NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
AND
2015
Note 1 – Organization and Summary of Significant Accounting Policies
Overview
The Goldfield Corporation (the “Company”) was incorporated in Wyoming in 1906 and subsequently reincorporated in Delaware in 1968. The Company’s principal line of business is the construction of electrical infrastructure for the utility industry and industrial customers. The principal market for the Company’s electrical construction operation is primarily in the Southeast and mid-Atlantic regions of the United States and Texas.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company adopted Accounting Standards Updates (“ASU”) ASU 2011-05 and ASU 2011-12, which require comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The amendment eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. However, comprehensive income is equivalent to net income for the Company, and therefore, the Company’s accompanying financial statements do not include a Statement of Other Comprehensive Income.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
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 all means of collection have been exhausted and the potential for recovery is considered remote. As of
December 31, 2016
and
2015
, upon its review, management determined it was not necessary to record an allowance for doubtful accounts due to the majority of accounts receivable being generated by electrical utility customers who the Company considers creditworthy based on timely collection history and other considerations.
Property, Buildings, Equipment and Depreciation
Property, buildings and equipment are stated at cost. Depreciation on property, buildings and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term, including renewals that are deemed to be reasonably assured, or the estimated useful life of the improvement.
In accordance with Accounting Standard Codification (“ASC”) ASC Topic 360-10-05,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the Company assesses the need to record impairment losses on long-lived assets when events and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when future estimated undiscounted cash flows expected to result from use of the asset are less than the asset’s carrying value. Any resulting loss would be measured at fair value based on discounted expected cash flows.
Electrical Construction Revenue
The Company accepts contracts on a fixed-price, unit-price and service agreement basis. Revenue from fixed-price construction contracts are recognized on the percentage-of-completion method, measured by the ratio of costs incurred to date, to the estimated total costs to be incurred for each contract. Revenue from unit-price contracts is recognized on either the percentage-of-completion method or a man-hour or man-hour plus equipment basis. Revenue from service agreements are recognized as services are performed. Revenue from service agreements are billed on either a man-hour or man-hour plus equipment basis. Terms of the Company’s service agreements may extend for periods beyond
one
year.
The Company’s contracts allow it to bill additional amounts for change orders and claims. The Company considers a claim to be for additional work performed outside the scope of the contract and contested by the customer. Historically, claims relating to electrical construction work have not been significant.
A change order is a modification to a contract that changes the provisions of the contract, typically resulting from changes in scope, specifications, design, manner of performance, facilities, equipment, materials, sites, or period of completion of the
work under the contract. It is the Company’s policy to include revenue from change orders in contract value only when they can be reliably estimated and realization is considered probable, in accordance with ASC Topic 605-35-25-30 and ASC Topic 605-35-25-31,
Revenue Recognition for Construction Type Contracts
.
The asset, “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenue recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenue recognized.
Contract costs include all direct material, direct labor, subcontractor costs and indirect costs related to contract performance, such as supplies, tools and equipment maintenance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
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 more than one year from the date of the consolidated financial statements.
In accordance with ASC Topics 360-10,
Accounting for the Impairment or Disposal of Long-lived Assets
, land and residential properties under construction are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount or basis is not expected to be recovered, impairment losses are recorded and the related assets are adjusted to their estimated fair value. The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. The Company also complies with ASC Topic 820,
Fair Value Measurement
, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company did not record an impairment write-down to either of the Company’s land carrying value or residential properties under construction for either of the years ended
December 31, 2016
or
2015
.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes,
which establishes the recognition requirements. Deferred tax assets and liabilities are recognized for the future tax effects attributable to temporary differences and carryforwards between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records 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.
Executive Long-term Incentive Plan
The Company has not issued shares pursuant to The Goldfield Corporation 2013 Long-term Incentive Plan (the “2013 Plan”) in either
2016
or
2015
. Therefore, the Company has
no
compensation expense for shares pursuant to the 2013 Plan for either of the years ended
December 31, 2016
or
2015
.
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 financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). Actual results could differ from those estimates. Management considers the most significant estimates in preparing these financial statements to be the estimated cost to complete 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, 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.
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 in 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 long-term notes payable are also estimated by management to approximate carrying value since the interest rates prescribed by Branch Banking and Trust Company (the “Bank”) are variable market interest rates and are adjusted periodically. Restricted cash is considered by management to approximate fair value due to the nature of the asset held in a secured interest bearing bank account. The carrying value of cash surrender value of life insurance is also considered by management to approximate fair value as the carrying value is based on the current settlement value under the contract, as provided by the carrier.
Restricted Cash
The Company’s restricted cash includes cash deposited in a secured interest bearing bank account, as required by the Collateral Trust Agreement in connection with the Company’s workers’ compensation insurance policies, as described in note 12.
Goodwill and Intangible Assets
Intangible assets with finite useful lives are recorded at cost upon acquisition, and 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 relations 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
, the Company assessed the recoverability of its long-lived assets and believed that there were no events or circumstances present that would require a test of recoverability on those assets. As a result, there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives.
Segment Reporting
The Company operates as a single reportable segment, electrical construction, under ASC Topic 280-10-50
Disclosures about Segments of an Enterprise and Related Information
. The Company’s real estate activities have diminished to a point that it is no longer significant for reporting purposes and, accordingly, results of the ongoing real estate operations are included in the income statement under the caption “Other.” Certain corporate costs are not allocated to the electrical construction segment.
Reclassifications
Certain amounts previously reflected on the prior year balance sheet and in the prior year statement of cash flows have been reclassified to conform to the Company’s 2016 presentation. The prior year balance sheet included amounts under contract loss accruals now included under accounts payable and accrued liabilities. In addition, the prior year balance sheet includes amounts under residential properties under construction previously included under other assets. The cash flows from operating activities include amounts under residential properties under construction previously included under other assets. These reclassifications had no effect on the previously reported total of current assets, current liabilities or cash flows from operating activities.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, which will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles and is intended to improve and converge the financial reporting requirements for revenue from contracts with customers with International Financial Reporting Standards (“IFRS”). The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services
equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 allows for both retrospective and prospective methods of adoption and is effective for periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 which provides a one-year deferral of the revenue recognition standard’s effective date. Public business entities are required to apply the revenue recognition standard to annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early application is permitted but not before the original effective date for public business entities (annual reporting periods beginning after December 15, 2016). The option to use either a retrospective or cumulative-effective transition method did not change.
The Company has performed preliminary assessments and continues to assess the impact on our accounting practices, policies and procedures for recognizing revenue under the new standard. Specifically, under the new standard, electrical construction fixed-price contracts currently accounted for under ASC 605-35 will be recognized over time as services are performed and the underlying obligation to the customer is fulfilled. Generally, this will result in the use of input measures on a cost to cost basis similar to the practices currently in place for contracts accounted for currently under ASC 605-35. The Company has assessed that under the new guidance the primary impact will be on the timing of when contract modifications and change orders are recognized, mainly due to the application of the contract identification criteria. Currently, contract modifications and change orders are generally included in total contract value when executed by the customer as compared to the new guidance, when legally enforceable. This may result in timing differences on the recognition in revenue and margin when compared to current practices. The Company has also assessed there will not be material changes in the pattern of revenue recognition for electrical construction contracts, which are currently accounted for on a time and materials basis. These contracts will be treated as a series of distinct services transferred over time and will generally result in a similar revenue pattern when compared to our current accounting policies.
Additionally, for real estate operations presented under the caption “Other” in the consolidated financial statements, the Company estimates that there will not be changes in the pattern of revenue recognition and will continue to recognize revenue upon the transfer of control of the promised real estate properties, generally at time of closing.
The Company is currently completing its evaluation of significant contracts and assessing the potential changes and impact to its consolidated financial statements, as well as the method of adoption. The Company has identified and is in the process of implementing changes to its processes and internal controls to meet the reporting and disclosure requirements of this update and expects to adopt the new revenue recognition guidance, including all applicable subsequent ASUs issued, effective January 1, 2018.
In May 2016, the FASB issued ASU 2016-12, which improves guidance on assessing collectability, presentation of sales taxes, non-cash consideration, and completed contracts and contract modifications at transition.
The FASB has also issued the following standards which clarify ASU 2014-09 and have the same effective date as the original standard: ASU 2016-20, ASU 2016-10 and ASU 2016-08.
These updates are effective concurrently with ASU 2014-09 and are also being evaluated by the Company.
In August 2014, the FASB issued ASU 2014-15 requiring management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new guidance is effective for the annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. As required by the new standard, the Company’s management completed its evaluation and identified no probable conditions or events, individually or in the aggregate, that would raise a substantial doubt about the Company’s ability to continue as a going concern. The Company’s adoption of this guidance did not have a significant impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03 that intends to simplify the presentation of debt issuance costs. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method.
Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. The Company has adopted both ASU 2015-03 and 2015-15. This new guidance was applied on a retrospective basis.
In November 2015, the FASB issued ASU 2015-17 to simplify the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current in the balance sheet. The new guidance is effective for the annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.
The Company has adopted ASU 2015-17 prospectively as of January 1, 2016 and there were no adjustments made to prior periods as a result of the adoption.
In February 2016, the FASB issued ASU 2016-02, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company expects this new guidance to cause a material increase to the assets and liabilities on the Company’s consolidated balance sheets. The Company is currently assessing the effect the adoption will have on its consolidated financial statements of income. The impact of this ASU is non-cash in nature, therefore the Company does not expect the adoption of this new guidance to have a material impact on the Company’s cash flows or liquidity.
In August 2016, the FASB issued ASU 2016-15, which provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. In addition, in November 2016, the FASB issued ASU 2016-18, which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Both updates are effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the effect that adoption of these standards will have on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, which eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years; early adoption is permitted and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the time of adoption. The Company is currently assessing the impact that adoption will have on its consolidated financial statements.
Note 2 – Costs and Estimated Earnings on Uncompleted Contracts
Long-term fixed-price electrical construction contracts in progress accounted for using the percentage-of-completion method as of
December 31
for the years as indicated:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Costs incurred on uncompleted contracts
|
$
|
47,282,570
|
|
|
$
|
46,719,492
|
|
Estimated earnings
|
18,644,216
|
|
|
18,910,883
|
|
|
65,926,786
|
|
|
65,630,375
|
|
Less billings to date
|
59,458,744
|
|
|
55,572,337
|
|
Total
|
$
|
6,468,042
|
|
|
$
|
10,058,038
|
|
Included in the consolidated balance sheets under the following captions
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
$
|
7,313,099
|
|
|
$
|
10,292,199
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
(845,057
|
)
|
|
(234,161
|
)
|
Total
|
$
|
6,468,042
|
|
|
$
|
10,058,038
|
|
The amounts billed but not paid by customers pursuant to retention provisions of long-term electrical construction contracts were
$3.2 million
and
$1.6 million
as of
December 31, 2016
and
2015
, respectively, and are included in the accompanying consolidated balance sheets in accounts receivable and accrued billings. Retainage is expected to be collected within the next twelve months.
