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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1996
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to ___________.
Commission File Number: 1-8325
MYR GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3158643
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1701 W. GOLF ROAD, ROLLING MEADOWS, IL 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 290-1891
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the registrant's Common Stock, $1 par value,
held by non-affiliates of the registrant as of March 5, 1997, was $31,789,000
based on the closing price on that date on the New York Stock Exchange. As of
March 5, 1997, 3,247,378 shares of the registrant's Common Stock, $1 par value
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of MYR Group Inc.
for use in connection with its annual meeting of stockholders to be held May
13, 1997 are incorporated by reference into Part III of this annual report.
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Table of Contents
and Cross-Reference Sheet
Page or Reference
PART I Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security
Holders 7
Part II Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements 13
Item 9. Changes in and Disagreements with Independent
Auditors on Accounting and Financial
Disclosure 29
Part III Item 10. Directors and Executive Officers of the
Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management 30
Item 13. Certain Relationships and Related Transactions 30
Part IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 31
Signatures 32
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MYR GROUP INC.
PART I
ITEM 1. BUSINESS
The Company was organized under the laws of Delaware in April 1982, to serve as
a holding company. Its principal assets consist of all of the outstanding
shares of capital stock of The L. E. Myers Co., a Delaware corporation
("Myers"), Hawkeye Construction Inc., an Oregon corporation ("Hawkeye") and
Harlan Electric Company, a Michigan corporation ("Harlan"). Myers is based in
Rolling Meadows, Illinois and is the successor to another Delaware corporation
of the same name which was organized in 1914 to succeed a business established
in 1891 by Lewis E. Myers. Hawkeye was acquired by the Company in 1991 and its
principal place of business is Troutdale, Oregon. Harlan was acquired by the
Company in 1995 and is headquartered in Southfield, Michigan. Harlan has two
subsidiaries: Sturgeon Electric Company, Inc., a Michigan corporation
("Sturgeon") with its principal place of business in Henderson, Colorado,
acquired by Harlan in 1974 and Power Piping Company, a Pennsylvania corporation
("Power Piping") with its principal place of business in Pittsburgh,
Pennsylvania, acquired by Harlan in 1963. As used under this Item 1 and Item
2, the term "Company" refers collectively to MYR Group Inc. and its direct and
indirect subsidiaries and predecessors, unless the context otherwise requires.
The consolidated financial statements and notes thereto set forth in Part II,
Item 8 of this report contain information regarding Harlan and its subsidiaries
from January 3, 1995.
The general offices of the Company are located at 1701 West Golf Road, Rolling
Meadows, Illinois.
CONSTRUCTION SERVICES
The Company conducts its business through its direct and indirect operating
subsidiaries. The four principal types of construction services performed by
the company are electric utility line construction, commercial and industrial
electrical construction, telecommunication construction services and mechanical
construction.
Myers, Harlan and Sturgeon are involved in the construction and maintenance of
electric transmission lines, substations, distribution systems and lighting
systems for electric utilities and industrial users of similar systems and
providing construction services to the telecommunication market. These services
are frequently referred to as "outside" or "line" electrical construction
service. The Company generally serves the electric utility industry as a prime
construction contractor. Designs and specifications for a project are usually
prepared by the clients or their agents. The Company supplies the management,
labor, equipment and tools necessary to construct the project. Construction
materials are generally supplied by the clients although the Company
occasionally may be required to procure and supply the construction materials.
Most contracts undertaken by the Company are completed within twelve months,
although certain contracts may extend for longer periods.
The Company, through Sturgeon provides electric construction and maintenance
services to the commercial and industrial marketplace. These services are
typically referred to as "inside" electrical construction. The Company's work
in the commercial and industrial electric construction market place is most
often performed as a subcontractor to a general contractor, however, the
Company does perform certain commercial and industrial construction services as
a prime contractor. Commercial and industrial electrical maintenance services
are frequently performed by the Company as a prime contractor. The Company
generally provides the materials to be installed as a part of the scope of
these contracts which vary greatly in size and duration. The Company provides
such construction services on many varied types of projects including airports,
hospitals, hotels and casinos, arenas and convention centers, and manufacturing
and process facilities. On occasion, a subsidiary of the Company will enter
into a joint venture with another contractor to perform a specific project.
Typically in these cases the subsidiary and the other contractor will share in
the profits or losses on the project in the percentage determined by the joint
venture agreement. The joint venture agreement
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will define the obligations of the subsidiary and the other contractor with
respect to the project and the management of the venture.
Myers, Harlan and Sturgeon are involved in telecommunication construction
services including the installation of fiber optic cable and the construction
of PCS towers.
The Company, through Power Piping, also provides mechanical construction and
maintenance services for the steel industry, electric utility industry,
chemical industry, food processors and other industrial customers located in
the eastern half of the United States. These services are provided by the
Company both as a prime contractor and as a subcontractor.
The Company's construction and maintenance crews are active year round in all
geographic areas in which the Company operates. Winter weather in some
northern areas and summer weather in some southern areas can adversely impact
work schedules.
The Company is subject to the authority of state and municipal regulatory
bodies concerned with the licensing of contractors. The Company has
experienced no material difficulty in complying with the requirements imposed
on it by such regulatory bodies.
The Company's operations are currently conducted primarily in the United
States.
CUSTOMERS
Electric utilities, in the aggregate, represent the largest customer base of
the Company. During the last five years, the Company's ten largest customers
accounted for 41% of its consolidated contract revenues and its single largest
customer accounted for 8% of such revenue. General contractors, as a group,
constitute a significant group of customers for the Company's commercial and
industrial work. Municipal or other government funded large projects provide
the Company with significant revenues when it is awarded all or a substantial
part of the electrical construction work on such projects.
In 1996 the Company's ten largest customers accounted for 46% of annual
revenues. The Company's single largest customer during 1996 was Detroit Edison
Company, an electrical utility in Michigan, accounting for 12% of such
revenue.
CONTRACTS
The Company enters into contracts principally on the basis of competitive bids.
Although there is considerable variation in the terms of the contracts
undertaken by the Company, contracts will usually be either lump sum or unit
price contracts pursuant to which the Company agrees to do the work for a fixed
amount for the entire project or for the particular units of work performed.
On occasion, the Company does obtain cost-plus contracts which provide for
reimbursement of costs incurred by the Company, often within stated limits,
plus the payment of a fee in a fixed amount or equal to a percentage of
reimbursable cost. On occasion these cost-plus contracts require the Company
to include a guaranteed not-to-exceed maximum price. Lump sum or unit price
contracts have accounted for the larger portion of the Company's contract
revenues in recent years. Such contracts typically place greater risks on the
Company than do cost-plus contracts. A portion of the work performed by the
Company requires performance and payment bonds at the time of execution of the
contract. Contracts generally include payment provisions pursuant to which a
5% to 10% retainage is withheld from each progress payment until the contract
work has been completed and approved.
The Company's backlog was $134,900,000 at December 31, 1996, compared to
$69,100,000 at December 31, 1995. The varying magnitude and duration of
projects undertaken by the Company may result in substantial fluctuations in
its backlog from time to time. Substantially all of the December 31, 1996
backlog will be completed in 1997.
Certain of the projects which the Company undertakes are not completed in one
accounting period. Revenue on construction contracts is recorded on the
percentage-of-completion accounting method determined by the ratio of cost
incurred to date on the contracts to management's estimates of total contract
costs. Projected losses are provided for in their entirety when identified.
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Some projects give rise to claims by the Company against its customers for
additional compensation based upon such matters as scheduling changes, delays
and interruptions or improper or revised specifications. The resolution of
such claims often extends over several years. Management's judgment as to the
possible outcome of such claims pending at the end of a financial reporting
period is reflected in the Company's results of operations for such period and
is revised in subsequent periods, if and as, required by developments with
respect to such claims (see Note 1 to the Financial Statements).
COMPETITION
The Company's business is highly competitive. Competition is primarily based
on the price of the construction services rendered and upon the reputation for
quality, safety and reliability of the contractor rendering them.
The competition encountered by the Company varies depending upon the type of
construction services which it renders. The construction and maintenance
service provided to electric utilities and industrial owners of similar systems
often requires larger amounts of capital and more specialized equipment than
the requirements for commercial construction. Larger electric utility projects
require increased numbers of heavy duty equipment as well as stronger financial
resources to meet the cash flow requirements of these projects. These factors
reduce the number of potential competitors on these projects to the larger
competitors. The number of firms which generally compete for any electric
utility project varies greatly depending on a number of factors, including the
size of the project, its location and the bidder qualification requirements
imposed upon contractors by the customer. Many of the competitors the Company
encounters restrict their operations to one geographic area while a few operate
nationally, as does the Company.
Competition for the electrical construction services provided by the Company to
the commercial and industrial customers varies greatly. Again, size and
location of the project will impact which competitors and the number of
competitors that the Company will encounter on any particular project. The
individual relationships with general contractors developed over several years
by particular contractors based upon prior projects worked together will impact
the Company's and its competitors' opportunities to bid on certain projects.
The equipment requirements for this type of work are not as significant as for
the electric utility construction. Since commercial construction typically
involves the purchase of materials by the contractor the financial resources to
meet these requirements on particular projects may impact the competition the
Company encounters. The Company has performed such construction services
principally in the western half of the United States. Certain of the Company's
competitors for this type of work operate nationally; however, the
preponderance of the Company's competition operates regionally.
The Company's mechanical construction and maintenance service have been
performed principally in the eastern half of the United States. The Company's
competitors for this type of work operate regionally.
The Company's competition includes entities which operate solely as union
contractors, solely as non-union contractors, or in certain cases, through
related companies having both union and non-union contractors.
In essentially all cases involving maintenance services provided by the
Company, the Company's customers will also perform some or all of these types
of services as well.
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EMPLOYEES
At December 31, 1996, the Company had approximately 300 salaried employees
including executive officers, district managers, project managers,
superintendents, estimators, office managers, and staff and clerical personnel.
At the same date, the Company employed approximately 2,700 hourly-rated
employees, whose number fluctuates depending upon the number and size of the
projects under construction by the Company at any particular time. At that
date, approximately 90% of the Company's hourly-rated employees were members of
the International Brotherhood of Electrical Workers ("IBEW"), AFL-CIO. Such
IBEW employees are represented by numerous local unions under various
agreements with varying terms and expiration dates. Such local agreements are
entered into by and between the IBEW local and the National Electrical
Contractors Association, of which the Company is a member. On occasion the
Company will employ employees who are members of other trade unions pursuant to
multi-employer, multi-union project agreements. A small number of the Company's
employees are represented by the United Association of Journeymen and
Apprentices of the Plumbing and Pipe Fitting Industry.
