SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. Employer
of incorporation) Identification No.)
1701 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
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____
The aggregate market value of the registrant's Common Stock, $1 par
value, held by non-affiliates of the registrant as of March 8, 1999, was
$49,062,334 based on the closing price on that date on the New York Stock
Exchange. As of March 8, 1999, 5,749,900 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 10, 1999 are incorporated by reference into Part III of this
annual report.
<PAGE>
Table of Contents
and Cross-Reference Sheet
Page or Reference
-----------------
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....................... 15
Item 9. Changes in and Disagreements with Independent
Auditors on Accounting and Financial
Disclosure................................. 31
Part III
Item 10. Directors and Executive Officers of the
Registrant................................. 32
Item 11. Executive Compensation .................... 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................... 32
Item 13. Certain Relationships and Related Transactions 32
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................ 33
Signatures................................................ 34
<PAGE>
MYR GROUP INC.
PART I
Item 1. Business
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"), Harlan Electric Company, a Michigan corporation ("Harlan"),
and D.W. Close Company Inc., a Washington Corporation ("D.W. Close").
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 Rochester Hills, Michigan. 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. ComTel Technology, Inc.,
("ComTel") a Colorado Corporation is a wholly owned subsidiary of
Sturgeon. ComTel was organized in 1983 and its principal place of
business is Broomfield, Colorado. The Company acquired D.W. Close on May
1, 1997. D.W. Close was organized in 1979 as a Washington corporation
and its principal place of business is Seattle, Washington. 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 D.W. Close since
May 1, 1997.
The general offices of the Company are located at 1701 West Golf Road,
Rolling Meadows, Illinois.
Construction Services
The Company conducts its business through its direct and indirect
operating subsidiaries. The construction services performed by the
Company are principally involved in two areas, infrastructure services
and commercial/industrial services. The commercial/industrial services
include electrical construction and mechanical construction.
<PAGE>
Infrastructure Services
The infrastructure construction and maintenance services involve
primarily electric utility line construction and maintenance services to
electric utilities, other similar entities and other users of these
higher voltage electrical construction services, gas utility construction
services to utilities, telecommunication construction services to a broad
spectrum of clients and traffic signal and street lighting construction
services predominantly to various departments of transportation and
municipalities.
Myers, Hawkeye, Harlan, Sturgeon and D.W. Close each provide some or all
of these services to their respective markets. The Company generally
serves the electric utility and gas utility industries as a prime
construction contractor while its telecommunications services and its
traffic and street lighting services are provided both as a prime
contractor and as a subcontractor. Designs and specifications for a
project are usually prepared by the clients or their agents. The
services provided to electric utilities and other similar entities
include the construction and maintenance of high voltage transmission
lines, substations and distribution systems. The gas construction
services involves the underground installation and repair of gas mains
and lines. The telecommunications services include the installation of
foundations and towers for PCS and cellular wireless communication
installations, fiber optic and copper communication installation for the
transmission of voice, data and video. The Company also installs
telecommunications/teledata services which include LAN/WAN, telephone,
video, voice, data, security and fire alarm systems. 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.
Commercial/Industrial Construction Services
The Company, through Sturgeon and D.W. Close, provides electric
construction and maintenance services to the commercial and industrial
marketplace. 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 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. In these cases
the subsidiary and the other contractor will typically 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.
<PAGE>
The Company, through Power Piping, provides mechanical construction and
maintenance services for the steel industry, electric utility industry,
chemical industry, food processors 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.
General
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 primarily in the United
States.
Customers
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 44.4% of its consolidated contract revenues and
its single largest customer accounted for 10.2% of such revenue. 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 1998 the Company's ten largest customers accounted for 47.1% of annual
revenues. The Company's single largest customer during 1998 accounting
for 12.7% of such revenue.
Contracts
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, contracts 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 cost-plus contracts. 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 and approved.
<PAGE>
The Company's backlog was $140.1 million at December 31, 1998, compared
to $136.4 million at December 31, 1997. 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, 1998 backlog will be completed in 1999.
Certain of the projects which the Company undertakes are not completed in
one accounting period. Revenue on construction contracts is recorded on
the percentage-of-completion accounting method determined by the ratio of
cost incurred to date on the contracts (excluding uninstalled direct
materials) to management's estimates of total contract costs. Projected
losses are provided for in their entirety when identified.
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
The Company's business is highly competitive in both its infrastructure
construction services and commercial/industrial construction services.
Competition in both areas is primarily based on the price of the
construction services rendered and upon the reputation for quality,
safety and reliability of the contractor rendering them. The competition
encountered by the Company can vary depending upon the type of
construction services which it renders.
Infrastructure Construction Competition
The infrastructure construction and maintenance service provided by the
Company often requires larger amounts of capital and more specialized
equipment than the requirements for commercial/ industrial construction.
Larger infrastructure projects require more heavy duty equipment as well
as stronger financial resources to meet the cash flow requirements of
these projects. These factors sometimes reduce the number of potential
competitors on these projects to the larger competitors. The number of
firms which generally compete for any significant infrastructure 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
others operate nationally, as does the Company.
<PAGE>
Commercial/Industrial Construction Competition
Competition for the commercial/industrial construction services provided
by the Company varies greatly. Size and location of the project will
impact which competitors and the number of competitors that 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 generally not as
significant as for the infrastructure construction. Since commercial and
industrial 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 performed such construction services principally in the
western half of the United States with the exception of the mechanical
portion of the Company's commercial and industrial construction services,
provided through Power Piping which have been performed principally in
the eastern 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 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.
Employees
At December 31, 1998, the Company had approximately 355 salaried
employees including executive officers, district managers, project
managers, superintendents, estimators, office managers, and staff and
clerical personnel. The Company also employed approximately 3,300
hourly-rated employees. This number fluctuates depending upon the number
and size of the projects under construction by the Company at any
particular time. During peak construction periods, the Company had about
4,000 hourly-rated employees working on various construction projects in
1998. 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.
<PAGE>
Item 2. Properties
Construction Equipment
The Company owns a substantial amount of construction equipment. This
equipment, which at December 31, 1998 had an aggregate cost of $47.3
million and a book value of $10.1 million 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
The general offices of the Company occupy approximately 10,500 square
feet of leased space in an office building at 1701 West Golf Road,
Rolling Meadows, Illinois. The lease on these quarters expires in
February, 2004. Rent expense for this property in 1998 totaled
approximately $159,000.
The Company owns land which at December 31, 1998 aggregated approximately
46 acres. Buildings owned by the Company as of the same date contained
approximately 174,000 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, 1998,
contained approximately 131,000 square feet of enclosed space. Rentals
for such property in 1998 totaled approximately $1.2 million 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
---- ------
1998 $4,545,000
1997 $4,173,000
1996 $5,293,000
Item 3. Legal Proceedings
The Company is a defendant in a number of 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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in the fourth
quarter of the year ended December 31, 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The shares of Common Stock of the Company are listed and traded on the
New York Stock Exchange. As of March 8, 1999 there were 748 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 19 to the Financial
Statements).
