HomeMy WebLinkAboutRESPONSE - BID - 5868 ATMS COMMUNICATIONS SYSTEM PHASE 3 (3)MYR Group Inc.
Consolidated Financial Statements
December 31, 2003 and 2002
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of do0ars, except per share data)
5. Contracts in Process
The net asset position for contracts in process consisted of the following at December 31, 2003 and
2002:
Cost incurred on uncompleted contracts
Estimated earnings
Less: Billings to date
2003
2002
$ 423,235
$ 610,024
27,063
36,662
450,298
646,686
451,461
646,593
$ (1,163)
$ 93
The net asset position for contracts in process is included in the accompanying consolidated balance
sheet as follows at December 31, 2003 and 2002:
2003 2002
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 15,139 $ 16,075
Billings in excess of costs and estimated earnings on
uncompleted contracts (16,302) (15,982)
$ (1,163) $ 93
6. Property and Equipment
Property and equipment consisted of the following at December 31, 2003 and 2002:
Land
Buildings and improvements
Construction equipment
Office equipment
Less: Accumulated depreciation
2003
$ 931
3,842
16,146
2,378
23,297
2002
$ 931
3,860
15,384
2,231
22,406
(9,694) (6,092)
$ 13,603 $ 16,314
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MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
7. Accrued Liabilities
Accrued liabilities consisted of the following at December 31, 2003 and 2002:
2003
2002
Self-insurance retention
$ 15,281
$ 17,932
Change of control compensation
-
2,339
Payroll and incentive compensation
2,910
1,442
Union dues and benefits
3,788
4,693
Profit sharing and thrift plan
469
565
Taxes, other than income taxes
1,737
799
Other
4,731
3,789
$ 28,916
$ 31,559
8. Income Taxes
The provision for income taxes benefit consisted of the following
for the years ended
December 31,
2003 and 2002:
2003
2002
Current
Federal
$ (4,556)
$ (3,238)
State
(1,347)
(653)
(5,903)
(3,891)
Deferred
174
3,407
$ (5,729)
$ (484)
The differences between the U.S. federal statutory tax rates and the Company's effective rates for
the years ended December 31, 2003 and 2002 are as follows:
2003
U.S. federal statutory rate
(34.0)%
State income taxes, net of U.S. federal income tax
benefit
(6.0)
Change of control payout
(13.4)
Exercise of FirstEnergy's stock options
(1.6)
Fuels tax credits
(14)
Other
2.3
(56.1)%
2002
34.0 %
6.0
(15.0)
(15.0)
(14.0)
(3.0)
(7.0)%
T
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
The net deferred tax assets and (liabilities) arising from temporary differences at December 31,
2003 and 2002 are as follows:
Employee and retiree benefit plans
Excess tax over book depreciation
Insurance accruals
Other allowances and accruals
9. Related Party Transactions
2003 2002
Current Noncurrent Current Noncurrent
Assets Liabilities Assets Liabilities
$ 207 $ - $ - $ 218
(5,297) (5,165)
5,564 - 4,454 -
2,177 (1,592) 3,552 (1,827)
$ 7,948 $ (6,889) $ 8,006 $ (6,774)
In connection with certain construction services provided to an affiliate of FirstEnergy, there were
contract receivables of $1,039 and $198 as of December 31, 2003 and 2002. Total revenue
recognized by the Company for services provided to the affiliate for the years ended December 31,
2003 and 2002 were $3,610 and $2,993, respectively. The related costs of providing these service;
were $3,825 and $2,580, respectively.
10. Commitments and Contingencies
At December 31, 2003 and 2002, the Company had outstanding irrevocable standby letters of credit
totaling $13,336 and $4,473, respectively, related to the Company's payment obligation under its
insurance programs.
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, 2003:
Year Amount
2004 $ 14,472
2005 9,948
2006
4,698
2007 1,515
2008 687
Total rent expense for the years ended December 31, 2003 and 2002 were $25,788 and $33,245,
respectively.
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 as appropriate. The Company
believes that there is no pending or threatened litigation that would have a material adverse effect
upon the Company's financial condition.
11
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
11. Stock Option and Restricted Stock Plans
The Company, as a result of the FirstEnergy acquisition, recorded a long -tens asset of $581 related
to the intrinsic value allocable to unvested stock options at the acquisition date. This amount was
amortized as compensation expense over the remaining future vesting period. The unamortized
balance at December 31, 2003 and 2002 was $0 and $324, respectively.
Vesting of options granted is determined separately for each grant and has generally been over a
three to five year term. All options outstanding have a ten year life from the date of grant.
Transactions and other information relating to the outstanding stock options for various officers and
employees of the Company for the years ended December 31, 2003 and 2002 are summarized
below:
Weighted
Average
Number
Exercise
of Options
Price
Outstanding at December 31, 2001
257,441
$ 18.13
Forfeited
(12,292)
34.80
Granted
136,604
34.80
Exercised
(148,455)
17.77
Outstanding at December 31, 2002
233,298
27.24
Forfeited
(1,257)
34.80
Exercised
(21,586)
11.55
Outstanding at December 31, 2003
210,455
$ 28.80
Exercisable at December 31, 2002
97,520
$ 19.61
Exercisable at December 31, 2003
87,400
$ 20.36
FirstEnergy stock options outstanding for various officers and employees of the Company at
December 31, 2003 are summarized below:
Options Outstandin
Weighted
Average
Number
Exercise
Exercise Prices
Outstanding
Price
$ 8.35 $ 9.35
15,091
$ 8.83
14.23 23.75
72,309
22.77
34.80 34.80
123,055
34.80
210,455
Options Exercisable
Weighted
Average
Number
Exercise
Exercisable
Price
15,091
$ 8.83
72,309
22.77
87,400
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MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
The weighted average fair value of options outstanding during 2003 and 2002 was $5.09 and $7.20,
respectively. The fair value of each stock option grant is estimated using the Black-Scholes option
pricing model with the following weighted average assumptions (no stock options were granted in
2003):
Expected life (years)
Risk -free interest rate
Expected volatility
Expected dividend yield
2002
7.60
5.08 %
23.31 %
4.27 %
The Company accounts for stock options 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 stock options been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock - Based
Compensation" (SFAS 123), the Company's pro forma net (loss) income for the years ended
December 31, 2003 and 2002 would have been ($4,706) and $7,100, respectively.
Participants under the restricted stock award plan are entitled to cash dividends and to vote their
respective shares. The shares issued are held by the Company until the restriction period expires.
Unearned compensation equivalent to the market value at the date of grant is amortized to expense
over the restriction period. During 2001, in conjunction with the acquisition of GPU by
FirstEnergy, the converted restricted shares were converted into restricted shares in FirstEnergy at a
conversion rate of 1.2318 per share. The charge for compensation under the plan for the years
ended December 31, 2003 and 2002 was $252 and $919, respectively.
12. 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 for the year ended December 31, 2003 and 2002
amounted to $999 and $1,060, respectively. Certain key management employees participate in
FirstEnergy's long-term incentive program. Awards vest over a two year period from the grant date
to the extent the company achieves certain identified performance measures, including after-tax
margin, revenue growth and return on assets.
Certain employees are covered under union -sponsored collectively bargained defined benefit plans.
Expenses for these plans for the years ended December 31, 2003 and 2002 amounted to $24,740 and
$31,966, respectively, as determined in accordance with negotiated labor contracts.
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MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
13. Costs of Under -Performing Business Unit
Management decided to exit the power plant market due to the depressed market conditions and the
near -term outlook in this market. This work was conducted primarily by one subsidiary of the
Company, which recorded a pre-tax loss of $5.1 million in 2003. The pre-tax loss included $533 for
restructuring expenses. For year ended December 31, 2002, the Company recorded nonrecurring
charges for $275, related to certain under -performing business units. The restructuring expenses .
cover unamortized leasehold improvements, lease obligations and severance costs. The costs of the
restructuring plan have been classified in selling, general and administrative expenses on the
consolidated statement of income.
14. Change of Control
In 1999, certain executives entered into Change of Control Agreements with the Company in
advance of the purchase of the Company by GPU. The agreements provide a number of benefits
covering salary and bonus, accelerated stock option payments, accelerated restricted stock payments
and vesting, and other miscellaneous payments. During 2002, all executives under the agreements
exercised their rights. As a result, benefits totaling $2,339 were paid in cash during 2003 and
benefits totaling of $2,617 were paid in cash during 2002. The above amounts were charged to
goodwill. The Company incurred $285 of additional expense during 2003 due to the higher closing
price of FirstEnergy stock on the payout date.
