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Commitments and Contingencies
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
 
Financing Obligation - Build to Suit Leases

During the third quarter of 2018, construction for the Portland, Oregon and Blue Ash, Ohio warehouse and office facilities for the Company's North America operations was completed. The Company was previously deemed the accounting owner of these facilities during construction, and now that the construction is complete, the Company evaluated both properties for sale‑leaseback accounting treatment under ASC 840, Leases.

Based on such analyses, the Company determined that the Blue Ash, Ohio location qualified for sale-leaseback accounting treatment, whereas the Portland, Oregon location did not qualify for sale-leaseback accounting treatment. For the Blue Ash property, the Company de-recognized the related construction-in-progress asset and the corresponding financing obligation from its balance sheet as of September 30, 2018. For normal tenant improvements funded by the Company, a leasehold improvement asset of $0.3 million was recorded in Property and equipment, net as of September 30, 2018.

For the Portland property, the building was reclassified to buildings within Property and equipment, net. All future rent payments on the Portland lease will be treated as debt service payments on the financing obligation. As of September 30, 2018, $9.0 million, was included in Property and equipment, net for the Portland facility. A corresponding liability (under the finance method) of $8.9 million was included in Financing obligation - build-to-suit leases as of September 30, 2018. The Company included $0.3 million related to the Portland location in the income statement during the three and nine months ended September 30, 2018.

The Company has also entered into lease arrangements to make certain improvements to recently constructed buildings in Prague, Czech Republic to be used as new warehouse and office space for the Company’s EMEA operations. As of September 30, 2018, the Prague warehouse and office locations are under construction and are expected to be completed during the fourth quarter of 2018.

According to ASC 840, the Company is deemed the accounting owner of the Prague facilities because the arrangements do not comply with the requirements for lessee involvement in construction guidance under ASC 840. Consequently, the fair value of the warehouse and office buildings, which was $35.6 million, was included in construction-in-process within Property and equipment, net as of September 30, 2018. As these lease arrangements were entered into in 2017, there was an out-of-period adjustment attributable to 2017 and the first and second quarters of 2018 due to timing of the application of build to suit lease accounting guidance.

The amounts recorded were based on actual construction costs incurred through September 30, 2018. A liability (under the finance method) of $33.9 million was included in Financing obligation - build-to-suit leases as of September 30, 2018, and accrued construction costs of $1.7 million were included in Accrued expenses as of September 30, 2018. The Company included $0.3 million related to the Prague locations in the income statement during the three and nine months ended September 30, 2018. Construction costs incurred through December 31, 2017, March 31, 2018 and June 30, 2018 were not deemed material to such periods.
 
In the nine months ended September 30, 2018, the Company had non-cash investing activities of $44.6 million and non-cash financing activities of $42.9 million related to such build to suit transactions.

Legal Contingencies

In October 2013, the Company removed the former owner of Productions Graphics from his role as President of Productions Graphics, the Company’s French subsidiary. He had been in that role since the Company’s 2011 acquisition of Productions Graphics, a European business then principally owned by him. In December 2013, the former owner of Productions Graphics initiated a wrongful termination claim in the Commercial Court of Paris seeking approximately €0.7 million (approximately $1.0 million) in fees and damages. In anticipation of this claim, in November 2013, he also obtained a judicial asset attachment order in the amount of €0.7 million (approximately $1.0 million) as payment security; the attachment order was confirmed in January 2014, and the Company filed an appeal of the order. In March 2015, the appellate court ruled in the Company’s favor in the attachment proceedings, releasing all attachments. The Company disputes the allegations of the former owner of Productions Graphics and intends to vigorously defend these matters. In February 2014, based on a review the Company initiated into certain transactions associated with the former owner of Productions Graphics, the Company concluded that he had engaged in fraud by inflating the results of the Productions Graphics business in order to induce the Company to pay him €7.1 million in contingent consideration pursuant to the acquisition agreement. In light of those findings, in February 2014, the Company filed a criminal complaint in France seeking to redress the harm caused by his conduct and this proceeding is currently pending. In addition, in September 2015, the Company initiated a civil claim in the Paris Commercial Court against the former owner of Productions Graphics, seeking civil damages to redress these same harms. In addition to these pending matters, there may be other potential disputes between the Company and the former owner of Productions Graphics relating to the acquisition agreement. The Company had paid €5.8 million (approximately $8.0 million) in fixed consideration and €7.1 million (approximately $9.4 million) in contingent consideration to the former owner of Productions Graphics; the remaining maximum contingent consideration under the acquisition agreement was €34.5 million (approximately $37.6 million) and the Company has determined that none of this amount was earned and payable.

In January 2014, a former finance employee of Productions Graphics initiated wrongful termination and overtime claims in the Labor Court of Boulogne-Billancourt, and he currently seeks damages of approximately €0.6 million (approximately $0.7 million). The Company disputes these allegations and intends to vigorously defend these matters. In addition, the Company’s criminal complaint in France, described above, seeks to redress harm caused by this former employee in light of his participation in the fraudulent transactions described above. The labor claim has been stayed in deference to the Company’s related criminal complaint.

In May 2018, shortly following the Company’s announcement of its intention to restate certain historical financial statements, a putative securities class action complaint was filed against the Company and certain of its current and former officers and directors.  The action, Errol Brown, et al., v. InnerWorkings, Inc., et al., is currently pending before the United States District Court for the Central District of California.  The complaint alleges claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Allegations in the complaint include that the Company and its current and former officers and directors made untrue statements or omissions of material fact by issuing inaccurate financial statements for the fiscal years ending December 31, 2015, 2016, and 2017, as well as all interim periods. The putative class seeks an unspecified amount of monetary damages as well as reimbursement of fees and costs, including reasonable attorneys’ fees, and other costs. The Company and individual defendants dispute the claims. On July 27, 2018, the Court appointed a lead plaintiff and lead counsel for the case.  Plaintiff’s counsel filed an amended complaint on September 25, 2018. The Company’s deadline for filing a motion to dismiss is November 26, 2018.