Annual report pursuant to Section 13 and 15(d)

Significant Accounting Policies (Policies)

v3.19.1
Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Basis of Presentation and Liquidity [Policy Text Block]
Basis of Presentation 
and Liquidity
 
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) 
and based on the assumption that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business.
 
As a result of significant gross profit write downs recorded on numerous Mid-Atlantic projects during 2018, the Company was not in compliance with certain debt covenants under its then existing Credit Agreement as of September 30, 2018. As a result of these covenant violations, the lenders requested that the Company seek alternative financing and this uncertainty about the Company’s future liquidity raised substantial doubt as to the Company’s ability to continue as a going concern.
 
As discussed in Note 9 – Debt (where all capitalized terms are also defined), on April 12, 2019, the Company entered into the Refinancing Agreements and repaid all of its obligations under its previous Credit Agreement, including the Credit Agreement Term Loan, Bridge Term Loan and Credit Agreement Revolver. Management believes that the Refinancing Agreements will provide sufficient working capital funding to sustain the Company’s operations, and further that the Company will be able to meet all of the covenants required thereunder, for the next year.
 
Based on the foregoing, as of the date of the issuance of these consolidated financial statements, management believes that the combination of the Company’s current cash position, its projected cash flow to be received from existing and new customers, its positive working capital, its significant bonding capacity, and its availability under the 2019 Refinancing Agreements, have alleviated substantial doubt about its ability to continue as a going concern for at least the next 12 months.
Consolidation, Policy [Policy Text Block]
Principles of Consolidation
 
The Consolidated Financial Statements include all amounts of Limbach Holdings, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates, Policy [Policy Text Block]
Use of Estimates
 
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements for assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reported period, and the accompanying notes. Management believes that its most significant estimates and assumptions have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the Consolidated Financial Statements. The Company’s significant estimates include estimates associated with revenue recognition on construction contracts, costs incurred through each balance sheet date, impairment of goodwill, intangibles, property and equipment, fair valuation in business combinations, insurance reserves, income tax valuation allowances, and contingencies. If the underlying estimates and assumptions upon which the Consolidated Financial Statements are based change in the future, actual amounts may differ from those included in the accompanying Consolidated Financial Statements.
Cash and Cash Equivalents, Policy [Policy Text Block]
Cash and Cash Equivalents
 
Cash and cash equivalents consist principally of currency on hand, demand deposits at commercial banks. The Company maintains demand accounts at several domestic banks. From time to time, account balances have exceeded the maximum available Federal Deposit Insurance Corporation (FDIC) coverage limit.
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]
Restricted Cash
 
Restricted cash is cash held at a commercial bank in an imprest account held for the purpose of funding workers’ compensation and general liability claims against the Company. This amount is replenished either when depleted or at the beginning of each month.
Trade and Other Accounts Receivable, Policy [Policy Text Block]
Accounts Receivable
 
Accounts receivable include amounts billed to customers under retention provisions in construction contracts. Such provisions are standard in the Company’s industry and usually allow for a small portion of progress billings or the contract price, typically 10%, to be withheld by the customer until after the Company has completed work on the project. Based on the Company’s experience with similar contracts in recent years, billings for such retention balances at each balance sheet date are finalized and collected after project completion. Generally, unbilled amounts will be billed and collected within one year.
 
The carrying value of the receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. Management provides for probable uncollectible accounts through a charge to earnings and a credit to the valuation account based on its assessment of the current status of individual accounts, type of service performed, and current economic conditions. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and an adjustment of the account receivable.
Joint Ventures Accounting Policy [Policy Text Block]
Joint Ventures
 