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pRICEWArERHOU$�OOPERS @
PricewalerhouseCoopers LLP
One North Wacker
Chicago IL 60606
Telephone (312) 298 2000
Facsimile (312) 298 2001
Report of Independent Auditors
To Board of Directors and Shareholder of
MYR Group Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements
of operations, shareholder's equity and of cash flows present fairly, in all material respects, the
financial position of MYR Group Inc. at December 31, 2003 and 2002, and the results of its operations
and its cash flows for the years ended December 31, 2003 and 2002 in conformity with accounting
principles generally accepted in the United States of America. 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 audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
lid
January 30, 2004
MYR Group Inc.
Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands of dollars)
2003
2002
Assets
Current assets
Cash and cash equivalents
$ 9,281
$ 43,202
Accounts receivable, net
74,531
79,082
Costs and estimated earnings in excess of billings
on uncompleted contracts
15,139
161075
Deferred income taxes
7,948
8,006
Other current assets
9,000
3,814
Total current assets
115,899
150,179
Property and equipment, net
13,603
16,314
Goodwill
63,136
63,136
Other assets
1,622
1,309
Total assets
$ 194,260
$ 230,938
Liabilities and Shareholder's Equity
Current liabilities
Accounts payable
$ 10,516 $
15,570
Billings in excess of costs and estilated earnings on
uncompleted contracts
16,302
15,982
Accrued liabilities
28,916
31,559
Total current liabilities
55,734
63,111
Other liabilities
296
220
Deferred income taxes
6,889
6,774
Total liabilities
62,919
70,105
Shareholder's equity
Common stock - no par value per share;
authorized 100 shares; 100 issued and outstanding - -
Additional paid -in capital 135,868 150,000
Retained eamings/(accumulated deficit) (4,527) 10,833
Total shareholder's equity 131,341 160,833
Total liabilities and shareholder's equity $ 194,260 $ 230,938
The accompanying notes are an integral part of the consolidated financial statements.
N
MYR Group Inc.
Consolidated Statements of Operations
Years Ended December 31, 2003 and 2002
(in thousands ojdoIlars)
Contract revenues
Contract costs
Gross profit
Selling, general and administrative expenses
(Loss) income from operations
Other income (expense)
Interest income
Interest expense
Gain on sale of property and equipment
Amortization of intangibles
Other
(Loss) income before provision for income taxes
Benefit for income taxes
Net (loss) income
2003
2002
$ 437,822
$ 525,907
406,702
475,971
31,120
49,936
42,483
44,162
(11,363)
5,774
275
581
(33)
(53)
599
1,531
-
(300)
301
(722)
(10,221)
6,811
(5,729)
(484)
$ (4,492)
$ 7,295
The accompanying notes are an integral part of the--onsohdated financial statements.
3
MYR Group Inc.
Consolidated Statements of Shareholder's Equity
Years Ended December 31, 2003 and 2002
(in thousands of dollars)
Balance January 1, 2002
Net income
Balance December 31, 2002
Net loss
Dividend distribution
Balance December 31, 2003
z
Additional
Common Paid -In
Stock Capital
$ - $ 150,000
150,000
(14,132)
$ - $ 135,868
Retained
Earnings/
(Accumulated
Deficit)
$ 3,538
7,295
10,833
(4,492)
(10,868)
$ (4,527)
Total
$ 153,538
7,295
160,833
(4,492)
(25,000)
$ 131,341
0
The accompanying notes are an integral part of the consolidated financial statements.
4
MYR Group Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2003 and 2002
(in thousands of dollars)
2003
2002
Cash flows from operating activities
Net (loss) income
S (4,492)
S 7,295
Adjustments to reconcile net income to net
cash flows (used in) provided by operating activities
Depreciation and amortization
5,010
5,137
Amortization of intangibles
-
300
Amortization of restricted stock awards
576
919
Deferred income taxes
174
3,407
Gain on sale of property and equipment
(599)
(1,531)
Changes in operating assets and liabilities:
Accounts receivable, net
4,551
32,608
Costs and estimated earnings in excess of
billings on uncompleted contracts
936
8,751
Other, assets
(6,075)
(3,304)
Accounts payable
(5,054)
(1,262)
Billings in excess of costs and estimated
earnings on uncompleted contracts
320
(126)
Self insurance retention accruals
(2,651)
(103)
Other liabilities
2,422
(12,758)
Net cash flows (used in) provided by operating activities
(4,882)
39,333
Cash flows from investing activities
Proceeds from sale of property and equipment
901
3,181
Payments for change of control
(2,339)
(2,617)
Purchases of property and equipment
(2,601)
(4,930)
Net cash flows used in investing activities
(4,039)
(4,366)
Cash flows from financing activities
Dividends paid
(25,000)
Net cash flows used in financing activities
(25,000)
-
Increase (decrease) in cash and cash equivalents
(33,921)
34,967
Cash and cash equivalents
43,202
8,235
Beginning of period
End of period
$ 9,281 S
43,202
The accompanying notes are an integral part of the consolidated financial statements.
