NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share and per share data)
1. Nature of Operations and Basis of Presentation
The Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019 and the related Condensed Consolidated Statements of Operations, Comprehensive Loss, Condensed Consolidated Statements of Shareholders’ Equity, and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations and cash flows of the Company for the interim periods. Interim results may not be indicative of results to be realized for the entire year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from our audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”).
The Company is a leading provider of engineered lifting solutions and operates as a single reportable segment with five operating segments. Operating activities are conducted through the following wholly-owned subsidiaries: Manitex, Inc. (“Manitex”), Badger Equipment Company (“Badger”), PM Oil and Steel S.p.A., formerly known as PM Group S.p.A, and its subsidiaries (“PM” or “PM Group”), Manitex Valla S.r.l. (“Valla”), Manitex Sabre, Inc. (“Sabre”), Crane and Machinery, Inc. (“C&M”), and Crane and Machinery Leasing, Inc. (“C&M Leasing”).
The condensed consolidated financial statements include the accounts of Manitex International, Inc. and subsidiaries in which it has a greater than 50% voting interest (collectively, the “Company”). All significant intercompany accounts, profits and transactions have been eliminated in consolidation.
Supplemental Cash Flow Information
Transactions for the periods ended March 31, 2020 and 2019 are as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Interest received in cash
|
|
$
|
60
|
|
|
$
|
69
|
|
|
Interest paid in cash
|
|
|
1,693
|
|
|
|
1,528
|
|
|
Income tax payments (refunds) in cash
|
|
|
96
|
|
|
|
3
|
|
Equity Investment
Prior to the quarter ended June 30, 2017, the Company owned a 51% interest in ASV Holdings, Inc., which was formerly known as A.S.V., LLC (“ASV”). On May 11, 2017, in anticipation of an initial public offering, ASV converted from an LLC to a C-Corporation and the Company’s 51% interest was converted to 4,080,000 common shares of ASV. On May 17, 2017, in connection with its initial public offering, ASV sold 1,800,000 of its own shares and the Company sold 2,000,000 shares of ASV common stock and reduced its investment in ASV to a 21.2% interest. ASV was deconsolidated and was recorded as an equity investment starting with the quarter ended June 30, 2017. In February 2018, the Company sold an additional 1,000,000 shares of ASV that it held which reduced the Company’s investment in ASV to approximately 11.0%. In September 2019, the Company received cash merger consideration for its remaining 1,080,000 shares of ASV and no longer has an investment in ASV.
Discontinued Operations
Sabre is located in Knox, Indiana and manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons. Its mobile tanks are sold to specialized independent tank rental companies and through the Company’s existing dealer network. The tanks are used in a variety of end markets such as petrochemical, waste management and oil and gas drilling.
9
On March 4, 2020, the Company’s Board of Directors approved the exploration by management of various strategic alternatives for Sabre, including the possibility of a transaction involving the sale of all or part of Sabre’s business and assets, to determine whether such a transaction would provide value to shareholders. The criterion of asset held for sale has been met and Sabre will be reported as discontinued operations. The Company at this time cannot be sure that any such transaction will occur, and if so, what impact such a transaction would have on the Company’s financial statements.
2. Significant Accounting Policies and New Accounting Pronouncements
Principles of Consolidation
The Company consolidates all entities that we control by ownership of a majority voting interest. Additionally, there are situations in which consolidation is required even though the usual condition of consolidation (ownership of a majority voting interest) does not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting interests, which results in a disproportionate relationship between such entity's voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise. This disproportionate relationship results in what is known as a variable interest, and the entity in which we have this interest is referred to as a Variable Interest Entity (“VIE”). An enterprise must consolidate a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company eliminates from the Company’s financial results all significant intercompany transactions.
Restricted Cash
Certain of the Company’s lending arrangements require the Company to post collateral or maintain minimum cash balances in escrow. These cash amounts are reported as current assets on the balance sheets based on when the cash will be contractually released. Total restricted cash was $219 and $217 at March 31, 2020 and December 31, 2019, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amounts the Company’s customers are invoiced and do not bear interest. Accounts receivable is reduced by an allowance for amounts that may become uncollectible in the future. The Company is exposed to credit losses through the sale of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customer trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted at this time. The Company’s estimate for the allowance for doubtful accounts related to trade receivables includes evaluation of specific accounts where the Company has information that the customer may have an inability to meet its financial obligations. The Company had allowances for doubtful accounts of $663 and $686 at March 31, 2020 and December 31, 2019, respectively.
For the three months ended, March 31, 2020, one customer, Rush Truck Center, accounted for approximately 10.0% of the Company’s revenue. For the three months ended, March 31, 2019, no customer accounted for more than 10.0% of the Company’s revenue.
Assets and Liabilities Classified as Held for Sale
The Company classifies assets (or disposal groups comprised of assets and liabilities) as held for sale when they are expected to be recovered primarily through sale rather than through continuing use. They are stated at the lower of carrying amount or fair value less costs to sell. Upon reclassification, we cease to depreciate or amortize non-current assets classified as held for sale.
A discontinued operation is a component of our business that represents a separate major line of business or geographical area of operation that has been disposed of or is held for sale and a strategic shift that will have a major effect on our operations and financial results. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income (loss) is revised as if the operation had been discontinued from the start of the comparative period. We have elected to not revise the interim unaudited condensed consolidated statements of cash flows to split operating, investing and financing activities between
10
continuing and discontinued operations, but instead provide certain required cash flow information. As part of the discontinued operations classification, we review the allocation of corporate expenses, interest expense and entity-wide goodwill and intangible assets. In addition, income taxes are calculated on a stand-alone basis for both continuing and discontinued operations.
See Note 20 to the interim unaudited condensed consolidated financial statements included elsewhere in this quarterly report for a more detailed discussion of assets held for sale and discontinued operations.
Guarantees
The Company has issued partial residual guarantees to financial institutions related to a customer financing of equipment purchased by the customer. The Company must assess the probability of losses if the fair market value is less than the guaranteed residual value.
The Company has issued partially residual guarantees that have maximum exposure of approximately $1.6 million. The Company, however, does not have any reason to believe that any exposure from such a guarantee is either probable or estimable at this time, as such, no liability has been recorded. The Company’s ability to recover any losses incurred under the guarantees may be affected by economic conditions in used equipment markets at the time of loss.
The Company records a liability for the estimated fair value of guarantees issued pursuant to ASC 460. The Company recognizes a loss under a guarantee when its obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized if the Company’s payment obligation under the guarantee exceeds the value it can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.
Inventory, net
Inventory consists of stock materials and equipment stated at the lower of cost (first in, first out) or net realizable value. All equipment classified as inventory is available for sale. The Company records excess and obsolete inventory reserves. The estimated reserve is based upon specific identification of excess or obsolete inventories. Selling, general and administrative expenses are expensed as incurred and are not capitalized as a component of inventory.
Accrued Warranties
Warranty costs are accrued at the time revenue is recognized. The Company’s products are typically sold with a warranty covering defects that arise during a fixed period of time. The specific warranty offered is a function of customer expectations and competitive forces. The Equipment Distribution division does not accrue for warranty costs at the time of sales, as they are reimbursed by the manufacturers for any warranty that they provide to their customers.
A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claim experience. Historical warranty experience is, however, reviewed by management. The current provision may be adjusted to take into account unusual or non-recurring events in the past or anticipated changes in future warranty claims. Adjustments to the initial warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. Warranty reserves are reviewed to ensure critical assumptions are updated for known events that may impact the potential warranty liability.
Interest Rate Swap Contracts
The Company enters into derivative instruments to manage its exposure to interest rate risk related to certain foreign term loans. Derivatives are initially recognized at fair value at the date the contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in current earnings immediately unless the derivative is designated and effective as a hedging instrument, in which case the effective portion of the gain or loss is recognized and is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged instrument affects earnings (date of sale). The Company’s interest rate swap contracts are held by the PM Group and are intended to manage the exposure to interest rate risk related to certain term loans that PM Group has with certain financial institutions in Italy. These contracts have been determined not to be hedge instruments under ASC 815-10.
Litigation Claims
In determining whether liabilities should be recorded for pending litigation claims, the Company must assess the allegations and the likelihood that it will successfully defend itself. When the Company believes it is probable that it will not prevail in a particular matter, it will then make an estimate of the amount of liability based, in part, on the advice of legal counsel.
11
Income Taxes
The Company’s provision for income taxes consists of U.S. and foreign taxes in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that the Company expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. The effective tax rate is based upon the Company’s anticipated earnings both in the U.S. and in foreign jurisdictions.
In assessing the realizability of deferred tax assets, the Company evaluates whether it is more-likely-than-not (more than 50%) that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. We assess all positive and negative evidence when determining the amount of the net deferred tax assets that are more-likely-than-not to be realized. This evidence includes, but is not limited to, prior earnings history, schedule reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establish a valuation allowance.
Comprehensive Income
Reporting “Comprehensive Income” requires reporting and displaying comprehensive income and its components. Comprehensive income includes, in addition to net earnings, other items that are reported as direct adjustments to stockholder’s equity. Currently, the comprehensive income adjustment required for the Company consists of a foreign currency translation adjustment, which is the result of consolidating its foreign subsidiaries.
