Notes to
Consolidated Financial Statements
|
1.
|
Operations
and Summary of Significant Accounting
Policies
|
NCA Crane
Parent, Inc., (NCA or collectively with its subsidiaries, the Company) was
incorporated on April 26, 2007 in the state of Delaware. On May 19,
2007, NCA acquired substantially all of the ownership interest in Coast Crane
Company (“CCC”). The Company is headquartered in Seattle,
Washington.
Coast
Crane, Ltd. is a wholly owned subsidiary of CCC and was incorporated
November 1, 1995, under the laws of the Province of British Columbia,
Canada. The consolidated financial statements include the accounts of the wholly
owned subsidiary. All significant intercompany transactions and balances have
been eliminated in consolidation.
Operations
and Basis of Presentation
The
Company sells and rents cranes and manlift equipment primarily to customers in
the construction industry in the western United States and Canada. The Company
also sells related parts and provides repair services. The Company is a dealer
for several crane manufacturers. The Company has 14 branches located in the
states of Washington, Alaska, Oregon, California, and Hawaii; and British
Columbia, Canada. The nature of the Company’s business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying consolidated
balance sheets are presented on an unclassified basis.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes.
Subsequent
Events
We have
evaluated subsequent events and transaction for potential recognition or
disclosure in the financial statements through February 10, 2011, the day the
financial statements were issued.
Treasury
Stock
The
Company accounts for treasury stock under the cost method and include treasury
stock as a component of stockholders’ equity.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
Accounts
receivable include amounts due from customers arising from billings under
standard terms, amounts due from crane manufacturers for repairs covered by
manufacturers’ warranties, amounts due from equipment rental
customers and miscellaneous other receivables and usually require no
collateral.
Allowance
for Doubtful Accounts
The
Company provides an allowance for uncollectible receivables. Management bases
its allowance on the estimated losses on specific accounts and historical loss
experience based on the aging of receivables. Receivables are written off when
deemed uncollectible and recoveries of receivables previously written off are
recorded when received.
Inventory
is stated at the lower of cost or market. The Company accounts for the cost of
crane and truck inventory using the specific-identification method. Stocked
inventory parts are accounted for using the average cost method.
Equipment
Rental Pool and Corporate Property and Equipment
Equipment
rental pool acquisitions and corporate property are recorded at cost. Costs for
repairs and maintenance that do not significantly increase the value or
estimated useful lives of the assets are expensed as incurred.
Depreciation
and amortization of property and equipment are provided on a straight-line
method over the estimated useful lives of the individual assets. Rental pool
equipment is depreciated over five to 12 years down to its salvage value.
Corporate property and equipment are depreciated over three to five years.
Leasehold improvements are amortized over the shorter of the life of the asset
or the remaining lease term, inclusive of renewal options when renewal is
probable.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
Deferred
financing costs include loan fees and professional fees, which are amortized
over the five-year term of the Company’s borrowing agreements. Amortization of
deferred financing costs is included in interest expense in the accompanying
consolidated statements of operations.
Goodwill
and Other Intangibles
Goodwill
resulting from business acquisitions represents the excess purchase price over
the identifiable net assets of the business acquired.
Goodwill
is subject to an annual assessment for impairment by applying a fair value-based
test. The Company performs its annual impairment analysis as of the first day of
the fourth quarter each year.
During
the year ended March 31, 2009, the Company recorded $11,990,448 of
impairment to goodwill. This impairment was a result of a decline in
forecasted future revenues and cash flows as a result of an economic decline in
crane rental, servicing, and distribution activities. This decline resulted from
a decrease in the fair value of the Company since its acquisition of CCC on
May 19, 2007. Refer to Note 16 for further
details.
Other
intangible assets consist of supplier and customer relationships, and are
recorded based upon estimated fair values at the date of acquisition. Supplier
relationships are subject to straight-line amortization over a weighted-average
period of 10 years. Customer relationships are subject to straight-line
amortization over a weighted-average useful life of six years.
Revenue
on equipment sales is primarily recognized once the following criteria have been
met: pervasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the price is fixed or determinable; and
collectability is reasonably assured. In situations where servicing deliverables
are attached to crane sales, the Company defers the related revenue until such
time as the services are provided. The fair value for these services is
determined based on current rates charged to customers for the same services
provided in arrangements that do not include equipment sales.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
Rental
income is recognized over the period of the related rental agreement, commencing
once the equipment has been delivered. Parts and service revenue is recognized
when the Company delivers parts to its customers or when it completes service
work on customer equipment. Revenue includes freight billed to customers and the
related freight costs are included in cost of sales.
The
Company leases the majority of its cranes for periods ranging from daily to
monthly. Certain tower cranes are leased for longer periods generally
not exceeding two years. Crane rentals are accounted for as operating
leases.
The
Company expenses all advertising costs as incurred. Advertising costs for the
years ended March 31, 2010 and 2009 and the period ended March 31, 2008,
totaled $179,471, $211,687, and $182,198, respectively.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year
presentation. The reclassification had no impact on operating income
or net income.
Fair
Value of Financial Instruments
The fair
value of financial instruments that are not actively traded is based on market
prices of similar instruments and/or valuation techniques using observable and
unobservable inputs.
Although
management uses its best judgment in estimating the fair value of these
instruments, there are inherent limitations in any estimation
technique.
Financial
instruments include cash, accounts receivable, accounts payable, accrued
expenses, short and long-term borrowings, and interest rate swaps. The carrying
amount and estimated fair value of the Secured JP Morgan term debt at
March 31, 2010, were $13,504,728 and $13,913,767, respectively. The fair
value of the term debt was calculated using the amended term loan interest rate
of 19%.
The
Company believes that the fair value of all other financial instruments
approximates their carrying value based on current market indicators, such as
prevailing interest rates and exchange rates.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
Foreign
Currency Translation
The
functional currency of the Company’s Canadian subsidiary is the Canadian dollar.
Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at period-end exchange rates, and revenue and expenses are translated at
average rates prevailing during the year. Translation adjustments are included
in accumulated other comprehensive income (loss), a separate component of
stockholders’ equity.
The
Company has a stock option plan, which is fully described in
Note 9. The Company measures employee stock-based compensation
awards using a fair value method and recognizes such expense in the financial
statements over the related service periods. To date, all options granted have
vesting provisions that are contingent on certain performance criteria that
thereby result in a deferral of the recognition of the related stock
compensation expense until it becomes probable that the performance criteria
will be achieved.
Derivative
Financial Instruments
The
Company accounts for its derivative financial instruments in accordance with ASC
815, Derivatives and Hedging which requires companies to recognize the fair
value of all derivative instruments as either assets or liabilities on the
balance sheet.
The
Company manages its exposure to variable interest rates by entering into
interest rate swaps. At March 31, 2010, the Company had six interest rates
swaps outstanding, each with a remaining $7 million notional amount, all
maturing in May 2012. The notional amounts of each of these swaps reduce
over time, based upon management’s forecasted reduction in the Company’s
revolving credit lines.
While the
interest rate swaps represent economic hedges against changes in cash flow due
to changes in LIBOR based interest payments, the instruments have not been
designated as hedges; and therefore, all changes in fair value are recorded
through other expense in the accompanying consolidated statement of
operations.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
Income
taxes are accounted for using an asset and liability approach, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the consolidated financial
statements and tax bases of assets and liabilities at the applicable enacted tax
rates. Accounting principles generally accepted in the United States
require a valuation allowance against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Concentration
of Credit Risk
The
Company maintains its cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk
on cash.
The
majority of the Company’s sales are to customers in the construction industry
located in Washington, Oregon, California, Alaska, and British Columbia, Canada.
The Company grants credit to substantially all of its customers. The Company may
perfect security interests on receivables related to the sale of equipment.
Receivables relating to the rental of equipment are generally unsecured, but the
Company may have certain lien and other rights under federal and state
statutes.
Adoption
of New Accounting Standards
On April
1, 2008, the Company adopted the accounting guidance issued by the FASB on fair
value measurements and disclosures. This accounting guidance defined
fair value, established a framework for measuring fair value, and expanded the
related disclosure requirements. This guidance applies to other accounting
pronouncements that require or permit fair value measurements. The guidance
indicates, among other things, that a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability and defines fair value based
upon an exit price model.
The
effective date for certain portions of the fair value measurement and disclosure
guidance was delayed for all non-financial assets and nonfinancial liabilities
that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The Company delayed the adoption related to this
portion of the guidance and adopted this guidance in its entirety on
April 1, 2009.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
(continued)
On April
1, 2009, the Company adopted authoritative guidance issued by the FASB that
clarifies the accounting for
uncertainty in income tax positions by prescribing a minimum recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be t
aken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties,
accountin
g in interim
periods, disclosure, and transition. The cumulative effects
of adopting the standard
were
recorded in retained earnings as of
th
e beginn
ing of the period of
adoption.
The effects of adopting the guidance did not have a
material impact on the Company’s consolidated financial statements.
On March
31, 2010, the Company adopted authoritative guidance issued by the FASB that
expanded the disclosure requirements for derivative instruments. This
guidance was issued to provide greater transparency around derivative and
hedging activities. This transparency includes the disclosure of the additional
information regarding how and why derivative instruments are used, how
derivatives are accounted for, and how they affect an entity’s financial
performance. The adoption of this guidance did not have an impact on the
Company’s consolidated financial position or results of
operations. The additional disclosure requirements are included in
Note 15.
Accounts
receivable consist of the following:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
5,620,537
|
|
|
$
|
7,968,485
|
|
|
Warranty
claims
|
|
|
321,744
|
|
|
|
362,755
|
|
|
Accrued
rent
|
|
|
282,038
|
|
|
|
432,894
|
|
|
|
|
|
6,224,319
|
|
|
|
8,764,134
|
|
|
Less: allowance for doubtful
accounts
|
|
|
(872,722
|
)
|
|
|
(830,195
|
)
|
|
Accounts receivable,
net
|
|
$
|
5,351,597
|
|
|
$
|
7,933,939
|
|
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
Inventory
consists of the following:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Cranes,
trucks and other machinery
|
|
$
|
6,145,740
|
|
|
$
|
12,251,802
|
|
|
Parts
inventory
|
|
|
2,408,409
|
|
|
|
2,834,969
|
|
|
Work
in process
|
|
|
572,538
|
|
|
|
756,871
|
|
|
Total
inventory
|
|
$
|
9,126,687
|
|
|
$
|
15,843,642
|
|
4.
