Annual Report (10-k)

Date : 04/01/2019 @ 10:08PM
Source : Edgar (US Regulatory)
Stock : Williams Industrial Services Group Inc. (WLMS)
Quote : 1.55  0.05 (3.33%) @ 9:47PM

Annual Report (10-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549


FORM 10‑K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

Commission File No. 001‑16501

PICTURE 1


Williams Industrial Services Group Inc.

(Exact name of registrant as specified in its charter)


Delaware
(State or other jurisdiction of
incorporation or organization)

73‑1541378
(I.R.S. Employer
Identification No.)

 

100 Crescent Centre Parkway, Suite 1240

Tucker, GA 30084

(Address of registrant’s principal executive offices and zip code)

 

Registrant’s telephone number, including area code: (770) 879‑4400

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Securities registered pursuant to Section 12(g) of the Act: None.


Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

 

As of June 29, 2018, the last business day of our most recently completed second fiscal quarter, 10,487,988 shares of the registrant’s publicly traded common stock held by non-affiliates were outstanding with an aggregate market value of approximately $32,198,123 (based upon the closing price on June 29, 2018 of $3.07 per share).

 

As of March 28, 2019, there were 18,815,935 shares of common stock of Williams Industrial Services Group Inc. outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Proxy Statement for the 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of the Form 10‑K to the extent stated herein. The Proxy Statement or an amended report on Form 10‑K will be filed within 120 days of the registrant’s year ended December 31, 2018.

 

 

 

 


 

Table of Contents

 

 

Cautionary Note Regarding Forward-Looking Statements  

1

Part I  

2

Item 1.   Business .

2

Item 1A. Risk Factors .

10

Item 1B. Unresolved Staff Comments .

26

Item 2. Properties .

27

Item 3. Legal Proceedings .

28

Item 4. Mine Safety Disclosures .

28

Part II  

29

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

29

Item 6. Selected Financial Data .

29

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.  

30

Item 7A. Quantitative and Qualitative Disclosures About Market Risk .

38

Item 8. Financial Statements and Supplementary Data .

38

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .

38

Item 9A. Controls and Procedures .

39

Item 9B. Other Information .

41

Part III  

42

Item 10. Directors, Executive Officers and Corporate Governance.  

42

Item 11. Executive Compensation.  

42

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  

42

Item 13. Certain Relationships and Related Transactions, and Director Independence .

42

Item 14. Principal Accountant Fees and Services.  

42

Part IV  

43

Item 15. Exhibits and Financial Statement Schedules.  

43

Item 16. Form 10-K Summary.  

46

 

Statements we make in this Annual Report on Form 10-K where we express a belief, expectation or intention or otherwise are not limited to recounting historical facts are forward‑looking statements. These forward‑looking statements are subject to various risks, uncertainties and assumptions, including those noted under the headings “Cautionary Note Regarding Forward-Looking Statements” and “Part I—Item 1A. Risk Factors” in this Annual Report on Form 10-K.

 

 

 

 


 

Cautionary Note Regarding Forward‑Looking Statements

This Annual Report on Form 10-K for the year ended December 31, 2018 (this “Form 10-K”) and its exhibits contain or incorporate by reference various forward-looking statements that express a belief, expectation or intention or are otherwise not statements of historical fact. Forward-looking statements generally use forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other words that convey the uncertainty of future events or outcomes. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any of these forward-looking statements. Except as required by law, we undertake no obligation to further update any such statements, or the risk factors described in “Part I—Item 1A. Risk Factors,” to reflect new information, the occurrence of future events or circumstances or otherwise.

The forward-looking statements in this filing do not constitute guarantees or promises of future performance. The following important factors could cause actual outcomes and results to differ materially from those expressed in our forward-looking statements:

·

our high level of indebtedness;

·

our ability to make interest and principal payments on our debt and satisfy the financial and other covenants contained in the New Centre Lane Facility (as defined below) and the MidCap Facility (as defined below);

·

our ability to engage in certain transactions and activities due to limitations and covenants contained in the New Centre Lane Facility and the MidCap Facility;

·

our ability to enter into new lending facilities, if needed, and to obtain adequate surety bonding and letters of credit;

·

our ability to generate sufficient cash resources to continue funding operations, including investments in working capital required to support growth-related commitments that we make to our customers, and the possibility that we continue to incur further losses from operations in the future;

·

the possibility that our independent registered public accounting firm may include an explanatory paragraph in its audit opinion that accompanies our financial statements for the year ended December 31, 2019 indicating that our debt covenants and liquidity position raise substantial doubt about our ability to continue as a going concern or that such firm fails to stand for reappointment;

·

exposure to market risks from changes in interest rates, including changes to LIBOR (as defined below);

·

the possibility we may be required to write-down additional amounts of goodwill and other indefinite-lived assets;

·

our pending putative securities class action;

·

our material weaknesses in internal control over financial reporting and our ability to maintain effective controls over financial reporting in the future;

·

changes in our senior management, financial reporting and accounting teams, the ability of such persons to successfully perform their roles, and our ability to attract and retain qualified personnel, skilled workers and key officers;

·

our ability to timely prepare and file our periodic reports;

·

a failure to successfully implement or realize our business strategies, plans and objectives of management and liquidity, operating and growth initiatives and opportunities;

·

the loss of one or more of our significant customers;

·

our competitive position;

·

market outlook and trends in our industry, including the possibility of reduced investment in, or increased regulation of, nuclear power plants;

·

costs exceeding estimates we use to set fixed-price contracts;

·

harm to our reputation or profitability due to, among other things, internal operational issues, poor subcontractor performances or subcontractor insolvency;

·

potential insolvency or financial distress of third parties, including our customers and suppliers;

·

our contract backlog and related amounts to be recognized as revenue;

·

our ability to maintain our safety record;

·

changes in our credit profile and market conditions affecting our relationships with suppliers, vendors and subcontractors;

·

compliance with environmental, health, safety and other related laws and regulations;

·

our ability to successfully expand our business outside of the United States (“U.S.”);

·

expiration of the Price-Anderson Act’s indemnification authority;

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·

our expected financial condition, future cash flows, results of operations and future capital and other expenditures;

·

the impact of general economic conditions;

·

information technology vulnerabilities and cyberattacks on our networks;

·

our failure to comply with applicable laws and regulations, including, but not limited to, those relating to privacy and anti-bribery;

·

our participation in multiemployer pension plans;

·

the impact of any disruptions resulting from the expiration of collective bargaining agreements;

·

future liabilities, fees and expenses resulting from the Koontz-Wagner Custom Controls Holdings LLC (“Koontz-Wagner”) bankruptcy filing;

·

availability of raw materials and inventories;

·

the impact of natural disasters and other severe catastrophic events;

·

future income tax payments and utilization of net operating loss (“NOL”) and foreign tax credit carryforwards, including any impact relating to the Tax Cut and Jobs Act of 2017 (the “Tax Act”) or other tax changes;

·

future compliance with orders of and agreements with regulatory agencies;

·

volatility of the market price for our common stock and our stockholders’ ability to resell their shares of common stock;

·

our ability to pay cash dividends in the future;

·

the impact of activist shareholder actions;

·

the impact of future sales of our common stock on the market price of such stock;

·

expected outcomes of legal or regulatory proceedings and their expected effects on our results of operations, including the bankruptcy filing by Koontz-Wagner; and

·

any other statements regarding future growth, future cash needs, future operations, business plans and future financial results.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including unpredictable or unanticipated factors that we have not discussed in this Form 10-K. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by the forward-looking statements.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. Investors should consider the areas of risk and uncertainty described above, as well as those discussed below under “Part I—Item 1A. Risk Factors.” Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and we caution investors not to rely upon them unduly.

Part  I

Item 1.  Busines s.

Overview

Global Power Equipment Group Inc. was incorporated in 2001 under the laws of the State of Delaware and became the successor to GEEG Holdings, LLC, which was formed as a Delaware limited liability company in 1998. Effective June 29, 2018, Global Power Equipment Group Inc. changed its name to Williams Industrial Services Group Inc. (together with its wholly owned subsidiaries, “Williams,” the “Company,” “we,” “us” or “our,” unless the context indicates otherwise) to better align its name with the Williams business (as defined below), and our stock now trades on the OTCQX® Best Market (the “OTCQX”) under the ticker symbol “WLMS.” Williams has been safely helping plant owners and operators enhance asset value for more than 50 years. We provide a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. Our mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to our customers.

Our Transformation

We completed the transformation of our Company in 2018. Beginning in 2016, we shifted our strategy to become a preferred provider of construction, maintenance and specialty services, to exit all product manufacturing businesses and to use the proceeds from the sales to reduce and restructure our term debt. To effect this change, in the third quarter of 2017, we made the decision to exit and sell substantially all of the operating assets and liabilities of our Mechanical Solutions segment, which

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we completed in the fourth quarter of 2017, as described below. Additionally, we made the decision to exit and sell our Electrical Solutions segment (which was comprised solely of Koontz-Wagner, a wholly owned subsidiary of the Company) in the fourth quarter of 2017. We determined that these two segments met the definition of discontinued operations, and, as a result, they (including TOG Manufacturing Company, Inc. and TOG Holdings, Inc., which were sold in July 2016) have been presented as discontinued operations for all periods presented. The Mechanical Solutions and Electrical Solutions segments were the only components of the business that qualified as discontinued operations for all periods presented. Unless otherwise specified, the financial information and discussion in this Form 10-K are based on our continuing operations (previously referred to as our Services segment); they exclude any results of our discontinued operations. P lease refer to “Note 4—Changes in Business” to the consolidated financial statements included in this Form 10-K for additional information.

In spite of our efforts, which included retaining financial advisors to sell all or part of Koontz-Wagner’s operations, inside or outside of a federal bankruptcy or state court proceeding (including Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”)), the proposed disposition did not progress as planned due, primarily, to the absence of viable bids in the sale process, the inability of Koontz-Wagner to fund its ongoing operations or obtain financing to do so, and Koontz-Wagner’s deteriorating financial performance. As a result, on July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations.

On October 11, 2017, we sold substantially all of the operating assets and liabilities of our Mechanical Solutions segment and used a portion of the $40.9 million net proceeds to pay down $34.0 million of our outstanding debt and related fees, including full repayment of the first-out loan, provided for by the first amendment to the Initial Centre Lane Facility (as defined below) for an additional aggregate principal amount of $10.0 million (the “First-Out Loan”) and the upfront fee on the 4.5-year senior secured term loan facility, entered into June 16, 2017, with an affiliate of Centre Lane as Administrative Agent and Collateral Agent, and the other Lenders from time to time party thereto (as amended, the “Initial Centre Lane Facility”). Additionally, on October 31, 2017, we completed the sale of our manufacturing facility in Mexico and auctioned the remaining production equipment and other assets for net proceeds of $3.6 million, of which $1.9 million was used to reduce the principal amount of the Initial Centre Lane Facility. The remaining proceeds from such sales were used to fund working capital requirements.

Prior to our strategic shift, and in an effort to address our high level of debt, in January 2017, we sold the stock of our wholly owned subsidiaries, Hetsco Holdings, Inc. and Hetsco, Inc. (collectively, “Hetsco”), for $23.2 million in cash, inclusive of working capital adjustments. After transaction costs and an escrow withholding of $1.5 million, the net proceeds of $20.2 million were used to reduce debt. Hetsco provided brazed aluminum heat exchanger repair and maintenance and safety services to the industrial gas, liquefied natural gas and petrochemical industries. Following the sale of Hetsco, we no longer engage in these services and no longer maintain intellectual property related to the Hetsco trade name or brand. Unless otherwise specified, information contained in this report is as of December 31, 2018 and reflects the sale of Hetsco.

Our Strategy for Growth

As a result of the sale of our Mechanical Solutions segment and the bankruptcy of Koontz-Wagner, our chief operating decision maker reviews financial information presented on a company-wide basis. Therefore, as of December 31, 2018, we concluded that we continue to have a single reporting segment which is comprised of Williams Industrial Services Group, LLC (collectively with Williams Plant Services, LLC, Williams Specialty Services, LLC and Williams Industrial Services, LLC, the “Williams business”), as we did as of December 31, 2017.

Our transformation strategy has been focused on improving operations, strengthening our core competencies, selling non-core assets, aggressively managing working capital and reducing costs in order to improve liquidity and reduce debt. As a result, we have successfully transformed the organization into a services-only business that provides a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. We expect to leverage the strength of the Williams brand, capitalize on our industry knowledge and customer relationships and safely provide timely, reliable services for our customers to grow revenue.

In 2018, we implemented major cost reduction initiatives to reduce our overhead costs, and we restructured and consolidated our corporate functions. We expect this to increase our operating leverage and expand net operating margins as we pursue new revenue opportunities. Our operations are based on our effectiveness in using estimating and engineering technologies, deploying rigorous project management techniques, initiating various process improvement projects and employing experienced industry-recognized sales professionals. We believe we are well positioned to grow our business in 2019 and beyond, and to realize the operating leverage our restructuring has created.

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Our Business

We provide a comprehensive range of construction, maintenance and support services to customers in energy, power and industrial end markets. We provide these services both on a constant presence basis and for discrete projects. The services we provide are designed to improve or sustain operating efficiencies and extend the useful lives of process equipment.

Our services include the following:

·

Plant Maintenance, Modification and Construction .  We perform a full range of critical services, including maintenance, modification, repair and other capital project services designed to extend life cycles regarding nuclear, paper, fossil fuel, industrial gas, hydro power, natural gas, municipal water and wastewater and other facilities for customers in energy, power and industrial end markets.

·

Painting and Coatings .  We perform cleaning, surface preparation, coatings application, quality control and inspection testing on major coating projects for nuclear and fossil fuel power plants, industrial facilities and petrochemical plants.

·

Insulation .  We provide a variety of industrial insulation services, primarily in power generation installations.

·

Asbestos and Lead Abatement .  We provide abatement services for the removal of asbestos and heavy metal based coatings such as lead paint. We do not take ownership of hazardous materials and do not assume responsibility for the liability associated with the materials other than for our actions meeting applicable statutory and regulatory requirements.

·

Roofing Systems .  We replace, repair and upgrade industrial facility roofing systems, primarily at pulp and paper manufacturing facilities and nuclear power plant locations.

·

Oil and Gas Modifications and Construction .  We have periodically executed select oil and gas projects for many years, but we have recently hired personnel with specific oil and gas experience to aggressively pursue that market full-time. We are targeting several customers and specific projects and have established offices in key Gulf Coast cities.

·

Analog to Digital Conversions .  Conversion of analog control systems to digital controls improves reliability and accuracy in plant systems, and often allows facilities to run at higher levels. As a result, it is a capital improvement that utilities and industries are investing in at several operating facilities. We successfully completed several digital upgrades on multiple units for two of our customers, and we are targeting several more.

·

Canada Nuclear.  Two power companies in Canada have announced their intention to extend the lives of several of their operating nuclear units and established large capital improvement budgets to that end. We believe that the work required for such improvements is similar to upgrades completed for nuclear plants in the U.S. Therefore, we commenced a strategic initiative to pursue new maintenance, modification and construction opportunities in Canada.

·

Nuclear Decommissioning.  Several U.S. nuclear stations have already been shut down, and several more shutdowns are planned. After shutdown, the plants must be decommissioned. This process takes many years. We are working with a supplier on one of the sites being decommissioned and are targeting the decommissioning market as it grows.

We provide these services throughout the U.S., primarily on a direct hire basis, with experienced craft laborers who are directed and managed by an experienced team of supervisors and project managers across our network. We also act in a general contracting capacity where we manage multiple subcontractors and, in other cases, we are retained as a subcontractor on a project. Our flexible staffing model enables us to meet seasonal and outage demand without being restricted by internal capacity limitations, thereby minimizing our fixed costs.

In 2018, we contracted for 84% of our revenue on cost-plus contracts that provide for reimbursement of costs incurred plus an amount of profit. The remaining 16% of our revenue was generated from fixed-price contracts.

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We bid against other contractors based on customer specifications. Fixed-price contracts present certain inherent risks, including the possibility of ambiguities in the specifications received, problems with new technologies and economic and other changes that may occur over the contract period. Alternatively, because of efficiencies that may be realized during the contract term, fixed-price contracts may offer greater profit potential than cost-plus contracts.

Market Overview

Power Generation Market and the Industrial Services Industry .  The U.S. industrial services industry is a multi-billion dollar industry, broadly defined as routine modification, maintenance and technical services provided to industrial facilities ranging from manufacturing facilities to power generation plants. The industry continues to benefit from a shift towards outsourcing as plant operators seek to alleviate financial constraints, reduce labor costs, increase labor utilization and productivity, and eliminate operational redundancies.

We expect that power industry demand for these services will be driven by the following factors in the future:

·

Aging Power Generation Infrastructure Increases Demand for Plant Maintenance and Decommissioning Services .  According to the U.S. Energy Information Administration (the “EIA”), more than half of the electrical generating capacity in the U.S. was placed in service before 1990. Coupled with the relatively limited number of large-scale power generation facilities being constructed in the U.S., the efforts to maintain older plants of all types and to take advantage of newer and more efficient technologies at existing sites result in opportunities for companies providing services to plant operators. The low price of natural gas is driving demand for new, upgraded and replacement electric generation capacity toward combined cycle gas powered plants, which are more economical to run. With natural gas pricing expected to remain low, this is also driving the conversions of simple cycle plants to combined cycle technology.

Further, approximately 90 nuclear reactors that have been in operation in the U.S. for more than 30 years require extensive ongoing engineering and maintenance services to support operations and improve performance. Nuclear power plants in the U.S. are subject to a rigorous program of U.S. Nuclear Regulatory Commission (“NRC”) oversight, inspection, preventive and corrective maintenance, equipment replacement and equipment testing. Nuclear power plants are required to go offline to refuel at intervals of no more than 24 months and to perform condition monitoring and preventive maintenance during every refueling outage. Initially, commercial nuclear power plants in the U.S. were licensed to operate for 40 years, reflecting the amortization period generally used by electric utility companies for large capital investments. As of December 31, 2016, the NRC had extended the licenses of approximately 85 reactors. In all, about 90 reactors are expected to operate for up to 60 years, with owners undertaking an increase in modification, maintenance and construction capital projects to upgrade their facilities. Decommissioning work on retired nuclear reactors also provides future opportunities for growth.

·

North America Infrastructure Growth .  Record levels of crude oil, natural gas and natural gas liquid production have accelerated new build and expansion of pipeline and related infrastructure to reduce transportation bottlenecks and bring more petroleum products to key markets. The value proposition of low cost shale resources is altering the landscape for pipelines, terminals, refineries and power generation assets. Infrastructure growth and modifications provide opportunities for us to assist in the construction and maintenance of these facilities.