Quarter Ended Stock Price Range (1) Dividends Declared (1)
------------- ------------------- --------------------
December 31, 1998 $10.13 - $12.88 $.035
September 30, 1998 10.69 - 16.88 .035
June 30, 1998 11.31 - 14.25 .035
March 31, 1998 11.31 - 12.81 .035
December 31, 1997 $12.44 - $14.85 $.033
September 30, 1997 10.50 - 14.18 .033
June 30, 1997 6.98 - 10.99 .033
March 31, 1997 7.20 - 8.40 .033
(1) The stock price range and dividends declared reflect a five-for-three
stock split in the form of a stock dividend on December 15, 1997.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
CONTINUING OPERATIONS
===============================================================================
(Dollars in thousands except per share amounts)
===============================================================================
Years ended December 31 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
FOR Contract revenue $459,343 $431,276 $310,577 $266,965 $86,842
THE Income 7,888 5,951 3,968 3,429 2,329
YEAR Depreciation and
Amortization 4,565 5,580 6,091 6,189 3,191
Capital expenditures 4,545 4,173 5,293 4,959 4,449
Interest expense 2,160 1,720 1,826 1,772 99
------------------------------------------------------------------------
AT Backlog $140,100 $136,400 $134,900 $ 69,100 $28,200
YEAR Working capital 30,176 22,598 14,171 15,490 8,595
END Property (net) 16,102 16,891 22,239 23,144 14,652
Total assets 110,199 117,424 98,486 101,834 39,644
Total long-term debt 6,614 7,784 8,995 14,590 318
Shareholders' equity 39,348 31,078 29,570 26,618 23,622
Shares outstanding 5,699 5,488 5,395 5,303 5,287
------------------------------------------------------------------------
PER Income
SHARE Basic $ 1.40 $ 1.09 $ .74 $ .65 $ .44
DATA Diluted 1.20 .87 .62 .55 .42
Book value 6.90 5.66 5.48 5.02 4.47
Stock price range
Low 10.13 6.98 6.00 4.78 4.39
High 16.88 14.85 7.73 7.15 6.13
Cash dividends .1400 .1320 .1200 .1091 .0990
========================================================================
NOTES: 1. Selected financial data for 1998, 1997, 1996 and 1995
includes Harlan Electric Company since the January 3,
1995 date of acquisition. The 1998 and 1997 data
includes D.W. Close Company since the May 1, 1997
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 and the five-for-three
stock split in the form of a stock dividend in
December, 1997.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Continuing Operations
Revenues increased 6.5% to $459.3 million in 1998 from $431.3 million in
1997. The 1998 increase in revenue was due to higher storm work, alliance
related work and the D.W. Close acquisition in the second quarter of 1997
as described in Note 2 to the Financial Statements. This increase is
offset by a decrease in revenues from a major commercial electrical job
for a hotel and casino in Nevada that was completed in 1998. Revenues
increased by 13.8%, excluding this project.
Revenues increased 38.9% to $431.3 million in 1997 from $310.6 million in
1996. The 1997 increase in revenues was due to a higher volume of
commercial and industrial services, an increase in line work in
California and the D.W. Close acquisition described in Note 2 to the
Financial Statements. The commercial and industrial services include a
major electrical job for a hotel and casino in Nevada that did not have
significant revenue until the fourth quarter of 1996. The increase is
also a result of the Company's success at capitalizing on the rapidly
growing trend by its customers to outsource their electrical,
telecommunication, facility management and mechanical construction and
service requirements.
The use of alliances, primarily with our electrical utility customers,
continued in 1998. In 1998 alliances accounted for $126 million of
revenues versus $121 million of revenues in 1997. Clients use alliances
to award some or all of their construction requirements to one or more
preferred contractors at negotiated prices.
Gross profit increased 14.0% to $45.2 million in 1998 from $39.7 million
in 1997. The gross profit percentage increased to 9.8% in 1998 compared
to 9.2% in 1997, in part, due to a lesser percent of our commercial and
industrial revenues coming from a significant cost-plus fixed-fee job.
This type of work generally involves lower financial risk, therefore
frequently generates lower margins. The gross profit percentage also
increased due to lower insurance costs as a result of the impact of our
safety program on construction costs. Offsetting these increases in gross
margin percentages were losses at a recently acquired business doing
commercial and industrial electrical work. The unit, which was acquired
as a turnaround opportunity, has made a number of significant changes in
its operations. Based on its reorganized management team and excellent
client relationships, it is expected to be profitable in 1999.
Gross profit increased 25.3% to $39.7 million in 1997 from $31.6 million
in 1996 due primarily to the growth in revenues. The gross profit
percentage decreased to 9.2% in 1997, compared to 10.2% in 1996 due, in
large part, to a greater percent of our commercial and industrial
revenues coming from a significant cost-plus fixed-fee job.
<PAGE>
Revenue and gross profit comparisons from quarter to quarter and
comparable quarters of different years 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 on
projects where the materials are provided to the Company by its clients.
The client 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 high deductible 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 9.7% to $30.9
million in 1998 from $28.2 million in 1997. The increase reflects the
inclusion of D.W. Close for a full year, additional compensation and
related relocation costs to support the higher volume of work and
increased training related costs associated with new management
development programs. Selling, general and administrative expenses as a
percentage of revenues increased to 6.7% in 1998 from 6.5% in 1997.
Selling, general and administrative expenses increased 19.2% to $28.2
million in 1997 from $23.6 million in 1996. The increase reflects the
inclusion of D.W. Close, additional compensation costs to support the
higher volume of work, additional incentive compensation and profit
sharing accruals as a result of higher profit levels and additional legal
accruals on miscellaneous claims. Selling, general and administrative
expenses as a percentage of revenues decreased to 6.5% in 1997 from 7.6%
in 1996 due to higher consolidated revenue volume spread over a
relatively fixed expense base.
Net interest expense was $2.1 million in 1998 compared to $1.7 million in
1997. Interest expense increased in 1998 primarily due to higher average
bank debt throughout the year to support working capital needs as a
result of the higher volume of work and higher average retention
receivable balances relating to the major hotel and casino project in
Nevada.
Net interest expense was $1.7 million in 1997 compared to $1.8 million in
1996. Interest expense decreased in 1997 primarily due to the decrease in
term debt used to acquire Harlan.
Gains recognized from sales of property and equipment were $550,000 and
$668,000 in 1998 and 1996, respectively, compared to losses recognized
from sales of property and equipment of $76,000 in 1997. The gain in the
current year is primarily due to the sale of equipment as a result of a
program to modernize the equipment fleet and the sale of a facility as a
result of consolidating operations. The loss in 1997 was primarily due to
the sale and disposal of obsolete and damaged equipment as a result of
the program initiated to modernize the equipment fleet.
<PAGE>
Net other income was $175,000 in 1998 compared to net other income of
$178,000 in 1997 and to net other expenses of $483,000 in 1996. The 1998
other income represents cash discounts and the reversal of the prior
year's accruals for the clean-up and move out of an operating unit's
facility that were not needed when the property was sold. This income is
offset by bank fee expenses. The 1997 other income includes $1 million
relating to the settlement of a lawsuit (see Note 5 to the Financial
Statements). Offsetting this amount are bank fees, amortization of
goodwill, costs accrued for the clean-up and move out of an operating
unit's facility as a result of consolidating operations and the write off
of an investment in land that has never been developed.
Income tax expense was $5.0 million in 1998, $4.0 million in 1997 and
$2.4 million in 1996. As a percentage of income the effective rate was
39.0% for 1998, 40.0% for 1997 and 38.0% for 1996.
The Company's backlog was $140.1 million at December 31, 1998, $136.4
million at December 31, 1997 and $134.9 million at December 31, 1996.