Accounting for Equity Investments
Beginning with the quarter ended June 30, 2017, the Company accounted for its 21.2% investment in ASV under the equity method of accounting. Under the equity method, the Company’s share of the net income (loss) of ASV was recognized as income (loss) in the Company’s statement of operations and added to the investment account, and dividends received from ASV were treated as a reduction of the investment account. The Company reported ASV’s earnings on a one quarter lag as there was no assurance ASV would report earnings in time to be included in the Company’s financial statements for any given reporting period.
Between February 26 and 28, 2018, the Company sold 1,000,000 shares of ASV stock, reducing the Company’s investment in ASV to approximately 11.0%. During the quarter ended March 31, 2018, the Company:
|
|
•
|
Recognized its proportional share of ASV loss for the three months ended December 31, 2017,
|
|
|
•
|
Recorded a loss on the sale of shares,
|
|
|
•
|
Ceased accounting for ASV as an equity investment, and
|
|
|
•
|
Valued its remaining investment in ASV at its current market value.
|
In September 2019, the Company received cash merger consideration for its remaining 1,080,000 shares of ASV and no longer has an investment in ASV. See Notes 8 and 19.
Accounting for Marketable Equity Securities
Marketable equity securities are valued at fair market value based on the closing price of the stock on the date of the balance sheet. Gains and loss related fair value adjustments related to marketable equity securities are recorded into income each reporting period. In September 2019, the Company received cash merger consideration for its remaining 1,080,000 shares of ASV and no longer has marketable equity securities.
Shipping and Handling
The Company records the amount of shipping and handling costs billed to customers as revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment costs and are included in cost of sales.
12
Adoption of Highly Inflationary Accounting in Argentina
GAAP guidance requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100 percent. In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100 percent, and as of July 1, 2018, we elected to adopt highly inflationary accounting for our subsidiary in Argentina (“PM Argentina”). Under highly inflationary accounting, PM Argentina’s functional currency became the Euro (its parent company’s reporting currency), and its income statement and balance sheet have been measured in Euros using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in other (income) and expense, net and was not material. As of March 31 2020, PM Argentina had a small net peso monetary position. Net sales of PM Argentina were less than 5 percent of our consolidated net sales for the three months ended March 31, 2020 and 2019, respectively.
Recently Issued Pronouncements - Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The effective date for ASU 2019-12 will be the first quarter of fiscal year 2021 and early adoption is permitted. Adoption of Topic 740 is not expected to have a material effect on the Company’s consolidated financial statements.
Recently Adopted Accounting Guidance
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”). ASU 2019-04 provides narrow scope amendments for Topics 326, 815 and 825. The effective date was the first quarter of fiscal year 2020 and early adoption was permitted. The Company adopted this guidance as of January 1, 2020. The adoption of this guidance did not have a significant impact on our operating results. There was no adjustment to retained earnings as a result of the adoption of this guidance.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance in this standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to certain off-balance sheet credit exposures. Subsequently, the FASB issued the following standards related to ASU 2016-13: ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326) Targeted Transition Relief,” and ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss Standard”). The effective date for these standards was the first quarter of fiscal year 2020 and early adoption was permitted. The Credit Loss Standard was applied using a modified retrospective approach. The Company adopted this guidance as of January 1, 2020. The adoption of this guidance did not have a significant impact on our operating results.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-2”). ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (commonly known as the “Tax Cuts and Jobs Act” (the “Jobs Act”)). The Company has adopted this guidance as of January 1, 2019. The adoption of this guidance did not have a significant impact on our operating results.
Except as noted above, the guidance issued by the FASB during the current year is not expected to have a material effect on the Company’s consolidated financial statements.
3. Revenue Recognition
Revenue is recognized when obligations under the terms of the contract with our customer are satisfied; generally, this occurs with the transfer of control of our equipment, parts or installation services (typically completed within one day), which occurs at a point in time. Equipment can be redirected during the manufacturing phase such that over time revenue recognition is not appropriate. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are non-cancellable and returns are only allowed in limited instances through Crane & Machinery, Inc. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold and do not constitute a separate performance obligation.
13
For instances where equipment and installation services are sold together, the Company accounts for the equipment and installation services separately. The consideration (including any discounts) is allocated between the equipment and installation services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the equipment.
In some instances, the Company fulfills its obligations and bills the customer for the work performed but does not ship the goods until a later date. These arrangements are considered bill-and-hold transactions. In order to recognize revenue on the bill-and-hold transactions, the Company ensures the customer has requested the arrangement, the product is identified separately as belonging to the customer, the product is ready for shipment to the customer in its current form, and the Company does not have the ability to direct the product to a different customer. A portion of the transaction price is not allocated to the custodial services due to the immaterial value assigned to that performance obligation.
Payment terms offered to customers are defined in contracts and purchase orders and do not include a significant financing component. At times, the Company may offer discounts which are considered variable consideration however, the Company applies the constraint guidance when determining the transaction price to be allocated to the performance obligations.
The Company generates revenue through its principal subsidiaries:
Manitex, Inc. (“Manitex”) markets a comprehensive line of boom trucks, truck cranes and sign cranes. Manitex’s boom trucks and crane products are primarily used for industrial projects, energy exploration and infrastructure development, including, roads, bridges and commercial construction.
Badger Equipment Company (“Badger”) is a manufacturer of specialized rough terrain cranes and material handling products. Badger primarily serves the needs of the construction, municipality and railroad industries.
PM Oil and Steel S.p.A (“PM” or “PM Group”), formerly known as PM Group S.p.A., is a leading Italian manufacturer of truck mounted hydraulic knuckle boom cranes with a 50-year history of technology and innovation, and a product range spanning more than 50 models.
Manitex Valla S.r.l.’s (“Valla”) product line of industrial cranes is a full range of precision pick and carry cranes using electric, diesel, and hybrid power options. Its cranes offer wheeled or tracked, and fixed or swing boom configurations, with special applications designed specifically to meet the needs of its customers. These products are sold internationally through dealers and into the rental distribution channel.
Manitex Sabre, Inc. (“Sabre”) manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons. Its mobile tanks are sold to specialized independent tank rental companies and through the Company’s existing dealer network. The tanks are used in a variety of end markets such as petrochemical, waste management and oil and gas drilling. This entity is included in discontinued operations.
Crane and Machinery, Inc. (“C&M”) is a distributor of the Company’s products as well as Terex Corporation’s (“Terex”) rough terrain and truck cranes. Crane and Machinery Leasing, Inc.’s (“C&M Leasing”) rents equipment manufactured by the Company as well as a limited amount of equipment manufactured by third parties. Although C&M is a distributor of Terex rough terrain and truck cranes, C&M’s primary business is the distribution of products manufactured by the Company.
For each of the subsidiaries, various products may be sold separately or together with installation services. Further, equipment sales come with a standard warranty that is not sold separately. Additionally, each of the subsidiaries sells parts to its customers.
The following table disaggregates our revenue for the three months ended March 31, 2020 and 2019:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Equipment sales
|
|
$
|
40,875
|
|
|
$
|
46,384
|
|
|
Part sales
|
|
|
7,168
|
|
|
|
7,302
|
|
|
Installation services
|
|
|
690
|
|
|
|
739
|
|
|
Total Revenue
|
|
$
|
48,733
|
|
|
$
|
54,425
|
|
14
The Company attributes revenue to different geographic areas based on where items are shipped to or services are performed. The following table provides detail of revenues by geographic area for the three months ended March 31, 2020 and 2019:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
$
|
24,473
|
|
|
$
|
26,897
|
|
|
Canada
|
|
|
2,480
|
|
|
|
6,018
|
|
|
Italy
|
|
|
5,333
|
|
|
|
4,923
|
|
|
Chile
|
|
|
2,085
|
|
|
|
2,383
|
|
|
France
|
|
|
2,783
|
|
|
|
1,946
|
|
|
Other
|
|
|
1,925
|
|
|
|
1,874
|
|
|
Argentina
|
|
|
1,304
|
|
|
|
1,867
|
|
|
United Kingdom
|
|
|
1,552
|
|
|
|
1,590
|
|
|
Spain
|
|
|
1,166
|
|
|
|
1,059
|
|
|
Germany
|
|
|
1,113
|
|
|
|
1,347
|
|
|
Finland
|
|
|
1,034
|
|
|
|
1,178
|
|
|
Mexico
|
|
|
175
|
|
|
|
544
|
|
|
Romania
|
|
|
620
|
|
|
|
165
|
|
|
Peru
|
|
|
142
|
|
|
|
458
|
|
|
Hong Kong
|
|
|
32
|
|
|
|
446
|
|
|
Singapore
|
|
|
6
|
|
|
|
92
|
|
|
Israel
|
|
|
161
|
|
|
|
437
|
|
|
Czech Republic
|
|
|
254
|
|
|
|
333
|
|
|
Netherlands
|
|
|
234
|
|
|
|
236
|
|
|
Ireland
|
|
|
90
|
|
|
|
317
|
|
|
Martinique
|
|
|
156
|
|
|
|
12
|
|
|
China
|
|
|
244
|
|
|
|
2
|
|
|
Morocco
|
|
|
22
|
|
|
|
—
|
|
|
Denmark
|
|
|
45
|
|
|
|
62
|
|
|
Turkey
|
|
|
82
|
|
|
|
63
|
|
|
United Arab Emirates
|
|
|
599
|
|
|
|
17
|
|
|
Bahrain
|
|
|
35
|
|
|
|
52
|
|
|
Indonesia
|
|
|
—
|
|
|
|
28
|
|
|
Saudi Arabia
|
|
|
20
|
|
|
|
24
|
|
|
Russia
|
|
|
0
|
|
|
|
17
|
|
|
Puerto Rico
|
|
|
236
|
|
|
|
8
|
|
|
Belgium
|
|
|
103
|
|
|
|
26
|
|
|
South Africa
|
|
|
67
|
|
|
|
3
|
|
|
Kuwait
|
|
|
—
|
|
|
|
1
|
|
|
Malaysia
|
|
|
153
|
|
|
|
—
|
|
|
Ukraine
|
|
|
9
|
|
|
|
—
|
|
|
|
|
$
|
48,733
|
|
|
$
|
54,425
|
|
15
Total Company Revenues by Sources
The sources of the Company’s revenues are summarized below for the three months ended March 31, 2020 and 2019:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Boom trucks, knuckle boom & truck cranes
|
|
$
|
34,787
|
|
|
$
|
39,571
|
|
|
Part sales
|
|
|
7,168
|
|
|
|
7,302
|
|
|
Other equipment
|
|
|
2,954
|
|
|
|
5,400
|
|
|
Rough terrain cranes
|
|
|
3,134
|
|
|
|
1,413
|
|
|
Installation services
|
|
|
690
|
|
|
|
739
|
|
|
Total Revenue
|
|
$
|
48,733
|
|
|
$
|
54,425
|
|
Contract Balances
Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses.
