NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
AND
2017
Note 1 – Organization and Summary of Significant Accounting Policies
Overview
The Goldfield Corporation (the “Company”) was incorporated in Wyoming in 1906 and subsequently reincorporated in Delaware in 1968. The Company’s principal line of business is the construction of electrical infrastructure for the utility industry and industrial customers. The principal market for the Company’s electrical construction operation is primarily in the Southeast, mid-Atlantic and Texas-Southwest regions of the United States.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company adopted Accounting Standards Updates (“ASU”) ASU 2011-05 and ASU 2011-12, which require comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The amendment eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. However, comprehensive income is equivalent to net income for the Company, and therefore, the Company’s accompanying financial statements do not include a Statement of Other Comprehensive Income.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on customer specific information and historical write-off experience. The Company reviews its allowance for doubtful accounts quarterly. Account balances are charged off against the allowance after reasonable means of collection have been exhausted and the potential for recovery is considered remote. As of both
December 31, 2018
and
2017
, upon its review, management determined it was not necessary to record an allowance for doubtful accounts due to the majority of accounts receivable being generated by electrical utility customers who the Company considers creditworthy based on timely collection history and other considerations.
Property, Buildings, Equipment and Depreciation
Property, buildings and equipment are stated at cost. Depreciation on property, buildings and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term, including renewals that are deemed to be reasonably assured, or the estimated useful life of the improvement.
In accordance with Accounting Standard Codification (“ASC”) ASC Topic 360-10-05,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the Company assesses the need to record impairment losses on long-lived assets when events and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when future estimated undiscounted cash flows expected to result from use of the asset are less than the asset’s carrying value. Any resulting loss would be measured at fair value based on discounted expected cash flows.
Electrical Construction Revenue
In May 2014, the FASB issued ASU 2014-09, ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”)
,
which will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles and is intended to improve and converge the financial reporting requirements for revenue from contracts with customers with
International Financial Reporting Standards (“IFRS”)
. Subsequently
Financial Accounting Standards Board (the “FASB”)
issued various
Accounting Standards Updates (“ASUs”)
in relation to the new revenue recognition standard. The core principle of
ASC 606
is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.
ASC 606
also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments.
ASC 606
allows for either retrospective
or cumulative effect transition
methods of adoption and is effective for periods beginning after
December 15, 2017
.
On January 1, 2018 the Company adopted
the new accounting standard ASC 606 and all the related amendments (“new revenue standard”) to all applicable contracts using the modified retrospective method (cumulative effect method). Applicable
contracts did not include contracts considered substantially complete. Contracts that were modified before the beginning of the earliest period presented were not retrospectively restated. Instead, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price as of the date of adoption. Adoption of the new revenue standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows. In addition, the Company concluded that the cumulative effect of initially applying the new revenue standard was immaterial and consequently did not record an adjustment to the opening balance of retained earnings (less than
$30,000
net of tax). The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its financial position, results of operations and cash flows on an ongoing basis.
The Company accepts contracts on a fixed-price, unit-price and service agreement basis.
Under the new revenue standard, electrical construction fixed-price contracts previously accounted for under ASC 605-35 will be recognized over time as services are performed and the underlying obligations to customers are fulfilled. This resulted mainly in the use of input measures on a cost to cost basis similar to the practices previously in place for contracts accounted for under ASC 605-35. The Company concluded that under the new revenue standard the primary impact is on the timing of when contract modifications, variable consideration and change orders are recognized, mainly due to the application of the contract identification criteria. This resulted in timing differences on the recognition in revenue and margin when compared to prior practices.
Revenue from unit-price contracts is recognized
over time as services are performed and the underlying obligations to customers are fulfilled. The Company has elected to apply the practical expedient within ASC 606-10-55-18 for contracts that are routinely billed based on established man hour and equipment rates and the amounts invoiced correspond directly with the value to the customer of the Company’s performance completed to date. These contracts will be treated as a series of distinct services transferred over time and will generally result in a similar revenue pattern when compared to the prior accounting policies.
Revenue from service agreements are recognized as services are performed. Revenue from service agreements are billed on either a man-hour or man-hour plus equipment basis. Terms of the Company’s service agreements may extend for periods beyond
one
year.
The Company’s contracts allow it to bill additional amounts for change orders and claims. The Company considers a claim to be for additional work performed outside the scope of the contract and contested by the customer. Historically, claims relating to electrical construction work have not been significant.
A change order is a modification to a contract that changes the provisions of the contract, typically resulting from changes in scope, specifications, design, manner of performance, facilities, equipment, materials, sites, or period of completion of the work under the contract. It is the Company’s policy to include revenue from change orders in contract value only when they can be reliably estimated and realization is considered probable.
The asset, “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenue recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenue recognized.
Contract costs include all direct material, direct labor, subcontractor costs and indirect costs related to contract performance, such as supplies, tools and equipment maintenance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Land and Land Development Costs and Residential Properties Under Construction
The costs of a land purchase and any development expenses up to the initial construction phase of any residential property development project are recorded under the asset “land and land development costs.” Once construction commences, both the land development costs and construction costs are recorded under the asset “residential properties under construction.” The assets “land and land development costs” and “residential properties under construction” relating to specific projects are recorded as current assets when the estimated project completion date is less than one year from the date of the consolidated financial statements, or as non-current assets when the estimated project completion date is one year or more from the date of the consolidated financial statements.
In accordance with ASC Topic 360-10,
Accounting for the Impairment or Disposal of Long-lived Assets
, land and residential properties under construction are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount or basis is not expected to be recovered, impairment losses are recorded and the related assets are adjusted to their estimated fair value. The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, other than in a forced or
liquidation sale. The Company also complies with ASC Topic 820,
Fair Value Measurement
, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company did not record an impairment write-down to either of its land carrying value or residential properties under construction carrying value for either years ended
December 31, 2018
or
2017
.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes,
which establishes the recognition requirements. Deferred tax assets and liabilities are recognized for the future tax effects attributable to temporary differences and carryforwards between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as interest expense and other general and administrative expenses, respectively, and not as a component of income taxes.