Substantially all of the current backlog will be completed within twelve
months.
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 recorded the amounts
received from the settlement, which resulted in a net gain from
discontinued operations of $602,000, net of income tax expense of
$402,000. In 1996, the Company recorded additional amounts, primarily
legal expenses related to the National Union lawsuit, which resulted in
additional losses of $530,000, net of income tax benefits of $325,000.
See Note 5 to the Financial Statements.
Liquidity and Capital Resources
The Company's financial condition continues to be strong at December 31,
1998 with working capital of $30.2 million as compared to $22.6 million
in 1997 and $14.2 million in 1996. The Company's debt to equity ratio
decreased to 26.8% at December 31, 1998 from 40.6% and 31.2% at December
31, 1997 and 1996, respectively. Working capital increased in 1998
mainly as a result of strong operating results that were used to reduce
line of credit borrowings. Working capital increased in 1997 primarily
due to the cash received from the National Union settlement (see Note 5
to the Financial Statements), acquisition of D.W. Close and the increase
in accounts receivable as a result of the higher volume of work.
The acquisition of D.W. Close was completed on May 1, 1997. The purchase
price was $2.9 million. Of this amount $400,000 was paid to the D.W.
Close shareholder in cash with the remaining $2.5 million in the form of
promissory notes to the seller. The cash portion of the purchase price
was funded through the Company's cash balances (see Note 2 to the
Financial Statements). At December 31, 1998, the balance of the
promissory notes to the seller was $1.6 million.
<PAGE>
The Company has a $20 million revolving credit facility (see Note 8 to
the Financial Statements). As of December 31, 1998 there was $6.9
million outstanding under the revolver facility. The Company has
outstanding letters of credit with banks totaling $4.7 million, of which
$4.2 million guarantee the Company's payment obligations under its
insurance programs and $512,000 is a credit enhancement for 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
555,556 shares of its common stock. In 1998, purchases under this program
totaled 19,494 shares at a cost of $248,000. No purchases were made in
1997 or 1996. At December 31, 1998 the balance available under the Board
of Directors' authorization to purchase shares was 238,248.
Cash flows from operations were $7.3 million in 1998 compared to $3.8
million in 1997. The 1997 amount includes $2.5 million of proceeds
received from the National Union lawsuit (see Note 5 to the Financial
Statements). The $5.9 million increase from continuing operations is
mainly the result of higher net income and the net proceeds from
collecting a significant retention receivable balance, offset by payments
of retention to subcontractors on a major hotel and casino project in
Nevada.
Cash flows from operations were $3.8 million in 1997 compared to $14.1
million in 1996. This decrease is primarily the result of the increase in
accounts receivable, offset by the proceeds received in the settlement of
the National Union lawsuit (see Note 5 to the Financial Statements). The
accounts receivable increase is primarily a result of the increase in the
volume of work and due to an increase in retentions outstanding on a
major hotel and casino project in Nevada.
Capital expenditures were $4.5 million in 1998, compared to $4.2 million
in 1997 and $5.1 million in 1996. Capital expenditures during these
periods were used for normal property and equipment additions,
replacements and upgrades. The Company plans to spend approximately
$5.5 million on capital improvements in 1999. Capital expenditures are
supplemented with operating leases for construction equipment and real
estate (see Note 7 to the Financial Statements).
Cash flows used for investments in 1997 also included $241,000 for the
acquisition of D.W. Close (see Note 2 to the Financial Statements). Cash
flows were generated from the disposal of equipment and the sale of a
duplicate facility amounting to $1.5 million in 1998 and from the
disposal of property and equipment amounting to $404,000 in 1997.
During 1998, the Company had $6.6 million of net repayments of long-term
debt compared to $3.4 million of net proceeds from issuance of long-term
debt in 1997. The 1998 repayments include $3.5 million of payments under
the terms of debt agreements and $3.1 million of unscheduled reductions
of the line of credit for working capital. These additional payments are
the result of higher cash flow from continuing operations and lower
investment cash outflows during the year, as noted above.
<PAGE>
During 1997, the Company had $3.4 million of net proceeds from issuance
of long-term debt compared to repayments on its long-term debt of $10.6
million in 1996. The 1997 additional proceeds result from increases in
the revolving credit facility to fund working capital needs for the
higher volume of work, offset by scheduled paydowns in the term loan and
proceeds received in the settlement of the National Union lawsuit. The
1996 repayments include approximately $7.5 million in unscheduled
reductions of line of credit borrowings. As noted above, improvements in
the net underbillings and proceeds from sales of property and equipment
were significant factors that contributed to the Company's ability to
make these additional debt repayments in 1996.
Cash flows for dividends were $791,000, $725,000, and $643,000 in 1998,
1997 and 1996, respectively.
YEAR 2000 Compliance:
General
The "Year 2000 problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. The extent of the potential impact of
the Year 2000 problem is not yet known, and if not timely corrected, it
could affect the global economy.
State of Readiness
In 1997, the Company established an organization wide project to identify
non-compliant items, formulate corrective actions and to implement these
changes to mitigate the year 2000 issue. The Company has identified
three categories of components that require attention:
1. Information technology ("IT") systems, such as mainframes, midranges,
personal computers, software and networks
2. Non-IT systems such as equipment, machinery, climate control, security
and telephone systems, which may contain micro-controllers with
embedded technology
3. Third party IT and Non-IT systems
The table below summarizes the estimated completion percentages of the
three categories and stages that are being undertaken to mitigate the
Year 2000 issue.
Identification Formulation Implementation
of of of corrective Planned
material corrective actions Completion
items actions
----- ------- ------- ----------
IT systems 100% 95% 90% September, 1999
Non-IT systems 80% 80% 65% September, 1999
Third party systems 100% 90% 80% September, 1999
<PAGE>
Although the Company has contacted its major suppliers to determine their
readiness regarding the Year 2000 issue and has been assured that they
are working to mitigate its effects, the Company has no way of
determining what level of compliance they will attain by the year 2000.
The Company is currently in the process of contacting its major customers
to evaluate their planned level of compliance. Upon receiving the
responses, the Company will formulate corrective actions. There is no
guarantee that systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
If all material components are not identified or all appropriate
corrective actions are not taken or are not completed in a timely manner,
the Year 2000 issue could have a material impact on the operations of the
Company.
Year 2000 Costs
Costs related to the Year 2000 issue are funded through operating cash
flows and are being expensed as incurred. As of December 1998, the
Company has expended funds in remediation efforts, which consisted of
costs associated with modifying the source code of existing software.
This amount has been immaterial to the Company. Based upon the Company's
investigations to date, it estimates the total costs related to the Year
2000 issue would be immaterial. A number of other upgrades have been made
to systems in the normal course of business that mitigate Year 2000
issues. This amount may vary substantially as the Company continues to
evaluate items associated with the Year 2000 issue.
Year 2000 Risks
The most reasonably likely worst case scenario for the Company is the
failure of a supplier to be Year 2000 compliant such that its supply of
needed products or services is interrupted temporarily. This could result
in the Company not being able to fulfill its obligation on a construction
contract, which could cause lost sales and profits and possibly
additional exposure for non-performance and damage claims.