The Company accounts for its participation in certain special purpose, project specific joint ventures under the equity method of accounting. The Company’s entry into these joint ventures is for the purpose of bidding, negotiating and completing specific projects. The Company and its joint venture partner(s) separately enter into their own sub-contracts with the joint venture for each party’s respective portion of the work. All revenue and expenses and the related contract assets and liabilities related to Limbach’s sub-contract are recorded within the Company’s statement of operations and balance sheet, similarly to any other construction project. The joint venture itself does not accumulate any profits or losses, as the joint venture revenue is equal to the sum of the sub-contracts it issues to the joint venture partners. The voting power and management of the joint ventures is shared equally by the joint venture partners, qualifying these entities for joint venture treatment under GAAP. The shared voting power and management responsibilities allow the Company to exercise significant influence without controlling the joint venture entity. As such, the Company applies the equity method of accounting as defined in ASC Topic 323 – Investments – Equity Method and Joint Ventures.
Revenue Recognition, Policy [Policy Text Block]
Revenues and Cost Recognition
 
Revenues from 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. 
See also Note 5 – Contracts in Progress.
 
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 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 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.
Goodwill and Intangible Assets, Policy [Policy Text Block]
Goodwill and Intangible Assets
 
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company performs its annual impairment assessment for goodwill and other indefinite-life intangible assets as of October 1st or more frequently if events or changes in circumstances indicate that the asset might be impaired.
 
In 2018, management performed a quantitative impairment test of goodwill and indefinite-lived intangible assets as of September 30, 2018 due to the significant project write-downs recorded in the 3rd quarter of 2018 and as of December 31, 2018 as a result of the Company’s book value exceeding its market capitalization. A quantitative impairment test involves comparing the fair value of each reporting unit to its carrying value. The fair values of the reporting units are determined using a combination of a discounted cash flow analysis and market multiples. Assumptions used for these fair value techniques are based on a combination of historical results, current forecasts, market data and recent economic events. The determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections. Fair values are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results. Management evaluates the recoverability of indefinite-lived intangible assets using the relief-from-royalty method based on projected financial information.
 
In 2017, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair value of each of the reporting units or indefinite-life intangible is less than its carrying value. In conducting a qualitative assessment, the Company analyzes a variety of events or factors that may influence the fair value of the reporting unit or indefinite-life intangible, including, but not limited to: if applicable; changes in the carrying amount of the reporting unit or indefinite-life intangible; actual and projected revenue and operating margin; relevant market data for both the Company and its peer companies; industry outlooks; macroeconomic conditions; liquidity; changes in key personnel; and the Company's competitive position. Significant judgment is used to evaluate the totality of these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting units or indefinite-life intangible is less than its carrying value.
 
The Company reviews intangible assets with definite lives subject to amortization whenever events or changes in circumstances (triggering events) indicate that the carrying amount of an asset may not be recoverable. Intangible assets with definite lives subject to amortization are amortized on a straight-line or accelerated basis with estimated useful lives ranging from 1 to 15 years. Events or circumstances that might require impairment testing include the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, a significant decline in stock price, or a significant adverse change in the Company’s business climate or regulations affecting the Company.
 
There were no impairment losses identified as a result of our impairment tests. 
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
Long-Lived Assets
 
We evaluate the carrying value of long-lived assets whenever events or changes in circumstances (triggering events) indicate that a potential impairment has occurred. A potential impairment has occurred if the projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in operations. When a potential impairment has occurred, an impairment charge is recorded if the carrying value of the long-lived asset exceeds its fair value. Fair value is measured based on a projected discounted cash flow model using a discount rate which we feel is commensurate with the risk inherent in our business.
Property, Plant and Equipment, Policy [Policy Text Block]
Property and Equipment, net
 
Property and equipment, including purchases financed through capital leases, are recorded at cost and depreciated on a straight-line basis over their estimated useful lives. For buildings and leasehold improvements, the Company’s useful lives range from
5
to
40
years; for machinery and equipment, useful lives range from 3 to 10 years. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements for operating leases are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements.
Deferred Charges, Policy [Policy Text Block]
Deferred Financing Costs 
 
Deferred financing costs representing third-party, lender debt issuance costs are deferred and amortized using the effective interest rate method over the term of the related long-term debt agreement, and the straight-line method for the revolving credit agreement.
 
