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, 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.) 2550 W. Golf Road, Suite 200 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 July 22, 1996: 3,232,046
MYR GROUP INC. I N D E X PART I. Financial Information Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 2 Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 9 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) June 30 Dec. 31 1996 1995 ASSETS (Unaudied) * Current assets: Cash and cash equivalents $ 849 $ 703 Contract receivables including retainage 41,764 51,114 Costs and estimated earnings in excess of billings on uncompleted contracts 18,078 14,851 Deferred income taxes 4,602 4,602 Other current assets 1,836 1,594 Total current assets 67,129 72,864 Property and equipment: 60,614 61,625 Less accumulated depreciation 38,325 38,481 22,289 23,144 Intangible assets 2,519 2,681 Other assets 3,408 3,145 Total assets $ 95,345 $ 101,834 LIABILITIES Current liabilities: Current maturities of long-term debt $ 10,964 $ 9,178 Accounts payable 6,317 13,886 Billings in excess of costs and estimated earnings on uncompleted contracts 4,433 5,042 Accrued insurance 13,021 13,053 Other current liabilities 16,645 16,215 Total current liabilities 51,380 57,374 Deferred income taxes 2,861 2,861 Other liabilities 396 391 Long-term debt: Revolver and other debt 3,000 3,021 Term loan 3,750 5,000 Industrial revenue bond 890 890 Subordinated convertible debentures 5,679 5,679 Total long-term debt 13,319 14,590 SHAREHOLDERS' EQUITY Common stock and additional paid-in capital 9,293 9,248 Retained earnings 20,081 19,326 Treasury stock (1,276) (1,548) Unearned stock awards (301) 0 Shareholders' notes receivable (408) (408) Total shareholders' equity 27,389 26,618 Total liabilities and shareholders' equity $ 95,345 $ 101,834 *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 1996 1995 1996 1995 Contract revenue $ 69,052 $ 64,015 $ 133,428 $120,066 Contract cost 61,024 56,677 118,970 106,075 Gross profit 8,028 7,338 14,458 13,991 Selling, general and administrative expenses 5,597 5,224 11,315 10,937 Income from operations 2,431 2,114 3,143 3,054 Other income (expense) Interest income 4 13 35 10 Interest expense (467) (430) (877) (895) Gain on sale of property and equipment 261 80 392 107 Miscellaneous (113) (102) (276) (206) Income from continuing operations before income taxes 2,116 1,675 2,392 2,095 Income tax expense 847 670 957 838 Income from continuing operations 1,269 1,005 1,435 1,257 Loss from discontinued operations (360) - (360) - Net income $ 909 $ 1,005 $ 1,075 $ 1,257 Earnings per share - Primary Income from continuing operations $ .37 $ .30 $ .42 $ .38 Loss from discontinued operations (.11) - (.11) - Net Income .26 .30 .31 .38 Earnings per share - Fully Diluted: Income from continuing operations .33 .26 .38 .34 Loss from discontinued operations (.09) - (.09) - Net Income .24 .26 .29 .34 Dividends per common share .050 .047 .100 .088 Weighted average common shares and common share equivalents outstanding Primary 3,439 3,372 3,423 3,368 Fully Diluted 4,057 3,972 4,050 3,968 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 1996 1995 CASH FLOWS FROM OPERATIONS Income from continuing operations $ 1,435 $ 1,257 Adjustments to reconcile income from continuing operations to cash flows from continuing operations Depreciation and amortization 3,100 2,856 Amortization of intangibles 162 158 Gain from disposition of assets (392) (107) Changes in current assets and liabilities(2,163) 480 Cash flows from continuing operations 2,142 4,644 Cash flows from discontinued operations (360) - cash flows from operations 1,782 4,644 CASH FLOWS FROM INVESTMENTS Expenditures for property and equipment (2,396) (1,734) Proceeds from disposition of assets 546 200 Cash used in acquisition, net of cash acquired - (12,995) Cash flows from investments (1,850) (14,529) CASH FLOWS FROM FINANCING Proceeds (repayments) of long term debt 516 (15,068) Proceeds from issuance of debt - 19,500 Proceeds from exercise of stock options 13 5 Increase (decrease) in deferred compensation 5 (15) Dividends paid (320) (277) Cash flows from financing 214 4,145 Increase (decrease) in cash and cash equivalents 146 (5,740) Cash and cash equivalents at beginning of year 703 6,115 Cash and cash equivalents at end of period $ 849 $ 375 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, 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 69,052 133,428 Gross profit 6,430 8,028 14,458 Income from continuing operations 166 1,269 1,435 Net income 166 909 1,075 Earnings per share - Primary: Income from continuing operations 0.05 0.37 0.42 Net Income 0.05 0.26 0.31 Earnings per share - Fully diluted: Income from continuing operations 0.05 0.33 0.38 Net Income 0.05 0.24 0.29 Dividends paid per share 0.050 0.050 0.100 Market Price: High 11.00 11.75 11.75 Low 10.00 10.25 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 7.79 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 Six Months Ending June 30, 1996 (Dollars in thousands) Results of Operations Continuing Operations Revenue for the three and six month periods was $69,052 and $133,428, compared to $64,015 and $120,066 in 1995. This is an increase of 7.9% and 11.1% for the three and six 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 levels due to cut backs in the semi-conductor industry's capital spending plans and a slow start in work for our mining business clients. Gross profit for the three and six month periods was $8,028 and $14,458, compared to $7,338 and $13,991 in 1995. Gross profit as a percentage of revenue was 11.6% and 10.8% for the three and six month periods, respectively, compared to 11.5% and 11.7% in 1995. The 1996 six month percentage was lower than the current quarter and prior year primarily due to less productive winter working conditions in the first quarter of 1996. 