Year 2000 Contingency Plans
The Company is currently evaluating business disruption scenarios,
coordinating the establishment of Year 2000 contingency plans and
identifying and implementing preemptive strategies. Detailed contingency
plans for critical business processes will be developed by September
1999.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 project are based on management's best
estimates, which were derived utilizing numerous assumptions and future
events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant
codes, the level of compliance by key suppliers and customers, and
similar uncertainties.
<PAGE>
New Accounting Pronouncements
In 1997, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance Related Assessments." The SOP provides guidance
on the recognition, measurement, and disclosure of liabilities for
certain insurance-related assessments as well as certain related assets.
This SOP is effective for years beginning after December 15, 1999. The
Company believes the implementation of this pronouncement will not have a
material impact on the Company's reported financial position, results of
operations and cash flows.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. This SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company believes
the implementation of this pronouncement will not have a material impact
on the Company's reported financial position, results of operations and
cash flows.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. This standard is effective for years beginning after June 15,
1999. The Company believes the implementation of this pronouncement will
not have a material impact on the Company's reported financial position,
results of operations and cash flows.
CAUTIONARY STATEMENT - This Form 10-K may contain statements, which
constitute "forward-looking" information as defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission. These statements are based on the Company's
expectations and are subject to risks and uncertainties that may cause
the actual results in the future to differ significantly from the results
expressed or implied in any forward-looking statements contained in this
filing. Such forward-looking statements are within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Act of 1934, as amended.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to the impact of interest rate changes. The
Company conducted an analysis of its financial instruments assuming a one
percentage point adverse change in interest rates at December 31, 1998.
Holding all other variables constant, the hypothetical adverse changes
would not materially affect the Company's financial position.
<PAGE>
Item 8. Financial Statements
Index to Financial Statements
Page
Responsibility for Financial Statements 16
Independent Auditors' Report 17
Financial Statements:
Consolidated Balance Sheets -
December 31, 1998 and 1997 18
Consolidated Statement of Income -
Years Ended December 31, 1998, 1997 and 1996 19
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1998, 1997 and 1996 20
Consolidated Statement of Cash Flows
Years Ended December 31, 1998, 1997 and 1996 21
Notes to Consolidated Financial Statements 22
<PAGE>
MYR GROUP INC.
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated 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 consolidated
financial statements, which require the use of certain estimates and
judgments, fairly and accurately reflect the Company's financial
position, operating results and cash flows, 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.
Ernst & Young LLP, independent auditors, have audited the 1998
consolidated financial statements of the Company. Their report is
presented on page 17. Their audit includes a study and evaluation of the
Company's control environment, accounting systems and control procedures.
Ernst & Young LLP advises management and the Audit Committee of
significant matters resulting from their audit of our consolidated
financial statements and consideration of our internal controls.
Charles M. Brennan III
Chairman and
Chief Executive Officer
William A. Koertner
Senior Vice President, Treasurer
and Chief Financial Officer
<PAGE>
MYR GROUP INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
MYR Group Inc.:
We have audited the accompanying consolidated balance sheet of MYR Group
Inc. and subsidiaries, as of December 31, 1998 and the related
consolidated statements of income, shareholders' equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
consolidated balance sheets of MYR Group Inc., as of December 31, 1997
and 1996 and the related consolidated statements of income, shareholders'
equity and cash flows for years ended December 31, 1997 and 1996 were
audited by other auditors whose report dated March 18, 1998, expressed an
unqualified opinion on the statements.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to
above present fairly in all material respects, the consolidated financial
position of MYR Group Inc. and subsidiaries at December 31, 1998 and the
consolidated results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
March 17, 1999
<PAGE>
<TABLE>
MYR GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
===========================================================================
December 31 1998 1997
===========================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,372 $ 3,757
Accounts receivable (Note 3) 68,112 75,414
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 4) 17,092 14,919
Deferred income taxes (Note 10) 6,153 5,322
Other current assets 239 587
------- -------
Total current assets 92,968 99,999
Property and equipment-
net (Notes 2, 6 and 8) 16,102 16,891
Other assets 1,129 534
------- -------
Total assets $ 110,199 $ 117,424
- ---------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Current maturities of long-term
debt (Note 8) $ 7,813 $ 13,462
Accounts payable 14,135 19,727
Billings in excess of costs and
estimated earnings on uncompleted
contracts (Note 4) 9,448 9,183
Accrued liabilities (Note 9) 31,396 35,029
------- -------
Total current liabilities 62,792 77,401
Long-term liabilities:
Long-term debt (Note 8) 6,614 7,784
Deferred compensation 393 415
Deferred income taxes (Notes 2 and 10) 1,052 746
------- -------
Total liabilities 70,851 86,346
SHAREHOLDERS' EQUITY
Common stock - par value $1 per share;
authorized 10,000,000 shares; issued
5,698,892 shares 5,699 5,582
Additional paid-in capital (Note 2) 1,310 -
Common stock held in treasury, at cost:
1997- 94,131 shares (Note 12) - (522)
Retained earnings (Note 2) 34,335 27,238
Restricted stock awards and shareholder
note receivable (Note 14) (1,996) (1,220)
------- -------
Total shareholders' equity 39,348 31,078
------- -------
Total liabilities and shareholders' equity $ 110,199 $ 117,424
===========================================================================
The "Notes to Consolidated Financial Statements" are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
MYR GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
=========================================================================
Years ended December 31 1998 1997 1996
=========================================================================
<S> <C> <C> <C>
Contract revenue $ 459,343 $ 431,276 $ 310,577
Contract cost 414,123 391,616 278,936
------- ------- -------
Gross profit 45,220 39,660 31,641
Selling, general and
administrative expenses 30,885 28,164 23,623
------- ------- -------
Income from operations 14,335 11,496 8,018
Other income (expense)
Interest income 31 40 23
Interest expense (2,160) (1,720) (1,826)
Gain (loss) on sale of property
and equipment 550 (76) 668
Other 175 178 (483)
------- ------- -------
Income from continuing operations
before income taxes 12,931 9,918 6,400
Income tax expense (Note 10) 5,043 3,967 2,432
------- ------- -------
Income from continuing operations 7,888 5,951 3,968
Gain (loss) from discontinued
operations (Note 5) - 602 (530)
------- ------- -------
Net income $ 7,888 $ 6,553 $ 3,438
=========================================================================
EARNINGS PER SHARE
Earnings per share (Note 13) -
Basic:
Income from continuing operations $ 1.40 $ 1.09 $ .74
Gain (loss) from discontinued
operations - .11 (.10)
------- ------- -------
Net income $ 1.40 $ 1.20 $ .64
Earnings per share (Note 13) -
Diluted:
Income from continuing operations $ 1.20 $ .87 $ .62
Gain (loss) from discontinued
operations - .09 (.08)
------- ------- -------
Net income $ 1.20 $ .96 $ .54
=========================================================================
The "Notes to Consolidated Financial Statements" are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