Equipment Rental Pool and Corporate Property and Equipment
The
equipment rental pool and corporate property and equipment consist of the
following:
|
|
|
March
31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Equipment
rental pool
|
|
$
|
109,435,301
|
|
|
$
|
121,964,858
|
|
|
Less
accumulated depreciation
|
|
|
26,797,821
|
|
|
|
18,982,066
|
|
|
Net
equipment rental pool
|
|
$
|
82,637,480
|
|
|
$
|
102,982,792
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
property and equipment
|
|
|
|
|
|
|
|
|
|
Motor
vehicles
|
|
$
|
2,440,612
|
|
|
$
|
2,441,568
|
|
|
Shop
equipment
|
|
|
701,584
|
|
|
|
647,674
|
|
|
Office
equipment
|
|
|
432,330
|
|
|
|
413,452
|
|
|
Leasehold
improvements
|
|
|
1,367,088
|
|
|
|
1,289,724
|
|
|
Total
corporate property and equipment
|
|
$
|
4,941,614
|
|
|
$
|
4,792,418
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
3,242,051
|
|
|
|
2,394,244
|
|
|
Net
corporate property and equipment
|
|
$
|
1,699,563
|
|
|
$
|
2,398,174
|
|
Depreciation
expense was $12,294,500, $13,940,771 and $11,343,555 for the years ended
March 31, 2010 and 2009 and for the period ended March 31, 2008,
respectively.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
5.
Other Intangible Assets
The
components of other intangible assets are as follows:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
1,711,400
|
|
|
$
|
1,711,400
|
|
|
Supplier
relationships
|
|
|
9,155,180
|
|
|
|
8,450,328
|
|
|
Accumulated
amortization
|
|
|
(3,286,678
|
)
|
|
|
(1,997,451
|
)
|
|
|
|
$
|
7,579,902
|
|
|
$
|
8,164,277
|
|
Amortization
expense was $1,135,287, $1,172,157 and $1,209,556 for the years ended
March 31, 2010 and 2009 and the period ended March 31, 2008,
respectively.
Amortization
expense for each of the five succeeding fiscal years is expected to be as
follows:
|
Year
ending March 31:
|
|
|
|
|
2011
|
|
$
|
1,160,004
|
|
|
2012
|
|
|
1,160,004
|
|
|
2013
|
|
|
1,160,004
|
|
|
2014
|
|
|
1,160,004
|
|
|
2015
|
|
|
956,265
|
|
|
Thereafter
|
|
|
1,983,621
|
|
|
|
|
$
|
7,579,902
|
|
Given
conditions described in Note 18 of the financial statements, management felt
that indicators of impairment of intangible assets may exist (step one) at March
31, 2010, and accordingly performed an undiscounted cash flow analysis of the
Company as of the valuation date (step two) in order to determine whether any
impairment should be recorded. This analysis involved management identifying the
reporting unit, which was determined to be the Company, and projecting, on a
going concern basis, prospective financial information of the Company. With this
analysis, the undiscounted cash flows of the reporting unit were compared to the
carrying value of the Company and because the undiscounted cash flows of the
Company exceeded the Company’s equivalent book value of the Company, there was
no indication that the book value of the intangible assets was not
recoverable. Accordingly, Management determined that no impairment
existed at March 31, 2010.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
Notes
payable consists of the following:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Secured
PNC Revolving Loans, maturing in May 2012, with interest rates at the
Company's option of PNC Bank Prime or LIBOR plus a spread based on the
Company's leverage ratio. Interest rates range from 2.81% to 9.25% at
March 31, 2010
|
|
$
|
75,139,611
|
|
|
$
|
82,920,645
|
|
|
Secured
JP Morgan term debt due in full in May 2013. Interest at 14% plus PIK of
5% (19% at March 31, 2010)
|
|
|
13,504,728
|
|
|
|
13,000,000
|
|
|
DLL
Equipment Financing, financing of seven units with maturities between
September 2015 and February 2016. Interest at LIBOR plus 3.25% (3.50% at
March 31, 2010)
|
|
|
4,353,595
|
|
|
|
-
|
|
|
GE
Canada Equipment Funding G.P. Revolving Credit Facility, maturing in May
2012. Interest at CDOR plus 2.9% (6.34% at March 31, 2010)
|
|
|
3,169,915
|
|
|
|
2,497,423
|
|
|
Total
notes payable
|
|
$
|
96,167,849
|
|
|
$
|
98,418,068
|
|
The above
notes are secured by liens against the Company’s tangible and intangible assets.
Under the terms of the notes, the Company is generally not permitted to declare
or pay any dividends or any other distribution on its common stock.
