 700$ 700$ Accumulated amortization 219 175 481$ 525$ Trademark 3,060$ 3,060$ Accumulated amortization 2,863 2,835 197$ 225$ Total goodwill and intangible assets 14,721$ 14,721$ Total accumulated amortization (1,418) (1,629) 16,139$ 16,350$ The future scheduled amortization expense for intangible assets as of March 31, 2021 is as follows (in thousands): Years Ending Contract Value Tradename Trademark Total For the remaining nine months ending December 31, 2021 138$ 131$ 84$ 353$ 2022 - 175 113 288 2023 - 175 175 138$ 481$ 197$ 816$
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 14 Note 7—Line of credit The Company had a revolving credit line agreement maturing January 24, 2021, which permitted borrowings up to $30,000,000 and allowed the Company to issue letters of credit as needed up to certain pre-determined sub-limits. The interest rate on borrowings followed a rate schedule based upon the ratio of total debt to total earnings before interest, taxes, depreciation, and amortization. Loan pricing ranged from LIBOR plus 2.0% to 2.75%. The line was collateralized by substantially all of the Company’s assets including contracts receivable, inventory, and equipment. The agreement was further collateralized by the assignment of life insurance policies on the Company’s CEO. The revolving line of credit was refinanced in March 2020 with a new revolving line of credit agreement maturing March 31, 2024, which permits borrowings up to $50,000,000 and allows the Company to issue letters of credit as needed up to certain pre-determined sub-limits. The interest rate on borrowings follows a rate schedule based upon the ratio of total debt to total earnings before interest, taxes, depreciation, and amortization. Loan pricing ranges from a LIBOR floor of 0.75% plus 2.25% to 2.75%. The LIBOR rate at December 31, 2020 was 0.16%, and .0.19% at March 31, 2021 and so the floor was used, for a total interest rate of 3%. The line is collateralized by substantially all of the Company’s assets including contracts receivable, inventory, and equipment. The agreement is further collateralized by the assignment of life insurance policies on the Company’s CEO. There was approximately $750,000 and $-0- of borrowing outstanding as of March 31, 2021 and December 31, 2020, respectively. The Company acquired an additional promissory note agreement maturing February 29, 2020 through the acquisition of Derr & Isbell Construction, L.L.C., which permits borrowings up to $8,000,000. The interest rate on the loan is variable on a daily basis and is quoted as the prime rate in the most recently published issue of the Wall Street Journal (U.S. Edition) in the “Money rates” section. The interest rate payable on the outstanding balance of the line of credit agreement is an additional 3% on top of the previously mentioned prime rate. The line was subsequently extended through March 31, 2020, at which time all outstanding principal was paid and it was allowed to expire. The line of credit contains covenants which, among other things, require the Company to maintain certain financial covenants and places limitations on distributions and indebtedness. The Company met the required covenants as of December 31, 2020 and March 31, 2021. Note 8—Accrued expenses and other liabilities Accrued expenses and other liabilities consisted of the following as of December 31, 2020 and March 31, 2021 (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Deferred payroll taxes 4,519$ 4,519$ Compensation (including union liabilities) 2,308 3,908 Sales tax payable 2,017 2,639 Insurance liability 2,063 2,352 Deferred gain on sale-leaseback 482 482 Self-insurance liabilities 504 350 Other 543 216 12,436$ 14,466$
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 15 Note 9—Notes payable and subordinated debt Notes payable and long-term debt for the years ended December 31, 2020 and March 31, 2021 consisted of the following (in thousands): Final March 31, 2021 December 31, 2020 Maturity (Unaudited) Note payable, bank, interest of 4.97%, payable $62,068 monthly which includes interest, collateralized with equipment. 2020 $ - -$ Note payable, bank, interest of 4.63%, payable $3,200 monthly plus interest, collateralized with equipment. 2023 470 480 Note payable, bank, interest of 4.09%, payable $20,844 monthly which includes interest, collateralized with equipment. 2024 852 887 Note payable, bank, interest of 4.10%, payable $64,153 monthly which includes interest, collateralized with equipment. 2024 2,728 2,837 Note payable, finance company, interest of 5.52%, payable $64,153 monthly which includes interest, collateralized with equipment. 2024 80 86 Note payable, bank, interest of 3.97%, payable $32,804 monthly which includes interest, collateralized with equipment. 2025 1,398 1,454 Note payable, bank, interest of 3.50%, payable $750,000 monthly which includes interest, collateralized with substantially all Company assets. 2025 12,000 12,750 17,528 18,494 Subordinated Debt: Unsecured note payable, interest of 11.00%, interest only due to one of the members. 2024 6,267 6,267 6,267 6,267 23,795 24,761 Less current maturities 4,275 4,267 Total secured and subordinated debt 19,520$ 20,494$
