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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
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Commission File Number: 1-8325
MYR GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3158643
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2550 W. GOLF ROAD, ROLLING MEADOWS, IL 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 290-1891
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities 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
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The aggregate market value of the registrant's Common Stock, $1 par value,
held by non-affiliates of the registrant as of March 14, 1996, was $26,436,000
based on the closing price on that date on the New York Stock Exchange. As of
March 14, 1996, 3,187,443 shares of the registrant's Common Stock, $1 par value
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of MYR Group Inc.
for use in connection with its annual meeting of stockholders to be held May
15, 1996 are incorporated by reference into Part III of this annual report.
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Table of Contents
and Cross-Reference Sheet
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Page or Reference
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PART I Item 1. Business ............................................3
Item 2. Properties...........................................6
Item 3. Legal Proceedings....................................7
Item 4. Submission of Matters to a Vote of Security
Holders..............................................7
Part II Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................8
Item 6. Selected Financial Data..............................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................10
Item 8. Financial Statements................................13
Item 9. Changes in and Disagreements with Independent
Accountants on Accounting and Financial
Disclosure..........................................29
Part III Item 10. Directors and Executive Officers of the
Registrant..........................................30
Item 11. Executive Compensation..............................30
Item 12. Security Ownership of Certain Beneficial
Owners and Management...............................30
Item 13. Certain Relationships and Related Transactions......30
Part IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................31
Signatures................................................................32
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MYR GROUP INC.
PART I
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ITEM 1. BUSINESS
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On December 14, 1995 the Certificate of Incorporation of the registrant, MYR
Group Inc. was amended to change the name of the Company to MYR Group Inc.
from The L. E. Myers Co. Group. The Company was organized under the laws of
Delaware in April 1982, to serve as a holding company. Its principal assets
consist of all of the outstanding shares of capital stock of The L. E. Myers
Co., a Delaware corporation ("Myers"), Hawkeye Construction Inc., an Oregon
corporation ("Hawkeye") and Harlan Electric Company, a Michigan corporation
("Harlan"). Myers is based in Rolling Meadows, Illinois and is the successor
to another Delaware corporation of the same name which was organized in 1914 to
succeed a business established in 1891 by Lewis E. Myers. Hawkeye was acquired
by the Company in 1991 and its principal place of business is Troutdale,
Oregon. Harlan was acquired by the Company in 1995 and is headquartered in
Southfield, Michigan. On January 3, 1995 the Company acquired all of the
common stock of Harlan, through a merger of HMM Corporation, a wholly owned
subsidiary of the Company with and into Harlan pursuant to an Agreement and
Plan of Merger dated October 5, 1994 (the "Merger"). Harlan has two
subsidiaries: Sturgeon Electric Company, Inc., a Michigan corporation
("Sturgeon") with its principal place of business in Henderson, Colorado,
acquired by Harlan in 1974 and Power Piping Company, a Pennsylvania corporation
("Power Piping") with its principal place of business in Pittsburgh,
Pennsylvania, acquired by Harlan in 1963. As used under this Item 1 and Item
2, the term "Company" refers collectively to MYR Group Inc. and its direct and
indirect subsidiaries and predecessors, unless the context otherwise requires.
The consolidated financial statements and notes thereto set forth in Part II,
Item 8 of this report contain information regarding Harlan and its subsidiaries
from January 3, 1995.
The general offices of the Company are located at 2550 West Golf Road, Rolling
Meadows, Illinois.
CONSTRUCTION SERVICES
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The Company conducts its business through its direct and indirect operating
subsidiaries. The three principal types of construction services performed by
the company are electric utility line construction, commercial and industrial
electrical construction and mechanical construction.
Myers, Harlan and Sturgeon are involved in the construction and maintenance of
electric transmission lines, substations, distribution systems and lighting
systems for electric utilities and industrial users of similar systems. These
services are frequently referred to as "outside" or "line" electrical
construction service. The Company generally serves the electric utility
industry as a prime construction contractor. Designs and specifications for a
project are usually prepared by the clients or their agents. The Company
supplies the management, labor, equipment and tools necessary to construct the
project. Construction materials are generally supplied by the clients although
the Company occasionally may be required to procure and supply the construction
materials. Most contracts undertaken by the Company are completed within
twelve months, although certain contracts may extend for longer periods.
The Company, through Sturgeon and Harlan provide electric construction and
maintenance services to the commercial and industrial marketplace and
construction services to the telecommunication market. These services are
typically referred to as "inside" electrical construction. The Company's work
in the commercial and industrial electric construction market place is most
often performed as a subcontractor to a general contractor, however, the
Company does perform certain commercial and industrial construction services as
a prime contractor. Commercial and industrial electrical maintenance services
are frequently performed by the Company as a prime contractor. The Company
generally provides the materials to be installed as a part of the scope of
these contracts which vary greatly in size and duration. The Company provides
such construction services on many varied types
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of projects including airports, hospitals, hotels and casinos, arenas
and convention centers, and manufacturing and process facilities. On occasion,
a subsidiary of the Company will enter into a joint venture with another
contractor to perform a specific project. Typically in these cases the
subsidiary and the other contractor will share in the profits or losses on the
project in the percentage determined by the joint venture agreement. The joint
venture agreement will define the obligations of the subsidiary and the other
contractor with respect to the project and the management of the venture.
The Company, through Power Piping, also provides mechanical construction and
maintenance services for the steel industry, electric utility industry,
chemical industry and other industrial customers located in the eastern half of
the United States. These services are provided by the Company both as a prime
contractor and as a subcontractor.
The Company's construction and maintenance crews are active year round in all
geographic areas in which the Company operates. Winter weather in some
northern areas and summer weather in some southern areas can adversely impact
work schedules.
The Company is subject to the authority of state and municipal regulatory
bodies concerned with the licensing of contractors. The Company has
experienced no material difficulty in complying with the requirements imposed
on it by such regulatory bodies.
The Company's operations are currently conducted exclusively in the United
States.
CUSTOMERS
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Electric utilities, in the aggregate, represent the largest customer base of
the Company. During the last five years, the Company's ten largest customers
accounted for approximately 40% of its consolidated contract revenues and its
single largest customer accounted for approximately 11% of such revenue. As a
result of the Merger, the percentage of the Company's consolidated revenues
derived from the electric utility industry has been reduced from prior years.
General contractors, as a group, constitute a significant group of customers
for the Company's commercial and industrial work. Municipal or other government
funded large projects provide the Company with significant revenues when it is
awarded all or a substantial part of the electrical construction work on such
projects.
In 1995 the Company's ten largest customers accounted for approximately 40% of
annual revenues. The Company's single largest customer during 1995 was Detroit
Edison Company, an electrical utility in Michigan, accounting for
approximately 7% of such revenue.
CONTRACTS
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The Company enters into contracts principally on the basis of competitive bids.
Although there is considerable variation in the terms of the contracts
undertaken by the Company, they will usually be either lump sum or unit price
contracts pursuant to which the Company agrees to do the work for a fixed
amount for the entire project or for the particular units of work performed.