Executive Long-term Incentive Plan
The Company has not issued shares pursuant to The Goldfield Corporation 2013 Long-term Incentive Plan (the “2013 Plan”) in either
2018
or
2017
. Therefore, the Company has
no
compensation expense for shares pursuant to the 2013 Plan for either of the years ended
December 31, 2018
or
2017
.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates. Management considers the most significant estimates in preparing these consolidated financial statements to be the estimated costs at completion of electrical construction contracts in progress.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable and accrued billings, restricted cash collateral deposited with insurance carriers, cash surrender value of life insurance policies, accounts payable, notes payable, and other current liabilities.
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value.
The three levels of inputs that may be used are:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Observable market based inputs or other observable inputs.
Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data. These values are generally determined using valuation models incorporating management’s estimates of market participant assumptions.
Fair values of financial instruments are estimated through the use of public market prices, quotes from financial institutions, and other available information. Management considers the carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable and accrued billings, accounts payable and accrued liabilities, to approximate fair value due to the immediate or short-term maturity of these financial instruments. The Company has determined the fair value of its fixed rate other long-term debt to be
$292,000
using an interest rate of
4.31%
(Level 2 input), which is the Company's current interest rate on borrowings. The Company’s carrying value of long-term notes payable are estimated by management to approximate fair value since the interest rates prescribed by Branch Banking and Trust Company (the “Bank”) are variable market interest rates and are adjusted periodically, and as such, are classified as Level 2. Restricted cash is considered by management to approximate fair value due to the nature of the asset held in a secured interest bearing bank account. The carrying value of cash surrender value of life insurance is also considered by management to approximate fair value as the carrying value is based on the current settlement value under the contract, as provided by the carrier and as such, is classified as Level 2.
Restricted Cash
The Company’s restricted cash includes cash deposited in a secured interest bearing bank account, as required by the Collateral Trust Agreement in connection with the Company’s previous workers’ compensation insurance policies, as described in note 12. Also, see note 12 for financial information regarding the immaterial impact of an ASU issued by the FASB specifically related to the disclosure of restricted cash.
Goodwill and Intangible Assets
Intangible assets with finite useful lives recorded in connection with a historical acquisition are amortized over the term of the related contract or useful life, as applicable. Intangible assets held by the Company with finite useful lives include customer relationships and trademarks. The Company reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations annually or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. As of
December 31, 2018
, the Company assessed the recoverability of its long-lived assets and goodwill, by reviewing relevant events and circumstances to evaluate the qualitative factors in addition to the quantitative impairment test. As a result, there was no impairment of the carrying amounts of such assets.
Reclassifications
Certain amounts previously reflected in the prior year statement of cash flows have been reclassified to conform to the Company’s
2018
presentation. The reclassifications are associated with the adoption of ASU 2016-15 for restricted cash.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use (“ROU”) asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company will use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. While we continue to assess all of the effects of adoption, we expect upon adoption to recognize additional operating liabilities ranging from
$4 million
to
$5 million
, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The Company expects the derecognition of existing deferred rent allowances to be immaterial. The Company is not anticipating material changes to either the consolidated statements of income or the consolidated statements of cash flows as a result of the adoption. The impact of this ASU is non-cash in nature, therefore the Company does not expect the adoption of this new guidance to have a material impact on the Company’s cash flows or liquidity.
In August 2016, the FASB issued ASU 2016-15, which provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. In addition, in November 2016, the FASB issued ASU 2016-18, which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Both updates are effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company has adopted these updates and determined there is not a material impact on its consolidated financial statements due to the adoption. The consolidated statement of cash flows for the
twelve months ended December 31, 2017
, has been adjusted on the line item
“
Accounts receivable and accrued billings
”
to reflect an immaterial difference in the balance of cash, cash equivalents and restricted cash for the
2017
period. The Company did not make any other prior period adjustments due to the adoption of this ASU. Had the Company made the adjustment to its consolidated balance sheet as of
December 31, 2017
, restricted cash would have decreased by approximately
$2,300
with a corresponding increase to other receivables. This adjustment is associated with the interest income earned on the amount deposited in a trust account for the restricted cash balance. See note 12 for additional restricted cash disclosure information.
In October 2016, the FASB issued ASU 2016-16, which eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years; early adoption is permitted and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the time of adoption. The adoption of ASU 2016-16 had no impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 of the current goodwill impairment test. A goodwill impairment loss will instead be measured at the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the recorded amount of goodwill allocated to that reporting unit. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company is currently assessing the impact that adoption will have on its consolidated financial statements however, the Company does not expect this ASU to have a significant impact on its consolidated financial statements.
Note 2 – Contract Assets and Contract Liabilities
On January 1, 2018 the Company adopted
the new accounting standard ASC 606 and all the related amendments (“new revenue standard”) to all applicable contracts using the modified retrospective method. Applicable contracts did not include contracts considered substantially complete. Contracts that were modified before the beginning of the earliest period presented were not retrospectively restated. Instead, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price as of the date of adoption. Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows.
The following table presents the net contract assets and liabilities for the electrical construction operations as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
$ Change
|
Contract assets
(1)
|
|
$
|
12,030,000
|
|
|
$
|
6,074,346
|
|
|
$
|
5,955,654
|
|
Contract liabilities
(2)
|
|
(1,845,049
|
)
|
|
(367,552
|
)
|
|
(1,477,497
|
)
|
Net contract assets
|
|
$
|
10,184,951
|
|
|
$
|
5,706,794
|
|
|
$
|
4,478,157
|
|
___________________________
|
|
|
|
|
|
|
(1)
Contract assets consist of amounts under the caption
“
Costs and estimated earnings in excess of billings on uncompleted contracts.
”
|
(2)
Contract liabilities consist of the aggregate of amounts presented under the caption
“
Billings in excess of costs and estimated earnings on uncompleted contracts
”
and any contract loss accruals included in
“
Accounts payable and accrued liabilities.
”
|
The amounts billed but not paid by customers pursuant to retention provisions of the electrical construction contracts were
$2.2 million
and
$3.3 million
as of
December 31, 2018
and
2017
, respectively, and are included in the accompanying consolidated balance sheets in accounts receivable and accrued billings. Retainage is expected to be collected within the next twelve months.
