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, 1998
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 No.)
incorporation or organization)
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 23, 1998: 5,613,216
MYR GROUP INC.
I N D E X
PART I. Financial Information
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows - 4
Nine Months Ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. Other Information
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
Part I, Item 1
Financial Information
MYR Group Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30 Dec. 31
1998 1997
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 798 $ 3,757
Contract receivables including retainage 77,778 75,414
Costs and estimated earnings in excess 20,313 14,919
of billings on uncompleted contracts
Deferred income taxes 5,322 5,322
Other current assets 851 587
Total current assets 105,062 99,999
Property and equipment 55,979 54,858
Less accumulated depreciation 39,838 37,967
16,141 16,891
Other assets 526 534
Total assets $ 121,729 $ 117,424
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 15,255 $ 13,462
Accounts payable 19,604 19,727
Billings in excess of costs and
estimated earnings on uncompleted
contracts 9,550 9,183
Accrued insurance 16,782 15,121
Other current liabilities 15,987 19,908
Total current liabilities 77,178 77,401
Deferred income taxes 746 746
Other liabilities 434 415
Long-term debt:
Promissory notes and other debt 917 1,625
Industrial revenue bond 480 480
Subordinated convertible debentures 5,447 5,679
Total long-term debt 6,844 7,784
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 6,252 5,582
Retained earnings 32,085 27,238
Treasury stock (94) (522)
Restricted stock awards and shareholder note
receivable (1,716) (1,936)
Total shareholders' equity 36,527 31,078
Total liabilities and shareholders' equity $ 121,729 $ 117,424
*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 September 30 Three Months Nine Months
1998 1997 1998 1997
Contract revenue $122,282 $119,838 $ 342,619 $ 321,152
Contract cost 110,058 108,049 310,413 292,024
Gross profit 12,224 11,789 32,206 29,128
Selling, general and
administrative expenses 8,081 8,166 22,064 20,696
Income from operations 4,143 3,623 10,142 8,432
Other income (expense)
Interest income 3 7 9 23
Interest expense (592) (499) (1,588) (1,149)
Gain (loss) on sale of
property and equipment 226 40 500 (207)
Miscellaneous (21) 1 29 56
Income from continuing
operations before income taxes 3,809 3,150 9,064 7,155
Income tax expense 1,524 1,260 3,626 2,862
Income from continuing operations 2,285 1,890 5,438 4,293
Income from discontinued
operations - - - 602
Net income $ 2,285 $ 1,890 $ 5,438 $ 4,895
Earnings per share _ Basic:
Income from continuing
operations $ .40 $ .35 $ .97 $ .79
Income from discontinued
operations - - - .11
Net Income .40 .35 .97 .90
Earnings per share _ Diluted:
Income from continuing
operations .34 .27 .82 .63
Income from discontinued
operations - - - .09
Net Income .34 .27 .82 .72
Dividends per common share .035 .033 .105 .099
Weighted average common shares and
common
Share equivalents outstanding
Basic 5,616 5,424 5,591 5,415
Diluted 6,713 7,154 6,677 7,034
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 1998 1997
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 5,438 $ 4,293
Adjustments to reconcile income from
continuing operations to cash flows from
continuing operations
Depreciation and amortization 3,483 4,042
Amortization of intangibles 141 179
Loss (gain) from disposition of assets (500) 207
Changes in curren assets and liabilities (10,030) (13,080)
Cash flows from continuing operations (1,468) (4,359)
Cash flows from discontinued operations - 2,456
Cash flows from operations (1,468) (1,903)
CASH FLOWS FROM INVESTMENTS
Expenditures for property and equipment (2,984) (3,324)
Proceeds from disposition of assets 221 751
Cash used in acquisition, net of cash acquired - (241)
Cash flows from investments (2,233) (3,344)
CASH FLOWS FROM FINANCING
Proceeds from long term debt 5,349 1,086
Proceeds from exercise of stock options 125 229
Increase (decrease)in deferred compensation 18 (10)
Dividends paid (591) (536)
Cash flows from financing 4,928 742
Decrease in cash and cash equivalents (2,959) (319)
Cash and cash equivalents at beginning of year 3,757 1,011
Cash and cash equivalents at end of period $ 798 $ 692
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, 1998 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 is due in installments of
$250,000, $666,667, $666,667 and $916,666 on September 30, 1997, 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 miscellaneous other income in the second quarter
of 1997. 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 for the nine months
ended September 30, 1997 was $602,000, including the income tax expense of
$402,000.
4 - Earnings Per Share
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, which requires the
disclosure of two earnings per common share computations: basic and
diluted. The basic earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock. The
diluted earnings per share reflect the potential dilution which would
result from the exercise of stock options and conversion of the convertible
subordinated notes. Earnings per share computations for prior years have
been restated to reflect this new standard.
