UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 18, 2018 (July 2, 2018)
MYR GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-08325 | 36-3158643 |
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
1701 Golf Road, Suite 3-1012 Rolling Meadows, IL |
60008 | |
(Address of Principal Executive Offices) | (ZIP Code) |
Registrant’s telephone number, including area code: (847) 290-1891
None
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Explanatory Note
Pursuant to the requirements of the Securities Exchange Act of 1934, MYR Group Inc. (the “Company”) is filing this Current Report on Form 8-K/A to amend its Current Report on Form 8-K filed on July 3, 2018 to provide the required financial information relating to its acquisition of substantially all of the assets of Huen Electric, Inc., an electrical contracting firm based in Illinois, Huen Electric New Jersey Inc., an electrical contracting firm based in New Jersey, and Huen New York, Inc., an electrical contracting firm based in New York (the “Acquisition”).
Item 9.01 Financial Statements and Exhibits.
(a) | Financial Statements of Businesses Acquired. |
(1) | The audited combined financial statements of Huen Electric, Inc. (Illinois, New York and New Jersey Corporations) as of and for the years ended December 31, 2017 and 2016, and the related notes to such audited combined financial statements, are filed as Exhibit 99.1 hereto. |
(2) | The unaudited condensed combined interim financial statements of Huen Electric, Inc. (Illinois, New York and New Jersey Corporations) as of June 30, 2018 and for the six months ended June 30, 2018 and June 30, 2017, and the related notes to such unaudited condensed combined interim financial statements, are filed as Exhibit 99.2 hereto. |
(b) | Pro Forma Financial Information. |
The unaudited pro forma financial information of the Company as of and for the six months ended June 30, 2018 and for the year ended December 31, 2017 and the notes related thereto, are filed as Exhibit 99.3 hereto.
(d) | Exhibits. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MYR GROUP INC. | |||
Dated: September 18, 2018 | By: | /s/ BETTY R. JOHNSON | |
Name: | Betty R. Johnson | ||
Title: | Senior Vice President, Chief Financial Officer and Treasurer |
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements on Form S-8 (Nos 333-217559, 333-196110, 333-174152, 333-156501, 333-41065, and 333-02605) of MYR Group Inc. of our report dated March 13, 2018 relating to the combined financial statements of Huen Electric, Inc. (Illinois, New York and New Jersey Corporations) as of and for the years ended December 31, 2017 and 2016, which appears in this Current Report on Form 8-K/A dated September 18, 2018.
/s/ Warady & Davis LLP | |
Deerfield, IL | |
September 18, 2018 |
EXHIBIT 99.1
Huen Electric, Inc.
COMBINED Financial Statements
December 31, 2017
Huen Electric, Inc. |
Table of Contents | |
INDEPENDENT AUDITORS’ REPORT | 3 |
COMBINED Financial Statements | |
Balance Sheets | 4 |
Statements of Changes in Stockholders’ Equity | 5 |
Statements of Income | 6 |
Statements of Comprehensive Income | 7 |
Statements of Cash Flows | 8 |
Notes to Financial Statements | 9–20 |
INDEPENDENT AUDITORS' REPORT
Board of Directors
Huen Electric, Inc.
Broadview, Illinois
Report on the Financial Statements
We have audited the accompanying combined financial statements of Huen Electric, Inc. (Illinois, New York and New Jersey Corporations), which comprise the combined balance sheets as of December 31, 2017 and 2016, and the related combined statements of changes in stockholders’ equity, income, comprehensive income, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Huen Electric, Inc. as of December 31, 2017 and 2016, and the results of their combined operations and their combined cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Warady & Davis LLP | |
March 13, 2018 |
HUEN ELECTRIC, INC. |
COMBINED BALANCE SHEETS |
As of December 31 | 2017 | 2016 | ||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 18,272,401 | $ | 34,135,521 | ||||
Accounts Receivable, net | 33,099,721 | 22,910,560 | ||||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | 1,832,051 | 2,532,742 | ||||||
Employee Advances | 390 | 5,126 | ||||||
Refundable Income Taxes | 443,143 | — | ||||||
Prepaid Expenses | 83,571 | 9,138 | ||||||
Total Current Assets | 53,731,277 | 59,593,087 | ||||||
INVESTMENTS | 5,331,841 | 4,912,805 | ||||||
PROPERTY AND EQUIPMENT, net | 1,722,392 | 1,330,507 | ||||||
OTHER ASSETS | ||||||||
Security Deposits | 12,950 | 23,070 | ||||||
Investment in Clark Wacker, LLC | 13,994 | 13,994 | ||||||
Total Other Assets | 26,944 | 37,064 | ||||||
TOTAL ASSETS | $ | 60,812,454 | $ | 65,873,463 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Current Maturities of Notes Payable - | ||||||||
Former Stockholders | $ | 715,088 | $ | 1,326,348 | ||||
Accounts Payable | 11,588,781 | 7,147,214 | ||||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | 8,348,530 | 19,558,533 | ||||||
Income Taxes Payable | 40,000 | 1,173,467 | ||||||
Accrued Expenses | 5,654,792 | 4,745,413 | ||||||
Distributions Payable | 3,569,125 | 2,824,711 | ||||||
Total Current Liabilities | 29,916,316 | 36,775,686 | ||||||
NOTES PAYABLE - FORMER STOCKHOLDER | — | 3,124,766 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Controlling Interest | 30,341,462 | 25,973,011 | ||||||
Noncontrolling Interests | 554,676 | — | ||||||
Total StockHolder’s Equity | 30,896,138 | 25,973,011 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 60,812,454 | $ | 65,873,463 |
See accompanying notes.
4 |
HUEN ELECTRIC, INC. |
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
For the Years Ended December 31, 2016 and 2017 |
Controlling Interest | ||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||
Gain (Loss) on | ||||||||||||||||||||||||||||
Common | Paid-in | Retained | Market Value | Noncontrolling | ||||||||||||||||||||||||
Stock | Surplus | Earnings | Variation | Total | Interest | Total | ||||||||||||||||||||||
BALANCE, JANUARY 1, 2016 | $ | 1,059,408 | $ | 671,919 | $ | 16,588,289 | $ | (1,151,137 | ) | $ | 17,168,479 | $ | 260,490 | $ | 17,428,969 | |||||||||||||
Issuance of Stock | 485,333 | 485,333 | 485,333 | |||||||||||||||||||||||||
Treasury Stock | (260,512 | ) | (260,512 | ) | (260,512 | ) | ||||||||||||||||||||||
Distributions Paid | (12,992,839 | ) | (12,992,839 | ) | (800,684 | ) | (13,793,523 | ) | ||||||||||||||||||||
Net Income | 21,399,357 | 21,399,357 | 540,194 | 21,939,551 | ||||||||||||||||||||||||
Other Comprehensive Income | 173,193 | 173,193 | 173,193 | |||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2016 | 1,059,408 | 1,157,252 | 24,734,295 | (977,944 | ) | 25,973,011 | — | 25,973,011 | ||||||||||||||||||||
Issuance of Stock | 471,838 | 471,838 | 471,838 | |||||||||||||||||||||||||
Treasury Stock | (1,225,379 | ) | (1,225,379 | ) | (1,225,379 | ) | ||||||||||||||||||||||
Distributions Paid | (6,106,961 | ) | (6,106,961 | ) | (415,347 | ) | (6,522,308 | ) | ||||||||||||||||||||
Net Income | 10,920,033 | 10,920,033 | 970,023 | 11,890,056 | ||||||||||||||||||||||||
Other Comprehensive Income | 308,920 | 308,920 | 308,920 | |||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2017 | $ | 1,059,408 | $ | 1,629,090 | $ | 28,321,988 | $ | (669,024 | ) | $ | 30,341,462 | $ | 554,676 | $ | 30,896,138 |
The Company has authorized 100,000 shares of no par value common stock. At December 31, 2017 and 2016, 2,180 shares of common stock were issued and outstanding.
See accompanying notes.