In
accordance with the Secured PNC Revolving Loans (the U.S. Credit Facility), the
Company may borrow up to $100 million depending upon the availability of
its borrowing base collateral consisting of eligible trade receivables,
inventories, property and equipment, and other assets located in the United
States. At March 31, 2010, the Company’s outstanding debt exceeded its borrowing
base collateral. Additional borrowings available under the terms of
the U.S. Credit Facility at March 31, 2009 totaled
$17,079,355.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
6.
Notes Payable (continued)
In
accordance with the GE Canada Equipment Funding G.P. Revolving Credit Facility
(the Canadian Credit Facility), the Company may borrow up to $5 million
depending upon the availability of its borrowing base collateral, consisting of
eligible trade receivables, inventories, property and equipment, and other
assets located in Canada. At March 31, 2010 borrowings in excess of available
collateral totaled $267,017. Additional borrowings available under
the terms of the facility at of March 31, 2009 totaled
$2,502,577.
The
Company obtained a waiver from its lenders related to its inability to meet the
minimum net income covenant requirement of one dollar, included in the U.S.
Credit Facility and Secured JP Morgan loan agreements, for the fiscal year ended
March 31, 2010. Coincident with the waiver being obtained, other covenant
levels for these loans were adjusted as follows:
Leverage
ratio not permitted to exceed the following:
3.25 : 1
for quarters ended March 31, 2009, June 30, 2009, September 30
2009, December 31, 2009, March 31, 2010, June 30,
2010.
3.00 : 1
for quarters ending September 30, 2010, December 31, 2010,
March 31, 2011, and June 30, 2011.
2.80 : 1
for quarters ending September 30, 2011, and December 31,
2011.
2.50 : 1
for quarters ending March 31, 2012, and as of the end of each fiscal
quarter thereafter.
Net
income not permitted to be less than one dollar ($1) for the fiscal year ending
March 31, 2011, and thereafter.
Minimum
undrawn availability not permitted to be less than five million
($5,000,000) dollars as of the end of the months ended June 30, 2009,
September 30, 2009, December 31, 2009, and March 31,
2010.
Net
Capital expenditures not permitted to exceed six million five hundred
thousand for the year ended March 31, 2009, zero ($0) dollars for the year
ended March 31, 2010, three million two hundred fifty thousand
($3,250,000) for the year ending March 31, 2011, and six million five
hundred thousand ($6,500,000) for the year ending March 31, 2012 and
thereafter.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
6.
Notes Payable (continued)
The
Company revised the terms of its U.S. Credit Facility, its Secured JP Morgan
term debt, and it’s Canadian Revolving Credit Facility on May 29, 2009 as
follows:
U.S.
Credit Facility: Alternate Base Rate plus a spread based on the Company’s
leverage ratio, with spread on Domestic Rate Loans ranging from 4% – 9.25%.
Coincident with the rate change levels for leverage ratios, net income, net
capital expenditures and minimum liquidity were also adjusted.
Secured
JP Morgan term debt: interest rate of 19%, with election of borrower to pay
interest in excess of 12% as payment in kind interest which adds such amount to
the then outstanding aggregate principal amount of the loans. Coincident with
the rate change levels for leverage ratios, net income, net capital expenditures
and minimum liquidity were also adjusted.
Canadian
Revolving Credit facility: CDOR plus 2.90% (CDOR is defined as the annual rate
of interest which is the rate based on the average rate applicable to Canadian
Dollar bankers’ acceptances for a term of 30, 60, or 90 days).
Interest
paid totaled $8,434,525 and $8,081,493 and $6,194,357 for the years ended
March 31, 2010 and 2009, respectively.
On
December 28, 2009, the Company defaulted on the U.S. Credit Facility as a result
of its failure to make certain payments that were due and owing on December 18,
2009, under the ISDA Master Agreement and related schedule entered into by the
Company with PNC Bank, National Association, each dated as of March 25, 2007,
(the Master Agreement) as supplemented by certain Confirmation Letters dated
June 8, 2007, June 15, 2007 and June 21, 2007, (the Swap
Payments). On January 6, 2010, the Company received a Notice of
Default and Reservation of Rights Letter from PNC Bank.
No action
was taken by PNC Bank at that time and the following Forbearance Agreements were
entered into over the next several months:
04/07/10 - Forbearance
Agreement executed. Expiration date 05/26/10.
05/26/10
- Amendment to Forbearance Agreement executed. Expiration date
07/07/10.
07/07/10 - Second
Amendment to Forbearance Agreement executed. Expiration date
07/21/10.
07/28/10 - Third
Amendment to Forbearance Agreement executed. Expiration date
08/04/10.
08/25/10 - Fourth
Amendment to Forbearance Agreement executed. Expiration date
08/31/10.
09/01/10 - Fifth
Amendment to Forbearance Agreement executed. Expiration date
09/08/10.
09/08/10 - Sixth
Amendment to Forbearance Agreement executed. Expiration date
09/15/10.
09/15/10 - Seventh
Amendment to Forbearance Agreement executed. Expiration date
09/20/10.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
6.
Notes Payable (continued)
The
Company’s Canadian Credit Facility, by virtue of its association with the U.S.