Note 3 – Income Taxes
The following table presents the income tax provision from continuing operations for the years ended
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Current
|
|
|
|
Federal
|
$
|
6,157,900
|
|
|
$
|
1,423,082
|
|
State
|
1,014,213
|
|
|
422,147
|
|
|
7,172,113
|
|
|
1,845,229
|
|
Deferred
|
|
|
|
Federal
|
570,770
|
|
|
1,348,420
|
|
State
|
66,885
|
|
|
184,556
|
|
|
637,655
|
|
|
1,532,976
|
|
Total
|
$
|
7,809,768
|
|
|
$
|
3,378,205
|
|
The following table presents the total income tax provision for the years ended
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Income tax provision
|
$
|
7,809,768
|
|
|
$
|
3,378,205
|
|
Discontinued operations
|
(66,077
|
)
|
|
(200,759
|
)
|
Total
|
$
|
7,743,691
|
|
|
$
|
3,177,446
|
|
The following table presents the temporary differences and carryforwards, which give rise to deferred tax assets and liabilities as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets
|
|
|
|
Accrued vacation
|
$
|
146,215
|
|
|
$
|
161,796
|
|
Acquisition costs capitalized
|
98,484
|
|
|
104,961
|
|
Accrued remediation costs
|
80,100
|
|
|
91,522
|
|
Accrued payables
|
122,235
|
|
|
226,795
|
|
Accrued workers’ compensation
|
127,033
|
|
|
182,258
|
|
Capitalized bidding costs
|
8,846
|
|
|
8,510
|
|
Inventory adjustments
|
133,991
|
|
|
159,324
|
|
Accrued lease expense
|
32,683
|
|
|
36,462
|
|
Accrued contract losses
|
89
|
|
|
24,581
|
|
Other
|
5,214
|
|
|
3,449
|
|
Total deferred tax assets
|
754,890
|
|
|
999,658
|
|
Deferred tax liabilities
|
|
|
|
Deferred gain on installment notes
|
—
|
|
|
(11,034
|
)
|
Tax amortization in excess of financial statement amortization
|
(12,156
|
)
|
|
(8,809
|
)
|
Tax depreciation in excess of financial statement depreciation
|
(8,947,058
|
)
|
|
(8,535,062
|
)
|
Total deferred tax liabilities
|
(8,959,214
|
)
|
|
(8,554,905
|
)
|
Total net deferred tax liabilities
|
$
|
(8,204,324
|
)
|
|
$
|
(7,555,247
|
)
|
As of
December 31, 2016
, the current deferred tax assets
decreased
to
$0
from
$773,000
as of
December 31, 2015
primarily due to the early adoption of ASU 2015-17. The non-current deferred tax liabilities
decreased
to
$8.2 million
as of
December 31, 2016
from
$8.3 million
as of
December 31, 2015
mainly due to the early adoption of ASU 2015-17 offset by additional tax depreciation in excess of book depreciation. The Protecting Americans from Tax Hikes Act of 2015 allowed bonus depreciation for tax purposes for
2016
and extended bonus depreciation through 2019.
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 all 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 strategies, 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
December 31, 2016
is approximately
$2.0 million
.
The following table presents the differences between the Company’s effective income tax rate and the federal statutory rate on income from continuing operations for the years ended
December 31
as indicated:
|
|
|
|
|
|
2016
|
|
2015
|
Federal statutory rate
|
35.0%
|
|
34.0%
|
State tax rate, net of federal tax
|
3.3
|
|
4.9
|
Nondeductible expenses
|
1.6
|
|
4.0
|
Domestic production activities deduction
|
(3.2)
|
|
(1.3)
|
Other
|
0.6
|
|
(0.4)
|
Total
|
37.3%
|
|
41.2%
|
The Company had gross unrecognized tax benefits of
$5,000
as of both
December 31, 2016
and
2015
. 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
2013
and relevant state statutes vary. The Company is currently not under any income tax audits or examinations and does not expect the assessment of any significant additional tax in excess of amounts provided.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years as indicated:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance as of January 1
|
$
|
4,723
|
|
|
$
|
10,998
|
|
Increase from current year tax positions
|
—
|
|
|
800
|
|
Decrease from settlements with taxing authority
|
—
|
|
|
(7,075
|
)
|
Balance as of December 31
|
$
|
4,723
|
|
|
$
|
4,723
|
|
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. Decreases in interest and penalties are due to settlements with taxing authorities and expiration of statutes of limitation. During the years ended
December 31, 2016
and
2015
, the Company recognized
$1,000
each year in interest and penalties. The Company had accrued as a current liability
$8,000
and
$7,000
for the future payment of interest and penalties as of
December 31, 2016
and
2015
, respectively.