·

Nuclear Power Plant Services and New Nuclear Reactor Construction .  We are one of a limited number of companies qualified to perform comprehensive services in U.S. nuclear power plants under rules issued by the NRC. We are one of the few contractors with a qualified and audited Nuclear Quality Assurance (“NQA-1”) Program, which is required to perform contract services at the new build reactors. Under these rules, owners of nuclear facilities must qualify contractors by requiring the contractors to demonstrate that they will comply with NRC regulations on quality assurance, reporting of safety issues, security and control of personnel access and conduct. On the majority of our maintenance and project work, we directly hire the labor and provide the management and supervision to perform the work directly for the owner. In some cases, we act as a general contractor and subcontract portions of the work or, alternatively, subcontract our services to full scope engineering, procurement and construction (“EPC”) firms or general contractor firms. We maintain good relationships with the utilities, the EPC firms, the general contractor firms and relevant engineering firms.

·

Standby and Distributed Power Generation .  Unlike central station generation, standby and distributed power generation equipment can sit on either side of the utility meter and may be owned by a utility, a customer or a third party. Peak energy demand requirements and higher costs, as well as transmission and distribution

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infrastructure limits, are driving investment into this space. The growth in industries with high power demand and sensitivity to power supply instability, such as datacenters, medical centers, universities and remotely located industrial loads, are straining the traditional power infrastructure. The electric power needs for these markets have been served by small-scale utility-owned diesel or gas engine generators strategically located to support distributed system operations. The power supply is trending toward larger (greater than 1,000 kilowatts) diesel engine generator systems and expanding into alternative energy assets.

Customers, Marketing and Seasonality

Our customers include major private and government-owned utilities throughout the U.S. and in Ontario, Canada, as well as leaders in the U.S. pulp and paper and industrial sectors. We market our services using dedicated sales and marketing personnel as well as our experienced on-site operations personnel. We use our safety and service track record with long-term renewable contracts to expand our services and supplement existing contracts with small- to medium-sized capital projects. Our sales initiatives directly seek to apply operational strengths to specific facilities within our targeted industries and customers throughout the U.S. and in Ontario, Canada. We are impacted by seasonality, resulting in fluctuations in revenue and gross profit during our fiscal year. Generally, this is driven by our customers’ schedule of planned outages.

We depend on a relatively small number of customers for a significant portion of our revenue, and the loss of any of those customers would have a material adverse effect on our business. For a listing of our major customers, please refer to “Note 15—Major Customers and Concentration of Credit Risk” to the consolidated financial statements included in this Form 10-K.

Quality Capabilities and Safety Performance

Through our NQA-1 Program and other programs, we provide training, certifications and ongoing safety monitoring to all of our employees working at nuclear sites. We are one of a limited number of companies qualified to work anywhere in a U.S. nuclear facility and have been one of the leading providers of coatings at U.S. nuclear facilities for almost 40 years. In addition, we are one of only a few contractors with the qualified and audited NQA-1 Program that is required to perform contract services at new build reactors. For over 13 years, we have maintained a safety record in the top quartile of the industry, benefiting both us and our customers. We also maintain a broad range of professional certifications and memberships in national organizations relevant to the performance of many of the specialized services we provide.

Materials and Suppliers

The markets for most of the materials we use are served by a large number of suppliers, and we believe that we can obtain required materials from more than one supplier.

Competition

Our competitors vary depending on plant geography and the scope of services to be rendered. Several national service providers, which are significantly larger and have significantly greater financial resources than we do, will often compete for larger maintenance and capital project opportunities that become available. These service providers include, among others, Allied Power, APTIM Corp., BHI Energy and Day & Zimmermann. Additionally, smaller contractors that operate on a regional basis often compete for smaller opportunities associated with open shop labor sources. We compete based on reputation, safety, price, service, quality and our breadth of service capabilities. We believe our strong reputation, longevity in the industry, project management capabilities, including service diversity, long-term customer relationships, safety record and performance, and our success at identifying and retaining qualified personnel differentiate us from our competitors. We also believe that the fact that we maintain a presence at several of our customers’ sites is a competitive advantage because it provides us with an intimate understanding of these facilities, which allows us to better identify our customers’ service needs. Specific to our customers that operate nuclear power plants, barriers to entry include the requirement to hold and maintain the rigorous NRC qualifications and safety standards.

Insurance

We maintain insurance coverage for various aspects of our operations; however, we remain exposed to potential losses because we are subject to deductibles, coverage limits and self-insured retentions.

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Typically, our contracts require us to indemnify our customers for third party injury, damage or loss arising from the performance of our services and provide for warranties for materials and workmanship. We may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies for specific customers. We maintain performance and payment bonding lines to support our business. In rare cases we may provide a letter of credit in lieu of a bond to satisfy performance and financial guarantees on a project.

We require all subcontractors working with us at a customer’s location to indemnify us and our customers and name us as an additional insured for activities arising out of such subcontractors’ work. We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure such subcontractors’ work or as required by contract. It is possible that our insurance and the additional insurance coverage provided by our subcontractors will not fully protect us against a valid claim or loss under the contracts with our customers.

Intellectual Property

As of December 31, 2018, we used the Williams trade name and its logo. This trade name and logo are the property of Williams. Product names and company programs appearing throughout this Form 10-K are trademarks of Williams. This Form 10-K also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and those brand names, trademarks, service marks and trade names are the property of their respective owners. In January 2017, we sold Hetsco, which maintained some of the intellectual property assets described.

Compliance with Government Regulations

We are subject to certain federal, state and local environmental, occupational health and nuclear regulatory laws applicable in the U.S and Canada. We also purchase materials and equipment from third parties and engage subcontractors who are also subject to these laws and regulations. Below is a summary of certain laws and regulations applicable to our business.

·

Environmental .  We are subject to extensive and changing environmental laws and regulations in the U.S. and Canada. These laws and regulations relate primarily to air and water pollutants and the management and disposal of hazardous materials. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or hazardous materials.

·

Health and Safety Regulations .  We are subject to the requirements of the U.S. Occupational Safety and Health Act and comparable state and international laws. Regulations promulgated by these agencies require employers and independent contractors who perform construction services, including electrical and repair and maintenance, to implement work practices, medical surveillance systems and personnel protection programs to protect employees from workplace hazards and exposure to hazardous chemicals and materials. In recognition of the potential for accidents within various scopes of work, these agencies have enacted very strict and comprehensive safety regulations.

·

NRC .  Owners of nuclear power plants are licensed to build, operate and maintain those plants by the NRC. Their license requires that they qualify their suppliers and contractors to ensure that the suppliers and contractors comply with NRC regulations. We must demonstrate to our customers that we comply with NRC regulations related to quality assurance, reporting of safety issues, security and control of personnel access and conduct.

·

International Regulations .  As a result of our expansion into Canada, we are subject to a variety of legal requirements pertaining to such activities. Our activities may be subject to oversight by the Canadian Nuclear Safety Commission, and we may be subject to additional rules and regulations, including Canada’s Nuclear Liability and Compensation Act, which generally conforms to international conventions and is conceptually similar to the Price-Anderson Act in the U.S. In addition, we may be subject to rules and regulations applying to cross border business, such as international trade and tariff policies, license requirements and requirements relating to toxic substances. Violations of any applicable licensing, tariff and tax reporting requirements or failure to provide certifications relating to toxic substances could result in the imposition of significant administrative, civil and criminal penalties. Furthermore, the failure to comply with U.S. federal, state and local tax requirements, as well as Canadian federal and provincial tax requirements, could lead to the imposition of additional taxes, interest and penalties. Our expansion into Canada, and into any international market, is dependent upon our ability to comply with the regulatory regimes adopted by such jurisdictions.

7


 

·

Department of the Treasury .  The Office of Foreign Assets Control of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. A failure to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines and suspension or debarment from participation in U.S. government contracts.

While we believe that we operate safely and prudently and in material compliance with all environmental, occupational health, nuclear regulatory and other applicable laws, there can be no assurance that accidents will not occur or that we will not incur substantial liability in connection with the operation of our business. We do not anticipate any material capital expenditures or material adverse effect on earnings or cash flows as a result of complying with these laws.

Backlog

The services we provide are typically carried out under construction contracts, long-term maintenance contracts and master service agreements. Total backlog represents the dollar amount of revenue expected to be recorded in the future for work performed under awarded contracts. Previously we reported backlog as orders from fixed-price contracts plus the amount of revenue we expected to receive in the next twelve-month period from cost-plus contracts, regardless of the remaining life of the cost-plus contract. However, we believe that reporting the total revenue expected under awarded contracts is more representative of our expected future revenue.

Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or delays due to various factors, including, but not limited to, the customer’s budgetary constraints and adverse weather. These factors can also cause revenue amounts to be realized in different periods and at levels other than those originally projected. Additional work that is not identified under the original contract is added to our backlog when we reach an agreement with the customer as to the scope and pricing of that additional work. Backlog is reduced as work is performed and revenue is recognized, or upon cancellation.

Backlog is not a measure defined by accounting principles generally accepted in the U.S. (“GAAP”), and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. Backlog may not be indicative of future operating results and projects in our backlog may be cancelled, modified or otherwise altered by our customers.

The following tables summarize our backlog:

 

 

 

 

 

 

 

 

 

December 31,

(in thousands)

 

2018

  

2017

Cost plus

 

$

487,033

 

$

291,742

Lump sum

 

 

14,571

 

 

46,222

Total

 

$

501,604

 

$

337,964

 

Backlog as of December 31, 2018 increased significantly from December 31, 2017, primarily as a result of a long-term contract for maintenance services during a customer’s nuclear outages, which are scheduled for every other year (on odd numbered years). As of December 31, 2018, $174.1 million, or 34.7%, of the total backlog related to the construction of Plant Vogtle Units 3 and 4.

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Conversion Period

 

 

 

(in thousands)

 

2019

 

Thereafter

 

Total

Cost plus

 

$

163,584

 

$

323,449

 

$

487,033

Lump sum

 

 

9,762

 

 

4,809

 

 

14,571

Total

 

$

173,346

 

$

328,258

 

$

501,604

 

For additional discussion of our backlog, see “Item 1A. Risk Factors—Risk Factors Related to Our Operations.”

Employees

As of December 31, 2018, we had 457 full-time employees (excluding temporary staff and craft labor). The number of our employees, including temporary staff and craft labor, fluctuates greatly, depending on the timing and requirements for

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craft labor. Many of the craft labor employees are employed through various union agreements. As of December 31, 2018, there were 531 craft labor employees, of which 382 were under collective bargaining agreements. We believe that our relationships with our employees, both full-time and temporary, are satisfactory. We are not aware of any circumstances related to our employees that are likely to result in a work stoppage at any of the project sites where we are performing services. In 2017, we sold our Hetsco business and substantially all of the operating assets and liabilities of our Mechanical Solutions segment. In 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. Combined, these events resulted in a decrease in the number of our full and part-time employees over the last two years.

Executive Officers of the Registrant

The following information is being furnished with respect to the Company’s executive officers as of December 31, 2018:

 

 

 

Name

 

Position

Tracy D. Pagliara

 

President and Chief Executive Officer

Timothy M. Howsman

 

Chief Financial Officer

Charles E. Wheelock

 

Vice President Administration, General Counsel and Secretary

 

Tracy D. Pagliara , 56, has served as a member of our Board of Directors since July 2017. Mr. Pagliara has served as our President and CEO starting in April 2018, having previously served as Co-President and Co-CEO, along with Craig E. Holmes, since July 2017. Prior to July 2017, he served as our Chief Administrative Officer, General Counsel and Secretary from January 2014, and also as Senior Vice President from November 2015. He previously served as our General Counsel, Secretary and Vice President of Business Development from April 2010 through December 2013. Prior to joining the Company in April 2010, Mr. Pagliara served as the Chief Legal Officer of Gardner Denver, Inc., a leading global manufacturer of highly engineered compressors, blowers, pumps and other fluid transfer equipment, from August 2000 through August 2008. He also had responsibility for other roles during his tenure with Gardner Denver, including Vice President of Administration, Chief Compliance Officer and Corporate Secretary. Prior to joining Gardner Denver, Mr. Pagliara held positions of increasing responsibility in the legal departments of Verizon Communications/GTE Corporation from August 1996 to August 2000 and Kellwood Company from May 1993 to August 1996, ultimately serving in the role of Assistant General Counsel for each company. Mr. Pagliara currently serves on the board of directors and audit, compensation and nominating and corporate governance committees of Westwater Resources, Inc. (formerly Uranium Resources, Inc.) (Nasdaq: WWR), a diversified energy materials developer, where he has served since July 2017. He is a member of the Missouri and Illinois State Bars and a Certified Public Accountant. In addition, in accordance with customary practice, Mr. Pagliara and other officers of the Company have served as officers of the Company’s various subsidiaries, although not acting in an executive role for the relevant subsidiary. As previously disclosed, such subsidiaries included Koontz-Wagner Custom Controls Holdings LLC, which filed a voluntary petition for relief under Chapter 7 of the U.S. Bankruptcy Code in July 2018 and ceased operations at such time.

Timothy M. Howsman , 58, has served as our Chief Financial Officer since July 31, 2018. He was appointed interim Chief Financial Officer on May 29, 2018, having previously served as our Chief Accounting Officer since December 11, 2017, in which role he did not serve as an executive officer. Prior to his retirement from the Company in March 2017 and subsequent rehiring, Mr. Howsman served as the Company’s Chief Financial Officer, Products from April 2015 through March 2017 and concurrently served as principal financial officer from November 2015 through March 2017. Mr. Howsman previously served as the Company’s Corporate Controller from August 2014 through March 2015. Prior to joining the Company, Mr. Howsman served as the Vice President, Controller of Blue Lynx Media, LLC, the accounting shared service center for Tribune Publishing, from April 2011 through July 2014. Prior to joining Blue Lynx Media, Mr. Howsman held positions of increasing responsibility in the accounting department of Dresser, Inc., an international manufacturing company providing highly engineered products primarily to the energy sector, from April 2006 to January 2011. During his tenure at Dresser, his roles included serving as the Assistant Corporate Controller and Director, Accounting Center. Mr. Howsman began his career working for one of the former Big Eight public accounting firms, after which he worked in various industries and held positions of increasing responsibility in both accounting and finance as well as operations. In addition, in accordance with customary practice, Mr. Howsman and other officers of the Company have served as officers of the Company’s various subsidiaries, although not acting in an executive role for the relevant subsidiary. As previously disclosed, such subsidiaries included Koontz-Wagner Custom Controls Holdings LLC, which filed a voluntary petition for relief under Chapter 7 of the U.S. Bankruptcy Code in July 2018 and ceased operations at such time.

Charles E. Wheelock , 50, has served as our Vice President, Administration, General Counsel and Secretary since July 2017. He joined the Company in September 2011 as Associate General Counsel and thereafter assumed roles of increasing responsibility, including Vice President, Deputy General Counsel and Chief Compliance Officer. He led the human resources,

9


 

recruiting and labor relations groups in our Tucker, Georgia office prior to his current appointment. Prior to joining the Company, Mr. Wheelock spent 10 years at General Electric Company, serving in a variety of roles in its Energy Services and Power Generation businesses. Mr. Wheelock is a member of the State Bar of Georgia.

Available Information

We file reports with the Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished to the SEC pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site, www.sec.gov, which contains the Company’s reports, proxy and information statements and other information we have filed electronically with the SEC.

We make available on our website, www.wisgrp.com, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after we electronically file with or furnish the reports to the SEC. The information disclosed on our website is not incorporated by this reference and is not a part of this Form 10-K. The following corporate governance related documents are also available free on our website:

·

Code of Business Conduct and Ethics;

·

Corporate Governance Guidelines;

·

Related Party Transactions Policy;

·

Charter of the Audit Committee;

·

Charter of the Compensation Committee;

·

Charter of the Nominating and Corporate Governance Committee; and

·

Procedures for Reporting Complaints Regarding Accounting or Auditing Matters of Williams Industrial Group Inc.

Item 1A.  Risk Factors

Our business, financial condition and results of operations may be impacted by one or more of the following factors, any of which could cause actual results to vary materially from historical and current results or anticipated future results.

Risk Factors Related to Our Liquidity and Capital Resources

We may not generate sufficient cash resources to continue funding our operations.

In order to have sufficient cash to fund our continuing operations, we will need to successfully stabilize and sustain our reductions in corporate headquarters expenses to properly align with and support our business. In addition, we require substantial working capital in order to meet the demands of our growing business. If our liquidity generating initiatives do not produce the expected results, or if we are otherwise unable to obtain sufficient cash resources to operate our business, we may need to raise additional debt capital or sell assets outside the normal course of business. Otherwise, we may be forced to significantly curtail or cease our operations or seek bankruptcy protection. For additional information, please refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Note 10—Debt” to the consolidated financial statements included in this Form 10-K.

We have incurred losses from operations in recent fiscal years, and may incur further losses in the future.

We incurred operating losses from continuing operations in 2018 and 2017 of $10.3 million and $22.0 million, respectively, and may incur further losses in the operation of our business. The corporate headquarters organization required to manage the complexities of three reporting segments, one of which had significant international operations, contributed to our losses in 2018 and 2017. Additionally, in 2018 and 2017, we incurred significant expenses related to professional services incurred in executing our strategy to exit our Mechanical Solutions and Electrical Solutions businesses and the now completed restatement of certain prior financial results. We anticipate a significant reduction in corporate operating expenses in 2019 as a result of aggressive cost reductions implemented during 2018 and the more streamlined company structure. Despite these efforts, we may still fail to meet our goal of achieving and maintaining profitability in the future.

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If we do not timely pay amounts due and comply with the covenants under the New Centre Lane Facility and the MidCap Facility, our business, financial condition and ability to continue as a going concern would be materially and adversely impacted.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The terms of the four-year, $35.0 million senior secured credit agreement entered into by the Company on September 18, 2018 with an affiliate of Centre Lane as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto, to refinance and replace the Initial Centre Lane Facility (the “New Centre Lane Facility”), among other things, require high interest payments, and both the New Centre Lane Facility and the three-year, $15.0 million Credit and Security Agreement entered into on October 11, 2018 with MidCap Financial Trust as Agent and as a lender, and other lenders from time to time party thereto (the “MidCap Facility”), place encumbrances on our assets, and subject us to restrictive covenants that significantly limit our operating flexibility. Additionally, under the terms of the New Centre Lane Facility, the Company must make quarterly loan amortization payments of $0.1 million per quarter through June 30, 2019 and $0.2 million per quarter thereafter.