ITEM 2. PROPERTIES
CONSTRUCTION EQUIPMENT
The Company owns a substantial amount of construction equipment. This
equipment, which at December 31, 1996 had an aggregate cost of $48,245,000 and
a book value of $14,651,000 includes, among other items, trucks, trailers,
tractors, tension stringing machines, bulldozers, bucket trucks, digger
derricks, cranes and construction tools. Circumstances often require the
Company to lease or rent various items of equipment in connection with its work
on particular projects. The terms of these equipment leases and rental
agreements are generally related to the length of time to complete the
construction contract and sometimes include an option to purchase. The Company
generally exercises the lease-purchase options with respect to such equipment,
and in such cases, usually receives a credit toward the purchase price in the
amount of all or a portion of the rentals paid on the lease.
REAL ESTATE
The general offices of the Company occupy approximately 10,500 square feet of
leased space in an office building at 1701 West Golf Road, Rolling Meadows,
Illinois. The lease on these quarters expires in February, 2004. Prior to
October, 1996, the Company leased space in an office building at 2550 West Golf
Road, Rolling Meadows, Illinois. Rent expense for these properties in 1996
totaled approximately $100,000.
The Company owns land which at December 31, 1996 aggregated approximately 48
acres. Buildings owned by the Company as of the same date contained
approximately 175,000 square feet of space and housed certain regional offices
and equipment centers, as well as a number of small warehouses and garages.
Certain other regional locations, which were leased on December 31,
1996, contained approximately 126,000 square feet of enclosed space. Rentals
for such property in 1996 totaled approximately $886,000 and were under both
long and short-term leases.
The following table sets forth Company acquisitions of all property and
equipment, including acquisitions under capital leases, during each of the last
three years.
Year Amount
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1996 $5,293,000
1995 $4,959,000
1994 $4,449,000
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ITEM 3. LEGAL PROCEEDINGS
In September 1984, the Company's umbrella insurance carrier, National Union
Fire Insurance Company of Pittsburgh (National Union) filed a lawsuit in the
Supreme Court of the State of New York seeking a declaratory judgment that it
was not obligated to defend and indemnify the Company for losses and damages
related to errors in the design of four transmission towers designed for the
City Utilities Commission of Owensboro, Kentucky (OMU) by the Company's former
engineering subsidiary, LEMCO Engineers, Inc. (LEMCO). (See Note 11 to the
Financial Statements). The case was removed to U. S. District Court for the
Southern District of New York. The Company filed a counterclaim against
National Union seeking a declaratory judgment that National Union must defend
and indemnify the Company with respect to all claims above the primary policy
limits of $1,000,000. The Company also filed cross claims against the
insurance brokers who secured the excess insurance for the Company, the EMAR
Company, American Risk Management, Inc. and the Walsh Group, alleging breach of
contract, breach of fiduciary duty and negligence in connection with the
procurement of the policy and seeking to hold these third party defendants
liable to the Company in the event the Court were to hold that National Union
is not obligated to indemnify the Company under the excess insurance policy.
The case was placed on the Court's suspense docket pending the outcome of a
related Kentucky State Court lawsuit brought by OMU against LEMCO and the steel
supplier (the "Kentucky Case"). The Kentucky Case was settled in November 1993
and the U. S. District Court removed the National Union case from the suspense
docket in February 1994. On February 28, 1997 the court ruled in the Company's
favor on all issues against National Union. Judgement in the Company's favor
and against National Union should be entered in the amount of approximately
$4.9 million for damages incurred by the Company in remediating OMU's damages,
the amount paid to OMU in settlement of the Kentucky lawsuit, legal fees and
expenses incurred by the Company in the defense of the Kentucky lawsuit and the
Federal Court lawsuit, plus interest on such amounts. The Company expects
National Union will appeal the decision. Accordingly, the Company has not
recorded any income relating to this judgement and has continued to record
additional expenses, primarily legal costs, as a loss from discontinued
operations in its 1996 financial statements.
The Company is also a defendant in lawsuits arising in the ordinary course of
its business. In the opinion of the Company's management, based in part upon
the advice of its counsel, these lawsuits are covered by insurance, provided
for in the consolidated financial statements of the Company, or are without
merit, and the Company's management is of the opinion that the ultimate
disposition of any of these pending lawsuits will not have a material adverse
impact on the Company in relation to the Company's consolidated financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter
of the year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of Common Stock of the Company are listed and traded on the New York
Stock Exchange. As of March 14, 1997 there were approximately 820 holders of
record of the shares of Common Stock of the Company. The following table sets
forth quarterly market price and dividend information per share for the Common
Stock of the Company (see Note 18 to the Financial Statements).
Quarter Ended Stock Price Range (1) Dividends Declared (1)
December 31, 1996 $10.50 - $12.88 $.050
September 30, 1996 10.38 - 11.75 .050
June 30, 1996 10.25 - 11.75 .050
March 31, 1996 10.00 - 11.00 .050
December 31, 1995 $10.00 - $11.81 $.047
September 30, 1995 9.19 - 11.91 .047
June 30, 1995 8.53 - 10.31 .047
March 31, 1995 7.97 - 9.66 .041
(1) The stock price range and dividends declared reflect a four-for-three stock
split in the form of a stock dividend on December 15, 1995.
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ITEM 6. SELECTED FINANCIAL DATA
CONTINUING OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992
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FOR THE YEAR Contract revenue $310,577 $266,965 $86,842 $108,515 $110,251
Income 3,968 3,429 2,329 1,633 3,584
Depreciation and
amortization 6,091 6,189 3,191 2,892 2,287
Capital expenditures 5,293 4,959 4,449 3,432 6,160
Interest expense 1,826 1,772 99 350 324
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AT YEAR END Backlog $134,900 $69,100 $28,200 $26,150 $31,370
Working capital 14,171 15,490 8,595 8,636 10,404
Property (net) 22,239 23,144 14,652 13,189 12,505
Total assets 98,486 101,834 39,644 39,624 41,918
Total long-term debt 8,995 14,590 318 804 1,478
Shareholders' equity 29,570 26,618 23,622 22,046 21,813
Shares outstanding 3,237 3,182 3,172 3,193 3,297
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PER SHARE Income
DATA Primary $1.15 $1.01 $.70 $.48 $1.03
Fully diluted 1.02 .91 .70 .48 1.03
Book value 9.14 8.37 7.45 6.91 6.62
Stock price range
Low 10.00 7.97 7.31 6.38 11.44
High 12.88 11.91 10.22 13.41 19.03
Cash dividends .2000 .1819 .1650 .1575 .1388
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NOTES: 1. Selected financial data for 1996 and 1995 includes Harlan Electric
Company since the January 3, 1995 date of acquisition (see Note
2 to the Financial Statements).
2. The selected financial data excludes discontinued operations (see
Note 5 to the Financial Statements).
3. All share and per share data have been adjusted for the
four-for-three stock split in the form of a stock dividend in
December 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all dollar amounts, except per share amounts, are in thousands)
Results of Operations
Continuing Operations
Revenue increased by 16.3% to $310,577 in 1996 from $266,965 in 1995. The 1996
increase is primarily due to increases in the line construction revenues as a
result of the Company's electric utility alliances and storm work.
Revenues increased by 207.4% to $266,965 in 1995 from $86,842 in 1994. The
1995 increase in revenues was due to the Harlan acquisition described in Note 2
to the Financial Statements. Revenue growth of 5% was achieved in 1995 from
1994 when considering the Harlan revenues in 1994 combined with the pre-merger
revenues of the Company on a pro forma basis (See Note 2 in the Financial
Statements).
The use of alliances increased during 1996 and accounted for a significant
amount of revenues. Clients use alliances to award some or all of their
construction requirements to one or more preferred contractors at predetermined
prices or negotiated prices without competitive bids. The Company anticipates
that alliance generated revenues will continue to grow as a percentage of the
Company's total revenues.
Gross profit increased by 7.1% to $31,641 in 1996 from $29,547 in 1995. Gross
profit as a percentage of revenue was 10.2% in 1996 compared to 11.1% in 1995.
The lower margin percentage in 1996 is primarily due to lower margins generated
on the utility alliance work and in the Company's commercial and industrial
business units. The commercial and industrial units have experienced increased
competition. In addition, several commercial projects had lower than
anticipated margins due to increases in scope and impact costs incurred which
resulted in pending change orders and claims that are not recognized as
revenues as of December 31, 1996.
Gross profit increased by 140.3% to $29,547 in 1995 from $12,297 in 1994 due
primarily to the acquisition of Harlan. The gross profit percentage decreased
to 11.1% in 1995 compared to 14.2% in 1994 due, in large part, to a different
mix of construction work performed by the Company. An increased percentage of
revenues in 1995 was from projects which included the supply of materials which
carry a lower markup. Increased workers compensation and other insurance costs
and related expenses also contributed to the reduction in gross margin
percentage in 1995.
Revenue and gross profit comparisons from quarter to quarter and comparable
quarters of different periods may be impacted by variables beyond the control
of the Company. Such variables include unusual or unseasonable weather and
delays in receipt of construction materials on projects where the materials are
provided to the Company by its clients. The different mix of the Company's
work from period to period can impact gross margin percentage. As the percent
of revenue derived for projects in which the Company supplies materials
increases, the gross profit percentage will generally decrease. As the
percentage of revenue derived from cost-plus work increases, margins may also
decrease since this work involves lower financial risk. Finally, since the
Company's revenues are derived principally from providing construction labor
services, insurance costs, particularly for workers' compensation, are a
significant factor in the Company's contract cost structure. Fluctuations in
insurance reserves for claims under the retrospective rated insurance programs
can have a significant impact on gross margins, either upward or downward, in
the period in which such insurance reserve adjustments are made.
Selling, general and administrative expenses increased by 8.5% to $23,623 in
1996 from $21,780 in 1995. This represents 7.6% of revenues in 1996 in
comparison to 8.2% in 1995. The overall increase is primarily due to
additional compensation and safety program costs. The additional compensation
costs reflect wage increases and additional operations and safety personnel to
support the higher volume of work. The increase in safety program costs is a
result of enhancements in the safety incentive program instituted in January
1996 for all MYR Group subsidiary companies.
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Selling, general and administrative expenses increased by 166.7% to $21,780 in
1995 from $8,165 in 1994 due to the acquisition of Harlan and increased
expenses to sustain higher levels of revenue. Selling, general and
administrative expenses as a percentage of revenues decreased to 8.2% in 1995
from 9.4% in 1994 due to higher revenue volume spread over a relatively fixed
expense base.