The following table presents the changes in the net contract assets and liabilities for the electrical construction operations for the
twelve months ended December 31, 2018
:
|
|
|
|
|
|
|
|
$ Change
|
Cumulative adjustment due to changes in contract values
(1)
|
|
$
|
1,877,219
|
|
Cumulative adjustment due to changes in estimated costs at completion
|
|
(1,556,467
|
)
|
Revenue recognized in the period
|
|
100,224,125
|
|
Amounts reclassified to receivables
|
|
(95,587,957
|
)
|
Impairment of contract assets
(2)
|
|
(478,763
|
)
|
Total
|
|
$
|
4,478,157
|
|
(1)
Amount attributable to contract modifications accounted for on a cumulative catch-up basis where the customer has approved a change in the scope or price of the contract, where the modification is treated as part of the existing contract and where the remaining goods and services are not distinct.
|
(2)
Adjustment amounts due to changes in contract losses.
|
For
the year ended December 31, 2018
,
$166,000
of the total revenue recognized in the current period was attributable to the contract liability billings in excess of costs and estimated earnings on uncompleted contracts’ balance as of
December 31, 2017
.
Note 3 – Income Taxes
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the U.S. tax code by, among other items, reducing the federal corporate tax rate from its highest rate of 35% to a single rate of 21%.
Certain provisions in the Tax Act, such as providing for full expensing of certain depreciable property, the limitation on interest expense deductibility, the limitation on the deductibility of certain executive compensation and net operating loss carryforwards have had an impact on the Company and have been reflected in the consolidated financial statements for the year ended December 31, 2018.
The Company has evaluated the impact of the new revenue standard under ASC 606 for tax purposes. The impact has been reported in the financial statements as of December 31, 2018 and accounted for tax purposes under deferred tax liabilities as a Section 481(a) adjustment. It is a non-automatic change in accounting method based on current Internal Revenue Service (“IRS”) regulations at this time and is subject to review and approval by the IRS.
The following table presents the income tax provision from continuing operations for the years ended
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Current
|
|
|
|
Federal
|
$
|
(153,610
|
)
|
|
$
|
3,863,151
|
|
State
|
597,909
|
|
|
558,993
|
|
|
444,299
|
|
|
4,422,144
|
|
Deferred
|
|
|
|
Federal
|
1,779,574
|
|
|
(3,270,928
|
)
|
State
|
(426,927
|
)
|
|
(115,219
|
)
|
|
1,352,647
|
|
|
(3,386,147
|
)
|
Total
|
$
|
1,796,946
|
|
|
$
|
1,035,997
|
|
The following table presents the total income tax provision for the years ended
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Income tax provision
|
$
|
1,796,946
|
|
|
$
|
1,035,997
|
|
Discontinued operations
|
—
|
|
|
(164,235
|
)
|
Total
|
$
|
1,796,946
|
|
|
$
|
871,762
|
|
The following table presents the temporary differences and carryforwards, which give rise to deferred tax assets and liabilities as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Deferred tax assets
|
|
|
|
Accrued vacation
|
$
|
139,713
|
|
|
$
|
113,893
|
|
Acquisition costs capitalized
|
55,917
|
|
|
58,886
|
|
Accrued remediation costs
|
120,493
|
|
|
130,168
|
|
Net operating loss carryforwards
|
435,121
|
|
|
—
|
|
Sec 163(j) interest limitation
|
199,582
|
|
|
—
|
|
Federal depreciation in excess of state
|
635,202
|
|
|
—
|
|
Accrued payables
|
17,914
|
|
|
174,674
|
|
Percentage completed contract method for tax
|
1,557,437
|
|
|
276,413
|
|
Accrued workers’ compensation
|
205,150
|
|
|
159,237
|
|
Capitalized bidding costs
|
73,565
|
|
|
121,227
|
|
Inventory adjustments
|
263,680
|
|
|
139,565
|
|
Accrued lease expense
|
15,199
|
|
|
17,902
|
|
Accrued contract losses
|
164,843
|
|
|
50,220
|
|
Other
|
4,097
|
|
|
4,103
|
|
Total deferred tax assets
|
3,887,913
|
|
|
1,246,288
|
|
Deferred tax liabilities
|
|
|
|
481 (a) adjustment for deferred revenue
|
(24,602
|
)
|
|
—
|
|
Tax amortization in excess of financial statement amortization
|
(13,378
|
)
|
|
(10,850
|
)
|
Tax depreciation in excess of financial statement depreciation
|
(9,910,975
|
)
|
|
(5,934,158
|
)
|
Total deferred tax liabilities
|
(9,948,955
|
)
|
|
(5,945,008
|
)
|
Total net deferred tax liabilities
|
$
|
(6,061,042
|
)
|
|
$
|
(4,698,720
|
)
|
As of
December 31, 2018
, the Company had net operating loss (“NOL”) carryforwards of approximately
$2.1 million
available to offset future federal taxable income. The Tax Act allows for an indefinite carryforward of the NOL to use against future taxable income, subject to a limitation of 80 percent of taxable income each year.
As of
December 31, 2018
, the non-current deferred tax liabilities
increased
to
$6.1 million
from
$4.7 million
as of
December 31, 2017
primarily due to additional tax depreciation in excess of book depreciation. The Tax Act provides for the full expensing of certain depreciable property for 2018 and through 2022 and partial expensing through 2026.
The carrying amounts of deferred tax assets are reduced by a valuation allowance, if based on the available evidence, it is more likely than not such assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the deferred tax assets are expected to be recovered or settled. In the assessment for a valuation allowance, appropriate consideration is given to positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and tax planning alternatives. If the Company determines it will not be able to realize all or part of the deferred tax assets, a valuation allowance would be recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.
Based on assumptions with respect to forecasts of future taxable income and tax planning, among others, the Company anticipates being able to generate sufficient taxable income to utilize the deferred tax assets. Therefore, the Company has not recorded a valuation allowance against deferred tax assets. The minimum amount of future taxable income required to be generated to fully realize the deferred tax assets as of
December 31, 2018
is approximately
$13.4 million
.