Credit Facility, was party to a cross default as a result of the December 28,
2009, default in the U.S. On March 4, 2010, the Company entered into
a Forbearance Agreement with GE Canada Equipment Funding G.P. This
agreement was amended as follows:
05/06/10
- Amendment to Forbearance Agreement executed.
10/18/10 - Second
Amendment to Forbearance Agreement executed.
11/24/10 - Third
Amendment to Forbearance Agreement executed.
The
Company’s debt agreements require it to maintain a lockbox at a qualifying
financial institution and all proceeds from cash collections of collateral be
deposited directly to such lockbox. Cash in the lockbox becomes the property of
the Company’s lending agent and is used to pay down borrowings on the revolving
lines. The Company may immediately reborrow the funds as needed, up to the
maximum amount allowed. In addition, the debt agreements provide that the
lenders may demand immediate repayment of all outstanding amounts if, in the
opinion of the lenders, there has been a material adverse change in the
operations of the Company.
As of
November 24, 2010, substantially all assets of CCC were acquired by CC Bidding
Corp and all outstanding debt was assumed by CC Bidding Corp. or paid off as a
result of that transaction (see Note 18).
The
components of deferred financing costs are as follows:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
$
|
2,105,067
|
|
|
$
|
2,111,567
|
|
|
Accumulated
amortization
|
|
|
(1,068,802
|
)
|
|
|
(691,557
|
)
|
|
|
|
$
|
1,036,265
|
|
|
$
|
1,420,010
|
|
Amortization
expense for the years ended March 31, 2010 and 2009 and the period ended
March 31, 2008, totaled $533,448, $401,027, and $290,488, respectively.
Amortization expense for each of the five succeeding fiscal years is expected to
be as follows:
|
Year
ending March 31:
|
|
|
|
|
2011
|
|
$
|
498,510
|
|
|
2012
|
|
|
479,586
|
|
|
2013
|
|
|
58,169
|
|
|
2014
|
|
|
-
|
|
|
2015
|
|
|
-
|
|
|
|
|
$
|
1,036,265
|
|
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
7.
Interest Rate Swap Liabilities
The
Company entered into interest rate swaps in June 2007. The Company
has a total of six interest rate swaps, each with a notional value of $7
million. The purpose of the interest rate swaps was to protect the
company from interest rate changes as a result of increasing
LIBOR. The interest on the Company’s term debt is a LIBOR floating
rate and, as such, the Company obtained fixed rate interest swap to hedge
against exposure to interest rate increases. As of March 31, 2010,
the Company has a $3,644,337 liability on the books, representing the cumulative
future loss on the contracts. While the interest rate swaps represent economic
hedges against changes in cash flow due to changes in LIBOR based interest
payments, the instruments have not been designated as hedges; and therefore, all
changes in fair value are recorded through other expense.
The
Company leases all of its branch facilities under various operating leases
expiring at various dates through December 31, 2015. The Company is
responsible for substantially all expenses relating to occupancy under the terms
of these leases, including taxes, insurance, utilities, and
maintenance.
The terms
of these leases are summarized as follows:
|
Location
|
|
Monthly
Lease Rate
|
|
Expiration
Date
|
|
|
|
|
|
|
|
Portland,
OR
|
|
$
|
16,500
|
|
December 2015
|
|
West
Sacramento, CA (Shop)
|
|
|
15,000
|
|
December 2013
|
|
West
Sacramento, CA (Storage)
|
|
|
1,598
|
|
July 2013
|
|
City
of Industry, CA
|
|
|
12,395
|
|
May 2015
|
|
San
Leandro, CA
|
|
|
20,225
|
|
April 2011
|
|
Bakersfield,
CA
|
|
|
5,600
|
|
March 2014
|
|
Seattle,
WA
|
|
|
17,500
|
|
April 2012
|
|
Seattle,
WA – (Tower Crane)
|
|
|
8,500
|
|
April 2012
|
|
Seattle,
WA (Sales Trailers)
|
|
|
1,025
|
|
June 2011
|
|
Seattle,
WA – (Tower Crane Trailer)
|
|
|
850
|
|
February
2012
|
|
Tacoma,
WA (Shop)
|
|
|
4,000
|
|
February 2014
|
|
Pasco,
WA
|
|
|
3,500
|
|
February 2014
|
|
Spokane,
WA
|
|
|
6,000
|
|
February 2014
|
|
Anchorage,
AK
|
|
|
11,000
|
|
February 2014
|
|
San
Diego, CA
|
|
|
7,878
|
|
June 2011
|
|
Ontario,
CA
|
|
|
7,957
|
|
May 2012
|
|
Honolulu,
HI
|
|
|
11,855
|
|
July 2013
|
|
Surrey,
BC
|
|
10,552
CAD
|
|
October 2012
|
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
8.
Lease Commitments (continued)
Certain
leases provide the option to renew for various lengths of time.