Net interest expense was $1,803 in 1996 compared to $1,707 in 1995. Interest
expense increased in 1996 primarily due to short term borrowing used to finance
the Company's increased working capital requirements.
Net interest expense was $1,707 in 1995 compared to net interest income of $49
in 1994. Interest expense increased in 1995 primarily due to long-term debt
acquired in the acquisition of Harlan and short-term borrowing used to finance
the Company's increased working capital requirements.
Other expense was $483 in 1996 compared to $565 in 1995 and consisted primarily
of bank fees and amortization of non-competition agreements and goodwill. The
decrease in 1996 is due to the non-competition agreements which became fully
amortized in 1996.
Other expense was $565 in 1995 compared to $427 in 1994 and consisted primarily
of bank fees and amortization of non-competition agreements and goodwill. The
increase is mainly due to the amortization of goodwill, which commenced with
the acquisition of Harlan in January 1995.
Gains recognized from sales of property and equipment were $668, $220 and $68
in 1996, 1995 and 1994 respectively. The increase in the past two years is
primarily due to the Company's sales of older equipment as a result of plans to
modernize the fleet through purchases and leases of new equipment.
Income tax expense was $2,432 in 1996, $2,286 in 1995 and $1,493 in 1994. As a
percentage of income the effective rate was 38.0% for 1996, 40.0% for 1995 and
39.1% for 1994.
The Company's backlog was $134,900 at December 31, 1996, $69,100 at December
31, 1995 and $28,200 at December 31, 1994. Substantially all of the current
backlog will be completed within twelve months.
Discontinued Operations
During 1988, the Company's Board of Directors approved plans to dispose of its
engineering subsidiary. As part of the sale of the engineering subsidiary, the
Company retained certain rights and obligations in connection with two
lawsuits. In 1996 and 1994 the Company recorded additional expenses, primarily
legal costs related to the insurance coverage case in Federal court in New
York, which resulted in an additional loss from discontinued operations of $530
and $150, respectively. On February 28, 1997, the court ruled in the Company's
favor and against the excess insurance carrier in the amount of $4.9 million.
Judgement is expected to be entered. The Company expects that the judgement
will be appealed. See Item 3, Legal Proceedings and Note 11 to the Financial
Statements.
Liquidity and Capital Resources
As of December 31, 1996 the Company had working capital of $14,171 as compared
to $15,490 in 1995 and $8,595 in 1994. Working capital decreased in 1996
primarily due to the paydown of long term debt. Working capital increased in
1995 primarily due to the acquisition of Harlan.
The ratio of current assets to current liabilities was 1.25:1 at December 31,
1996.
The acquisition of Harlan was completed on January 3, 1995. The
purchase price was $19,291. Of this amount $13,612 was paid to the Harlan
shareholders in cash with the remaining $5,679 of the payment in the form of
convertible subordinated notes of the Company's. The subordinated notes are
convertible into shares of the Company's common stock at a price per share of
$9.4659. The cash portion of the purchase price was funded through the
Company's cash balances and from bank debt (see Note 2 to the Financial
Statements).
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The Company has a $20,000 revolving and $5,000 term credit facility (see Note 8
to the Financial Statements). As of December 31, 1996 there were $1,675 and
$5,000 outstanding under the revolver and term credit facility, respectively.
The Company has outstanding letters of credit with banks totaling $12,585, of
which $11,627 guarantees the Company's payment obligations under its insurance
programs and $958 which is a credit enhancement to guarantee an industrial
revenue bond. The Company anticipates that its credit facility, cash balances
and internally generated cash flows will continue to be sufficient to fund
operations, capital expenditures and debt service requirements. The Company is
also confident that its financial condition will allow it to meet long-term
capital requirements.
The Company's Board of Directors has authorized the purchase of up to 333,333
shares of its common stock. No purchases were made in 1996 or 1995. In 1994,
purchases made under this program totaled 20,821 shares at a cost of $168. At
December 31, 1996 the balance available under the Board of Directors'
authorization to purchase shares was 154,645.
Capital expenditures were $5,293 in 1996, compared to $4,959 in 1995 and $4,449
in 1994. Capital expenditures during these periods were used for normal
property and equipment additions, replacements and upgrades and includes $232
of additions through capital leases in 1996. The Company plans to spend
approximately $5,000 on capital improvements in 1997.
Cash flows from operations were $14,138 in 1996 compared to $4,161 in 1995.
This increase is primarily the result of the decrease in net underbillings from
contracts-in-process and an increase in accounts payable due to large material
purchases at year end for a specific job. The net underbillings decrease is a
result of the days sales in net underbillings decreasing from 11.2 days at
December 31, 1995 to 5.0 days at December 31, 1996.
Cash flows from operations were $4,161 in 1995 compared to $6,647 in 1994.
This reduction is primarily the result of increased accounts receivable and
work in process related to the increase in revenue.
Cash flows used for investments in 1996 consisted mainly of expenditures for
properties and equipment of $5,061. This was offset by proceeds received from
disposals of property and equipment of $2,310, including $1,300 in proceeds
from the sale of the building that was "held for sale" as of December 1995.
Cash flows used for investments in 1995 included $12,995 for the acquisition of
Harlan (see note 2 of the Financial Statements). Cash flows were generated
from the disposal of property and equipment amounting to $1,818.
During 1996, the Company had $10,559 of repayments on its long-term debt
compared to net proceeds from issuance of long-term debt of $7,156 in 1995.
The 1996 repayments include approximately $7,500,000 in unscheduled reductions
of the line of credit used for working capital. As noted above, improvements
in the net underbillings and proceeds from sales of property and equipment were
significant factors that contributed to the Company's ability to make these
additional debt repayments.
Cash flows for dividends were $643, $575 and $527 in 1996, 1995 and 1994,
respectively. Financing costs of $133 in 1995 represented banking fees for the
Harlan acquisition financing.
12
13
ITEM 8. FINANCIAL STATEMENTS
Index to Financial Statements
Page
----
Responsibility for Financial Statements 14
Independent Auditors' Report 15
Financial Statements:
Consolidated Balance Sheet -
December 31, 1996 and 1995 16
Consolidated Statement of Operations -
Years Ended December 31, 1996, 1995 and 1994 17
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994 18
Consolidated Statement of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 19
Notes to Financial Statements 20
13
14
MYR GROUP INC.
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements, and all other information in this annual report, were
prepared by management which is responsible for their integrity and
objectivity. Management believes the financial statements, which require the
use of certain estimates and judgments, fairly and accurately reflect the
Company's financial position, operating results and cash flows, in accordance
with generally accepted accounting principles. All financial information in
this annual report is consistent with the financial statements.
Management maintains a system of internal controls which it believes provides
reasonable assurance that, in all material respects, assets are maintained and
accounted for in accordance with management's authorizations and transactions
are recorded accurately in the books and records. The concept of reasonable
assurance is based on the premise that the cost of internal controls should not
exceed the benefits derived. To assure the effectiveness of the internal lines
of responsibility and delegation of authority, the Company's formally stated
and communicated policies require employees to maintain high ethical standards
in their conduct of its business. These policies address, among other things,
potential conflicts of interest; compliance with all laws, including those
related to financial disclosure; and confidentiality of proprietary
information.
The Audit Committee of the Board of Directors is comprised entirely of
directors who are not employees of the Company. The committee reviews audit
plans, internal controls, financial reports and related matters and meets
regularly with the Company's management and independent auditors. The
independent auditors have free access to the Audit Committee, without
management being present, to discuss the results of their audits or any other
matters.
Deloitte & Touche LLP, independent auditors, have audited the financial
statements of the Company. Their report is presented on page 15. Their audit
includes a study and evaluation of the Company's control environment,
accounting systems and control procedures. Deloitte & Touche LLP advises
management and the Audit Committee of significant matters resulting from their
audit of our financial statements and consideration of our internal controls.
Charles M. Brennan III
Chairman and
Chief Executive Officer
Elliott C. Robbins
Senior Vice President, Treasurer
and Chief Financial Officer
14
15
MYR GROUP INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
MYR Group Inc.:
We have audited the accompanying consolidated balance sheets of MYR Group Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MYR Group Inc. and subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
March 19, 1997
15
16
MYR GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
- - ------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995
- - ------------------------------------------------------------------------------------------------
ASSETS Current assets:
Cash and cash equivalents $ 1,011 $ 703
Accounts receivable (Note 3) 53,508 51,114
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note 4) 10,760 14,851
Deferred income taxes (Note 10) 4,896 4,602
Other current assets 471 1,594
------- -------
Total current assets 70,646 72,864
Property and equipment-net (Notes 6, 7 and 8) 22,239 23,144
Intangible assets - net 2,466 2,681
Other assets (Note 11) 3,135 3,145
------- -------
Total assets $ 98,486 $ 101,834
- - ------------------------------------------------------------------------------------------------
LIABILITIES Current liabilities:
Current obligations under capital leases
(Note 7) $ 75 $ 58
Current maturities of long-term debt (Note 8) 4,370 9,120
Accounts payable 17,721 13,886
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 4) 5,504 5,042
Accrued liabilities (Note 9) 28,805 29,268
-------- -------
Total current liabilities 56,475 57,374
Long-term liabilities:
Obligations under capital leases (Note 7) 121 -
Long-term debt (Note 8) 8,874 14,590
Deferred compensation 399 391
Deferred income taxes (Note 10) 3,047 2,861
-------- -------
Total liabilities $ 68,916 $ 75,216
SHAREHOLDERS' EQUITY Common stock - par value $1 per share;
authorized 6,000,000 shares; issued
3,349,593 shares 3,350 3,350
Additional paid-in capital 5,965 5,898
Common stock held in Treasury, at cost:
1996 - 112,881 shares and
1995 - 167,484 shares (Note 12) (1,043) (1,548)
Retained earnings 22,121 19,326
Restricted stock awards and shareholder notes
receivable (Note 14) (823) (408)
Total shareholders' equity 29,570 26,618
-------- -------
Total liabilities and shareholders' equity $ 98,486 $ 101,834
- - ------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this statement.