Basic and diluted weighted average shares outstanding and earnings per
share on income from continuing operations are as follows:
Period Ended September 30
Three Months Nine Months
Share Data: 1998 1997 1998 1997
Basic Shares 5,616 5,424 5,591 5,415
Common equivalent shares 738 730 727 619
Shares assumed converted 359 1,000 359 1,000
Diluted shares 6,713 7,154 6,677 7,034
Three Months Ended September 30
1998 1997
Total Per Share Total Per Share
Income from continuing
operations:
Basic 2,285 $0.40 1,890 $0.35
Interest on convertible
subordinated shares 22 60
Diluted 2,307 $0.34 1,950 $0.27
Nine Months Ended September 30
1998 1997
Total Per Share Total Per Share
Income from continuing
operations:
Basic 5,438 $0.97 4,293 $0.79
Interest on convertible
subordinated shares 65 178
Diluted 5,503 $0.82 4,471 $0.63
5 - Supplemental Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
1998
Mar. 31 June 30 Sept 30 Dec 31 Year
Contract revenue 110,671 109,666 122,282 342,619
Gross profit 8,929 11,053 12,224 32,206
Income from continuing
operations 1,082 2,071 2,285 5,438
Net income 1,082 2,071 2,285 5,438
Earnings per share:
Basic 0.20 0.37 0.40 0.97
Diluted 0.17 0.31 0.34 0.82
Dividends paid per share 0.035 0.035 0.035 0.105
Market price:
High 12.81 14.25 16.88 16.88
Low 11.31 11.31 10.69 10.69
1997
Mar. 31 June 30 Sept 30 Dec 31 Year
Contract revenue 89,004 112,310 119,838 110,124 431,276
Gross profit 7,385 9,954 11,789 10,532 39,660
Income from continuing
operations 693 1,710 1,890 1,658 5,951
Net income 693 2,312 1,890 1,658 6,553
Earnings per share -
Basic:
Income from continuing
operations 0.13 0.31 0.35 0.30 1.09
Net income 0.13 0.42 0.35 0.30 1.20
Earnings per share -
Diluted:
Income from continuing
operations 0.11 0.25 0.27 0.24 0.87
Net income 0.11 0.34 0.27 0.24 0.96
Dividends paid per 0.033 0.033 0.033 0.033 0.132
share
Market price:
High 8.40 10.99 14.14 14.85 14.85
Low 7.20 6.98 10.50 12.44 6.98
6 _Accounting Pronouncements
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 established standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The adoption of SFAS No. 130 had no impact on the
Company's financial statements.
In 1997, the Financial Accounting Standards Board Issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for reporting information about operating
segments and related disclosures about products and services, geographic
areas and major customers. This standard is effective for years beginning
after December 15, 1997, and does not need to be applied to interim
financial statements in the initial year of its application. It expands
current disclosures and accordingly, will have no impact on the Company's
reported financial position, results of operations and cash flows. The
Company is assessing the impact of SFAS No. 131 on its current disclosures.
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, 1998
(Dollars in thousands)
Results of Operations
Continuing Operations
Revenue for the three and nine month periods was $122,282 and
$342,619, compared to $119,838 and $321,152 in 1997. This is an increase
of 2.0% and 6.7% for the three and nine month periods. The increase in the
three month period is due to significant storm related work. This increase
is offset by a decrease in revenue from a major commercial electrical job
for a hotel and casino in Nevada that was nearing completion in the third
quarter of 1998. The nine month period increase is also due to the storm
work and due to the acquisition of D.W. Close in the second quarter of
1997.
Gross profit for the three and nine month periods was $12,224 and
$32,206, compared to $11,789 and $29,128 in 1997. Gross profit as a
percentage of revenue was 10.0% and 9.4% for the three and nine month
periods, respectively, compared to 9.8% and 9.1% in 1997.
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 electrical contractor. Such variables include unusual or
unseasonable weather and delays in receipt of construction materials which
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 $8,081 and $22,064, compared to $8,166 and $20,696 in
1997. This represents 6.6% and 6.4% of consolidated revenues for the three
and nine month periods of 1998, compared to 6.8% and 6.4% for 1997. The
nine month period increase reflects additional compensation costs to
support the higher volume of work, additional incentive compensation and
profit sharing accruals as a result of higher profit levels and additional
legal accruals on miscellaneous claims.
Net interest expense for the three and nine month periods was $589 and
$1,579, compared to $492 and $1,126 in 1997. The increase in net interest
expense results from higher bank debt to support working capital needs as a
result of the higher volume of work and higher retention receivable
balances on the major hotel and casino project in Nevada.