MYR GROUP INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
========================================================================================================
Years ended December 31, 1996, 1997 and 1998
========================================================================================================
Restricted
Common Additional Stock Awards
Stock Paid-In Treasury Retained and Shareholder
Issued Capital Stock Earnings Note Receivable Total
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $ 3,350 $ 5,898 $ (1,548) $ 19,326 $ (408) $ 26,618
Issuance of 12,222
common shares
upon exercise of
stock options (21) 68 47
Issuance of 78,783
common shares for
restricted stock
awards 88 437 (525) -
Amortization of
unearned restricted
stock awards 42 42
Net income 3,438 3,438
Dividends paid (643) (643)
Shareholder note payment 68 68
------- ------- -------- ------- ------- --------
Balance December 31, 1996 3,350 5,965 (1,043) 22,121 (823) 29,570
Five-for-three stock split 2,232 (2,232) -
Claim settlement (Note 2) (3,994) (711) (4,705)
Issuance of 41,660
common shares
upon exercise of
stock options (56) 231 175
Issuance of 52,343
common shares for
restricted stock
awards 317 290 (607) -
Amortization of
unearned restricted
stock awards 142 142
Net Income 6,553 6,553
Dividends paid (725) (725)
Shareholder note payment 68 68
------- ------- -------- ------- ------- --------
Balance December 31, 1997 5,582 - (522) 27,238 (1,220) 31,078
<PAGE>
Issuance of 113,006
common shares
upon exercise of
stock options 57 396 452 905
Issuance of 76,395
common shares for
restricted stock
awards 19 723 318 (1,060) -
Amortization of
unearned restricted
stock awards 216 216
Converted subordinated
notes 41 191 232
Treasury stock purchases (248) (248)
Net income 7,888 7,888
Dividends paid (791) (791)
Shareholder note payment 68 68
------- ------- -------- ------- ------- --------
Balance December 31, 1998 $ 5,699 $ 1,310 $ 0 $ 34,335 $(1,996) $ 39,348
========================================================================================================
The "Notes to Consolidated Financial Statements" are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
MYR GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
===================================================================================
Years ended December 31 1998 1997 1996
===================================================================================
<S> <C> <C> <C>
CASH Net income $ 7,888 $ 6,553 $ 3,438
FLOWS Adjustments to reconcile net income
FROM to cashflows from continuing
OPERATIONS operations:
Discontinued operations - (602) 530
Depreciation and amortization 4,349 5,331 5,834
Amortization of intangibles - 107 215
Amortization of unearned stock
awards 216 142 42
Deferred income taxes (525) (66) (108)
(Gain) loss on sale of property
and equipment (550) 76 (668)
Changes in operating assets and
liabilities; net of acquisition:
Accounts receivable 7,302 (15,810) (2,394)
Costs and estimated earnings
in excess of billings on
uncompleted contracts (2,173) (2,796) 4,091
Other assets (248) 823 (163)
Accounts payable (5,592) 58 3,835
Billings in excess of costs
and estimated earnings on
uncompleted contracts 265 3,679 462
Insurance accruals (1,253) 2,961 (893)
Other liabilities (2,380) 907 447
------ ------ ------
Cash flows from continuing
operations 7,299 1,363 14,668
Cash flows from discontinued
operations - 2,456 (530)
------ ------ ------
Cash flows from operations 7,299 3,819 14,138
------ ------ ------
CASH Proceeds from disposal of property
FLOWS and equipment 1,535 404 2,310
FROM Expenditures for property and
INVESTMENTS equipment (4,545) (4,173) 5,061)
Cash used in acquisition, net of
cash acquired - (241) -
------ ------ ------
Cash flows from investments (3,010) (4,010) (2,751)
<PAGE>
CASH Proceeds from issuance of long-term
FLOWS debt - 3,403 -
FROM Repayments on long-term debt (6,586) - (10,559)
FINANCING Increase (decrease) in deferred
compensation (22) 16 8
Purchases of treasury stock (248) - -
Proceeds from exercise of stock
options 905 175 47
Dividends paid (791) (725) (643)
Shareholder note payments 68 68 68
------ ------ ------
Cash flows from financing (6,674) 2,937 (11,079)
------ ------ ------
Increase (decrease) in cash and cash
equivalents (2,385) 2,746 308
Cash and cash equivalents beginning
of year 3,757 1,011 703
------ ------ ------
Cash and cash equivalents end of year $ 1,372 $ 3,757 $ 1,011
===================================================================================
The "Notes to Financial Statements" are an integral part of this statement.
</TABLE>
<PAGE>
MYR GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business - The construction services performed by the Company are
principally involved in infrastructure services and commercial/industrial
services. The infrastructure construction and maintenance services
include primarily electric and gas utility line construction and
maintenance services, telecommunication construction services and traffic
signals and street lighting construction services. The
commercial/industrial services include electrical and mechanical
construction and maintenance services to the commercial and industrial
marketplace. 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
investments in joint ventures are accounted for by the equity method. All
material intercompany balances and transactions have been eliminated.
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.
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 uncom-
pleted 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.
<PAGE>
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.
Property and Equipment - Property and equipment are carried at cost,
which has been reduced for the effect of the settlement agreement entered
into in December 1997 (see Note 2). 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.
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.
Income Taxes - Deferred income taxes are recorded based upon the
differences between the financial statement and the 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 at purchase of ninety days
or less are considered to be cash equivalents. Supplemental disclosures
with respect to cash flows are as follows (in thousands):
1998 1997 1996
---- ---- ----
Cash paid for interest $ 2,195 $ 1,826 $ 1,788
Cash paid for income taxes 5,130 2,900 3,045
Subordinated notes converted 232 - -
Capital lease obligations incurred - - 232
Claim settlement (Note 2) - 4,705 -
Other - In December 1997, the Company effected a five-for-three stock
split in the form of a stock dividend. The $2,232,000 par value of the
additional shares issued was transferred from additional paid-in capital
to common stock in 1997. Amounts relating to number of shares and amounts
per share have been adjusted for 1996 to reflect the stock splits.
Certain other amounts in prior year financial statements have been
reclassified to conform to the 1998 presentation.
2. Acquisitions
On May 1, 1997, the Company acquired 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,
telecommunication and smart highway construction for commercial,
industrial and municipal customers.
<PAGE>
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 in 1997, 1998, 1999 and 2000,
with interest payable quarterly each year. The transaction has been
accounted for using the purchase method of accounting.
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. All the shares of Harlan were
exchanged for $13,612,000 in cash and $5,679,000 of 7% convertible
subordinated notes. The notes are convertible into 1,000,000 shares of
the Company's common stock at a price per share of $5.67954. The
transaction has been accounted for using the purchase method of
accounting.
In accordance with the Harlan merger agreement and the promissory notes,
the Company submitted a claim against the subordinated note holders in
1996. Effective December 29, 1997, the Company and note holders entered
into a settlement agreement whereby the Company agreed to withdraw all
claims and the note holders agreed to issue a call option at $5.67954 per
share on 600,191 shares of the common stock, when and if converted by the
noteholders. The net value of options received, determined using the
Black-Scholes option pricing model, was $4,705,000 and has been recorded
as a reduction of equity and the fair value of assets acquired in
accordance with the Accounting Principles Board Opinion No. 16, "Business
Combinations" (APB16). As a result, the net goodwill balance of
$2,359,000 was eliminated, the Harlan property and equipment was reduced
by $3,753,000 and $1,407,000 of deferred taxes were recorded relating to
the tax effect of the property and equipment adjustment.