Note 4 – Discontinued Operations
Commitments and Contingencies Related to Discontinued Operations
Discontinued operations represent former mining activities, the last of which ended in 2002. Pursuant to an agreement with the United States Environmental Protection Agency (the “EPA”), the Company performed certain remediation actions at a property sold over fifty years ago. This remediation work was completed by September 30, 2015. The Company has established a contingency provision related to discontinued operations, which was
$215,000
and
$243,000
, respectively, including an increase of
$174,000
and
$534,000
(
$108,000
and
$333,000
, net of tax benefit of
$66,000
and
$201,000
, respectively) recognized
for the years ended December 31, 2016 and 2015
, respectively. The increase for the year ended
December 31, 2016
is related to costs associated with some corrective remediation efforts during the year. The increase for the year ended
December 31, 2015
resulted mainly from changes in the scope of the project as required by the EPA. The remaining balance of
the accrued remediation costs as of
December 31, 2016
, mainly represents estimated future charges for EPA response costs and monitoring of the property. The total costs to be incurred in future periods may vary from this estimate.
The provision will be reviewed periodically based upon facts and circumstances available at the time. The costs provisioned for future expenditures related to this environmental obligation are not discounted to present value.
Note 5 – Property, Buildings and Equipment
The following table presents the balances of major classes of properties as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated useful lives in years
|
|
2016
|
|
2015
|
Land
|
—
|
|
$
|
371,228
|
|
|
$
|
371,228
|
|
Land improvements
|
7 - 15
|
|
470,754
|
|
|
405,195
|
|
Buildings and improvements
|
5 - 40
|
|
2,155,578
|
|
|
2,104,320
|
|
Leasehold improvements
|
7 - 39
|
|
252,646
|
|
|
252,646
|
|
Machinery and equipment
|
2 - 10
|
|
62,955,883
|
|
|
60,185,730
|
|
Construction in progress
|
—
|
|
180,072
|
|
|
5,966
|
|
Total
|
|
|
66,386,161
|
|
|
63,325,085
|
|
Less accumulated depreciation
|
|
|
33,140,214
|
|
|
28,653,138
|
|
Net properties, buildings and equipment
|
|
|
$
|
33,245,947
|
|
|
$
|
34,671,947
|
|
Management reviews the net carrying value of all properties, buildings and equipment on a regular basis to assess and determine whether trigger events of impairment exist and the need for possible impairments. As a result of such review, no impairment write-down was considered necessary for the years ended
December 31, 2016
and
2015
.
Note 6 – 401(k) Employee Benefits Plan
Effective January 1, 1995, the Company adopted The Goldfield Corporation and Subsidiaries Employee Savings and Retirement Plan, a defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code. The plan provides retirement benefits to all employees who meet eligibility requirements and elect to participate. Under the plan, participating employees may defer up to
100%
of their pre-tax compensation per calendar year subject to Internal Revenue Code limits. The Company’s contributions to the plan are discretionary and amounted to approximately
$286,000
and
$248,000
for the years ended
December 31, 2016
and
2015
, respectively.
Note 7 – Notes Payable
The following table presents the balances of our notes payables as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Institution
|
|
Maturity Date
|
|
2016
|
|
2015
|
|
Interest Rates
|
|
|
|
|
|
2016
|
|
2015
|
Working Capital Loan
|
Branch Banking and Trust Company
|
|
November 28, 2019
|
|
$
|
3,950,000
|
|
|
$
|
1,500,000
|
|
|
2.44
|
%
|
|
2.06
|
%
|
$10.0 Million Equipment Loan
|
Branch Banking and Trust Company
|
|
July 28, 2020
|
|
7,579,630
|
|
|
10,000,000
|
|
|
2.81
|
%
|
|
2.44
|
%
|
$17.0 Million Equipment Loan
|
Branch Banking and Trust Company
|
|
March 6, 2020
|
|
9,601,000
|
|
|
13,027,392
|
|
|
2.50
|
%
|
|
2.13
|
%
|
$2.0 Million Equipment Loan
|
Branch Banking and Trust Company
|
|
March 6, 2020
|
|
1,256,625
|
|
|
2,000,000
|
|
|
2.50
|
%
|
|
2.13
|
%
|
Total notes payable
|
|
|
|
|
22,387,255
|
|
|
26,527,392
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
54,027
|
|
|
55,480
|
|
|
|
|
|
Total notes payable, net
|
|
22,333,228
|
|
|
26,471,912
|
|
|
|
|
|
Less current portion of notes payable, net
|
|
6,101,855
|
|
|
5,815,510
|
|
|
|
|
|
Notes payable net, less current portion
|
|
$
|
16,231,373
|
|
|
$
|
20,656,402
|
|
|
|
|
|
As of
December 31, 2016
, the Company, and the Company’s wholly owned subsidiaries Southeast Power, Pineapple House of Brevard, Inc. (“Pineapple House”), Bayswater Development Corporation (“Bayswater”), Power Corporation of America (“PCA”) and C and C Power Line, Inc. (“C&C”), collectively (the “Debtors,”) were parties to a Master Loan Agreement, dated
March 6, 2015
(the “2015 Master Loan Agreement”), with Branch Banking and Trust Company (the “Bank”).