On occasion, the Company does obtain cost-plus contracts which provide for
reimbursement of costs incurred by the Company, often within stated limits,
plus the payment of a fee in a fixed amount or equal to a percentage of
reimbursable cost. On occasion these cost-plus contracts require the Company
to include a guaranteed not-to-exceed maximum price. Lump sum or unit price
contracts have accounted for the larger portion of the Company's contract
revenues in recent years. Such contracts typically place greater risks on the
Company than do contracts of the cost-plus type. A portion of the work
performed by the Company requires performance and payment bonds at the time of
execution of the contract. Contracts generally include payment provisions
pursuant to which a 5% to 10% retainage is withheld from each progress payment
until the contract work has been completed.
The Company's backlog was $69,100,000 at December 31, 1995, compared to
$28,200,000 at December 31, 1994. The varying magnitude and duration of
projects undertaken by the Company may result in substantial fluctuations in
its backlog from time to time. Substantially all of the December 31, 1995
backlog will be completed in 1996.
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Certain of the projects which the Company undertakes are not completed in one
accounting period. Revenue on such construction contracts is recorded on the
percentage-of-completion accounting method determined by the ratio of cost
incurred to date on the contracts to management's estimates of total contract
costs. Projected losses are provided for in their entirety without reference
to percentage-of-completion.
Some projects give rise to claims by the Company against its customers for
additional compensation based upon such matters as scheduling changes, delays
and interruptions or improper or revised specifications. The resolution of
such claims often extends over several years. Management's judgment as to the
possible outcome of such claims pending at the end of a financial reporting
period is reflected in the Company's results of operations for such period and
is revised in subsequent periods if and as required by developments with
respect to such claims (see Note 1 to the Financial Statements).
COMPETITION
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The Company's business is highly competitive. Competition is primarily based
on the price of the construction services rendered and upon the reputation for
quality and reliability of the contractor rendering them.
The competition encountered by the Company varies depending upon the type of
construction services which it renders. The construction and maintenance
service provided to electric utilities and industrial owners of similar systems
often requires larger amounts of capital and more specialized equipment than
the requirements for commercial construction. Larger electric utility projects
require increased numbers of heavy duty equipment as well as stronger financial
resources to meet the cash flow requirements of these projects. These factors
reduces the number of potential competitors on these projects to the larger
competitors. The number of firms which generally compete for any electric
utility project varies greatly depending on a number of factors including, the
size of the project, its location and the bidder qualification requirements
imposed upon contractors by the customer. Many of the competitors the Company
encounters restrict their operations to one geographic area while a few operate
nationally, as does the Company.
Competition for the electrical construction services provided by the Company to
the commercial and industrial customers varies greatly. Again, size and
location of the project will impact which competitors and the number of
competitors the company will encounter on any particular project. The
individual relationships with general contractors developed over several years
by particular contractors based upon prior projects worked together will impact
the Company's and its competitors' opportunities to bid on certain projects.
The equipment requirements for this type of work are not as significant as for
the electric utility construction. Since commercial construction typically
involves the purchase of materials by the contractor the financial resources to
meet these requirements on particular projects may impact the competition the
Company encounters. The Company has principally performed such construction
services in the western half of the United States. Certain of the Company's
competitors for this type of work operate nationally, however, the
preponderance of the Company's competition operates regionally.
The Company's mechanical construction and maintenance service have been
performed principally in the eastern half of the United States. The Company's
competitors for this type of work operate regionally.
The Company's competition includes entities which operate solely as union
contractors, solely as non-union contractors, or in certain cases, through
related companies having both union and non-union contractors.
In essentially all cases involving maintenance services provided by the
Company, the Company's customers will also perform some or all of these types
of services as well.
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EMPLOYEES
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At December 31, 1995, the Company had approximately 275 salaried employees
including executive officers, district managers, project managers,
superintendents, estimators, office managers, and staff and clerical personnel.
At the same date, the Company employed approximately 2,450 hourly-rated
employees, whose number fluctuates depending upon the number and size of the
projects under construction by the Company at any particular time. At that
date, approximately 90% of the Company's hourly-rated employees were members of
the International Brotherhood of Electrical Workers ("IBEW"), AFL-CIO. Such
IBEW employees are represented by numerous local unions under various
agreements with varying terms and expiration dates. Such local agreements are
entered into by and between the IBEW local and the National Electrical
Contractors Association, of which the Company is a member. On occasion the
Company will employ employees who are members of other trade unions pursuant to
multi-employer, multi-union project agreements. A small number of the Company's
employees are represented by the United Association of Journeymen and
Apprentices of the Plumbing and Pipe Fitting Industry.
ITEM 2. PROPERTIES
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CONSTRUCTION EQUIPMENT
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The Company owns a substantial amount of construction equipment. This
equipment, which at December 31, 1995 had an aggregate cost of $51,825,000 and
a book value of $16,056,000 includes, among other items, trucks, trailers,
tractors, tension stringing machines, bulldozers, bucket trucks, digger
derricks, cranes and construction tools. Circumstances often require the
Company to lease or rent various items of equipment in connection with its work
on particular projects. The terms of these equipment leases and rental
agreements are generally related to the length of time to complete the
construction contract and sometimes include an option to purchase. The Company
generally exercises the lease-purchase options with respect to such equipment
and in such cases usually receives a credit toward the purchase price in the
amount of all or a portion of the rentals paid on the lease.
REAL ESTATE
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The general offices of the Company occupy approximately 7,500 square feet of
leased space in an office building at 2550 West Golf Road, Rolling Meadows,
Illinois. The lease on these quarters expires in September of 1996. Rental
for such property in 1995 totaled approximately $80,300.
The Company owns land which at December 31, 1995 aggregated approximately 63
acres. Buildings owned by the Company as of the same date contained
approximately 344,200 square feet of space and housed certain regional offices
and equipment centers, as well as a number of small warehouses and garages.
Certain other regional locations, which were leased on December 31, 1995,
contained approximately 125,000 square feet of enclosed space. Rentals for
such property in 1995 totaled approximately $854,000 and were under both long
and short-term leases.
The following table sets forth Company acquisitions of all property and
equipment, including acquisitions under capital leases, during each of the last
three years.
Year Amount
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1995 $4,959,000
1994 $4,449,000
1993 $3,432,000
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ITEM 3. LEGAL PROCEEDINGS
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In September 1984, the Company's umbrella insurance carrier, National
Union Fire Insurance Company of Pittsburgh (National Union) filed a lawsuit in
the Supreme Court of the State of New York seeking a declaratory judgment that
it was not obligated to defend and indemnify the Company for losses and damages
related to errors in the design of four transmission towers designed for the
City Utilities Commission of Owensboro, Kentucky (OMU) by the Company's former
engineering subsidiary, LEMCO Engineers, Inc. (LEMCO). (See Note 11 to the
Financial Statements). The case was removed to U. S. District Court for the
Southern District of New York. The Company filed a counterclaim against
National Union seeking a declaratory judgment that National Union must
indemnify the Company with respect to all claims above the primary policy
limits of $1,000,000. The Company also filed cross claims against the
insurance brokers who secured the excess insurance for the Company, the EMAR
Company, American Risk Management, Inc. and the Walsh Group, alleging breach of
contract, breach of fiduciary duty and negligence in connection with the
procurement of the policy and seeking to hold these third party defendants
liable to the Company in the event the Court holds that National Union is not
obligated to indemnify the Company under the excess insurance policy. The case
was placed on the Court's suspense docket pending the outcome of a related
Kentucky State Court lawsuit brought by OMU against LEMCO and the steel
supplier (the "Kentucky Case"). The Kentucky Case was settled in November 1993
and the U. S. District Court removed the National Union case from the suspense
docket in February 1994. A trial date of April 15, 1996 has been set by the
U.S. District Court.
The Company is also 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
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A special meeting of stockholders of the Company was held on December 14, 1995.
The stockholders approved an amendment to Article First of the Company's
Certificate of Incorporation pursuant to which the name of the Company was
changed to MYR Group Inc. from The L. E. Myers Co. Group. The vote on the
proposal was 2,157,665 shares in favor of the amendment, 27,188 shares against
the amendment and 2,593 shares abstained. The vote in favor constitute 90.56%
of the number of shares issued and outstanding and entitled to vote at the
meeting.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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The shares of Common Stock of the Company are listed and traded on the New York
Stock Exchange. As of March 14, 1996 there were approximately 1,087 holders of
record of the shares of Common Stock of the Company. The following table sets
forth quarterly market price and dividend information per share for the Common
Stock of the Company (see Note 18 to the Financial Statements).
Quarter Ended Stock Price Range (1) Dividends Declared (1)
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December 31, 1995 $10.00 - $11.81 $.047
September 30, 1995 9.19 - 11.91 .047
June 30, 1995 8.53 - 10.31 .047
March 31, 1995 7.97 - 9.66 .041
December 31, 1994 8.06 - 9.56 .041
September 30, 1994 7.31 - 10.22 .041
June 30, 1994 7.78 - 9.19 .041
March 31, 1994 7.78 - 9.00 .041
(1) The stock price range and dividends declared reflect a four-for-three stock
split in the form of a stock dividend on December 15, 1995.
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ITEM 6. SELECTED FINANCIAL DATA
CONTINUING OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991
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FOR THE YEAR Contract revenue $266,965 $86,842 $108,515 $110,251 $96,097
Income 3,429 2,329 1,633 3,584 3,045
Depreciation and amortization 6,189 3,191 2,892 2,287 1,701
Capital expenditures 4,959 4,449 3,432 6,160 2,648
Interest expense 1,772 99 350 324 373
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AT YEAR END Backlog $69,100 $28,200 $26,150 $31,370 $28,831
Working capital 15,490 8,595 8,636 10,404 11,082
Property (net) 23,144 14,652 13,189 12,505 8,425
Total assets 101,834 39,644 39,624 41,918 34,682
Total long-term debt 14,590 318 804 1,478 1,337
Shareholders' equity 26,618 23,622 22,046 21,813 18,196
Shares outstanding 3,182 3,172 3,193 3,297 3,289
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PER SHARE Income
DATA Primary $1.01 $.70 $.48 $1.03 $.89
Fully diluted .91 .70 .48 1.03 .89
Book value 8.37 7.45 6.91 6.62 5.54
Stock price range
Low 7.97 7.31 6.38 11.44 9.38
High 11.91 10.22 13.41 19.03 13.22
Cash dividends .1819 .1650 .1575 .1388 .1181
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NOTES: 1. Selected financial data for 1995 includes Harlan Electric
Company since the January 3, 1995 date of acquisition (see Note
2 to the Financial Statements).
2. The selected financial data excludes discontinued operations
(see Note 5 to the Financial Statements).
3. All share and per share data have been adjusted for the four-
for-three stock split in the form of a stock dividend in
December 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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(all dollar amounts, except per share amounts, are in thousands)
Results of Operations
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Continuing Operations
Revenues increased by 207.4% to $266,965 in 1995 from $86,842 in 1994. The
1995 increase in revenues was due to the Harlan acquisition described in Note 2
to the Financial Statements. Revenue growth of 5% was achieved in 1995 from
1994 when considering the Harlan revenues in 1994 combined with the pre-merger
revenues of the Company on a pro forma basis (See Note 2 in the Financial
Statements).
The use of alliances by several of the Company's clients accounted for some
revenue in 1995. Clients use alliances to award some or all of their
construction requirements to one or more (generally not more than two)
preferred contractors at predetermined prices or negotiated prices without
competitive bids. The Company anticipates that alliance generated revenues
will continue to grow as a percentage of the Company's total revenues.
Revenues decreased by 20.0% to $86,842 in 1994 from $108,515 in 1993. The
decrease was due to several utility customers reducing the volume of work to be
awarded as a result of concerns over the potential impact of deregulation of
the electric utility industry.
Gross profit increased by 140.3% to $29,547 in 1995 from $12,297 in 1994 due
primarily to the acquisition of Harlan. The gross profit percentage decreased
to 11.1% in 1995 compared to 14.2% in 1994 due, in large part, to a different
mix of construction work performed by the Company. An increased percentage of
revenues in 1995 was from projects which included the supply of materials which
carry a lower markup. Increased workers compensation and other insurance costs
and related expenses also contributed to the reduction in gross margin
percentage in 1995.
Gross profit increased by 16.0% to $12,297 in 1994 from $10,602 in 1993. Gross
profit percentage increased to 14.2% in 1994 compared to 9.8% in 1993. The
increase in gross profit percentage from 1993 to 1994 resulted primarily from
reduced workers compensation costs and related expenses in 1994 and depressed
margins in 1993.
Revenue and gross profit comparisons from quarter to quarter and comparable
quarters of different periods may be impacted by variables beyond the control
of the Company. Such variables include unusual or unseasonable weather and
delays in receipt of construction materials on projects where the materials are
provided to the Company by its clients. The different mix of the Company's
work from period to period can impact gross margin percentage. As the percent
of revenue derived for projects in which the Company supplies materials
increases, the gross profit percentage will generally decrease. As the
percentage of revenue derived from cost-plus work increases, margins may also
decrease since this work involves lower financial risk. Finally, since the
Company's revenues are derived principally from providing construction labor
services, insurance costs, particularly for workers' compensation, are a
significant factor in the Company's contract cost structure. Fluctuations in
insurance reserves for claims under the retrospective rated insurance programs
can have a significant impact on gross margins, either upward or downward, in
the period in which such insurance reserve adjustments are made.
Selling, general and administrative expenses increased by 166.7% to $21,780 in
1995 from $8,165 in 1994 due to the acquisition of Harlan and increased expenses
to sustain higher levels of revenue. Selling, general and administrative
expenses as a percentage of revenues decreased to 8.2% in 1995 from 9.4% in 1994
due to higher revenue volume spread over a relatively fixed expense base.
Selling, general and administrative expenses increased by 4.1% to $8,165 in
1994 from $7,844 in 1993 due to increased compensation costs for additional
operating personnel and employee incentive awards related to improved operating
results. Offsetting the increase was a reduction in costs relating to
favorable settlements of a legal matter that were accrued in 1993. Selling,
general
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and administrative expenses as a percentage of revenue increased to
9.4% in 1994 from 7.2% in 1993 due to lower revenue volume spread over a
relatively fixed expense base.
Net interest expense was $1,707 in 1995 compared to net interest income of $49
in 1994. Interest expense increased in 1995 primarily due to long-term debt
acquired in the acquisition of Harlan and short-term borrowing used primarily
to finance the Company's increased working capital requirements.