The terms of the New Centre Lane Facility and the MidCap Facility have been structured in such a way that, if we default under one, we will also default under the other. In the event of a default, our senior secured lenders would have the right to accelerate the then-outstanding amounts under such facility and to exercise their rights and remedies to collect such amounts, which would include foreclosing on collateral constituting substantially all of our assets and those of our subsidiaries. Any default on the New Centre Lane Facility or the MidCap Facility could result in the outstanding principal balance under each such facility becoming immediately due and payable. We do not currently have sufficient cash on hand to repay the balances, and a failure to do so would constitute a default. If such a default were to occur and our lenders under the New Centre Lane Facility and the MidCap Facility exercised their rights and remedies to the extent permitted by such facility and applicable law, we would likely be forced to seek bankruptcy protection and our investors could lose the full value of their investment in our common stock. Accordingly, a default could have a material adverse effect on our business.

For additional information, please refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Note 10—Debt” to the consolidated financial statements included in this Form 10-K.

Our independent registered public accounting firm may include an explanatory paragraph in its audit opinion that accompanies our financial statements for the year ended December 31, 2019 indicating that our debt covenants and liquidity position raise substantial doubt about our ability to continue as a going concern.

If we are unable to pay amounts due under the New Centre Lane Facility or the MidCap Facility, fail to satisfy the restrictive covenants under the New Centre Lane Facility and MidCap Facility or otherwise breach or fail to develop and implement plans sufficient to alleviate the adverse effects of the foregoing before the completion of the audit of our consolidated financial statements for the year ended December 31, 2019, our independent registered public accounting firm may include an explanatory paragraph in its audit opinion that accompanies our 2019 financial statements, indicating that the terms of our indebtedness and related liquidity position raise substantial doubt about our ability to continue as a going concern.

Most recently, we identified a large, second quarter 2019 customer project which, for approximately a six-week timeframe, will have very significant working capital requirements. The project also has an underlying payment and performance surety bond making the resulting receivables unavailable for borrowing under the MidCap Facility. The combination of those two factors, if not addressed, would have resulted in the Company having inadequate cash to continue operations. We worked with both our lender and the customer to address the forecasted shortfall, and in connection with the preparation of this Form 10-K, we believed that we had an agreement in principle with our lender that would sufficiently increase the borrowing availability under the MidCap Facility. After market close on March 27, 2019, we learned that the lender’s credit committee had not approved all of the constituent parts of the agreement in principle, which again left us with a future forecasted cash shortfall. On March 29, 2019, we negotiated a contract amendment with the customer and a consent letter with the lender that we believe, in combination, adequately address our near-term liquidity concerns. However, if we are unable to address such potential shortfalls in the future, our independent registered public accounting firm may include an explanatory paragraph in its audit opinion that accompanies our 2019 financial statements, indicating that our liquidity position raises substantial doubt about our ability to continue as a going concern.

The presence of any such explanatory paragraph may, among other negative effects, make it difficult for us to continue to negotiate acceptable payment terms with our vendors and customers or may result in one or more of our suppliers making demand for adequate assurance, which could include a demand for payment in advance. If we are unable to negotiate acceptable payment terms with our customers, or if any of our material suppliers were to successfully demand payment in advance, and

11


 

we were unable to internally generate or externally raise cash in sufficient amounts to cover our resulting reduced liquidity, it could have a material adverse effect on our liquidity and may force us to seek bankruptcy protection. Other effects of such an explanatory paragraph may include difficulty obtaining future financing and negative perceptions among our customers and investors.

If our independent registered public accounting firm fails to stand for reappointment, any resulting need to engage a new auditor could significantly delay the filing of our future annual and quarterly reports with the SEC and adversely impact our business.

Our independent registered public accounting firm goes through client reacceptance procedures annually to determine if it is willing to stand for reappointment. These procedures include, among other items, a risk assessment. Due to our risk profile, there is a chance we will not meet the minimum criteria for reacceptance. If we are unable to satisfy the requirements of such client reacceptance criteria, we may be required to change auditors, which might delay the filing of our 2019 annual and quarterly reports on Form 10-K or 10-Q, as applicable, and subsequent reports with the SEC. Any such delay could result in a breach of the covenants of the New Centre Lane Facility and the MidCap Facility, reduce our trade credit based on our inability to deliver recent financial statements to our key vendors and cause us to become delinquent in our SEC filings.

The limitations and covenants contained in the New Centre Lane Facility constrain our ability to borrow additional money, sell assets and make acquisitions, which may impair our ability to fully implement elements of our business strategy and otherwise adversely affect our liquidity and financial condition.

The New Centre Lane Facility contains a number of limitations and covenants that limit our ability and that of our subsidiaries to, among other things:

·

borrow money or make capital expenditures;

·

incur liens;

·

pay dividends or make other restricted payments;

·

merge or sell assets;

·

enter into transactions with affiliates;

·

fund our growth initiatives in Canada; and

·

make acquisitions or investments.

The New Centre Lane Facility provides for variable rates of interest. We will be liable for the greatest amount of interest permitted under such rates. Any increase in the London Interbank Offered Rate (“LIBOR”) may result in an increase in our interest rates on our outstanding debt under the New Centre Lane Facility and therefore negatively affect our cash flow and financial condition. Our obligations under the New Centre Lane Facility are guaranteed by all of our wholly owned domestic subsidiaries, subject to customary exceptions. Our obligations are secured by first priority security interests on substantially all of our assets and those of our wholly owned domestic subsidiaries. This includes 100% of the voting equity interests of our domestic subsidiaries and certain specified foreign subsidiaries and 65% of the voting equity interests of other directly owned foreign subsidiaries, subject to customary exceptions.

The New Centre Lane Facility also includes additional restrictive covenants, including covenants that require us to maintain certain leverage ratios and fixed charge coverage ratios. These restrictions could adversely affect our business because they include, among other things, limitations on our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that may be beneficial for our business. These restrictions also could have a material adverse effect on our ability to make capital expenditures and business acquisitions, restructure or refinance our indebtedness, accept certain business opportunities from customers or seek additional capital.

If we do not comply with the restrictive covenants, including failing to satisfy the required financial ratios, or obtain waivers as needed, our lenders could accelerate our debt and foreclose on our assets, and our shareholders may lose the full value of an investment in our common stock. Our ability to comply with the restrictive covenants in the New Centre Lane Facility depends upon our ability to generate adequate earnings and operating cash flows or sell assets, which will be subject to our ability to successfully implement our business strategy, as well as other general economic and competition conditions and financial, business and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow from operations to fund our cash requirements and debt service obligations, and we may continue to face significant

12


 

liquidity constraints. For additional information, please refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Note 10—Debt” to the consolidated financial statements included in this Form 10-K.

The limitations and covenants contained in the MidCap Facility constrain our ability to borrow additional money, sell assets and make acquisitions, which may impair our ability to fully implement elements of our business strategy and otherwise adversely affect our liquidity and financial condition.

The MidCap Facility contains a number of limitations and covenants that limit our ability and that of our subsidiaries to, among other things:

·

create, incur, assume or guarantee any debt, except for the amount outstanding under the New Centre Lane Facility;

·

incur liens;

·

merge or sell assets;

·

purchase assets or engage in joint ventures or partnerships, except as permitted by the MidCap Facility, or make investments;

·

enter into transactions with affiliates;

·

change normal billing and reimbursement policies;

·

make sales or extend credit terms outside the normal course of business; and

·

create new deposit or securities accounts.

The MidCap Facility provides for a rate of interest of LIBOR (with a floor of 1%) plus 6%. Any increase in the LIBOR may result in an increase in our interest rates on our outstanding debt under the MidCap Facility and therefore negatively affect our cash flow and financial condition.

The MidCap Facility also includes additional restrictive covenants, including covenants that require us to maintain a fixed charge coverage ratio and certain leverage ratios, beginning with the fiscal quarter ended December 31, 2018. If we do not comply with the restrictive covenants, including failing to satisfy the required financial ratios, or obtain waivers as needed, our lenders could accelerate our debt and foreclose on our assets, and our shareholders may lose the full value of an investment in our common stock. Our ability to comply with the restrictive covenants in the MidCap Facility depends upon our ability to successfully implement our business strategy, as well as other general economic and competition conditions and financial, business and other factors, many of which are beyond our control. Our business may not generate a sufficient borrowing base, as defined in the MidCap Facility, necessary to fund our cash requirements and debt service obligations, and we may continue to face significant liquidity constraints. For additional information, please refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Note 10—Debt” to the consolidated financial statements included in this Form 10-K.

Any inability to finance our business or repay the New Centre Lane Facility and the MidCap Facility, including due to deterioration of the credit markets, could adversely affect our business.

We intend to finance our existing operations and initiatives with existing cash and cash equivalents, cash flows from operations, the New Centre Lane Facility and the MidCap Facility. The New Centre Lane Facility contains high interest rate payments and both the New Centre Lane Facility and the MidCap Facility contain a number of restrictive covenants and other terms that limit our operating flexibility, including our ability to enter other investments or new lines of business. In addition, deterioration in the credit markets could adversely affect the ability of many of our customers to pay us on time and the ability of many of our suppliers to meet our needs on a competitive basis. Any inability to pay amounts due under the New Centre Lane Facility and the MidCap Facility or access necessary additional funds on acceptable terms or at all may negatively impact our business or operations. In addition, we may require additional sources of funds in order to meet the working capital requirements of our growing business. If we are unable to access sufficient capital from our existing lenders or otherwise, our business and operations would be adversely impacted. For additional information, please refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Note 10—Debt” to the consolidated financial statements included in this Form 10-K.

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We are exposed to market risks from changes in interest rates.

We are subject to market risk exposure related to changes in interest rates. The New Centre Lane Facility and the MidCap Facility provide for variable rates of interest based on LIBOR. We will be liable for the greatest amount of interest permitted under such rates. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether or not, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated using short-term repurchase agreements, backed by Treasury securities (“SOFR”). SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain. If LIBOR ceases to exist, we may need to renegotiate the New Centre Lane Facility and the MidCap Facility, as they use LIBOR as a factor in determining the interest rate.

If we become unable to obtain adequate surety bonding, it could reduce our ability to bid on new work, which could, in turn, have a material adverse effect on our future revenue and business prospects.

In line with industry practice, we are at times required to provide performance and payment surety bonds to customers. These bonds provide credit support for the customer if we fail to perform our obligations under the contract. If security is required for a particular project and we are unable to obtain a bond on terms commercially acceptable to us, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may only be available at significant additional cost.

If we become unable to obtain adequate letters of credit, our ability to bid on new work could be reduced, which could have a material adverse effect on our future revenue and business prospects.

In line with industry practice, we are at times required to provide letters of credit. These letters of credit provide credit support for the client if we fail to perform our obligations under the contract. The MidCap Facility allows for up to $6.0 million of non-cash collateralized letters of credit. As of March 28, 2019, we have $2.3 million of non-cash collateralized letters of credit outstanding. If security is required for a particular project and we are unable to obtain a letter of credit on terms commercially acceptable to us, we may not be able to pursue that project. Any inability to obtain letters of credit on commercially reasonable terms could have a material adverse effect on our revenue and business prospects.

We have recorded write-downs of our goodwill and other indefinite-lived assets in the past. If we were required to write-down additional amounts, our results of operations and stockholders’ equity could be materially adversely affected.

We are required to review goodwill and indefinite-lived intangible assets for potential impairment at least annually in accordance with GAAP. As a result of our annual goodwill impairment analysis as of October 1, 2018 and 2017, we determined that our fair value exceeded its book value, and, accordingly, no impairment charge was necessary for the years ended December 31, 2018 and 2017. We had $47.9 million of goodwill and trade names remaining on our consolidated balance sheet as of December 31, 2018. If we experience declines in revenue and gross profit or do not meet our current and forecasted operating budget, we may be subject to goodwill and/or other intangible asset impairments in the future. Because of the significance of our goodwill and intangible assets, and based on the magnitude of historical impairment charges, any future impairment of these assets could have a material adverse effect on our financial results. For additional information, please refer to “Note 6—Goodwill and Other Intangible Assets” to the consolidated financial statements included in this Form 10-K.

Liabilities, fees, and expenses related to the Koontz-Wagner bankruptcy filing could have a material adverse effect on our results of operations, cash flows and financial position .

We may incur future liabilities as a result of the July 11, 2018 bankruptcy filing of our Koontz-Wagner subsidiary, and defending any claims relating to the Koontz-Wagner bankruptcy could require us to incur substantial legal fees and other expenses. Any such liabilities could have a material adverse effect on our results of operations, cash flows and financial position. For additional information, please refer to “Note 4—Changes in Business” to the consolidated financial statements included in this Form 10-K.

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Changes to tax regulations, laws, accounting principles, future business operations or examinations by tax authorities may adversely impact our provision for income taxes and ability to use deferred tax assets.

Our ability to use our deferred tax assets is subject to volatility and could be adversely affected by earnings differing materially from our projections, changes in the valuation of our deferred tax assets and liabilities, expiration of or lapses in tax credits, changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and outcomes as a result of tax examinations or changes in tax laws, regulations and accounting principles. As a result, our income tax provisions are also subject to volatility from these changes, as well as changes in accounting for uncertain tax positions, or interpretations thereof.

The Tax Act (i) reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018, (ii) generally will limit our annual deductions for interest expense to no more than 30% of our “adjusted taxable income” (plus 100% of our business interest income) for the year and (iii) will permit us to offset only 80% (rather than 100%) of our taxable income with any net operating losses (“NOLs”) we generate after 2017. The disallowed interest and NOLs generated after 2017 can be carried to future periods indefinitely. It is possible in the future that the NOL and/or interest deductibility limitations could have the effect of causing us to incur income tax liability sooner than we otherwise would have incurred such liability or, in certain cases, could cause us to incur income tax liability that we might otherwise not have incurred, in the absence of these tax law changes.

Significant judgment is required in determining the recognition and measurement attributes prescribed in GAAP related to accounting for income taxes. In addition, GAAP applies to all income tax positions, including the potential recovery of previously paid taxes, which, if settled unfavorably, could adversely impact our provision for income taxes or additional paid-in capital. We could also be subject to examinations of our income tax returns by the Internal Revenue Service and other tax authorities. We assess the likelihood of adverse outcomes resulting from these examinations in determining the adequacy of our provision for income taxes. There may be exposure that the outcomes from these examinations will have an adverse effect on our operating results and financial condition.

Our ability to use NOL carryforwards or other tax attributes may be subject to limitations under Sections 382 and 383 of the Code.

As of December 31, 2018, we have U.S. federal tax NOL, foreign tax credits and general business tax credit carryforwards of $282.3 million, $5.6 million and $0.4 million, respectively. Generally, NOL, foreign tax credit and general business credit carryforwards may be used to offset future taxable income and thereby reduce or eliminate U.S. federal income tax liabilities. Section 382 of the Code limits a corporation’s ability to utilize NOL carryforwards to reduce tax liabilities if the corporation undergoes an “ownership change.” For these purposes, an ownership change is deemed to occur if there has been a change of more than 50% in the ownership of shareholders owning 5% or greater of the value of a corporation’s stock over a three year period. Code Section 383 applies the same limitations to foreign tax credit, general business credit and capital loss carryforwards after an ownership change.

Based upon our review, we have not experienced an ownership change as defined under Code Section 382 as of December 31, 2018. If additional equity is issued in the future, an ownership change pursuant to Code Section 382 may occur. In addition, an ownership change under Code Section 382 could be caused by circumstances beyond the Company’s control, such as market purchases or sales by certain 5% or greater shareholders of our stock. There is also a risk that, due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. In addition, under the Tax Act, the amount of NOLs incurred after the end of the 2017 fiscal year that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. The Tax Act also generally eliminates the ability to carry back any NOLs to prior taxable years, while allowing post-2017 unused NOLs to be carried forward indefinitely. There is a risk that, due to changes under the Tax Act, regulatory changes, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Thus, there can be no assurance that the Company will not experience an ownership change which would significantly limit the utilization of the Company’s NOL, foreign tax credit or general business credit carryforwards in calculating future federal tax liabilities.

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Risk Factors Related to the Restatement of Prior Period Financial Statements, delayed SEC Reporting and Our Internal Control over Financial Reporting

Audit, investigation, legal and expert services regarding the restatement and audit of our historical financial results, as well as recent legal proceedings, have required substantial attention from the Board of Directors, have diverted financial resources away from the Company and management’s attention away from our usual business operations and may continue to adversely affect customer relationships and overall business, results of operations and financial condition.

From mid-2015 until the filing of our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Report”) in March 2017, which included the restatement of certain prior period financial results, our Board, Audit Committee and members of management devoted substantial internal and external resources to legal matters resulting from the restatement and remediation efforts and the preparation and filing of the 2015 Report. Due to the delays caused by the restatement, additional attention and resources were required during 2017 for the preparation and filing of our Annual Report on Form 10-K for our 2016 fiscal year (the “2016 Report”), as well as our 2017 quarterly reports. As a result of these efforts, we incurred significant incremental fees and expenses for additional audit services, financial and other consulting services and legal services. These expenses, as well as the substantial time devoted by our Board and management toward identifying, addressing and remediating internal weaknesses and legal costs related to our internal investigation and the SEC investigation, pending litigation and other actions related to the restatement, had a material adverse effect on our business, results of operations and financial condition. Although our internal investigation and the SEC investigation have concluded, other legal actions relating to the restatement, as well as the remediation of weaknesses in our internal controls, continue to require management’s attention. In addition, any future inquiries from legal proceedings or other actions by the SEC as a result of the restatement of our historical financial statements will, regardless of the outcome, likely consume a significant amount of our resources in addition to those resources already consumed in connection with the restatement itself and ongoing litigation matters. In addition, the restatement of our historical financial statements, the fact that our stock is not listed on a national securities exchange (such as the New York Stock Exchange), and our significantly constrained liquidity have hindered our ability to attract new customers and strained relationships with certain existing customers, making it challenging to increase the volume and scope of our work. 

A pending putative securities class action and other legal matters could divert management’s focus, result in substantial expenses and have an adverse impact on our reputation, financial condition and results of operations.