The following table presents the differences between the Company’s effective income tax rate and the federal statutory rate on income from continuing operations for the years ended
December 31
as indicated:
|
|
|
|
|
|
2018
|
|
2017
|
Federal statutory rate
|
21.0%
|
|
34.0%
|
State tax rate, net of federal tax
|
3.2
|
|
3.1
|
Nondeductible expenses
|
5.4
|
|
3.6
|
Domestic production activities deduction
|
—
|
|
(4.0)
|
Tax Act rate change
|
—
|
|
(26.0)
|
Other
|
(3.3)
|
|
0.1
|
Total
|
26.3%
|
|
10.8%
|
The Company had gross unrecognized tax benefits of
$5,000
as of both
December 31, 2018
and
2017
. The Company believes that it is reasonably possible that the liability for unrecognized tax benefits related to certain state income tax matters may be settled within the next twelve months. The federal statute of limitation has expired for tax years prior to
2015
and relevant state statutes vary. The Company is currently not under any income tax audits or examinations and does not expect the assessment of any significant additional tax in excess of amounts provided.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years as indicated:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Balance as of January 1
|
$
|
4,723
|
|
|
$
|
4,723
|
|
Increase from current year tax positions
|
—
|
|
|
—
|
|
Decrease from settlements with taxing authority
|
—
|
|
|
—
|
|
Balance as of December 31
|
$
|
4,723
|
|
|
$
|
4,723
|
|
The Company accrues interest and penalties related to unrecognized tax benefits as interest expense and other general and administrative expenses, respectively, and not as a component of income taxes. Decreases in interest and penalties are due to settlements with taxing authorities and expiration of statutes of limitation. During the years ended
December 31, 2018
and
2017
, the Company recognized
$1,000
each year in interest and penalties. The Company had accrued as a current liability
$11,000
and
$9,000
for the future payment of interest and penalties as of
December 31, 2018
and
2017
, respectively.
Note 4 – Commitments and Contingencies Related to Discontinued Operations
Discontinued operations represent former mining activities, the last of which ended in 2002. Pursuant to an agreement with the United States Environmental Protection Agency (the “EPA”), the Company performed certain remediation actions at a property sold over fifty years ago. This remediation work was completed by September 30, 2015. As of
December 31, 2018
and
2017
, the Company has established a contingency provision related to discontinued operations, which was
$497,000
and
$522,000
, respectively. No change to the provision was required for either of the three or twelve month periods ended
December 31, 2018
. For
the three and twelve month periods ended
December 31, 2017
, the Company increased the provision
$275,000
and
$440,000
(
$172,000
and
$276,000
, net of tax benefit of
$103,000
and
$164,000
, respectively). This increase resulted mainly from changes in the scope of the project as required by the EPA and the state of Washington.
The remaining balance of the accrued remediation costs as of
December 31, 2018
, mainly represents estimated future charges for EPA response costs and monitoring and provisions for potential future remediation efforts of the property as required by the state of Washington. The total costs to be incurred in future periods may vary from this estimate. The amounts recorded in the aforementioned contingency provision are not discounted. The provision will be reviewed periodically based upon facts and circumstances available at the time.
Note 5 – Property, Buildings and Equipment
The following table presents the balances of major classes of properties as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated useful lives in years
|
|
2018
|
|
2017
|
Land
|
—
|
|
$
|
670,400
|
|
|
$
|
530,221
|
|
Land improvements
|
7 - 15
|
|
537,175
|
|
|
495,484
|
|
Buildings and improvements
|
5 - 40
|
|
2,767,603
|
|
|
2,588,053
|
|
Leasehold improvements
|
5 - 39
|
|
254,385
|
|
|
252,646
|
|
Machinery and equipment
|
2 - 10
|
|
87,734,262
|
|
|
70,892,181
|
|
Construction in progress
|
—
|
|
23,313
|
|
|
241,369
|
|
Total
|
|
|
91,987,138
|
|
|
74,999,954
|
|
Less accumulated depreciation
|
|
|
43,060,083
|
|
|
38,927,654
|
|
Net properties, buildings and equipment
|
|
|
$
|
48,927,055
|
|
|
$
|
36,072,300
|
|
Management reviews the net carrying value of all properties, buildings and equipment on a regular basis to assess and determine whether trigger events of impairment exist and the need for possible impairments. As a result of such review, no impairment write-down was considered necessary for the years ended
December 31, 2018
and
2017
.
Note 6 – 401(k) Employee Benefits Plan
Effective January 1, 1995, the Company adopted The Goldfield Corporation and Subsidiaries Employee Savings and Retirement Plan, a defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code. The plan provides retirement benefits to all employees who meet eligibility requirements and elect to participate. Under the plan, participating employees may defer up to
75%
of their pre-tax compensation per calendar year subject to Internal Revenue Code limits. The Company’s contributions to the plan are discretionary and amounted to approximately
$258,000
and
$297,000
for the years ended
December 31, 2018
and
2017
, respectively.
Note 7 – Notes Payable
The following table presents the balances of our notes payables as of
December 31
as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch Banking and Trust Company
|
|
Maturity Date
|
|
2018
|
|
2017
|
|
Interest Rates
|
|
|
|
|
2018
|
|
2017
|
Working Capital Loan
|
|
November 28, 2020
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
|
4.31
|
%
|
|
—
|
%
|
$27.49 Million Equipment Loan (previously $22.6 Million Equipment Loan)
|
|
May 1, 2022
|
|
23,920,000
|
|
|
19,540,000
|
|
|
4.31
|
%
|
|
3.25
|
%
|
Previous Working Capital Loan
|
|
|
|
—
|
|
|
2,750,000
|
|
|
—
|
%
|
|
3.38
|
%
|
Total notes payable
|
|
|
|
28,920,000
|
|
|
22,290,000
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
27,086
|
|
|
38,646
|
|
|
|
|
|
Total notes payable, net
|
|
28,892,914
|
|
|
22,251,354
|
|
|
|
|
|
Less current portion of notes payable, net
|
|
7,161,890
|
|
|
6,099,787
|
|
|
|
|
|
Notes payable net, less current portion
|
|
$
|
21,731,024
|
|
|
$
|
16,151,567
|
|
|
|
|
|
As of
December 31, 2018
, the Company, and the Company’s wholly owned subsidiaries Southeast Power, Pineapple House of Brevard, Inc. (“Pineapple House”), Bayswater Development Corporation (“Bayswater”), Power Corporation of America (“PCA”) Precision Foundations, Inc. (“PFI”) and C and C Power Line, Inc. (“C&C”), collectively (the “Debtors,”) were parties to a Master Loan Agreement, dated
May 24, 2018
(the “2018 Master Loan Agreement”), with Branch Banking and Trust Company (the “Bank”). The 2018 Master Loan Agreement restates substantially the same terms and conditions as those set forth in the previous Master Loan Agreement (the “Previous Master Loan Agreement”) among the Debtors and the Bank, originally entered into on June 9, 2017, except for the update in the exhibit for the loan modification and the new Working Capital Loan described below and an increase in the permissible outside debt and leases amount from
$500,000
in the Previous Master Loan Agreement to
$2.0 million
.