16
17
MYR GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
- - -----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1996 1995 1994
- - -----------------------------------------------------------------------------------------------
Contract revenue $310,577 $266,965 $86,842
Contract cost 278,936 237,418 74,545
-------- -------- -------
Gross profit 31,641 29,547 12,297
Selling, general and administrative expenses 23,623 21,780 8,165
-------- -------- -------
Income from operations 8,018 7,767 4,132
Other income (expense)
Interest income 23 65 148
Interest expense (1,826) (1,772) (99)
Gain on sale of property and equipment 668 220 68
Other (483) (565) (427)
-------- -------- -------
Income from continuing operations
before income taxes 6,400 5,715 3,822
Income tax expense (Note 10) 2,432 2,286 1,493
-------- -------- -------
Income from continuing operations 3,968 3,429 2,329
Loss from discontinued operations (Note 5) (530) - (150)
-------- -------- -------
Net income $ 3,438 $ 3,429 $ 2,179
- - -----------------------------------------------------------------------------------------------
Earnings per share (Note 13) - Primary:
Income from continuing operations $ 1.15 $ 1.01 $ .70
Net income $ 1.00 $ 1.01 $ .65
Earnings per share (Note 13) - Fully Diluted:
Income from continuing operations $ 1.02 $ .91 $ .70
Net income $ .89 $ .91 $ .65
- - -----------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this statement.
17
18
MYR GROUP INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
- - ----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- - ----------------------------------------------------------------------------------------------------
Restricted Stock
Common Additional Awards and
Stock Paid-In Treasury Retained Shareholder Note
Issued Capital Stock Earnings Receivable Total
---------------------------------------------------------------------------
Balance January 1,
1994 $2,512 $6,757 $(1,476) $14,820 $(567) $22,046
Net income 2,179 2,179
Dividends paid (527) (527)
Shareholders' note
payments 91 91
Treasury stock
purchases (167) (167)
---------------------------------------------------------------------------
Balance December 31,
1994 2,512 6,757 (1,643) 16,472 (476) 23,622
Effect a four-for-
three stock split in
a form of a stock
dividend 838 (838)
Issuance of 10,267
common shares
upon exercise of
stock options (21) 95 74
Net income 3,429 3,429
Dividends paid (575) (575)
Shareholder note
payment 68 68
---------------------------------------------------------------------------
Balance December 31,
1995 3,350 5,898 (1,548) 19,326 (408) 26,618
Issuance of 7,333
common shares
upon exercise of
stock options (21) 68 47
Issuance of 47,270
common shares for
restricted stock 88 437 (525) -
awards
Amortization of
unearned restricted
stock awards 42 42
Net income 3,438 3,438
Dividends paid (643) (643)
Shareholder note
payment 68 68
---------------------------------------------------------------------------
Balance December 31,
1996 $3,350 $5,965 $(1,043) $22,121 $(823) $29,570
- - ----------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this
statement.
18
19
MYR GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
- - -------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------
CASH Income from continuing operations $ 3,968 $ 3,429 $ 2,329
FLOWS Adjustments to reconcile income
FROM from continuing operations to cash
OPERATIONS flows from continuing operations:
Depreciation and amortization 5,834 5,822 2,931
Amortization of intangibles 215 367 260
Amortization of unearned stock awards 42 - -
Deferred income taxes (108) 489 781
Gain on sale of property and equipment (668) (220) (68)
Changes in operating assets and
liabilities; net of acquisition:
Accounts receivable (2,394) (3,622) 1,173
Costs and estimated earnings in
excess of billings on uncompleted
contracts 4,091 (6,557) 395
Other assets (163) 247 (421)
Accounts payable 3,835 (4,673) 346
Billings in excess of costs and
estimated earnings on uncompleted
contracts 462 685 (438)
Insurance accruals (893) 2,341 (937)
Other liabilities 447 5,853 446
--------- --------- --------
Cash flows from continuing operations 14,668 4,161 6,797
Cash flows from discontinued operations (530) - (150)
--------- --------- --------
Cash flows from operations 14,138 4,161 6,647
--------- --------- --------
CASH Proceeds from disposal of property and
FLOWS equipment 2,310 1,818 123
FROM Expenditures for property and equipment (5,061) (4,959) (4,449)
INVESTMENTS Cash used in acquisition, net of cash acquired - (12,995) -
--------- --------- --------
Cash flows from investments (2,751) (16,136) (4,326)
--------- -------- --------
CASH Proceeds from issuance of long-term debt - 19,500 -
FLOWS Repayments on long-term debt (10,559) (12,344) (1,274)
FROM Purchases of treasury stock - - (167)
FINANCING Increase (decrease) in deferred compensation 8 (27) (27)
Proceeds from exercise of stock options 47 74 -
Dividends paid (643) (575) (527)
Shareholders' note payments 68 68 91
Financing costs - (133) -
--------- -------- --------
Cash flows from financing (11,079) 6,563 (1,904)
--------- -------- --------
Increase (decrease) in cash and cash equivalents 308 (5,412) 417
Cash and cash equivalents beginning of year 703 6,115 5,698
--------- -------- --------
Cash and cash equivalents end of year $ 1,011 $ 703 $ 6,115
- - -------------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this
statement.
19
20
MYR GROUP INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The four principal types of construction services performed by the
Company are electric utility line construction, commercial and industrial
electrical construction, telecommunication construction services and mechanical
construction. Work is performed under lump sum, unit price, and cost-plus-fee
contracts. These contracts are undertaken by the Company or its subsidiaries
alone, or with subcontractors.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. The Company's investment in
joint ventures is accounted for by the equity method. All material
intercompany balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual
results could differ from those estimates.
Revenue Recognition - The Company recognizes revenue on construction contracts
using the percentage-of-completion accounting method determined in each case by
the ratio of cost incurred to date on the contract (excluding uninstalled
direct materials) to management's estimate of the contract's total cost.
Contract cost includes all direct material, subcontract and labor costs and
those indirect costs related to contract performance, such as supplies, tool
repairs and depreciation. The Company charges selling, general, and
administrative costs, including indirect costs associated with maintaining
district offices, to expense as incurred.
Provisions for estimated losses on uncompleted contracts are recorded in the
period in which such losses are determined. Changes in estimated revenues and
costs are recognized in the periods in which such estimates are revised.
Significant claims are included in revenue in accordance with industry
practice.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents amounts billed in excess of revenues recognized.
Classification of Current Assets and Current Liabilities - The length of the
Company's contracts varies, with some larger contracts exceeding one year. In
accordance with industry practice, the Company includes in current assets and
current liabilities amounts realizable and payable under contracts which may
extend beyond one year.
Land and Building Held for Sale - Other current assets as of December 31, 1995
includes $1,300,000 for land and a building held for sale. Such assets,
acquired in the acquisition described in Note 2, are stated at fair value at
the date of acquisition which is their estimated net realizable value.
Property and Equipment - Property and equipment are carried at cost.
Depreciation for buildings and improvements is computed using the straight line
method over estimated useful lives ranging from five years to 32 years.
Depreciation for equipment is computed using straight line and accelerated
methods over estimated useful lives ranging from three years to ten years. The
cost of maintenance and repairs is charged to income as incurred.
Intangible Assets - Intangible assets consist of non-competition agreements and
goodwill arising from acquisitions. The non-competition agreements are being
amortized over their contractual lives of five years. Goodwill represents the
excess of the purchase price over the fair value of net assets
20
21
acquired in a business combination treated as a purchase. Goodwill is being
amortized on a straight line basis over 25 years.
Insurance - The Company maintains insurance coverage it believes to be adequate
for its needs. Under its insurance contracts, the Company usually accepts
self-insured retentions appropriate for the specific risks of its business.
Income Taxes - Deferred income taxes are recorded based upon the differences
between the financial statement and the tax bases of assets and liabilities and
available tax credit carryforwards.
Consolidated Statement of Cash Flows - For purposes of this statement, short
term investments which have a maturity of ninety days or less are considered to
be cash equivalents. Supplemental disclosures with respect to cash flows are
as follows (in thousands):
1996 1995 1994
---------- --------- -----------
Cash paid for interest $ 1,788 $ 1,677 $ 105
Cash paid for income taxes 3,045 1,937 452
Convertible subordinated notes issued (Note 2) - 5,679 -
Capital lease obligations incurred 232 - -
Other - In December 1995, the Company effected a four-for-three stock split in
the form of a stock dividend. The $838,000 par value of the additional shares
issued was transferred from additional paid-in capital to common stock.
Amounts relating to number of shares and amounts per share have been adjusted
for 1995 and prior years to reflect the stock split. Certain other amounts in
prior year financial statements have been reclassified to conform to the 1996
presentation.
2. ACQUISITION
On January 3, 1995, the Company completed the acquisition of all the stock of
Harlan Electric Company ("Harlan"), pursuant to an Agreement and Plan of Merger
dated October 5, 1994. Harlan and its wholly-owned subsidiaries, Sturgeon
Electric Company, Inc. and Power Piping Company, are engaged primarily in the
installation and maintenance of electrical equipment and lighting systems for
commercial, industrial and electrical utility customers and in the erection and
maintenance of high and low pressure piping systems for electrical utilities
and steel industry customers.
All the shares of Harlan were exchanged for $13,612,000 in cash and $5,679,000
of 7% convertible subordinated notes. The principal of each note will be due
in three equal installments on January 3, 2000, 2001 and 2002, with interest
payable semiannually each year. The notes are convertible into 600,000 shares
of the Company's common stock at a price per share of $ 9.4659. The Company
also refinanced $8,756,000 of Harlan debt. The transaction was financed
through cash on hand and borrowings under a new $25,000,000 revolving and term
credit facility with Harris Trust and Savings Bank and Comerica Bank. The
transaction has been accounted for using the purchase method of accounting.
The following unaudited pro forma summary presents the consolidated results of
continuing operations as if the acquisition had occurred January 1, 1994 and
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of January 1, 1994 or of results which may
occur in the future (in thousands, except per share amounts).
Contract revenue $253,824
Net income 5,652
Income per share
Primary 1.70
Fully diluted 1.55
Adjustments made in arriving at pro forma unaudited results of operations
include increased interest expense on acquisition debt, amortization of
goodwill and related tax adjustments.
21
22
3. ACCOUNTS RECEIVABLE (IN THOUSANDS)
1996 1995
------- -------
Contract receivables $47,431 $45,320
Contract retainages 6,338 6,178
Other 233 164
------- -------
54,002 51,662
Allowance for doubtful accounts 494 548
------- -------
$53,508 $51,114
======= =======
4. CONTRACTS IN PROCESS (IN THOUSANDS)
1996 1995
-------- --------
Costs incurred on uncompleted contracts $351,851 $256,714
Estimated earnings 38,834 31,515
-------- --------
390,685 288,229
Less: Billings to date 385,429 278,420
-------- --------
$ 5,256 $ 9,809
======== ========
Included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 10,760 $ 14,851
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,504 5,042
-------- --------
$ 5,256 $ 9,809
======== ========
5. DISCONTINUED OPERATIONS
As part of the sale in 1988 of its former engineering subsidiary, the Company
retained certain rights and obligations in connection with the OMU lawsuits (as
described in Note 11). In 1996 and 1994, the Company recorded additional
expenses, primarily legal costs related to the OMU lawsuits, which resulted in
additional losses of $530,000 and $150,000, respectively (net of income tax
benefits of $325,000 and $100,000) (see Note 11).