The matters that led to our internal investigation and the restatement of our historical financial results expose us to greater than typical risks associated with litigation, regulatory proceedings and government enforcement actions. For instance, a putative shareholder class action was filed in 2015 in the U.S. District Court for the Northern District of Texas alleging violations of the federal securities laws in connection with matters related to the restatement of our financial results. The third consolidated amended complaint (the “Complaint”) filed by the lead plaintiff names the Company and three of our former officers as defendants. On September 11, 2018, the district court granted the defendants’ motion to dismiss and dismissed the Complaint with prejudice. Plaintiffs’ appeal of the district court’s dismissal is currently pending before the U.S. Court of Appeals for the Fifth Circuit. Please refer to “Item 3. Legal Proceedings” and “Note 14—Commitments and Contingencies” to the consolidated financial statements included in this Form 10-K. We cannot predict the outcome of the lawsuit, the magnitude of any potential losses or the effect such litigation may have on us or our operations. Regardless of the outcome, lawsuits and investigations involving us, or our current or former officers and directors, could result in significant expenses and divert attention and resources of our management and other key employees. We could be required to pay damages or other penalties or have injunctions or other equitable remedies imposed against us or our current or former directors and officers. In addition, we are generally obligated to indemnify our current and former directors and officers in connection with lawsuits, governmental investigations and related litigation or settlement amounts. Such amounts could exceed the coverage provided under our insurance policies. Any of these factors could harm our reputation, business, financial condition, results of operations or cash flows.

Our failure to maintain effective internal control over financial reporting and disclosure controls and procedures could continue to have a material adverse effect on our business.

We are required to maintain internal control over financial reporting and disclosure controls and procedures in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP. In connection with our internal investigation and the restatement, we determined that we had material weaknesses in our internal control environment and internal control activities. As of December 31, 2018, these material weaknesses continued to exist. We therefore concluded that, as of the end of the period covered by this report, our internal control over financial reporting and our disclosure controls and procedures were not effective. Until we fully remediate these deficiencies, it may be more difficult for us to report results accurately and on time. While we are working to address the internal control over financial reporting and other issues raised by our restatement process,

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we cannot be certain that our efforts will be successful or that we will be able to maintain adequate controls over our financial processes and reporting in the future. As of the date of this filing, the remediation process is ongoing. See “Part II—Item 9A. Controls and Procedures.”

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur undetected, and it is possible that additional significant deficiencies or material weaknesses in our internal control over financial reporting may be identified in the future. Any failure of our internal controls could result in additional material misstatements in our consolidated financial statements, significant deficiencies, material weaknesses, costs, failure to timely meet our periodic reporting obligations and further erosion of investor confidence. It would also adversely affect the results of periodic management evaluations and could have a material adverse effect on our business, financial condition, results of operations or cash flow. If our internal controls continue to be deemed inadequate in the future, our current external auditors could resign, and the process of retaining new auditors could limit our access to capital for an extended period of time.

Our business operations depend upon our senior management team and the ability of our other employees to successfully perform their roles.

We have made significant changes to our business in a short interval of time, which can be disruptive to our employees and business, and may add to the risk of control failures, including a failure in the effective operation of our internal control over financial reporting or our disclosure controls and procedures. Changes to company strategy can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful.

If key employees do not meet the expectations of their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of those employees with business processes, operating requirements, policies and procedures (some of which are new) and key information technologies and related infrastructure used in our day-to-day operations and financial reporting. It is important to our success that these key employees quickly adapt to, and excel in, their new roles. Their failure to do so could result in operational and administrative inefficiencies and added costs that could adversely impact our results of operations, our stock price and our customer relationships and may make recruiting for future management positions more difficult. In addition, if we were to lose the services of any one or more key employees, whether due to death, disability or termination of employment, our ability to successfully implement our business strategy, financial plans and other objectives could be significantly impaired. Any of the above factors could also impede our ability to remediate the material weaknesses in our internal controls. See “Part II—Item 9A. Controls and Procedures.” If we do not effectively manage our business through our management transitions, our business and results of operations could be adversely affected.

Risk Factors Related to Our Operations

A substantial portion of our revenue is related to services performed at nuclear power plants, and reduced investment in, or increased regulation related to, nuclear power plants would have a material adverse effect on our business and prospects.

The demand for the services we provide at nuclear power plants is directly tied to the number of nuclear power facilities that utilize our services. Additionally, U.S. nuclear capacity and electricity generation are expected to decline due to continuing low natural gas prices and the rapid expansion of low cost renewable energy and new technologies in the U.S., displacing more traditional sources of power, including nuclear power. Declining demand for U.S. nuclear power generation and related construction and maintenance budgets would have a material adverse effect on our business, operations and cash flow.

There are two new nuclear reactors at one U.S. site under construction, and several nuclear reactors are undergoing decommissioning. Pricing pressure has resulted in a decrease in the maintenance budgets for existing nuclear plants. Other new construction projects were reevaluated and discontinued in 2017. For example, during 2017, the owners of V.C. Summer Units 2 and 3 abandoned the project.

In addition, decreases in state and federal government subsidies and increased regulation would also negatively impact the demand for nuclear power and the services we provide. For instance, the NRC has broad authority under federal law to impose safety-related and other licensing requirements for the operation of nuclear generation facilities, and events at nuclear facilities or other events impacting the industry generally could lead to additional requirements and regulations on all nuclear generation facilities and could negatively impact the demand for nuclear power and the services we provide.

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If our costs exceed the estimates we use to set the fixed-prices on certain of our contracts, our earnings will be reduced.

Fixed-price contracts present certain inherent risks, including the possibility of ambiguities in the specifications received, erroneous or incomplete cost estimates, problems with new technologies and economic and other changes that may occur over the contract period.

In addition, we have a limited ability to recover any cost overruns. Contract prices are established based in part on our projected costs, which are subject to a number of assumptions. The costs that we incur in connection with each contract can vary, sometimes substantially, from our original projections. Because of the large scale and complexity of our contracts, unanticipated changes may occur, such as customer budget decisions, design changes, delays in receiving permits and cost increases. Unanticipated cost increases or delays may occur as a result of several factors, including:

·

increases in the cost of commodities, labor or freight;

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unanticipated technical problems;

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problems related to successfully managing contract performance;

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suppliers’ or subcontractors’ failure to perform, requiring modified execution plans or re-work; and

·

decreases in labor efficiency realized.

We often are contractually subject to liquidated damages in the event that we fail to perform our obligations in a timely manner. Such damages can be significant and may have a negative impact on our profit margins and financial results.

Cost increases or overruns that we cannot pass on to our customers or our payment of liquidated damages or other penalties under our contracts will lower our earnings. In addition, increases in commodity prices may adversely affect our gross margins.

If we are unable to control the delivery of services provided because of internal operational issues or poor subcontractor performances, our reputation could be adversely affected, and we could lose customers. In the event of subcontractor insolvency, if we are unable to recover any advance progress payments made to subcontractors, our profitability could be adversely affected.

We rely on subcontractors to perform services on various projects for scopes of work that are outside of our current service offerings. Our subcontractors do not account for a significant percentage of our service costs. The quality and performance of our subcontractors are not entirely under our control. Our subcontractors may not always meet the requisite level of quality control or our delivery schedules. The failure of our subcontractors to perform quality services in a timely manner could adversely affect our reputation and result in the cancellation of orders for our services, significant warranty and repair costs and the loss of customers. In addition, our contracts with customers may contain liquidated damages, and triggering such provisions could result in significant financial penalties, or, even if not triggered, could affect our ability to recognize revenue in a given period.

Other potential consequences of the failure of our subcontractors to meet our standards include a potential need to change subcontractors, resulting in increased costs. At times, we make advance progress payments to subcontractors in anticipation of completion of services, and we may be unable to recover those advances if a subcontractor fails to complete the scope of work. In addition, we generally provide warranties for terms of two years or less on our services; defects with respect to services previously provided, whether caused by our actions or a subcontractor’s, could require us to incur costs fixing such issues. The occurrence of any of the above may adversely affect our financial condition, profitability and cash flow.

We operate our business in regions subject to natural disasters, including hurricanes, and other severe catastrophic events, such as acts of war and terrorism, and any disruption to our business resulting from such events will adversely affect our revenue and results of operations.

We operate our business in regions subject to natural disasters and other severe catastrophic events. Any disaster could adversely affect our ability to conduct business and provide services to our customers, and the insurance we maintain may not be adequate to cover our losses resulting from any business interruption resulting from a natural disaster or other catastrophic events. These and any future disruptions to our operations, including acts of war, terrorism or other force majeure, could have a material adverse impact on our liquidity, financial condition and results of operations.  

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We may not be able to compete successfully against current and future competitors.

The industry in which we operate is highly competitive. Some of our competitors and potential competitors are less leveraged than we are, have greater financial or other resources than we have and may be better able to withstand adverse market conditions within the industry. Our competitors typically compete aggressively on the basis of pricing, and such competition may continue to impact our ability to attract and retain customers or maintain the rates we charge. To the extent that we choose to match our competitors’ prices, it may result in lower margins and, as a result, could harm our results of operations. Should we choose not to match, or remain within a reasonable competitive distance from, our competitors’ pricing, our sales volume would likely decrease, which could harm our results of operations. In addition, our future growth will depend on our ability to gauge the direction of the commercial and technological progress in our markets that may be adopted by our competitors. However, any such developments would likely require additional financing, and we may not be able to obtain the necessary financing on acceptable terms, if at all. A failure to keep pace with our competitors or the technological innovations in the markets we serve could have a material adverse impact on our business.

Our future revenue and operating results may vary significantly from reporting period to reporting period.

Our quarterly and annual revenue and earnings have varied in the past and are likely to vary in the future. Our service contracts contain customer-specific commercial terms that, coupled with other factors beyond our control, may result in uneven recognition of revenue and earnings over time. Customer-imposed delays can significantly impact the timing of revenue recognition and lengthen our cash conversion cycle. Due to our relatively large average contract size, our volume during any given period may be concentrated to relatively few contracts, intensifying the magnitude of these fluctuations. Furthermore, some of our operating costs are fixed. As a result, we may have limited ability to reduce our operating costs in response to unanticipated decreases in our revenue or the demand for our services in any given reporting period. Therefore, our operating results in any reporting period may not be indicative of our future performance. Because we must make significant estimates related to potential costs when we recognize revenue on a percentage-of-completion basis, these costs may change significantly from reporting period to reporting period based on new project information.

A small number of major customers account for a significant portion of our revenue, and the loss of any of these customers could negatively impact our business.

We depend on a relatively small number of customers for a significant portion of our revenue. In 2018 and 2017, three customers accounted for 69% and 59%, respectively, of our consolidated revenue. For a listing of our major customers, please refer to “Note 15—Major Customers and Concentration of Credit Risk” to the consolidated financial statements included in this Form 10-K. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenue. Because our major customers represent a large part of our business, the loss of any of our major customers could negatively impact our business and results of operations. Our business volume with each of our largest customers is highly dependent on operations and maintenance budgets for U.S. utilities. Fluctuations in any of these factors could materially adversely impact our financial results.

We are subject to potential insolvency or financial distress of third parties, including our customers and suppliers.

We are exposed to the risk that third parties to various arrangements who owe us money or goods, or who purchase services from us, will be unable to perform their obligations or continue to place orders due to insolvency or financial distress. If such third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices or on other terms that are less favorable to us, or we may have to write off receivables in the case of a customer failing to pay.

If a customer becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payment we received during the preference period prior to a bankruptcy filing may be potentially recoverable by the bankruptcy estate. Any of the foregoing could adversely impact our results of operations, financial position and liquidity.

The dollar amount of our backlog, as stated at any time, is not necessarily indicative of our future revenue.

Our backlog consists of firm orders or blanket authorizations from our customers. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. The time between receipt of an order and actual completion of services can vary. However, backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by our customers. To the extent projects are delayed, the timing of our revenue could be affected. If a customer cancels an order, we may be reimbursed for the costs we have incurred.

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Typically, however, we have no contractual right to the full amount of the revenue reflected in our backlog contracts in the event of cancellation. In addition, projects may remain in our backlog for extended periods of time. Furthermore, a portion of our backlog for multi-year service maintenance contracts is based on what we expect to realize in the future and is therefore not necessarily supported by a firm purchase order. If that work does not materialize, then our backlog would be negatively impacted, as that work would be considered a “cancellation.” Revenue recognition occurs over extended periods of time and is subject to unanticipated delays. Fluctuations in our reported backlog levels also result from the fact that we may receive a small number of relatively large orders in any given reporting period that may be included in our backlog. Because of these large orders, our backlog in that reporting period may reach levels that may not be sustained in subsequent reporting periods. Our backlog, therefore, is not necessarily indicative of our future revenue or of long-term industry trends.

Our success is partially dependent upon maintaining our safety record, and an injury to or death of any of our employees, customers or vendors could result in material liabilities to our Company.

The activities we conduct at our customers’ facilities present a risk of injury or death to our employees, customers or visitors, notwithstanding our efforts to comply with safety regulations. We may be unable to avoid material liabilities for an injury or death, and our workers’ compensation and other insurance policies may not be adequate or may not continue to be available on terms acceptable to us, or at all, which could result in material liabilities to us. In addition, our ability to obtain new business and retain our current business is partially dependent on our continuing ability to maintain a safety record that exceeds the industry average. If we fail to maintain superior safety performance, or if serious accidents occur in spite of our safety procedures, our revenue and results of operations could be materially adversely affected.

Changes in our credit profile and market conditions can affect our relationships with suppliers, vendors and subcontractors, which could have a material adverse effect on our liquidity and our business, reputation and results of operations.

We rely significantly on third-party suppliers and vendors to obtain necessary materials, and on subcontractors to perform certain services. Although we are not dependent on any single supplier, vendor or subcontractor, any substantial limitation on the availability of or deterioration in our relationship with required suppliers or subcontractors would negatively impact our operations.

Changes in our credit profile can affect the way such third parties view our ability to make payments and may induce them to shorten the payment terms of their invoices or require credit enhancement. For instance, as a result of delays in our payments, certain suppliers and subcontractors have imposed less favorable payment terms on us, including requirements to provide them with additional security in the form of prepayments, surety bonds or letters of credit. The imposition of burdensome payment terms or collateral requirements could have a material adverse impact on our liquidity and our ability to make payments to other parties. This in turn could cause us to be unable to operate our business at the desired service levels, which might adversely affect our profitability and cash flow. In other cases, our relationships with certain third parties have been terminated, requiring us to rely on new firms for certain services, which may cost more and be of inferior quality.

In addition, changes in market and economic conditions could increase the risk of a lack of available suppliers or subcontractors. If any supplier or subcontractor upon which we rely is unable or unwilling to meet its obligations under present or future agreements with us, we may be forced to pay higher prices to obtain necessary services and may suffer an interruption in our ability to provide our services to customers.

To the extent we cannot engage quality subcontractors or acquire equipment or materials on acceptable terms, we would not be able to meet the full demands of our customers, which would have a material adverse effect on our business, reputation and results of operations.

A former operating unit has been named as a defendant in asbestos personal injury lawsuits.

As discussed in “Note 14—Commitments and Contingencies” to the consolidated financial statements included in this Form 10-K, one of our former operating units has been named as a defendant in a limited number of asbestos personal injury lawsuits. Neither we, nor our predecessors, ever mined, manufactured, produced or distributed asbestos fiber, the material that allegedly caused the injury underlying these actions. In 2006, the Company filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The bankruptcy court’s discharge order issued upon our emergence from bankruptcy in 2008 extinguished the claims made by all plaintiffs who had filed asbestos claims against us before that time. We believe the bankruptcy court’s discharge order should serve as a bar against any later claim filed against us, including any of our subsidiaries, based on alleged injury from asbestos at any time before our emergence from bankruptcy. In all of the asbestos cases finalized post-bankruptcy, we have been successful in having such claims dismissed without liability. Moreover, during 2012, we secured insurance coverage that will help to reimburse the defense costs and potential indemnity obligations of our

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former operating unit relating to these claims. Nonetheless, findings of liability on our part in any of these cases that were filed against us after we emerged from bankruptcy that remain unresolved could have an adverse effect on our financial position, results of operations and liquidity.

Compliance with environmental, health, safety and other related laws and regulations is costly, and our ongoing operations may expose us to related liabilities.

Our operations are subject to laws and regulations governing the discharge of materials into the environment or otherwise related to the protection of the environment or human health and safety. We are subject to various U.S. federal statutes and the regulations implementing them, as well as similar laws and regulations at the state and local levels. If we fail to comply with environmental laws or regulations, we may be subject to significant liabilities for fines, penalties or damages, or lose or be denied significant operating permits.

In addition, we may be subject to liability allegations involving claims of personal injury or property damage. The operation of complex, large-scale equipment used in a variety of locations and climates and integration of a variety of purchased components entails an inherent risk of disputes and liabilities related to the operation of the equipment and the health and safety of the workers who operate and come into contact with the machinery. Because our services are primarily provided in power plants, claims could arise in different contexts, including fires, explosions and power surges, which can result in significant property damage or personal injury, and equipment failure, which can result in personal injury or damage to other equipment in the power plant.

The insurance policies we maintain to cover claims of this nature are subject to deductibles and recovery limitations, as well as limitations on contingencies covered, and we may, therefore, suffer losses from these claims for which no insurance recovery is available. Such losses could have a material adverse effect on our business.

We have begun to expand our operations outside the U.S. and are subject to risks associated with doing business outside the U.S.

We are seeking to expand our services outside the U.S., and we currently provide services in Canada. We face risks doing business internationally that could materially and adversely affect our business, including: the imposition of trade barriers, currency exchange rate fluctuations and currency controls, longer payment cycles, greater difficulties in accounts receivables collection, difficulties in complying with a variety of foreign laws, changes in legal or regulatory requirements, the potential for shortages of trained labor, complex and uncertain employment environments, exposure to local economic and political conditions, the impact of social unrest, such as risks of terrorism or other hostilities, and potentially adverse tax consequences. To the extent we experience these risks, our business and results of operations could be adversely affected, and, as a result, we may determine to scale back or terminate our international operations.

Our cross border activities also subject us to certain regulatory matters, including import and export licenses, tariffs, Canadian and U.S. customs and tax issues and toxic substance certifications. Violations of these requirements could result in the imposition of significant administrative, civil and criminal penalties. In addition, the new United States-Mexico-Canada Agreement (“USMCA”) (in Canada, known as the Canada-United States-Mexico Agreement (“CUSMA”)) is intended to supersede the North American Free Trade Agreement (“NAFTA”). USMCA/CUSMA has been signed but not ratified by the legislature of each of the United States, Canada and Mexico. NAFTA provides protection against tariffs, duties and other charges or fees and assures access by the signatories. The impact of USMCA/CUSMA, if ratified, on energy markets is uncertain. Any of the foregoing factors may adversely impact our business and results of operations.