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 16 Note 9—Notes payable and subordinated debt (continued) Aggregate principal payments at March 31, 2021 on long-term debt were scheduled as follows (in thousands): Notes Payable, Notes Payable, Years Ending December 31, Secured Subordinated Total For the remaining nine months ending December 31, 2021 3,200$ -$ 3,200$ 2022 4,275 - 4,275 2023 4,337 - 4,337 2024 4,902 6,267 11,169 2025 814 - 814 17,528$ 6,267$ 23,795$ Note 10—Sale‐leaseback transaction During the year ended December 31, 2018, Banker Steel Company, L.L.C. completed a transaction under which it sold its corporate headquarters and three of its fabrication facilities to an unrelated third party with the intention of leasing the facilities back from the purchaser for active use in its business. Net proceeds from the sale, all of which were cash, were approximately $15,713,000. The terms and provisions of the transaction demonstrate the buyer’s initial and continuing investment in the property and the transfer of all of the risk and rewards of ownership as demonstrated by the absence of any continuing involvement by the seller. The Company has accounted for the transaction in accordance with the sale-leaseback provisions of ASC 840-40-20, whereby the properties have been removed from the Company’s consolidated balance sheets and the Company has recognized a gain of approximately $9,632,000, all of which has been deferred. Concurrent with the sale, the Company entered into an agreement to lease the properties back from the purchaser over an initial lease term of 20 years. The master lease agreement for the properties includes an initial lease term of 20 years and (four) five-year renewal options. The Company evaluated the terms and conditions of the lease, on an asset-by-asset basis, and has classified the leases as operating leases. The deferred gain on this transaction includes both a current and noncurrent portion, with the current portion based on the amount that is expected to amortize over the next 12 months. The current and noncurrent portions are included in accrued expenses and other liabilities and deferred gain, respectively, in the accompanying consolidated balance sheets.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 17 Note 11—Operating leases At March 31, 2021, the Company was leasing certain equipment and real estate under operating leases with future minimum rental payments as follows (in thousands): Years Ending December 31, Amount For the remaining nine months ending December 31, 2021 6,164$ 2022 5,447 2023 5,447 2024 4,988 2025 4,237 2026 1,412 Thereafter 19,705 41,236$ Rental expense for the three month periods ended March 31, 2021 and 2020 was $1,950,000 and $1,307,000 respectively. Note 12—Related party transactions The Company utilizes the services of Banker Aviation, L.L.C. (“Aviation”). Aviation provides transportation services to the Company and outside third parties. One of the Company’s members owns Aviation. The Company incurred expenses of approximately $486,000 and $453,000, respectively, for the three months ended March 31, 2021 and 2020 with Aviation. The Company has a subordinated note payable to one of its members. The note is in the amount of $6,267,000 and bears interest at 11%. Interest paid for the three months ended March 31, 2021 and 2020 was approximately $172,000 in both periods. Two of the Company’s members issued a total of $2,500,000 in letters of credit in favor of the Company’s sureties, and are charging the Company, for these outstanding amounts, an annual fee equal to 15% of the average outstanding face amount. Additionally, the members are charging the Company a 3.5% renewal fee. Payment of the fees is subordinate in right-of-payment to any and all obligations of the Company’s primary lender. Total fees charged to the Company by the two members for the three months ended March 31, 2021 and 2020 amount to approximately $-0- and $94,000, respectively. As of March 31, 2021 and December 31, 2020 no fees were accrued but not yet paid. These letters of credit expired on September 30, 2020. In addition, the Company has issued $5,000,000 of letters of credit to its sureties. As of December 31 , 2020 as well as the three month periods ended March 31, 2021 and 2020, there were no draws on any of the letters of credit.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 18 Note 13—Retirement plan The Company has a 401(k) profit-sharing plan covering substantially all employees other than certain employees covered by a collective bargaining agreement. Under the plan, participating employees may elect to reduce their compensation, not to exceed the maximum limitation allowed by the Internal Revenue Code (“IRC”), with such amount being contributed to the plan for their benefit. The Company contributes to the employees’ accounts an amount equal to 100% of the first 3% of each participant’s compensation contributed, plus an additional 50% of each participant’s compensation contributed over 3% but not over 5%, provided total contributions by the Company do not exceed the maximum amount deductible under the IRC. Contributions to the plan totaled approximately $242,000 and $244,000, respectively, for the three months ended March 31, 2021 and 2020. The Company can also make a discretionary