5 |
HUEN ELECTRIC, INC. |
COMBINED STATEMENTS OF INCOME |
For the Years Ended December 31 | 2017 | 2016 | ||||||
CONTRACT REVENUES EARNED | $ | 134,589,192 | $ | 143,452,026 | ||||
Cost of Revenues Earned | 107,603,278 | 106,381,177 | ||||||
GROSS PROFIT | 26,985,914 | 37,070,849 | ||||||
Equipment and Shop Expenses | 4,196,604 | 3,474,457 | ||||||
General and Administrative Expenses | 8,785,110 | 9,464,215 | ||||||
Total Operating Expenses | 12,981,714 | 12,938,672 | ||||||
INCOME FROM OPERATIONS | 14,004,200 | 24,132,177 | ||||||
Other (Income) Expenses | ||||||||
Gain on Disposition of Property and Equipment | (54,862 | ) | (45,616 | ) | ||||
Dividend Income | (110,116 | ) | (2,985 | ) | ||||
Interest Income | (74,101 | ) | (29,933 | ) | ||||
Interest Expense | 80,474 | 165,366 | ||||||
Profit Sharing Contribution | 1,212,081 | 650,537 | ||||||
Equity (Earnings) Loss from Clark Wacker, LLC | — | 657 | ||||||
Other Income | — | 1,571 | ||||||
Directors' Fees | 120,000 | 108,000 | ||||||
Total Other (Income) Expenses | 1,173,476 | 847,597 | ||||||
INCOME BEFORE NONCONTROLLING INTERESTS IN INCOME OF COMBINED AFFILIATES | 12,830,724 | 23,284,580 | ||||||
Noncontrolling Interests in Income of Combined Affiliates | (970,023 | ) | (540,194 | ) | ||||
INCOME BEFORE INCOME TAXES | 11,860,701 | 22,744,386 | ||||||
Income Taxes | 940,668 | 1,345,029 | ||||||
NET INCOME | $ | 10,920,033 | $ | 21,399,357 |
See accompanying notes.
6 |
HUEN ELECTRIC, INC. |
COMBINED STATEMENTS OF COMPREHENSIVE INCOME |
For the Years Ended December 31 | 2017 | 2016 | ||||||
NET INCOME | $ | 10,920,033 | $ | 21,399,357 | ||||
OTHER COMPREHENSIVE INCOME | ||||||||
Unrealized Gains on Securities: | ||||||||
Unrealized Holding Gains Arising During the Period | 308,920 | 173,193 | ||||||
COMPREHENSIVE INCOME | $ | 11,228,953 | $ | 21,572,550 |
See accompanying notes.
7 |
HUEN ELECTRIC, INC. |
COMBINED STATEMENTS OF CASH FLOWS |
For the Years Ended December 31 | 2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 10,920,033 | $ | 21,399,357 | ||||
Adjustments to Reconcile Net Income to Provided (Used) by Operating Activities | ||||||||
Depreciation and Amortization | 624,724 | 561,592 | ||||||
Gain on Disposition of Property and Equipment | (54,862 | ) | (45,616 | ) | ||||
Noncontrolling Interests in Income of Combined Affiliates | 970,023 | 540,194 | ||||||
Equity Loss from Investment in Clark Wacker, LLC | — | 657 | ||||||
Accounts Receivable | (10,189,161 | ) | 5,429,633 | |||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | 700,691 | (754,123 | ) | |||||
Refundable Income Taxes | (443,143 | ) | 199,029 | |||||
Prepaid Expenses | (74,433 | ) | (8,963 | ) | ||||
Accounts Payable | 4,441,567 | (4,021,523 | ) | |||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | (11,210,003 | ) | 2,250,190 | |||||
Income Taxes Payable | (1,133,467 | ) | 846,632 | |||||
Accrued Expenses | 909,379 | (1,383,756 | ) | |||||
Total Adjustments | (15,458,685 | ) | 3,613,946 | |||||
Net Cash Provided (Used) by Operating Activities | (4,538,652 | ) | 25,013,303 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Decrease in Employee Advances | 4,736 | 16,818 | ||||||
Purchases of Investments - Net | (110,116 | ) | (2,985 | ) | ||||
Proceeds from Disposition of Property and Equipment | 66,665 | 48,024 | ||||||
Purchase of Property and Equipment | (1,028,412 | ) | (483,540 | ) | ||||
Distributions Received from Clark Wacker, LLC | — | 40,495 | ||||||
Decrease in Security Deposits | 10,120 | 16,240 | ||||||
Net Cash Used by Investing Activities | (1,057,007 | ) | (364,948 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Repayments of Notes Payable - Former Stockholder | (4,018,262 | ) | (1,595,347 | ) | ||||
Proceeds from Additional Paid-in Surplus | 471,838 | 485,333 | ||||||
Treasury Stock | (943,143 | ) | (260,512 | ) | ||||
Distributions paid to the Noncontrolling Interests | (415,347 | ) | (800,684 | ) | ||||
Distributions to Stockholders | (5,362,547 | ) | (11,437,560 | ) | ||||
Net Cash Used by Financing Activities | (10,267,461 | ) | (13,608,770 | ) | ||||
NET INCREASE (DECREASE) IN CASH | (15,863,120 | ) | 11,039,585 | |||||
Cash, Beginning | 34,135,521 | 23,095,936 | ||||||
CASH, ENDING | $ | 18,272,401 | $ | 34,135,521 |
See accompanying notes.
8 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
Company Activity AND OPERATING CYCLE
Huen Electric, Inc. is engaged in the construction industry, principally as an electrical contractor for industrial and commercial construction projects primarily in the Chicagoland area. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of contract completion, although this may require more than one year. Huen Electric, Inc. is a wholly-owned subsidiary of MI Investments (Huen) Inc.
HUEN NEW YORK
Huen New York is an electrical contractor that engages in commercial and industrial projects in New York. The operations of Huen New York are combined as part of Huen Electric, Inc.
HUEN NEW JERSEY
Huen New Jersey is an electrical contractor that engages in commercial and industrial projects in New Jersey. The operations of Huen New Jersey are combined as part of Huen Electric, Inc.
HUEN-SMC JOINT VENTURE
Huen-SMC Joint Venture (“Huen-SMC”), a 70%-owned joint venture, is an electrical contractor that engages in commercial projects in Illinois. The operations of Huen-SMC have been consolidated as part of Huen Electric, Inc.
VADER-HUEN-SMC JOINT VENTURE
Vader-Huen-SMC Joint Venture (“VHS”), a 58%-owned joint venture, is an electrical contractor that engages in commercial projects in Illinois. The operations of VHS have been consolidated as part of Huen Electric, Inc.
HUEN TECHNOLOGY SOLUTIONS, INC.
Huen Technology Solutions Inc. (“HTSI”) was organized in August, 2016 to perform electrical contracting services. In 2017, HTSI was dissolved.
All of the above entities are collectively referred to as the “Company”.
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of management who is responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
9 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMBINATION POLICY
The accompanying combined financial statements include the accounts of Huen Electric, Inc. (including its subsidiaries, Huen-SMC Joint Venture, and Vader-Huen-SMC Joint Venture), Huen New York, Inc. and Huen New Jersey, Inc., all of which are under common control. Intercompany transactions and balances have been eliminated in combination. A majority of the assets and revenues are associated with Huen Electric, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from balances outstanding at year-end, net of an allowance for expected losses. The allowance is estimated from historical performance and projections of trends. Individual accounts are written off against the allowance when collection appears doubtful.
METHOD OF REVENUE RECOGNITION
Revenues from long-term construction contracts are recognized on the basis of the Company's estimates of the percentage of completion of individual contracts commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. That portion of the total contract price is accrued which is allocable, on the basis of the Company's estimates of the percentage of completion using the cost-to-cost method, to contract expenditures and work performed. As long-term contracts extend over one or more years, revisions in estimates of cost and earnings during the course of the work are recorded in the accounting period in which the facts which require the revision become known. At the time a loss on any contract becomes known, the entire amount of the estimated ultimate loss is accrued.
Contracts which are substantially complete are considered closed for financial statement purposes. Revenue earned on contracts in progress in excess of billings (underbillings) is classified as a current asset. Amounts billed in excess of revenue earned (overbillings) are classified as a current liability.
INVESTMENTS
Investments are managed by a registered financial representative who places funds with various investment advisory firms.
Investments are categorized as available-for-sale securities and are carried at fair value. Changes in the fair market values between the beginning and the ending of the reporting period, including realized gains and losses, are included in other comprehensive income as unrealized gain or loss on market value variation.
10 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENT IN CLARK WACKER, LLC
Huen Electric Inc.’s investment in Clark Wacker, LLC (9.21%) is carried at cost. The Company recognizes investment income using the equity method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the various assets for financial reporting and the Accelerated and Modified Accelerated Cost Recovery Systems for income tax purposes.
NOTE 2—ACCOUNTS RECEIVABLE, NET
2017 | 2016 | |||||||
Accounts Receivable | $ | 26,198,178 | $ | 19,113,019 | ||||
Retentions | 7,151,543 | 4,047,541 | ||||||
33,349,721 | 23,160,560 | |||||||
Less Allowances for Uncollectible Accounts | 250,000 | 250,000 | ||||||
$ | 33,099,721 | $ | 22,910,560 |
NOTE 3—COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
2017 | 2016 | |||||||
Costs Incurred on Uncompleted Contracts | $ | 236,232,121 | $ | 245,258,718 | ||||
Estimated Earnings | 22,986,724 | 32,076,997 | ||||||
259,218,845 | 277,335,715 | |||||||
Less Billings to Date | 265,735,324 | 294,361,506 | ||||||
$ | (6,516,479 | ) | $ | (17,025,791 | ) | |||
Included in the accompanying balance sheets under the following captions: | ||||||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | $ | 1,832,051 | $ | 2,532,742 | ||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | (8,348,530 | ) | (19,558,533 | ) | ||||
$ | (6,516,479 | ) | $ | (17,025,791 | ) |
11 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
NOTE 4—FAIR VALUE MEASUREMENTS
The Fair Value Measurements and Disclosures topic of the FASB Codification establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
Level 2 | Inputs to the valuation methodology include: |
· | Quoted prices for similar assets or liabilities in active markets; |
· | Quoted prices for identical or similar assets or liabilities in inactive markets; |
· | Inputs other than quoted prices that are observable for the asset or liability; |
· | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2017 and 2016.
Level 1 Fair Value Measurements
Level 1 fair value measurements are not applicable to the Company for 2017 and 2016.
Level 2 Fair Value Measurements
The fair value of the Company’s investments is based on quoted prices for similar assets in an active market.
Level 3 Fair Value Measurements
Level 3 fair value measurements are not applicable to the Company for 2017 and 2016.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
12 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
Note 4—FAIR VALUE MEASUREMENTS (Continued)
The following securities are held in managed investment portfolios.
Fair Value Measurements at | ||||||||
Reporting Date Using: | ||||||||
Quoted Prices | ||||||||
for Similar | ||||||||
Assets in | ||||||||
Active Market | ||||||||
Fair Value | (Level 2) | |||||||
December 31, 2017 | ||||||||
Money Market Funds | $ | 74,488 | $ | 74,488 | ||||
Mutual Funds | ||||||||
Bond Funds | 2,196,624 | 2,196,624 | ||||||
Alternative Funds | 459,504 | 459,504 | ||||||
Absolute Return Funds | 375,054 | 375,054 | ||||||
Income Funds | 390,251 | 390,251 | ||||||
Floating Rate Funds | 109,669 | 109,669 | ||||||
Growth Equities | 1,044,161 | 1,044,161 | ||||||
Bonds | 682,090 | 682,090 | ||||||
Total | $ | 5,331,841 | $ | 5,331,841 |
13 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
Note 4—FAIR VALUE MEASUREMENTS (Continued)
Fair Value Measurements at | ||||||||
Reporting Date Using: | ||||||||
Quoted Prices | ||||||||
for Similar | ||||||||
Assets in | ||||||||
Active Market | ||||||||
Fair Value | (Level 2) | |||||||
December 31, 2016 | ||||||||
Money Market Funds | $ | 63,446 | $ | 63,446 | ||||
Mutual Funds | ||||||||
Bond Funds | 2,025,323 | 2,025,323 | ||||||
Alternative Funds | 429,144 | 429,144 | ||||||
Absolute Return Funds | 350,390 | 350,390 | ||||||
Income Funds | 363,049 | 363,049 | ||||||
Floating Rate Funds | 110,925 | 110,925 | ||||||
Growth Equities | 803,440 | 803,440 | ||||||
Bonds | 665,401 | 665,401 | ||||||
Municipal Bonds | ||||||||
Moody Rating AAA | 50,262 | 50,262 | ||||||
AA3 | 51,425 | 51,425 | ||||||
Total | $ | 4,912,805 | $ | 4,912,805 |
2017 | 2016 | |||||||
Cost | $ | 6,000,865 | $ | 5,890,749 | ||||
Unrealized Loss on Market Variation as of December 31 | $ | (669,024 | ) | $ | (977,944 | ) | ||
Unrealized Gain for the Year | $ | 308,920 | $ | 173,193 |
14 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements
NOTE 5—PROPERTY AND EQUIPMENT
2017 | 2016 | |||||||
Construction Equipment | $ | 328,477 | $ | 301,488 | ||||
Small Tools | 994,768 | 936,260 | ||||||
Office Furniture and Equipment | 2,012,125 | 1,874,073 | ||||||
Automobiles and Trucks | 2,485,645 | 2,161,437 | ||||||
Leasehold Improvements | 3,923,345 | 3,660,252 | ||||||
9,744,360 | 8,933,510 | |||||||
Less Accumulated Depreciation and Amortization | 8,021,968 | 7,603,003 | ||||||
$ | 1,722,392 | $ | 1,330,507 | |||||
Depreciation and Amortization Expense | $ | 624,724 | $ | 561,592 |
NOTE 6—LINE OF CREDIT
The Company has a revolving line of credit of $10,000,000 with The CIBC Bank USA, formerly known as the PrivateBank and Trust Co., which includes Huen New York and Huen New Jersey as co-borrowers. All outstanding principal and interest advanced under the line is due and payable on or before November 10, 2019. The line is subject to certain financial covenants. As of December 31, 2017, the Company was in compliance with those covenants. The revolving line of credit is collateralized by the Company’s assets. The Company has the option to choose an interest rate of prime (4.50% at December 31, 2017) less .25% or LIBOR.
There were no outstanding borrowings or letters of credit as of December 31, 2017 and 2016.
NOTE 7—NOTES PAYABLE - FORMER STOCKHOLDERS
2017 | 2016 | |||||||
1.75% Note Payable – Former Stockholder, requiring annual installments of $781,191 plus accrued interest on each January 1st until maturity at January 1, 2021. Repayments under the note were subordinate to payment of advances under The CIBC Bank USA line of credit. The note and all outstanding interest was repaid in 2017. | $ | — | $ | 3,905,957 | ||||
4.00% Note Payable – Former Stockholder, all principal and interest is due and payable on March 20, 2018 | 282,236 | — |
15 |
HUEN ELECTRIC, INC.
Notes To COMBINED Financial Statements
NOTE 7—NOTES PAYABLE - FORMER STOCKHOLDERS (Continued)
2017 | 2016 | |||||||
Note Payable – Former Stockholder, requiring annual principal payments of $112,306 plus interest at Prime, each on August 6, 2016 and 2017. | — | 112,305 | ||||||
Note Payable – Former Stockholder, all outstanding principal and interest at Prime is due September 30, 2016. No payments have been made in 2016 or 2017. | 432,852 | 432,852 | ||||||
715,088 | 4,451,114 | |||||||
Less Current Maturities | 715,088 | 1,326,348 | ||||||
Long-Term | $ | — | $ | 3,124,766 |
NOTE 8—ACCRUED EXPENSES
2017 | 2016 | |||||||
Accrued Directors’ Fees | $ | 21,000 | $ | 33,000 | ||||
Accrued Sales Taxes Payable | 8,982 | 1,600 | ||||||
Accrued Insurance | - | 868,891 | ||||||
Accrued Interest | 28,975 | 91,286 | ||||||
Other Accrued Liabilities | 145,090 | 280,624 | ||||||
Accrued Payroll and Payroll Taxes | 2,448,102 | 1,497,125 | ||||||
Accrued Profit Sharing Contribution | 506,425 | 626,725 | ||||||
Accrued Property Taxes - Estimated | 92,000 | 92,136 | ||||||
Accrued Union Benefits | 2,212,782 | 1,057,134 | ||||||
Accrued Professional Fees | 191,436 | 196,892 | ||||||
$ | 5,654,792 | $ | 4,745,413 |
NOTE 9—NONCONTROLLING INTERESTS IN COMBINED AFFILIATES
The balance represents the noncontrolling interests’ cumulative share of their net income and capital contributions.
2017 | 2016 | |||||||
Net Income | $ | 970,023 | $ | 540,194 | ||||
Distributions | (415,347 | ) | (540,194 | ) | ||||
$ | 554,676 | $ | — |
16 |
HUEN ELECTRIC, INC.
Notes To COMBINED Financial Statements
NOTE 10—LEASE COMMITMENTS
The Company conducts operations from office facilities in various locations under operating leases expiring at various dates through 2030. In addition to the base rent, the Company is responsible for its proportionate share of property taxes and operating expenses. The leases are between the Company and related parties.
Rent expense was:
2017 | 2016 | |||||||
Fixed | $ | 1,466,835 | $ | 1,396,985 | ||||
Contingent | 136,206 | 125,069 | ||||||
$ | 1,603,041 | $ | 1,522,054 |
Future minimum rentals are:
Year Ending December 31 | ||||
2018 | $ | 1,540,174 | ||
2019 | 1,617,183 | |||
2020 | 1,698,041 | |||
2021 | 1,782,944 | |||
2022 | 1,742,809 | |||
Thereafter | 6,738,432 | |||
Aggregate Future Minimum Rentals | $ | 15,119,583 |
NOTE 11—RETIREMENT PLANS
The Company has a noncontributory profit sharing plan which covers substantially all nonunion employees. Contributions are made at the discretion of the Board of Directors. Contributions were $506,425 for 2017 and $626,725 for 2016. The Company also has a profit sharing plan covering substantially all nonunion employees which includes an income deferral option which qualifies under Section 401(k) of the Internal Revenue Code. Contributions are made at the discretion of the Board of Directors. Contributions were $705,656 for 2017 and $23,812 for 2016.
17 |
HUEN ELECTRIC, INC.
Notes To COMBINED Financial Statements
NOTE 12—MULTIEMPLOYER PENSION PLANS
The Company makes contributions, based on the number of hours worked, to collectively bargained multiemployer pension plans in accordance with provisions of a negotiated labor contract.
The risks of participating in multiemployer plans are different from single-employer plans as assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers and if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. In addition, if the Company chooses to stop participating in some of its multiemployer plans it may be required to pay those plans a withdrawal liability based on the underfunded status of the plan.
The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006, which represents the funded status of the plan as certified by the plan’s actuary. Plans in the red zone are less than 65% funded; plans in the yellow zone are less than 80% funded; and plans in the green zone are at least 80% funded.
The table on the next page presents information concerning the Company's participation in multiemployer defined benefit pension plans.
18 |
HUEN ELECTRIC, INC.
Notes To COMBINED Financial Statements
NOTE 12—MULTIEMPLOYER PENSION PLANS (Continued)
FIP/RP | Expiration Date | |||||||||||||||||||||||
Pension Protection Act | Status | of Collective- | ||||||||||||||||||||||
EIN/Pension Plan | Zone Status | Pending/ | Contributions by the Company | Surcharge | Bargaining | |||||||||||||||||||
Pension Fund | Number | 2017 | 2016 | Implemented | 2017 | 2016 | Imposed | Agreement | ||||||||||||||||
Local 134 | 51-6030753 | Green | Green | * | $ | 1,169,834 | $ | 2,790,823 | N/A | 3/30/2017 | ||||||||||||||
Local 43 | 16-6153389 | Yellow | Yellow | Endangered | 1,832,083 | 1,542,918 | N/A | 3/30/2017 | ||||||||||||||||
Local 269 | 22-3693537 | Green | Green | * | 1,132,784 | 490,953 | N/A | 1/17/2017 | ||||||||||||||||
Local 351 | 22-3417366 | Green | Green | * | 191,144 | 236,117 | N/A | 10/1/2018 | ||||||||||||||||
Local 456 | 22-6238995 | Yellow | Yellow | Endangered | 1,380,489 | 1,998,098 | N/A | 5/28/2018 | ||||||||||||||||
Local 102 | 22-1615726 | Green | Green | * | 249,320 | 760,559 | N/A | 5/27/2018 | ||||||||||||||||
Local 461 | 36-2882563 | Defined Contribution | Defined Contribution | N/A | 19,425 | 67,837 | N/A | 6/3/2018 | ||||||||||||||||
Local 701 | 36-6455509 | Yellow | Yellow | Endangered | 530,046 | 754,143 | N/A | 3/30/2017 | ||||||||||||||||
Local 176 | 36-1264196 | Yellow | Yellow | Endangered | 1,358,877 | 144,904 | N/A | 5/31/2018 | ||||||||||||||||
Local 130 | 72-0219840 | Green | Green | * | 3,279 | 574,851 | N/A | 11/30/2017 | ||||||||||||||||
Local 150 | 36-6140629 | Green | Green | * | 17,135 | 114,672 | N/A | 10/29/2018 | ||||||||||||||||
Other Plans | — | — | — | — | 179,277 | 120,013 | — | — | ||||||||||||||||
$ | 8,063,693 | $ | 9,595,888 |
N/A - Information is unavailable or not applicable.
* - Neither Endangered or critical.
19 |
HUEN ELECTRIC, INC.
Notes To COMBINED Financial Statements
NOTE 13—STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
2017 | 2016 | |||||||
Cash paid for: | ||||||||
Interest | $ | 142,785 | $ | 185,966 | ||||
Income Taxes | $ | 2,515,899 | $ | 299,368 | ||||
Noncash Financing Activities: | ||||||||
Unrealized Gain on Investments | $ | 308,920 | $ | 173,193 | ||||
Distributions Payable | $ | 3,569,125 | $ | 2,824,711 | ||||
Treasury Stock Acquired in Exchange for Notes Payable – Former Stockholders | $ | 282,236 | $ | — |
NOTE 14—INCOME TAXES
The entities are either S - or Limited Liability Corporations. Earnings and losses are included in the personal income tax returns of the stockholders and taxed depending on their personal tax strategies. Accordingly, the entities will not incur additional federal income tax obligations, but are subject to certain state taxes.
The entities follow the guidance in the FASB ASC topic on Income Taxes related to Uncertainty in Income Taxes which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the entities have taken or expect to take in their income tax returns. The entities believe that they have appropriate support for the positions taken on their tax returns.
NOTE 15—CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
NOTE 16—BACKLOG
The following schedule shows a reconciliation of backlog representing signed contracts and purchase orders as of December 31, 2017:
Balance, January 1, 2017 | $ | 88,949,833 | ||
Contract Adjustments and New Contracts | 185,368,007 | |||
274,317,840 | ||||
Less Contract Revenue Earned | 134,589,192 | |||
Balance, December 31, 2017 | $ | 139,728,648 |
NOTE 17—SUBSEQUENT EVENTS
Management has evaluated subsequent events through March 13, 2018, the date which the financial statements were available to be issued. Except as disclosed elsewhere, there were no additional subsequent events which require disclosure.
20 |
EXHIBIT 99.2
Huen Electric, Inc.