Our future business prospects in Canada are, in part, dependent upon the continued operation of Canadian nuclear plants and refurbishment of the majority of the plants in Ontario to extend their operating lives. Unfavorable economic conditions, competition from other forms of power generation, increased competition for refurbishment contracts, changes in government policy or operational or project execution issues may lead nuclear plant operators in Canada to cease operations or delay, curtail or cancel proposed or existing life-extension projects, which may decrease the overall demand for our services in Canada and adversely affect our financial condition, results of operations and cash flows.

We may be unable to effectively manage our growth, including our expansion into international markets.

We are subject to the risk that we may be unable to effectively manage our growth, which requires us to develop and improve our existing administrative and operational systems and our financial and management controls and further expand, train and manage our work force. As we continue this effort, we may incur substantial costs and expend substantial resources in connection with any such expansion due to different technology standards, legal considerations and cultural differences. We

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may not be able to efficiently or effectively manage our current or future international operations and growth of such operations, compete effectively in such markets, or recruit top talent and train our personnel. Any failure to successfully manage our expansion may materially and adversely affect our business and future growth and may cause us to scale back or terminate such expansion efforts.

Expiration of the Price-Anderson Act’s indemnification authority could have adverse consequences for us.

We provide services to the nuclear industry. The Price-Anderson Act promotes the nuclear industry by offering broad indemnification to commercial nuclear power plant operators and the U.S. Department of Energy (“DOE”) for liabilities arising out of nuclear incidents at power plants licensed by the NRC and at DOE nuclear facilities. That indemnification protects not only the NRC licensee or DOE prime contractor, but also others like us who may be doing work under contract or subcontract for a licensed power plant or under a DOE prime contract. The Energy Policy Act of 2005 extended the period of coverage to include all nuclear power reactors issued construction permits through December 31, 2025. If the Price-Anderson Act’s indemnification authority expires, a problem related to our provision of services at a nuclear facility could lead to a damage claim against us for which we might not be entitled to indemnification. In addition, any well-publicized problem with those services, whether actual or perceived, could adversely affect our reputation and reduce demand for our services.

Our failure to attract and retain qualified personnel, skilled workers and key officers could have an adverse effect on us.

Our ability to attract and retain qualified professional and/or skilled personnel in accordance with our needs, either through direct hiring, subcontracting or acquisition of other firms employing such professionals, is an important factor in determining our future success. The market for these professionals is competitive, and there can be no assurance that we will be successful in our efforts to attract and retain needed personnel. Our ability to successfully execute our business strategy depends, in part, on our ability to attract and retain highly qualified, experienced mechanical, design, structural and software engineers, service technicians and marketing and sales personnel. Demand for these workers can, at times, be high and the supply extremely limited. Our success is also highly dependent upon the continued services of our key officers, and we do not maintain key employee insurance on any of our executive officers. 

We have experienced significant turnover in our senior management team and reductions in our workforce over the past few years, and have promoted or hired new employees to fill certain key roles. If we are unable to retain qualified personnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote time and resources to identifying, hiring and integrating new employees. In addition, the failure to attract and retain key employees, including officers, could impair our ability to sustain or expand our operations, provide services to our customers and conduct our business effectively.

Demand for our services is cyclical and vulnerable to economic slowdowns and reductions in private industry and government spending. In times of general economic contraction, our revenue, profits and financial condition may be adversely affected and will not necessarily rise in tandem with general economic expansion.

The industries we serve historically have been, and will likely continue to be, cyclical in nature and vulnerable to general slowdowns in the U.S. and Canadian economies. Consequently, our results of operations have fluctuated and may continue to fluctuate depending on the level of demand for services from these industries.

Our bookings and revenue may rise or fall sharply as total industry orders tend to follow pronounced cycles of general expansion and contraction. During a contraction phase, limited investment in new projects, deferrals of planned projects and project cancellations may significantly reduce our potential recognition of revenue and profits. At the end of an expansion phase, any existence of excess capacity will negatively affect power prices, which will result in a reduction in new orders. In addition to being cyclical in nature, our revenue does not correlate precisely with changes in actual or forecasted new capacity due to timing differences in revenue recognition.

During periods of declining demand for power, many of our customers may face budget shortfalls or may delay capital expenditures, which could result in a decrease in the overall demand for our services. Our customers may find it more difficult to obtain project financing due to limitations on the availability of credit and other uncertainties in the global credit markets. In addition, our customers may demand better pricing terms and their ability to timely pay our invoices may be affected in times of economic slowdown. Any such reduction in private industry or government spending could have a material adverse effect on our revenue, net income or overall financial condition.

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Information technology vulnerabilities and cyberattacks on our networks could have a material adverse impact on our business.

We rely upon information technology to manage and conduct business, both internally and with our customers, suppliers and other third parties. Internet transactions involve the transmission and storage of data, including, in certain instances, customer and supplier business information. Accordingly, maintaining the security of our computers and other electronic devices, computer networks and data storage resources is a critical issue for us and our customers and suppliers because security breaches could result in reduced or lost ability to carry on our business and loss of and/or unauthorized access to confidential information. From time to time, we experience cyberattacks on our information technology systems, and those of our distributors, manufacturers, suppliers and other partners, whose systems we do not control. We have limited personnel and other resources to address information technology reliability and security of our computer networks and respond to known security incidents to minimize potential adverse impacts. Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyberattacks. Experienced hackers, cybercriminals and perpetrators of threats may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. These perpetrators of cyberattacks also may be able to develop and deploy viruses, worms, malware and other malicious software programs that attack our information and networks or otherwise exploit any security vulnerabilities of our information and networks. Techniques used to obtain unauthorized access to or sabotage systems change frequently and often are not recognized until long after being launched against a target, so we may be unable to anticipate these techniques, implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Moreover, the development and maintenance of these preventative and detective measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. We, therefore, remain potentially vulnerable to additional known or as yet unknown threats, as in some instances, we, our distributors, manufacturers, suppliers and other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we may expose our customers or partners to cyberattacks.

A breach of our information technology systems and security measures as a result of third party action, malware, employee error, malfeasance or otherwise could materially adversely impact our business and results of operations and expose us to customer, supplier and other third party liabilities, as well as result in disruptions to critical systems, theft of funds, data or intellectual property, corruption or loss of data and unauthorized release of proprietary, confidential or sensitive information of ours or our customers. Any damage, security breach, delay or loss of critical data associated with our systems may delay or prevent certain operations and may have a material adverse effect on our financial condition, results of operations and cash flows; in addition, such events could expose us to data and funds loss, disrupt our operations, allow others to unfairly compete with us and subject us to litigation, government enforcement actions, regulatory penalties and costly response measures. Any resulting negative publicity could also significantly harm our reputation. As cyber threats continue to evolve, we may be required to expend additional significant resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

Our failure to comply with applicable governmental privacy laws and regulations in the U.S. and Canada could substantially impact our business, operations, financial position and cash flows.

We are subject to extensive and evolving federal, state and international privacy laws and regulations. Changes in privacy and data security laws or regulations or new interpretations of existing laws or regulations could have a negative effect on our operating methods and costs. Failure to comply with such regulations could result in the termination or loss of contracts, the imposition of contractual damages, private and government civil litigation, civil sanctions, damage to our reputation or, in certain circumstances, criminal penalties, any of which could have a material adverse effect on our results of operations, financial position, cash flows, business and prospects. Determining compliance with such regulations is complicated by the fact that many of these laws and regulations have not been fully interpreted by governing regulatory authorities or the courts, and many of the provisions of such laws and regulations are open to a range of interpretations. There can be no assurance that we are, or have been, in compliance with all applicable existing laws and regulations or that we will be able to comply with new laws or regulations.

Our participation in multiemployer pension plans could adversely impact our liquidity and results of operations.

During 2018, we contributed to approximately 55 multiemployer pension plans throughout the U.S. and, historically, we have contributed to over 150 multiemployer pension plans in which we still have withdrawal liabilities. We believe that our responsibility for potential withdrawal liabilities associated with participating in multiemployer pension plans is limited because the building and construction trades exemption pursuant to the Employee Retirement Income Security Act of 1974 should apply to the substantial majority of our plan contributions. However, pursuant to the Pension Protection Act of 2006

23


 

and other applicable laws, we are exposed to other potential liabilities associated with plans that are underfunded. As of December 31, 2018, we had been notified that certain pension plans were in critical funding status. Currently, certain plans are developing, or have developed, a rehabilitation plan that may call for a reduction in participant benefits or an increase in future employer contributions. Therefore, in the future, we could be responsible for potential surcharges, excise taxes and/or additional contributions related to these plans, which could impact our liquidity and results of operations. While we continue to actively monitor, assess and take steps to limit our potential exposure to any surcharges, excise taxes, additional contributions and/or withdrawal liabilities, any market conditions or the number of participating employers remaining in each plan may result in a reorganization, insolvency or mass withdrawal that could have a material adverse effect on the funded status of the multiemployer plans and our potential withdrawal liability.

We are subject to anti-bribery laws in the U.S. and Canada, and failure to comply with these laws could result in our becoming subject to penalties and the disruption of our business activities.

The U.S. and Canada have laws that restrict the offer or payment of anything of value to government officials or other persons with the intent of gaining business or favorable government action, and we are subject to such laws. In addition to prohibiting certain bribery-related activity with U.S. and Canadian officials and other persons, these laws provide for recordkeeping and reporting obligations. Any failure by us, our subcontractors, agents or others who work for us on our behalf to comply with these legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties. The failure to comply with these legal and regulatory obligations could also result in the disruption of our business activities and have a material adverse effect on our business and results of operations.

The Tax Act, or other changes in U.S. and Canadian tax laws or regulations, or their interpretation, could increase our tax burden and otherwise adversely affect our financial condition, results of operations and cash flows.

Changes in tax laws or exposures to additional tax liabilities could negatively impact our effective tax rate and results of operations. As a result of enactment of the Tax Act, we were required to re-evaluate our 2017 U.S.-related deferred tax assets and liabilities and to account for a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries. The Tax Act introduced significant changes to the U.S. corporate income tax law that will have a meaningful impact on our provision for income taxes. Accounting for the income tax effects of the Tax Act required significant judgments to be made in interpreting its provisions. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in the financial statements for fiscal year 2017.

In addition, as we expand our operations outside of the U.S., our future effective tax rates could also be adversely affected, including limitations on the ability to defer U.S. taxation on earnings outside the U.S. until those earnings are repatriated to the U.S.

Work disruptions resulting from the expiration of our collective bargaining agreements or otherwise could result in increased operating costs and adversely affect our operating performance.

The majority of our temporary craft employees are represented by labor unions with which we have collective bargaining agreements. There can be no assurance that we will not experience labor disruptions associated with a lengthy strike or the expiration or renegotiation of collective bargaining agreements or other work stoppage at our facilities or customer locations, which could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.

Risk Factors Related to Our Common Stock

The market price for our common stock is volatile, and our stockholders may not be able to resell their shares of common stock at or above the purchase price paid.

The market price of our common stock fluctuates significantly and may be affected by numerous factors (some of which are beyond our control), including:

·

The risk factors described in this Item 1A;

·

Actual or anticipated fluctuations in our operating results and financial condition;

·

Changes in laws or regulations and court rulings and trends in our industry;

·

The significant concentration of ownership of our common stock in the hands of a small number of investors;

24


 

·

Changes in supply and demand of components and materials;

·

Changes in tax or accounting standards affecting our industry;

·

A shortfall in operating revenue or net income from that expected by securities analysts and investors;

·

Changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry;

·

General conditions in our customers’ industries; and

·

The degree of trading liquidity in our common stock and general market conditions.

From December 31, 2012 to March 28, 2019, the closing price of our common stock ranged from $20.86 to $1.62 per share. Continued declines in the price of our common stock could impede our ability to obtain additional capital and attract and retain qualified employees and could reduce the liquidity of our common stock. In addition, the reduced stock price also increases the cost to us, in terms of dilution, of using our equity for employee compensation.

The stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stock of similarly situated companies. These broad market fluctuations may adversely affect the market price of our common stock.

We are currently subject to securities class action lawsuits filed against us. If additional suits were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources, which could also negatively impact the market price of our stock.

Our common stock is not currently listed on a national securities exchange, and is quoted on the OTCQX, which may continue to decrease the value of our common stock and prevent certain investors from investing or achieving a meaningful degree of liquidity.

In 2016, our common stock was delisted from the New York Stock Exchange (the “NYSE”). As a result, our common stock was quoted on the OTC Pink® Marketplace (“OTC Pink”) from 2016 to March 19, 2019, at which time our stock began being quoted on the OTCQX. We cannot assure investors that our common stock will be listed on a national exchange such as the Nasdaq Stock Market, the NYSE or another securities exchange in the future.

Based upon the fact that our common stock is no longer registered for trading on a national exchange and that the value of our issued and outstanding common stock has decreased in value in recent years, there may be investment loss for stockholders, and certain stockholders may no longer be permitted to invest in our common stock. Bid quotations on the OTCQX can be sporadic and may not provide meaningful liquidity to investors. An investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. As a result of these limitations, our common stock has fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on a national stock exchange or automated quotation system would typically have.

Because there may be a limited market and generally low volume of trading in our common stock, the share price of our common stock is more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business and announcements made by us, our competitors or parties with whom we have business relationships. There may also be fewer institutional investors willing to hold or acquire our common stock. The lack of liquidity in our common stock may make it difficult for us to issue additional securities for financing or other purposes or to otherwise arrange for any financing that we may need in the future.

Because we are not listed on a national exchange, we are not subject to certain rules, such as certain corporate governance requirements. Without required compliance with such standards, investor interest in our common stock may decrease. The delisting of our common stock from the NYSE may have also resulted in other negative implications, including potential loss of confidence of customers, strategic partners and employees and the loss of investor and media interest in us and our common stock.

We do not currently expect to pay any cash dividends on our common stock, so investors may not receive any return on investment unless investors sell their shares of common stock for a price greater than that which investors paid for them.

On May 30, 2012, our Board adopted a dividend policy pursuant to which we would pay quarterly dividends on our common stock; however, we have not paid any dividends since March 2015. The costs associated with the restatement of our

25


 

historical financial results, as well as related matters, has presented a significant financial burden on our company, and the continued operation of our business has required substantial funding. In addition, as of December 31, 2018, the New Centre Lane Facility prohibits us from paying dividends. Therefore, we do not anticipate paying dividends on our common stock in the foreseeable future.

Any future determination with respect to the payment of dividends will be at the discretion of the Board and will depend upon our financial condition, results of operations, capital requirements, general business conditions, terms of financing arrangements and other factors that our Board may deem relevant. Future dividends, their timing and amount will be subject to capital availability and periodic determinations by our Board that cash dividends are in the best interest of our stockholders and are in compliance with all of our respective laws and agreements applicable to the declaration and payment of cash dividends and may be affected by, among other factors: our views on potential future capital requirements for organic initiatives and strategic transactions; debt service requirements; our credit rating; changes to applicable tax laws or corporate laws; limitations in the New Centre Lane Facility; and changes to our business model. Our dividend payments may change from time to time, and we cannot provide assurance that we will declare dividends of any particular amounts or at all. If we do not pay dividends, then our common stock may be less valuable because a return on investment will occur only if our stock price increases, and such appreciation may not occur.

Actions of activist shareholders could be disruptive and potentially costly, and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.

Activist investors may attempt to effect changes in our strategic direction and how our business is governed, or to acquire control over us to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or even sales of assets or the entire company. In fact, in June 2016, we entered into an election and nomination agreement with certain of our significant stockholders that had filed a Schedule 13D with the SEC with respect to the Company. Pursuant to that agreement, we agreed to appoint two additional directors to our Board, one of whom would serve as a representative of those investors. Among other things, we also agreed to various standstill provisions and to include the investors’ designees in our slate of nominees for election as directors at our next two annual meetings of stockholders. The agreement also provides that, because the Company did not hold its 2016 Annual Meeting of Stockholders, the significant stockholders had the right to terminate the agreement at any time after January 1, 2017.

While we welcome varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time consuming and divert the attention of our Board and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our Board may lead to the perception of a change in the direction of our business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Future sales of our common stock and any of our other efforts to raise additional capital may depress our stock price.

Sales of a substantial number of shares of our common stock in the public market or otherwise, either by us, a member of management or a major stockholder, or the perception that such sales could occur, could depress the market price of our common stock and have a material adverse effect on our ability to raise capital through the sale of additional equity securities. We may seek additional capital through a combination of private and public equity and debt offerings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, investor ownership interest may be diluted, and the terms may include liquidation or other preferences that adversely affect investor rights as a stockholder. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. Any of the above could cause a decline in our stock price.

Item 1B.  Unresolved Staff Comment s.

None.

26


 

Item 2.  Propertie s.

Our corporate office is located in Tucker, Georgia. We do not own any properties. Below is a summary of properties leased by our continuing operations as of December 31, 2018.

 

 

 

 

 

 

 

 

  

Leased

  

Approximate

  

 

Location

 

Expiration Date

 

Sq. Footage

 

Principal Uses

Tucker, Georgia

 

Leased (3/31/23)

 

24,000

 

Administrative office (corporate headquarters)

Astoria, New York

 

Leased (3/31/20)

 

7,000

 

Administrative office/warehouse

Deer Park, Texas

 

Leased (4/30/19)

 

2,500

 

Administrative office

Irving, Texas

 

Leased (10/21/19)

 

11,000

 

Administrative office

Jacksonville, Florida

 

Leased (8/30/22)

 

10,708

 

Administrative office/warehouse

Seymour, Indiana

 

Leased (11/30/19)

 

13,200

 

Administrative office/warehouse

Kincardine, Ontario

 

Leased (4/30/19)

 

421

 

Administrative office

 

In March 2019, we subleased the Irving, Texas office space until November 2019, when the lease expires.

In February 2019, we entered into a contract to lease 4,405 square feet of administrative office space in Port Elgin, Ontario with an expiration date of April 30, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27


 

Item 3.  Legal Proceeding s.