Additionally,
the Company rents automobiles and office equipment under various operating
leases expiring through November 2013. Minimum payments under noncancelable
real estate and equipment operating leases for future years ending March 31
are as follows:
|
|
|
Facilities
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
1,947,076
|
|
|
$
|
426,554
|
|
|
2012
|
|
|
1,657,996
|
|
|
|
309,597
|
|
|
2013
|
|
|
1,188,050
|
|
|
|
190,611
|
|
|
2014
|
|
|
905,234
|
|
|
|
73,617
|
|
|
2015
|
|
|
391,121
|
|
|
|
1,820
|
|
|
Thereafter
|
|
|
200,054
|
|
|
|
-
|
|
|
|
|
$
|
6,289,531
|
|
|
$
|
1,002,199
|
|
Rent
expense totaled $2,081,594, $1,956,581, and $1,438,823 for the years ended
March 31, 2010 and 2009 and for the period ended March 31, 2008,
respectively.
9.
Stock-Based Compensation
Options
outstanding at both March 31, 2010 and 2009 were 27,237. During
the year ended March 31, 2009, 10,614 options were retired and the Company
granted options for 7,528 shares of common stock, with the options vesting only
upon achieving certain specific performance and service criteria. During the
year ended March 31, 2008, the Company granted options for
30,323 shares of common stock, with the options vesting only upon achieving
certain specific performance and service criteria. Achieving these criteria can
only be determined upon the occurrence of a liquidity event defined in the stock
option agreement to be an acquisition of no less than 51% of the outstanding
stock of the Company by a third party or parties. Until a liquidity event
occurs, no options will vest. Upon the occurrence of a liquidity event as
defined, the number of options that will actually vest will depend on the
measurement of the results of the liquidity event against targets defined in the
option agreement, and the achievement of required service conditions after the
liquidity event. Due to the vesting conditions described above, no options have
been exercised.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
9.
Stock-Based Compensation (continued)
Compensation
expense will be recognized over the remaining service period once the Company
determines that the liquidity event is probable and estimable. As of
March 31, 2010, the Company concluded that achievement of this event was
not probable. Accordingly, no compensation expense related to these options
granted has been recorded for the year ended March 31, 2010.
As
discussed in Note 18 to the financial statements, the Company filed for
bankruptcy and was subsequently sold under a Section 363 sale resulting in the
forfeiture of all outstanding options. Accordingly, no compensation
expense has been recognized.
Fiscal
Year 2009 Stock Option Grants (7,528 options granted)
The fair
value of each option granted was determined using a lattice/Monte Carlo
simulation. The weighted-average exercise price of the options granted was $100
per share. The fair value was determined using the following key assumptions:
estimated volatility ranging from 50% – 55%, an estimated life ranging from
6.4 to 6.9 years, dividend yield of 0%, and risk-free interest ranging from
1.87% –3.62%. The volatility was determined based on an average of volatilities
for a group of public companies that are considered to be the Company’s peers.
The aggregate fair value of options granted as of January 1, 2009 and
July 1, 2008, was $46,966.
May 19,
2007 Stock Option Grant (30,323 options granted)
The fair
value of each option granted was determined using a lattice/Monte Carlo
simulation. The weighted-average exercise price of the options granted was $100
per share. The fair value was determined using the following key assumptions:
estimated volatility of 50.0%, an estimated life of 5.1 years, dividend yield of
0%, and risk-free interest rate of 4.75%. The volatility was determined based on
an average of volatilities for a group of public companies that are considered
to be the Company’s peers. The aggregate fair value of options granted as of
May 19, 2007, was $1.3 million.
The
weighted-average remaining contractual term is 7.8 years and 8.2 years
as of March 31, 2010 and 2009, respectively.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
10.
Income Taxes
The
income tax benefit is comprised of the following:
|
|
|
Year Ended
March 31,
2010
|
|
|
Year Ended
March 31,
2009
|
|
|
May 19, 2007
to March 31,
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
(16,030
|
)
|
|
|
(940
|
)
|
|
|
-
|
|
|
Foreign
|
|
|
509,768
|
|
|
|
(389,343
|
)
|
|
|
(234,696
|
)
|
|
Total
current
|
|
|
493,738
|
|
|
|
(390,283
|
)
|
|
|
(234,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6,244,460
|
|
|
|
1,494,516
|
|
|
|
2,413,152
|
|
|
State
|
|
|
756,751
|
|
|
|
283,013
|
|
|
|
302,057
|
|
|
Foreign
|
|
|
(315,942
|
)
|
|
|
360,596
|
|
|
|
302,662
|
|
|
Total
deferred
|
|
|
6,685,269
|
|
|
|
2,138,125
|
|
|
|
3,017,871
|
|
|
Total
income tax benefit
|
|
$
|
7,179,007
|
|
|
$
|
1,747,842
|
|
|
$
|
2,783,175
|
|
The
Company utilizes the asset and liability method of accounting for deferred
income taxes. Under this method, the current year’s deferred income tax expense
or benefit is determined by the net change in the deferred tax liabilities or
assets during the year. Deferred tax liabilities or assets are determined by
comparison of the financial statement bases of all assets and liabilities to
their corresponding tax bases and applying enacted tax rates to these temporary
differences.
Income
tax expense differs from the amounts computed by applying the U.S. federal
income tax rates to income before taxes primarily due to state
taxes.