As of
December 31, 2018
, the Company had a promissory note and a series of related ancillary agreements with the Bank providing for a revolving line of credit loan for a maximum principal amount of
$18.0 million
, to be used as a “
Working
Capital Loan
” (the “Working Capital Loan”). The Company entered into the Working Capital Loan on May 24, 2018, the Working Capital Loan restates and replaces all previous renewals and or modifications on the previous working capital loan entered into on August 26, 2005 (the “Previous Working Capital Loan”) on substantially the same terms and conditions as those set forth in the Previous Working Capital Loan. Borrowings of
$2.78
million, outstanding as of May 24, 2018, from the Working Capital Loan were used to pay in full the outstanding amount of the Previous Working Capital Loan, plus accrued interest and loan closing costs.
As of
December 31, 2018
, borrowings under the
Working Capital Loan
were
$5.0 million
. As of
December 31, 2018
and
December 31, 2017
, borrowings under the
Previous Working Capital Loan
were
zero
and
$2.8 million
, respectively.
As a credit guaranty to the Bank, the Company is contingently liable for the guaranty of a subsidiary obligation under an irrevocable letter of credit related to workers’ compensation. The amount of this letter of credit was
$575,000
and
$420,000
as of
December 31, 2018
and
December 31, 2017
, respectively.
On January 1, 2018, the Company had a loan agreement with the Bank for a
$22.6
Million equipment loan (the “
$22.6
Million Equipment Loan”). The
$22.6
Million Equipment Loan between the Company and the Bank was modified on May 24, 2018 increasing the principal amount to
$27.49
Million (the “
$27.49
Million Equipment Loan”). Borrowings of
$16.99
million, outstanding as of May 24, 2018, plus accrued interest, under the
$22.6
Million Equipment Loan were continued under the
$27.49
Million Equipment Loan. The remaining portion of the
$27.49
Million Equipment Loan balance was drawn by the Company for equipment purchases that were made after January 1, 2018.
As of
December 31, 2018
, the Company had a loan agreement with the Bank for the
$27.49
Million Equipment Loan. Under the documentation related to the $27.49 Million Equipment Loan, principal payments in the amount of
$510,000
plus accrued interest commenced on June 9, 2018 and continued monthly thereafter until and including the payment due on December 9, 2018. On
December 31, 2018
, the outstanding principal balance of the $27.49 Million Equipment Loan was amortized over a forty (40) month period. Equal monthly payments of principal in the amount of
$598,000
plus accrued interest commenced on January 9, 2019 and will continue monthly on the same day of each month thereafter, with all outstanding principal, accrued interest, and all other amounts then due and owing to be payable on May 1, 2022, its maturity date.
As of
December 31, 2018
, the Debtors had a loan agreement with the Bank under the 2018 Master Loan Agreement for the
$27.49 Million Equipment Loan (previously $22.6 Million Equipment Loan)
, and the
Working Capital Loan
, which are guaranteed by the Debtors and includes the grant of a continuing security interest in all now owned and after acquired and wherever located personal property of the Debtors.
The
$27.49 Million Equipment Loan (previously $22.6 Million Equipment Loan)
and the
Working Capital Loan
bear interest at a rate per annum equal to one month LIBOR (as defined in the documentation related to each loan) plus
1.80%
, which will be adjusted monthly and subject to a maximum rate as described in the documentation related to each loan.
Subsequently, on
March 7, 2019
, the Company, the Debtors and the Bank entered into a First Amendment to the 2018 Master Loan Agreement (the “Amendment”). The Amendment provides an exhibit which lists new loans, or modifications of loans, which will be governed by the 2018 Master Loan Agreement and which were also entered into on
March 7, 2019
.
Also, on
March 7, 2019
, the Company, the Debtors and the Bank entered into a modification of the
$27.49
Million Equipment Loan, increasing it to a
$38.2 million
equipment loan (as increased, the “
$38.2 Million Equipment Loan
”) and a new
$4.5 million
equipment promissory note (the “
$4.5 Million Equipment Note
”).
Borrowings of
$22.7 million
, outstanding as of
March 7, 2019
, plus accrued interest under the
$27.49
Million Equipment Loan will continue under the
$38.2 Million Equipment Loan
. The
$15.5 million
balance remaining on the
$38.2 Million Equipment Loan
was drawn by the Company on March 8, 2019 for equipment purchases that were made on or after August 1, 2018.
Under the documentation related to the
$38.2 Million Equipment Loan
, principal payments of
$598,000
plus accrued interest will commence on March 9, 2019 and continue monthly thereafter until and including the payment due on December 9, 2019. On January 9, 2020, equal monthly principal payments of
$650,000
, plus accrued interest, will commence and continue monthly thereafter on the same day of each month until the March 9, 2024 maturity date.
Under the documentation related to the
$4.5 Million Equipment Note
, borrowings will be made only for the purchase of equipment currently held by the Company under Master Lease Agreements and will not exceed the cost of the lease buy-out. Interest only payments on any amounts drawn will commence on April 7, 2019, and continue monthly on the same day through and including the payment due on March 7, 2020. Thereafter, principal payments of
$93,750
plus accrued interest will commence on April 7, 2020, and continue monthly thereafter until and including the payment due on March 7, 2024.
The Company’s debt arrangements contain various financial and other covenants including, but not limited to: minimum tangible net worth, maximum debt to tangible net worth ratio and fixed charge coverage ratio. Other loan covenants prohibit, among other things, a change in legal form of the Company, and entering into a merger or consolidation. The loans also have
cross-default provisions whereby any default under any loans of the Company (or its subsidiaries) with the Bank, will constitute a default under all of the other loans of the Company (and its subsidiaries) with the Bank.
