Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1701 W. Golf Road, Tower Three, Suite 1012, Rolling Meadows, Illinois 60008
(Address of principal executive offices)
(Zip Code)
(847) 290-1891
Registrant's telephone number, include area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of October 25, 1996: 3,236,712
MYR GROUP INC.
I N D E X
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1996 and 1995 3
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 10
Part I, Item 1
Financial
Information
MYR Group Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30 Dec. 31
1996 1995
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 542 $ 703
Contract receivables including retainage 56,147 51,114
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,529 14,851
Deferred income taxes 4,602 4,602
Other current assets 572 1,594
Total current assets 75,392 72,864
Property and equipment: 59,637 61,625
Less accumulated depreciation 37,415 38,481
22,222 23,144
Intangible assets 2,493 2,681
Other assets 3,591 3,145
Total assets $ 103,698 $ 101,834
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 15,424 $ 9,178
Accounts payable 8,436 13,886
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,236 5,042
Accrued insurance 12,188 13,053
Other current liabilities 16,536 16,215
Total current liabilities 58,820 57,374
Deferred income taxes 2,861 2,861
Other liabilities 399 391
Long-term debt:
Revolver and other debt 3,146 3,021
Term loan 3,125 5,000
Industrial revenue bond 890 890
Subordinated convertible debentures 5,679 5,679
Total long-term debt 12,840 14,590
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 9,324 9,248
Retained earnings 21,457 19,326
Treasury stock (1,087) (1,548)
Restricted stock awards and shareholder note receivable (916) (408)
Total shareholders' equity 28,778 26,618
Total liabilities and shareholders' equity $ 103,698 $ 101,834
*Condensed from audited financial statements 2
The "Notes to Condensed Consolidated Financial Statements" are an
integral part of this statement.
MYR Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
Periods Ended September 30 Three Months Nine Months
1996 1995 1996 1995
Contract revenue $ 80,712 $ 66,638 $ 214,140 $ 186,704
Contract cost 72,430 58,670 191,400 164,745
Gross profit 8,282 7,968 22,740 21,959
Selling, general and
administrative expenses 5,434 5,482 16,749 16,418
Income from operations 2,848 2,486 5,991 5,541
Other income (expense)
Interest income 2 28 12 63
Interest expense (508) (422) (1,386) (1,317)
Gain on sale of property and equipment 156 56 549 163
Miscellaneous (98) (69) (374) (275)
Income from continuing
operations before income taxes 2,400 2,079 4,792 4,175
Income tax expense 864 831 1,821 1,670
Income from continuing operations 1,536 1,248 2,971 2,505
Loss from discontinued operations - - (360) -
Net income $ 1,536 $ 1,248 $ 2,611 $ 2,505
Earnings per share - Primary
Income from continuing operations $ .44 $ .37 $ .86 $ .74
Loss from discontinued operations - - (.10) -
Net Income .44 .37 .76 .74
Earnings per share - Fully Diluted:
Income from continuing operations .39 .32 .78 .66
Loss from discontinued operations - - (.09) -
Net Income .39 .32 .69 .66
Dividends per common share .050 .047 .150 .135
Weighted average common shares and
common share equivalents outstanding
Primary 3,470 3,412 3,438 3,385
Fully Diluted 4,070 4,040 4,043 4,040
The "Notes to Condensed Consolidated Financial Statements" are an
integral part of this statement.
MYR Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30 1996 1995
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 2,971 $ 2,505
Adjustments to reconcile income from
continuing operations to cash flows from
continuing operations
Depreciation and amortization 4,649 4,303
Amortization of intangibles 205 241
Gain from disposition of assets (549) (163)
Changes in current assets and liabilities (9,214) 876
Cash flows from continuing operations (1,938) 7,762
Cash flows from discontinued operations (360) -
Cash flows from operations (2,298) 7,762
CASH FLOWS FROM INVESTMENTS
Expenditures for property and equipment (3,988) (3,436)
Proceeds from disposition of assets 2,088 1,630
Cash used in acquisition, net of cash acquired - (12,995)
Cash flows from investments (1,900) (14,801)
CASH FLOWS FROM FINANCING
Proceeds (repayments) of long term debt 4,497 (17,657)
Proceeds from issuance of debt - 19,500
Proceeds from exercise of stock options 13 -
Increase (decrease) in deferred compensation 8 (21)
Financial costs - (133)
Dividends paid (481) (426)
Cash flows from financing 4,037 1,263
Decrease in cash and cash equivalents (161) (5,776)
Cash and cash equivalents at beginning of year 703 6,115
Cash and cash equivalents at end of period $ 542 $ 339
The "Notes to Condensed Consolidated Financial Statements" are an integral
part of this statement.
MYR Group Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The condensed consolidated balance sheets, statements of operations and
statements of cash flows include the accounts of the Company and its
subsidiaries. All material intercompany balances and transactions have
been eliminated.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim period.