Customer Deposits
At times, the Company may require an upfront deposit related to its contracts. In instances where an upfront deposit has been received by the Company and the revenue recognition criteria have not yet been met, the Company records a contract liability in the form of a customer deposit, which is classified as a short-term liability on the balance sheet. That customer deposit is revenue that is deferred until the revenue recognition criteria have been met, at which time, the customer deposit is recognized into revenue.
The following table summarizes changes in customer deposits are as follows:
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Customer deposits
|
|
$
|
1,493
|
|
|
$
|
1,835
|
|
|
Revenue recognized from customer deposits
|
|
|
(1,388
|
)
|
|
|
(5,847
|
)
|
|
Additional customer deposits received where
revenue has not yet been recognized
|
|
|
1,146
|
|
|
|
5,658
|
|
|
Effect of change in exchange rates
|
|
|
(42
|
)
|
|
|
(153
|
)
|
|
|
|
$
|
1,209
|
|
|
$
|
1,493
|
|
4. Financial Instruments—Marketable Securities, Forward Currency Exchange Contracts and Interest Rate Swap Contracts
The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 by level within the fair value hierarchy. As required by ASC 820-10, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
16
The following is summary of items that the Company measures at fair value on a recurring basis:
|
|
|
Fair Value at March 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts
|
|
$
|
—
|
|
|
$
|
288
|
|
|
$
|
—
|
|
|
$
|
288
|
|
|
Total current assets at fair value
|
|
$
|
—
|
|
|
$
|
288
|
|
|
$
|
—
|
|
|
$
|
288
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PM contingent liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
308
|
|
|
$
|
308
|
|
|
Valla contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
202
|
|
|
|
202
|
|
|
Total recurring liabilities at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
510
|
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PM contingent liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
314
|
|
|
Valla contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
205
|
|
|
|
205
|
|
|
Forward currency exchange contracts
|
|
|
—
|
|
|
|
99
|
|
|
|
—
|
|
|
|
99
|
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
99
|
|
|
$
|
519
|
|
|
$
|
618
|
|
|
|
|
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
PM
Contingent
Consideration
|
|
|
Valla
Contingent
Consideration
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
|
$
|
314
|
|
|
$
|
205
|
|
|
$
|
519
|
|
|
Effect of change in exchange rates
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
Balance at March 31, 2020
|
|
$
|
308
|
|
|
$
|
202
|
|
|
$
|
510
|
|
Fair Value Measurements
ASC 820-10 classifies the inputs used to measure fair value into the following hierarchy:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Fair value of the forward currency contracts is determined on the last day of each reporting period using observable inputs, which are supplied to the Company by the foreign currency trading operation of its bank and are Level 2 items.
5. Derivative Financial Instruments
The Company’s risk management objective is to use the most efficient and effective methods available to us to minimize, eliminate, reduce or transfer the risks which are associated with fluctuation of exchange rates between the Euro, Chilean peso and the U.S. dollar.
Forward Currency Contracts
When the Company receives a significant order in a currency other than the operating unit’s functional currency, management may evaluate different options that are available to mitigate future currency exchange risks. As of March 31, 2020, the Company had no outstanding forward currency contracts that were in place to hedge future sales. Therefore, there are currently no unrealized pre-tax gains or losses which will be reclassified from other comprehensive income into earnings during the next 12 months.
17
In addition, the Company enters into forward currency exchange contracts in relationship such that the exchange gains and losses on certain assets and liabilities denominated in a currency other than the reporting units’ functional currency would be offset by the changes in the market value of the forward currency exchange contracts it holds. PM Group has an intercompany receivable denominated in Euros from its Chilean subsidiary. At March 31, 2020, the Company had entered into two forward currency exchange contracts that mature on May 29, 2020. Under the first contract the Company was obligated to sell 2,900,000 Chilean pesos for 3,323 euros. The Company had a second contract which obligated the Company to sell 120,000 Chilean pesos for $151. The purpose of the forward contracts is to mitigate the income effect related to this intercompany receivable that results with a change in exchange rate between the Euro and the Chilean peso.
Interest Rate Swap Contracts
A contract was signed by PM Group, for an original notional amount of € 482 (€ .01 at March 31, 2020), maturing on October 1, 2020 with interest paid monthly. PM pays interest at a rate of 3.90% and receives from the counterparties interest at the “Euribor” rate for the period in question if greater than 0.90%.
As of March 31, 2020, the Company had the following forward currency contracts and interest rate swaps:
|
Nature of Derivative
|
|
Currency
|
|
Amount
|
|
|
Type
|
|
Forward currency sales
contracts
|
|
Chilean peso
|
|
|
3,020,000
|
|
|
Not designated as hedge
instrument
|
|
Interest rate swap contract
|
|
Euro
|
|
|
444
|
|
|
Not designated as hedge
instrument
|
The following table provides the location and fair value amounts of derivative instruments that are reported in the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019:
Total derivatives NOT designated as a hedge instrument
|
|
|
|
|
Fair Value
|
|
|
|
|
Balance Sheet Location
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contract
|
|
Prepaid expense and other
|
|
$
|
288
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contract
|
|
Accrued expense
|
|
$
|
—
|
|
|
$
|
99
|
|
The following tables provide the effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
Gain (loss)
|
|
|
|
|
Location of gain or (loss)
recognized in the Statement
of Operations
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Derivatives Not Designated
as Hedge Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
Foreign currency
transaction gains (losses)
|
|
$
|
388
|
|
|
$
|
(45
|
)
|
|
Interest rate swap contracts
|
|
Interest expense
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
$
|
388
|
|
|
$
|
(44
|
)
|
The counterparty to each of the currency exchange forward contracts is a major financial institution with credit ratings of investment grade or better and no collateral is required. Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely.
18
6. Inventory, net
The components of inventory are as follows:
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Raw materials and purchased parts, net
|
|
$
|
42,908
|
|
|
$
|
35,406
|
|
|
Work in process, net
|
|
|
4,691
|
|
|
|
5,547
|
|
|
Finished goods, net
|
|
|
16,761
|
|
|
|
16,865
|
|
|
Inventory, net
|
|
$
|
64,360
|
|
|
$
|
57,818
|
|
The Company has established reserves for obsolete and excess inventory of $8,231 and $7,961 as of March 31, 2020 and December 31, 2019, respectively.
7. Goodwill and Intangible Assets
Intangible assets and accumulated amortization by category as of March 31, 2020 is as follows:
|
|
|
Weighted Average
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
|
Amortization
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Period (in years)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Patented and unpatented technology
|
|
7
|
|
$
|
17,820
|
|
|
$
|
(13,621
|
)
|
|
$
|
4,199
|
|
|
Customer relationships
|
|
6
|
|
|
18,402
|
|
|
|
(11,183
|
)
|
|
|
7,219
|
|
|
Trade names and trademarks
|
|
12
|
|
|
4,829
|
|
|
|
(2,530
|
)
|
|
|
2,299
|
|
|
Indefinite lived trade names
|
|
|
|
|
2,400
|
|
|
|
|
|
|
|
2,400
|
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,117
|
|
Intangible assets and accumulated amortization by category as of December 31, 2019 is as follows:
|
|
|
Weighted Average
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
|
Amortization
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Period (in years)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Patented and unpatented technology
|
|
7
|
|
$
|
17,963
|
|
|
$
|
(13,499
|
)
|
|
$
|
4,464
|
|
|
Customer relationships
|
|
6
|
|
|
18,602
|
|
|
|
(10,968
|
)
|
|
|
7,634
|
|
|
Trade names and trademarks
|
|
12
|
|
|
4,829
|
|
|
|
(2,481
|
)
|
|
|
2,348
|
|
|
Indefinite lived trade names
|
|
|
|
|
2,586
|
|
|
|
|
|
|
|
2,586
|
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,032
|
|
Amortization expense for intangible assets was $540 and $575 for the three months ended March 31, 2020 and 2019, respectively.