Net interest income was $49 in 1994 compared to net interest expense of $320 in
1993. Interest expense decreased in 1994 due to lower revenues which permitted
the Company to generate sufficient cash flow from operations to fund more of
its working capital requirements.
Other expense was $565 in 1995 compared to $427 in 1994 and consisted primarily
of $260 from the amortization of non-competition agreements and $107 from the
amortization of goodwill.
Other expense was $427 in 1994 compared to $317 in 1993 and consisted primarily
of $260 for the amortization of non-competition agreements.
Income tax expense increased 53.1% to $2,286 in 1995 from $1,493 in 1994 due to
the corresponding increase in income before taxes. As a percentage of income
the effective rate was 40.0% for 1995 and 39.1% for 1994.
Income tax expense increased 155.7% to $1,493 in 1994 from $584 in 1993 due to
an increase in income before taxes and to the Company employing an interest
rate hedging transaction during 1993 which reduced the effective tax rate for
that year. As a percentage of income the effective rate was 39.1% for 1994 and
26.3% for 1993.
The Company's backlog was $69,100 at December 31, 1995, $28,200 at December 31,
1994 and $26,150 at December 31, 1993. Substantially all of the current
backlog will be completed within twelve months.
Discontinued Operations
During 1988, the Company's Board of Directors approved plans to dispose of its
engineering and telecommunications subsidiaries. As part of the sale of the
engineering subsidiary, the Company retained certain rights and obligations in
connection with two lawsuits. In 1994 the Company recorded additional amounts,
primarily legal expenses related to these lawsuits, which resulted in an
additional loss from discontinued operations of $150 (see Item 3, Legal
Proceedings and Note 11 to the Financial Statements).
Liquidity and Capital Resources
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As of December 31, 1995 the Company had working capital of $15,490 as compared
to $8,595 in 1994 and $8,636 in 1993. Working capital increased in 1995
primarily due to the acquisition of Harlan. Working capital decreased
marginally in 1994 compared to 1993 due to increased expenditures for property
and equipment in 1994.
The ratio of current assets to current liabilities was 1.27:1 at December 31,
1995.
The acquisition of Harlan was completed on January 3, 1995. The purchase price
was $19,291. Of this amount $13,612 was paid to the Harlan shareholders in cash
with the remaining $5,679 of the payment in the form of convertible subordinated
notes of the Company's. The subordinated notes are convertible into shares of
the Company's common stock at a price per share of $9.4659. The cash portion of
the purchase price was funded partly through the Company's cash balances and
partly from bank debt (see Note 2 to the Financial Statements).
The Company has a $25,000 revolving and term credit facility (see Note 8 to the
Financial Statements). As of December 31, 1995 there were $9,200 and $7,500
outstanding under the revolver and term credit facility, respectively. The
Company has outstanding letters of credit with
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banks totaling $12,366, of which $11,224 guarantees the Company's
payment obligations under its insurance programs and $1,142 which is a credit
enhancement to guarantee an industrial revenue bond. 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 Company's Board of Directors has authorized the purchase of up to 333,333
shares of its common stock. No purchases were made in 1995 and the Company has
no current plans to purchase additional shares. In 1994 and 1993, purchases
made under this program totaled 20,821 shares and 109,067 shares at a cost of
$168 and $992 respectively. At December 31, 1995 the balance available under
the Board of Directors' authorization to purchase shares was 154,645.
Capital expenditures were $4,959 in 1995, compared to $4,449 in 1994 and $3,295
in 1993. Capital expenditures during these periods were used for normal
property and equipment additions, replacements and upgrades. The Company plans
to spend approximately $5,000 on capital improvements in 1996.
Cash flows from operations were $4,161 in 1995 compared to $6,647 in 1994.
This reduction is primarily the result of increased accounts receivable and
work in process related to the increase in revenue. Cash flows from operations
increased $856 in 1994 to $6,647 from $5,791 in 1993. The increase in cash
flow in 1994 compared to 1993 resulted from improved operations after cash
flows from discontinued operations.
Cash flows used for investments in1995 included $12,995 for the acquisition of
Harlan (see Note 2 of the Financial Statements). Cash flows were generated
from the disposal of property and equipment amounting to $1,818. The increase
in cash flows used for investment in 1994 compared to 1993 is primarily due to
increased expenditures for property and equipment.
Cash flows for dividends were $575, $527 and $508 in 1995, 1994 and 1993,
respectively. Financing costs of $133 represented banking fees for the Harlan
acquisition financing.
12
13
ITEM 8. FINANCIAL STATEMENTS
- -----------------------------
Index to Financial Statements
-----------------------------
Page
Responsibility for Financial Statements 14
Independent Auditors' Report 15
Financial Statements:
Consolidated Balance Sheet -
December 31, 1995 and 1994 16
Consolidated Statement of Operations -
Years Ended December 31, 1995, 1994 and 1993 17
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993 18
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 19
Notes to Financial Statements 20
13
14
MYR GROUP INC.
- --------------------------------------------------------------------------------
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements, and all other information in this annual report, were
prepared by management which is responsible for their integrity and
objectivity. Management believes the financial statements, which require the
use of certain estimates and judgments, fairly and accurately reflect the
Company's financial position and operating results, in accordance with
generally accepted accounting principles. All financial information in this
annual report is consistent with the financial statements.
Management maintains a system of internal controls which it believes provides
reasonable assurance that, in all material respects, assets are maintained and
accounted for in accordance with management's authorizations and transactions
are recorded accurately in the books and records. The concept of reasonable
assurance is based on the premise that the cost of internal controls should not
exceed the benefits derived. To assure the effectiveness of the internal lines
of responsibility and delegation of authority, the Company's formally stated
and communicated policies require employees to maintain high ethical standards
in their conduct of its business. These policies address, among other things,
potential conflicts of interest; compliance with all laws, including those
related to financial disclosure; and confidentiality of proprietary
information.
The Audit Committee of the Board of Directors is comprised entirely of
directors who are not employees of the Company. The committee reviews audit
plans, internal controls, financial reports and related matters and meets
regularly with the Company's management and independent auditors. The
independent auditors have free access to the Audit Committee, without
management being present, to discuss the results of their audits or any other
matters.
Deloitte & Touche LLP, independent auditors, have audited the financial
statements of the Company. Their report is presented on page 15. Their audit
includes a study and evaluation of the Company's control environment,
accounting systems and control procedures. Deloitte & Touche LLP advises
management and the Audit Committee of significant matters resulting from their
audit of our financial statements and consideration of our internal controls.