<PAGE>
3. Accounts Receivable (in thousands)
<TABLE>
1998 1997
-------- --------
<S> <C> <C>
Contract receivables $ 60,559 $ 59,893
Contract retainages 8,267 16,093
Other 33 103
-------- --------
68,859 76,089
Allowance for doubtful accounts 747 675
-------- --------
$ 68,112 $ 75,414
======== ========
4. Contracts in Process (in thousands)
1998 1997
-------- --------
Costs incurred on uncompleted contracts $ 594,166 $ 509,187
Estimated earnings 44,555 42,276
-------- --------
638,721 551,463
Less: Billings to date 631,077 545,727
-------- --------
$ 7,644 $ 5,736
======== ========
Included in the accompanying balance
sheet under the following captions:
Costs and estimated earnings in
excess of billings on uncompleted contracts $ 17,092 $ 14,919
Billings in excess of costs and
estimated earnings on uncompleted contracts 9,448 9,183
-------- --------
$ 7,644 $ 5,736
======== ========
</TABLE>
<PAGE>
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 a
lawsuit with National Union Fire Insurance Company of Pittsburgh, PA
("National Union"). In June 1997, the Company settled the lawsuit and
received $4,250,000. The Company had a receivable, classified as other
assets, relating to this lawsuit of $1,854,000. The remaining $2,396,000
related to reimbursement for interest and legal costs. The portion
allocated to interest was $1,042,000 and was included in continuing
operations as miscellaneous other income. The portion allocated to legal
costs was $1,354,000. This amount was included in income from
discontinued operations, reduced by additional expenses incurred for
legal and other directly related costs totaling $350,000. The net result
on discontinued operations was $602,000, including income tax expense of
$402,000. In 1996, the Company recorded additional amounts, primarily
legal expenses related to the National Union lawsuit, which resulted in
additional losses of $530,000, net of income tax benefits of $325,000.
6. Property and Equipment (in thousands)
1998 1997
------ -------
Land $ 931 $ 931
Buildings and improvements 4,012 4,144
Construction equipment 47,302 46,140
Office equipment 4,461 3,643
------ -------
56,706 54,858
Accumulated depreciation 40,604 37,967
------ -------
$ 16,102 $ 16,891
====== ======
<PAGE>
7. Leases and Commitments
At December 31, 1998, the Company had outstanding irrevocable standby
letters of credit totaling $4,662,000 of which $4,150,000 guarantees the
Company's payment obligation under its insurance programs and $512,000
which is a credit enhancement to guarantee an industrial revenue bond.
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, 1998 total $7,740,000,
$6,992,000, $5,660,000, $2,831,000 and $838,000 for the years ending
1999, 2000, 2001, 2002 and 2003, respectively. Total rent expense,
including both short-term and long-term leases, for 1998, 1997, and 1996
amounted to approximately $17,121,000, $14,078,000 and $12,088,000,
respectively.
<PAGE>
8. Long-Term Debt
Long-term debt outstanding consisted of the following (in thousands):
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Variable - rate term credit agreement,
payable in quarterly installments of
$625 through December 1998 $ - $ 2,500
Variable - rate revolving credit
agreement, (effective interest rate of
7.75% at December 31, 1998), payable
at maturity in December 1999 6,875 10,000
7% convertible subordinated notes,
payable in three equal installments
commencing in January 2000 5,447 5,679
Variable - rate notes (1.5% over
adjusted LIBOR), payable in annual
installments commencing in 1998 1,583 2,250
Industrial revenue bond financing at
variable rates (weighted average of 8.5%)
and due in varying annual amounts ranging
from $230 to $250 through 2000 480 695
Equipment lease at 6%, payable in
monthly installments through July 1999 42 122
------- -------
14,427 21,246
Less current portion 7,813 13,462
------- -------
$ 6,614 $ 7,784
======= =======
</TABLE>
The Company maintains a $20,000,000 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 for $5,000,000 expires May 31, 1999 and the
$15,000,000 balance expires on December 31, 1999.
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 things, 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.
<PAGE>
The industrial revenue bond is secured by properties with a net book
value of approximately $1,310,000 and $1,390,000 at December 31, 1998 and
1997, respectively. The equipment leases are secured by equipment with a
net book value of approximately $114,000 and $160,000 as of December 31,
1998 and 1997, respectively.
Maturities of long-term debt are $7,813,000 in 1999, $2,982,000 in 2000,
$1,816,000 in 2001, and $1,816,000 in 2002. The maturities of debt
incurred under the revolving credit agreement have been reported based
on an estimate of the expected paydown through the 1999 expiration date
of the credit facility.
9. Accrued Liabilities (in thousands)
1998 1997
------ ------
Insurance $ 13,868 $ 15,121
Payroll 3,388 3,778
Union dues and benefits 4,043 3,946
Profit sharing and thrift plan 1,844 1,632
Income taxes 990 1,249
Taxes, other than income taxes 1,232 1,557
Other 6,031 7,746
------ ------
$ 31,396 $ 35,029
====== ======
<PAGE>
10. Income Taxes
Provision for income taxes on income from continuing operations comprises
the following (in thousands):
<TABLE>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current
Federal $ 4,303 $ 3,409 $ 2,137
State 1,265 624 403
Current ------ ------ ------
5,568 4,033 2,540
Deferred (525) (66) (108)
Current ------ ------ ------
$ 5,043 $ 3,967 $ 2,432
====== ====== ======
The differences between the U.S. federal statutory tax rate and the
Company's effective rate for the three years ended December 31, 1998 are
as follows:
1998 1997 1996
---- ---- ----
U.S. federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of U.S.
federal income tax benefit 6.5 5.3 4.9
Other (1.5) .7 (.9)
---- ---- ----
39.0% 40.0% 38.0%
==== ==== ====
</TABLE>
The net deferred tax assets and liabilities arising from temporary
differences at December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
1998 1997
CURRENT NONCURRENT CURRENT NONCURRENT
ASSETS LIABILITIES ASSETS LIABILITIES
------ ------- ------- -------
<S> <C> <C> <C> <C>
Employee and retiree
benefit plans $ - $ (245) $ - $ (252)
Excess tax over book
depreciation - 3,023 - 2,969
Insurance accruals 3,964 - 3,060 -
Other allowances and
accruals 2,189 (1,726) 2,262 (1,971)
------ ------- ------- -------
$ 6,153 $ 1,052 $ 5,322 $ 746
===== ======= ======= =======
</TABLE>
<PAGE>
11. Contingencies
The Company is involved in various legal matters which arise in the
ordinary course of business, for which the Company has made provisions in
its financial statements or which are not expected to have a material
adverse effect.
12. Treasury Stock
The Company's Board of Directors has authorized the purchase of up to
555,556 shares (adjusted to reflect the December 1995 and 1997 stock
splits) of its common stock for future issuance to key employees under
the Company's stock option plans. The Company purchased 19,494 shares on
the open market at a cost of $248,000 in 1998. No shares were purchased
in 1997 and 1996. At December 31, 1998, the balance available under the
Board of Directors' authorization to purchase shares was 238,248. The
Company issued, 56,230 and 41,660 shares out of treasury for options
exercised in 1998 and 1997, respectively. The Company also issued 57,395
and 52,343 shares out of treasury for restricted stock awarded to non-
employee directors and key employees in 1998 and 1997, respectively.