As of
December 31, 2016
, the Company had a loan agreement and a series of related ancillary agreements with the Bank providing for a revolving line of credit loan for a maximum principal amount of
$18.0 million
, to be used as a “
Working Capital Loan
.” As of
December 31, 2016
and
December 31, 2015
, borrowings under the
Working Capital Loan
were
$4.0 million
and
$1.5 million
, respectively. As a credit guaranty 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. As of
December 31, 2016
and
December 31, 2015
, the Company had
$420,000
and
$320,000
, respectively, for this irrevocable letter of credit related to workers’ compensation.
As of
December 31, 2016
, the Debtors had loan agreements with the Bank for the
$10.0 Million Equipment Loan
, the
$17.0 Million Equipment Loan
and the
$2.0 Million Equipment Loan
. All loans with the Bank are guaranteed by the Debtors and include the grant of a continuing security interest in all now owned and after acquired and wherever located personal property of the Debtors.
The
$10.0 Million Equipment Loan
bears interest at a rate per annum equal to one month LIBOR (as defined in the ancillary loan documents) plus two percent
2.00%
, which is adjusted monthly and subject to a maximum interest rate of
24.00%
.
The
Working Capital Loan
, the
$17.0 Million Equipment Loan
and the
$2.0 Million Equipment Loan
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 of
24.00%
.
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.
The schedule of payments of the notes payable as of
December 31, 2016
is as follows:
|
|
|
|
|
2017
|
$
|
6,124,222
|
|
2018
|
6,124,222
|
|
2019
|
9,225,847
|
|
2020
|
912,964
|
|
Total payments of debt
|
$
|
22,387,255
|
|
Note 8 – Commitments and Contingencies
Operating Leases
The Company leases its principal office space under a
nine
-year operating lease. Within the provisions of the office lease, there are escalations in payments over the base lease term, as well as renewal periods and cancellation provisions. The effects of the escalations have been reflected in rent expense on a straight-line basis over the expected lease term. In addition, the Company leases other office spaces as principal offices for our subsidiaries PCA and C&C. The Company also leases office equipment under operating leases that expire over the next
four
years. The Company’s leases require payments of property taxes, insurance and maintenance costs in addition to the rent payments. Additionally, the Company leases several off-site storage facilities, used to store equipment and materials, under a month to month lease arrangement. Lastly, the Company has several lease agreements to lease certain equipment from time to time over a
60
-month term. The leased equipment is used in our electrical construction operations. The Company recognizes rent expense on a straight-line basis over the expected lease term.
Future minimum lease payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2016
are as follows:
|
|
|
|
|
|
|
2017
|
|
|
$
|
4,710,941
|
|
2018
|
|
|
4,623,641
|
|
2019
|
|
|
3,558,718
|
|
2020
|
|
|
828,355
|
|
Total minimum operating lease payments
|
|
|
$
|
13,721,655
|
|
Total expense for the operating leases were
$4.8 million
and
$3.9 million
for the years ended
December 31, 2016
and
2015
, respectively.
