EX-99.3 5 tv528993_ex99-3.htm EXHIBIT 99.3

Exhibit 99.3

 

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

On July 15, 2019, 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 the assets (the “Acquisition”) of CSI Electrical Contractors, Inc. (“CSI”), an electrical contracting firm based in California. The total consideration paid was approximately $79.7 million, subject to working capital and net asset adjustments, entirely funded through borrowings under MYR’s credit facility. Additionally, there could be contingent payments based on the achievement of certain performance targets and continued employment of certain key executives of CSI. 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 purchase agreement also included contingent consideration provisions for margin guarantee adjustments based upon contract performance subsequent to the acquisition. The contracts were valued at fair value at the acquisition date, resulting in no margin guarantee estimate or adjustments for fair value. Changes in contract estimates, such as modified costs to complete or change order recognition, will result in changes to these margin guarantee estimates.

 

The following unaudited pro forma combined financial statements are based on the Company’s historical consolidated financial statements and the historical financial statements of CSI, as adjusted, to give effect to the Acquisition. The unaudited pro forma combined balance sheet gives effect to the Acquisition as if it had occurred on June 30, 2019, and the unaudited pro forma combined statement of income for the six months ended June 30, 2019, and the year ended December 31, 2018 gives effect to the Acquisition as if it had occurred on January 1, 2018.

 

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 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 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 combined financial statements do not purport to project the future financial position or operating results of CSI or the combined company. The future financial position and results of operations of CSI may 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 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 combined financial statements are filed as Exhibit 99.3 (the “Current Report”). The pro forma 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, 2018, (ii) MYR’s unaudited consolidated financial statements for the three and six months ended June 30, 2019, and (iii) the financial statements of CSI, which are filed as Exhibits 99.1 and 99.2 to the Current Report.

 

 

 

  

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

 

    June 30, 2019  
(In thousands)   MYR Group, Inc.     CSI Electrical
Contractors, Inc (1)		     Pro Forma
Adjustments		       MYR Group
Pro Forma		  
    (unaudited)     (unaudited)     (unaudited)       (unaudited)  
ASSETS                          
Current assets:                                    
Cash and cash equivalents   $ 4,355     $ 2,802     $ (2,802 )   (a)   $ 4,355  
Accounts receivable, net of allowances     313,455       68,395       (8,816 )   (a)     373,034  
Contract assets     174,805       36,634       2,336     (a)     213,775  
Current portion of receivable for insurance claims in excess of deductibles     10,083       —       —           10,083  
Cash value of life insurance     —       1,624       (1,624 )   (a)     —  
Other current assets     10,681       421       (167 )   (a)     10,935  
Total current assets     513,379       109,876       (11,073 )         612,182  
Property and equipment, net of accumulated depreciation     168,972       3,029       4,935     (a), (b)     176,936  
Operating lease right-of-use assets     14,130       —       9,287     (c)     23,417  
Goodwill     56,596       —       8,963     (d)     65,559  
Intangible assets, net of accumulated amortization     31,818       —       26,000     (e)     57,818  
Receivable for insurance claims in excess of deductibles     17,094       —       —           17,094  
Investment in joint ventures     2,222       —       —           2,222  
Other assets     2,484       244       (95 )   (a)     2,633  
Total assets   $ 806,695     $ 113,149     $ 38,017         $ 957,861  
                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                                    
Current liabilities:                                    
Current portion of long-term debt   $ 6,856     $ 31     $ (31 )   (a)   $ 6,856  
Current portion of operating lease obligations     3,817       —       2,702     (c)     6,519  
Current portion of finance lease obligations     1,135       —       —           1,135  
Banks lines of credit     —       16,510       (16,510 )   (a)     —  
Accounts payable     166,350       21,376       8,157     (a)     195,883  
Contract liabilities     53,581       26,897       (7,963 )   (a)     72,515  
Current portion of accrued self-insurance     19,692       —       —           19,692  
Accrued salaries and benefits     —       9,575       2,929     (a)     12,504  
Other current liabilities     52,669       5,162       (4,799 )   (a)     53,032  
Total current liabilities     304,100       79,551       (15,515 )         368,136  
Deferred income tax liabilities     17,359       —       —           17,359  
Long-term debt     99,623       104       79,636     (a), (f)     179,363  
Accrued self-insurance     33,664       —       —           33,664  
Operating lease obligations, net of current maturities     10,456       —       6,585     (c)     17,041  
Finance lease obligations, net of current maturities     923       —       —           923  
Other liabilities     1,633       —       805     (g)     2,438  
Total liabilities     467,758       79,655       71,511           618,924  
Commitments and contingencies                                    
Stockholders’ equity:                                    
Preferred stock     —       —       —           —  
Common stock     166       8       (8 )   (h)     166  
Additional paid-in capital     150,177       —       —           150,177  
Accumulated other comprehensive loss     (393 )     —       —           (393 )
Retained earnings     189,089       33,486       (33,486 )   (h)     189,089  
Total stockholders equity attributable to MYR Group, Inc.     339,039       33,494       (33,494 )         339,039  
Noncontrolling interest     (102 )     —       —           (102 )
Total stockholders’ equity     338,937       33,494       (33,494 )         338,937  
Total liabilities and stockholders’ equity   $ 806,695     $ 113,149     $ 38,017         $ 957,861  