condensed COMBINED interim Financial Statements
june 30, 2018 AND 2017
(Unaudited)
Huen Electric, Inc. |
Table of Contents |
COMBINED INTERIM Financial Statements | |
Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 | 3 |
Unaudited Statements of Income | 4 |
Unaudited Statements of Comprehensive Income | 5 |
Unaudited Statements of Cash Flows | 6 |
Notes to Financial Statements (Unaudited) | 7–11 |
HUEN ELECTRIC, INC. |
COMBINED BALANCE SHEETS |
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 13,619,072 | $ | 18,272,401 | ||||
Accounts Receivable, net | 36,623,200 | 33,099,721 | ||||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | 11,875,291 | 1,832,051 | ||||||
Employee Advances | 135,874 | 390 | ||||||
Refundable Income Taxes | 152,017 | 443,143 | ||||||
Prepaid Expenses | 75,652 | 83,571 | ||||||
Total Current Assets | 62,481,106 | 53,731,277 | ||||||
INVESTMENTS | — | 5,331,841 | ||||||
PROPERTY AND EQUIPMENT, net | 1,598,863 | 1,722,392 | ||||||
OTHER ASSETS | ||||||||
Security Deposits | 12,950 | 12,950 | ||||||
Investment in Clark Wacker, LLC | 14,994 | 13,994 | ||||||
Total Other Assets | 27,944 | 26,944 | ||||||
TOTAL ASSETS | $ | 64,107,913 | $ | 60,812,454 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Current Maturities of Notes Payable - Former Stockholders | $ | 433,351 | $ | 715,088 | ||||
Accounts Payable | 18,739,824 | 11,588,781 | ||||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | 6,394,050 | 8,348,530 | ||||||
Income Taxes Payable | 35,382 | 40,000 | ||||||
Accrued Expenses | 6,602,170 | 5,654,792 | ||||||
Distributions Payable | — | 3,569,125 | ||||||
Total Current Liabilities | 32,204,777 | 29,916,316 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common Stock | 1,059,408 | 1,059,408 | ||||||
Paid-in-Surplus | 2,408,427 | 1,629,090 | ||||||
Retained Earnings | 27,162,941 | 28,321,988 | ||||||
Unrealized Loss on Market Value Valuation | — | (669,024 | ) | |||||
Noncontrolling Interests | 1,272,360 | 554,676 | ||||||
Total Stockholders' Equity | 31,903,136 | 30,896,138 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 64,107,913 | $ | 60,812,454 |
3 |
HUEN ELECTRIC, INC. |
UNAUDITED COMBINED STATEMENTS OF INCOME |
For the Six Months Ended June 30 | 2018 | 2017 | ||||||
CONTRACT REVENUES EARNED | $ | 92,237,606 | $ | 66,937,677 | ||||
Cost of Revenues Earned | 78,851,604 | 55,845,308 | ||||||
GROSS PROFIT | 13,386,002 | 11,092,369 | ||||||
Equipment and Shop Expenses | 2,508,046 | 2,006,685 | ||||||
General and Administrative Expenses | 5,146,760 | 4,004,186 | ||||||
Total Operating Expenses | 7,654,806 | 6,010,871 | ||||||
INCOME FROM OPERATIONS | 5,731,196 | 5,081,498 | ||||||
Other (Income) Expenses | ||||||||
Gain on Disposition of Property and Equipment | (8,576 | ) | (39,362 | ) | ||||
Dividend Income | (10,280 | ) | — | |||||
Interest Income | (41,178 | ) | (21,502 | ) | ||||
Interest Expense | 7,082 | 64,023 | ||||||
Profit Sharing Contribution | 7,737 | — | ||||||
Equity (Earnings) Loss from Clark Wacker, LLC | (19,411 | ) | — | |||||
Loss On Sale of Investments | 652,043 | — | ||||||
Directors' Fees | 57,000 | 55,000 | ||||||
Total Other (Income) Expenses | 644,417 | 58,159 | ||||||
INCOME BEFORE NONCONTROLLING INTERESTS IN INCOME OF COMBINED AFFILIATES | 5,086,779 | 5,023,339 | ||||||
Noncontrolling Interests in Income of Combined Affiliates | (717,684 | ) | (825,530 | ) | ||||
INCOME BEFORE INCOME TAXES | 4,369,095 | 4,197,809 | ||||||
Income Taxes | 428,825 | 427,498 | ||||||
NET INCOME | $ | 3,940,270 | $ | 3,770,311 |
4 |
HUEN ELECTRIC, INC. |
UNAUDITED COMBINED STATEMENTS OF COMPREHENSIVE INCOME |
For the Six Months Ended June 30 | 2018 | 2017 | ||||||
NET INCOME | $ | 3,940,270 | $ | 3,770,311 | ||||
OTHER COMPREHENSIVE INCOME | ||||||||
Unrealized Gains on Securities: | ||||||||
Unrealized Gains Arising During the Period | 16,981 | 191,552 | ||||||
Reclassification Adjustment for Losses Included in Net Income | 652,043 | — | ||||||
TOTAL OTHER COMPREHENSIVE INCOME | 669,024 | 191,552 | ||||||
COMPREHENSIVE INCOME | $ | 4,609,294 | $ | 3,961,863 |
5 |
HUEN ELECTRIC, INC. |
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS |
For the Six Months Ended June 30 | 2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 3,940,270 | $ | 3,770,311 | ||||
Adjustments to Reconcile Net Income to | ||||||||
Provided (Used) by Operating Activities | ||||||||
Depreciation and Amortization | 409,247 | 289,717 | ||||||
Gain on Disposition of Property and Equipment | (8,576 | ) | (39,362 | ) | ||||
Noncontrolling Interests in Income of Combined Affiliates | 717,684 | 825,530 | ||||||
Equity Loss from Investment in Clark Wacker, LLC | (1,000 | ) | — | |||||
Accounts Receivable | (3,523,479 | ) | (8,220,574 | ) | ||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | (10,043,240 | ) | 457,685 | |||||
Refundable Income Taxes | 291,126 | (378,188 | ) | |||||
Prepaid Expenses | 7,919 | (128,520 | ) | |||||
Accounts Payable | 7,151,043 | 109,187 | ||||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | (1,954,480 | ) | (5,372,967 | ) | ||||
Income Taxes Payable | (4,618 | ) | (1,165,908 | ) | ||||
Accrued Expenses | 947,378 | 1,660,333 | ||||||
Total Adjustments | (6,010,996 | ) | (11,963,067 | ) | ||||
Net Cash Used by Operating Activities | (2,070,726 | ) | (8,192,779 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Increase in Employee Advances | (135,484 | ) | (22,518 | ) | ||||
Sales (Purchases) of Investments - Net | 6,000,865 | (238,526 | ) | |||||
Proceeds from Disposition of Property and Equipment | 18,390 | 51,166 | ||||||
Purchase of Property and Equipment | (295,532 | ) | (531,675 | ) | ||||
Decrease in Security Deposits | — | 23,070 | ||||||
Net Cash Used (Provided) by Investing Activities | 5,588,239 | (718,483 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Repayments of Notes Payable - Former Stockholder | (281,737 | ) | (4,085,872 | ) | ||||
Proceeds from Additional Paid-in Surplus | 779,337 | 471,838 | ||||||
Repurchase of Common Stock | (1,830,891 | ) | (747,445 | ) | ||||
Distributions paid to the Noncontrolling Interests | — | (353,799 | ) | |||||
Distributions to Stockholders | (6,837,551 | ) | (3,578,674 | ) | ||||
Net Cash Used by Financing Activities | (8,170,842 | ) | (8,293,952 | ) | ||||
NET DECREASE IN CASH | (4,653,329 | ) | (17,205,191 | ) | ||||
Cash, Beginning | 18,272,401 | 34,135,521 | ||||||
CASH, ENDING | $ | 13,619,072 | $ | 16,930,330 |
6 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements (UNAUDITED) |
EXPLANATORY NOTE
The combined results of operations for Huen Electric, Inc. (Illinois, New York and New Jersey Corporations) as of and for the six months ended June 30, 2018 and 2017 are set forth below. These results were derived from the unaudited results of Huen Electric, Inc. (Illinois, New York and New Jersey Corporations) and have been included herein for informational purposes.
Company Activity AND OPERATING CYCLE
HUEN ELECTRIC, INC.
Huen Electric, Inc. is engaged in the construction industry, principally as an electrical contractor for industrial and commercial construction projects primarily in the Chicagoland area. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of contract completion, although this may require more than one year. Huen Electric, Inc. is a wholly-owned subsidiary of MI Investments (Huen) Inc.
HUEN NEW YORK, INC.
Huen New York, Inc. is an electrical contractor that engages in commercial and industrial projects in New York. The operations of Huen New York, Inc. are combined as part of Huen Electric, Inc.
HUEN ELECTRIC NEW JERSEY, INC.
Huen Electric New Jersey, Inc. is an electrical contractor that engages in commercial and industrial projects in New Jersey. The operations of Huen Electric New Jersey, Inc. are combined as part of Huen Electric, Inc.
HUEN-SMC JOINT VENTURE
Huen-SMC Joint Venture (“Huen-SMC”), a 70%-owned joint venture, is an electrical contractor that engages in commercial projects in Illinois. The operations of Huen-SMC have been consolidated as part of Huen Electric, Inc.
VADER-HUEN-SMC JOINT VENTURE
Vader-Huen-SMC Joint Venture (“VHS”), a 58%-owned joint venture, is an electrical contractor that engages in commercial projects in Illinois. The operations of VHS have been consolidated as part of Huen Electric, Inc.
HUEN TECHNOLOGY SOLUTIONS, INC.
Huen Technology Solutions Inc. (“HTSI”) was organized in August, 2016 to perform electrical contracting services. In 2017, HTSI was dissolved.
All of the above entities are collectively referred to as the “Company” or the “Entities”.
7 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements (UNAUDITED) |
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of management who is responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
COMBINATION POLICY
The accompanying combined financial statements include the accounts of Huen Electric, Inc. (including its subsidiaries, Huen-SMC Joint Venture, and Vader-Huen-SMC Joint Venture), Huen New York, Inc. and Huen Electric New Jersey, Inc., all of which are under common control. Intercompany transactions and balances have been eliminated in the combination. A majority of the assets and revenues are associated with Huen Electric, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
METHOD OF REVENUE RECOGNITION
Revenues from long-term construction contracts are recognized on the basis of the Company's estimates of the percentage of completion of individual contracts commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. That portion of the total contract price is accrued which is allocable, on the basis of the Company's estimates of the percentage of completion using the cost-to-cost method, to contract expenditures and work performed. As long-term contracts extend over one or more years, revisions in estimates of cost and earnings during the course of the work are recorded in the accounting period in which the facts which require the revision become known. At the time a loss on any contract becomes known, the entire amount of the estimated ultimate loss is accrued.
Contracts which are substantially complete are considered closed for financial statement purposes. Revenue earned on contracts in progress in excess of billings (underbillings) is classified as a current asset. Amounts billed in excess of revenue earned (overbillings) are classified as a current liability.