Charles M. Brennan III
Chairman and
Chief Executive Officer
Elliott C. Robbins
Senior Vice President, Treasurer
and Chief Financial Officer
14
15
MYR GROUP INC.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
MYR Group Inc.:
We have audited the accompanying consolidated balance sheets of MYR Group Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MYR Group Inc. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
March 20, 1996
15
16
MYR GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
- ----------------------------------------------------------------------------------------------------
ASSETS Current assets:
Cash and cash equivalents $ 703 $ 6,115
Accounts receivable (Note 3) 51,114 12,687
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note 4) 14,851 1,408
Deferred income taxes (Note 10) 4,602 1,622
Other current assets 1,594 532
---------- ---------
Total current assets 72,864 22,364
Property and equipment-net (Notes 6, 7 and 8) 23,144 14,652
Intangible assets - net 2,681 368
Other assets (Note 11) 3,145 2,260
---------- ---------
Total assets $ 101,834 $ 39,644
- ----------------------------------------------------------------------------------------------------
LIABILITIES Current liabilities:
Current obligations under capital leases (Note 7) $ 58 $ 267
Current maturities of long-term debt (Note 8) 9,120 240
Accounts payable 13,886 3,069
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 4) 5,042 783
Accrued liabilities (Note 9) 29,268 9,410
---------- ---------
Total current liabilities 57,374 13,769
Obligations under capital leases (Note 7) - 58
Long-term debt (Note 8) 14,590 260
Deferred compensation 391 418
Deferred income taxes (Note 10) 2,861 1,257
Other liabilities - 260
SHAREHOLDERS' Common stock - par value $1 per share;
EQUITY authorized 6,000,000 shares; issued
3,349,593 shares 3,350 2,512
Additional paid-in capital 5,898 6,757
Common stock held in Treasury, at cost:
1995 - 167,484 shares and
1994 - 177,751 shares (Note 12) (1,548) (1,643)
Retained earnings 19,326 16,472
Shareholders' notes receivable (Note 14) (408) (476)
---------- ---------
Total shareholders' equity 26,618 23,622
---------- ---------
Total liabilities and shareholders' equity $ 101,834 $ 39,644
- ----------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this statement.
16
17
MYR GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Contract revenue $ 266,965 $ 86,842 $ 108,515
Contract cost 237,418 74,545 97,913
----------- ----------- ----------
Gross profit 29,547 12,297 10,602
Selling, general and administrative expenses 21,780 8,165 7,844
----------- ----------- ----------
Income from operations 7,767 4,132 2,758
Other income (expense)
Interest income 65 148 30
Interest expense (1,772) (99) (350)
Gain on sale of property and equipment 220 68 96
Other (565) (427) (317)
----------- ----------- ----------
Income from continuing operations
before income taxes 5,715 3,822 2,217
Income tax expense (Note 10) 2,286 1,493 584
----------- ----------- ----------
Income from continuing operations 3,429 2,329 1,633
Loss from discontinued operations (Note 5) - (150) -
----------- ----------- ----------
Net income $ 3,429 $ 2,179 $ 1,633
- ------------------------------------------------------------------------------------------------
Earnings per share (Note 13) - Primary:
Income from continuing operations $ 1.01 $ .70 $ .48
Net income $ 1.01 $ .65 $ .48
Earnings per share (Note 13) - Fully Diluted:
Income from continuing operations $ .91 $ .70 $ .48
Net income $ .91 $ .65 $ .48
- ------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this
statement.
17
18
MYR GROUP INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
- ----------------------------------------------------------------------------------------------
Common Additional Shareholders'
Stock Paid-In Treasury Retained Notes
Issued Capital Stock Earnings Receivable Total
-----------------------------------------------------------------------
Balance January 1,
1993 $2,510 $6,756 $ (493) $13,695 $(655) $21,813
Issuance of 4,270
common shares
upon exercise of
stock options 2 1 9 12
Net income 1,633 1,633
Dividends paid (508) (508)
Shareholders' note
payments 88 88
Treasury stock
purchases (992) (992)
-----------------------------------------------------------------------
Balance December 31,
1993 2,512 6,757 (1,476) 14,820 (567) 22,046
Net income 2,179 2,179
Dividends paid (527) (527)
Shareholders' note
payments 91 91
Treasury stock
purchases (167) (167)
-----------------------------------------------------------------------
Balance December 31,
1994 2,512 6,757 (1,643) 16,472 (476) 23,622
Effect a four-for-
three stock split in
a form of a stock
dividend 838 (838)
Issuance of 10,267
common shares
upon exercise of
stock options (21) 95 74
Net income 3,429 3,429
Dividends paid (575) (575)
Shareholders' note
payments 68 68
-----------------------------------------------------------------------
Balance December 31,
1995 $3,350 $5,898 $(1,548) $19,326 $(408) $26,618
- ----------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this
statement.
18
19
MYR GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
CASH Income from continuing operations $ 3,429 $ 2,329 $ 1,633
FLOWS Adjustments to reconcile income
FROM from continuing operations to cash
OPERATIONS flows from continuing operations:
Depreciation and amortization 5,822 2,931 2,632
Amortization of non-compete agreements 260 260 260
Amortization of goodwill 107 - -
Deferred income taxes 489 781 140
Gain on sale of property and equipment (220) (68) (95)
Changes in operating assets and
liabilities:
Accounts receivable (3,622) 1,173 2,263
Inventory - - 1,763
Costs and estimated earnings in
excess of billings on uncompleted
contracts (6,557) 395 523
Other assets 247 (421) 33
Accounts payable (4,673) 346 (3,213)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 685 (438) (414)
Insurance accruals 4,338 (937) 2,470
Other liabilities 3,856 446 (899)
------- -------- --------
Cash flows from continuing operations 4,161 6,797 7,096
Cash flows from discontinued operations - (150) (1,305)
------- -------- --------
Cash flows from operations 4,161 6,647 5,791
------- -------- --------
CASH Proceeds from disposal of property and
FLOWS equipment 1,818 123 211
FROM Expenditures for property and equipment (4,959) (4,449) (3,295)
INVESTMENTS Cash used in acquisition, net of cash acquired (12,995) - -
------- -------- --------
Cash flows from investments (16,136) (4,326) (3,084)
------- -------- --------
CASH Proceeds from issuance of long-term debt 19,500 - 719
FLOWS Repayments on long-term debt (12,344) (1,274) (1,941)
FROM Purchases of treasury stock - (167) (992)
FINANCING Decrease in deferred compensation (27) (27) (39)
Proceeds from exercise of stock options 74 - 12
Dividends paid (575) (527) (508)
Shareholders' note payments 68 91 88
Financing costs (133) - -
------- -------- --------
Cash flows from financing 6,563 (1,904) (2,661)
------- -------- --------
Increase (decrease) in cash and cash equivalents (5,412) 417 46
Cash and cash equivalents beginning of year 6,115 5,698 5,652
------- -------- --------
Cash and cash equivalents end of year $ 703 $ 6,115 $ 5,698
- ---------------------------------------------------------------------------------------------------
The "Notes to Financial Statements" are an integral part of this
statement.
19
20
MYR GROUP INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - On December 14, 1995 the company changed it's name to MYR Group Inc.
from The L. E. Myers Co. Group. The three principal types of
construction services performed by the Company are electric utility line
construction, commercial and industrial electrical construction and mechanical
construction. Work is performed under lump sum, unit price, and cost-plus-fee
contracts. These contracts are undertaken by the Company or its subsidiaries
alone, or with subcontractors.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. The Company's investment in
joint ventures is accounted for by the equity method. All material
intercompany balances and transactions have been eliminated.
Revenue Recognition - The Company recognizes revenue on construction contracts
using the percentage-of-completion accounting method determined in each case by
the ratio of cost incurred to date on the contract (excluding uninstalled
direct materials) to management's estimate of the contract's total cost.
Contract cost includes all direct material, subcontract and labor costs and
those indirect costs related to contract performance, such as supplies, tool
repairs and depreciation. The Company charges selling, general, and
administrative costs, including indirect costs associated with maintaining
district offices, to expense as incurred.