contribution in an amount determined annually by the Company. There were no discretionary contributions made during the three month period ended March 31, 2021 and 2020 Note 14—Income taxes The Company is treated as a partnership for federal and state income tax purposes. In addition, the Company’s subsidiaries are disregarded entities for federal and state income tax purposes. Consequently, federal and state income taxes are not payable, or provided for by the Company. Members are taxed individually on their share of the Company’s earnings. The Company’s net income is allocated among the members in accordance with the operating agreement of the Company. Accordingly, the interim consolidated financial statements do not reflect a provision for income taxes. Management has evaluated the effect of the guidance provided in FASB ASC 740, Income Taxes. Management has evaluated all tax positions that could have a significant effect on the interim consolidated financial statements and determined the Company has no uncertain income tax positions as of December 31, 2020 or March 31, 2021. Note 15—Supplemental cash flow information Cash paid for interest was approximately $436,000 and $846,000, respectively, for the three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and 2020, the Company did not purchased capital assets through the issuance of term note agreements. Note 16—Limited liability company The Company is a limited liability company and, accordingly, no member, manager, agent, or employee of the Company shall be personally liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, or for the acts or omissions of any other member, director, manager, agent, or employee of the Company, unless the individual has signed a specific personal guarantee.
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 19 Note 17—Commitments and contingent liabilities In the normal course of its operations, the Company is, from time to time, party to various disputes and litigation, including some that it has asserted against others. These matters generally relate to the Company’s contracts, on various projects, for fabrication and erection of steel. Although the ultimate resolution of any of these matters is inherently unpredictable, management of the Company does not presently believe the outcome of any of these matters would have a material, adverse impact on the Company’s consolidated financial position, results of operations, or cash flows. Through its wholly-owned subsidiaries, Derr & Isbell Construction, L.L.C.; NYC Constructors, L.L.C.; and Banker Steel NJ, L.L.C.; the Company has entered into an international ironworkers’ agreement covering approximately 300 employees, a separate six-year collective bargaining agreement covering approximately 200 employees, and a separate five-year collective bargaining agreement covering approximately 100 employees as of December 31, 2020 approximately 44% of the Company’s employees are represented by unions and covered by an international agreement and collective bargaining agreements with no material differences in the agreement as of March 31, 2021. Note 18—Self‐insurance As of December 31, 2020, the Company is self-insured for claims up to $150,000 on each employee and approximately $5,658,000 in aggregate claims during a policy year. The Company maintains an accrual for these costs based on claims filed and an estimate of claims incurred but not reported or paid, based upon historical data and management estimate. The accrued liability was approximately $504,000 and $350,000 as of March 31, 2021 and December 31, 2020. Note 19—Changes in estimates Accounting for contracts using the percentage-of-completion method requires management to make significant estimates with respect to contract values and costs to complete. Based upon the extended amount of time it takes to complete many of the Company’s contracts, an estimate of total revenues and expenses at completion is a complex process and, accordingly, is subject to change. During the quarters ended March 31, 2021 and 2020, no significant changes in estimates were identified (positive or negative).
BANKER STEEL HOLDCO, L.L.C. AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2021 AND 2020 20 Note 20—Risks and uncertainties In January 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a “Public Health Emergency of International Concern,” which continues to spread throughout the world and has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The coronavirus outbreak and government responses have created disruption in global supply chains and adversely impacted many industries. Although it is not possible to reliably estimate the length or severity of this outbreak and hence its financial impact, any significant disruptions to customer orders or production capacity caused by COVID-19 would result in a loss of sales and profits and other material, adverse effects. Note 21—Subsequent events Management has evaluated subsequent events through July 29, 2021 which is the date the interim consolidated financial statements were available to be issued. On May 27, 2021 the Company was sold to DBM Global, Inc., a subsidiary of HC2 Holdings, Inc. No additional reportable subsequent events were identified.