Estimated amortization expense for the next five years and subsequent is as follows:
|
|
|
Amount
|
|
|
2021
|
|
$
|
2,073
|
|
|
2022
|
|
|
2,073
|
|
|
2023
|
|
|
2,073
|
|
|
2024
|
|
|
2,063
|
|
|
2025
|
|
|
2,013
|
|
|
And subsequent
|
|
|
3,422
|
|
|
Total intangibles currently to be amortized
|
|
|
13,717
|
|
|
Intangibles with indefinite lives not amortized
|
|
|
2,400
|
|
|
Total intangible assets
|
|
$
|
16,117
|
|
19
Changes in goodwill for the three months ended March 31, 2020 are as follows:
|
|
|
Total
|
|
|
Balance January 1, 2020
|
|
$
|
32,635
|
|
|
Effect of change in exchange rates
|
|
|
(447
|
)
|
|
Goodwill impairment
|
|
|
(6,567
|
)
|
|
Balance March 31, 2020
|
|
$
|
25,621
|
|
The Company performed an impairment assessment as of March 31, 2020, prior to its October 1, 2020 annual measurement date. The Company’s policy is to assess the realizability of its intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows are less than the carrying value. Future cash flow projections include assumptions for future sales levels, the impact of cost reduction programs, and the level of working capital needed to support each business. The amount of any impairment then recognized would be calculated as the difference between the estimated fair value and the carrying value of the asset. As of the valuation date, the global economy and the financial markets were experiencing severe adverse effects from the coronavirus disease (COVID-19) pandemic. While uncertainty remains as to its ultimate impact, the COVID-19 pandemic is causing tremendous hardships globally and adversely impacting global and financial market conditions. At March 31, 2020, the Company considered a decrease in its market capitalization to be a triggering event and as such a valuation analysis was performed and goodwill and intangible assets were determined to be impaired, and as such non-cash impairment charges were made to selling, general and administrative expense and shown separately on the income statement as impairment of intangibles. In order to more closely align the estimated fair values of our reporting units to our overall market capitalization, an increase to our risk premium utilized within our discounted cash flows analysis was applied, resulting in an impairment charge to goodwill and intangible assets at our PM reporting unit in the amount of $6,585 and $137, respectively.
8. Equity Method Investments
The Company accounted for its investment in ASV during the period (May 17, 2017 to February 26, 2018) that it owned 21.2% of ASV as an equity investment. Under the equity method, the Company’s share of the net income (loss) of ASV was recognized as income (loss) in the Company’s statement of operations added to the investment, and dividends received from ASV were treated as a reduction of the investment account. The Company reported ASV’s earnings on a one quarter lag as there was no assurance that ASV would report earnings in time to be included in the Company’s financial statements for any given reporting period. During the quarter ended March 31, 2018, the Company recorded its proportional share of ASV’s loss for the quarter ended December 31, 2017 and recorded amortization related temporary differences.
Between February 26 and 28, 2018, the Company sold 1,000,000 shares of ASV stock, reducing the Company’s investment to approximately 11.0%, and ceased accounting for its investment in ASV as an equity method investment. In September 2019, the Company received cash merger consideration for its remaining 1,080,000 shares of ASV and no longer has an investment in ASV. See Note 19.
9. Accrued Expenses
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Accrued payroll
|
|
$
|
1,261
|
|
|
$
|
899
|
|
|
Accrued employee benefits
|
|
|
449
|
|
|
|
829
|
|
|
Accrued bonuses
|
|
|
972
|
|
|
|
797
|
|
|
Accrued vacation
|
|
|
1,254
|
|
|
|
1,218
|
|
|
Accrued interest
|
|
|
323
|
|
|
|
932
|
|
|
Accrued commissions
|
|
|
370
|
|
|
|
344
|
|
|
Accrued expenses—other
|
|
|
1,537
|
|
|
|
684
|
|
|
Accrued warranty
|
|
|
1,539
|
|
|
|
1,604
|
|
|
Accrued taxes other than income taxes
|
|
|
1,115
|
|
|
|
1,297
|
|
|
Accrued product liability and workers compensation claims
|
|
|
143
|
|
|
|
534
|
|
|
Total accrued expenses
|
|
$
|
8,963
|
|
|
$
|
9,138
|
|
20
10. Accrued Warranty
The accrued warranty liability is established using historical warranty claim experience; however, the current provision may be adjusted to take into consideration unusual or non-recurring events in the past or anticipated changes in future warrant claims.
|
|
|
For the three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance January 1,
|
|
$
|
1,604
|
|
|
$
|
2,004
|
|
|
Accrual for warranties issued during the period
|
|
|
538
|
|
|
|
625
|
|
|
Warranty services provided
|
|
|
(462
|
)
|
|
|
(667
|
)
|
|
Changes in estimate
|
|
|
(133
|
)
|
|
|
(52
|
)
|
|
Foreign currency translation
|
|
|
(8
|
)
|
|
|
(38
|
)
|
|
Balance March 31,
|
|
$
|
1,539
|
|
|
$
|
1,872
|
|
11. Credit Facilities and Debt
U.S. Credit Facilities
At March 31, 2020, the Company and its U.S. subsidiaries have a Loan and Security Agreement, as amended (the “Loan Agreement”), with CIBC Bank USA (“CIBC”), formerly known as “The Private Bank and Trust Company”. The Loan Agreement provides a revolving credit facility extending the maturity date from July 20, 2021 to July 20, 2023. The aggregate amount of the facility increased from $25,000 to $30,000.
The maximum borrowing available to the Company under the Loan Agreement is limited to: (1) up to 85% of eligible receivables; plus (2) up to 50% of eligible inventory valued at the lower of cost or net realizable value subject to a $20,000 limit; plus (3) up to 80% of eligible used equipment, as defined, valued at the lower of cost or market subject to a $2,000 limit; plus (4) 85% of Eligible Bill and Hold Receivables (as defined in the Loan Agreement) subject to a $10,000 limit; plus (5) 50% of eligible Mexico receivables (as defined in the Loan Agreement) valued at the lower of cost or net realizable value subject to a $400 limit. At March 31, 2020, the maximum the Company could borrow based on available collateral was $23,600. At March 31, 2020, the Company had $6,000 borrowings under this facility. The Company had no borrowings at December 31, 2019. The indebtedness under the Loan Agreement is collateralized by substantially all of the Company’s assets, except for certain assets of the Company’s subsidiaries.
The Loan Agreement provides that the Company can opt to pay interest on the revolving credit at either a base rate plus a spread, or a LIBOR rate plus a spread. The base rate spread ranges from 0.00% to 0.50% depending on the Borrower’s Adjusted Excess Availability (as defined in the Loan Agreement). The LIBOR spread ranges from 1.75% to 2.25% also depending on the Adjusted Excess Availability. Funds borrowed under the LIBOR option can be borrowed for periods of one, two, or three months and are limited to four LIBOR contracts outstanding at any time. In addition, CIBC assesses an unused line fee that ranges from 0.25% to 0.375% and is payable monthly.
The Loan Agreement subjects the Company and its domestic subsidiaries to a minimum quarterly EBITDA covenant (as defined in the Loan Agreement). The minimum quarterly EBITDA covenant (as defined in the Loan Agreement) is $2,000 for all fiscal years starting with the fiscal year ended December 31, 2017 through the end of the agreement. Additionally, the Company and its domestic subsidiaries are subject to a Fixed Charge Coverage ratio of 1.10 to 1.00 measured on an annual basis beginning September 30, 2019 (based on a trailing twelve-month basis) through the term of the agreement. At the end of a quarter, if there is $15,000 or more of availability and outstanding borrowings of less than $5,000, covenant testing is waived. The Loan Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, pay dividends or make distributions, repurchase stock, in each case subject to customary exceptions for a credit facility of this size. The Company was not required to calculate covenant compliance calculations at March 31, 2020 and December 31, 2019.
The Loan Agreement has a Letter of Credit facility of $3,000, which is fully reserved against availability.
Note Payable—Winona Facility Purchase
At March 31, 2020, Badger has a balance on note payable to Avis Industrial Corporation of $258. Badger is required to make 60 monthly payments of $10 that began on August 1, 2017. The note dated July 26, 2017, had an original principal amount of $500 and annual interest rate of 8.00%. The note is guaranteed by the Company.
21
PM Debt Restructuring
On March 6, 2018, PM Group and Oil & Steel S.p.A. (PM Group’s subsidiary) entered into a Debt Restructuring Agreement (the “Restructuring Agreement”) with Banca Monte dei Paschi di Siena S.p.A., Banca Nazionale del Lavoro S.p.A., BPER Banca S.p.A., Cassa di Risparmio in Bologna S.p.A. and Unicredit S.p.A. (collectively the “Lenders”), and Loan Agency Services S.r.l. (the “Agent”). The Restructuring Agreement, which replaces the previous debt restructuring agreement with the Lenders entered into in 2014, provides for, among other things:
|
|
•
|
The provision of subordinated shareholders’ loans by the Company to PM Group, consisting of (i) conversion of an existing trade receivable in the amount of €3.1 million into a loan; (ii) an additional subordinated shareholders’ loan in the aggregate maximum amount of up to €2.4 million, to be made currently; and (iii) a further loan of €1.8 million which was paid by December 31, 2018, in each case to be used to repay a portion of PM Group’s outstanding obligations to the Lenders;
|
|
|
•
|
Amendments to the 2014 put and call options agreement with BPER to, among other things, extend the exercise of the options until the approval of PM Group’s financial statements for the 2021 fiscal year and permit the assignment of certain subordinated receivables to the Company. The fair market value of this liability is subject to revaluation on a recurring basis;
|
|
|
•
|
New amortization and repayment schedules for amounts owed by PM Group to the Lenders under the various outstanding tranches of indebtedness, along with revised interest rates and financial covenants. Under the Debt Restructuring Agreement term debt is repaid over a nine-year period starting in 2018 and ending in 2026 (versus 2022 prior to the Debt Restructuring Agreement); and
|
|
|
•
|
The effect of PM Group not meeting its December 31, 2017 financial covenants was cured by the Debt Restructuring Agreement.
|
PM Group Short-Term Working Capital Borrowings
At March 31, 2020, PM Group has established demand credit and overdraft facilities with five Italian banks, one Spanish bank and nine banks in South America. Under the facilities, PM Group can borrow up to approximately €20,795 ($22,908) for advances against invoices, and letter of credit and bank overdrafts. At December 31, 2019, PM Group had established demand credit and overdraft facilities with five Italian banks and nine banks in South America. Under the facilities, PM Group can borrow up to approximately €21,337 ($23,955) for advances against invoices, and letter of credit and bank overdrafts. These facilities are divided into two types: working capital facilities and cash facilities. Interest on the Italian working capital facilities and cash facilities is charged at the 3-month Euribor plus 175 or 200 basis points and 3-month Euribor plus 350 basis points, respectively. Interest on the South American facilities is charged at a flat rate of points for advances on invoices ranging from 8%-55% during the three months ended March 31, 2020 and 12 months ended December 31, 2019, respectively.