Shareholder Litigation

A putative shareholder class action, captioned Budde v. Global Power Equipment Group Inc., was filed in the U.S. District Court for the Northern District of Texas naming the Company and certain former officers as defendants. This action and another action were filed on May 13, 2015 and June 23, 2015, respectively, and on July 29, 2015, the court consolidated the two actions and appointed a lead plaintiff. On May 1, 2017, the lead plaintiff filed a second consolidated amended complaint that named the Company and three of its former officers as defendants. It alleged violations of the federal securities laws arising out of matters related to the Company’s restatement of certain financial periods and claims that the defendants made material misrepresentations and omissions of material fact in certain public disclosures during the putative class period in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, as promulgated thereunder. The claims were filed on behalf of a putative class of persons who acquired our stock between September 7, 2011 and May 6, 2015, and sought monetary damages of “more than $200 million” on behalf of the putative class and an award of costs and expenses, including attorneys’ fees and experts’ fees. On June 26, 2017, the Company and the individual defendants filed a motion to dismiss the complaint. After full briefing, on December 27, 2017, the court issued a memorandum opinion and order granting the motion to dismiss and allowing the plaintiffs until January 15, 2018 to file an amended complaint. The court found that, with respect to each of the defendants, plaintiffs failed to plead facts supporting a strong inference of scienter, or the required intent to deceive, manipulate or defraud, or act with severe recklessness. On January 15, 2018, the plaintiffs filed their third amended Complaint, and in response the Company filed a renewed motion to dismiss. After full briefing and oral argument, on September 11, 2018, the court dismissed with prejudice the Complaint. The court found that, even with plaintiffs’ amended allegations, plaintiffs failed to plead facts supporting a strong inference of scienter. Also on September 11, 2018, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Plaintiffs’ appeal is briefed and currently pending before that court. Litigation is subject to many uncertainties, and the outcome of this action is not predictable with assurance. At this time, the Company is unable to predict the possible loss or range of loss, if any, associated with the resolution of this litigation, or any potential effect such may have on the Company or its business or operations  

SEC Investigation

The Division of Enforcement of the SEC conducted a formal investigation into possible securities law violations by us relating to disclosures we made concerning certain financial information, including our cost of sales and revenue recognition, as well as related accounting issues. We cooperated with the SEC in its investigation, including through the production of documents to, and the sharing of information with, the SEC Enforcement Staff. On March 8, 2018, the SEC Enforcement Staff informed our outside counsel, Cahill, Gordon & Reindel LLP, that the SEC Enforcement Staff had concluded their investigation and, based on the information available to them as of the date of their letter, the SEC Enforcement Staff do not intend to recommend an enforcement action by the SEC against the Company.

Koontz-Wagner Bankruptcy

On July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations.

For a description of our material pending legal and regulatory proceedings and settlements, please refer to “Note 14—Commitments and Contingencies” to the consolidated financial statements included in this Form 10-K.

Item 4.  Mine Safety Disclosure s.

Not applicable.

28


 

Part II

Item 5.  Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Price of Our Common Stock  

Our shares are currently quoted on the OTCQX under the symbol “WLMS.” Our shares previously traded on the OTC Pink from 2016 until March 19, 2019; as such, there was no established trading market for our common stock during the years ended December 31, 2018 and 2017. Prior to June 29, 2018, our shares traded under the symbol “GLPW.” The high and low bid information for each quarter since January 1, 2017, as quoted on the OTC, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

2018

  

2017

 

 

 

High

  

 

Low

 

 

High

  

 

Low

1st Quarter

 

$

4.20

 

$

2.55

 

$

5.40

 

$

4.01

2nd Quarter

 

$

3.25

 

$

2.07

 

$

4.50

 

$

3.21

3rd Quarter

 

$

3.11

 

$

1.41

 

$

3.50

 

$

1.66

4th Quarter

 

$

2.34

 

$

1.60

 

$

4.25

 

$

1.80

 

The OTC quotations above reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. Such quotes are not necessarily representative of actual transactions or of the value of our securities.

The trading volume for our common stock is relatively limited. An active trading market may not continue to provide adequate liquidity for our existing stockholders or for persons who may acquire our common stock in the future.

Holders

As of March 25, 2019, there were 18,815,935 shares of our common stock outstanding and 115 holders of record of our common stock. We believe that the number of beneficial holders of our common stock is substantially greater than the number of holders of record.

Dividends

We have not paid dividends to holders of our common stock since March 2015, and the terms of the New Centre Lane Facility currently prevent us from paying dividends. In addition, declaration and payment of future dividends would depend on many factors, including, but not limited to, our earnings, financial condition, business development needs, regulatory considerations and the terms of the New Centre Lane Facility, and is at the discretion of our Board of Directors. We currently have no plan in place to pay cash dividends. See “Part I—Item 1A. Risk Factors— We do not currently expect to pay any cash dividends on our common stock, so investors may not receive any return on investment unless investors sell their shares of common stock for a price greater than that which investors paid for them.

Recent Sales of Unregistered Securities

During the fiscal year ended December 31, 2018, we did not sell any of our equity securities in transactions that were not registered under the Securities Act of 1933, as amended.

Purchases of Equity Securities by the Company and Affiliated Purchasers

Neither we, nor any “affiliated purchaser,” as defined in SEC Rule 10b-18(a)(3), purchased any of our equity securities during the three months ended December 31, 2018.

Item 6.  Selected Financial Dat a.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

29


 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides an analysis of the results of our continuing operations, an overview of our liquidity and capital resources and other items related to our business. It contains forward-looking statements about our future revenue, operating results and expectations. See “Cautionary Note Regarding Forward-Looking Statements” and “Part I—Item 1A. Risk Factors” for a discussion of the risks, assumptions and uncertainties affecting these statements. This discussion and analysis should be read in conjunction with Part I of this Form 10-K as well as our consolidated financial statements and notes thereto included in this Form 10-K .

During 2018, we completed the transformation of our Company and also began expanding our service. Beginning in 2016, we shifted our strategy to become a preferred provider of construction, maintenance and specialty services, to exit all product manufacturing businesses and to use the proceeds from the sales to reduce and restructure our term debt. To effect this change, in the third quarter of 2017, we made the decision to exit and sell substantially all of the operating assets and liabilities of our Mechanical Solutions segment, which we completed in the fourth quarter of 2017, as described below. Additionally, during the fourth quarter of 2017, we made the decision to exit and sell our Electrical Solutions segment (which was comprised solely of Koontz-Wagner). We determined that the decision to exit these segments met the definition of a discontinued operation. As a result, these segments have been presented as discontinued operations for all periods presented. In October 2017, we sold substantially all of the operating assets and liabilities of our Mechanical Solutions segment, including our manufacturing facility in Mexico. On July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations. Unless otherwise specified, the financial information and discussion in this Form 10-K are as of December 31, 2018 and are based on our continuing operations; they exclude any results of our discontinued operations. P lease refer to “Note 4—Changes in Business” to the consolidated financial statements included in this Form 10-K for additional information on our discontinued operations.

Industry Trends and Outlook

Electric Power Generation – We are primarily focused on nuclear and fossil power generation. We are involved in new build power generation facilities, maintenance of existing facilities and the decommissioning of retired facilities. Net electricity generation in the U.S. increased 4% in 2018 and surpassed the prerecession peak. The EIA projects that electricity consumption will continue to grow, but at a slower pace.

Nuclear New Builds – In nuclear power generation, we are heavily involved in the construction of the only new nuclear reactors being built in the U.S. They are Plant Vogtle Units 3 and 4. In 2017, we formed a limited liability company with Bechtel Power Corporation, a global leader in engineering, procurement, construction, and project management, Richmond County Constructors, LLC (“RCC”). RCC operates as construction subcontractor to Bechtel Power Corporation, which has been selected as the prime construction contractor for the Plant Vogtle Units 3 and 4. RCC provides construction craft labor and supervision for the project. Williams is a 25% member in RCC. We also have won additional scope of work outside RCC and are currently bidding on other opportunities for direct scope of work. Plant Vogtle Units 3 and 4 are expected to become operative in 2021 and 2022, respectively.

Nuclear Decommissioning – Over the last five years, five nuclear plants have been retired and must be properly decommissioned. We are currently working with a major contractor in the decommissioning field and believe there may be an opportunity for us to expand our capabilities and more broadly serve the decommissioning of nuclear power facilities. Given the average age of nuclear facilities in the U.S., it is expected that there will be many more retired units in the coming years, and we are actively pursuing projects in the decommissioning market.

Other Fossil Fuel Power Generation – The reduction of coal-fired electricity production has reduced demand for routine maintenance, plant upgrades, modification and new construction at U.S. coal-fired power generation facilities.

The U.S. EIA reported that natural gas-fired generation surpassed coal-fired generation and was the most common electricity fuel in 2016. As a result, we have seen the demand for routine maintenance, plant upgrades, modification and new construction in the gas-fired generation market increase. We have maintained a presence in that market, primarily in capital projects for efficiency improvements. However, because most of those plants are newer than their nuclear and coal counterparts, they require fewer upgrades, which means they also require less maintenance than either coal or nuclear plants.

In addition to our traditional maintenance and modification services, we are seeking to align with complementary service providers to provide turnkey EPC services for larger capital and maintenance projects. We see this alignment as an area

30


 

of continued future growth that would allow us to reach new customers and markets. While we provide most of our specialty services as an addendum to our traditional maintenance and modification services at power plants, we also service customers in other segments of the market, including the oil and gas, pulp and paper, and water and wastewater industries.  

Results of Operations

The following summary and discussion of our results of operations is based on our continuing operations and excludes any results of our discontinued operations. You should refer to this information, as well as the financial data provided in our consolidated financial statements and related notes included in this Form 10-K, when reading our discussion and analysis of results of operations below.

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in thousands)

 

2018

  

2017

Revenue

 

$

188,918

 

$

186,982

Cost of revenue

 

 

160,177

 

 

169,056

 Gross profit 

 

 

28,741

 

 

17,926

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

1,649

 

 

2,313

General and administrative expenses

 

 

30,715

 

 

32,895

Restructuring charges

 

 

5,689

 

 

 —

Restatement expenses

 

 

160

 

 

3,089

Depreciation and amortization expense

 

 

857

 

 

1,673

Total operating expenses

 

 

39,070

 

 

39,970

Operating loss

 

 

(10,329)

 

 

(22,044)

 

 

 

 

 

 

 

Interest expense, net

 

 

8,990

 

 

14,626

Gain on sale of business and net assets held for sale

 

 

 —

 

 

(239)

Other (income) expense, net

 

 

(1,129)

 

 

(45)

Loss from continuing operations before income tax expense (benefit)

 

 

(18,190)

 

 

(36,386)

Income tax expense (benefit)

 

 

(4,400)

 

 

(6,367)

Loss from continuing operations

 

$

(13,790)

 

$

(30,019)

 

Revenue in 2018 increased $1.9 million, or 1.0%, compared with 2017. However, after excluding $5.6 million of non-recurring revenue sources from 2017 ($4.4 million related to the release of a 2015 liquidated damage accrual and $1.2 million related to our former subsidiary Hetsco), revenue increased by a net $7.5 million, or 4.2%. That net increase in revenue was due primarily to the increased volume of construction activities at Plant Vogtle Units 3 and 4.

Gross profit in 2018 increased $10.8 million compared with 2017. A net $4.3 million of the increase was from a $9.3 million increase in gross profit due to the non-recurrence in 2018 of losses on three fixed-price contracts in 2017, which was partially offset by a $5.0 million decrease in gross profit from 2017 non-recurring revenue sources ($4.4 million related to the release of a 2015 liquidated damage accrual and $0.6 million related to our former subsidiary Hetsco). The remaining net $6.5 million increase in gross profit was due primarily to project mix.

Operating loss in 2018 decreased $11.7 million compared with 2017 due primarily to the $10.8 million increase in gross profit and a $0.9 million decrease in operating expenses. General and administrative expenses decreased $2.2 million compared with 2017 due to an overall decrease in ongoing labor and labor-related expenses and stock-based compensation expense, partially offset by an increase in professional fees and other expenses. Restatement expenses decreased $2.9 million compared with 2017 due to the wind-down of restatement activities in conjunction with the March 15, 2017 filing of the 2015 Report, which included the restatement of certain prior period financial results. Restatement expenses primarily consisted of fees for legal and accounting services. Furthermore, depreciation and amortization expenses decreased $0.8 million in 2018 compared with 2017 due to the cession of depreciation and amortization of depreciable assets related to our discontinued operations as a result of classifying them as assets held for sale at December 31, 2017.

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General and Administrative Expenses

 

 

 

 

 

 

 

 

 

Year Ended December 31,

($ in thousands)

 

2018

  

2017

Labor-related expenses

 

$

15,611

 

$

17,585

Stock-based compensation expense

 

 

1,121

 

 

2,588

Professional fees

 

 

5,634

 

 

4,749

Other expenses

 

 

8,349

 

 

7,973

Total

 

$

30,715

 

$

32,895

 

Total general and administrative expenses for 2018 decreased $2.2 million compared with 2017. For the year ended December 31, 2018, total labor-related expenses decreased $2.0 million due primarily to an overall decrease in ongoing labor and labor-related expenses compared with 2017. In addition, stock-based compensation decreased $1.5 million compared with 2017 as a result of a decrease in the Company’s average stock price in 2018 compared with 2017. These decreases in general and administrative expenses for 2018 were partially offset by a $0.9 million increase in professional fees due to strategic alternative activities and a $0.4 million increase in other expenses compared with 2017.

Restructuring Charges

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in thousands)

  

2018

 

2017

Lease

 

$

536

 

$

 —

Severance

 

 

5,153

 

 

 —

Total

 

$

5,689

 

$

 —

 

During 2018, we enacted our plan to significantly reduce corporate overhead and staff by consolidating all our administrative activities in our Tucker, Georgia offices and, as a result, vacated our leased office space in Irving, Texas on September 30, 2018. In March 2019, we subleased the Irving, Texas office space until November 2019, when the lease expires.

Other (Income) Expense, Net

 

 

 

 

 

 

 

 

 

Year Ended December 31,

($ in thousands)

 

2018

  

2017

Interest expense, net

 

$

8,990

 

$

14,626

Gain on sale of business and net assets held for sale

 

 

 —

 

 

(239)

Other income, net

 

 

(1,129)

 

 

(45)

Total

 

$

7,861

 

$

14,342

 

Total other expense, net, for 2018 decreased $6.5 million compared with 2017 due primarily to a significant reduction in interest expense, net. In October 2017, we used a portion of the proceeds from the sale of Mechanical Solutions to pay down $34.0 million of our outstanding debt and related fees, including full repayment of the First-Out Loan. As a result of this repayment, the related unamortized debt issuance costs of $5.0 million were amortized to interest expense in 2017. The remaining decrease in interest expense in 2018 resulted from a lower weighted average interest rate on our debt compared with 2017. The weighted average interest rate on borrowings under the MidCap Facility and the New Centre Lane Facility for 2018 was 10.7% compared with the weighted average interest rate on the Revolving Credit Facility (as defined below) and the Initial Centre Lane Facility of 19.1% for 2017.

In addition, other income, net increased $1.1 million in 2018 compared with 2017 as a result of an increase in income from the Company’s 25% interest in an equity method investment.

Income Tax Expense (Benefit)

 

 

 

 

 

 

 

 

 

Year Ended December 31,

($ in thousands)

 

2018

  

2017

Income tax expense (benefit)

 

$

(4,400)

 

$

(6,367)

 

We recorded income tax benefit from continuing operations of $4.4 million and $6.4 million in 2018 and 2017, respectively. Our effective tax rates from continuing operations were 24.2% and 17.5% for the years ended December 31, 2018 and 2017, respectively. 

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The income tax benefit in 2018 is mainly comprised of a $5.3 million tax benefit for the offset of the indefinite-lived deferred tax assets created by the 2017 Tax Act that may be utilized against indefinite-lived intangible deferred tax liabilities. We were able to recognize a tax benefit for $3.2 million of tax losses generated during 2018 and $2.1 million for disallowed interest expense incurred in 2018 that can be indefinitely carried forward.

The Tax Act required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Therefore, we recorded a provisional liability of the transition tax of $2.6 million in 2017.

Discontinued Operations

Please refer to “Note 4—Changes in Business” to the consolidated financial statements included in this Form 10-K for information regarding discontinued operations.

Liquidity and Capital Resources

During 2018, our principal sources of liquidity were releases of restricted cash, proceeds from the New Centre Lane Facility and borrowings under the MidCap Facility. Our principal uses of cash were to pay for customer contract-related material, labor and subcontract labor, operating expenses, interest expense on the Initial Centre Lane Facility, the New Centre Lane Facility and the MidCap Facility and exit costs resulting from the Koontz-Wagner bankruptcy. Exit costs related to the Koontz-Wagner bankruptcy were included in loss from discontinued operations in the Company’s consolidated statement of operations for the year ended December 31, 2018. See discussion in “Note 10—Debt” and “Note 4—Changes in Business” to the consolidated financial statements included in this Form 10-K.

Net Cash Flows

Our net consolidated cash flows, including cash flows related to discontinued operations, consisted of the following:

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in thousands)

 

2018

  

2017

Cash flows provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

(14,422)

 

$

(30,910)

Investing activities

 

 

182

 

 

67,882

Financing activities

 

 

3,026

 

 

(33,099)

Effect of exchange rate changes on cash

 

 

 —

 

 

713

Net change in cash, cash equivalents and restricted cash

 

$

(11,214)

 

$

4,586

 

Cash and Cash Equivalents

As of December 31, 2018, our operating unrestricted cash and cash equivalents decreased $0.1 million to $4.5 million. As of December 31, 2018, the operating cash balance of $4.5 million was held in U.S. bank accounts.

At March 28, 2019, we had $3.8 million in unrestricted cash and cash equivalents that could be used, along with normal cash flows from operations, to fund certain unanticipated shortfalls in future cash flows.

Operating Activities

Cash flows from operating activities result primarily from earnings sources and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances related to our projects. For the year ended December 31, 2018, cash used by operating activities decreased $16.5 million to $14.4 million. The decrease in our usage of cash during 2018 was partially attributed to an increased focus on our efforts to track and collect on receivables from our customers.

During 2018, our working capital decreased $21.1 million, or 66.6%, to $10.6 million from $31.7 million at December 31, 2017. The decrease in working capital was primarily due to an $11.1 million decrease in restricted cash, a $3.3 million decrease in accounts receivable, net, a $3.3 million decrease in contract assets, a $2.3 million decrease in other current assets, a $3.4 million increase in accrued compensation and benefits and a $3.3 million increase in short-term borrowings. Those decreases were partially offset by a $2.1 million decrease in accounts payable and a $3.8 million decrease in contract liabilities.