13. Earnings per Share
Basic and diluted weighted average shares outstanding and earnings per
share on income from continuing operations are as follows (in thousands,
except per share amounts):
<TABLE>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Share data:
Basic shares 5,611 5,443 5,353
Common equivalent shares 702 645 394
Shares assumed converted 359 1,000 1,000
----- ----- -----
Diluted shares 6,672 7,088 6,747
===== ===== =====
1998 1997 1996
Total Per Total Per Total Per
Share Share Share
----- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Income from
continuing operations:
Basic $7,888 $ 1.40 $5,951 $ 1.09 $3,968 $ 0.74
Interest on
convertible
subordinated notes 86 239 247
----- ----- ----- ------ ----- ------
Diluted $7,974 $ 1.20 $6,190 $ 0.87 $4,215 $ 0.62
===== ===== ===== ====== ===== ======
</TABLE>
<PAGE>
14. Stock Option and Restricted Stock Plans
At December 31, 1998, under the 1996, 1995, 1993, 1992 and 1990 Stock
Option and Restricted Stock Plans, 74,479, 226,779, 71,089, 33,663, and
13,186 shares, respectively, are available for grant.
Stock Options
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
exercisable at a price equal to either 85% or 100% of the fair market
value at the date of grant. Vesting of options granted under the plans
is determined separately for each grant and has generally been equally
over a three to five year term.
Transactions and other information relating to the stock option plans for
the three years ended December 31, 1998 are summarized below:
<TABLE>
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
Of Shares Price Of Shares Price Of Shares Price
--------- ------ --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 1,171,773 $ 4.66 1,195,490 $ 4.50 1,239,934 $ 4.49
Granted 204,396 12.40 43,060 8.53 15,560 6.59
Exercised (113,006) 4.36 (41,660) 4.09 (12,222) 4.30
Forfeited (46,194) 5.58 (25,117) 4.64 (47,782) 4.95
--------- ------ --------- ------ --------- -----
Outstanding end of year 1,216,969 $ 5.95 1,171,773 $ 4.66 1,195,490 $ 4.50
========= ====== ========= ====== ========= =====
Exercisable end of year 823,458 $ 4.19 827,246 $ 4.04 743,680 $ 3.70
========= ====== ========= ====== ========= =====
Options outstanding at December 31, 1998 are summarized below:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------ --------- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
$2.56 363,892 0.76 $2.56 363,892 $2.56
$4.24 - $5.51 346,988 5.53 4.76 308,786 4.74
$6.52 - $13.61 506,089 6.70 9.20 150,780 6.99
--------- -------
1,216,969 823,458
========= =======
<PAGE>
The weighted average fair value of the stock options granted during 1998
and 1997 was $4.15 and $2.81, respectively. The fair value of each stock
option grant is estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:
1998 1997
----- -----
Expected life (years) 5 5
Risk-free interest rate 5.19% 6.43%
Expected volatility 32.26% 29.55%
Expected dividend yield 1.2% 1.4%
The Company accounts for the stock option plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized for stock option awards granted at fair market
value. Had compensation cost for the Stock Plans been determined
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock - Based Compensation" (SFAS 123), the Company's
pro forma income and earnings per share for 1998 and 1997 would have been:
1998 1997
---- ----
Net Income $7,763,000 $6,478,000
Earnings per share - Basic 1.38 1.19
Earnings per share - Diluted 1.18 .95
Restricted stock
Participants under the restricted stock award plans are entitled to cash
dividends and to vote their respective shares. The shares issued are
held by the Company until the restriction period expires. Under the
1995, 1992 and 1990 plans, the restriction period is determined
separately for each grant. Upon issuance of stock under such plans,
unearned compensation equivalent to the market value at the date of grant
is charged to stockholders' equity and subsequently amortized to expense
over the restriction period. In 1998, 1997 and 1996, 74,501, 49,166 and
75,000 shares were awarded at an average market price of $12.28, $11.83
and $6.66, respectively with seven year restriction periods. The charge
against net earnings for compensation under the plan was $190,063,
$116,100 and $25,900 in 1998, 1997 and 1996, respectively.
The restricted stock awards under the 1996 plan are issued to non-
employee directors who elect to receive restricted stock in lieu of the
annual retainer payable quarterly in cash. In 1998, 1997 and 1996,
1,894, 3,177 and 3,783 shares were awarded at an average market price of
$13.06, $8.18 and $6.64, respectively. The charge against net earnings
for director fees under the plan was $26,234, $26,000 and $16,100 in
1998, 1997 and 1996, respectively.
<PAGE>
Under the Company's 1992, 1990 and 1989 Stock Option and Restricted Stock
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, 1998 and 1997, respectively, the
outstanding note receivable balance was $204,000 and $272,000. The note
was collateralized by 81,250 shares of the Company's common stock at
December 31, 1998 and 1997. 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 plans are based upon a percentage of income with limitations as
defined by the plans. Contributions amounted to approximately
$1,866,000, $1,650,000 and $1,230,000 in 1998, 1997 and 1996,
respectively.
Certain employees are covered under union-sponsored collectively
bargained defined benefit plans. Expenses for these plans amounted to
approximately $26,403,000, $23,883,000 and $15,387,000 in 1998, 1997 and
1996, respectively, as determined in accordance with negotiated labor
contracts.
The Company also has a supplemental retirement and death benefit program.
It was discontinued in 1988. The program provided 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. There are currently
three active employee participants.
16. Major Customers
The Company had one customer that accounted for 12.7% and 17.3% of the
Company's consolidated contract revenue in 1998 and 1997, respectively.
In 1996, the Company had another customer that accounted for 12.1% of the
Company's consolidated revenue.
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.
<PAGE>
18. Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of 1998.
SFAS No. 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued
to stockholders. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing
performance. The adoption of SFAS No. 131 did not affect results of
operations or financial position, but did affect the disclosure of
segment information.
The Company is engaged primarily in two segments: infrastructure services
and commercial/industrial construction. The accounting policies of the
operating segments are the same as those described in the summary of
significant accounting policies except that the financial results have
been prepared using a management approach. This approach is consistent
with the basis and manner in which management internally disaggregates
financial information for the purpose of assisting in making internal
operating decisions and is exclusive of corporate selling, general and
administrative expenses, net interest expense and other income.
Identifiable assets include all assets directly identified with the
reportable segments including retentions, accounts receivable, property,
equipment, and costs and estimated earnings in excess of billings on
uncompleted contracts. Corporate assets include cash, deferred tax
assets, and other assets that are corporate in nature.
<PAGE>
</TABLE>
<TABLE>
Infrastructure Corporate
Services Commercial/ and
Consolidated Industrial Other Consolidated
-------- -------- ------ --------
<S> <C> <C> <C> <C>
1998
- ----
Contract revenue $ 249,482 $ 209,861 $ - $ 459,343
Depreciation and
amortization 4,069 280 216 4,565
Income before taxes 20,894 2,645 (10,608) 12,931
Segment assets 58,942 43,018 8,239 110,199
Capital expenditures 4,308 237 - 4,545
1997
- ----
Contract revenue 234,280 196,996 - 431,276
Depreciation and
amortization 4,646 685 249 5,580
Income before taxes 13,920 4,223 (8,225) 9,918
Segment assets 55,436 51,729 10,259 117,424
Capital expenditures 3,882 291 - 4,173
1996
- ----
Contract revenue 202,547 108,030 - 310,577
Depreciation and
amortization 5,166 668 257 6,091
Income before taxes 12,532 2,113 (8,245) 6,400
Segment assets 54,330 32,177 11,979 98,486
Capital expenditures 4,969 324 - 5,293
</TABLE>
<PAGE>
19. Supplemental Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
1998
-------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract revenue $110,671 $109,666 $122,282 $116,724 $459,343
Gross profit 8,929 11,053 12,224 13,014 45,220
Net income 1,082 2,071 2,285 2,450 7,888
Earnings per share - basic 0.20 0.37 0.40 0.43 1.40
Earnings per share - diluted 0.17 0.31 0.34 0.38 1.20
Dividends paid per share 0.035 0.035 0.035 0.035 0.14
Market price:
High 12.81 14.25 16.88 12.88 16.88
Low 11.31 11.31 10.69 10.13 10.13
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 693 1,710 1,890 1,658 5,951
operations
693 2,312 1,890 1,658 6,553
Net income
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 14.18 14.85 14.85
Low 7.20 6.98 10.50 12.44 6.98
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure.