8 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements (UNAUDITED) |
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS
Investments are managed by a registered financial representative who places funds with various investment advisory firms.
Investments are categorized as available-for-sale securities and are carried at fair value. Changes in the fair market values between the beginning and the ending of the reporting period, including realized gains and losses, are included in other comprehensive income as unrealized gain or loss on market value variation.
As of June 30, 2018, all of the investments previously held by the Company have been liquidated.
INVESTMENT IN CLARK WACKER, LLC
Huen Electric Inc.’s investment in Clark Wacker, LLC (9.21%) is carried at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the various assets for financial reporting and the Accelerated and Modified Accelerated Cost Recovery Systems for income tax purposes.
NOTE 2—COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
June 30, 2018 | December 31, 2017 | |||||||
Costs Incurred on Uncompleted Contracts | $ | 315,084,098 | $ | 236,232,121 | ||||
Estimated Earnings | 36,372,423 | 22,986,724 | ||||||
351,456,521 | 259,218,845 | |||||||
Less Billings to Date | 345,975,280 | 265,735,324 | ||||||
$ | 5,481,241 | $ | (6,516,479 | ) | ||||
Included in the accompanying balance sheets under the following captions: | ||||||||
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts | $ | 11,875,291 | $ | 1,832,051 | ||||
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts | (6,394,050 | ) | (8,348,530 | ) | ||||
$ | 5,481,241 | $ | (6,516,479 | ) |
9 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements (UNAUDITED) |
NOTE 3—PROPERTY AND EQUIPMENT
June 30, 2018 | December 31, 2017 | |||||||
Construction Equipment | $ | 449,964 | $ | 328,477 | ||||
Small Tools | 996,656 | 994,768 | ||||||
Office Furniture and Equipment | 2,036,256 | 2,012,125 | ||||||
Automobiles and Trucks | 2,540,464 | 2,485,645 | ||||||
Leasehold Improvements | 3,930,094 | 3,923,345 | ||||||
9,953,434 | 9,744,360 | |||||||
Less Accumulated Depreciation and Amortization | (8,354,571 | ) | (8,021,968 | ) | ||||
$ | 1,598,863 | $ | 1,722,392 |
NOTE 4—LINE OF CREDIT
The Company has a revolving line of credit of $10,000,000 with The CIBC Bank USA, formerly known as the PrivateBank and Trust Co., which includes Huen New York, Inc. and Huen Electric New Jersey, Inc. as co-borrowers. All outstanding principal and interest advanced under the line is due and payable on or before November 10, 2019. The line is subject to certain financial covenants. As of June 30, 2018, the Company was in compliance with those covenants. The revolving line of credit is collateralized by the Company’s assets. The Company has the option to choose an interest rate of prime (5.00% at June 30, 2018) less .25% or LIBOR.
There were no outstanding borrowings or letters of credit as of June 30, 2018 and December 31, 2017.
NOTE 5—NONCONTROLLING INTERESTS IN COMBINED AFFILIATES
The balance represents the noncontrolling interests’ cumulative share of their net income, capital contributions and capital distributions.
June 30, 2018 | December 31, 2017 | |||||||
Beginning Balance | $ | 554,676 | $ | — | ||||
Net Income | 717,684 | 970,023 | ||||||
Distributions | — | (415,347 | ) | |||||
$ | 1,272,360 | $ | 554,676 |
NOTE 6—LEASE COMMITMENTS
The Company conducts operations from office facilities in various locations under operating leases expiring at various dates through 2030. In addition to the base rent, the Company is responsible for its proportionate share of property taxes and operating expenses. The leases are between the Company and related parties.
Future minimum rentals are: | ||||
Remainder of 2018 | $ | 848,767 | ||
2019 | 1,749,566 | |||
2020 | 1,174,529 | |||
2021 | 760,029 | |||
2022 | 700,297 | |||
Thereafter | 3,851,532 | |||
Aggregate Future Minimum Rentals | $ | 9,084,720 |
10 |
HUEN ELECTRIC, INC. |
Notes To COMBINED Financial Statements (UNAUDITED) |
NOTE 7—INCOME TAXES
The Entities are either S - or Limited Liability Corporations. Earnings and losses are included in the personal income tax returns of the stockholders and taxed depending on their personal tax strategies. Accordingly, the Entities will not incur additional federal income tax obligations, but are subject to certain state taxes.
The Entities follow the guidance in the FASB ASC topic on Income Taxes related to Uncertainty in Income Taxes which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the Entities have taken or expect to take in their income tax returns. The Entities believe that they have appropriate support for the positions taken on their tax returns.
NOTE 8—CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
NOTE 9—SUBSEQUENT EVENT
On July 2, 2018 substantially all of the Company’s assets and liabilities were acquired by MYR Group, Inc., a holding company of specialty electrical construction service providers. The total consideration received was approximately $47.1 million, subject to working capital and net asset adjustments. Additionally, there could also be contingent payments based on the successful achievement of certain performance targets and continued employment of certain key executives of the Company.
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EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On July 2, 2018, MYR Group Inc. (“MYR”), a holding company of leading specialty contractors serving the electric utility infrastructure, commercial and industrial construction markets in the United States and western Canada, completed the acquisition of substantially all of the assets (the “Acquisition”) of Huen Electric, Inc., an electrical contracting firm based in Illinois, Huen Electric New Jersey Inc., an electrical contracting firm based in New Jersey, and Huen New York, Inc., an electrical contracting firm based in New York (collectively, the “Huen Companies”). The Huen Companies will provide a wide range of commercial and industrial electrical construction capabilities under the MYR’s Commercial and Industrial segment in Illinois, New Jersey and New York. The total consideration paid was approximately $47.1 million, subject to working capital and net asset adjustments, which was funded through borrowings on MYR’s credit facility. Additionally, there could be contingent payments based on the successful achievement of certain performance targets and continued employment of certain key executives of the Huen Companies. The costs associated with these contingent payments will be recognized as compensation expense in the consolidated statements of operations and comprehensive income as earned over the period achievement becomes probable.
The following unaudited pro forma condensed combined financial statements give effect to the Acquisition. The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition as if it had occurred on June 30, 2018, and the unaudited pro forma condensed combined statement of income for the six months ended June 30, 2018, and the year ended December 31, 2017 gives effect to the Acquisition as if it had occurred on January 1, 2017, the beginning of the earliest period presented.
The Acquisition will be accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) pursuant to which the total purchase price of the Acquisition will be allocated to the net assets acquired based upon their estimated fair values of the date of the completion of the Acquisition.
The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not intended to represent or be indicative of what the combined company’s financial position or results of operations actually would have been had the Acquisition been completed as of the dates indicated. The unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the Huen Companies or the combined company. The future financial position and results of operations of the Huen Companies are expected to be consistent with the historical results of MYR’s Commercial and Industrial segment and will differ, perhaps significantly, from the pro forma amounts reflected herein due to a variety of factors, including access to additional information, changes in value not currently identified and changes in operating results following the dates of the pro forma financial information. The adjustments included in these unaudited pro forma condensed combined financial statements are preliminary and may be revised. There can be no assurance that any revisions to estimates will not result in material changes to the information presented.