Debt issuance costs related to the Credit Agreement Term Loan are reflected as a direct deduction from the carrying amount of Long-term debt liability. Debt issuance costs related to the Bridge Term Loan are reflected as a direct deduction from the carrying amount of the Current portion of long-term debt liability. Debt issuance costs related to revolving credit facilities are capitalized and reflected as an Other asset.
Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]
Stock-Based Compensation
 
Upon approval of the Business Combination, the Company adopted the Limbach Holdings, Inc. Omnibus Incentive Plan (the “2016 Plan”). Certain employees, directors and consultants will be eligible to be granted awards under the 2016 Plan, other than incentive stock options, which may be granted only to employees. The Company has reserved 800,000 shares of its common stock for issuance under the 2016 Plan, as may be adjusted for stock splits, stock dividends, and similar changes in the Company’s common stock. In connection with an event determined to constitute a change in control, the plan administrator may accelerate the vesting of awards previously granted. All awards are made in the form of shares only.
 
During 2018 and 2017, the Company granted restricted stock units (“RSUs”) under the 2016 Plan. Stock-based compensation awards granted to executives, employees, and non-employee directors are measured at fair value and recognized as an expense. For awards with service conditions only, the Company recognizes compensation expense on a straight-line basis over the requisite service period based on the closing market price of the Company’s common stock at the grant date. For awards with service and performance conditions (“PRSUs”), the Company recognizes compensation expense based on the closing market price of the Company’s common stock at the grant date using the graded vesting method over the requisite service period. Estimates of compensation expense for an award with performance conditions are based on the probable outcome of the performance conditions. The cumulative effect of changes in the probability outcomes are recorded in the period in which the changes occur. For awards with market-based conditions (“MRSUs”), the Company uses a Monte Carlo simulation model to estimate the grant-date fair value. The fair value related to market-based awards is recorded as compensation expense using the graded vesting method regardless of whether the market condition is achieved or not. The Company has elected to account for forfeitures as they occur to determine the amount of compensation expense to be recognized each period. See also Note 19 – Management Incentive Plans in the Notes to the Consolidated Financial Statements.
Income Tax, Policy [Policy Text Block]
Income Taxes
 
The provision for income taxes includes federal, state and local taxes. The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense is recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in tax rates are recorded to deferred tax assets and liabilities and reflected in the provision for income taxes during the period that includes the enactment date.
 
The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected, scheduling of anticipated reversals of taxable temporary differences, and considering prudent and feasible tax planning strategies.
 
Any interest or penalties incurred related to unrecognized tax benefits are recorded as tax expense in the provision for income tax expense line item of the accompanying Consolidated Statements of Operations. The Company has not incurred interest expense or penalties related to income taxes during any period presented in the Consolidated Financial Statements. The Consolidated Financial Statements reflect expected future tax consequences of such positions presuming the taxing authorities have full knowledge of the position and all relevant facts, but without considering time values.
Fair Value Measurement, Policy [Policy Text Block]
Fair Value Measurements
 
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
 
Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date
 
 
Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities; and
 
 
Level 3 —  unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable, and accounts payable, consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the carrying value of the Credit Agreement term loan approximates its fair value due to the variable rate on such debt. As of December 31, 2018, the Company determined the fair value of its Credit Agreement term loan was $14.3 million and its Bridge Term Loan at $7.7 million. These fair values were determined using discounted estimated future cash flows using level 3 inputs. There were no outstanding borrowings on the Company’s Credit Agreement revolver at December 31, 2018.
 