The Company has no items to report under Item 9 of this report.
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 Director".
(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 (57)
Chairman (since August 1988) and Chief Executive Officer (since October
1989); Director (since 1986).
William S. Skibitsky (49)
President and Chief Operating Officer (since July 1996); Executive Vice
President (May 1994-July 1996); President and Chief Operating Officer of
The L.E. Myers Co. (Since May 1994).
Michael F. Knapp (52)
Group Vice President-Commercial and Industrial (since December 1998),
Vice President and Program Director at Parsons Energy & Chemicals Group
Inc. (1996-December 1998); Vice President, Regional Operations at
International Technology Corporation (1994-1996).
Byron D. Nelson (52)
Senior Vice President, General Counsel and Secretary (since February
1986).
William A. Koertner (49)
Senior Vice President, Treasurer and Chief Financial Officer (since
November 1998); Vice President at Central Illinois Public Service Company
(1993-1998).
Betty R. Johnson (40)
Vice President (since October 1998) and Controller (since June 1992).
<PAGE>
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 "Compensation Committee Interlocks
and Insider Participation".
<PAGE>
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 16
Independent Auditors' Report 17
Financial Statements:
Consolidated Balance Sheets -
December 31, 1998 and 1997 18
Consolidated Statement of Income -
Years Ended December 31, 1998, 1997 and 1996 19
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996 20
Consolidated Statement of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 21
Notes to Financial Statements 22
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 1998.
(c) Exhibits required to be filed by Item 601 of Regulation S-K
are listed in the Exhibit Index which appear at pages 35 and
36 and which are incorporated by reference.
<PAGE>
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/ William A. Koertner
William A. Koertner
Senior Vice President, Treasurer
and Chief Financial Officer
Dated: March 17, 1999
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/ William A. Koertner Senior Vice President,
William A. Koertner Treasurer and Chief
Financial Officer
(iii) Principal Accounting Officer
/s/ Betty R. Johnson Vice President and 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
<PAGE>
MYR GROUP INC
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1998
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 (2)
3.2 Bylaws of the Company (as amended) (3)
4.1 Form of 7% Subordinated Convertible Escrow
and Non-Escrow promissory notes of the
Company to certain former stockholders
of Harlan Electric Company (4)
9.1 Change in Independent Auditors (5)
10.1 Form of Agreement for Supplemental
Retirement and Death Benefit Programs
of the Company and its subsidiari (6)
10.2 Form of Agreement of Indemnification
for Directors of the Company and certain
officers of the Company and subsidiaries (7)
10.3 1989 Stock Option and Restricted Stock Plan (8)
10.4 1990 Stock Option and Restricted Stock Plan (8)
10.5 1992 Stock Option and Restricted Stock Plan (8)
10.6 1995 Stock Option and Restricted Stock Plan (8)
10.7 1993 Non-Employee Director Stock Option Plan (9)
10.8 1996 Non-Employee Director Stock Ownership Plan (10)
10.9 Management Incentive Program (11)
10.10 Amended Employment Agreement between the Company
and C. M. Brennan effective January 1, 1997. (12)
21 Subsidiaries of the Company 37
23 Independent Auditors' Consents 38
27 Financial Data Schedules 40
99.1 Report of Predecessor Auditors 41
<PAGE>
(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 3.1 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1995, and incorporated
herein by reference.
(3) Filed as exhibits 3.2 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1995, and incorporated herein
by reference.
(4) 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.
(5) Filed as Report on Form 8-K of the Company, August 10, 1998, and
incorporated herein by reference.
(6) 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.
(7) 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.
(8) Filed as Appendix B to the notice of meeting and proxy statement for
use in connection with the Company's 1996 Annual Meetings of
stockholders held on May 15, 1996.
(9) 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.
(10) Filed as Appendix A to the notice of meetings and proxy statements
for use in connection with the Company's 1996 Annual Meeting of
stockholders held on May 15, 1996.
(11) Filed as exhibit 10.8 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1995, and incorporated herein
by reference.
(12) Filed as exhibit 10.10 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1996, and incorporated
herein by reference.
MYR Group Inc.
List of Subsidiaries
The Company's significant subsidiaries are:
Name of Corporation State or Jurisdiction Percentage
or other entity of Organization of Interest
------------------- --------------------- -----------
The L. E. Myers Co. Delaware 100%
Hawkeye Construction, Inc. Oregon 100%
Harlan Electric Company Michigan 100%
D.W. Close Company Inc. Washington 100%
Sturgeon Electric Company, Inc. Michigan 100%(1)
Power Piping Company Pennsylvania 100%(1)
ComTel Technologies, Inc. Colorado 100%(2)
(1) wholly owned subsidiary of Harlan Electric Company
(2) wholly owned subsidiary of Sturgeon Electric Company, Inc.
Exhibit 21
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
MYR Group Inc.
We consent to the incorporation by reference in Registration Statement
Nos. 33-31305, 33-36557, 33-53628, 33-76722 and 333-41065 of MYR Group
Inc. on Form S-8 of our report dated March 17, 1999, with respects to the
consolidated financial statements of MYR Group Inc. included in the Annual
Report Form 10-K for the year ended December 31, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
March 17, 1999
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
MYR Group Inc.
We consent to the incorporation by reference in Registration Statement
Nos. 33-31305, 33-36557, 33-53628, 33-76722 and 333-41065 of MYR Group
Inc. on Form S-8 of our report dated March 18, 1998, appearing in Exhibit
99.1 in the Annual Report on Form 10-K of MYR Group Inc. for the year
ended December 31, 1998.
Deloitte & Touche LLP
Chicago, Illinois
March 17, 1999
Exhibit 23
MYR GROUP INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
MYR Group Inc.:
We have audited the accompanying consolidated balance sheet of MYR Group
Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 1997.
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, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
March 18, 1998
Exhibit 99.1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,372
<SECURITIES> 0
<RECEIVABLES> 68,859
<ALLOWANCES> 747
<INVENTORY> 0
<CURRENT-ASSETS> 92,968
<PP&E> 56,706
<DEPRECIATION> 40,604
<TOTAL-ASSETS> 110,199
<CURRENT-LIABILITIES> 62,792
<BONDS> 6,614
0
0
<COMMON> 5,699
<OTHER-SE> 33,649
<TOTAL-LIABILITY-AND-EQUITY> 110,199
<SALES> 459,343
<TOTAL-REVENUES> 459,343
<CGS> 414,123
<TOTAL-COSTS> 445,008
<OTHER-EXPENSES> (175)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,160
<INCOME-PRETAX> 12,931
<INCOME-TAX> 5,043
<INCOME-CONTINUING> 7,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,888
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.20
</TABLE>