At March 31, 2020, the Italian banks has advanced PM Group €13,218 ($14,561), at variable interest rates, which currently range from 1.75% to 2.00%. At March 31, 2020, there were no advances to PM Group from the Spanish bank. At March 31, 2020, the South American banks had advanced PM Group €551 ($607). At December 31, 2019, the Italian banks had advanced PM Group €11,877 ($13,334), at variable interest rates, which currently range from 1.75% to 2.00%. At December 31, 2019, there were no advances to PM Group from the Spanish bank. At December 31, 2019, the South American banks had advanced PM Group €971 ($1,090). Total short-term borrowings for PM Group were €13,769 ($15,168) and €12,848 ($14,424) at March 31, 2020 and December 31, 2019, respectively.
PM Group Term Loans
At March 31, 2020, PM Group has a €9,494 ($10,458) term loan with two Italian banks, BPER and Unicredit. The term loan is split into a note and a balloon payment and is secured by PM Group’s common stock. At March 31, 2020, the note and balloon payment have an outstanding principal balance of €6,492 ($7,152) and €3,002 ($3,306) respectively. Both are charged interest at a fixed rate of 3.5%, with an effective rate of 3.5% at March 31, 2020. The note is payable in annual installments of principal €991 for 2020, €1,026 for 2021, €1,062 for 2022, €1,099 for 2023, €1,137 for 2024, and €1,177 for 2025. The balloon payment is payable in a single payment of €3,002 in 2026. See above for restructuring. At December 31, 2019, the note and balloon payment had an outstanding principal balance of €6,492 ($7,289) and €3,002 ($3,439), respectively.
An adjustment in the purchase accounting to value the non-interest-bearing debt at its fair market value was made. At March 6, 2018, it was determined that the fair value of the debt was €480 or $550 less than the book value. This reduction is not reflected in the above descriptions of PM debt. This discount is being amortized over the life of the debt and being charged to interest expense. As of March 31, 2020, the remaining balance was €253 or $278 and has been offset to the debt.
22
At March 31, 2020, PM Group has unsecured borrowings with three Italian banks totaling €10,385 ($11,440). At December 31, 2019, PM Group has unsecured borrowings with three Italian banks totaling €10,385 ($11,659). Interest on the unsecured notes is charged at a stated and effective rate of 3.5% at March 31, 2020 and December 31, 2019. Annual payments of €1,731 are payable beginning in 2019 and ending in 2025.
PM Group is subject to certain financial covenants as defined by the debt restructuring agreement including maintaining (1) Net debt to EBITDA, (2) Net debt to equity, and (3) EBITDA to net financial charges ratios. The covenants are measured on a semi-annual basis beginning on December 31, 2018. The Company was in compliance with the loan covenants at March 31, 2020.
At March 31, 2020 and December 31, 2019, Autogru PM RO, a subsidiary of PM Group, had three notes. The first note is payable in 60 monthly principal installments of €8 ($9), plus interest at the 1-month Euribor plus 300 basis points, effective rate of 3.00% at March 31, 2020 and December 31, 2019, maturing October 2020. At March 31, 2020 and December 31, 2019, the outstanding principal balance of the note was €59 ($65) and €84 ($94).
The second note is payable in monthly installments of €9 ($10) starting from September 2019 and ending in September 2020, and one final payment of €190 ($207) in September 2020. The note is charged interest at the 1-month Euribor plus 250 basis points, effective rate of 2.50% at March 31, 2020 and December 31, 2019. At March 31, 2020, the outstanding balance was €192 ($212). At December 31, 2019, the outstanding principal balance of the note was €218 ($245).
The third note is divided in three parts: the first part is payable in 60 monthly installments of €1 ($1) plus interest at the 6-month Euribor plus 275 basis points, effective rate of 2.75% at March 31, 2020 and December 31, 2019, maturing February 2023; the second part is payable in 60 monthly installments of €4 ($5) plus interest at the 6-month Euribor plus 275 basis points, effective rate of 2.75% at March 31, 2020 and December 31, 2019, maturing April 2023; the third part is payable in 60 monthly installments of €1 ($1) plus interest at the 6-month Euribor plus 275 basis points, effective rate of 2.75% at March 31, 2020 and December 31, 2019, maturing June 2023. At March 31, 2020 and December 31, 2019, the outstanding principal balance of the note was €217 ($238) and €234 ($263).
PM has an interest rate swap with a fair market value at March 31, 2020 and December 31, 2019 of €- or $1 which has been included in debt.
Valla Short-Term Working Capital Borrowings
At March 31, 2020 and December 31, 2019, Valla had established demand credit and overdraft facilities with two Italian banks. Under the facilities, Valla can borrow up to approximately €660 ($720) and €660 ($741) as of March 31, 2020 and December 31, 2019, for advances against orders, invoices and bank overdrafts. Interest on the Italian working capital facilities is charged at a flat percentage rate for advances on invoices and orders ranging from 1.67% - 4.75% and 1.67% - 4.75%. At March 31, 2020 and December 31, 2019, the Italian banks had advanced Valla €437 ($482) and €269 ($302).
Valla Term Loans
At March 31, 2020 and December 31, 2019, Valla has a term loan with Carisbo. The note is payable in quarterly principal installments beginning on October 30, 2017 of €8 ($9), plus interest at the 3-month Euribor plus 470 basis points, for an effective rate of 4.36% at March 31, 2020 and December 31, 2019. The note matures in January 2021. At March 31, 2020 and December 31, 2019, the outstanding principal balance of the note was €31 ($35) and €39 ($44).
Financing Leases
Georgetown facility
The Company leases its Georgetown facility under a capital lease that expires on April 30, 2028. The monthly rent is currently $66 and is increased by 3% annually on September 1 during the term of the lease. At March 31, 2020, the outstanding capital lease obligation is $4,753.
Equipment
The Company has entered into a lease agreement with a bank pursuant to which the Company is permitted to borrow 100% of the cost of new equipment with 29 month repayment periods. At the conclusion of the lease period, for each piece of equipment the Company is required to purchase that piece of leased equipment for one dollar.
23
The equipment, which is acquired in ordinary course of the Company’s business, is available for sale and rental prior to sale.
Under the lease agreement the Company can elect to exercise an early buyout option at any time, and pay the bank the present value of the remaining rental payments discounted by a specified Index Rate established at the time of leasing. The early buyout option results in a prepayment penalty which progressively decreases during the term of the lease. Alternatively, under the like-kind provisions in the agreement, the Company can elect to replace or substitute different equipment in place of equipment subject to the early buyout without incurring a penalty.
The following is a summary of amounts financed under equipment capital lease agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
Amount
Borrowed
|
|
|
Repayment
Period
|
|
|
Amount of
Monthly Payment
|
|
|
March 31,
2020
|
|
|
New equipment
|
|
$
|
896
|
|
|
|
29
|
|
|
$
|
18
|
|
|
$
|
194
|
|
12. Convertible Notes
Related Party
On December 19, 2014, the Company issued a subordinated convertible debenture with a $7,500 face amount payable to Terex, a related party. The convertible debenture, is subordinated, carries a 5% per annum coupon, and is convertible into Company common stock at a conversion price of $13.65 per share or a total of 549,451 shares, subject to customary adjustment provisions. The debenture has a December 19, 2020 maturity date.
From and after the third anniversary of the original issuance date, the Company may redeem the convertible debenture in full (but not in part) at any time that the last reported sale price of the Company’s common stock equals at least 130% of the Conversion Price (as defined in the debenture) for at least 20 of any 30 consecutive trading days. Following an election by the holder to convert the debenture into common stock of the Company in accordance with the terms of the debenture, the Company has the discretion to deliver to the holder either (i) shares of common stock, (ii) a cash payment, or (iii) a combination of cash and stock.
As of March 31, 2020, and December 31, 2019, the note had a remaining principal balance of $7,367 and $7,323 and an unamortized discount of $134 and $177, respectively.
The Terex agreements included obligations on the part of the Company to timely file with the SEC its reports that are required to be filed pursuant to the Exchange Act. Effective March 29, 2018, the Company obtained waivers from the holders with respect to any breaches, defaults or events of default that may have been or may be triggered in connection with the Company’s failure to timely file its reports with the SEC due to the previously completed restatement of the Company’s financial statements.