Gain (loss) on sale of property and equipment for the three and nine
month periods was $226 and $500, compared to $40 and ($207) in 1997. The
gain for the current year represents sales and disposals related to
continued emphasis to modernize the equipment fleet. The 1997 gain (loss)
related to normal sales and disposals and the sale and disposal of damaged
and obsolete equipment.
Miscellaneous other income (expense) for the three and nine month
periods was $29 and $1, compared to ($21) and $56 in 1997. The current year
income consists mainly of cash discounts offset by bank fees. The prior
year nine month income includes $1,042 relating to the settlement of a
lawsuit (See Note 3 to the Financial Statements). Offsetting the prior year
income amount are bank fees, amortization of goodwill, cost 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.
Income tax expense for the three and nine month periods was $1,524 and
$3,626, compared to $1,260 and $2,862 in 1997. As a percentage of income,
the effective rate for the three and nine month periods of 1998 and 1997
was 40%.
The Company's backlog at September 30, 1998 was $135,100, compared to
$130,600 at December 31, 1997, and $132,500 at September 30, 1997.
Substantially all the current backlog will be completed within twelve
months and approximately 60% is expected to be completed by December 31,
1998.
On August 26, 1998, the Company announced the execution of a letter of
intent to acquire The Kirk & Blum Manufacturing Company and kbd/TECHNIC,
Inc. At this time no determination has been made as to whether or when this
transaction will be completed.
Discontinued Operations
During 1988, the Company sold two subsidiaries. As part of the sale
of the engineering subsidiary, the Company retained certain rights
andobligations in connection with two lawsuits. In the nine month period of
1997, the Company recorded amounts received from a settlement with National
Fire Insurance Company of Pittsburgh, PA, which results in a gain of $602
($1,004 pre-tax). (See Note 3 to Financial Statements).
Liquidity and Capital Resources
Cash flows provided from proceeds from long term debt amounted to
$1,086, proceeds from the disposition of property and equipment amounted to
$751 and proceeds from the exercise of stock options amounted to $229. The
cash flows were primarily used by operations for the nine months of $1,468,
net capital expenditures of $2,984, and dividend payments of $591. The
Company's financial condition continues to be strong at September 30, 1998
with working capital of $27,884, compared to $22,598 at December 31, 1997.
The Company's current ratio was 1.36:1 at September 30, 1998, compared to
1.29:1 at December 31, 1997.
The Company has a $20,000 revolving and $625 term credit facility. As
of September 30, 1998, there were $13,680 and $625 outstanding under the
revolving and term credit facility. The company has outstanding letters of
credit with banks totaling $4,927. 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.
Capital expenditures for the nine months were $2,984, compared to
$3,324 in 1997. 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 $751 compared to $221 in 1997. The Company plans to spend
approximately $4,000 on capital improvements during 1998.
YEAR 2000 Compliance:
General
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
corrective actions 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 and networks
2. Non-IT systems such as equipment, machinery, climate control, security
and telephone systems, which may contain microcontrollers 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 95% 95% 85% December,1998
Non-IT systems 80% 80% 25% September,1999
Third party
systems 85% 85% 50% September,1999
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 state our
projected level of compliance and 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. Through the third quarter of
1998, the Company has expended approximately $15,000 in remediation
efforts, which consisted of costs associated with modifying the source code
of existing software. Based upon the Company's investigations to date, it
estimates the total costs related to the Year 2000 issue would be
immaterial and range from $50,000 to $75,000. 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 September 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.
CAUTIONARY STATEMENT_ This Form 10-Q 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.
These statements are based on the Company's expectations and are subject to
risks and uncertainties that may cause the actual results in the future to
differ significantly from the results expressed or implied in any forward-
looking statements contained in this filing. Such forward-looking
statements are within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Act of 1934, as
amended.
PART II
Item 1. Legal Proceedings
The Company is 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 third
quarter of 1998 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. A Report on Form 8-K was filed by the Company on August 10, 1998
reporting a change in certifying accountant.
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 30, 1998 By: /s/ Betty R. Johnson
Betty R. Johnson
Vice President and Controller
(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 15
5
1,000
3-MOS
DEC-31-1998
JUL-1-1998
798
0
77,953
175
0
105,062
55,979
39,838
121,729
77,178
6,844
0
0
6,252
30,275
121,729
122,282
122,282
110,058
118,139
258
0
592
3,809
1,524
2,285
0
0
0
2,285
.40
.34
5
3-MOS
DEC-31-1997
SEP-30-1997
692
0
78,350
536
0
102,755
58,956
37,578
127,550
81,310
8,651
0
0
2,512
31,640
127,550
119,838
119,838
108,049
116,215
21
0
499
3,150
1,260
1,890
0
0
0
1,890
.35
.27