The pro forma adjustments are based upon information and assumptions available at the time of the filing of the Current Report on Form 8-K/A to which these unaudited pro forma condensed combined financial statements are filed as Exhibit 99.3 (the “Current Report”). The pro forma condensed combined financial statements are derived from and should be read in conjunction with (i) MYR’s consolidated financial statements and related footnotes for the year ended December 31, 2017, (ii) MYR’s unaudited consolidated financial statements for the three and six months ended June 30, 2018, and (iii) the combined financial statements of the Huen Companies, which are filed as Exhibits 99.1 and 99.2 to the Current Report.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
June 30, 2018 | ||||||||||||||||
(In thousands) | MYR Group, Inc. | Huen Electric Inc. (1) | Pro Forma Adjustments | MYR Group Pro Forma | ||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 4,203 | $ | 13,619 | $ | (13,619 | )(a) | $ | 4,203 | |||||||
Accounts receivable, net of allowances | 280,018 | 36,623 | (2,720 | )(a) | 313,921 | |||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 87,356 | 11,875 | (1,305 | )(a) | 97,926 | |||||||||||
Current portion of receivable for insurance claims in excess of deductibles | 4,380 | — | — | 4,380 | ||||||||||||
Refundable income taxes, net | — | 117 | (117 | )(b) | — | |||||||||||
Other current assets | 7,565 | 211 | (135 | )(b) | 7,641 | |||||||||||
Total current assets | 383,522 | 62,445 | (17,896 | ) | 428,071 | |||||||||||
Property and equipment, net of accumulated depreciation | 155,571 | 1,599 | 1,600 | (c) | 158,770 | |||||||||||
Goodwill | 46,984 | — | 24,099 | (d) | 71,083 | |||||||||||
Intangible assets, net of accumulated amortization | 10,592 | — | 9,800 | (e) | 20,392 | |||||||||||
Receivable for insurance claims in excess of deductibles | 14,466 | — | — | 14,466 | ||||||||||||
Investment in joint ventures | 908 | — | — | 908 | ||||||||||||
Other assets | 3,551 | 28 | (15 | )(b) | 3,564 | |||||||||||
Total assets | $ | 615,594 | $ | 64,072 | $ | 17,588 | $ | 697,254 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of capital lease obligations | $ | 1,102 | $ | — | $ | — | $ | 1,102 | ||||||||
Note payable, current portion | — | 433 | (433 | )(b) | — | |||||||||||
Accounts payable | 98,804 | 18,740 | (225 | )(b) | 117,319 | |||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 48,407 | 6,394 | — | 54,801 | ||||||||||||
Current portion of accrued self-insurance | 13,016 | — | — | 13,016 | ||||||||||||
Income taxes payable, net | 1,857 | — | — | 1,857 | ||||||||||||
Preliminary estimated net asset adjustments due to seller | — | — | 1,826 | (f) | 1,826 | |||||||||||
Other current liabilities | 43,536 | 6,602 | (31 | )(b) | 50,107 | |||||||||||
Total current liabilities | 206,722 | 32,169 | 1,137 | 240,028 | ||||||||||||
Deferred income tax liabilities | 13,818 | — | — | 13,818 | ||||||||||||
Long-term debt | 57,804 | — | 47,082 | (g) | 104,886 | |||||||||||
Accrued self-insurance | 32,093 | — | — | 32,093 | ||||||||||||
Capital lease obligations, net of current maturities | 2,068 | — | — | 2,068 | ||||||||||||
Other liabilities | 464 | — | — | 464 | ||||||||||||
Total liabilities | 312,969 | 32,169 | 48,219 | 393,357 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock | — | — | — | — | ||||||||||||
Common stock | 165 | 1,059 | (1,059 | )(h) | 165 | |||||||||||
Additional paid-in capital | 146,610 | 2,409 | (2,409 | )(h) | 146,610 | |||||||||||
Accumulated other comprehensive loss | (300 | ) | — | — | (300 | ) | ||||||||||
Retained earnings | 156,150 | 27,163 | (27,163 | )(h) | 156,150 | |||||||||||
Stockholders equity attributable to MYR Group, Inc. | 302,625 | 30,631 | (30,631 | ) | 302,625 | |||||||||||
Noncontrolling interest | — | 1,272 | — | 1,272 | ||||||||||||
Total stockholders’ equity | 302,625 | 31,903 | (30,631 | ) | 303,897 | |||||||||||
Total liabilities and stockholders’ equity | $ | 615,594 | $ | 64,072 | $ | 17,588 | $ | 697,254 |
(1) | Certain items have been reclassified to conform with MYR’s classifications. |
See Note 3–Preliminary Pro Forma Reclassifications and Adjustments for further information related to reclassifications and adjustments presented above.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six months ended June 30, 2018 | ||||||||||||||||||||
(in thousands, except per share data) | MYR Group, Inc. | Huen
Electric Inc. | Pro Forma Reclassifications | Pro Forma Adjustments | MYR Group Pro Forma | |||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
Contract revenues | $ | 685,287 | $ | 92,238 | $ | — | $ | (10,789 | )(k) | $ | 766,736 | |||||||||
Contract costs | 610,904 | 78,852 | 2,508 | (i) | (12,340 | )(l) | 679,924 | |||||||||||||
Gross profit | 74,383 | 13,386 | (2,508 | ) | 1,551 | 86,812 | ||||||||||||||
Equipment and shop expenses | — | 2,508 | (2,508 | )(i) | — | — | ||||||||||||||
Selling, general and administrative expenses | 57,448 | 5,147 | 65 | (j) | (540 | )(m) | 62,120 | |||||||||||||
Amortization of intangible assets | 236 | — | — | 100 | (o) | 336 | ||||||||||||||
Gain on sale of property and equipment | (2,065 | ) | — | (9 | )(j) | — | (2,074 | ) | ||||||||||||
Income from operations | 18,764 | 5,731 | (56 | ) | 1,991 | 26,430 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income and investment (loss), net | — | (601 | ) | — | 601 | (p) | — | |||||||||||||
Interest expense | (1,504 | ) | (7 | ) | — | (673 | )(q) | (2,184 | ) | |||||||||||
Other income (expense), net | 274 | (36 | ) | 56 | (j) | (20 | )(r) | 274 | ||||||||||||
Income before noncontrolling interests in income of combined affiliates | 17,534 | 5,087 | — | 1,899 | 24,520 | |||||||||||||||
Noncontrolling interest in income of combined affiliates | — | (718 | ) | — | — | (718 | ) | |||||||||||||
Income before provision for income taxes | 17,534 | 4,369 | — | 1,899 | 23,802 | |||||||||||||||
Income tax expense | 5,055 | 429 | — | 1,300 | (s) | 6,784 | ||||||||||||||
Net income | $ | 12,479 | $ | 3,940 | $ | — | $ | 599 | $ | 17,018 | ||||||||||
Income per common share: | ||||||||||||||||||||
—Basic | $ | 0.76 | $ | 1.04 | ||||||||||||||||
—Diluted | $ | 0.75 | $ | 1.03 | ||||||||||||||||
Weighted average number of common shares and potential common shares outstanding: | ||||||||||||||||||||
—Basic | 16,388 | 16,388 | ||||||||||||||||||
—Diluted | 16,555 | 16,555 | ||||||||||||||||||
Net income | $ | 12,479 | $ | 3,940 | $ | — | $ | 599 | $ | 17,018 | ||||||||||
Other comprehensive loss: | ||||||||||||||||||||
Foreign currency translation adjustment | (1 | ) | — | — | — | (1 | ) | |||||||||||||
Other comprehensive loss | (1 | ) | — | — | — | (1 | ) | |||||||||||||
Total comprehensive income | $ | 12,478 | $ | 3,940 | $ | — | $ | 599 | $ | 17,017 |
See Note 3–Preliminary Pro Forma Reclassifications and Adjustments for further information related to the reclassifications and adjustments presented above.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 2017 | ||||||||||||||||||||
(in thousands, except per share data) | MYR Group, Inc. | Huen Electric Inc. | Pro Forma Reclassifications | Pro Forma Adjustments | MYR Group Pro Forma | |||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
Contract revenues | $ | 1,403,317 | $ | 134,589 | $ | — | $ | (14,578 | )(k) | $ | 1,523,328 | |||||||||
Contract costs | 1,278,313 | 107,603 | 4,197 | (i) | (16,033 | )(l) | 1,374,080 | |||||||||||||
Gross profit | 125,004 | 26,986 | (4,197 | ) | 1,455 | 149,248 | ||||||||||||||
Equipment and shop expenses | — | 4,197 | (4,197 | )(i) | — | — | ||||||||||||||
Selling, general and administrative expenses | 98,611 | 8,785 | 1,332 | (j) | (735 | )(m),(n) | 107,993 | |||||||||||||
Amortization of intangible assets | 499 | — | — | 2,500 | (o) | 2,999 | ||||||||||||||
Gain on sale of property and equipment | (3,664 | ) | — | (55 | )(j) | — | (3,719 | ) | ||||||||||||
Income from operations | 29,558 | 14,004 | (1,277 | ) | (310 | ) | 41,975 | |||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest and investment income | 4 | 184 | — | (184 | )(p) | 4 | ||||||||||||||
Interest expense | (2,603 | ) | (80 | ) | — | (975 | )(q) | (3,658 | ) | |||||||||||
Other income (expense), net | (2,319 | ) | (1,277 | ) | 1,277 | (j) | — | (2,319 | ) | |||||||||||
Income before noncontrolling interest in income of combined affiliates | 24,640 | 12,831 | — | (1,469 | ) | 36,002 | ||||||||||||||
Noncontrolling interest in income of combined affiliates | — | (970 | ) | — | — | (970 | ) | |||||||||||||
Income before provision (benefit) for income taxes | 24,640 | 11,861 | — | (1,469 | ) | 35,032 | ||||||||||||||
Income tax expense | 3,486 | 941 | — | 3,240 | (s) | 7,667 | ||||||||||||||
Net income | $ | 21,154 | $ | 10,920 | $ | — | $ | (4,709 | ) | $ | 27,365 | |||||||||
Income per common share: | ||||||||||||||||||||
—Basic | $ | 1.30 | $ | 1.68 | ||||||||||||||||
—Diluted | $ | 1.28 | $ | 1.66 | ||||||||||||||||
Weighted average number of common shares and potential common shares outstanding: | ||||||||||||||||||||
—Basic | 16,273 | 16,273 | ||||||||||||||||||
—Diluted | 16,496 | 16,496 | ||||||||||||||||||
Net income | $ | 21,154 | $ | 10,920 | $ | — | $ | (4,709 | ) | $ | 27,365 | |||||||||
Other comprehensive income: | ||||||||||||||||||||
Foreign currency translation adjustment | 134 | — | — | — | 134 | |||||||||||||||
Unrealized holding gains on securities | — | 309 | — | (309 | )(p) | — | ||||||||||||||
Other comprehensive income | 134 | 309 | — | (309 | ) | 134 | ||||||||||||||
Total comprehensive income | $ | 21,288 | $ | 11,229 | $ | — | $ | (5,018 | ) | $ | 27,499 |
See Note 3–Preliminary Pro Forma Reclassifications and Adjustments for further information related to the reclassifications and adjustments presented above.