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Investing Activities

For the year ended December 31, 2018, net cash provided by investing activities decreased $67.7 million. During 2017, we received $21.7 million from the sale of Hetsco, of which $1.5 million was held in escrow. The net proceeds of $20.2 million from the sale of Hetsco were used to reduce debt. During September 2017, $0.4 million was released from escrow to the purchaser as part of working capital adjustments. Additionally, in 2017, we received $43.3 million from the sale of the Mechanical Solutions segment, resulting in $40.9 million in net proceeds, of which we used $34.0 million to pay down our long-term debt. We also received $3.6 million from the 2017 sale of our manufacturing facility in Mexico and used $1.9 million of the proceeds to pay down our long-term debt.

Financing Activities

For the year ended December 31, 2018, net cash provided by financing activities increased $36.1 million. During 2018, we refinanced the $45.0 million Initial Centre Lane Facility with the $35.0 million New Centre Lane Facility. The refinancing provided gross proceeds of $35.0 million, of which we used $31.2 million of cash to repay outstanding principal, $1.5 million in cash for refinancing costs, $0.6 million in cash to pay the 2.0% prepayment fee and $0.5 million in cash to pay for the outstanding fee related to the fourth amendment to the Initial Centre Lane Facility. Additionally, in the fourth quarter of 2018, we entered into the MidCap Facility, under which we borrowed $46.7 million, repaid $43.4 million and incurred $0.7 million in financing costs during 2018. During 2017, cash used in financing activities was $33.1 million. Repayment on our previously outstanding revolving credit facility, which we entered into in February 2012 with Wells Fargo Bank, National Association (as amended from time to time, the “Revolving Credit Facility”) and our Initial Centre Lane Facility accounted for $202.4 million of the usage of cash, while proceeds from the Revolving Credit Facility and the Initial Centre Lane Facility provided $171.6 million of cash. We also used $1.9 million of cash in connection with the 2017 refinancing of our long-term debt.

Effect of Exchange Rate Changes on Cash

For the year ended December 31, 2018, our cash flows were not impacted by fluctuations in foreign currency. The effect of exchange rate changes increased cash by $0.7 million in 2017. This change was primarily driven by changes in the exchange rates of the Euro and the Peso relative to the U.S. dollar during 2017.

Dividends

We have not declared dividends since the first quarter of 2015 and do not anticipate declaring dividends in the near term. As of December 31, 2018, the terms of the New Centre Lane Facility restricted our ability to pay dividends. In addition, the timing and amounts of any dividends would be subject to determination and approval by our Board of Directors. Dividends reported on the consolidated statement of stockholders’ equity and the consolidated statements of cash flows included in this Form 10-K are related to dividends on unvested restricted stock awards and units granted under pre-2014 long-term incentive compensation plans and are not related to a declared dividend.

Liquidity Outlook

On July 11, 2018, Koontz-Wagner, the Company’s wholly owned subsidiary which comprised substantially all of current year discontinued operations, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. As a result, we will no longer need to fund Koontz-Wagner’s operations. The extent to which we may incur additional liabilities in excess of those for which we have already accrued is currently unknown.

On September 18, 2018, we refinanced and replaced our Initial Centre Lane Facility with the New Centre Lane Facility, a four-year, $35.0 million senior secured credit agreement with an affiliate of Centre Lane Partners, LLC as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto. After payment of the Initial Centre Lane Facility and fees associated with the New Centre Lane Facility, net cash proceeds were $1.0 million. Please refer to “Note 10—Debt” to the consolidated financial statements included in this Form 10-K for information regarding the New Centre Lane Facility.

On October 11, 2018, we entered into the three-year, $15.0 million MidCap Facility. The MidCap Facility is a secured asset-based revolving credit facility that provides borrowing availability against 85% of eligible accounts receivable and the lesser of 80% of eligible contract assets and $1.0 million, after certain customary exclusions and reserves, and allows for up to $6.0 million of non-cash collateralized letters of credit. The borrowing base eligibility limitations and exclusions that have the most impact on our availability under the MidCap facility are customer concentration limits, exclusion of receivables from our

34


 

joint ventures, and exclusion of receivables related to projects on which there is an underlying surety bond. The MidCap Facility provides us with the necessary short-term borrowing capacity to address our day-to-day working capital needs, which we have not had since entering into the Initial Centre Lane Facility in June 2017. Please refer to “Note 10—Debt” to the consolidated financial statements included in this Form 10-K for information regarding the MidCap Facility.

Restricted cash balances decreased $11.1 million since the beginning of the year to $0.5 million as of December 31, 2018 as a result of the cancellation of a $3.5 million cash collateralized letter of credit and the release of escrow amounts related to certain of our sold former subsidiaries. As a result of the assumption of the outstanding letters of credit under the MidCap Facility, the $5.4 million of restricted cash which had collateralized those letters of credit was released to us in October 2018, net of $0.9 million in fees owed to the collateral agent. We anticipate that outstanding letters of credit, which currently reduce our borrowing availability under the MidCap Facility, will continue to decline during 2019 as additional letters of credit are cancelled or reduced upon satisfaction of the underlying conditions.

Although we are aggressively executing our plan to reduce general and administrative expenses, our 2018 results of operations were impacted by significant severance and other restructuring cash expenditures. We anticipate the 2019 cash flow requirements of executing the restructuring plan and the Koontz-Wagner bankruptcy will be approximately $3.8 million.

Overall, we expect liquidity to improve through 2019 as a result of exiting our former loss-generating businesses and reducing our ongoing operating expenses. However, we may experience periodic short-term constraints on our liquidity as a result of the cash flow requirements of specific projects. A high percentage of our cost of service comes from weekly craft labor payrolls and the lag between incurrence of those payrolls and the subsequent collection of the resulting customer billings results in negative cash flows for that lag period.

For example, we recently faced a potential constraint on our liquidity shortly before the filing of this Form 10-K. We identified a large, second quarter 2019 customer project which, for approximately a six-week timeframe, will have very significant working capital requirements. The project also has an underlying payment and performance surety bond making the resulting receivables unavailable for borrowing under the MidCap Facility. The combination of those two factors, if not addressed, would have resulted in the Company having inadequate cash to continue operations. We worked with both our lender and the customer to address the forecasted shortfall, and in connection with the preparation of this Form 10-K, we believed that we had an agreement in principle with our lender that would sufficiently increase the borrowing availability under the MidCap Facility. After market close on March 27, 2019, we learned that the lender’s credit committee had not approved all of the constituent parts of the agreement in principle, which again left us with a future forecasted cash shortfall. On March 29, 2019, we negotiated a contract amendment with the customer and a consent letter with the lender that we believe, in combination, adequately address our near-term liquidity concerns. While we believe that we have sufficient resources to satisfy our 2019 working capital requirements, in the event that we are unable to address such potential shortfalls in the future, management will need to seek additional funding which may not be available, and may result in management concluding that our liquidity position raises substantial doubt about our ability to continue as a going concern.

Off‑Balance Sheet Transactions

Our liquidity is currently not dependent on the use of off-balance sheet transactions but, in line with industry practice, we are often required to provide payment and performance surety bonds to customers and may be required to provide letters of credit. If performance assurances are extended to customers, generally our maximum potential exposure is limited in the contract with our customers. We frequently obtain similar performance assurances from third-party vendors and subcontractors for work performed in the ordinary course of contract execution. However, the total costs of a project could exceed our original cost estimates, and we could experience reduced gross profit or possibly a loss for a given project. In some cases, if we fail to meet certain performance standards, we may be subject to contractual liquidated damages.

As of December 31, 2018, we had a contingent liability for issued and outstanding standby letters of credit, generally issued to secure performance on customer contracts. As of December 31, 2018, we had $2.7 million of outstanding standby letters of credit that were originally issued under the Revolving Credit Facility and there were no amounts drawn upon these letters of credit. In addition, as of December 31, 2018, we had outstanding payment and performance surety bonds on projects of $51.1 million.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide this information.

35


 

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated financial statements. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements included in this Form 10-K.

Revenue Recognition.  We provide maintenance, modification and construction support services for nuclear power plants, utility and industrial customers in the fossil fuel, industrial gas, natural gas, water, pulp and paper and petrochemical industries. Our services, which are provided through long-term maintenance or discrete project agreements, are designed to improve or sustain our customers’ operating efficiencies and extend the useful lives of their process equipment. The contracts are awarded on a competitively bid and negotiated basis with the majority structured as cost-plus arrangements and the remainder as lump-sum.

Our contracts generally include a single performance obligation for which revenue is recognized over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. For cost-plus contracts, we recognize revenue when services are performed and contractually billable based upon the hours incurred and agreed-upon hourly rates. Revenue on fixed-price contracts is recognized and invoiced over time using the cost-to-cost percentage-of-completion method. To the extent a contract is deemed to have multiple performance obligations, we allocate the transaction price of the contract to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We do not adjust the price of the contract for the effects of a significant financing component. Change orders are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We believe these methods of revenue recognition most accurately reflect the economics of the transactions with our customers.

Our contracts may include several types of variable consideration, including change orders, rate true-up provisions, retainage, claims, incentives, penalties and liquidated damages. We estimate the amount of revenue to be recognized on variable consideration using estimation methods that best predict the amount of consideration to which we expect to be entitled. We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available. We update our estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. In circumstances where we cannot reasonably determine the outcome of a contract, we recognize revenue over time as the work is performed, but only to the extent of recoverable costs incurred (i.e. zero margin). A loss provision is recorded for the amount of any estimated unrecoverable costs in excess of total estimated revenue on a contract as soon as we become aware. We generally provide a limited warranty for a term of two years or less following completion of services performed under its contracts. Historically, warranty claims have not resulted in material costs incurred.

Long-Lived Assets.  Long-lived assets, such as property, plant and equipment, and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. We group long-lived assets by legal entity for purposes of recognition and measurement of an impairment loss, as this is the lowest level for which cash flows are independent.

36


 

Goodwill and Other Intangible Assets.  Goodwill and indefinite-lived intangible assets are tested for impairment annually as of October 1 and whenever events or circumstances indicate that the carrying value may not be recoverable. Our indefinite-lived intangible asset consists of the Williams trade name.

Our testing of goodwill for potential impairment involves the comparison of each reporting unit’s carrying value to its estimated fair value, which is determined using a combination of income and market approaches. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for our reporting unit. Under the market approach, the fair value is determined by utilizing comparative market multiples in the valuation estimates. The fair value of our Williams reporting unit exceeded book value at December 31, 2018.

Similarly, the testing of our trade names for potential impairment involves the comparison of the carrying value for each trade name to its estimated fair value, which is determined using the relief from royalty method.

Impairment write-downs are charged to results of operations in the period in which the impairment is determined. We recorded no impairment write-downs in 2018.

Income Taxes.  We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those differences are expected to be recovered or settled. We recognize income as a result of changes in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.

Under Accounting Standards Codification (“ASC”) 740—Income Taxes, the Financial Accounting Standards Board (the “FASB”) requires companies to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available positive and negative evidence and utilizing a “more likely than not” standard. In making such assessments, significant weight is given to evidence that can be objectively verified. A company’s current or previous operating history is given more weight than its future outlook, although we do consider future taxable income projections, ongoing tax planning strategies and the limitation on the use of carryforward losses in determining valuation allowance needs. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We recognize the tax benefit from uncertain tax positions only if it is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We believe that our benefits and accruals recognized are appropriate for all open audit years based on our assessment of many factors, including past experience and interpretation of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is determined to be different than the amounts recorded, those differences will impact income tax expense in the period in which the determination is made.

Tax Cuts and Jobs Acts of 2017

On December 22, 2017, the Tax Act was signed into law, making significant changes to the Internal Revenue Code. Such changes include, but are not limited to, a U.S. federal corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

Due to changes in interpretations and assumptions, and future guidance that may be issued and actions we may take in response to the Tax Act, the ultimate impact of the Tax Act may change in future periods. The Tax Act is highly complex, and we will continue to assess the impact of certain aspects of the Tax Act. For additional information, please refer to “Note 8—Income Taxes” to the consolidated financial statements included in this Form 10-K.

Insurance.  Through December 31, 2018, we self-insured a portion of our risk for health benefits and workers’ compensation up to certain policy limits. We maintain insurance coverage for other business risks, including general liability

37


 

insurance. We retain exposure to potential losses based on deductibles, coverage limits and self-insured retentions. We charged $2.1 million and $1.9 million as an expense during the years ended December 31, 2018 and 2017, respectively, for health benefits, general liability and workers’ compensation claims incurred and related insurance premiums for excess claim coverage for continuing operations. Our reserves as of December 31, 2018 and 2017 consisted of estimated amounts unpaid for reported and unreported claims incurred. Our accrual for all self-insured risk retention as of December 31, 2018 and 2017 was $0.4 million and $0.6 million, respectively. We have provided $1.1 million in letters of credit for each of the years ended December 31, 2018 and 2017, respectively, as security for possible workers’ compensation claims .

Recently Issued Accounting Pronouncements

In June 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC Topic 718, “Compensation–Stock Compensation” and applies to all share-based payment transactions to nonemployees in which a grantor acquires goods and services to be used or consumed in a grantor’s own operations by issuing share-based awards. Upon adoption of ASU 2018-07, an entity should only re-measure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We do not expect the adoption of ASU 2018-07 to have a material impact on our financial position, results of operations and cash flows.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which gives entities the option to reclassify the tax effects stranded in accumulated other comprehensive income as a result of the enactment of comprehensive tax legislation in December 2017, commonly referred to as the Tax Act, to retained earnings. ASU 2018-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We do not expect the adoption of ASU 2018-02 to have a material impact on our financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which, together with its related clarifying ASUs (collectively, “ASU 2016-02”), amends the existing guidance for lease accounting and related disclosure requirements. The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for leases with terms greater than twelve months or leases that contain a purchase option that is reasonably certain to be exercised. Lessees will classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. For leases with a term of twelve months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing activities. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 31, 2018. We will adopt ASU 2016-02 during the first quarter of 2019 using the modified retrospective method, meaning it will be applied to leases that exist or are entered into on or after January 1, 2019 without adjusting comparative periods in the financial statements. We are in the final stages of evaluating our existing lease portfolio and are continuing to assess the values of the right-of-use assets and lease liabilities that will be included on our balance sheet as of January 1, 2019. We do not expect the adoption of ASU 2016-02 to have a material impact on our results of operations, cash flows or debt covenants.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 8.  Financial Statements and Supplementary Dat a.

The financial statements and other information required by this Item are contained in the consolidated financial statements and related notes thereto contained elsewhere in this report.

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

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Item 9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2018.

Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Notwithstanding the ineffective disclosure controls and procedures and the material weaknesses in our internal control over financial reporting described below, our management concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with GAAP.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the Internal Control–Integrated Framework (2013). The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring. Based on this evaluation, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2018, because a large number of the material weaknesses reported in Item 9A of our Form 10-K for the year ended December 31, 2017, continued to exist at December 31, 2018, as described below.

Note: The bullet points under each material weakness, when aggregated, resulted in the identified material weakness; however, each individually would also have been sufficient to result in a material weakness.

We had material weaknesses in our control environment and monitoring:

·

We did not implement effective oversight of our finance and accounting processes (including organizational structure and reporting hierarchy), which impacted our ability to make appropriate accounting determinations.

39


 

·

We did not effectively design and implement appropriate oversight controls over our period-end financial closing and reporting processes, and our review controls were not sufficient to ensure that errors would be detected in both routine and non-routine financial information.

·

We did not maintain a sufficient complement of qualified personnel with the requisite level of technical expertise to effectively analyze, review and conclude upon technical accounting matters, and, therefore, we were unable to successfully navigate such accounting matters and accurately report them in a timely manner.

·

We did not effectively monitor (review, evaluate and assess) the risks associated with key internal control activities that provide the accounting information contained in our financial statements.

We had material weaknesses related to internal control monitoring and activities to support the financial reporting process:

·

We did not maintain effective controls over journal entries to ensure that journal entries were properly prepared with sufficient supporting documentation or were reviewed and approved in a manner that provided reasonable assurance over the accuracy and completeness of the journal entries.

·

We did not maintain effective controls over the monitoring and review of general ledger accounts, and as a result, account reconciliations and analysis were not performed at an appropriate level of detail and reconciling items were not resolved and adjusted on a timely basis.

·

We did not design and maintain effective controls to provide reasonable assurance over the accuracy and completeness relating to:

o

Tracking and completeness of work-in-process;

o

Matching cost of goods sold with related revenue;

o

Reviewing contract performance to estimate expected contract losses in a timely manner;

o

Properly reviewing, recognizing and recording the full scope of contracts and contract modifications with our customers;

o

Estimating accrued liabilities; and

o

Safeguarding of physical assets.

We had material weaknesses related to information technology general controls:

·

We did not maintain effective controls over user access to key spreadsheets to prevent unauthorized modifications to formulas within key spreadsheet applications and to detect unauthorized changes or errors in key spreadsheet applications.

·

We did not maintain effective controls over user roles within accounting systems to allow for proper segregation of duties.

·

We determined that review processes and activities that relied on electronic data generated from our systems were ineffectively designed and incorrectly operated because of material weakness in information technology general controls.

These material weaknesses impacted our accounting for revenue recognition, work-in-process costing, cost of goods sold recognition and accrued liabilities. If not remediated, the internal control deficiencies described above could result in errors in our financial statements.

Changes in Internal Control over Financial Reporting

We designed a remediation plan to strengthen our financial reporting and accounting functions and have taken, and will continue to take, remediation steps to address these material weaknesses. We also continue to take meaningful steps to enhance our disclosure controls and procedures and our internal controls over financial reporting by strengthening our financial reporting and accounting functions.

40


 

In order to remediate the material weaknesses in our control environment, we have enhanced our reporting structure to more clearly define roles, responsibilities, reporting obligations and decisional authority and to centralize certain functions to ensure knowledgeable and experienced staffing within our accounting and financial reporting departments. As we continue to enhance our staffing, we continue to design training programs for accounting and operations personnel to ensure that our staff has the appropriate knowledge and expertise necessary to perform their assigned duties. In connection with the remediation of the material weaknesses in our control activities, we have enhanced our policies relating to the documentation review and approval of journal entries and account reconciliations. To enhance our information technology controls, we are implementing systems and processes in order to create an effective segregation of duties, restrict user access to spreadsheets and applications and improve output controls over system generated entries. Finally, we are implementing procedures to enhance the level of communication and the understanding of our accounting and internal control policies and procedures in an effort to remediate the material weakness in our monitoring efforts. These actions are subject to ongoing senior management review and Audit Committee oversight.

While we continue to take steps to remediate our material weaknesses, we cannot currently represent that significant changes to our internal control over financial reporting have been fully implemented. Since filing the 2015 Report on March 15, 2017, the control enhancements that we have introduced have not been fully implemented or have not been placed in service for a sufficient period of time to conclude on their effectiveness as of December 31, 2018. Because of this, management has concluded that a large number of our material weaknesses have not been remediated.