To determine the fair value of the warrants issued in connection with the Business Combination, the Company utilized the Black-Scholes model.
Stockholders' Equity Note, Redeemable Preferred Stock, Issue, Policy [Policy Text Block]
Cumulative Redeemable Convertible Preferred Stock
 
The Company’s cumulative redeemable convertible preferred stock was classified as temporary equity and was shown net of issuance costs. Unpaid cumulative preferred dividends were compounded and accumulated at each quarterly dividend date using the straight-line method and presented within the carrying value of the preferred stock. As of December 31, 2017, the difference between the carrying value and redemption value was due to the issuance costs and the difference between the accrual of dividends using the straight-line method and the actual stated dividend amount. On July 14, 2017, the Company exercised its repurchase right by partially redeeming the outstanding convertible preferred stock and on January 12, 2018, the Company exercised its remaining repurchase right with respect to the remaining outstanding convertible preferred stock. See Note 11 - Cumulative Redeemable Convertible Preferred Stock in the Notes to Consolidated Financial Statements.
Earnings Per Share, Policy [Policy Text Block]
Earnings per Share
 
The Company calculates earnings per share in accordance with ASC Topic 260 - Earnings per Share (“EPS”). Basic earnings per common share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding and assumed to be outstanding.
 
Diluted EPS assumes the dilutive effect of outstanding common stock warrants, unit purchase options (“UPOs”) and RSUs, all using the treasury stock method, and the dilutive effect of the Series A cumulative convertible preferred stock, using the “if-converted” method. 
 
The following table summarizes the securities that were antidilutive (including warrants, unit purchase options (UPOs), RSU and preferred stock after giving effect to their respective conversion to shares of common stock for those units in-the-money, or share equivalents for those units out-of-the-money) and therefore, were not included in the computations of diluted loss per common share.
 
 
 
For the Years Ended
 
 
 
December 31, 2018
 
 
December 31, 2017
 
In-the-money warrants
 
 
-
 
 
 
474,204
 
Out-of-the-money warrants
 
 
4,576,799
 
 
 
600,000
 
Preferred stock
 
 
16,877
 
 
 
688,219
 
Service-based RSUs
 
 
48,307
 
 
 
43,785
 
Performance and market-based RSUs
(1)
 
 
-
 
 
 
-
 
In-the-money UPOs
 
 
1,308
 
 
 
5,675
 
Out-of-the-money UPOs
 
 
8,550
 
 
 
-
 
Total
 
 
4,651,841
 
 
 
1,811,883
 
 
1
For the years ended December 31, 2018 and 2017, all PRSUs and MRSUs were not included in the computation of diluted loss per share because the performance and market conditions were not satisfied during 2018 and would not be satisfied if the reporting date was at the end of the contingency period.
 
 
 
For the Years Ended
 
(in thousands, except per share amounts)
 
December 31, 2018
 
 
December 31, 2017
 
EPS numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(1,845
)
 
 
712
 
Less:  Undistributed preferred stock dividends
 
 
(113
)
 
 
809
 
Less: Premium paid on partial preferred redemption
 
 
2,219
 
 
 
847
 
Net loss attributable to Limbach Holdings, Inc. common stockholders
 
$
(3,951
)
 
 
(944
)
 
 
 
 
 
 
 
 
 
EPS denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
 
 
7,563
 
 
 
7,471
 
Impact of dilutive securities
 
 
 
 
 
 
 
 
Warrants in-the-money
 
 
-
 
 
 
-
 
Nonvested RSUs
 
 
-
 
 
 
-
 
UPOs in-the-money
 
 
-
 
 
 
-
 
Weighted average shares outstanding – diluted
 
 
7,563
 
 
 
7,471
 
 
 
 
 
 
 
 
 
 
Net loss per share attributable to Limbach Holdings, Inc. common stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
(0.52
)
 
$
(0.13
)
Diluted
 
$
(0.52
)
 
$
(0.13
)
Segment Reporting, Policy [Policy Text Block]
Segment Disclosure
 
The Company manages and measures performance of its business in two distinct operating segments: Construction and Service. The significant accounting policies described in this note are utilized within our segment reporting. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Management evaluates performance based on income from operations of the respective branches after the allocation of Corporate office operating expenses. Transactions between segments are eliminated in consolidation. Our Corporate office provides general and administrative support services to our two operating segments. Management allocates costs between segments for selling, general and administrative expenses and depreciation expense.
  
The Company does not identify capital expenditures and total assets by segment in its internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment. Interest expense is also not allocated to segments because of the Company’s corporate management of debt service, including interest.