6. PROPERTY AND EQUIPMENT (IN THOUSANDS)
1996 1995
------- -------
Land $ 1,431 $ 1,292
Buildings and improvements 5,716 5,292
Construction equipment 48,245 51,825
Office equipment 3,276 3,216
------- -------
58,668 61,625
Accumulated depreciation 36,429 38,481
------- -------
$22,239 $23,144
======= =======
22
23
7. LEASES AND COMMITMENTS
At December 31, 1996, the Company had outstanding irrevocable standby letters
of credit totaling $12,585,000 of which $11,627,000 guarantees the Company's
payment obligation under its insurance programs and $958,000 which is a credit
enhancement to guarantee an industrial revenue bond.
The Company leases construction equipment and office equipment. The net book
value of leased assets that have been capitalized in property and equipment is
$207,000 and $132,000 as of December 31, 1996 and 1995, respectively.
Minimum lease payments and the present value of capital lease obligations under
capital leases in effect at December 31, 1996 are $211,000 and $196,000
respectively.
The Company also leases real estate and construction equipment under operating
leases with terms ranging from one to five years. Future minimum lease
payments as of December 31, 1996 total
$4,960,000, $4,222,000, $3,153,000, $2,405,000 and $1,095,000 for the years
ending 1997, 1998, 1999, 2000 and 2001 respectively. Total rent expense,
including both short-term and long-term leases, for 1996, 1995, and 1994
amounted to approximately $12,088,000, $7,417,000 and $4,299,000, respectively.
8. LONG-TERM DEBT
Long-term debt outstanding consisted of the following (in thousands):
1996 1995
---- ----
Variable - rate term credit agreement (effective interest
rate of 7.3% at December 31, 1996), payable in quarterly
installments of $625 through December 1998 $ 5,000 $ 7,500
Variable - rate revolving credit agreement, (effective
interest rate of 8.3% at December 31, 1996), payable
at maturity in December 1998 1,675 9,200
7% convertible subordinated notes, payable in three
equal installments commencing in January 2000 5,679 5,679
Industrial revenue bond financing at variable rates
(weighted average of 8.5%) and due in varying annual
amounts ranging from $195 to $250 through 2000 890 1,070
Variable - rate notes payable (1.26% over adjusted LIBOR),
payable in monthly installments through December 1996 - 261
-------- --------
13,244 23,710
Less current portion 4,370 9,120
-------- --------
$ 8,874 $ 14,590
======== ========
The Company maintains a $20,000,000 revolving and $5,000,000 term credit
facility with a bank. At the Company's option, borrowing under this line bears
interest at the bank's prime interest rate or the adjusted LIBOR commercial
rate plus a spread. The credit facility expires on December 31, 1998.
23
24
Under the credit facility, borrowings are limited to an amount equal to 75% of
eligible accounts receivable balances. The terms of the credit agreement
require, among other things, minimum current ratios, fixed charge coverage
ratio and senior debt leverage ratios. Payments of cash dividends and
repurchases of capital stock, each quarter, are restricted to an amount not to
exceed $150,000 plus 6.25% of the Company's net income for the preceding 12
months. The Company has complied with these provisions.
In accordance with the Harlan merger and promissory note agreements $1,942,000
of the $5,679,000 of convertible subordinated notes was placed in escrow. On
December 26, 1996, the Company submitted a claim against the escrow note
holders in an amount in excess of the escrow note balances. The Company is in
the process of reviewing the claim with the note holders and no adjustments to
the subordinated notes have been recorded in the Company's financial statements
as of December 31, 1996.
The industrial revenue bond is secured by properties with a net book value of
approximately $2,063,000 and $2,140,000 at December 31, 1996 and 1995,
respectively. The variable-rate notes payable are secured by construction
equipment with a net book value of approximately $354,000 as of December 31,
1995.
Maturities of long-term debt are $4,370,000 in 1997, $2,715,000 in 1998,
$230,000 in 1999, 2,143,000 in 2000 and $1,893,000 per year for 2001, and 2002.
The maturities of debt incurred under the revolving credit agreement have been
reported based on an estimate of the expected paydown through the 1998
expiration date of the credit facility.
9. ACCRUED LIABILITIES (IN THOUSANDS)
1996 1995
------ ------
Insurance $ 12,160 $ 13,053
Payroll 5,365 5,301
Union dues and benefits 2,919 2,770
Profit sharing and thrift plan 1,191 755
Taxes, other than income taxes 1,397 1,451
Other 5,773 5,938
-------- --------
$ 28,805 $ 29,268
======== ========
10. INCOME TAXES
Provision for income taxes on income from continuing operations is comprised of
the following (in thousands):
1996 1995 1994
----- ----- -----
Current
Federal $ 2,137 $ 1,331 $ 546
State 403 466 166
------- ------- -------
2,540 1,797 712
Deferred (108) 489 781
------- ------- -------
$ 2,432 $ 2,286 $ 1,493
======= ======= =======
The differences between the U.S. federal statutory tax rate and the Company's
effective rate for the three years ended December 31, 1996 are as follows:
1996 1995 1994
----- ----- -----
U.S. federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of U.S.
federal income tax benefit 4.9 5.4 4.6
Other (.9) .6 .5
----- ----- -----
38.0% 40.0% 39.1%
===== ===== =====
24
25
The net deferred tax assets and liabilities arising from temporary differences
at December 31, 1996 and 1995 are as follows (in thousands):
1996 1995
----------------------- -----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
ASSETS LIABILITIES ASSETS LIABILITIES
----------------------------------------------------
Employee and retiree benefit
plans $ - $ (251) $ - $ (255)
Excess tax over book depreciation 3,298 - 3,116
Insurance accruals 2,584 - 2,732 -
Other allowances and accruals 2,312 - 1,870 -
---------- --------- ------- -------
$ 4,896 $3,047 $ 4,602 $ 2,861
========== ========= ======= =======
11. CONTINGENCIES
The Company has been involved in two lawsuits as a result of errors in the
design of four transmission towers by the Company's former engineering
subsidiary for City Utilities Commission of Owensboro, Kentucky (OMU). The
engineering subsidiary has been sold (see Note 5), but the Company retained the
rights and obligations related to these lawsuits as part of the sale agreement.
One lawsuit (the Kentucky lawsuit) alleged that the engineering subsidiary
negligently designed and engineered the towers, and that OMU incurred damages
as a result of the redesign and replacement of the four towers. During 1993,
OMU agreed to a settlement of the case pursuant to which it accepted payment of
$1,300,000 from the Company.
The other lawsuit (the New York lawsuit) concerns the insurance coverage of the
engineering subsidiary related to the design errors. The Company notified its
primary and excess umbrella insurance carriers at the time of the discovery of
the design errors. The Company's excess umbrella carrier denied insurance
coverage for the damages above the primary carrier's policy limits and filed an
action against the Company seeking a declaratory judgment that the umbrella
insurance coverage did not apply to the loss on several theories. The Company
counterclaimed against the umbrella carrier and, in addition, in a third party
action, brought suit against three former insurance brokers which had procured
the insurance for the Company. Approximately $550,000 of unreimbursed costs
and the $1,300,000 paid to OMU during 1993 has been recorded as a non-current
asset because management is of the opinion that the amounts will be recovered
from its excess umbrella insurance carrier and its brokers, individually or
collectively. On February 28, 1997, the court ruled in the Company's favor and
against the excess insurance carrier in the amount of $4.9 million for the
unreimbursed costs incurred by the Company in remediating OMU's damages, the
amount paid to OMU in settlement of the Kentucky lawsuit, legal fees and
expenses incurred by the Company in the defense of the Kentucky lawsuit and the
New York lawsuit, plus interest on such amounts. Judgement is expected to be
entered. Post judgement interest will apply from the date of judgement until
the date of final resolution. The Company expects that National Union will
appeal the decision. Accordingly, the aformentioned $1,850,000 asset has not
been adjusted as of December 31, 1996 and the Company has continued to record
additional expenses, primarily legal costs, as a loss from discontinued
operations in 1996 (see Note 5).
The Company is also involved in various other legal matters which arise in the
ordinary course of business, none of which is expected to have a material
adverse effect.
12. TREASURY STOCK
The Company's Board of Directors has authorized the purchase of up to 333,333
shares of its common stock for future issuance to key employees under the
Company's stock option plans. The Company purchased 20,821 shares on the open
market at a cost of $167,813 in 1994. No shares were purchased in 1996 and
1995. At December 31, 1996, the balance available under the Board of
Directors' authorization to purchase shares was 154,645. The company issued,
7,333 and 10,267 shares out of treasury for options exercised in 1996 and 1995,
respectively. The Company
25
26
also issued 47,270 shares out of treasury for restricted stock awarded to
non-employee directors and key employees in 1996.
13. EARNINGS PER SHARE
Primary earnings per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. Stock
options are considered to be common share equivalents. Primary earnings per
share is based upon weighted average common shares outstanding of 3,448,547 in
1996, 3,399,659 in 1995 and 3,333,419 in 1994. Fully diluted earnings per
share also reflects the potential dilution which would result from the
conversion of the convertible subordinated notes.
14. STOCK OPTION AND RESTRICTED STOCK PLANS
In 1996, the shareholders approved an amendment to the 1995, 1992 and 1990
stock option plans to allow restricted shares of common stock to be issued in
addition to stock options under the terms of the plans. They also approved the
1996 plan, reserving up to 50,000 shares of common stock for restricted stock
awards to non-employee directors
At December 31, 1996, under the 1996, 1995, 1993, 1992 and 1990 Stock Option
and Restricted Stock Plans, 47,730, 309,333, 66,661, 3,996, and 6,442 shares,
respectively, are available for grant.
Stock Options:
Outstanding options granted under the 1995, 1993 and 1992 plans are exercisable
at a price equal to 100% of the fair market value at the date of grant.
Outstanding options granted under the 1990 and 1989 plans are exercisable at a
price equal to either 85% or 100% of the fair market value at the date of
grant. Vesting of options granted under the plans is determined separately for
each grant and has generally been equally over a three to five year term.