On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers.” In connection with the adoption, we implemented certain changes to our processes and controls related to revenue recognition. These changes included the development of new policies and practices based on the five-step model outlined in ASC Topic 606, new contract review requirements and new processes and controls related to the additional disclosure requirements. In April 2018, we closed our internal audit department and reassigned that department’s responsibilities to other departments throughout the organization. We believe the remediation measures that we have taken, and continue to take, will improve the effectiveness of our internal control over financial reporting. Other than the continued implementation of these remediation efforts, the adoption of ASC Topic 606 and the closing and reassignment of our internal audit department’s responsibilities to other departments throughout the organization, there were no other changes in our internal control over financial reporting for the year ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

Item 9B.  Other Informatio n.

None.

41


 

Part II I

Item 10.  Directors, Executive Officers and Corporate Governance.

The information required by Item 10 with respect to the executive officers and key employees is included in Part I of this Form 10-K. The other information required by this Item is incorporated herein by reference to the information included under the captions “Proposal No. 1 – Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “The Board, its Committees and its Compensation – Code of Business Conduct and Ethics and Corporate Governance Guidelines,” and “The Board, its Committees and its Compensation – Board Leadership Structure and Committee Composition – Audit Committee” in our Proxy Statement for the 2019 Annual Meeting of Stockholders, which we plan to file within 120 days after December 31, 2018, the end of our fiscal year.

Item 11.  Executive Compensation.

The information required by Item 11 is incorporated by reference to the information included under the captions “Executive Compensation” and “The Board, its Committees and its Compensation – 2018 Director Compensation” in our Proxy Statement for the 2019 Annual Meeting of Stockholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 is incorporated by reference to the information included under the captions “Executive Compensation – Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement for the 2019 Annual Meeting of Stockholders.

Item 13.  Certain Relationships and Related Transactions , and Director Independence.

The information required by Item 13 is incorporated by reference to the information included under the captions “Certain Relationship and Related Transactions” and “The Board, its Committees and its Compensation – Director Independence” in our Proxy Statement for the 2019 Annual Meeting of Stockholders.

Item 14.  Principal Accountant Fees and Services.

The information required by Item 14 is incorporated by reference to the information included under the caption “Proposal No. 2 – Ratification of Independent Registered Public Accounting Firm” in our Proxy Statement for the 2019 Annual Meeting of Stockholders.

42


 

Part IV

Item 15.  Exhibits and Financial Statement Schedules.

Documents filed as part of this Report:

Financial Statements: The following reports of independent accountants and our consolidated financial statements are set forth in the index beginning on page F-1:

·

Report of Independent Registered Public Accounting Firm

·

Consolidated Balance Sheets as of December 31, 2018 and 2017

·

Consolidated Statements of Operations for the years ended December 31, 2018 and 2017

·

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2018 and 2017

·

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018 and 2017

·

Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017

·

Notes to the Consolidated Financial Statements

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.

List of Exhibits

We agree to furnish to the SEC, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of Williams on a consolidated basis.

43


 

 

 

Exhibit

Description

3.1

Second Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to our Form 10 (Commission File No. 001‑16501) filed with the Commission on April 30, 2010 and incorporated herein by reference).

3.2

Certificate of Amendment, dated June 30, 2010, to the Second Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.2 to our Amendment No. 2 to Form 10 filed with the Commission on July 20, 2010 and incorporated herein by reference).

3.3

Second Certificate of Amendment, dated June 27, 2018, to the Second Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to our Form 8-K filed with the Commission on June 29, 2018 and incorporated herein by reference).

3.4

Fourth Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to our Form 8-K filed with the Commission on June 29, 2018 and incorporated herein by reference).

4.1

Form of Common Stock Certificate (filed as Exhibit 4.1 to our Form 8-K filed with the Commission on June 29, 2018 and incorporated herein by reference).

10.1

Amended and Restated Incentive Compensation Plan (filed as Exhibit 10.1 to our Form 10‑Q filed with the Commission on May 16, 2011 and incorporated herein by reference).*

10.2

2011 Equity Incentive Plan (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on May 24, 2011 and incorporated herein by reference).*

10.3

Election and Nomination Agreement, dated as of June 1, 2016 and effective May 25, 2016, by and among (i) Wynnefield Partners Small Cap Value, L.P., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield Small Cap Value Offshore Fund, Ltd., Wynnefield Capital, Inc. Profit Sharing & Money Purchase Plan, Wynnefield Capital Management, LLC, and Wynnefield Capital, Inc. and (ii) the Company (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on June 1, 2016 and incorporated herein by reference).

10.4

Form of Restricted Shares Award Agreement (filed as Exhibit 10.1 to our Form 10‑Q filed with the Commission on November 9, 2012 and incorporated herein by reference).*

10.5

Form of Restricted Share Unit Agreement (filed as Exhibit 10.27 to our Form 10-K filed with the Commission on March 14, 2012 and incorporated herein by reference).

10.6

Amendment to Attachment A of the Form of Restricted Shares Unit Agreement (filed as Exhibit 10.5 to our Form 10‑Q/A filed with the Commission on August 20, 2012 and incorporated herein by reference).*  

10.7

Short‑Term Incentive Plan (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on February 26, 2013 and incorporated herein by reference).*

10.8

Form of Restricted Share Unit Agreement (filed as Exhibit 10.30 to our Form 10‑K filed with the Commission on March 7, 2013 and incorporated herein by reference).*

10.9

Form of Nonqualified Stock Option Agreement, dated as of March 23, 2015, by and between Terence Cryan and the Company (filed as Exhibit 10.3 to our Form 8‑K filed with the Commission on March 23, 2015 and incorporated herein by reference).*

10.10

Form of Restricted Share Unit Agreement (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on April 6, 2015 and incorporated herein by reference).*

10.11

2015 Equity Incentive Plan (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on May 14, 2015 and incorporated herein by reference).*

10.12

Employment Agreement, dated as of June 26, 2015, by and between Terence J. Cryan and the Company (filed as Exhibit 10.2 to our Form 8‑K filed with the Commission on July 2, 2015 and incorporated herein by reference).*

10.13

Separation Agreement, dated as of September 24, 2015, by and between the Company and Raymond K. Guba (filed as Exhibit 10.1 to our Form 8‑K filed with the Commission on September 25, 2015 and incorporated herein by reference).*

10.14

Executive Severance Plan, as Amended and Restated on August 19, 2015 (filed as Exhibit 10.2 to our Form 8‑K filed with the Commission on September 25, 2015 and incorporated herein by reference).*

10.15

Stock Purchase Agreement, dated January 13, 2017, by and between the Company, as Seller, and Chart Lifecycle, Inc., as Buyer, relating to the sale of Hetsco Holdings, Inc., which is the sole stockholder of Hetsco, Inc. (filed as Exhibit 10.63 to our Form 10-K filed with the Commission on March 15, 2017 and incorporated herein by reference).

10.16

Securities Purchase Agreement, dated October 11, 2017, by and between the Company, Braden Holdings, LLC and GPEG C.V., as Sellers, and Innova Global Europe B.V., Innova Global Inc., Innova Global Operating Ltd. and 1938247 Alberta Ltd., as Buyers (filed as Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2017, filed with the Commission on December 19, 2017 and incorporated herein by reference).

10.17

Retirement and Consulting Agreement, dated March 15, 2017, by and between the Company and Timothy M. Howsman (filed as Exhibit 10.64 to our Form 10-K filed with the Commission on March 15, 2017 and incorporated herein by reference).*

44


 

10.18

Form of Time‑Based Restricted Share Unit Agreement (filed as Exhibit 10.65 to our Form 10-K filed with the Commission on March 15, 2017 and incorporated herein by reference).*

10.19

Form of Performance‑Based Restricted Share Unit Agreement. (filed as Exhibit 10.66 to our Form 10-K filed with the Commission on March 15, 2017 and incorporated herein by reference).*

10.20

Form of Time-Based Restricted Share Unit Agreement (dated April 17, 2017) (filed as Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2017, filed with the Commission on December 19, 2017 and incorporated herein by reference).*

10.21

Form of Performance-Based Restricted Share Unit Agreement (dated April 17, 2017) (filed as Exhibit 10.2 to our Form 10-Q for the quarter ended June 30, 2017, filed with the Commission on December 19, 2017 and incorporated herein by reference).*

10.22

Form of Cash-Based Award Agreement (dated April 17, 2017) (filed as Exhibit 10.3 to our Form 10-Q for the quarter ended June 30, 2017, filed with the Commission on December 19, 2017 and incorporated herein by reference).*

10.23

Retention Incentives Agreement, dated as of March 19, 2016, by and between Timothy M. Howsman and the Company (filed as Exhibit 10.67 to our Form 10-K filed with the Commission on March 15, 2017 and incorporated herein by reference).*

10.24

Mark Jolly Offer Letter, dated November 8, 2016 (filed as Exhibit 10.1 to our Form 8-K filed with the Commission on March 16, 2017 and incorporated herein by reference).*

10.25

Senior Secured Credit Agreement, dated as of June 16, 2017, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.51 to our Form 10-K filed with the Commission on September 12, 2017 and incorporated herein by reference).

10.26

First Amendment to Senior Secured Credit Agreement, dated as of August 17, 2017, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.52 to our Form 10-K filed with the Commission on September 12, 2017 and incorporated herein by reference).  

10.27

Limited Waiver and Second Amendment to Senior Secured Credit Agreement, dated as of October 11, 2017, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2017, filed with the Commission on December 19, 2017 and incorporated herein by reference).

10.28

Second Limited Waiver and Third Amendment to Senior Secured Credit Agreement, dated as of January 9, 2018, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.1 to our Form 10-Q filed with the Commission on January 31, 2018 and incorporated herein by reference).

10.29

Third Limited Waiver to Senior Secured Credit Agreement, dated as of March 30, 2018, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.58 to our Form 10-K filed with the Commission on April 16, 2018 and incorporated herein by reference).  

10.30

Fourth Amendment to Senior Secured Credit Agreement, dated as of April 13, 2018, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.59 to our Form 10-K filed with the Commission on April 16, 2018 and incorporated herein by reference).  

10.31

Consent and Fifth Amendment to Senior Secured Credit Agreement, dated as of July 11, 2018, by and among the Company, as Borrower, the Lenders party thereto, and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.2 to our Form 10-Q filed with the Commission on August 14, 2018 and incorporated herein by reference).  

10.32

Senior Secured Credit Agreement, dated as of September 18, 2018, by and among the Company, as Borrower, the lenders party thereto and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (filed as Exhibit 10.3 to our Form 10-Q filed with the Commission on November 14, 2018 and incorporated herein by reference).

10.33

Credit and Security Agreement, dated as of October 11, 2018, by and among the Company and the other borrowers from time to time party thereto, as Borrowers, MidCap Financial Trust, as Agent and as a Lender, and the additional lenders from time to time party thereto (filed as Exhibit 10.4 to our Form 10-Q filed with the Commission on November 14, 2018 and incorporated herein by reference).

10.34

Separation Agreement, dated as of July 26, 2017, by and between Terence J. Cryan and the Company (filed as Exhibit 10.1 to our Form 8-K filed with the Commission on July 27, 2017 and incorporated herein by reference).*

10.35

Separation Agreement, dated as of August 1, 2017, by and between Mark Jolly and the Company (filed as Exhibit 10.54 to our Form 10-K filed with the Commission on September 12, 2017 and incorporated herein by reference). *

45


 

10.36

Employment Agreement, dated September 11, 2017, by and between Craig E. Holmes and the Company (filed as Exhibit 10.56 to our Form 10-K filed with the Commission on September 12, 2017 and incorporated herein by reference). *

10.37

Employment Agreement, dated September 11, 2017, by and between Erin Gonzalez and the Company (filed as Exhibit 10.57 to our Form 10-K filed with the Commission on September 12, 2017 and incorporated herein by reference). *

10.38

Separation Agreement, dated April 13, 2018, by and between Craig E. Holmes and the Company (filed as Exhibit 10.65 to our Form 10-K filed with the Commission on April 16, 2018 and incorporated herein by reference).*

10.39

Separation Agreement, dated May 29, 2018, by and between the Company and Erin Gonzalez (filed as Exhibit 10.1 to our Form 8-K filed with the Commission on June 4, 2018 and incorporated herein by reference).*

10.40

Employment Agreement, dated June 20, 2018, by and between the Company and Tracy D. Pagliara (filed as Exhibit 10.1 to our Form 8-K filed with the Commission on June 26, 2018 and incorporated herein by reference).*

10.41

Employment Agreement, dated July 31, 2018, by and between the Company and Timothy M. Howsman (filed as Exhibit 10.6 to our Form 10-Q filed with the Commission on August 14, 2018 and incorporated herein by reference).*

10.42

Form of Restricted Shares Award Agreement (dated January 22, 2019).*♦

21.1

Subsidiaries of the Company.♦

23.1

Consent of Independent Registered Public Accounting Firm (Moss Adams LLP).♦

24.1

Powers of Attorney for our directors and certain executive officers (included on signature page).♦

31.1

Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.♦

31.2

Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.♦

32.1

Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.♦

32.2

Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.♦

101.INS

XBRL Instance Document♦

101.SCH

XBRL Taxonomy Extension Schema Document♦

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document♦

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document♦

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document♦

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document♦


* Indicates a management contract or compensatory plan or arrangement.

Filed herewith.

Item 16. Form 10-K Summary.

None.

 

 

46


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 1, 2019

 

 

WILLIAMS INDUSTRIAL SERVICES GROUP INC.

 

 

 

By:

/s/ Tracy D. Pagliara

 

 

Tracy D. Pagliara,
President and Chief Executive Officer

 

Each individual whose signature appears below constitutes and appoints Tracy D. Pagliara, President and Chief Executive Officer, and Charles E. Wheelock, Vice President, Administration, General Counsel and Secretary, and each of them singly, his true and lawful attorneys‑in‑fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10‑K filed with the Securities and Exchange Commission, granting unto said attorneys‑in‑fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all the said attorneys‑in‑fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, in the capacities and on the dates indicated.

r

 

 

 

 

NAME

    

TITLE

    

DATE

 

 

 

 

 

 

 

 

 

 

/s/ Tracy D. Pagliara

 

Chief Executive Officer, President and Director (Principal Executive Officer)

 

April 1, 2019

Tracy D. Pagliara

 

 

 

 

 

 

 

/s/ Timothy M.  Howsman

 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

April 1, 2019

Timothy M. Howsman

 

 

 

 

 

 

 

/s/ Charles Macaluso

 

Director and Chairman of the Board

 

April 1, 2019

Charles Macaluso

 

 

 

 

 

 

 

/s/ Robert B. Mills

 

Director

 

April 1, 2019

Robert B. Mills

 

 

 

 

 

 

 

/s/ David A. B. Brown

 

Director

 

April 1, 2019

David A. B. Brown

 

 

 

 

 

 

 

/s/ Nelson Obus

 

Director

 

April 1, 2019

Nelson Obus

 

 

 

 

 

47


 

F-1


 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Williams Industrial Services Group Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Williams Industrial Services Group, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for recognizing revenue due to the adoption of Accounting Standards Codification Topic No. 606.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Moss Adams LLP

Dallas, Texas

April 1, 2019

We have served as the Company’s auditor since 2017.

F-2


 

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET S

 

 

 

 

 

 

 

 

 

December 31,

(in thousands, except share data)

 

2018

  

2017

ASSETS

  

 

 

  

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,475

 

$

4,594

Restricted cash

 

 

467

 

 

11,562

Accounts receivable, net of allowance of $140 and $1,568, respectively

 

 

22,724

 

 

26,060

Contract assets

 

 

8,218

 

 

11,487

Other current assets

 

 

1,735

 

 

4,006

Current assets of discontinued operations

 

 

 —

 

 

27,922

Total current assets

 

 

37,619

 

 

85,631

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

335

 

 

1,712

Goodwill

 

 

35,400

 

 

35,400

Intangible assets, net

 

 

12,500

 

 

12,500

Other long-term assets

 

 

1,650

 

 

573

Total assets

 

$

87,504

 

$

135,816

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,953

 

$

5,080

Accrued compensation and benefits

 

 

10,859

 

 

7,481

Contract liabilities

 

 

3,278

 

 

7,049

Short-term borrowings

 

 

3,274

 

 

 —

Current portion of long-term debt

 

 

525

 

 

 —

Other current liabilities

 

 

5,518

 

 

5,552

Current liabilities of discontinued operations

 

 

640

 

 

28,802

Total current liabilities

 

 

27,047

 

 

53,964

Long-term debt, net

 

 

32,978

 

 

24,304

Deferred tax liabilities

 

 

2,682

 

 

9,921

Other long-term liabilities

 

 

1,396

 

 

2,390

Long-term liabilities of discontinued operations

 

 

5,188

 

 

3,110

Total liabilities

 

 

69,291

 

 

93,689

Commitments and contingencies (Note 10 and 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 170,000,000 shares authorized and 19,767,605 and 19,360,026 shares issued, respectively, and 18,660,218 and 17,946,386 shares outstanding, respectively

 

 

197

 

 

193

Paid-in capital

 

 

80,424

 

 

78,910

Retained earnings (deficit)

 

 

(62,397)

 

 

(36,962)

Treasury stock, at par (1,107,387 and 1,413,640 common shares, respectively)

 

 

(11)

 

 

(14)

Total stockholders’ equity

 

 

18,213

 

 

42,127

Total liabilities and stockholders’ equity

 

$

87,504

 

$

135,816

The accompanying notes are an integral part of these consolidated financial statements.

F-3


 

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATION S

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in thousands, except share and per share data)

  

2018

  

2017

Revenue

 

$

188,918

 

$

186,982

Cost of revenue

 

 

160,177

 

 

169,056

 

 

 

 

 

 

 

 Gross profit

 

 

28,741

 

 

17,926

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

1,649

 

 

2,313

General and administrative expenses

 

 

30,875

 

 

35,984

Restructuring charges

 

 

5,689

 

 

 —

Depreciation and amortization expense

 

 

857

 

 

1,673

Total operating expenses

 

 

39,070

 

 

39,970

 

 

 

 

 

 

 

Operating loss

 

 

(10,329)

 

 

(22,044)

 

 

 

 

 

 

 

Interest expense, net

 

 

8,990

 

 

14,626

Gain on sale of business and net assets held for sale

 

 

 —

 

 

(239)

Other (income) expense, net

 

 

(1,129)

 

 

(45)

Total other (income) expense, net

 

 

7,861

 

 

14,342