Provisions for estimated losses on uncompleted contracts are recorded in the
period in which such losses are determined. Changes in estimated revenues and
costs are recognized in the periods in which such estimates are revised.
Significant claims are included in revenue in accordance with industry
practice.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents amounts billed in excess of revenues recognized.
Classification of Current Assets and Current Liabilities - The length of the
Company's contracts varies, with some larger contracts exceeding one year. In
accordance with industry practice, the Company includes in current assets and
current liabilities amounts realizable and payable under contracts which may
extend beyond one year.
Land and Building Held for Sale - Other current assets as of December 31, 1995
includes $1,300,000 for land and a building held for sale. Such assets,
acquired in the acquisition described in Note 2, are stated at fair value at
the date of acquisition which is their estimated net realizable value.
Insurance - The Company maintains insurance coverage it believes to be adequate
for its needs. Under its insurance contracts, the Company usually accepts
self-insured retentions appropriate for the specific risks of its business.
Property and Equipment - Property and equipment are carried at cost.
Depreciation for buildings and improvements is computed using the straight line
method over estimated useful lives ranging from five years to 32 years.
Depreciation for equipment is computed using straight line and accelerated
methods over estimated useful lives ranging from three years to ten years. The
cost of maintenance and repairs is charged to income as incurred.
Intangible Assets - Intangible assets consist of non-competition agreements and
goodwill arising from acquisitions. The non-competition agreements are being
amortized over their contractual lives of five years. Goodwill represents the
excess of the purchase price over the fair value of net assets
20
21
acquired in a business combination treated as a purchase. Goodwill is
being amortized on a straight line basis over 25 years.
Income Taxes - Deferred income taxes are recorded based upon the differences
between financial statement and tax basis of assets and liabilities and
available tax credit carryforwards.
Consolidated Statement of Cash Flows - For purposes of this statement, short
term investments which have a maturity of ninety days or less are considered to
be cash equivalents. Supplemental disclosures with respect to cash flows are
as follows (in thousands):
1995 1994 1993
------------ ---------- ----------
Cash paid for interest $1,677 $105 $354
Cash paid for income taxes 1,937 452 407
Convertible subordinated notes
issued (Note 2) 5,679 - -
Capital lease obligations incurred - - 137
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual
results could differ from those estimates.
Changes in Accounting Policy - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" which the Company must adopt by
fiscal 1996. This Statement allows for, and the Company intends to, retain the
current method of accounting for employee stock-based compensation arrangements
with certain additional disclosures. Accordingly, the new standard will not
have an effect on the Company's net income or financial position.
Other - 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 and prior years to reflect the stock split. Certain other amounts in
prior year financial statements have been reclassified to conform to the 1995
presentation.
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 subordinated notes. The principal of each note will be due
in three equal installmants 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.
21
22
The following table presents, on a pro forma basis, an unaudited condensed
consolidated balance sheet at December 31, 1994, giving effect to the
acquisition as if it occurred on that date (in thousands).
Assets
- ------
Current assets $ 67,069
Net property, plant and equipment 25,493
Other assets 5,898
----------
$ 98,460
==========
Liabilities and Equity
- ----------------------
Current liabilities $ 48,022
Long-term bank debt 17,526
Other long-term liabilities 3,611
Convertible subordinated notes 5,679
Shareholders' equity 23,622
----------
$ 98,460
==========
The following unaudited pro forma summary presents the consolidated results of
continuing operations as if the acquisition had occurred January 1, 1994 and
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of January 1, 1994 or of results which may
occur in the future (in thousands, except per share amounts).
Contract revenue $ 253,824
Net income 5,652
Income per share
Primary 1.70
Fully diluted 1.55
Adjustments made in arriving at pro forma unaudited results of operations
include increased interest expense on acquisition debt, amortization of
goodwill and related tax adjustments.
3. ACCOUNTS RECEIVABLE (IN THOUSANDS)
1995 1994
-------------- ------------
Contract receivables $ 45,320 $ 10,518
Contract retainages 6,178 1,825
Other 164 394
-------------- -----------
51,662 12,737
Allowance for doubtful accounts 548 50
-------------- -----------
$ 51,114 $ 12,687
============== ===========
4. CONTRACTS IN PROCESS (IN THOUSANDS)
1995 1994
-------------- ------------
Costs incurred on uncompleted contracts $ 256,714 $ 43,547
Estimated earnings 31,515 5,109
-------------- ------------
288,229 48,656
Less: Billings to date 278,420 48,031
-------------- ------------
$ 9,809 $ 625
============== ============
22
23
1995 1994
------- -------
Included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $14,851 $1,408
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,042 783
------- ------
$ 9,809 $ 625
======= ======
5. 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 11). In 1994, the Company recorded additional amounts,
primarily legal expenses related to the OMU lawsuits, which resulted in
additional losses of $150,000 (net of income tax benefits of $100,000) (see
Note 11).
6. PROPERTY AND EQUIPMENT (IN THOUSANDS)
1995 1994
------- -------
Land $ 1,292 $ 748
Buildings and improvements 5,292 2,824
Construction equipment 51,825 44,804
Office equipment 3,216 2,139
------- -------
61,625 50,515
Accumulated depreciation 38,481 35,863
------- -------
$23,144 $14,652
======= =======
7. LEASES AND COMMITMENTS
At December 31, 1995, the Company had outstanding irrevocable standby letters
of credit totalling $12,366,000 of which $11,224,000 guarantees the Company's
payment obligation under its insurance programs and $1,142,000 which is a
credit enhancement to guarantee an industrial revenue bond.
The Company leases construction equipment and office equipment. The net book
value of leased assets that have been capitalized in property and equipment is
$132,000 and $853,000 as of December 31, 1995 and 1994, respectively
Minimum lease payments and the present value of capital lease obligations under
capital leases in effect at December 31, 1995 are $60,000 and $58,000
respectively.
The Company also leases real estate and construction equipment under operating
leases with terms ranging from one to five years. Future minimum lease
payments as of December 31, 1995 total $3,979,000, $628,000, $554,000 and
$410,000 and $339,000 for the years ending 1996, 1997, 1998, 1999 and 2000,
respectively. Total rent expense, including both short-term and long-term
leases, for 1995, 1994, and 1993 amounted to approximately $7,417,000,
$4,299,000, and $5,654,000, respectively.
23
24
8. LONG-TERM DEBT
Long-term debt outstanding consisted of the following (in thousands):
1995 1994
-------- ------
Variable - rate term credit agreement (effective interest
rate of 7.6% at December 31, 1995), payable in quarterly
installments of $625 March 1995 through December 1998 $ 7,500 $ -
Variable - rate revolving credit agreement, (effective
interest rate of 8.0% at December 31, 1995), payable
at maturity in December 1998 9,200 -
7% convertible subordinated notes, payable in three
equal installments commencing in January 2000 5,679 -
Industrial revenue bond financing at variable rates
(weighted average of 8.5%) and due in varying annual
amounts ranging from $180 to $250 through 2000 1,070
Variable - rate notes payable (1.26% over adjusted
LIBOR), payable in monthly installments through January 1997 261 500
-------- ------
23,710 500
Less current portion 9,120 240
-------- ------
$ 14,590 $ 260
======== ======
The Company maintains a $25,000,000 revolving and term credit facility with a
bank. At the Company's option, borrowing under this line bears interest at the
bank's prime interest rate or the adjusted LIBOR commercial rate plus a spread.
