SEC Filing | MYR Group Inc.

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, 1999 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 incorporation or organization) Identification No.) 1701 W. Golf Road, Suite 1012, Tower Three, Rolling Meadows, IL 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 15, 1999: 6,049,096

MYR GROUP INC. I N D E X PART I. Financial Information Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 2 Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 1999 and 1998 3 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. Other Information Item 1. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURE 11

Part I, Item 1 Financial Information MYR Group Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ----------------------------------------------------------------------- Sept. 30 Dec. 31 1999 1998 (Unaudited) * ----------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 665 $ 1,372 Contract receivables including retainage 72,100 68,112 Costs and estimated earnings in excess of billings on uncompleted contracts 24,196 17,092 Deferred income taxes 6,153 6,153 Other current assets 461 239 ------------------- Total current assets 103,575 92,968 ------------------- Property and equipment: 56,615 56,706 Less accumulated depreciation 41,036 40,604 ------------------- 15,579 16,102 ------------------- Other assets 1,615 1,129 ------------------- Total assets $ 120,769 $ 110,199 ===================

LIABILITIES Current liabilities: Current maturities of long-term debt $ 8,567 $ 7,813 Accounts payable 14,555 14,135 Billings in excess of costs and estimated earnings on uncompleted contracts 11,943 9,448 Accrued insurance 14,742 13,868 Other current liabilities 17,206 17,528 ------------------- Total current liabilities 67,013 62,792 ------------------- Deferred income taxes 1,052 1,052 Other liabilities 388 393 Long-term debt: Promissory notes and other debt 250 917 Industrial revenue bond 250 250 Subordinated convertible debentures 3,340 5,447 ------------------- Total long-term debt 3,840 6,614 SHAREHOLDERS' EQUITY Common stock and additional paid-in capital 8,710 7,009 Retained earnings 42,958 34,335 Restricted stock awards and shareholders' notes receivable (3,192) (1,996) ------------------- Total shareholders' equity 48,476 39,348 ------------------- Total liabilities and shareholders' equity $ 120,769 $ 110,199 =================== *Condensed from audited financial statements ----------------------------------------------------------------------- The "Notes to Condensed Consolidated Financial Statements" are an integral part of this statement.

MYR Group Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands except per share amounts) (Unaudited) -------------------------------------------------------------------------- Periods Ended September 30 Three Months Nine Months -------------------------------------------------------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Contract revenue $ 122,265 $ 122,282 $ 348,116 $ 342,619 Contract cost 107,235 110,058 306,645 310,413 -------- -------- -------- -------- Gross profit 15,030 12,224 41,471 32,206 Selling, general and administrative expenses 8,602 8,081 25,967 22,064 -------- -------- -------- -------- Income from operations 6,428 4,143 15,504 10,142 Other income (expense) Interest income 37 3 76 9 Interest expense (205) (592) (760) (1,588) Gain on sale of property and equipment 561 226 742 500 Miscellaneous (21) 29 (93) 1 -------- -------- -------- -------- Income before taxes 6,800 3,809 15,469 9,064 Income tax expense 2,720 1,524 6,188 3,626 -------- -------- -------- -------- Net income $ 4,080 $ 2,285 $ 9,281 $ 5,438 ======== ======== ======== ======== ============================================================================ Earnings per share: Basic $ 0.68 $ .40 $ 1.57 $ .97 ======== ======== ======== ======== Diluted $ 0.60 $ .34 $ 1.38 $ .82 ======== ======== ======== ======== Dividends per common share $ .0375 $ .035 $ 0.1125 $ .105 ======== ======== ======== ======== Average number of shares outstanding: Basic 5,978 5,616 5,897 5,591 Diluted 6,828 6,713 6,751 6,677 ---------------------------------------------------------------------------- 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 1999 1998 -------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Income from continuing operations $ 9,281 $ 5,438 Adjustments to reconcile net income to cash flows from operations Depreciation and amortization 3,256 3,483 Amortization of unearned stock awards 258 141 Gain from disposition of assets (742) (500) Changes in assets and liabilities (6,425) (10,030) --------- --------- Cash flows from operations 5,628 (1,468) --------- --------- CASH FLOWS FROM INVESTMENTS Expenditures for property and equipment (2,932) (2,984) Proceeds from disposition of assets 1,005 751 --------- --------- Cash flows from investments (1,927) (2,233) --------- --------- CASH FLOWS FROM FINANCING Proceeds (repayments) from long term debt (1,584) 1,086 Proceeds from exercise of stock options 976 229 Issuance of shareholder notes (1,645) - Purchase of treasury stock (1,491) - Increase in deferred compensation (5) 18 Dividends paid (659) (591) --------- --------- Cash flows from financing (4,408) 742 --------- --------- Decrease in cash and cash equivalents (707) (2,959) Cash and cash equivalents at beginning of year 1,372 3,757 --------- --------- Cash and cash equivalents at end of period $ 665 $ 798 ========= ========= -------------------------------------------------------------------------- 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 income 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, 1999 are not necessarily indicative of the results to be expected for the full year.