The
amount of federal and state income taxes paid was $1,040, $85,349, and
$1,206,082 for the years ended March 31, 2010 and 2009 and the period ended
March 31, 2008, respectively.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
10.
Income Taxes (continued)
Significant
components of the Company’s deferred tax assets and liabilities are as
follows:
|
|
|
March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Reserves
and deferred expenses
|
|
$
|
810,473
|
|
|
$
|
1,002,036
|
|
|
Derivative
interest payable
|
|
|
1,239,075
|
|
|
|
1,626,868
|
|
|
Net
operating loss carryforwards
|
|
|
15,040,601
|
|
|
|
9,533,879
|
|
|
Minimum
tax credit carryforwards
|
|
|
891,700
|
|
|
|
891,700
|
|
|
Total
deferred tax assets
|
|
|
17,981,849
|
|
|
|
13,054,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustments
|
|
|
(187,713
|
)
|
|
|
312,785
|
|
|
Intangible
assets basis difference
|
|
|
(2,328,224
|
)
|
|
|
(2,647,661
|
)
|
|
Fixed
asset basis difference
|
|
|
(20,792,863
|
)
|
|
|
(21,275,994
|
)
|
|
Accrual
of Canadian taxes at U.S. rate
|
|
|
(225,661
|
)
|
|
|
(196,038
|
)
|
|
State
deferred taxes
|
|
|
(326,326
|
)
|
|
|
(1,097,854
|
)
|
|
Total
deferred tax liabilities
|
|
|
(23,860,787
|
)
|
|
|
(24,904,762
|
)
|
|
Net
deferred tax liabilities
|
|
$
|
(5,878,938
|
)
|
|
$
|
(11,850,279
|
)
|
The
Company’s net operating loss carryforwards total $44.2 million and expire
in various amounts between 2022 and 2030. The Company also has a minimum tax
credit carryforward of approximately $891,700, which carries forward
indefinitely. No valuation allowance against these deferred tax assets was
considered necessary by management because the reversal of deferred tax
liabilities during the carryforward period will result in the utilization of
these deferred tax assets. While the Company’s ability to use its minimum tax
credit carryforwards and approximately $3.2 million of its net operating
losses is subject to possible limitation under Section 382 of the Internal
Revenue Code, management has determined that Section 382 will not limit its
ability to recognize the value of these deferred tax assets.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
The
Company maintains a defined contribution profit-sharing plan, including 401(k)
provisions, which covers substantially all employees over the age of twenty and
one-half who have one year of service. Profit-sharing contributions to the plan,
if any, are at the discretion of the Board of Directors, subject to statutory
limits. No profit-sharing contributions were declared by the Board of Directors
for the years ended March 31, 2010 and 2009 and for the period ended
March 31, 2008. The Company matches employee 401(k) contributions at 50%,
up to 3% of compensation and at 25%, up to an additional 3% of compensation. The
Company matched contributions totaled $207,800, $246,582, and $212,887 during
the years ended March 31, 2010 and 2009 and the period ended March 31,
2008, respectively. On November 19, 2010, the Company terminated the
profit-sharing plan.
12.
Supplier Concentration
Pursuant
to a distributor sales and service agreement, the Company purchases parts and
equipment from a group of affiliated manufacturers. Purchases from the group
accounted for approximately 69% of cost of sales for the year ended
March 31, 2010, 66% for the year ended March 31, 2009, and 48% for the
period ended March 31, 2008. The agreement is terminable with 90 days’ written
notice or upon certain specified events. Although the Company could obtain
equipment and parts from other suppliers, a change in suppliers could have a
substantial negative impact on operations.
13.
Commitments and Contingencies
The
Company is a defendant in various lawsuits. In management’s opinion, these suits
are without substantial merit and would not result in judgments, which, in the
aggregate, would have a material adverse effect on the Company’s consolidated
financial statements.
The
Company has provided bonding commitments to state and local governments totaling
approximately $310,000 as of March 31, 2010.
On
May 19, 2007, the Company entered into a Management Assistant Agreement
with NCA Management LLC (LLC) whereby LLC provides financial advisory,
investment banking, and management consulting services to the Company. In the
year ended March 31, 2010, the Company paid $458,333 of management fees and
out-of-pocket expenses of $14,726. In the year ended March 31,
2009, the Company paid $500,000 of management fees and out-of-pocket expenses of
$29,282. In the period ended March 31, 2008, the Company paid
$950,000 to LLC in connection with services related to the acquisition of CCC,
$350,806 of management fees and $73,533 of out-of-pocket expenses.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
14.
Management Fee (continued)
At
March 31, 2010 and 2009, the Company owed LLC $168,744 and $131,074,
respectively. At March 31, 2010 and 2009, LLC, directly or through
affiliates, controls 262,000 shares of the outstanding common stock of the
Company.
15.
Fair Value Measurements
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. To increase the comparability of fair value measures, the
following hierarchy prioritizes the inputs to valuation methodologies used to
measure fair value:
Level
1 – Inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level
2 – Inputs are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full
term of the financial instrument.