The results of operations for the nine month period ended September 30, 1996
are not necessarily indicative of the results to be expected for the full year.
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
to reflect the stock split.
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 subordinates 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.
3 - 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 defined in Note 4). In 1996, the Company recorded additional amounts,
primarily legal expenses related to the OMU lawsuits, which resulted in
additional losses of $360,000 (net of income tax benefits of $240,000). The
additional provision includes anticipated cost for the trial and appeal since
it now appears there is no opportunity for the Company to settle its dispute
with the insurance carrier.
4 - 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 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. The Company is seeking to recover $550,000 of
unreimbursed costs it incurred in the disassembly, redesign and replacement of
the towers, the amount of payments it made to OMU, the legal and related
expenses it incurred in the Kentucky lawsuit, legal and related expenses it has
and will incur in the New York lawsuit, and interest.
The approximately $550,000 of unreimbursed costs as well as the $1,300,000 paid
to OMU during 1993 is recorded on the Company's books as a non-current asset.
Management is of the opinion that the amounts so recorded will be recovered in
the New York lawsuit from its excess umbrella insurance carrier and its
brokers, individually or collectively.
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.
5 - Earnings Per Share
Primary earnings per share are 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. Fully diluted earnings
per share also reflects the potential dilution which would result from the
conversion of the convertible subordinated notes.
6 - Changes in Accounting Policy
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensative
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share on an annual basis.
7 - Supplemental Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
1996
Mar. 31 June 30 Sept. 30 Dec. 31 Year
Contract revenue $ 64,376 $ 69,052 $ 80,712 $ 214,140
Gross profit 6,430 8,028 8,282 22,740
Income from continuing operations 166 1,269 1,536 2,971
Net income 166 909 1,536 2,611
Earnings per share - Primary:
Income from continuing operations 0.05 0.37 0.44 0.86
Net Income 0.05 0.26 0.44 0.76
Earnings per share - Fully diluted:
Income from continuing operations 0.05 0.33 0.39 0.78
Net Income 0.05 0.24 0.39 0.69
Dividends paid per share 0.050 0.050 0.050 0.150
Market Price:
High 11.00 11.75 11.75 11.75
Low 10.00 10.25 10.38 10.00
1995
Mar. 31 June 30 Sept. 30 Dec. 31 Year
Contract revenue $ 56,051 $ 64,015 $ 66,638 $80,261 $ 266,965
Gross profit 6,653 7,338 7,968 7,588 29,547
Income from continuing operations 252 1,005 1,248 924 3,429
Net income 252 1,005 1,248 924 3,429
Net income per share:
Primary 0.08 0.30 0.37 0.27 1.01
Fully diluted 0.08 0.26 0.32 0.25 0.91
Dividends paid per share 0.041 0.047 0.047 0.047 0.182
Market Price:
High 9.66 10.31 11.91 11.81 11.91
Low 7.97 8.53 9.19 10.00 7.97
Part I Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Nine Months Ending September 30, 1996
(Dollars in thousands)
Results of Operations
Continuing Operations
Revenue for the three and nine month periods was $80,712 and $214,140, compared
to $66,638 and $186,704 in 1995. This is an increase of 21.1% and 14.7% for
the three and nine month periods, primarily due to an increase in our line
construction revenues, offset by decreases in our commercial/industrial
revenues. The line construction revenue increase was a result of our electric
utility alliances and storm work. The commercial/industrial revenues are down
from the prior year nine month levels due to cut backs in the semi-conductor
industry's capital spending plans and a slow down in work for our mining
business customers.
Gross profit for the three and nine month periods was $8,282 and $22,740,
compared to $7,968 and $21,959 in 1995. Gross profit as a percentage of
revenue was 10.3% and 10.6% for the three and nine month periods,
respectively, compared to 12.0% and 11.8% in 1995. The lower profit
percentages are primarily due to provisions made during the quarter for prior
year workers compensation reserve adjustments and to lower margins on our
utility alliance work for the three and nine months ended September 30, 1996
compared to 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 due to the nature of the Company's work as an outside electrical
contractor. Such variables include unusual or unseasonable weather and delays
in receipt of construction materials which are typically results in lower
revenues and lower margins in the first quarter when compared to other
quarters. As a general rule, the better construction weather in the second,
third and fourth quarters usually results in higher revenues and margins from
those quarters. Competitive bidding pressures may cause these general trends
to vary. Additionally, 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 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 for the three and nine month
periods were $5,434 and $16,749, compared to $5,482 and $16,418 in 1995. This
represents 6.7% and 7.8% of consolidated revenues for the three and nine month
periods of 1996, compared to 8.2% and 8.8% for 1995.