2 - Earnings Per Share (Dollars in thousands except per share amounts) Basic and diluted weighted average shares outstanding and earnings per share on net income are as follows: Period Ended September 30 ---------------------------------------- Three Months Nine Months ----------------- ----------------- 1999 1998 1999 1998 ----- ----- ----- ----- Share Data: Basic Shares 5,978 5,616 5,897 5,591 Common equivalent shares 568 738 572 727 Shares assumed converted 282 359 282 359 ----- ----- ----- ----- Diluted shares 6,828 6,713 6,751 6,677 ===== ===== ===== ===== Three Months Ended September 30 ---------------------------------------- 1999 1998 ----------------- ----------------- Total Per Share Total Per Share ----- ----- ----- ----- Net Income: Basic $4,080 $ 0.68 $2,285 $ 0.40 Interest on convertible subordinated shares 21 22 ----- ----- Diluted $4,101 $ 0.60 $2,307 $ 0.34 ===== ===== Nine Months Ended September 30 ---------------------------------------- 1999 1998 ----------------- ----------------- Total Per Share Total Per Share ----- ----- ----- ----- Net Income: Basic $9,281 $ 1.57 $5,438 $ 0.97 Interest on convertible subordinated shares 65 65 ----- ----- Diluted $9,346 $ 1.38 $5,503 $ 0.82 ===== =====

3 - Supplemental Quarterly Financial Information (Unaudited) (Dollars in thousands except per share amounts) 1999 ------------------------------------------------ Mar. 31 June 30 Sept 30 Dec 31 Year ------------------------------------------------ Contract revenue $ 107,327 $ 118,524 $ 122,265 $ 348,116 Gross profit 11,758 14,683 15,030 41,471 Net income 1,762 3,439 4,080 9,281 Earnings per share - Basic 0.31 0.58 0.68 1.57 Earnings per share - Diluted 0.27 0.51 0.60 1.38 Dividends paid per share 0.0375 0.0375 0.0375 0.1125 Market price: High 12.00 18.00 22.50 22.50 Low 10.06 11.75 16.75 10.06 1998 ------------------------------------------------ Mar. 31 June 30 Sept 30 Dec 31 Year ------------------------------------------------ Contract revenue $ 110,671 $ 109,666 $ 122,282 $ 116,724 $ 459,343 Gross profit 8,929 11,053 12,224 13,014 45,220 Net income 1,082 2,071 2,285 2,450 7,888 Earnings per share - Basic 0.20 0.37 0.40 0.43 1.40 Earnings per share - Diluted 0.17 0.31 0.34 0.38 1.20 Dividends paid per share 0.035 0.035 0.035 0.035 0.14 Market price: High 12.81 14.25 16.88 12.88 16.88 Low 11.31 11.31 10.69 10.13 10.13 4 - Pending Accounting Pronouncements In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. This standard is effective for years beginning after June 15, 2000. The Company believes the implementation of this pronouncement will not have a material impact on the Company's reported financial position, results of operations and cash flows. 5. Segment Reporting (Dollars in thousands) The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. The Company is engaged primarily in two segments: infrastructure services and commercial/industrial construction. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that the financial results have been prepared using a management approach. This approach is consistent with the basis and manner in which management internally disaggregates financial information for the purpose of assisting in making internal operating decisions and is exclusive of corporate selling, general and administrative expenses, net interest expense and other income. Identifiable assets include all assets directly identified with the reportable segments including retentions, accounts receivable, property, equipment and costs and estimated earnings in excess of billings on uncompleted contracts. Corporate assets include cash, deferred tax assets, and other assets that are corporate in nature.

Infrastructure Commercial/ Corporate Services Industrial and Other Consolidated -------- -------- ------ --------- Three months ended September 30, 1999 Contract revenue $ 81,063 $ 41,202 $ - $ 122,265 Depreciation and amortization 1,125 192 87 1,404 Income before taxes 7,117 3,424 (3,741) 6,800 Segment assets 72,436 40,239 8,094 120,769 Capital expenditures 1,013 136 - 1,149 Three months ended September 30, 1998 Contract revenue 68,052 54,230 - 122,282 Depreciation and amortization 1,014 75 15 1,104 Income before taxes 5,947 870 (3,008) 3,809 Segment assets 65,357 49,765 6,607 121,729 Capital expenditures 1,099 - - 1,099 Nine months ended September 30, 1999 Contract revenue 233,182 114,934 - 348,116 Depreciation and amortization 2,919 337 258 3,514 Income before taxes 20,056 5,561 (10,148) 15,469 Capital expenditures 2,735 197 - 2,932 Nine months ended September 30, 1998 Contract revenue 176,845 165,774 - 342,619 Depreciation and amortization 3,278 230 116 3,624 Income before taxes 12,787 4,284 (8,007) 9,064 Capital expenditures 2,825 159 - 2,984

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, 1999 Results of Operations Revenue for the three and nine month periods was $122.3 million and $348.1 million compared to $122.3 million and $342.6 million in 1998. Revenues for the infrastructure segment increased 19.1% over the prior year primarily due to increased volume of work with alliance partners. Commercial/industrial revenues were flat compared to the prior year after excluding the 1998 revenues from the major hotel and casino project in Las Vegas, NV that was completed in late 1998. Gross profit for the three and nine month periods was $15.0 million and $41.5 million, compared to $12.2 million and $32.2 million in 1998. Gross profit as a percentage of revenue was 12.3% and 11.9% for the three and nine month periods, compared to 10.0% and 9.4% in 1998. The 1999 three and nine month period gross profit percentages increased primarily due to continued strong performance in the infrastructure services business, improved productivity in the commercial/industrial group, and the completion of a relatively low margin, cost-plus fixed- fee hotel and casino project in Las Vegas, Nevada in late 1998. The 1999 three month period gross profit percentage also increased due to lower insurance costs as a result of favorable safety experience. 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 the gross margin percentage. As the percentage of revenue derived from 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 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 for the three and nine month periods were $8.6 million and $26.0 million, compared to $8.1 million and $22.1 million in 1998. The increase reflects increased training related costs associated with new management development programs, higher professional fees, costs related to additional personnel, and higher incentive compensation accruals on improved profit levels in comparison to the prior year.

Net interest expense for the three and nine month periods was $168,000 and $684,000 compared to $589,000 and $1,579,000 in 1998. This decrease was primarily due to lower average outstanding bank debt levels in 1999 due to the reduced retention receivable balances on the major hotel and casino project in Las Vegas, NV and strong operating results generating positive cash flows. Gain on sale of property and equipment for the three and nine month periods was $561,000 and $742,000, compared to $226,000 and $500,000 in 1998. The gains reflect sales and disposals in our continuing efforts to modernize the equipment fleet. Other expense for the three and nine month periods was $21,000 and $93,000, compared to other income of $29,000 and $1,000 in 1998. Other income/expense consisted primarily of cash discounts, offset by bank fees. Income tax expense for the three and nine month periods was $2.7 million and $6.2 million, compared to $1.5 million and $3.6 million in 1998. As a percentage of income, the effective rate was 40% in 1999 and 1998. The Company's backlog at September 30, 1999 was $171.8 million, compared to $140.1 million at December 31, 1998, and $135.1 million at September 30, 1998. Substantially all the current backlog will be completed within twelve months and approximately 60% will be completed by December 31, 1999. Liquidity and Capital Resources In September 1999, the Company renegotiated the revolving credit facility with its banks. The new terms increased the capacity to a $30 million revolver and provides more favorable terms. As of September 30, 1999, there was $6.0 million outstanding under the revolving credit facility. The Company has outstanding letters of credit with Banks totaling $1.9 million. 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. In March 1999, the Company's Board of Directors authorized the purchase of up to 750,000 shares of its common stock. In 1999 and 1998, purchases under the prior stock repurchase program totaled 144,808 and 19,494 shares at a cost of $1,492,000 and $248,000, respectively. In March 1999, the Company loaned two officers $1,645,000 in total for the exercise cost and tax liability associated with exercising options on 347,225 shares that were expiring in 1999. The portion related to the exercise price, $886,000, is classified in stockholders' equity and the balance that relates to the withholding taxes paid is included in other assets.

