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, 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
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, 1998: 5,619,825
MYR GROUP INC.
I N D E X
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 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 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)
June 30 Dec. 31
1998 1997
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 600 $ 3,757
Contract receivables including retainage 76,520 75,414
Costs and estimated earnings in excess of billings
on uncompleted contracts 17,754 14,919
Deferred income taxes 5,322 5,322
Other current assets 1,018 587
Total current assets 101,214 99,999
Property and equipment: 56,004 54,858
Less accumulated depreciation 39,792 37,967
16,212 16,891
Other assets 1,923 534
Total assets $ 119,349 $ 117,424
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 17,213 $ 13,462
Accounts payable 14,291 19,727
Billings in excess of costs and estimated earnings
on uncompleted contracts 11,234 9,183
Accrued insurance 14,737 15,121
Other current liabilities 19,562 19,908
Total current liabilities 77,037 77,401
Deferred income taxes 746 746
Other liabilities 423 415
Long-term debt:
Promissory notes and other debt 923 1,625
Industrial revenue bond 480 480
Subordinated convertible debentures 5,447 5,679
Total long-term debt 6,850 7,784
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 6,276 5,582
Retained earnings 29,996 27,238
Treasury stock (53) (522)
Restricted stock awards and shareholders' notes
receivable (1,926) (1,936)
Total shareholders' equity 34,293 31,078
Total liabilities and shareholders' equity $ 119,349 $ 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 June 30 Three Months Six Months
1998 1997 1998 1997
Contract revenue $109,666 $112,310 $ 220,337 $ 201,314
Contract cost 98,613 102,356 200,355 183,975
Gross profit 11,053 9,954 19,982 17,339
Selling, general and
administrative expenses 7,244 6,659 13,983 12,530
Income from operations 3,809 3,295 5,999 4,809
Other income (expense)
Interest income 2 8 6 16
Interest expense (551) (400) (996) (650)
Gain (loss) on sale of
property and equipment 227 (254) 274 (247)
Miscellaneous (35) 201 (28) 77
Income from continuing
operations before income taxe 3,452 2,850 5,255 4,005
Income tax expense 1,381 1,140 2,102 1,602
Income from continuing operations 2,071 1,710 3,153 2,403
Income from discontinued
operations ---- 602 ---- 602
Net income $ 2,071 $ 2,312 $ 3,153 $ 3,005
Earnings per share - Basic:
Income from continuing
operations $ .37 $ .31 $ .57 $ .44
Income from discontinued
operations ---- .11 ---- .11
Net Income .37 .42 .57 .55
Earnings per share - Diluted:
Income from continuing
operations .31 .25 .48 .36
Income from discontinued
operations ---- .09 ---- .09
Net Income .31 .34 .48 .45
Dividends per common share .035 .033 .070 .066
Weighted average common shares and common
share equivalents outstanding
Basic 5,607 5,415 5,578 5,411
Diluted 6,691 6,964 6,660 6,924
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 1998 1997
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 3,153 $ 2,403
Adjustments to reconcile income from
continuing operations to cash flows from
continuing operations
Depreciation and amortization 2,520 2,732
Amortization of intangibles ---- 54
Loss (gain) on sale of property and
equipment (275) 247
Changes in current assets and liabilities (9,877) (6,282)
Cash flows from continuing operations (4,479) (846)
Cash flows from discontinued operations ---- 2,456
Cash flows from operations (4,479) 1,610
CASH FLOWS FROM INVESTMENTS
Expenditures for property and equipment (1,885) (2,800)
Proceeds from disposition of assets 446 121
Cash used in acquisition, net of cash required ---- (241)
Cash flows from investments (1,439) (2,920)
CASH FLOWS FROM FINANCING
Proceeds from long term debt 3,051 1,142
Proceeds from exercise of stock options 98 112
Increase (decrease) in deferred compensation 7 (6)
Dividends paid (395) (357)
Cash flows from financing 2,761 891
Decrease in cash and cash equivalents (3,157) (419)
Cash and cash equivalents at beginning of year 3,757 1,011
Cash and cash equivalents at end of period $ 600 $ 592
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, 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 May 1,
1997, 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 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 three and six months ended
June 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 June 30
Three Months Six Months
Share Data: 1998 1997 1998 1997
Basic Shares 5,607 5,415 5,578 5,411
Common equivalent shares 725 549 723 513
Shares assumed converted 359 1,000 359 1,000
Diluted shares 6,691 6,964 6,660 6,924
Three Months Ended June 30
1998 1997
Total Per Share Total Per Share
Income from continuing operations:
Basic 2,071 $0.37 1,710 $0.31
Interest on convertible
subordinated shares 21 59
Diluted 2,092 $0.31 1,769 $0.25
Six Months Ended June 30
1998 1997
Total Per Share Total Per Share
Income from continuing operations:
Basic 3,153 $0.57 2,403 $0.44
Interest on convertible
subordinated shares 44 118
Diluted 3,197 $0.48 2,521 $0.36
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 110,671 109,666 220,337
Gross profit 8,929 11,053 19,982
Income from continuing operations 1,803 3,452 5,255
Net income 1,082 2,071 3,153
Earnings per share - Basic:
Income from continuing operations 0.20 0.37 0.57
Net income 0.20 0.37 0.57
Earnings per share - Diluted:
Income from continuing operations 0.17 0.31 0.48
Net income 0.17 0.31 0.48
Dividends paid per share 0.035 0.035 0.070
Market price:
High 12.81 14.25 14.25
Low 11.31 11.31 11.31
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 share 0.033 0.033 0.033 0.033 0.132
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 - Pending Accounting Pronouncements
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 Six Months Ending June 30, 1998
(Dollars in thousands)
Results of Operations
Continuing Operations
Revenue for the three and six month periods was $109,666 and
$220,337, compared to $112,310 and $201,314 in 1997. This is a
decrease of 2.4% and a increase of 9.4% for the three and six month
periods. The net decrease for the three month period relates to the
winding down of a very large hotel and casino project in Las Vegas.