Transactions and other information relating to the stock option plans for the
three years ended December 31, 1996 are summarized below:
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
Of Shares Price Of Shares Price Of Shares Price
--------- -------- --------- -------- ------------ --------
Outstanding beginning of year 743,960 $ 7.48 584,005 $7.14 546,671 $7.04
Granted 9,336 10.99 224,680 8.49 40,667 8.51
Exercised (7,333) 7.17 (10,267) 7.19 - -
Forfeited (28,669) 8.25 (54,458) 7.84 (3,333) 7.08
--------- -------- --------- -------- ----------- -------
Outstanding end of year 717,294 $7.50 743,960 $7.48 584,005 $7.14
========= ======== ========= ======== =========== =======
Exercisable end of year 446,208 $6.16 391,749 $6.16 336,259 $5.52
========= ======== ========= ======== =========== =======
26
27
Options outstanding at December 31, 1996 are summarized below:
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- - --------------- ----------- ----------- -------- ----------- ----------
$4.26 241,668 2.77 $ 4.26 241,668 $4.26
$7.07 - $9.18 302,953 7.53 7.89 130,703 7.72
$10.87 - $11.49 172,673 6.50 11.36 73,837 11.38
--------- ---------
717,294 446,208
========= =========
The weighted average fair value of the stock options granted during 1996 and
1995 was $3.53 and $3.00, respectively. The fair value of each stock option
grant is estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
1996 1995
------ ------
Expected life (years) 5 5
Risk-free interest rate 6.24% 7.61%
Expected volatility 30.74% 32.30%
Expected dividend yield 1.80% 1.80%
The Company accounts for the stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards granted at fair market value. Had
compensation cost for the Stock Plans been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock - Based
Compensation" (SFAS 123), the Company's pro forma income and earnings per share
for 1996 and 1995 would have been:
1996 1995
-------- --------
Net Income $3,365,000 $3,369,000
Earnings per share - primary .98 .99
Earnings per share - fully diluted .88 .90
Restricted stock
Participants under the restricted stock award plans are entitled to cash
dividends and to vote their respective shares. The shares issued are held by
the Company until the restriction period expires. Under the 1995, 1992 and
1990 plans, the restriction period is determined separately for each grant.
Upon issuance of stock under such plans, unearned compensation equivalent to
the market value at the date of grant is charged to stockholders' equity and
subsequently amortized to expense over the restriction period. In 1996, 45,000
shares were awarded at an average market price of $11.10 with seven year
restriction periods. The charge against net earnings for compensation under
the plan was $25,900 in 1996.
The restricted stock awards under the 1996 plan are issued to non-employee
directors who elect to receive restriced stock in lieu of the annual retainer
payable quarterly in cash. In 1996, 2,270 shares were awarded at an average
market price of $11.07. The charge against net earnings for director fees
under the plan was $16,100 in 1996.
Under the Company's 1992, 1990 and 1989 Stock Option and Restricted Stock
Plans, a Committee of the Board of Directors is authorized to grant loans to
option holders to purchase the shares of common stock upon the exercise of
options. At December 31, 1996 and 1995, respectively, the outstanding note
receivable balance was $340,000 and $408,000. The note was collateralized by
81,250 shares of the Company's common stock at December 31, 1996 and 1995. The
note bears interest at an annual rate of 7.7%, payable annually, with principal
payments due through December 2001. Outstanding loans are shown as a reduction
of shareholders' equity on the balance sheet.
27
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15. EMPLOYEE BENEFIT PLANS
The Company has profit sharing and thrift employee benefit plans in effect for
all eligible salaried employees. Company contributions under such plans are
based upon a percentage of income with limitations as defined by the plans.
Contributions amounted to approximately $1,230,000, $645,000 and $528,000 in
1996, 1995, and 1994, respectively.
Certain employees are covered under union-sponsored collectively bargained
defined benefit plans. Expenses for these plans amounted to approximately
$15,387,000, $10,265,000 and $4,398,000 in 1996, 1995 and 1994, respectively,
as determined in accordance with negotiated labor contracts.
The Company also has a supplemental retirement and death benefit program. It
was discontinued in 1988. The program provided for aggregate benefits at
retirement or death equal to approximately twice the key employee's highest
base salary. The benefits are paid out in equal monthly installments over 10
years for retirement or 15 years in the event of death. Benefits are reduced
for early retirement. There are currently four active employee participants.
16. MAJOR CUSTOMERS
The Company had one customer that accounted for 12.1% of the Company's
consolidated contract revenue in 1996. In 1994, the Company had another
customer that accounted for 19.5% of the Company's consolidated revenue. No
customers accounted for more than 10% of the Company's consolidated contract
revenues in 1995.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values of
financial instruments:
For cash and cash equivalents, accounts receivable and payable, accrued
liabilities, and other assets and liabilities, the carrying amount approximates
the fair value because of the short maturities of those instruments.
The variable-rate borrowings under the Company's bank term and revolving credit
agreement, which is repriced frequently, approximate fair value. The fair
value of long-term debt is estimated based on quoted market prices, when
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar financial instruments or discounting
future cash flows. The difference between the fair value and the carrying
value of the Company's long term debt is not material.
28
29
18. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share amounts)
1996
-------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year to Date
-------------------------------------------------------------------------
Contract revenue $64,376 $69,052 $80,712 $96,437 $310,577
Gross profit 6,430 8,028 8,282 8,901 31,641
Income from continuing operations 166 1,269 1,536 997 3,968
Net income 166 909 1,536 827 3,438
Earnings per share - primary:
Income from continuing operations 0.05 0.37 0.44 0.29 1.15
Net income 0.05 0.26 0.44 0.24 1.00
Earnings per share - fully diluted:
Income from continuing operations 0.05 0.33 0.39 0.26 1.02
Net income 0.05 0.24 0.39 0.21 0.89
Dividends paid per share 0.05 0.05 0.05 0.05 0.20
Market price:
High 11.00 11.75 11.75 12.88 12.88
Low 10.00 10.25 10.38 10.50 10.00
1995
-------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year to Date
-------------------------------------------------------------------------
Contract revenue $56,051 $64,015 $66,638 $80,261 $266,965
Gross profit 6,653 7,338 7,968 7,588 29,547
Net income 252 1,005 1,248 924 3,429
Income per share:
Primary .08 .30 .37 .27 1.01
Fully diluted .08 .26 .32 .25 .91
Dividends paid per share .041 .047 .047 .047 .182
Market price:
High 9.66 10.31 11.91 11.81 11.91
Low 7.97 8.53 9.19 10.00 7.97
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has no items to report under Item 9 of this report.
29
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Incorporated by reference from the Company's definitive proxy statement for use
in conjunction with its annual meeting of stockholders under the caption
"Election of Directors".
(b) Identification of Executive Officers
The names and ages of the executive officers of the Company and their business
experience during the past five years are set forth below:
Charles M. Brennan III (55)
Chairman (since August 1988) and Chief Executive Officer (since October 1989)
Director (since 1986).
William S. Skibitsky (47)
President and Chief Operating Officer (since July 1996), President and Chief
Operating Officer of The L. E. Myers Co. (Since May 1994) President of ABB
Combustion Engineering Nuclear Services (1990 - January 1994)
Byron D. Nelson (50)
Senior Vice President, General Counsel and Secretary (since February 1986).
Elliott C. Robbins (50)
Senior Vice President, Treasurer and Chief Financial Officer (since February
1986)
Betty R. Johnson (38)
Controller (since June 1992); Senior Manager at Deloitte & Touche (1981 - June
1992).
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the caption
"Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the caption
"Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the captions
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation".
30
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) 1. The following documents are included in Item 8:
Responsibility for Financial Statements 14
Independent Auditors' Report 15
Financial Statements:
Consolidated Balance Sheet -
December 31, 1996 and 1995 16
Consolidated Statement of Operations -
Years Ended December 31, 1996, 1995 and 1994 17
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1996, 1995, and 1994 18
Consolidated Statement of Cash Flows
Years Ended December 31, 1996, 1995, and 1994 19
Notes to Financial Statements 20
2. All schedules are omitted because they are not applicable, not
required, or the required information is included in the financial
statements or notes thereto.
(b) No reports on Form 8-K were filed by the Company during the fourth
quarter 1996.
(c) Exhibits required to be filed by Item 601 of Regulation S-K are listed
in the Exhibit Index which appear at pages 33 and 34 and which are
incorporated by reference.
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32
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MYR GROUP INC.
/s/ Elliott C. Robbins
--------------------------------
Elliott C. Robbins
Senior Vice President, Treasurer
and Chief Financial Officer
Dated: March 19, 1997
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
( i) Principal Executive Officer:
/s/ Charles M. Brennan III Chairman and Chief
- - ----------------------------------- Executive Officer
Charles M. Brennan III
( ii) Principal Financial Officer:
/s/ Elliott C. Robbins Senior Vice President,
- - ----------------------------------- Treasurer and Chief
Elliott C. Robbins Financial Officer
(iii) Principal Accounting Officer
/s/ Betty R. Johnson Controller
- - -----------------------------------
Betty R. Johnson
( iv) A Majority of the Board of Directors:
/s/ Charles M. Brennan III
- - --------------------------
Charles M. Brennan III
/s/ William G. Brown
- - --------------------------
William G. Brown
/s/ Allan E. Bulley, Jr.
- - --------------------------
Allan E. Bulley, Jr.
/s/ Bide L. Thomas
- - --------------------------
Bide L. Thomas
/s/ John M. Harlan
- - --------------------------
John M. Harlan
32
33
MYR GROUP INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1996
Exhibit Index
Page
Number Description (or Reference)
- - ------ --------------------------------------------------------- --------------
2.1 Merger Agreement by and among the Company,
HMM Corporation and Harlan Electric Company
dated October 5, 1994, as amended (1)
3.1 Amended and Restated Certificate of Incorporation of
the Company (2)
3.2 Bylaws of the Company (as amended) (3)
4.1 Form of 7% Subordinated Convertible Escrow and Non-Escrow
promissory notes of the Company to certain former
stockholders of Harlan Electric Company (4)
10.1 Form of Agreement for Supplemental Retirement and Death
Benefit Programs of the Company and its subsidiaries (5)
10.2 Form of Agreement of Indemnification for Directors of
the Company and certain officers of the Company and its
subsidiaries (6)
10.3 1989 Stock Option Plan (7)
10.4 1990 Stock Option Plan (7)
10.5 1992 Stock Option Plan (7)
10.6 1995 Stock Option Plan (7)
10.7 1993 Non-Employee Director Stock Option Plan (8)
10.8 1996 Non-Employee Director Stock Ownership Plan (9)
10.9 Management Incentive Program (10)
10.10 Amended Employment Agreement between the Company and
C. M. Brennan effective January 1, 1997. 35 (35)
11 Schedule of Computation of Net Income Per Share for
Years Ended December 31, 1996, 1995 and 1994 (41)
21 Subsidiaries of the Company (42)
23 Independent Auditors' Consent (43)
27 Financial Data Schedules (44)
33
34
(1) Filed as exhibit 2 to the Report on Form 8-K of the Company dated January
3, 1995, and incorporated herein by reference.