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
December 31, 2016
, outstanding performance bonds issued on behalf of the Company’s electrical construction subsidiaries amounted to approximately
$37.3 million
.
Collective Bargaining Agreements
C&C, one of the Company’s electrical construction subsidiaries, is party to collective bargaining agreements with unions representing workers performing field construction operations. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements. The agreements require the subsidiary to pay specified wages, provide certain benefits to their respective union employees and contribute certain amounts to multi-employer pension plans and employee benefit trusts. The subsidiary’s multi-employer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on such subsidiary’s union employee payrolls, which cannot be determined for future periods because contributions depend on, among other things, the number of union employees that such subsidiary employs at any given time; the plans in which it may participate vary depending on the projects it has ongoing at any time; and the need for union resources in connection with those projects. If the subsidiary withdraws from, or otherwise terminates its participation in, one or more multi-employer pension plans, or if the plans were to otherwise become substantially underfunded, such subsidiary could be assessed liabilities for additional contributions related to the underfunding of these plans. The Company is not aware of any amounts of withdrawal liability that have been incurred as a result of a withdrawal by C&C from any multi-employer defined benefit pension plans.
Multi-employer Pension Plans
The Company contributes to a multi-employer pension plan on behalf of employees covered by collective bargaining agreements. These plans are administered jointly by management and union representatives and cover substantially all full-time
and certain part-time union employees who are not covered by other plans. The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (3) if the Company chooses to stop participating in a multi-employer plan, we could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans. At this time, we have not established any liabilities because withdrawal from these plans is not probable. For the years ended
December 31, 2016
and
2015
, the contributions to these plans were
$176,000
and
$211,000
, respectively.
The Company’s participation in multi-employer pension plans is outlined in the table below. The EIN column provides the Employer Identification Number (“EIN”) of the plan. Unless otherwise noted, the most recent Pension Protection Act zone status available in
2016
and
2015
is for the plan’s year ended
December 31, 2016
, and
2015
, respectively. The zone status is based on information that the Company received from the plan, and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP” column indicates plans for which a financial improvement plan “(“FIP”) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. There have been no significant changes in the number of Company employees covered by the multi-employer plans or other significant events that would impact the comparability of contributions to the plans.
Information about the Plan is publicly available on Form 5500, Annual Return / Report of Employee Benefit Plan. The Plan year-end is December 31st and
no
single employer contributes
5%
or more of total plan contributions.
|
|
|
|
|
|
|
|
|
|
|
Certified Zone Status
|
|
|
|
Plan Name:
|
EIN Number
|
Plan Number
|
2016
|
2015
|
FIP Implemented
|
Surcharge Imposed
|
Expiration Date of Collective Bargaining Agreement
|
National Electrical Benefit Fund
|
53-0181657
|
001
|
Green
|
Green
|
Not applicable (green-zone plan)
|
Not applicable (green-zone plan)
|
August 31, 2017
|
Committed Expenditures
The Company from time to time commits to purchase capital equipment such as heavy trucks in order to accommodate manufacture lead times. As of
December 31, 2016
the Company had approximately
$541,000
of such commitments.
Legal Proceedings
The Company is involved in various legal claims arising in the ordinary course of business. The Company has concluded that the ultimate disposition of these matters should not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
Note 9 – Income Per Share of Common Stock
Basic income 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
December 31, 2016
and
2015
, the Company had no common stock equivalents. The computation of the weighted average number of common stock shares outstanding excludes
2,362,418
shares of Treasury Stock for each of the years ended
December 31, 2016
and
2015
.
Note 10 – Common Stock Repurchase Plan
The Company has had a stock repurchase plan since
September 17, 2002
, when the Board of Directors approval was announced. As last amended by the Board of Directors on
September 15, 2016
, this plan permits the purchase of up to
3,500,000
shares. There is currently available for purchase through
September 30, 2017
, a maximum of
1,154,940
shares. 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. No shares were repurchased during the years ended
December 31, 2016
and
December 31, 2015
. As of
December 31, 2016
, the total number of shares repurchased under the Repurchase Plan was
2,345,060
at a cost of
$1,289,467
(average cost of
$0.55
per share). The Company currently holds the repurchased stock as Treasury Stock, reported at cost. Prior to
September 17, 2002
, the Company had
17,358
shares of Treasury Stock that it had purchased at a cost of
$18,720
.