Revenues without this job were up 6% for the three month period
versus last year. The increase for the six month period relates to
the large volume of work generated from the large hotel and casino
project in Las Vegas and the D.W. Close acquisition described in
Note 2 to the Financial Statements.
Gross profit for the three and six month periods was $11,053 and
$19,982, compared to $9,954 and $17,339 in 1997. Gross profit as a
percentage of revenue was 10.1% and 9.1% for the three and six month
periods, respectively, compared to 8.9% and 8.6% in 1997. Margins
were favorably impacted by lower workers compensation expense in the
three month and six month period of 1998 as a result of the company's
safety performance.
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 $7,244 and $13,983, compared to $6,659 and
$12,530 in 1997. The increase for the three and six month periods
reflects the inclusion of D.W. Close and additional compensation cost
to support the higher volume of work in the past year. This
represents 6.6% and 6.3% of consolidated revenues for the three and
six month periods of 1998, compared to 5.9% and 6.2% for 1997.
Net interest expense for the three and six month periods was
$549 and $990, compared to $392 and $634 in 1997. The increase in
interest expense results from higher bank debt to support working
capital needs including higher retention receivable balances on the
major hotel and casino project in Las Vegas.
Gain (loss) on sale of property and equipment for the three and
six month periods was $227 and $274, compared to ($254) and ($247) in
1997. The current year gain represents normal sales and disposals
related to continued emphasis to modernize our fleet. The loss in
1997 related to the sales and disposal of damaged and obsolete units.
Other expense for the three and six month periods was $35 and
$28, compared to other income of $201 and $77 in 1997. The current
year expense consists mainly of bank fees offset by cash discounts.
The prior year 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 six month periods was
$1,381 and $2,102, compared to $1,140 and $1,602 in 1997. As a
percentage of income, the effective rate was 40% in 1998 and 1997.
The Company's backlog at June 30, 1998 was $143,400, compared to
$130,600 at December 31, 1997 and $130,600 at June 30, 1997.
Substantially all the current backlog will be completed within twelve
months and approximately 85% is expected to be completed by December
31, 1998.
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 of 1997, 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).
Liquidity and Capital Resources
Cash flows provided from proceeds of long term debt amounted to
$3,051, proceeds from the exercise of stock options amounted to $98,
and proceeds from the disposition of property and equipment amounted
to $446. The cash flows were primarily used for operations of $4,479,
net capital expenditures of $1,885 and dividend payments of $395.
The Company's financial condition continues to be strong at June 30,
1998 with working capital of $24,177, compared to $22,598 at December
31, 1997. The Company's current ratio was 1.31:1 at June 30, 1998,
compared to 1.29:1 at December 31, 1997.
The Company has a $20,000 revolving and $1,250 term credit
facility. As of June 30, 1998, there were $15,000 and $1,250
outstanding under the revolving and term credit facility,
respectively. The Company has outstanding letters of credit with
Banks totaling $12,243. 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 $1,885, compared to
$2,800 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 six months were $446 and $121 in 1997. The Company plans to
spend approximately $5,700 on capital improvements during 1998.
Year 2000 Compliance
Over the next two years, most companies will face a potentially
serious business problem because many software applications and
business equipment developed in the past may not properly recognize
calendar dates beginning in the year 2000. This problem could cause
systems to become unstable, stop working altogether or provide
incorrect data based upon dates.
In 1997, the Company began to evaluate and convert all systems
that were not capable of performing properly in the year 2000 and
beyond. All critical business systems within the Company are
expected to be compliant by December 31, 1998. The evaluation,
correction and testing of all material systems in the Company will
include internal staff time as well as consulting and other expenses
related to equipment upgrades and replacements and software
modifications. The estimated costs associated with the project are
not anticipated to be material to the financial position or results
of operations in any given year and are being expensed as incurred.
The Company, in addition to the above, is also surveying all
significant customers and suppliers to determine their compliance
with the year 2000 issue and what impact, if any, their efforts will
have on the Company's business.
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
second 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. No reports on Form 8-K were filed by the Company for the second
quarter of 1998.
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 10, 1998 By: /s/
Elliott C. Robbins, Sr. Vice President, Treasurer,
and Chief Financial Officer
(duly authorized representative of registrant and
principal financial officer)