E
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
1. Organization and Business
MYR Group Inc. (the "Company") is a wholly owned subsidiary of FirstEnergy Corporation
("FirstEnergy') and consists of the following wholly owned subsidiaries: The L. E. Myers Co., a
Delaware corporation ("Myers"), Hawkeye Construction Inc., an Oregon corporation ("Hawkeye"),
Harlan Electric Company, a Michigan corporation ("Harlan'), Sturgeon Electric Company, Inc., a
Michigan corporation ("Sturgeon"), Power Piping Company, a Pennsylvania corporation ("Power
Piping"), MYRcom, Inc., a Delaware corporation ("MYRcom'7, ComTel Technology, Inc., a
Colorado corporation ("ComTel"), MYRpower, Inc., a Delaware corporation ("MYRpower"), Great
Southwestern Construction, Inc., a Colorado corporation ("Great Southwestern"), and D.W. Close
Company Inc., a Washington corporation ("D.W. Close").
The construction services performed by the Company are principally 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 individually, or with subcontractors.
The Company grants credit, generally on a non -collateralized basis, to its customers and is subject
to potential credit risk related to changes in business and overall economic activity. Management
continually monitors the financial condition and payment performance of its customers. The
Company establishes a provision for doubtful accounts when deemed necessary.
2. Basis of Presentation
Consolidated financial statements include the Company and its subsidiaries. Significant
intercompany transactions and balances have been eliminated.
3. Summary of Significant Accounting Policies
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.
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
Revenue Recognition
The Company recognizes revenue on lump sum 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. Revenue is recognized as
units are completed under unit price contracts. Revenue is recognized on cost -plus -fee contracts as
costs are incurred. 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.
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.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are carried at cost. Depreciation for buildings and improvements is
computed using the straight-line method over estimated useful lives ranging from five years to
thirty-two 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.
Impairment of Long -Lived Assets
The Company assesses the impairment of its long-lived assets, including property, plant and
equipment whenever economic events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable. Long-lived assets are considered to be impaired
when the sum of the expected future operating cash flows undiscounted, is less than the carrying
amount of the related assets.
Goodwill
The Company adopted the Financial Accounting Standards Board's Statement of Financial
Accounting (SFAS) 142, "Goodwill and Other Intangible Assets." SFAS 142 requires that goodwill
and certain other intangible assets no longer be amortized, but instead be evaluated for impairment
at least annually. The Company has performed a goodwill impairment analysis with fair value
determined by utilizing a discounted cash flow model. Based upon the results of the analysis, no
impairment existed at December 31, 2003.
MYR Group Inc.
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(in thousands of dollars, except per share data)
At December 31, 2003 and 2002, the carrying amount of goodwill related to FirstEnergy's 2001
acquisition of the Company, representing the difference between the total purchase price and the
estimated fair value of the underlying assets acquired and liabilities assumed, amounted to $60,512.
The carrying amount of goodwill related to all acquisitions made by the Company amounted to
$2,624 at December 31, 2003 and 2002.
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. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company is included in FirstEnergy's consolidated tax return. The Company has calculated
their tax provision on a stand alone basis.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and payable, accrued
liabilities, and other assets and liabilities approximates fair value due to the short maturities of these
instruments.
Supplemental Cash Flows
Supplemental disclosures of cash flow information for the year ended December 31, 2003 and 2002
are as follows:
2003 2002
Cash paid during the period for
Income taxes $ 1,046 $ 4,742
Interest expense 33 55
4. Accounts Receivable
Accounts receivable consisted of the following at December 31, 2003 and 2002:
Contract receivables
Contract retainages
Other
Less: Allowance for doubtful accounts
2003
2002
65,149
$ 66,990
10,510
14,036
381
299
76,040
81,325
(1,509) (2,243)
$ 74,531 $ 79,082