The schedule of payments of the notes payable as of
December 31, 2018
is as follows:
|
|
|
|
|
2019
|
$
|
7,176,000
|
|
2020
|
12,176,000
|
|
2021
|
7,176,000
|
|
2022
|
2,392,000
|
|
Total payments of notes payable
|
$
|
28,920,000
|
|
Other Long Term Debt
As of
December 31, 2018
, the Company had an equipment purchase loan agreement for a specialty piece of equipment to be used in the Company’s electrical construction operations in the amount of
$405,000
plus interest and sales tax. The agreement requires monthly payments of
$10,687
plus interest at a
5.85%
fixed rate. The loan matures on June 14, 2021 and there are no early payment provisions.
The schedule of payments of the other long term debt as of
December 31, 2018
is as follows:
|
|
|
|
|
2019
|
$
|
113,855
|
|
2020
|
120,697
|
|
2021
|
63,047
|
|
2022
|
—
|
|
Total payments of other long term debt
|
$
|
297,599
|
|
Note 8 – Commitments and Contingencies
Operating Leases
The Company leases its principal office space under a
nine
-year operating lease. Within the provisions of the office lease, there are escalations in payments over the base lease term, as well as renewal periods and cancellation provisions. The effects of the escalations have been reflected in rent expense on a straight-line basis over the expected lease term. In addition, the Company leases other office spaces as principal offices for our subsidiaries PCA, PFI and C&C. The Company also leases office equipment under operating leases that expire over the next
four
years. The Company’s leases require payments of property taxes, insurance and maintenance costs in addition to the lease payments. Additionally, the Company leases several off-site storage facilities, used to store equipment and materials, under a month to month lease arrangement. Lastly, the Company has several lease agreements to lease certain equipment from time to time over a
60
-month term. The leased equipment is used in our electrical construction operations. The Company recognizes rent expense on a straight-line basis over the expected lease term.
Future minimum lease payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2018
are as follows:
|
|
|
|
|
2019
|
$
|
3,613,980
|
|
2020
|
910,778
|
|
2021
|
88,469
|
|
2022 and beyond
|
114,466
|
|
Total minimum operating lease payments
|
$
|
4,727,693
|
|
Total expense for the operating leases were
$4.7 million
and
$4.7 million
for the years ended
December 31, 2018
and
2017
, respectively.
Performance Bonds
In certain circumstances, the Company is required to provide performance bonds to secure its contractual commitments. Management is not aware of any performance bond issued for the Company that has ever been called by a customer. As of
December 31, 2018
, outstanding performance bonds issued on behalf of the Company’s electrical construction subsidiaries amounted to approximately
$46.4 million
.
Collective Bargaining Agreements
C&C, one of the Company’s electrical construction subsidiaries, is party to collective bargaining agreements with unions representing workers performing field construction operations. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements. The agreements require the subsidiary to pay specified wages, provide certain benefits to their respective union employees and contribute certain amounts to multi-employer pension plans and employee benefit trusts. The subsidiary’s multi-employer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on such subsidiary’s union employee payrolls, which cannot be determined for future periods because contributions depend on, among other things, the number of union employees that such subsidiary employs at any given time; the plans in which it may participate vary depending on the projects it has ongoing at any time; and the need for union resources in connection with those projects. If the subsidiary withdraws from, or otherwise terminates its participation in, one or more multi-employer pension plans, or if the plans were to otherwise become substantially underfunded, such subsidiary could be assessed liabilities for additional contributions related to the underfunding of these plans. The Company is not aware of any amounts of withdrawal liability that have been incurred as a result of a withdrawal by C&C from any multi-employer defined benefit pension plans.
Multi-employer Pension Plans
The Company contributes to a multi-employer pension plan on behalf of employees covered by collective bargaining agreements. These plans are administered jointly by management and union representatives and cover substantially all full-time and certain part-time union employees who are not covered by other plans. The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (3) if the Company chooses to stop participating in a multi-employer plan, we could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans. At this time, we have not established any liabilities because withdrawal from these plans is not probable. For the years ended
December 31, 2018
and
2017
, the contributions to these plans were
$227,000
and
$180,000
, respectively.
The Company’s participation in multi-employer pension plans is outlined in the table below. The EIN column provides the Employer Identification Number (“EIN”) of the plan. Unless otherwise noted, the most recent Pension Protection Act zone status available in
2018
and
2017
is for the plan’s year ended
December 31, 2018
, and
2017
, respectively. The zone status is based on information that the Company received from the plan, and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP” column indicates plans for which a financial improvement plan (“FIP”) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. There have been no significant changes in the number of Company employees covered by the multi-employer plans or other significant events that would impact the comparability of contributions to the plans.
Information about the Plan is publicly available on Form 5500, Annual Return / Report of Employee Benefit Plan. The Plan year-end is December 31st and
no
single employer contributes
5%
or more of total plan contributions.
|
|
|
|
|
|
|
|
|
|
|
Certified Zone Status
|
|
|
|
Plan Name:
|
EIN Number
|
Plan Number
|
2018
|
2017
|
FIP Implemented
|
Surcharge Imposed
|
Expiration Date of Collective Bargaining Agreement
|
National Electrical Benefit Fund
|
53-0181657
|
001
|
Green
|
Green
|
Not applicable (green-zone plan)
|
Not applicable (green-zone plan)
|
August 31, 2019
|
Committed Expenditures
The Company from time to time commits to various contractual agreements that secure future rights to goods, services and other items to be used in the normal course of operations. These commitments include capital equipment purchases, sub-contractor services for the construction of residential properties and land purchases for the future construction of residential properties. The Company’s committed expenditures as of
December 31, 2018
, totaled
$3,813,623
all of which is expected to be completed in 2019.
Legal Proceedings
The Company is involved in various legal claims arising in the ordinary course of business. The Company has concluded that the ultimate disposition of these matters should not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
Note 9 – Income Per Share of Common Stock
Basic income per common share is computed by dividing net income by the weighted average number of common stock shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur if common stock equivalents, such as stock options outstanding, were exercised into common stock that subsequently shared in the earnings of the Company.
