Significant Accounting Policies
|9 Months Ended|
Sep. 30, 2018
|Accounting Policies [Abstract]|
|Significant Accounting Policies [Text Block]||
Note 2 – Significant Accounting Policies
Basis of Presentation
Condensed Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K filed with the Securities andExchange Commission (the “SEC”) on April 2, 2018.
Under FASB ASU 2014-15, “Presentation of Financial Statements – Going Concern,” management is required to evaluate conditions or events as related to uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern and to provide related financial disclosures, as applicable. Our condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As further discussed in Note 7 - Debt, as of September 30, 2018, the Company was not in compliance with the senior leverage and fixed charge coverage ratio requirements as required in the Company’s senior credit facility (the “Credit Agreement”). As a result of these violations, the lenders have requested that the Company seek alternative financing. On November 19, 2018, the Company and the lenders executed a Limited, Conditional and Temporary Waiver and Amendment Related to Loan Documents (“Temporary Waiver”), which provides for a temporary waiver of the aforementioned covenant violations through November 30, 2018 (the “temporary waiver period”), so long as no new defaults or events of default occur in the intervening period. During the temporary waiver period, the lenders agreed to waive their rights and remedies under the Credit Agreement, including the termination of their working capital funding to the Company and demanding repayment of all amounts due under the Credit Agreement. In the event of a new default or event of default during the temporary waiver period, the lenders retained their rights to immediately exercise their rights and remedies. The Temporary Waiver also outlines terms of a restructured credit agreement, which the Company and the lenders expect to execute by November 30, 2018.
The terms of the restructured credit agreement are expected to include, among other things:
At the conclusion of the temporary waiver period, the lenders have reserved their rights and remedies to terminate their working capital funding and demand repayment of all amounts due under the Credit Agreement. The Temporary Waiver does not obligate the lenders to execute a definitive agreement by the November 30, 2018 date. Accordingly, the Company’s remaining long-term debt under the Credit Agreement, comprising $23.6 million of borrowings under the Credit Agreement revolver and the Credit Agreement term loans, was reclassified as a current liability in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2018. As a result, the Company’s current liabilities exceeded its current assets by $2.2 million as of this date. If the lenders terminate their working capital funding and/or demand repayment of all existing borrowings, this could result in the Company being unable to meet its working capital obligations.
Management is diligently pursuing the refinancing of its existing obligations under the Credit Agreement. To assist in the refinancing effort, the Company has engaged a middle market financial institution that is currently a member of Limbach’s existing bank group. This institution is seeking to underwrite and hold approximately $15 million of a $30 million revolving credit facility; to syndicate the balance of the revolving credit facility; and to place up to $50 million of term debt. The proceeds of the new financing would be used to retire the Company's existing indebtedness, to pay fees and expenses, and for general corporate purposes. The contemplated financing remains subject to underwriting, syndication and other customary terms and conditions. In addition to the bank refinancing described above, the Company may seek alternative sources of equity financing. The Company believes that it will execute an amendment to the Credit Agreement with its existing lenders by November 30, 2018, and that it will be able to refinance the Credit Agreement within a time period acceptable to its existing lenders. Assuming the Company executes the amendment to the Credit Agreement on terms materially consistent with those set forth in the Temporary Waiver, and that the Company obtains the Credit Agreement refinancing as currently contemplated, the Company believes that it will have sufficient liquidity with its current cash balances and borrowing capacity under the Credit Agreement revolver (as amended), or new revolver, as applicable, to meet its short-term cash needs.
The Company currently cannot predict whether the existing lenders will exercise their rights and remedies under the Credit Agreement. Additionally, since the Company has no firm commitments for additional financing, there can be no assurances that the Company will be able to secure additional financing on terms that are acceptable to the Company, or at all. As there can be no assurance that we will be able to successfully implement our refinancing plan, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. Our condensed consolidated financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.
Unaudited Interim Financial Information
The accompanying interim Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statement of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the periods presented are unaudited. Also, within the notes to the Condensed Consolidated Financial Statements, we have included unaudited information for these interim periods. These unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting only of a normal recurring nature) necessary for a fair statement of the Company’s financial position as of September 30, 2018, and its results of operations and its cash flows for the three and nine months ended September 30, 2018. The results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.
The Condensed Consolidated Balance Sheet as of December 31, 2017 was derived from our audited financial statements filed with the SEC on April 2, 2018, but is presented as condensed and does not contain all of the footnote disclosures from the annual financial statements.
Revenues and Cost Recognition
Revenues from construction fixed price and modified fixed price contracts are recognized on the percentage-of-completion method, measured by the relationship of total cost incurred to total estimated contract costs (cost-to-cost method). Contract revenue for long-term construction contracts is based upon management’s estimate of contract values at completion, including revenue for additional work on which the contract value has not been finalized (claims and unapproved change orders) but is considered probable. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined.
Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. Contract costs include direct labor, material, and subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, depreciation, and insurance. Total estimated contract costs are based upon management’s current estimate of total costs at completion.
There are two basic types of service contracts: fixed price service contracts which are signed in advance for maintenance, repair, and retrofit work over a period of typically one year, and service contracts not signed in advance for similar maintenance, repair, and retrofit work performed on an as-needed basis. Fixed price service contracts are generally performed evenly over the contract period and, accordingly, revenue is recognized on a pro rata basis over the life of the contract. Revenues derived from other service contracts are recognized when the services are performed. Expenses related to all service contracts are recognized as services are provided.
Costs and estimated earnings in excess of billings on uncompleted contracts reflected in the Condensed Consolidated Financial Statements arise when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Also included in costs and estimated earnings in excess of billings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Claims and unapproved change orders are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with claim amounts. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Claims and unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims and unapproved change orders may be made in the near term. Claims against the Company are recognized when a loss is considered probable and amounts are reasonably determinable. Billings in excess of costs and estimated earnings on uncompleted contracts represent billings in excess of revenues recognized.
In accordance with industry practice, we classify as current all assets and liabilities relating to the performance of contracts. The terms of our contracts generally range from six months to two years.
Selling, general, and administrative costs are charged to expense as incurred. Bidding and proposal costs are also recognized as an expense in the period in which such amounts are incurred.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef