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 June 30, 1997
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, 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 July 28, 1997: 3,255,615
MYR GROUP INC.
I N D E X
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. Other Information
Item 1. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 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)
June 30 Dec. 31
1997 1996
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 592 $ 1,011
Contract receivables including retainage 67,369 53,508
Costs and estimated earnings in excess of billings
on uncompleted contracts 16,928 10,760
Deferred income taxes 4,896 4,896
Other current assets 1,190 471
Total current assets 90,975 70,646
Property and equipment: 60,249 58,668
Less accumulated depreciation 37,663 36,429
22,586 22,239
Intangible assets 2,437 2,466
Other assets 1,081 3,135
Total assets $117,079 $98,486
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 9,438 $ 4,445
Accounts payable 18,635 17,721
Billings in excess of costs and estimated earnings
on uncompleted contracts 7,450 5,504
Accrued insurance 15,449 12,160
Other current liabilities 20,729 16,645
Total current liabilities 71,701 56,475
Deferred income taxes 3,047 3,047
Other liabilities 393 399
Long-term debt:
Revolver and other debt 1,922 121
Term loan 1,250 2,500
Industrial revenue bond 695 695
Subordinated convertible debentures 5,679 5,679
Total long-term debt 9,546 8,995
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 9,278 9,315
Retained earnings 24,770 22,121
Treasury stock (869) (1,043)
Unearned stock awards and shareholders' notes
receivable (787) (823)
Total shareholders' equity 32,392 29,570
Total liabilities and shareholders' equity $117,079 $98,486
*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 OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
Periods Ended June 30 Three Months Six Months
1997 1996 1997 1996
Contract revenue $112,310 $69,052 $201,314 $133,428
Contract cost 102,356 61,024 183,975 118,970
Gross profit 9,954 8,028 17,339 14,458
Selling, general and administrative expenses 6,659 5,597 12,530 11,315
Income from operations 3,295 2,431 4,809 3,143
Other income (expense)
Interest income 8 4 16 10
Interest expense (400) (467) (650) (877)
Gain (loss) on sale of property and equipment (254) 261 (247) 392
Miscellaneous 201 (113) 77 (276)
Income from continuing
operations before income taxes 2,850 2,116 4,005 2,392
Income tax expense 1,140 847 1,602 957
Income from continuing operations 1,710 1,269 2,403 1,435
Income (loss) from discontinued operations 602 (360) 602 (360)
Net income $ 2,312 $ 909 $ 3,005 $ 1,075
Earnings per share - Primary
Income from continuing operations $ .48 $ .37 $ .68 $ .42
Income (loss) from discontinued operations .17 (.11) .17 (.11)
Net Income .65 .26 .85 .31
Earnings per share - Fully Diluted:
Income from continuing operations .42 .33 .59 .38
Income (loss) from discontinued operations .14 (.09) .14 (.09)
Net Income .56 .24 .73 .29
Dividends per common share .055 .050 .110 .100
Weighted average common shares and common
share equivalents outstanding
Primary 3,579 3,439 3,554 3,423
Fully Diluted 4,262 4,057 4,260 4,050
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)
Six Months Ended June 30 1997 1996
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 2,403 $ 1,435
Adjustments to reconcile income from continuing
operations to cash flows from continuing operations
Depreciation and amortization 2,732 3,100
Amortization of intangibles 54 162
Loss (gain) on sale of property and equipment 247 (392)
Changes in current assets and liabilities (6,282) (2,163)
Cash flows from continuing operations (846) 2,142
Cash flows from discontinued operations 2,456 (360)
Cash flows from operations 1,610 1,782
CASH FLOWS FROM INVESTMENTS
Expenditures for property and equipment (2,800) (2,396)
Proceeds from disposition of assets 121 546
Cash used in acquisition, net of cash acquired (241) -
Cash flows from investments (2,920) (1,850)
CASH FLOWS FROM FINANCING
Proceeds from long term debt 1,142 516
Proceeds from exercise of stock options 112 13
Increase (decrease) in deferred compensation (6) 5
Dividends paid (357) (320)
Cash flows from financing 891 214
Increase (decrease) in cash and cash equivalents (419) 146
Cash and cash equivalents at beginning of year 1,011 703
Cash and cash equivalents at end of period $ 592 $ 849
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 six month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2 - Acquisition
On May 1, 1997, the Company completed the acquisition of all the stock of
D.W. Close Company, Inc. (``D.W. Close''). D.W. Close is engaged primarily
in the installation of lighting systems, electrical maintenance/construction
and smart highway construction for commercial, industrial and municipal
customers.
All the shares of D.W. Close were exchanged for $400,000 in cash and $2,500,000
of promissory notes. The principal will be due in installments of $666,667,
$666,667 and $1,166,666 on May 1, 1998, 1999 and 2000, with interest payable
quarterly each year. 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 a lawsuit with
National Union Fire Insurance Company of Pittsburgh, PA. In June 1997, the
Company settled the lawsuit and received $4,250,000. The Company had a
receivable relating to this lawsuit of $1,854,000. The remaining $2,396,000
related to reimbursement for interest and legal costs. The portion allocated
to interest was $1,042,000 and was included in continuing operations as other
income. The portion allocated to legal costs was $1,354,000. This amount was
included in income from discontinued operations, reduced by additional expenses
incurred for legal and other directly related costs totaling $350,000. The net
result on discontinued operations was $602,000, including the income tax
expense of $402,000. In 1996, the Company recorded additional amounts,
primarily legal expenses related to the OMU lawsuit, which resulted in
additional losses of $360,000, net of income tax benefits of $240,000.
4 - 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.
5 - Pending Accounting Standard
In February 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 128, `Earnings Per Share' which
simplifies the method for computing earnings per share. Under the new
requirements, primary earnings per share will be replaced with basic earnings
per share. The statement, which will not have a material impact on the results
of operations, financial position or cash flows of the Company, is effective
for financial statements issued for periods ending after December 15, 1997 and
will be adopted by the Company in the fourth quarter of 1997.
6 - Supplemental Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
1997
Mar 31 June 30 Sept 30 Dec 31 Year
Contract revenue 89,004 112,310 201,314
Gross profit 7,385 9,954 17,339
Income from continuing operations 693 1,710 2,403
Net income 693 2,312 3,005
Earnings per share - Primary:
Income from continuing operations 0.20 0.48 0.68
Net income 0.20 0.65 0.85
Earnings per share - Fully diluted:
Income from continuing operations 0.18 0.42 0.59
Net income 0.18 0.56 0.73
Dividends paid per share 0.055 0.055 0.110
Market price:
High 14.00 18.31 18.31
Low 12.00 11.63 11.63
1996
Mar 31 June 30 Sept 30 Dec 31 Year
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 0.050 0.050 0.050 0.050 0.200
Market price:
High 11.00 11.75 11.75 12.88 12.88
Low 10.00 10.25 10.38 10.50 10.00
Part I Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ending June 30, 1997
(Dollars in thousands)
Results of Operations
Continuing Operations
Revenue for the three and six month periods was $112,310 and $201,314, compared
to $69,052 and $133,428 in 1996. This is an increase of 62.6% and 50.9% for
the three and six month periods, primarily due to storm work, a higher level
of work in the commercial-industrial sector and an increase of line work in
California. The commercial-industrial sector includes a major electrical job
for a hotel and casino in Nevada that did not have significant revenues until
the fourth quarter of 1996.
Gross profit for the three and six month periods was $9,954 and $17,339,
compared to $8,028 and $14,458 in 1996. Gross profit as a percentage of
revenue was 8.9% and 8.6% for the three and six month periods, respectively,
compared to 11.6% and 10.8% in 1996. The lower margin percentage in 1997 is
primarily due to a greater percentage of our commercial-industrial revenues
coming from cost-plus fixed fee work. The cost-plus fixed fee work generally
involves lower financial risk, therefore generates lower margins.
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 impact 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 six month
periods were $6,659 and $12,530, compared to $5,597 and $11,315 in 1996. This
represents 5.9% and 6.2% of consolidated revenues for the three and six month
periods of 1997, compared to 8.1% and 8.5% for 1996. This reduction reflects
higher revenue volume spread over a relatively fixed expense base.
Net interest expense for the three and six month periods was $392 and $634,
compared to $464 and $867 in 1996. The decrease in interest expense was due
to lower average outstanding debt levels in 1997 compared to 1996.
Gain (loss) on sale of property and equipment for the three and six month
periods was ($254) and ($247), compared to $261 and $392 in 1996. The 1997
second quarter loss was due to the sale and disposal of obsolete and damaged
units as a result of plans to modernize the equipment fleet.
Other income for the three and six month periods was $201 and $77, compared to
other expense of $113 and $276 in 1996. The 1997 other income includes
$1,042,000 relating to the settlement of a lawsuit (see Note 3 to the Financial
Statements). Offsetting this amount are bank fees, amortization of goodwill,
costs accrued for the clean-up and move out of an operating unit's facility as
a result of consolidating operations and the write-off of an investment in land
that has never been developed. The 1996 amounts consisted primarily of bank
fees and amortization of goodwill and non-complete agreements.
Income tax expense for the three and six month periods was $1,140 and $1,602,
compared to $847 and $957 in 1996. As a percentage of income, the effective
rate was 40% in 1997 and 1996.
The Company's backlog at June 30, 1997 was $130,600, compared to $134,900 at
December 31, 1996, and $89,600 at June 30, 1996. Substantially all the
current backlog will be completed within twelve months and approximately 90%
is expected to be completed by December 31, 1997.
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. In the three and six month periods, the
Company recorded amounts received from a settlement with National Fire
Insurance Company of Pittsburgh, PA, which resulted in a gain of $602
($1,004 pre-tax). In the three and six month periods of 1996, the Company
recorded additional amounts, primarily legal expenses related to the OMU
lawsuits, which resulted in additional losses of $360 ($600 pre-tax). (See
Note 3 to Financial Statements).
Liquidity and Capital Resources
Cash flows provided from operations for the six months amounted to $1,610, net
proceeds from borrowings amounted to $1,142, proceeds from the exercise of
stock options amounted to $112, and proceeds from the disposition of property
and equipment amounted to $121. The cash flows provided from operations
includes $4,250,000 received from a settlement of a lawsuit (see Note 3 to
Financial Statements). The cash flows were primarily used for net capital
expenditures of $2,800, the acquisition of D.W. Close Company, Inc. of $241 and
dividend payments of $357. The Company's financial condition continues to be
strong at June 30, 1997 with working capital of $19,274, compared to $14,171
at December 31, 1996. The Company's current ratio was 1.27:1 at June 30, 1997,
compared to 1.25:1 at December 31, 1996.
The Company has a $20,000 revolving and $3,750 term credit facility. As of
June 30, 1997, there were $6,000 and $3,750 outstanding under the revolving
and term credit facility, respectively. The Company has outstanding letters
of credit with Banks totaling $12,585. 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 acquisition of D.W. Close Company, Inc. was completed on May 1, 1997. The
purchase price for this transaction was paid in cash and Company notes issued
to the seller (See Note 2 to Financial Statements).
Capital expenditures for the six months were $2,800, compared to $2,396 in
1996. 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 six months were $121 and $546 in 1996. The
Company plans to spend approximately $5,000 on capital improvements during
1997.
PART II
Item 1. Legal Proceedings
On June 24, 1997 the Company entered into a Settlement Agreement and Releases
(the ``Agreement'') between National Union Fire Insurance Company of
Pittsburgh, PA (``National Union'') and the Company, on behalf of The L.E.
Myers Co. Group, the L.E. Myers Co. and LEMCO Engineers, Inc. (hereinafter
referred to as the Company), related to the appeal to the United States Court
of Appeals for the Second Circuit by National Union of the judgment in favor of
the Company entered on April 10, 1997 in the United States District Court for
the Southern District of New York in the previously disclosed lawsuit.
Pursuant to the Agreement National Union paid to the Company the sum of
$4,250,000 on June 27, 1997. The Agreement further provided that all appeals
would be dismissed and that the Company and National Union each provided a
release of liability of the other party.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of Stockholders on May 12, 1997 pursuant to
a notice of meeting and proxy statement sent to stockholders of the Company.
Stockholders elected Allan E. Bulley, Jr. and Bide L. Thomas as Class II
directors to serve a term until the annual meeting of stockholders to be held
in the year 2000. Mr. Bulley and Mr. Thomas were incumbent Class II directors
who were nominated by the Board of Directors for re-election. Messrs. William
G. Brown (Class I), John M. Harlan (Class I) and Charles M. Brennan
(Class III), continue to serve as directors of the class indicated after the
meeting.
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 second quarter of
1997.
CAUTIONARY STATEMENT-- This Release 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: August 6, 1997 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 June 30, 1997
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 June 30 Three Months Six Months
1997 1996 1997 1996
Primary income per share
Net income $ 2,312 $ 909 $ 3,005 $1,075
Weighted average number of common shares
outstanding during the period 3,249 3,198 3,246 3,191
Add - common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of the common stock equivalents 330 241 308 232
Weighted average number of shares
for income per common share 3,579 3,439 3,554 3,423
Income per common share - primary $ .65 $ .26 $ .85 $ .31
Fully diluted income per share
Net income $ 2,312 $ 909 $ 3,005 $1,075
Add interest on subordinated convertible
debentures, net of tax 60 59 118 119
$ 2,372 $ 968 $ 3,123 $1,194
Weighted average number of common shares
outstanding during the period 3,249 3,198 3,246 3,191
Add
- -Common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of the common stock equivalents 413 259 414 259
- -Shares assumed converted from subordinated
convertible debentures 600 600 600 600
4,262 4,057 4,260 4,050
Income per common share - fully diluted $ .56 $ .24 $ .73 $ .29
5
1,000
3-MOS
DEC-31-1997
APR-1-1997
JUN-30-1997
592
0
67864
495
0
90975
60249
37663
117079
71701
9546
0
0
2512
29880
117079
112310
112310
102356
109015
254
0
400
2850
1140
1710
602
0
0
2312
.65
.56