As of
December 31, 2018
and
2017
, the Company had no common stock equivalents. The computation of the weighted average number of common stock shares outstanding excludes
3,223,529
and
2,362,418
shares of Treasury Stock for the years ended
December 31, 2018
and
2017
, respectively.
Note 10 – Common Stock Repurchase Plan
The Company has had a stock repurchase plan since
September 17, 2002
, when the Board of Directors approval was announced. As last amended by the Board of Directors on
September 13, 2018
, this plan permits the purchase of up to
3,500,000
shares. There is currently available for purchase through
September 30, 2019
, a maximum of
293,829
shares. The Company may repurchase its shares either in the open market or through private transactions. The volume of the shares to be repurchased is contingent upon market conditions and other factors. During the year ended
December 31, 2018
,
861,111
shares were purchased at a cost of
$1,970,632
(average cost of
$2.29
per share), no shares were repurchased during the year ended
December 31, 2017
. As of
December 31, 2018
, the total number of shares repurchased under the Repurchase Plan was
3,206,171
at a cost of
$3,260,098
(average cost of
$1.02
per share). The Company currently holds the repurchased stock as Treasury Stock, reported at cost. Prior to
September 17, 2002
, the Company had
17,358
shares of Treasury Stock that it had purchased at a cost of
$18,720
.
Subsequently, on
March 7, 2019
, the Company’s Board of Directors extended the Company’s Common Stock Repurchase plan from September 30, 2019 until September 30, 2020 and increased the number of shares available for purchase under the plan. The plan previously authorized the repurchase of up to
3,500,000
shares, of which
3,273,880
have been repurchased as of
March 7, 2019
. The revised plan will permit an additional
2,500,000
shares to be repurchased, increasing the amount available for repurchase to
2,726,120
shares as of
March 7, 2019
.
Note 11 – Business Segment, Business Credit Risks and Concentration
Segment
The Company is currently involved in
two
segments, electrical construction and real estate development. There were no material amounts of sales or transfers between segments and no material amounts of foreign sales. Any inter-segment sales have been eliminated.
The following table sets forth certain segment information as of December 31 for the years indicated:
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
Electrical construction
|
|
$
|
136,526,511
|
|
|
$
|
109,154,476
|
|
Real estate development
|
|
1,622,331
|
|
|
4,799,043
|
|
Total revenue
|
|
138,148,842
|
|
|
113,953,519
|
|
Operating expenses
|
|
|
|
|
Electrical construction
|
|
123,914,953
|
|
|
95,463,721
|
|
Real estate development
|
|
1,924,835
|
|
|
4,177,558
|
|
Corporate
|
|
4,745,350
|
|
|
4,126,950
|
|
Total operating expenses
|
|
130,585,138
|
|
|
103,768,229
|
|
Operating income (loss)
|
|
|
|
|
Electrical construction
|
|
12,611,558
|
|
|
13,690,755
|
|
Real estate development
|
|
(302,504
|
)
|
|
621,485
|
|
Corporate
|
|
(4,745,350
|
)
|
|
(4,126,950
|
)
|
Total operating income
|
|
7,563,704
|
|
|
10,185,290
|
|
Other income (expenses), net
|
|
|
|
|
Electrical construction
|
|
(761,117
|
)
|
|
(562,233
|
)
|
Real estate development
|
|
(56,010
|
)
|
|
(71,945
|
)
|
Corporate
|
|
78,120
|
|
|
58,260
|
|
Total other expenses, net
|
|
(739,007
|
)
|
|
(575,918
|
)
|
Net income (loss) before taxes
|
|
|
|
|
Electrical construction
|
|
11,850,441
|
|
|
13,128,522
|
|
Real estate development
|
|
(358,514
|
)
|
|
549,540
|
|
Corporate
|
|
(4,667,230
|
)
|
|
(4,068,690
|
)
|
Total net income before taxes
|
|
$
|
6,824,697
|
|
|
$
|
9,609,372
|
|
Identifiable Assets
|
|
|
|
|
Electrical construction
|
|
$
|
93,642,412
|
|
|
$
|
78,745,673
|
|
Real estate development
|
|
16,444,209
|
|
|
8,713,310
|
|
Corporate
|
|
2,461,854
|
|
|
6,172,957
|
|
Total
|
|
$
|
112,548,475
|
|
|
$
|
93,631,940
|
|
Capital Expenditures
|
|
|
|
|
Electrical construction
|
|
$
|
19,514,124
|
|
|
$
|
10,191,515
|
|
Real estate development
|
|
42,545
|
|
|
1,065
|
|
Corporate
|
|
52,576
|
|
|
109,141
|
|
Total
|
|
$
|
19,609,245
|
|
|
$
|
10,301,721
|
|
Depreciation and Amortization
|
|
|
|
|
Electrical construction
|
|
$
|
8,319,362
|
|
|
$
|
7,086,361
|
|
Real estate development
|
|
21,279
|
|
|
15,207
|
|
Corporate
|
|
96,331
|
|
|
116,333
|
|
Total
|
|
$
|
8,436,972
|
|
|
$
|
7,217,901
|
|
Credit Risks
Financial instruments, mainly within the electrical construction operations, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable and accrued billings in the amounts of
$22.2 million
and
$21.6 million
as of
December 31, 2018
and
2017
, respectively, which management reviews to assess the need to establish an allowance for doubtful accounts.
Cash and Cash Equivalents
The Company holds cash on deposit in U.S. banks, in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced and does not anticipate any losses in any such accounts.
The Company mitigates this risk by doing business with well capitalized, quality financial institutions.