(2) Filed as exhibits 3.1 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1995, and incorporated herein by reference.
(3) Field as exhibits 3.2 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1995, and incorporated herein by reference.
(4) Filed as exhibits E-1 and E-2 to the Merger Agreement by and among the
Company, HMM Corporation and Harlan Electric Company dated October 5, 1994,
as amended, which agreement and exhibits thereto were filed as exhibit 2 to
the Report on Form 8-K of the Company dated January 3, 1995, and
incorporated herein by reference.
(5) Filed as exhibit 10.5 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1984, and incorporated herein by reference.
(6) Filed as exhibit 10.8 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1986, and incorporated herein by reference.
(7) Filed as Appendix B to the notice of meeting and proxy statement for use in
connection with the Company's 1996 Annual Meetings of stockholders held on
May 15, 1996.
(8) Filed as exhibit 10.6 to the Report on Form 10-K of the Company for the
year ended December 31, 1993 and incorporated herein by reference.
(9) Filed as Appendix A to the notice of meetings and proxy statements for use
in connection with the Company's 1996 Annual Meeting of stockholders held
on May 15, 1996.
(10) Filed as exhibit 10.8 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1995, and incorporated herein by reference
34
1
EMPLOYMENT AGREEMENT
Recitals
This agreement is entered into between Charles M. Brennan III (the "Employee")
and MYR Group Inc. (the "Company") as of January 1, 1997 whereby the Employee
is employed by the Company as its Chairman and Chief Executive Officer.
Covenants
I. Employment and Duties.
A. Employment. The Company hereby employs Employee as Chairman
and Chief Executive Officer of the Company, and the Employee hereby
accepts such employment, all on the terms and subject to the
conditions set forth in the Agreement. The Employee hereby agrees to
perform in good faith and to the best of the Employee's ability all
services which may be required of the Employee hereunder and which
are consistent with services which are typically performed by like
officers of like corporations.
B. Commitment of Time. Nothing in this Agreement shall preclude
the Employee from devoting a reasonable period of time required for
serving as a director or member of an advisory committee of any
organization involving no conflict of interest with the interests of
the Company and from managing his personal investments.
II. Term of Employment. Subject to Section 5 hereof, the term of this
Agreement shall be one year commencing January 1, 1997 and ending December
31, 1997 and shall renew automatically for successive one year terms
unless written notice is delivered by the party not intending to renew the
Agreement to the other Party not later than October 31 of the year prior
to renewal or unless the Agreement is terminated in accordance with
Section 5.
III. Compensation.
A. Base Compensation. As base compensation for the Employee's
services hereunder during the term of this Agreement, the Company
shall pay the Employee a salary at the minimum rate of $312,500 per
year, in accordance with the Company's regular payroll practices for
salaried employees.
B. Incentive Compensation. In addition to the base compensation
to be paid to the Employee during the term of this Agreement, the
Employee shall be entitled to receive incentive compensation as
follows:
1. The Employee shall be entitled to receive an annual
incentive ("Completed Year Incentive") to the extent provided in
the Company's short-term incentive plan as such plan may exist
from time to time (the "Incentive Plan").
2. The Employee shall be entitled also to receive an
annual bonus on December 31 of each such year in an amount equal
to the principal and interest due annually pursuant to the
Employee's promissory note held by the Company on the date of
this Agreement until such time as the note has been repaid.
C. Withholding Taxes. The Company shall deduct and withhold from
the compensation payable to the Employee during the term of this
Agreement, any and all applicable taxes or other required
withholdings.
D. Other Benefits. During the term of this Agreement, the
Employee shall be entitled to receive all other benefits of
employment (including but not limited to group health, accident and
life insurance) that are generally available to other senior
executive employees of Company.
35
2
E. Certain Additional Payments. In the event that any of the provisions
of Sections 3.1, 3.2 or 5.4 hereof result in the receipt of the
Employee of a "parachute payment" (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) because of a
change in the ownership or effective control of the Company or a
change in the ownership of a substantial portion of the assets of the
Company (as such terms are defined in Section 280G (b) (2) (A) of the
Code) which occurs during the term of this Agreement, then in such
event the Company shall make an additional payment to the Employee in
an amount in cash such that the amount of the after-tax proceeds of
the Employee from the payments provided for in Sections 3.1, 3.2 and
5.4 and the payment provided for in this Section 3.5, taking into
account federal and state income and excise taxes, is equal to the
amount of the after-tax proceeds the Employee would have received from
the payment provided for in Sections 3.1, 3.2 and 5.4, taking into
account Federal and state income taxes, had the payments provided in
Sections 3.1, 3.2 and 5.4 not resulted in the receipt by the Employee
of a parachute payment. The Employee agrees to give the Company
prompt written notice of any claim by the Internal Revenue Service
that any payments made pursuant to the provisions of Sections 3.1, 3.2
and 5.4 hereof result in the receipt by the Employee of a "parachute
payment". In such event the Company shall have the right to assume
and control the defense of any such claim with counsel of its own
selection. The Employee agrees to cooperate with the Company in
connection with any defense of such claim.
IV. Restrictive Covenants.
A. Use and Disclosure of Confidential Information; Agreement not
to Compete.
1. The Employee agrees that he will not, except for the
sole benefit of or with the written consent of the Company:
a. during and after the term of his employment
thereunder, use or disclose any of the confidential
information (defined as information or data not known
generally outside of the Company concerning its business,
or the business of its subsidiaries or affiliates,
including, but not limited to all technical information,
customer information, such as customer lists, pricing
information, business plans, or market strategies) to any
person, firm or corporation for any purpose whatsoever for
so long as and to the extent that such information has not
become generally known to or available for use by the
public other than by any act or omission of the Employee;
or
b. during the term of employment hereunder and
thereafter for a period of two years after the expiration
or any termination of this Agreement directly or
indirectly engage, anywhere in the United States in any
business which would be competitive with the business
conducted by the Company on the date of such expiration or
termination, or acquire or retain any financial interest in
any business which is so engaged, provided, however, that
the Employee shall not be prohibited from acquiring up to
2% in value of any class of outstanding debt or equity
securities of any corporation if such securities are
publicly traded in an established securities market.
2. If any provision of this section 4.1, as applied to
any party or to any circumstances, is adjudged by a court to be
invalid or unenforceable, the same will in no way affect any of
this Section or other part of this Agreement, the application of
such provision in any other circumstances or the validity or
enforceability of this Agreement. If any such provision, or any
part hereof, is held to be unenforceable because of the duration
of such provision or the area covered thereby, the parties agree
that the court making such determination will have the power to
reduce the duration and/or area of such provision, and/or to
delete specific works or phrases, and in its reduced form such
provision will then be enforceable and will be enforced. Upon
breach of any provision of this Section 4.1, the Company will be
entitled to injunctive relief, since the remedy at law would be
inadequate and insufficient. In addition, the Company will be
entitled to such damages as it can show it has sustained by
reason of such breach.
36
3
B. Survival of Restrictive Covenants. The provisions of Section
4.1 of this Agreement shall survive the expiration or any termination
of this Agreement.
V. Termination of Employment.
A. Termination in the Event of Disability or Death. The
Employee's employment under this Agreement shall terminate in the
event of his disability or death. In the event of such termination,
the Company shall (a) pay to the employee or to the estate of the
Employee, as the case may be, an amount equal to the Employee's
annual salary in effect at the date of the termination of his
employment plus an incentive equivalent equal to 55% of such amount;
(b) pay to the Employee or his estate, as the case may be, an amount
equal to the Completed Year Incentive for the year prior to the year
in which the termination of employment occurs if such termination
occurs on or after January 1 and prior to the date upon which annual
incentives are paid for the prior year; (c) pay to the Employee or
to his estate, as the case may be an amount equal to the Partial Year
Incentive (as hereinafter defined) for the year in which termination
of employment occurs; (d) immediately fully vest any and all shares
of restricted stock or stock options previously granted to the
Employee under the Company's Stock Option and Restricted Stock Plans;
and (e) immediately forgive all remaining unpaid principal and
interest due the Company under the promissory note referenced in
Section 3.2.2.
1. For purposes of determining the amount of the Completed Year
Incentive under 5.1.(b) above for the year prior to the year
during which the termination of employment occurs, the amount of
the payment (if any) shall be the amount of the Completed Year
Incentive calculated in accordance with the terms of the
Incentive Plan.
2. For purposes of determining the amount of Partial
Year Incentive under 5.1.(c) above, the Company shall calculate
the amount of the Completed Year Incentive which the Employee
would have been entitled to receive under Section 3.2.1 as if
the Company had achieved 100% of the target performance provided
for in its business plan, multiplied by a fraction, the
numerator of which is equal to the number of days that the
Employee was employed during the year through the date of
termination of employment and the denominator of which is 365
3. For purposes of this Agreement, the term "Disability"
shall mean the Employee's inability to substantially perform the
services required of the Employee hereunder for a period in
excess of 180 consecutive days or 180 days during any 270-day
period.
B. Termination by the Company for Good Cause. The Company shall
have the right to terminate the Employee's employment under this
Agreement for Good Cause. In the event of such termination the
Company shall have no further liability to the Employee under this
Agreement except for the obligation to pay to the Employee, within 30
days after the effective date of the termination, his base
compensation accrued but unpaid as of the date of such termination
and such other obligations as may be imposed upon the Company as a
matter of law. For purposes of this Agreement, the term "Good Cause"
shall mean (i) the Employee's commission of a felony, (ii) the
Employee's material breach of any of his obligations or duties,
including the Employee's willful failure to substantially perform his
duties as provided for in this Agreement (other than as a result of
his incapacity due to illness or injury), (iii) the Employee's
commission of a willful act, such as embezzlement, against the
Company intended to enrich the Employee at the expense of the
Company, or (iv) the Employee willfully furnishing materially false
information to the board of directors of the Company, or the willful
omission to furnish material information to the board of directors of
the Company, in connection with a matter which the board of directors
is considering. No termination for Good Cause may be effected under
clause (ii) of the preceding sentence unless (a) the Company shall
have given written notice to the Employee specifying with
particularity the basis for the Company's decision to terminate the
Employee's employment, and (b) the Employee shall have failed to
cease or correct the performance (or nonperformance) which forms the
basis for the Company's decision within 30 days following the date of
the Company's written notice.