Net interest expense for the three and nine month periods was $506 and $1,374,
compared to $394 and $1,254 in 1995. The increase in 1996 over 1995 is
primarily due to additional borrowings to fund working capital requirements for
the higher volume of work in 1996.
Gain on sale of property and equipment for the three and nine month periods was
$156 and $549, compared to $56 and $163 in 1995. The increase was due to the
increased number of units sold in conjunction with upgrading our fleet.
Net other expense for the three and nine month periods was $98 and $374,
compared to $69 and $275 in 1995. Other expense primarily includes the
amortization of non-competition agreements and goodwill, letter of credit fees
and bank fees offset by cash discounts.
Income tax expense for the three and nine month periods was $864 and $1,821,
compared to $831 and $1,670 in 1995. As a percentage of income, the effective
rate for the three and nine month periods was 36% and 38%, compared to 40% in
1995. The effective tax rate for the nine month period of 1996 was changed
from 40% to 38% in the current quarter to reflect revised tax planning
assumptions.
The Company's backlog at September 30, 1996 was $124,900, compared to $69,100
at December 31, 1995, and $74,400 at September 30, 1995. Substantially all the
current backlog will be completed within twelve months and approximately 60% is
expected to be completed by December 31, 1996.
Discontinued Operations
During 1988, the Company sold two subsidiaries. As part of the sale of the
engineering subsidiary, the Company retained certain rights and obligations in
connection with two lawsuits. The additional provision amounting to $360
includes anticipated cost for the trial and appeal since it now appears there
is no opportunity for the Company to settle its dispute with the insurance
carrier.
Liquidity and Capital Resources
As of September 30, 1996, the company had $15,600 outstanding under a $20,000
of revolving credit facilities, and $5,625 outstanding under a term loan. The
Company has outstanding letters of credit with Banks totaling $12,956. The
Company believes 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.
Cash flows provided include net proceeds from short term borrowing of $4,497
and proceeds from the disposition of property and equipment of $2,088. The
cash flows were primarily used for operations of $2,298, net capital
expenditures of $3,988 and dividend payments of $481. The Company's financial
condition continues to be strong at September 30, 1996 with working capital of
$16,572, compared to $15,490 at December 31, 1995. The Company's current ratio
was 1.28:1 at September 30, 1996, compared to 1.27:1 at December 31, 1995.
Capital expenditures for the nine months were $3,988, compared to $3,436 in
1995. Capital expenditures during these periods were used for normal property
and equipment additions, replacements and upgrades. Proceeds from the disposal
of property and equipment for the nine months were $2,088 and $1,630 in 1995.
The Company plans to spend approximately $5,200 on capital improvements during
1996.
PART II
Item 1. Legal Proceedings
There were no material developments during the quarter relating to legal
proceedings previously reported by the company.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits filed herewith are listed in the Exhibit Index filed as a part
hereof and incorporated herein by reference.
b. No reports on Form 8-K were filed by the Company for the third quarter of
1996.
SIGNATURES
Pursuant to the requirements of the Securities 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.
Date: November 4, 1996 By: /s/
Elliott C. Robbins, Sr. Vice President, Treasurer,
and Chief Financial Officer
(duly authorized representative of registrant and
principal financial officer)
MYR Group Inc.
Quarterly Report on Form 10Q
for the Quarter Ended September 30, 1996
Exhibit Index
Number Description Page (or Reference)
11 Computation of Net Income Per Share 12
27 Financial Data Schedules 13
MYR Group Inc.
Exhibit 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
Period Ended September 30 Three Months Nine Months
1996 1995 1996 1995
Primary income per share
Net income $ 1,536 $ 1,248 $ 2,611 $ 2,505
Weighted average number of common shares
outstanding during the period 3,228 3,173 3,204 3,173
Add - common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of the common stock equivalents 242 239 234 212
Weighted average number of shares
for income per common share 3,470 3,412 3,438 3,385
Income per common share - primary $ 0.44 $ 0.37 $ 0.76 $ 0.74
Fully diluted income per share
Net income $ 1,536 $ 1,248 $ 2,611 $ 2,505
Add interest on subordinated convertible
debentures, net of tax 60 60 179 176
$ 1,596 $ 1,308 $ 2,790 $ 2,681
Weighted average number of common shares
outstanding during the period 3,228 3,173 3,204 3,173
Add
- -Common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of the common stock equivalents 242 267 239 267
- -Shares assumed converted from subordinated
convertible debentures 600 600 600 600
4,070 4,040 4,043 4,040
Income per common share - fully diluted $ .39 $ .32 $ .69 $ .66
5
3-MOS
DEC-31-1996
SEP-30-1996
542
0
56698
551
0
75392
59637
37415
103698
58820
12840
0
0
2512
26266
103698
80712
80712
72430
77864
98
0
508
2400
864
1536
0
0
0
1536
.44
.39