Customer Concentration
Revenue (in thousands of dollars) to customers exceeding
10%
of the Company’s total revenue for the years ended
December 31
as indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Amount
|
|
% of Total revenue
|
|
Amount
|
|
% of Total revenue
|
Electrical construction operations
|
|
|
|
|
|
|
|
Customer A
|
$
|
39,866
|
|
|
29
|
|
$
|
38,306
|
|
|
34
|
Customer B
|
22,085
|
|
|
16
|
|
16,912
|
|
|
15
|
Customer C
|
16,972
|
|
|
12
|
|
11,681
|
|
|
10
|
Revenue by service/product (in thousands of dollars) for the years ended
December 31
as indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Amount
|
|
% of Total revenue
|
|
Amount
|
|
% of Total revenue
|
Electrical construction
|
|
|
|
|
|
|
|
Principal electrical construction operations
(1)
|
$
|
129,022
|
|
|
93
|
|
$
|
100,604
|
|
|
88
|
Other electrical construction
(2)
|
7,505
|
|
|
6
|
|
8,550
|
|
|
8
|
Total
|
136,527
|
|
|
99
|
|
109,154
|
|
|
96
|
Real estate development
|
1,622
|
|
|
1
|
|
4,799
|
|
|
4
|
Total revenue
|
$
|
138,149
|
|
|
100
|
|
$
|
113,953
|
|
|
100
|
___________________________
|
|
|
|
|
|
|
|
(1)
Principal electrical construction operations include revenue from transmission lines, distribution systems, substations and drilled pier foundations.
|
(2)
Other electrical construction includes revenue from storm work, fiber optics and other miscellaneous electrical construction items as disclosed in the revenue disaggregation reported in note 14.
|
The total of the above categories may differ from the sum of the components due to rounding.
Note 12 – Restricted Cash
Restricted cash, reported under “Deferred charges and other assets” on the Company’s consolidated balance sheet, represents amounts deposited in a trust account to secure the Company’s obligations in connection with the Company’s previous workers’ compensation insurance policies.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Cash and cash equivalents
|
|
$
|
11,376,373
|
|
|
$
|
18,529,757
|
|
Restricted cash
|
|
25,980
|
|
|
102,027
|
|
Cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows
|
|
$
|
11,402,353
|
|
|
$
|
18,631,784
|
|
Note 13 – Goodwill and Other Intangible Assets Associated with the Acquisition of C&C
The Company performed an annual impairment assessment on its goodwill and intangible assets on
December 31, 2018
. Based upon this analysis, the Company determined that there were no impairments.
The following table presents the gross and net balances of our goodwill and intangible assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Useful Life
(Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Goodwill
|
Indefinite
|
|
$
|
101,407
|
|
|
$
|
—
|
|
|
$
|
101,407
|
|
|
$
|
101,407
|
|
|
$
|
—
|
|
|
$
|
101,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/Names
|
15
|
|
$
|
640,000
|
|
|
$
|
(213,334
|
)
|
|
$
|
426,666
|
|
|
$
|
640,000
|
|
|
$
|
(170,670
|
)
|
|
$
|
469,330
|
|
Customer relationships
|
20
|
|
350,000
|
|
|
(87,500
|
)
|
|
262,500
|
|
|
350,000
|
|
|
(70,000
|
)
|
|
280,000
|
|
Non-competition agreement
|
5
|
|
10,000
|
|
|
(10,000
|
)
|
|
—
|
|
|
10,000
|
|
|
(8,664
|
)
|
|
1,336
|
|
Other
|
1
|
|
13,800
|
|
|
(13,800
|
)
|
|
—
|
|
|
13,800
|
|
|
(13,800
|
)
|
|
—
|
|
Total
|
|
$
|
1,013,800
|
|
|
$
|
(324,634
|
)
|
|
$
|
689,166
|
|
|
$
|
1,013,800
|
|
|
$
|
(263,134
|
)
|
|
$
|
750,666
|
|
Amortization of definite-lived intangible assets will be approximately
$60,000
annually for
2019
through
2023
.
Note 14 – ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures
On January 1, 2018, the Company adopted the new revenue standard ASC 606 and all the related amendments (“new revenue standard”). Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows. The Company concluded that the cumulative effect of initially applying the new revenue standard was immaterial and consequently did not record an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its financial position, results of operations and cash flows on an ongoing basis.
The Company’s significant accounting policies are detailed in note 1, changes to the Company’s accounting policies as a result of adopting the new revenue standard are discussed below.
To determine the proper revenue recognition method for contracts for electrical construction services, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of the contracts, the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability. Hence, the entire contract is accounted for as one performance obligation. However, less likely, if a contract is separated into more than one performance obligation, the Company allocates the total transaction price for each performance obligation in an amount based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company generally recognizes revenue over time as it performs because of continuous transfer of control to the customer. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The cost-to-cost measure of progress is generally used for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred.
Due to the nature of the work required to be performed on many of the performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. The Company estimates variable consideration at the most likely amount which the Company expects to receive. The Company includes estimated
amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of all information (historical, current and forecasted) that is reasonably available to the Company.
Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
The Company has a standard and disciplined quarterly estimated costs at completion process in which management reviews the progress and execution of our performance obligations. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), and execution by our subcontractors, among other variables. Based on this analysis, any quarterly adjustments to net revenue, cost of electrical construction revenue and the related impact to operating income are recognized as necessary in the period they become known.
The following table disaggregates the Company’s revenue for the years ended December 31 as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Electrical construction operations
(1)
|
|
|
|
|
Southeast
|
|
$
|
54,123,848
|
|
|
$
|
56,268,413
|
|
mid-Atlantic
|
|
41,071,994
|
|
|
29,289,385
|
|
Texas-Southwest
|
|
33,825,666
|
|
|
15,046,719
|
|
Other electrical construction
(2)
|
|
7,505,003
|
|
|
8,549,959
|
|
Total
|
|
136,526,511
|
|
|
109,154,476
|
|
Real estate development
|
|
1,622,331
|
|
|
4,799,043
|
|
Total revenue
|
|
$
|
138,148,842
|
|
|
$
|
113,953,519
|
|
___________________________
|
|
|
|
|
(1)
Principal electrical construction operations include revenue from transmission lines, distribution systems, substations and drilled pier foundations.
|
(2)
Other electrical construction includes revenue from storm work, fiber optics and other miscellaneous electrical construction items.
|
The Company would have recognized
$134,000
less
revenue under legacy accounting practices for
the year ended December 31, 2018
, than it did under the new revenue standard. This was attributable to the assessment of variable consideration and performance obligations within our contractual arrangements.
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of
December 31, 2018
was
$36.4 million
, all of which is expected to be satisfied within the next twelve months.