Level
3 – Inputs are unobservable inputs based on the Company’s own assumptions
used to measure assets and liabilities at fair value.
A
financial asset or liability’s classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value
measurement.
The
Company has interest rate swaps that are measured at fair value. The interest
rate swaps are valued using an industry standard valuation model. This model
projects future cash flows and discounts the future amounts to a present value
using market-based expectations for interest rates and the contractual terms of
the interest rate swaps adjusted for nonperformance risk. The model is based on
the LIBOR rate that is observable at commonly quoted intervals for the full term
of the swaps.
Management
considers an adjustment for non-performance risk in the recognized measure of
fair value of the interest rate swaps. The adjustments reflect a non-performance
risk factor applied to a net exposure. Management uses the counterparties’
non-performance risk factor in a net asset position and the Company’s
non-performance risk factor in a net liability position. Management evaluates
the Company’s non-performance risk using credit spreads obtained from its
recently amended term and revolver loans.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
15.
Fair Value Measurements (continued)
At March
31, 2010, the adjustment related to non-performance risk decreased the
derivative liability by approximately $412,816. At March 31,
2009, the adjustment related to non-performance risk decreased the derivative
liability by approximately $524,739. As adjustments related to non-performance
risk are significant inputs that are based on the Company’s own assumptions, the
Company’s derivatives are classified within Level 3 of the fair value
hierarchy.
The
following table summarizes the activity for the year related to the interest
rate swaps, which are considered Level 3 within the fair value
hierarchy:
|
|
|
Year Ended March 31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning
balance
|
|
$
|
4,784,906
|
|
|
$
|
4,765,086
|
|
|
Total
(losses) gains
|
|
|
(1,140,569
|
)
|
|
|
19,820
|
|
|
Ending
balance
|
|
$
|
3,644,337
|
|
|
$
|
4,784,906
|
|
During
the fourth quarter of fiscal year 2009, management performed its annual
impairment assessment of goodwill and other intangible assets. Management
determined the fair value of the Company at January 1, 2009, in accordance
with the two-step process.
In
accordance with step one, the fair value of the reporting unit was estimated
using a blended analysis of the expected present value of future cash flows and
the guideline company method. The resulting calculation revealed that the fair
value of the Company was below its carrying value indicating evidence of
potential goodwill impairment.
In
accordance with step two, the Company determined that the goodwill was fully
impaired because the value of its total liabilities and owners’ equity
(calculated as the summation of the fair value of equity, interest-bearing debt
and non-interest bearing current and long-term liabilities) exceeded the value
of its current assets and net property and equipment.
As a
result, an impairment loss on goodwill of $11,990,448 was recorded for the year
ended March 31, 2009. No goodwill remained as of March 31,
2009.
NCA Crane
Parent, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
During
the year ended March 31, 2010, the Company issued 100 shares of stock subject to
repurchase for $100 per share. At March 31, 2010, 273,315 shares of
common stock were issued and outstanding and 11,615 shares were subject to
repurchase by the Company.
During
the year ended March 31, 2009, the Company issued 250 shares of common
stock and repurchased and retired 550 shares for $100 per share. At
March 31, 2009, 273,215 shares of common stock were issued and outstanding
and 11,515 shares were subject to repurchase by the Company.
During
the period ended March 31, 2008, 1,500 shares of common stock were repurchased
for $100 per share and retired resulting in 273,515 shares of common stock
outstanding at March 31, 2008.
18.
Subsequent Events
On
September 22, 2010, CCC filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
Bankruptcy Court Western District of Washington at Seattle. NCA and
Coast Crane, Ltd. were not part of the filing and continued to operate outside
of Chapter 11. CCC was authorized to continue to operate as an
ongoing business, but could not engage in transactions outside the ordinary
course of business without the prior approval of the Bankruptcy Court.
Consequently, NCA no longer controlled CCC and, consequently CCC and its
subsidiary, Coast Crane, Ltd. were deconsolidated, which may have resulted in a
gain or loss on deconsolidation, which has not been estimated at this
time. Immediately after the bankruptcy filing, a debtor-in-possession
revolving loan with PNC Bank for up to $20 million was obtained.
Clearlake
Capital Group, a private investment firm, was the “stalking horse” in an auction
for the assets of CCC, held pursuant to Section 363 of the Bankruptcy Code with
a bid of $81.8 million for the assets of CCC. Following an auction
held on November 8, 2010, CC Bidding Corp. (CCBC), a wholly owned subsidiary of
Essex Rental Corp., was declared the winning bidder with a bid of $103.3
million, including $34.5 million of cash. In connection with the
Asset Purchase Agreement between CCBC and CCC entered into on November 1, 2010,
CCBC purchased substantially all the assets of CCC and assumed certain
liabilities of CCC, including $49.6 million of first lien secured debt and
approximately $12.0 million of other existing CCC indebtedness. The
sale of substantially all of the CCC’s assets to CCBC was approved by the
Bankruptcy Court on November 12, 2010 and the sale was completed on November 24,
2010. Subsequent to the completion of the transaction, NCA repaid the
balance of its unassumed debt.
On
November 24, 2010, CCC changed its name to CC Liquidating
Company.