Perella Notes
On January 7, 2015, the Company entered into a Note Purchase Agreement (the “Perella Note Purchase Agreement”) with MI Convert Holdings LLC (which is owned by investment funds constituting part of the Perella Weinberg Partners Asset Based Value Strategy) and Invemed Associates LLC (together, the “Investors”), pursuant to which the Company agreed to issue $15,000 in aggregate principal amount of convertible notes due January 7, 2021 (the “Perella Notes”) to the Investors. The Perella Notes are subordinated, carry a 6.50% per annum coupon, and are convertible, at the holder’s option, into shares of Company common stock, based on an initial conversion price of $15.00 per share, subject to customary adjustments. Following an election by the holder to convert the debenture into common stock of the Company in accordance with the terms of the debenture, the Company has the discretion to deliver to the holder either (i) shares of common stock, (ii) a cash payment, or (iii) a combination of cash and stock. Upon the occurrence of certain fundamental corporate changes, the Perella Notes are redeemable at the option of the holders of the Perella Notes. The Perella Notes are not redeemable at the Company’s option prior to the maturity date, and the payment of principal is subject to acceleration upon an event of default. The issuance of the Perella Notes by the Company was made in reliance upon the exemptions from registration provided by Rule 506 and Section 4(a)(2) of the Securities Act of 1933.
In accordance with a Registration Rights Agreement with the Investors dated January 7, 2015, the Company agreed to register the resale of the shares of common stock issuable upon conversion of the Perella Notes. The Registration Statement on Form S-3 filed by the Company was declared effective by the SEC on February 23, 2015.
24
As of March 31, 2020, the note had a remaining principal balance of $8,000 (less $73 debt issuance cost for a net debt of $7,927) and an unamortized discount of $0, compared to a remaining balance of $14,858 (less $98 debt issuance cost for a net debt of $14,760) and an unamortized discount of $142 at December 31, 2019.
In January 2020, the Company obtained consent from the Noteholders to make prepayments on the Notes in accordance with the terms of the Note Purchase Agreement. As of March 31, 2020, the Company has paid $7,000 in principal prepayments on the Notes.
The Perella agreements included obligations on the part of the Company to timely file with the SEC its reports that are required to be filed pursuant to the Exchange Act. Effective March 28, 2018, the Company obtained waivers from the holders with respect to any breaches, defaults or events of default that may have been or may be triggered in connection with the Company’s failure to timely file its reports with the SEC due to the previously completed restatement of the Company’s financial statements.
13. Leases
We lease certain warehouses, office space, machinery, vehicles, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
The Company is not aware of any variable lease payments, residual value guarantees, covenants or restrictions imposed by the leases. Most leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets is limited by the expected lease term for finance leases.
If there was a rate explicit in the lease, this was the discount rate used. For those leases with no explicit or implicit interest rate, an incremental borrowing rate was used. The weighted average remaining useful life for operating and finance leases was 4 and 7 years, respectively. The weighted average discount rate for operating and finance leases was 3.92% and 12.5% respectively.
|
Leases (thousands)
|
|
Classification
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease assets
|
|
$
|
2,294
|
|
|
$
|
2,174
|
|
|
Finance lease assets
|
|
Fixed assets, net
|
|
|
3,721
|
|
|
|
3,906
|
|
|
Total leased assets
|
|
|
|
$
|
6,015
|
|
|
$
|
6,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Current liabilities
|
|
$
|
785
|
|
|
$
|
813
|
|
|
Finance
|
|
Current liabilities
|
|
|
474
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Non-current liabilities
|
|
|
1,508
|
|
|
|
1,361
|
|
|
Finance
|
|
Non-current liabilities
|
|
|
4,473
|
|
|
|
4,584
|
|
|
Total lease liabilities
|
|
|
|
$
|
7,240
|
|
|
$
|
7,234
|
|
|
Lease Cost (thousands)
|
|
Classification
|
|
For the three
months ended
March 31, 2020
|
|
|
For the three
months ended
March 31, 2019
|
|
|
Operating lease costs
|
|
Operating lease assets
|
|
$
|
262
|
|
|
$
|
227
|
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/Amortization of
leased assets
|
|
Depreciation or
Inventory reserve
|
|
|
114
|
|
|
|
143
|
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
|
151
|
|
|
|
145
|
|
|
Lease cost
|
|
|
|
$
|
527
|
|
|
$
|
515
|
|
25
|
Other Information (thousands)
|
|
For the three months
ended March 31, 2020
|
|
|
For the three months
ended March 31, 2019
|
|
|
Cash paid for amounts included in the measurement of
lease liabilities:
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
253
|
|
|
$
|
248
|
|
|
Operating cash flows from finance leases
|
|
$
|
113
|
|
|
$
|
125
|
|
|
Financing cash flows from finance leases
|
|
$
|
151
|
|
|
$
|
145
|
|
Future principal minimum lease payments are:
|
|
|
Operating Leases
|
|
|
Capital Leases
|
|
|
2021
|
|
$
|
856
|
|
|
$
|
1,054
|
|
|
2022
|
|
|
561
|
|
|
|
885
|
|
|
2023
|
|
|
362
|
|
|
|
911
|
|
|
2024
|
|
|
184
|
|
|
|
939
|
|
|
2025
|
|
|
116
|
|
|
|
967
|
|
|
And subsequent
|
|
|
410
|
|
|
|
3,167
|
|
|
Total undiscounted lease payments
|
|
|
2,489
|
|
|
|
7,923
|
|
|
Less interest
|
|
|
(196
|
)
|
|
|
(2,976
|
)
|
|
Total liabilities
|
|
$
|
2,293
|
|
|
$
|
4,947
|
|
|
Less current maturities
|
|
|
(785
|
)
|
|
|
(474
|
)
|
|
Non-current lease liabilities
|
|
$
|
1,508
|
|
|
$
|
4,473
|
|
14. Income Taxes
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was enacted. The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, a modification to the net interest deduction limitations and a technical correction to tax depreciation methods for qualified improvement property. The Cares Act did not have a material impact on the Company’s consolidated financial statements for the three months ended March 31, 2020.
For the three months ended March 31, 2020, the Company recorded an income tax provision from continuing operations of $404, which includes a discrete income tax benefit of $316. The calculation of the overall income tax provision for the three months ended March 31, 2020 primarily consists of foreign income taxes offset by a discrete income tax benefit related to the expiration of the statute of limitations for various state and foreign jurisdictions, and the settlement of the Romanian tax audit for 2017 and 2018, which includes a partial reduction in the valuation allowance at PM Italy caused by the indirect effects of uncertain tax positions embedded in foreign net operating loss carryforwards.. For the three months ended March 31, 2019, the Company recorded an income tax provision of $197, which includes a discrete income tax provision of $46 for the accrual of taxes and interest related to unrecognized tax benefits.
The effective tax rate for the three months ended March 31, 2020 was an income tax provision of -6.08% on pretax loss of $6,640 compared to an income tax provision of 13.10% on a pretax income of $1,506 in the comparable prior period. The effective tax rate for the three months ended March 31, 2019 differs from the U.S. statutory rate of 21% primarily due to valuation allowance in the U.S. and Italy, nondeductible foreign permanent differences, an decrease in unrecognized tax benefits related to the expiration of the statute of limitations for various state and foreign jurisdictions, and the tax effects of settling the Romanian tax audit for 2017 and 2018.
The Company’s total unrecognized tax benefits as of March 31, 2020 and 2019 were approximately $4.0 million and $4.3 million. Included in the unrecognized tax benefits is a liability for the disputed Romania income tax audit assessment for tax years 2012-2016. The Romanian audit for tax years 2017 and 2018 was settled during the quarter ended March 31, 2020. Depending upon the final resolution of the Italy audit and disputed Romanian income tax assessment, the uncertain tax position liability could be higher or lower than the amount recorded at March 31, 2020. A favorable resolution of an unrecognized tax benefit could be recognized as a reduction in the tax provision and effective rate in the period of resolution. An unfavorable settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution. We believe it is reasonably possible that a decrease of up to $0.3 million in unrecognized tax benefits will be realized within 12 months of the reporting date as a result of a lapse of the statute of limitations and for the anticipated resolution of the Italy tax audit.
26
15. Net Earnings (Loss) per Common Share
Basic net earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of convertible debt, restricted stock units and stock options. Details of the calculations are as follows:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net (loss) income from continuing
|
|
$
|
(7,044
|
)
|
|
$
|
1,309
|
|
|
Loss from operations of discontinued operations, net of income taxes
|
|
|
(432
|
)
|
|
|
(399
|
)
|
|
Net (loss) income
|
|
$
|
(7,476
|
)
|
|
$
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
$
|
(0.36
|
)
|
|
$
|
0.07
|
|
|
Loss from operations of discontinued operations, net of income taxes
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Net (loss) income
|
|
$
|
(0.38
|
)
|
|
$
|
0.05
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
$
|
(0.36
|
)
|
|
$
|
0.07
|
|
|
Loss from operations of discontinued operations, net of income taxes
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Net (loss) income
|
|
$
|
(0.38
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
19,733,772
|
|
|
|
19,678,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
19,733,772
|
|
|
|
19,678,081
|
|
|
Dilutive effect of restricted stock units and stock options
|
|
|
-
|
|
|
|
16,892
|
|
|
|
|
|
19,733,772
|
|
|
|
19,694,973
|
|
The following securities were not included in the computation of diluted earnings per share as their effect would have been antidilutive:
|
|
|
As of March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Unvested restricted stock units
|
|
|
266,383
|
|
|
|
169,960
|
|
|
Options to purchase common stock
|
|
|
97,437
|
|
|
|
47,437
|
|
|
Convertible subordinated notes
|
|
|
1,549,451
|
|
|
|
1,549,451
|
|
|
|
|
|
1,913,271
|
|
|
|
1,766,848
|
|
16. Equity
Tadano, Ltd. Investment in the Company
On May 24, 2018, the Company entered into a (a) Securities Purchase Agreement (the “Purchase Agreement”) and (b) Registration Rights Agreement (the “Registration Rights Agreement”) with Tadano Ltd., a Japanese company (“Tadano”).
Pursuant to the Purchase Agreement, the Company agreed to issue and sell to Tadano, and Tadano agreed to purchase from the Company, 2,918,542 shares of the Company’s common stock, no par value (the “Shares”), representing approximately 14.9% of the outstanding shares of common stock of the Company (based on the number of outstanding shares as of the date of the Purchase Agreement), at a purchase price of $11.19 per share and for an aggregate purchase price of $32,658. The transaction closed on May 29, 2018 (the “Closing Date”). The Shares were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).
27
The Purchase Agreement also provides for certain rights of Tadano and certain limitations on the Company, subject in each case to Tadano continuing to meet certain minimum ownership requirements. Specifically, so long as Tadano owns at least a majority of the Shares, Tadano has certain preemptive rights to purchase its pro rata share of specified equity securities (including certain derivative and convertible securities) issued by the Company after the Closing Date. Additionally, so long as Tadano owns at least 10% of the Company’s issued and outstanding shares of common stock, the Company is prohibited, absent Tadano’s consent, from, among other items: (i) increasing the number of directors on the Company’s board of directors to a number greater than ten; (ii) entering into certain related person or affiliated transactions, subject to certain exceptions; and (iii) authorizing or approving any plan of dissolution of the Company, any liquidating distribution of the Company’s assets or other action relating to the dissolution or liquidation of the Company. The Purchase Agreement also contains certain restrictions on asset sales by the Company. In addition, so long as it owns at least 10% of the Company’s issued and outstanding shares of common stock, Tadano shall have the right to nominate one individual to serve on the Company’s board of directors.
See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 31, 2018 for additional information regarding this transaction.
In connection with this transaction, the Company incurred legal, investment banking and consulting fees that in aggregate that totaled $875. These fees are recorded net of common stock.
Stock Issued to Employees and Directors
The Company issued shares of common stock to employees and Directors as restricted stock units issued under the Company’s 2004 Incentive Plan vested. Upon issuance entries were recorded to increase common stock and decrease paid in capital for the amounts shown below. The following is a summary of stock issuances that occurred during the period:
|
Date of Issue
|
|
Employees or
Director
|
|
Shares Issued
|
|
|
Value of
Shares Issued
|
|
|
January 1, 2020
|
|
Employee
|
|
|
2,250
|
|
|
$
|
13
|
|
|
March 6, 2020
|
|
Directors
|
|
|
7,920
|
|
|
|
47
|
|
|
March 13, 2020
|
|
Employee
|
|
|
39,714
|
|
|
|
292
|
|
|
|
|
|
|
|
49,884
|
|
|
$
|
352
|
|
Stock Repurchase
The Company purchases shares of Common Stock from certain employees at the closing share price on the date of purchase. The stock is purchased from the employees to satisfy employees’ withholding tax obligations related to stock issuances described above. The below table summarizes shares repurchased from employees during the current year through March 31, 2020:
|
Date of Purchase
|
|
Shares
Purchased
|
|
|
Closing Price
on Date of
Purchase
|
|
|
March 13, 2020
|
|
|
2,949
|
|
|
$
|
4.34
|
|
Equity was decreased by $13, the aggregated value of the shares reflected in the table above.
Manitex International, Inc. 2019 Equity Incentive Plan
In 2019, the Company adopted the Manitex International, Inc. 2019 Equity Incentive Plan. The maximum number of shares of common stock reserved for issuance under the plan is 1,329,364 shares. The total number of shares reserved for issuance however, can be adjusted to reflect certain corporate transactions or changes in the Company’s capital structure. The Company’s employees and members of the board of directors who are not our employees or employees of our affiliates are eligible to participate in the plan. The plan is administered by a committee of the board comprised of members who are outside directors. The plan provides that the committee has the authority to, among other things, select plan participants, determine the type and amount of awards, determine award terms, fix all other conditions of any awards, interpret the plan and any plan awards. Under the plan, the committee can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units, except Directors may not be granted stock appreciation rights, performance shares and performance units. During any calendar year, participants are limited in the number of grants they may receive under the plan. In any year, an individual may not receive options for more than 15,000 shares, stock appreciation rights with respect to more than 20,000 shares, more than 20,000 shares of restricted stock and/or an award for more than 10,000 performance shares or restricted stock units or performance units. The plan requires that the exercise price for stock options and stock appreciation rights be not less than fair market value of the Company’s common stock on date of grant.
28
Restricted stock units are subject to the same conditions as the restricted stock awards except the restricted stock units will not have voting rights and the common stock will not be issued until the vesting criteria are satisfied.
Restricted Stock Awards
The following table contains information regarding restricted stock units:
|
|
|
March 31,
2020
|
|
|
Outstanding on January 1, 2020
|
|
|
198,717
|
|
|
Units granted during the period
|
|
|
125,000
|
|
|
Vested and issued
|
|
|
(46,935
|
)
|
|
Vested-issued and repurchased for income tax withholding
|
|
|
(2,949
|
)
|
|
Forfeited
|
|
|
(7,450
|
)
|
|
Outstanding on March 31, 2020
|
|
|
266,383
|
|
The value of the restricted stock is being charged to compensation expense over the vesting period. Compensation expense includes expense related to restricted stock units of $201 and $159 for the three months ended March 31, 2020 and 2019, respectively. Additional compensation expense related to restricted stock units will be $519, $627 and $347 for the remainder of 2020, 2021 and 2022, respectively.
Stock Options
On September 1, 2019, 50,000 stock options were granted at $5.62 per share and vest ratably on each of the first three anniversary dates. Compensation expense related to stock options were $21 for the three months ended March 31, 2020 compared to $0 for the comparable period. Additional compensation expense will be $48, $31 and $10 for the remainder of 2020, 2021 and 2022, respectively. The following table illustrates the various assumptions used to calculate the Black-Scholes option pricing model for stock options granted on September 1, 2019:
|
|
|
Grant date
9/1/2019
|
|
|
Dividend yields
|
|
|
—
|
|
|
Expected volatility
|
|
|
51.0
|
%
|
|
Risk free interest rate
|
|
|
1.42
|
%
|
|
Expected life (in years)
|
|
|
6
|
|
|
Fair value of the option granted
|
|
$
|
2.76
|
|
On May 23, 2018, the Company issued options under the predecessor 2004 Equity Plan to purchase 47,437 shares of the Company’s common stock at $11.08 per share (the closing price of the Company’s common stock on the date before the Tadano Purchase Agreement was executed) to a consultant in connection with his services related to Tadano’s investment in the Company. The options expire on May 23, 2028. The Company determined that the fair market value of the options was $130 on date of grant. The value of options is one component of the expenses related to the Tadano transactions discussed above.
17. Legal Proceedings and Other Contingencies
The Company is involved in various legal proceedings, including product liability, employment related issues, and workers’ compensation matters which have arisen in the normal course of operations. The Company has product liability insurance with self- insurance retention limits that range from $50 to $500.
The Company has been named as a defendant in several multi-defendant asbestos related product liability lawsuits. In certain instances, the Company is indemnified by a former owner of the product line in question. In the remaining cases the plaintiff has, to date, not been able to establish any exposure by the plaintiff to the Company’s products. The Company is uninsured with respect to these claims but believes that it will not incur any material liability with respect to these claims.
When it is probable that a loss has been incurred and possible to make a reasonable estimate of the Company’s liability with respect to such matters, a provision is recorded for the amount of such estimate or the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur. The Company established reserves for several PM lawsuits in conjunction with the accounting for our acquisition of PM.
29
Additionally, beginning on December 31, 2011, the Company’s workmen’s compensation insurance policy has a per claim deductible of $250 and annual aggregates that range from $1,000 to $1,875 depending on the policy year. The Company is fully insured for any amount on any individual claim that exceeds the deductible and for any additional amounts of all claims once the aggregate is reached. The Company does not believe that the contingencies associated with these workers’ compensation claims in aggregate will have a material adverse effect on the Company.
On May 5, 2011, the Company entered into two separate settlement agreements with two plaintiffs. As of March 31, 2020, the Company has a remaining obligation under the agreements to pay the plaintiffs an aggregate of $1,140 without interest in 12 annual installments of $95 on or before May 22 of each year. The Company has recorded a liability for the net present value of the liability. The difference between the net present value and the total payment will be charged to interest expense over the payment period.
It is reasonably possible that the “Estimated Reserve for Product Liability Claims” may change within the next 12 months. A change in estimate could occur if a case is settled for more or less than anticipated, or if additional information becomes known to the Company.
Romania Income Tax Audit
As described in Note 14, Income Taxes, included in the unrecognized tax benefits is a liability for the disputed Romania income tax audit assessment for tax years 2012-2016. Depending upon the final resolution of the income tax assessment, the liability could be higher or lower than the amount recorded at March 31, 2020.