4 |
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements (“Pro Forma”) have been prepared in connection with the Acquisition, and are intended to reflect the impact of the Acquisition on MYR’s consolidated financial statements and present the pro forma condensed combined financial positon and result of the operations of MYR after giving effect to the Acquisition. The Pro Forma have been prepared for illustrative purposes only and to give effect to the Acquisition pursuant to the assumptions described in notes to the Pro Forma. The unaudited pro forma condensed combined balance sheets as of June 30, 2018 give effect to the Acquisition as if it had occurred on June 30, 2018. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2018 and the year ended December 31, 2017 give effect to the Acquisition as if it had occurred as of January 1, 2017, the beginning of the earliest period presented.
The Acquisition has been accounted for as a business combination, under the acquisition method of accounting, which results in acquired assets and assumed liabilities being measured at their estimated fair values as of July 2, 2018, the acquisition date. As of the acquisition date, goodwill is measured as the excess of consideration transferred, which is also generally measured at fair value of the net acquisition date fair values of the assets acquired and liabilities assumed.
The Pro Forma are based on a preliminary purchase price allocation, provided for illustration purposes only, and do not purport to represent what the combined company’s financial results would have been had the Acquisition occurred on the dates indicated. The Pro Forma do not purport to project the future financial position or operating results of the Huen Companies or the combined company. The future financial position and results of operations of the Huen Companies are expected to be consistent with the historical results of MYR’s Commercial and Industrial segment and will differ, perhaps significantly, from the Pro Forma amounts reflected herein due to a variety of factors, including access to additional information, changes in value not currently identified and changes in operating results following the dates of the Pro Forma.
2. Estimated Preliminary Purchase Price Allocation
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the Pro Forma. The final purchase price allocation will be determined when MYR has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include changes in allocations to intangible assets and goodwill, and other changes to assets and liabilities, including deferred tax assets and liabilities.
Total consideration paid may include a portion subject to potential net asset adjustments which are expected to be finalized in 2019. The Company’s preliminary estimate of these net asset adjustments is approximately $1.8 million as of the July 2, 2018 closing date, which will increase the total consideration to be paid.
MYR has developed preliminary estimates of fair value of the assets acquired and liabilities assumed for the purposes of allocating the purchase price. Further adjustments are expected to the allocation as third party valuations of identifiable intangible assets, including backlog, customer relationships, trade name and off-market component, are determined, and as net asset adjustments are finalized. MYR expects that approximately $9.8 million of the purchase price over the net amount of the fair values to be assigned to assets acquired and liabilities assumed will be allocated to identifiable intangible assets.
5 |
The following is the summary of the assets acquired and the liabilities assumed by MYR in the Acquisition, reconciled to the purchase price transferred net of our preliminary estimated net asset adjustments (in thousands):
Consideration paid | $ | 47,082 | ||
Preliminary estimated net asset adjustments | 1,826 | |||
Total consideration, net of net asset adjustments | $ | 48,908 | ||
Accounts receivable, net | 33,903 | |||
Costs and estimated earnings in excess of billings on uncompleted contracts | 10,570 | |||
Other current and long term assets | 89 | |||
Property and equipment | 3,199 | |||
Accounts payable | (18,515 | ) | ||
Billings in excess of costs and estimated earnings on uncompleted contracts | (6,394 | ) | ||
Other current liabilities | (6,571 | ) | ||
Noncontrolling interest in income of combined affiliates | (1,272 | ) | ||
Net identifiable assets | 15,009 | |||
Unallocated intangible assets | 9,800 | |||
Goodwill | $ | 24,099 |
3. Preliminary Pro Forma Reclassifications and Adjustments
The pro forma reclassifications and adjustments have been prepared to illustrate the estimated effect of the Acquisition and certain other adjustments. The historical consolidated financial statements have been adjusted in the Pro Forma, as detailed below, to give effect to pro forma events that are: (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing effect on the combined results. The Pro Forma do not reflect the non-recurring cost of any integration activities or benefits from the Acquisition including potential synergies that may be generated in future periods. Additionally, the pro forma combined income tax expense does not necessarily reflect the amounts that would have resulted had MYR and the Huen Companies recorded consolidated income tax provisions during the periods presented.
Balance Sheet Reclassifications
Deferred income tax assets and liabilities have been reclassified as deferred tax assets net to conform with MYR’s adoption of ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.
Balance Sheet Adjustments
(a) | To adjust for certain cash balances, account receivables, costs and estimated earnings in excess of billings on uncompleted contracts and accounts payable not acquired in the Acquisition. |
(b) | To adjust for assets and liabilities not acquired in the Acquisition. |
(c) | To record the estimated step-up in fair value of the property and equipment acquired in the Acquisition. |
(d) | To record the preliminary estimate of goodwill, which represents the excess of the purchase price over the preliminary fair value of the Huen Companies’ identifiable assets acquired and liabilities assumed as shown in Note 2. |
(e) | To record the preliminary fair value of intangible assets acquired in the Acquisition. |
(f) | To record preliminary estimated net asset adjustments due to the Huen Companies from MYR. |
(g) | To record the incremental borrowing of $47.1 million on MYR’s credit facility which was necessary to finance the Acquisition. |
(h) | To eliminate the Huen Companies’ historical equity balance. |
6 |
Statements of Operations Reclassifications
(i) | Equipment and shop expenses have been reclassified as contract costs to conform to MYR’s presentations of these items. |
(j) | Gain on sale of property and equipment has been reclassified as income from operations and director fees and profit sharing contribution have been reclassified as selling, general and administrative expenses. These reclassifications are to conform to MYR’s presentation of these items. |
Statements of Operations Adjustments
(k) | To remove revenue provided by certain contracts not acquired in the Acquisition. |
(l) | To remove costs associated with certain contracts not acquired in the Acquisition. Offset in part by additional depreciation associated with the estimated step-up in fair value of the property and equipment acquired in the Acquisition. |
(m) | To record the net reduction in lease expense associated with the revised real estate lease contracts that were completed at the time of the Acquisition. |
(n) | To record transaction costs associated with the Acquisition. |
(o) | To record the estimated amortization related to the acquired intangible assets discussed in Note 2. |
(p) | To remove net interest and investment income, investment loss and unrealized investment gain from investments not acquired in the Acquisition. |
(q) | To record the additional interest expense related to the incremental borrowings of $47.1 million on MYR’s credit facility with an interest rate of 2.86% for the six months ended June 30, 2018 and 2.07% for the year ended December 31, 2017. |
(r) | To remove other income and expense related to items that were not acquired in the Acquisition. |
(s) | To reflect the income tax effect of pro forma adjustments at the statutory tax rate. |
Cautionary Statement Concerning Forward-Looking Statements
Statements in this exhibit 99.3 contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which represent our beliefs and assumptions concerning future events. When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, and our expectations, beliefs, intentions or future strategies that are signified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “likely,” “unlikely,” “possible,” “potential,” “should” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements speak only as of the date of this Current Report on Form 8-K/A. We disclaim any obligation to update these statements (unless required by securities laws), and we caution you not to rely on them unduly. We have based these forward-looking statements on our current assumptions about future events. While we consider these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict, and many of which are beyond our control. These and other important factors, including those discussed under the caption “Forward-Looking Statements” and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and in any risk factors or cautionary statements contained in our other filings with the Securities and Exchange Commission, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
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