Capital expenditures for the three and nine month periods were $1.1 million and $2.9 million, compared to $1.1 million and $3.0 million in 1998. 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 three and nine months amounted to $749,000 and $1.0 million in 1999. The Company plans to spend approximately $5.5 million on capital improvements during 1999. Cash flows provided from operations amounted to $5.6 million, which was used for repayments on long term debt of $1.6 million, net capital expenditures of $1.9 million, the purchase of treasury stock of $1.5 million, dividends paid of $659,000, and the financing of shareholder stock option exercises of $1.6 million, offset by proceeds from the exercise of stock options of $976,000. The Company's financial condition continues to be strong at September 30, 1999, with working capital of $36.6 million compared to $30.2 million at December 31, 1998. Year 2000 Compliance The "Year 2000 problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The extent of the potential impact of the Year 2000 problem is not yet known, and if not timely corrected, it could affect the global economy. State of Readiness In 1997, the Company established an organization wide project to identify non-compliant items, formulate corrective actions and to implement these changes to mitigate the year 2000 issue. The Company has identified three categories of components that require attention: 1. Information technology ("IT") systems, such as mainframes, midranges, personal computers, software and networks 2. Non-IT systems such as equipment, machinery, climate control, security and telephone systems, which may contain micro-controllers with embedded technology 3. Third party IT and Non-IT systems The table below summarizes the estimated completion percentages of the three categories and stages that are being undertaken to mitigate the Year 2000 issue. Identification Formulation Implementation of material of corrective of corrective Planned items actions actions Completion ----- ------- ------- --------------- IT systems 100% 100% 95% November, 1999 Non-IT 100% 100% 95% November, 1999 systems Third party 100% 95% 90% November, 1999 systems

Although the Company has contacted its major suppliers to determine their readiness regarding the Year 2000 issue and has been assured that they are working to mitigate its effects, the Company has no way of determining what level of compliance they will attain by the year 2000. The Company is currently in the process of contacting its major customers to evaluate their planned level of compliance. Upon receiving the responses, the Company will formulate corrective actions. There is no guarantee that systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. If all material components are not identified or all appropriate corrective actions are not taken or are not completed in a timely manner, the Year 2000 issue could have a material impact on the operations of the Company. Year 2000 Costs Costs related to the Year 2000 issue are funded through operating cash flows and are being expensed as incurred. As of September 1999, the Company has expended funds in remediation efforts, which consisted of costs associated with modifying the source code of existing software. This amount has been immaterial to the Company. Based upon the Company's investigations to date, it estimates the total costs related to the Year 2000 issue would be immaterial. A number of other upgrades have been made to systems in the normal course of business that mitigate Year 2000 issues. This amount may vary substantially as the Company continues to evaluate items associated with the Year 2000 issue. Year 2000 Risks The most reasonably likely worst case scenario for the Company is the failure of a supplier to be Year 2000 compliant such that its supply of needed products or services is interrupted temporarily. This could result in the Company not being able to fulfill its obligation on a construction contract, which could cause lost sales and profits and possibly additional exposure for non-performance and damage claims. Year 2000 Contingency Plans The Company is currently evaluating business disruption scenarios, coordinating the establishment of Year 2000 contingency plans and identifying and implementing preemptive strategies. Detailed contingency plans for critical business processes will be developed by November 1999. The costs of the project and the date on which the Company believes it will complete the Year 2000 project are based on management's best estimates, which were derived utilizing numerous assumptions and future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant codes, the level of compliance by key suppliers and customers, and similar uncertainties.

PART II Item 1. Legal Proceedings There were no material developments during the quarter relating to legal proceedings previously reported by the Company. Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders in the second quarter of 1999 that were not previously disclosed. 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 3rd Quarter of 1999. CAUTIONARY STATEMENT-- This Report may contain statements which constitute "forward-looking" information as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission. Investors are cautioned that any such forward- looking statements are not guarantees of future performance and actual results may differ.

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: October 21, 1999 By: /s/ ---------------------------------------- William A. Koertner, 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, 1998 Exhibit Index Number Description Page (or Reference) ---------------------------------------- ------------------- 27 Financial Data Schedules 13

5 1,000 9-MOS DEC-31-1999 SEP-30-1999 665 0 72,692 592 0 103,575 56,615 41,036 120,769 67,013 3,840 0 0 61 48,415 120,769 348,116 348,116 306,645 332,612 93 0 760 15,469 6,188 9,281 0 0 0 9,281 1.57 1.38