Note 11 – Business Concentration and Credit Risks
Credit Risks
Financial instruments, mainly within the electrical construction operations, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable and accrued billings in the amounts of
$19.1 million
and
$17.3 million
as of
December 31, 2016
and
2015
, respectively, which management reviews to assess the need to establish an allowance for doubtful accounts.
Cash and Cash Equivalents
The Company holds cash on deposit in U.S. banks, in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced and does not anticipate any losses in any such accounts.
The Company mitigates this risk by doing business with well capitalized, quality financial institutions.
Customer Concentration
Revenue (in thousands of dollars) to customers exceeding
10%
of the Company’s total revenue for the years ended
December 31
as indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Amount
|
|
% of Total revenue
|
|
Amount
|
|
% of Total revenue
|
Electrical construction operations
|
|
|
|
|
|
|
|
Customer A
|
$
|
23,669
|
|
|
18
|
|
$
|
22,518
|
|
|
19
|
Customer B
|
18,630
|
|
|
14
|
|
16,093
|
|
|
13
|
Customer C
|
33,770
|
|
|
26
|
|
36,753
|
|
|
30
|
Revenue by service/product (in thousands of dollars) for the years ended
December 31
as indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Amount
|
|
% of Total revenue
|
|
Amount
|
|
% of Total revenue
|
Electrical construction operations
|
|
|
|
|
|
|
|
Principal electrical construction operations
(1)
|
$
|
118,748
|
|
|
91
|
|
$
|
115,769
|
|
|
96
|
Other electrical construction
(2)
|
7,023
|
|
|
5
|
|
3,847
|
|
|
3
|
Total
|
125,771
|
|
|
96
|
|
119,617
|
|
|
99
|
All other
|
4,652
|
|
|
4
|
|
955
|
|
|
1
|
Total revenue
|
$
|
130,423
|
|
|
100
|
|
$
|
120,571
|
|
|
100
|
|
|
|
|
|
|
|
|
___________
|
|
|
|
|
|
|
|
(1)
Principal electrical construction operations includes 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 total of the above categories may differ from the sum of the components due to rounding.
Note 12 – Restricted Cash
Restricted cash, reported under “Deferred charges and other assets” on the Company’s balance sheet, represents amounts deposited in a trust account to secure the Company’s obligations in connection with the Company’s workers’ compensation insurance policies.
Note 13 – Goodwill and Other Intangible Assets Associated with the Acquisition of C&C
The Company performed an annual impairment assessment on its goodwill and intangible assets on
December 31, 2016
. Based upon this analysis, the Company determined that there were no impairments.
The following table presents the gross and net balances of our goodwill and intangible assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
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
|
|
|
$
|
(128,002
|
)
|
|
$
|
511,998
|
|
|
$
|
640,000
|
|
|
$
|
(85,334
|
)
|
|
$
|
554,666
|
|
Customer relationships
|
20
|
|
350,000
|
|
|
(52,500
|
)
|
|
297,500
|
|
|
350,000
|
|
|
(35,000
|
)
|
|
315,000
|
|
Non-competition agreement
|
5
|
|
10,000
|
|
|
(7,332
|
)
|
|
2,668
|
|
|
10,000
|
|
|
(6,000
|
)
|
|
4,000
|
|
Other
|
1
|
|
13,800
|
|
|
(13,800
|
)
|
|
—
|
|
|
13,800
|
|
|
(13,800
|
)
|
|
—
|
|
Total intangible assets, net
|
|
$
|
1,013,800
|
|
|
$
|
(201,634
|
)
|
|
$
|
812,166
|
|
|
$
|
1,013,800
|
|
|
$
|
(140,134
|
)
|
|
$
|
873,666
|
|
Amortization of definite-lived intangible assets will be approximately
$61,000
annually for
2017
through
2021
.