The credit facility expires on December 31, 1998.
Under the credit facility, borrowings are limited to an amount equal to 75% of
eligible accounts receivable balances. The terms of the credit agreement
require, among other terms, minimum current ratios, fixed charge coverage ratio
and senior debt leverage ratios. Payments of cash dividends and repurchases of
capital stock, each quarter, are restricted to an amount not to exceed $150,000
plus 6.25% of the Company's net income for the preceding 12 months. The
Company has complied with these provisions.
The industrial revenue bond is secured by properties with a net book value of
approximately $2,140,000 at December 31, 1995. The notes payable are secured
by construction equipment with a net book value of approximately $354,000 and
$437,000 as of December 31, 1995 and 1994, respectively.
Maturities of long-term debt are $9,120,000 in 1996, $2,716,000 in 1997,
$6,195,000 in 1998 and $1,893,000 per year for 2000, 2001, and 2002. The
maturities of debt incurred under the revolving credit agreement have been
reported based on an estimate of the expected paydown in 1996 and the balance
in 1998, the current expiration date of the credit facility.
24
25
9. ACCRUED LIABILITIES (IN THOUSANDS)
1995 1994
------- ------
Insurance $13,053 $4,415
Payroll 5,301 1,735
Union dues and benefits 2,770 591
Profit sharing and thrift plan 755 511
Income taxes 1,043 323
Taxes, other than income taxes 1,451 464
Other 4,895 1,371
------- ------
$29,268 $9,410
======= ======
10. INCOME TAXES
Provision for income taxes on income from continuing operations is comprised of
the following (in thousands):
1995 1994 1993
------ ------ ----
Current
Federal $1,331 $546 $397
State 466 166 47
------ ------ ----
1,797 712 444
Deferred 489 781 140
------ ------ ----
$2,286 $1,493 $584
====== ====== ====
The differences between the U.S. federal statutory tax rate and the Company's
effective rate for the three years ended December 31, 1995 are as follows:
1995 1994 1993
----- ----- ------
U.S. federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of U.S.
federal income tax benefit 5.4 4.6 2.3
Non-deductible fines - - 3.2
Valuation allowance adjustment - - (24.7)
Other .6 .5 11.5
----- ---- ----
40.0% 39.1% 26.3%
===== ==== ====
The net deferred tax assets and liabilities arising from temporary differences
and carryforwards at December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
------------------------- --------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
ASSETS LIABILITIES ASSETS LIABILITIES
-------------------------------------------------------------
Employee and retiree benefit
plans $ - $ (255) $ - $ (265)
Excess tax over book
depreciation 3,116 - 1,522
Insurance accruals 2,732 - 1,068 -
Other allowances and accruals 1,870 - 217 -
Tax credit carryforwards - - 135 -
AMT credit carryforwards - - 202 -
-------- ------- --------- ---------
$ 4,602 $ 2,861 $ 1,622 $ 1,257
======== ======= ========= =========
25
26
11. 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 (see Note 5), 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 as a non-current asset. Management is of the
opinion that the amounts 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.
12. TREASURY STOCK
The Company's Board of Directors has authorized the purchase of up to 333,333
shares of its common stock for future issuance to key employees under the
Company's stock option plans. The Company purchased 20,821 and 109,067 shares
on the open market at a cost of $167,813 and $991,513 in 1994 and 1993,
respectively. No shares were purchased in 1995. The company issued 10,267 and
937 shares out of treasury for options exercised in 1995 and 1993,
respectively.
13. EARNINGS PER SHARE
Primary earnings per share is 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. Primary earnings per
share is based upon weighted average common shares outstanding of 3,399,659 in
1995, 3,333,419 in 1994 and 3,372,929 in 1993. Fully diluted earnings per
share also reflects the potential dilution which would result from the
conversion of the convertible subordinated notes.
14. STOCK OPTION PLANS
At December 31, 1995, under the 1995, 1993, 1992 and 1990 Stock Option Plans,
313,333, 71,997, 5,996, and 20,773 shares, respectively, are available for
grant. Outstanding options granted under the 1995, 1993 and 1992 plans are
exercisable at a price equal to 100% of the fair market value at the date of
grant. Outstanding options granted under the 1990 and 1989 plans are
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exercisable at a price equal to either 85% or 100% of the fair market value at
the date of grant. The 1993 options are only available for non-employee
directors.
Transactions and other information relating to the stock option plans for the
three years ended December 31, 1995 are summarized below:
Stock Options:
- --------------
1995 1994 1993
------- ------- --------
Outstanding beginning of year 584,005 546,672 507,185
Granted 224,680 40,667 179,704
Exercised (10,267) - (4,270)
Canceled (54,458) (3,333) (135,947)
Outstanding end of year ------- ------- --------
743,960 584,005 546,672
======= ======= ========
The option prices are between $4.26 and $11.81 for all options shown in the
table. Options outstanding at December 31, 1995 are summarized below:
YEAR OF EXERCISE NUMBER
EXPIRATION PRICE RANGE OF SHARES
- ---------- ------------- ---------
1999 $4.26 235,001
2000 4.26 6,667
2002 11.24-11.81 146,669
2003 7.07-7.17 123,607
2004 8.48-8.72 40,670
2005 8.11-10.87 191,346
-------
743,960
=======
Under the Company's 1992, 1990 and 1989 Stock Option Plans, a Committee of the
Board of Directors is authorized to grant loans to option holders to purchase
the shares of common stock upon the exercise of options. At December 31, 1995
and 1994, respectively, notes receivable aggregating $408,000 and $476,000 were
outstanding. The notes were collateralized by 108,333 shares of the Company's
common stock at December 31, 1995 and 1994. The note bears interest at an
annual rate of 7.7%, payable annually, with principal payments due through
December 2001. Outstanding loans are shown as a reduction of shareholders'
equity on the balance sheet.
15. EMPLOYEE BENEFIT PLANS
The Company has profit sharing and thrift employee benefit plans in effect for
all eligible salaried employees. Company contributions under such plan are
based upon a percentage of income with limitations as defined by the plan.
Contributions amounted to approximately $645,000, $528,000 and $273,000 in
1995, 1994, and 1993, respectively.
Certain employees are covered under union-sponsored collectively bargained
defined benefit plans. Expenses for these plans amounted to approximately
$10,265,000, $4,398,000 and $4,828,000 in 1995, 1994 and 1993, respectively, as
determined in accordance with negotiated labor contracts.
The Company also has a supplemental retirement and death benefit program for
certain key employees. The program provides for aggregate benefits at
retirement or death equal to approximately twice the key employee's highest
base salary. The benefits are paid out in equal monthly installments over 10
years for retirement or 15 years in the event of death. Benefits are reduced
for early retirement.
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16. MAJOR CUSTOMERS
The Company had one customer that accounted for 19.5% and 19.3% of the
Company's consolidated contract revenue in 1994 and 1993, respectively. No
customers accounted for more than 10% of the Company's consolidated contract
revenues in 1995.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values of
financial instruments:
For cash and cash equivalents, accounts receivable and payable, accrued
liabilities, and other assets and liabilities, the carrying amount approximates
the fair value because of the short maturities of those instruments.