Residual Value Guarantees
The Company issues residual value guarantees to support a customer’s financing of equipment purchased from the Company. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future date if certain conditions are met by the customer. The Company has issued partial residual guarantees that have maximum exposure of approximately $1.6 million. The Company does not have any reason to believe that any exposure from such a guarantee is either probable or estimable at this time, as such no liability has been recorded. The Company’s ability to recover losses experienced from its guarantees may be affected by economic conditions in used equipment markets at the time of loss.
SEC Inquiry
The Company continues to comply with the SEC investigation regarding the Company’s restatement of prior financial statements, which was completed in April 2018.
18. Transactions between the Company and Related Parties
In the course of conducting its business, the Company has entered into certain related party transactions.
PM sold cranes, parts, and accessories to Tadano. C&M purchases cranes and parts from Terex. Additionally, the Company has a convertible note with a face amount of $7,500 payable to Terex. See Note 12 for additional details.
During the quarter ended March 31, 2017, the Company was the majority owner of ASV and, therefore, ASV was not a related party during that period. In May 2017, the Company reduced is its ownership interest in ASV to 21.2% and in February 2018 further reduced its ownership to approximately 11%. As such, ASV became a related party beginning in the quarter ended June 30, 2017. The Company sold its remaining interest in ASV in September 2019 and is no longer a related party at September 30, 2019.
As of March 31, 2020 and December 31, 2019, the Company had accounts receivable and payable with related parties as shown below:
|
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accounts Receivable
|
|
Tadano
|
|
$
|
205
|
|
|
$
|
88
|
|
|
|
|
Terex
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
$
|
206
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
Terex
|
|
|
318
|
|
|
|
325
|
|
|
Net Related Party Accounts
Payable
|
|
|
|
$
|
112
|
|
|
$
|
228
|
|
30
The following is a summary of the amounts attributable to certain related party transactions as described in the footnotes to the table, for the periods indicated:
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
Three Months Ended
March 31, 2019
|
|
|
Rent paid:
|
|
Bridgeview Facility (1)
|
|
$
|
69
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to:
|
|
Terex
|
|
$
|
14
|
|
|
$
|
3
|
|
|
|
|
Tadano
|
|
|
550
|
|
|
|
—
|
|
|
Total Sales
|
|
|
|
$
|
564
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases from:
|
|
Terex
|
|
$
|
147
|
|
|
$
|
624
|
|
|
(1)
|
The Company leases its 40,000 sq. ft. Bridgeview facility from an entity controlled by Mr. David Langevin, the Company’s Executive Chairman and former CEO. Pursuant to the terms of the lease, the Company makes monthly lease payments of $23. The Company is also responsible for all the associated operations expenses, including insurance, property taxes, and repairs. On October 3, 2018, the lease was amended to extend the initial lease term to fifteen years expiring in May 26, 2025 with a provision for an option one five-year period and thereafter, six one year extension periods. The lease contains a rental escalation clause under which annual rent is increased during the initial lease term by the lesser of the increase in the Consumer Price Increase or 2.0%. Rent for any extension period shall, however, be the then-market rate for similar industrial buildings within the market area. The Company has the option to purchase the building by giving the Landlord written notice at any time prior to the date that is 180 days prior to the expiration of the lease or any extension period. The Landlord can require the Company to purchase the building if a Change of Control Event, as defined in the agreement occurs by giving written notice to the Company at any time prior to the date that is 180 days prior to expiration of the lease or any extension period. The purchase price regardless whether the purchase is initiated by the Company or the landlord will be the Fair Market Value as of the closing date of said sale.
|
Note Payable to Terex
As of March 31, 2020, the Company had a convertible note payable of $7,367 (net of unamortized debt discount) to Terex. See Note 12 for additional details regarding this convertible note.
19. Sale of Investment in ASV Holdings
Sale of Partial Interest in ASV Holdings
On May 17, 2017, the Company and ASV completed the underwritten initial public offering (the “Offering”) of 3,800,000 shares of ASV common stock, including 2,000,000 shares sold by the Company.
Following the sale of the above referenced shares, the Company had significant continuing involvement with ASV in the form of an equity investment (21.2% ownership in ASV).
Disposition of the Remaining Available for Sale Investment
Over the period from February 26 to 28, 2018, the Company sold an aggregate of 1,000,000 shares of ASV in privately-negotiated transactions with institutional purchasers. All such shares were sold for $7.00 per share. Following such sale transactions, the Company owned an aggregate of 1,080,000 shares of ASV which equated to approximately 11.0% percent of ASV. After this transaction, the investment in ASV is no longer accounted for under the equity method. The Company recognized a pretax loss of $205 (which includes the $118 of commissions paid) in connection with sale of these shares. The Company was not able to record a tax benefit for this loss.
In September 2019, ASV merged with Yanmar America Corporation resulting in the Company receiving $7.05 per share in cash, or $7.6 million, for its remaining 1,080,000 shares of ASV.
Going forward, the Company no longer has marketable equity securities on its consolidated balance sheet. Gains and losses related to fair value adjustments on marketable equity securities were recorded into income each reporting period. The Company recognized an $0.2 million gain from change in fair value of marketable securities during the quarter ended September 30, 2019 and a gain of $5.5 million for the nine months ended September 30, 2019. The Company recognized a loss from the change in fair value of marketable securities of $0.9 million during the quarter ended September 20, 2018 and a loss of $2.3 million for the nine months ended September 30, 2018.
Note 20. Discontinued Operations
Assets and Liabilities Classified as Held for Sale
31
On March 4, 2020, the Company’s Board of Directors approved the exploration by management of various strategic alternatives for Sabre, including the possibility of a transaction involving the sale of all or part of Sabre’s business and assets, to determine whether such a transaction would provide value to shareholders. The criterion of asset held for sale has been met and Sabre will be reported as discontinued operations. The Company at this time cannot be sure that any such transaction will occur, and if so, what impact such a transaction would have on the Company’s financial statements.
For the three months ended March 31, 2020, cash flows used in operating activities was $125, this consisted of depreciation expense of $45, no purchases of fixed assets and no amortization expense. For the three months ended March 31, 2019, cash flows provided by operating activities were $67, this consisted of depreciation expense of $42, amortization expense of $74 and purchases of fixed assets of $7.
|
|
|
As of
|
|
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
33
|
|
|
Trade receivables (net)
|
|
|
524
|
|
|
|
507
|
|
|
Inventory (net)
|
|
|
939
|
|
|
|
916
|
|
|
Prepaid expense and other
|
|
|
134
|
|
|
|
135
|
|
|
Total current assets of discontinued operations
|
|
|
1,597
|
|
|
|
1,591
|
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
|
Total fixed assets (net)
|
|
|
269
|
|
|
|
314
|
|
|
Operating lease assets
|
|
|
62
|
|
|
|
99
|
|
|
Total long-term assets of discontinued operations
|
|
|
331
|
|
|
|
413
|
|
|
Total assets of discontinued operations
|
|
$
|
1,928
|
|
|
$
|
2,004
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Current operating lease liability
|
|
$
|
67
|
|
|
$
|
106
|
|
|
Accounts payable
|
|
|
248
|
|
|
|
381
|
|
|
Accrued expenses
|
|
|
183
|
|
|
|
187
|
|
|
Customer deposits
|
|
|
60
|
|
|
|
126
|
|
|
Total current liabilities of discontinued operations
|
|
|
558
|
|
|
|
800
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
350
|
|
|
|
350
|
|
|
Total long-term liabilities of discontinued operations
|
|
|
350
|
|
|
|
350
|
|
|
Total liabilities of discontinued operations
|
|
$
|
908
|
|
|
$
|
1,150
|
|
|
|
|
For the Three Months
Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net revenues
|
|
$
|
1,499
|
|
|
$
|
2,995
|
|
|
Cost of sales
|
|
|
1,555
|
|
|
|
3,039
|
|
|
Selling, general and administrative expenses
|
|
|
313
|
|
|
|
380
|
|
|
Interest expense
|
|
|
24
|
|
|
|
23
|
|
|
Other income
|
|
|
5
|
|
|
|
1
|
|
|
Net loss of discontinued operations before income tax
|
|
|
(388
|
)
|
|
|
(446
|
)
|
|
Income tax expense (benefit) related to discontinued operations
|
|
|
44
|
|
|
|
(47
|
)
|
|
Net loss on discontinued operations
|
|
$
|
(432
|
)
|
|
$
|
(399
|
)
|
32
Note 21. Subsequent Events
On April 14, 2020, the Company and its United States subsidiaries received funds under notes and related documents (the “PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”) which is part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The Company received total proceeds of $3.7 million from the PPP Loans. In accordance with the requirements of the PPP, the Company intends to use proceeds from the PPP Loans primarily for payroll costs. The PPP Loans are scheduled to mature starting on April 8, 2022, have a 1.00% interest rate and are subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the PPP. Under the terms of the PPP, certain amounts of the PPP Loans may be forgiven if they are used for qualifying expenses as described in the CARES Act.
We are closely monitoring the spread and impact of the COVID-19 pandemic and are continually assessing its potential effects on our business and our financial performance as well as the businesses of our customers and vendors. The Company cannot predict the duration or severity of the COVID-19 pandemic, and we cannot reasonably estimate the financial impact the COVID-19 outbreak will have on our results and significant estimates going forward.
33