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 six month periods were $5,597 and $11,315, compared to $5,224 and $10,937 in 1995. This represents 8.1% and 8.5% of consolidated revenues for the three and six month periods of 1996, compared to 8.2% and 9.1% for 1995. The increase in 1996 over 1995 relates to additional personnel related costs for expanded operations. Net interest expense for the three and six month periods was $464 and $867, compared to $417 and $860 in 1995. Gain on sale of property and equipment for the three and six month periods was $261 and $392, compared to $80 and $107 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 six month periods was $113 and $276, compared to $102 and $206 in 1995. Other expense primarily includes the amortization of non-competition agreements and goodwill, cash discounts and bank fees. Income tax expense for the three and six month periods was $847 and $957, compared to $670 and $838 in 1995. As a percentage of income, the effective rate was 40% in 1996 and 1995. The Company's backlog at June 30, 1996 was $89,600, compared to $69,100 at December 31, 1995, and $69,400 at June 30, 1995. Substantially all the current backlog will be completed within twelve months and approximately 95% 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. In the three and six month periods, the Company recorded additional amounts, primarily legal expenses related to these lawsuits, which resulted in an additional loss from discontinued operations of $360 ($600 pre-tax). 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. Liquidity and Capital Resources Cash flows provided from operations for the six months amounted to $1,782, net proceeds from short term borrowing amounted to $516, and proceeds from the disposition of property and equipment amounted to $546. The cash flows were primarily used for net capital expenditures of $2,396 and dividend payments of $320. The Company's financial condition continues to be strong at June 30, 1996 with working capital of $15,749, compared to $15,490 at December 31, 1995. The Company's current ratio was 1.31:1 at June 30, 1996, compared to 1.27:1 at December 31, 1995.
As of June 30, 1996, the Company had $11,150 outstanding under a $15,000 revolving credit facility and $6,250 outstanding under a term loan. On July 23, 1996, the Company entered into an additional line of credit agreement with its bank for up to $5,000 to support its growth in operating revenues. The Company has outstanding letters of credit with Banks totaling $12,956. 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 six months were $2,396, compared to $1,734 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 six months were $546 and $200 in 1995. The Company plans to spend approximately $5,000 on capital improvements during 1996. PART II Item 1. Legal Proceedings The trial date of April 15, 1996 was reset by the Court to September 24, 1996 for the previously reported National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. The L. E. Myers Co. Group, The L. E. Myers Co. and LEMCO Engineers, Inc., 84 Cib. 7481, United States District Court, Southern District of New York (See Note 4 to the Financial Statements). Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on May 15, 1996. The stockholders elected William G. Brown and John M. Harlan as Class I directors for a term expiring at the 1999 annual meeting of stockholders. The stockholders approved an amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock, $1.00 par value, from 6,000,000 to 10,000,000 shares. The vote on the amendment was 2,768,735 shares in favor, 60,205 against and 13,921 abstain. The stockholders also approved the adoption of the Company's 1996 Non-Employee Director Stock Ownership Plan. The vote on the approval of the plan was 2,710,434 shares in favor, 102,182 against and 11,836 abstain. The stockholders also approved an amendment and restatement of the Company's 1989, 1990, 1992 and 1995 Stock Option Plans. The vote on the approval of the plan was 2,710,434 shares in favor, 102,182 against and 11,836 abstain. 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 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: July 30, 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 June 30, 1996 Exhibit Index Number Description Page (or Reference) 3.1 Certificate of Amendment 13 10.1 1996 Nonemployee Director Stock Ownership Plan 14-17 11 Computation of Net Income Per Share 18 27 Financial Data Schedules 19