37
4
C. Termination for other than Good Cause or Termination for
Non-Renewal of the Agreement by the Company. If the Company
terminates Employee's employment for other than Good Cause or does
not renew the Agreement on any anniversary date, the Company shall
(a) pay to the Employee an amount equal to one and one-half times the
Employee's annual salary in effect at the date of the termination of
his employment plus an incentive equivalent equal to 55% of such
amount; (b) pay to the Employee an amount equal to the Completed Year
Incentive for the year prior to the year in which the termination of
employment occurs if such termination occurs on or after January 1
and prior to the date upon which annual incentives are paid for the
prior year, calculated in accordance with the provisions of Section
5.1.1 above; (c) pay to the Employee an amount equal to the Partial
Year Incentive for the year in which termination of employment occurs
calculated in accordance with the provisions of Section 5.1.2 above;
(d) immediately fully vest any and all shares of restricted stock or
stock options previously granted to the Employee under the Company's
Stock Option and Restricted Stock Plans; and (e) immediately forgive
all remaining unpaid principal and interest due the Company under the
promissory note referenced in Section 3.2.2.
D. Termination by the Company or Termination for Good Reason by
the Employee Following a Change of Control. In the event of a Change
of Control of the Company, the provisions of this section 5.4 shall
apply notwithstanding any other provisions of the Agreement to the
contrary. For purposes of this Agreement Change of Control shall be
defined as the occurrence of any of the following events:
(a) There is a report filed on Schedule 13D (or any successor
schedule, form or report) as promulgated pursuant to
the Exchange Act, disclosing that any person (as the term
"person" is used in Section 13(d) (3) of the Exchange Act,
other than the Employee, has become the beneficial owner
(as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of 20% or more of the issued and outstanding
shares of voting securities of the Company; or
(b) There is a report filed on Schedule 14D-1 (or any
successor schedule, form or report) as promulgated
pursuant to the Exchange Act disclosing that any person (as
the term "person" is used in Section 14(d) (2) of the
Exchange Act) has or intends to become the beneficial owner
(as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of 20% or more of the issued and outstanding
shares of voting securities of the Company; or
(c) During any period of two consecutive years, individuals
who at the beginning of such period constitute
directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors thereof. For
purposes of this subsection (c) any new director whose
election, or whose nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds
of the directors of the Company then still in office who
were directors of the Company at the beginning of any such
period (including those directors deemed to be such
pursuant to this sentence) shall be deemed to be a director
of the Company as of the beginning of such period.
1. The Employee shall have the right to terminate his
employment under this Agreement for Good Reason. For purposes
of this Agreement, the term "Good Reason" shall mean any of the
following which occur without the consent of or at the direction
of the Employee: (i) any significant change in the nature of
Employee's principal duties without his consent, or any
diminution in the Employee's status or responsibilities, (ii)
any change in reporting relationships under which the Employee
would cease to report directly to a board of directors elected
by public stockholders, (iii) any decrease in the Employee's
salary below the level provided for by the terms of Section 3.1
(or such level to which his salary may be increased from time to
time in accordance with Section 3.1), any change in the
Incentive Plan which has the effect of reducing the amount of
any of the incentive awards which the Employee would otherwise
receive under Sections 3.2.1 and 3.2.2 or any failure by the
Company to provide the Employee with the compensation otherwise
provided for in Sections 3.1 through 3.5 hereof, (iv) the
Company's failure to obtain the agreement of a successor entity
to assume the obligations under this Agreement as required by
Section 6.1 hereof, or (v) the Company's requiring the Employee
to be based in any location which would materially increase the
Employee's commuting time. For purposes of clause (ii) of the
preceding
38
5
sentence, the Company shall be deemed to have public
shareholders only if the Company's common stock is traded on a
national securities exchange or quoted on the NASDAQ
inter-dealer quotation system. No termination for Good Reason
may be effected under clause (ii) of the first sentence of this
section 5.4.1 unless the Employee has first offered to the
Company to render such continued services, for a period which
shall not extend beyond the six-month anniversary of the change
described in such clause (ii) , as the board of directors deems
reasonably necessary to assist in an orderly transition of the
Company's management following such change. In the event the
Company accepts such offer, the effective date of the
termination shall be deemed to be the date on which the Employee
ceases to render such additional services.
E. In the event the Employee terminates his employment under this
Agreement for Good Reason or in the event the Company terminates his
employment under this Agreement within two years following a Change
of Control the Company shall immediately (a) pay to the employee an
amount equal to two times the Employee's annual salary in effect at
the date of the termination of his employment plus an incentive
equivalent equal to 55% of such amount; (b) pay to the Employee an
amount equal to the Completed Year Incentive for the year prior to
the year in which the termination of employment occurs if such
termination occurs on or after January 1 and prior to the date upon
which annual incentives are paid for the prior year, calculated in
accordance with the provisions of Section 5.1.1 above; (c) pay to the
Employee an amount equal to the Partial Year Incentive for the year
in which termination of employment occurs calculated in accordance
with the provisions of Section 5.1.2 above; (d) immediately fully
vest any and all shares of restricted stock or stock options
previously granted to the Employee under the Company's Stock Option
and Restricted Stock Plans; and (e) immediately forgive all remaining
unpaid principal and interest due the Company under the promissory
note referenced in Section 3.2.2.
VI. Miscellaneous Other Benefits.
A. Successors. The Company agrees to require any successor to all
or substantially all of the business or assets of the Company and its
subsidiaries to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place, except
that no such express agreement shall be required where such successor
succeeds to the obligations of the Company hereunder by operation by
law.
B. Binding Effect. This Agreement shall insure to the benefit of
and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
C. Amendment and Modifications. The parties hereto may amend,
modify and supplement this Agreement in such manner as may be agreed
upon by them in writing.
D. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto with respect to the employment of the Employee
by the Company and supersedes all prior understandings and agreements
of the parties with respect to the employment of the Employee by the
Company and supersedes all prior understandings and agreements of the
parties with respect to the subject matter hereof.
E. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity, unenforceability or illegality of any
provision of this Agreement shall not in any way affect or impair the
validity, enforceability or legality of the other provisions hereof.
F. Governing law. This Agreement shall be governed by and
construed in accordance with the laws of the Sate of Illinois
applicable to contracts made and to be performed in that state.
G. Headings. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.
39
6
H. Execution in Counterpart. This Agreement may be executed in any
number of counter parts, each of which shall be deemed an original.
I. Legal Fees. In the event the Employee incurs legal fees and expenses
in seeking to obtain any benefit under this Agreement and it is
ultimately determined by a court of competent jurisdiction that the
Employee is entitled to receive all or any part of such benefit, then
the Company shall pay to the Employee the amount of reasonable legal
fees and expenses up to so incurred by him.
J. Notices. Any and all notices, demands or other communications
required or desired to be given hereunder by any party shall be in
writing and shall be validly given or made to another party if given
by personal delivery, telex, facsimile, telegram or if deposited in
the United States mail, certified or registered, postage prepaid,
return receipt requested is to be given as hereinafter set forth:
If to the Company:
MYR Group Inc.
Three Continental Towers
1701 West Golf Road, Suite 1012
Rolling Meadows, Illinois 60008-4007
If to the Employee:
Charles M. Brennan III
15275 Little St. Mary's Road
Mettawa, Illinois 60048
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given
in the manner aforesaid to the other party or parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
MYR GROUP INC.
By: /s/ Byron D. Nelson
----------------------------
Its: Senior Vice President
---------------------------
EMPLOYEE
/s/ Charles M. Brennan III
--------------------------------
Charles M. Brennan III
40
1
EXHIBIT 11
MYR GROUP INC.
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
Primary income per share
Income from continuing operations $ 3,968 $ 3,429 $ 2,329
------- --------- --------
Weighted average number of common shares
outstanding during the period 3,212 3,174 3,179
Add - common equivalent shares (determined using the
"treasury stock" method) representing shares
issuable upon exercise of the common stock equivalents 237 226 155
------- --------- --------
Weighted average number of shares for income per common share 3,449 3,400 3,334
------- --------- --------
Primary income per share before discontinued operations $ 1.15 $ 1.01 $ .70
======= ========= ========
Loss from discontinued operations $ (530) $ - $ (150)
======= ========= ========
Net income $ 3,438 $ 3,429 $ 2,179
======= ========= ========
Primary income per common share $ 1.00 $ 1.01 $ .65
======= ========= ========
Fully diluted income per share
Income from continuing operations $ 3,968 $ 3,429 $ 2,329
Add interest on convertible subordinated notes, net of tax 247 237 N/A
------- --------- --------
$ 4,215 $ 3,666 $ 2,329
------- --------- --------
Weighted average number of common
shares outstanding during the year 3,212 3,174 3,179
Add
- - - Common equivalent shares (determined using the treasury stock"
method) representing shares issuable upon exercise of common
stock equivalents 306 244 155
- - - Shares assumed converted from
convertible subordinated notes 600 600 N/A
Weighted average number of shares for fully diluted ------- --------- --------
income per common share 4,118 4,018 3,334
------- --------- --------
Fully diluted earnings before discontinued operation per
common share $ 1.02 $ .91 $ .70
======= ========= ========
Loss from discontinued operations $ (530) $ - $ (150)
======= ========= ========
Net income $ 3,685 $ 3,666 $ 2,179
======= ========= ========
Fully diluted income per common share $ .89 $ .91 $ .65
======= ========= =======
Note: All shares and per share data have been adjusted for the four-for-three
split in the form of a stock dividend in December 1995.
41
1
EXHIBIT 21
MYR GROUP INC.
LIST OF SUBSIDIARIES
The Company's significant subsidiaries are:
Name of Corporation State or Jurisdiction Percentage of
or other entity of Organization of Interest
- - -------------------------- ------------------------- ------------
The L. E. Myers Co. Delaware 100%
Hawkeye Construction, Inc. Oregon 100%
Harlan Electric Company Michigan 100%
Sturgeon Electric Company, Inc. Michigan 100%(1)
Power Piping Company Pennsylvania 100%(1)
Comtel Colorado 100%(2)
(1) wholly owned subsidiary of Harlan Electric Company
(2) wholly owned subsidiary of Sturgeon Electric Company, Inc.
42
1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
MYR Group Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-31305, 33-36557, 33-53628, 33-76722 of MYR Group Inc. on Form S-8 of our
report dated March 19, 1997, appearing in the Annual Report on Form 10-K of MYR
Group Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 19, 1997
43
5
1,000
YEAR
DEC-31-1996
JAN-01-1996
DEC-31-1996
1,011
0
54,002
494
0
70,646
58,668
36,429
98,486
56,475
8,874
0
0
3,350
26,220
98,486
310,577
310,577
278,936
302,559
483
0
1,826
6,400
2,432
3,968
530
0
0
3,438
1.00
.89