The variable-rate borrowings under the Company's bank term and revolving credit
agreement, which is repriced frequently, approximate fair value. The fair
value of long-term debt is estimated based on quoted market prices, when
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar financial instruments or discounting
future cash flows. The difference between the fair value and the carrying
value of the Company's long term debt is not material.
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18. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share amounts)
1995
- ---------------------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year to Date
- ---------------------------------------------------------------------------------------------------------------------
Contract Revenue $56,051 $64,015 $66,638 $80,261 $266,965
Gross Profit 6,653 7,338 7,968 7,588 29,547
Net Income 252 1,005 1,248 924 3,429
Income Per Share:
Primary .08 .30 .37 .27 1.01
Fully diluted .08 .26 .32 .25 .91
Dividends Paid Per Share .041 .047 .047 .047 .182
Market Price:
High 9.66 10.31 11.91 11.81 11.91
Low 7.97 8.53 9.19 10.00 7.97
1994
- ---------------------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
- ---------------------------------------------------------------------------------------------------------------------
Contract Revenue $21,548 $22,243 $21,675 $21,376 $86,842
Gross Profit 2,456 3,316 3,072 3,453 12,297
Income from Continuing
Operations 26 742 759 802 2,329
Net Income 26 742 759 652 2,179
Income Per Share:
Continuing Operations .01 .22 .23 .24 .70
Net Income .01 .22 .23 .19 .65
Dividends Paid Per Share .041 .041 .041 .041 .165
Market Price:
High 9.00 9.19 10.22 9.56 10.22
Low 7.78 7.78 7.31 8.06 7.31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has no items to report under Item 9 of this report.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Incorporated by reference from the Company's definitive proxy statement for use
in conjunction with its annual meeting of stockholders under the caption
"Election of Directors".
(b) Identification of Executive Officers
The names and ages of the executive officers of the Company and their business
experience during the past five years are set forth below:
Charles M. Brennan III (54)
Chairman (since August 1988) and Chief Executive Officer (since October 1989)
Director (since 1986).
William S. Skibitsky (46)
Executive Vice President (since February 1996), President and Chief Operating
Officer of The L. E. Myers Co. (Since May 1994) President of ABB Combustion
Engineering Nuclear Services (1990 - January 1994)
Byron D. Nelson (49)
Senior Vice President, General Counsel and Secretary (since February 1986).
Elliott C. Robbins (49)
Senior Vice President, Treasurer and Chief Financial Officer (since February
1986)
Betty R. Johnson (37)
Controller (since June 1992); Senior Manager at Deloitte & Touche (1981 - June
1992).
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the caption
"Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the caption
"Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's definitive proxy statement for use
in connection with its annual meeting of stockholders under the captions
"Executive Compensation" and "Board of Directors Interlocks and Insider
Participation".
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) 1. The following documents are included in Item 8:
Responsibility for Financial Statements 14
Independent Auditors' Report 15
Financial Statements:
Consolidated Balance Sheet -
December 31, 1995 and 1994 16
Consolidated Statement of Operations -
Years Ended December 31, 1995, 1994 and 1993 17
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1995, 1994, and 1993 18
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994, and 1993 19
Notes to Financial Statements 20
2. All schedules are omitted because they are not applicable,
not required, or the required information is included in
the financial statements or notes thereto.
(b) No reports on Form 8-K were filed by the Company during the fourth quarter
1995.
(c) Exhibits required to be filed by Item 601 of Regulation S-K are listed in
the Exhibit Index which appear at pages 33 and 34 and which are
incorporated by reference.
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
and 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.
/s/ Elliott C. Robbins
------------------------------
Elliott C. Robbins
Senior Vice President, Treasurer
and Chief Financial Officer
Dated: March 20, 1996
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
(i) Principal Executive Officer:
/s/ Charles M. Brennan III
- ----------------------------------- Chairman and Chief
Charles M. Brennan III Executive Officer
(ii) Principal Financial Officer:
/s/ Elliott C. Robbins
- ----------------------------------- Senior Vice President,
Elliott C. Robbins Treasurer and Chief
Financial Officer
(iii) Principal Accounting Officer
/s/ Betty R. Johnson
- ----------------------------------- Controller
Betty R. Johnson
(iv) A Majority of the Board of Directors:
/s/ Charles M. Brennan III
- -----------------------------------
Charles M. Brennan III
/s/ William G. Brown
- -----------------------------------
William G. Brown
/s/ Allan E. Bulley, Jr.
- -----------------------------------
Allan E. Bulley, Jr.
/s/ Bide L. Thomas
- -----------------------------------
Bide L. Thomas
/s/ John M. Harlan
- -----------------------------------
John M. Harlan
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MYR GROUP INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1995
Exhibit Index
Page
Number Description (or Reference)
- ------ ------------------------------------------ ------------
2.1 Merger Agreement by and among the Company,
HMM Corporation and Harlan Electric Company
dated October 5, 1994, as amended (1)
3.1 Amended and Restated Certificate of Incorporation of
the Company 35
3.2 Bylaws of the Company (as amended) 46
4.1 Form of 7% Subordinated Convertible Escrow and Non-Escrow
promissory notes of the Company to certain former
stockholders of Harlan Electric Company (2)
10.1 Form of Agreement for Supplemental Retirement and Death
Benefit Programs of the Company and its subsidiaries (3)
10.2 Form of Agreement of Indemnification for Directors of
the Company and certain officers of the Company and its
subsidiaries (4)
10.3 1989 Stock Option Plan (5)
10.4 1990 Stock Option Plan (6)
10.5 1992 Stock Option Plan (7)
10.6 1993 Non-Employee Director Stock Option Plan (8)
10.7 1995 Stock Option Plan 57
10.8 Management Incentive Program 61
10.9 Amended Employment Agreement between the Company and
C. M. Brennan dated December 23, 1991. (9)
11 Schedule of Computation of Net Income per share for
years ended December 31, 1995, 1994 and 1993 64
21 Subsidiaries of the Company 65
23 Consent of Independent Auditors 66
27 Financial Data Schedules 67
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34
(1) Filed as exhibit 2 to the Report on Form 8-K of the Company dated January
3, 1995, and incorporated herein by reference.
(2) Filed as exhibits E-1 and E-2 to the Merger Agreement by and among the
Company, HMM Corporation and Harlan Electric Company dated October 5, 1994,
as amended, which agreement and exhibits thereto were filed as exhibit 2
to the Report on Form 8-K of the Company dated January 3, 1995, and
incorporated herein by reference.
(3) Filed as exhibit 10.5 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1984, and incorporated herein by reference.
(4) Filed as exhibit 10.8 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1986, and incorporated herein by reference.
(5) Filed as exhibit 10.7 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1989, and incorporated herein by reference.
(6) Filed as exhibit 10.4 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1990, and incorporated herein by reference.
(7) Filed as exhibit 10.5 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1992, and incorporated herein by reference.
(8) Filed as exhibit 10.6 to the Report on Form 10-K of the Company for the
year ended December 31, 1993 and incorporated herein by reference.
(9) Filed as exhibit 10.5 to the Annual Report on Form 10-K of the Company for
the year ended December 31, 1991, and incorporated herein by reference.
34