   

(1)Certain items have been reclassified to conform with MYR’s classifications, most notably $24.9 million of retainage was reclassed from accounts receivable, net of allowances to contract assets.

 

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 COMBINED STATEMENT OF OPERATIONS

 

 

 

    Six months ended June 30, 2019  
(in thousands, except per share data)   MYR
Group, Inc.		     CSI
Electrical
Contractors, Inc		     Pro Forma
Reclassifications		       Pro Forma
Adjustments		       MYR Group
Pro Forma		  
    (unaudited)     (unaudited)     (unaudited)       (unaudited)       (unaudited)  
                                   
Contract revenues   $ 916,870     $ 158,679     $ —         $ —         $ 1,075,549  
Contract costs     830,831       121,608       7,165     (i)     750     (k)     960,354  
Gross profit     86,039       37,071       (7,165 )         (750 )         115,195  
Indirect expenses     —       7,165       (7,165 )   (i)     —           —  
Selling, general and administrative expenses     66,931       20,923       —           2,155     (m)     90,009  
Amortization of intangible assets     1,469       —       —           571     (n)     2,040  
(Gain) loss on sale of property and equipment     (1,397 )     —       230     (j)     —           (1,167 )
Income from operations     19,036       8,983       (230 )         (3,476 )         24,313  
Other income (expense):                                                
Loss on the sale of assets     —       (230 )     230     (j)     —           —  
Interest expense     (2,373 )     (135 )     —           (1,263 )   (o)     (3,771 )
Other income, net     1,328       —       —           —           1,328  
Income before income tax expense     17,991       8,618       —           (4,739 )         21,870  
Income tax expense     5,013       18       —           1,067     (p)     6,098  
Net income     12,978       8,600       —           (5,806 )         15,772  
Less: net loss attributable to noncontrolling interests     (1,582 )     —       —           —           (1,582 )
Net income attributable to MYR Group, Inc   $ 14,560     $ 8,600     $ —         $ (5,806 )       $ 17,354  
Income per common share attributable to MYR Group Inc.:                                                
—Basic   $ 0.88                                     $ 1.05  
—Diluted   $ 0.87                                     $ 1.04  
Weighted average number of common shares and potential common shares outstanding:                                                
—Basic     16,557                                       16,557  
—Diluted     16,682                                       16,682  
                                                 
Net income   $ 12,978     $ 8,600     $ —         $ (5,806 )       $ 15,772  
Other comprehensive loss:                                                
Foreign currency translation adjustment     (200 )     —       —           —           (200 )
Other comprehensive loss     (200 )     —       —           —           (200 )
Total comprehensive income   $ 12,778     $ 8,600     $ —         $ (5,806 )       $ 15,572  
Less: net loss attributable to noncontrolling interests     (1,582 )     —       —           —           (1,582 )
Total comprehensive income attributable to MYR Group Inc.   $ 14,360     $ 8,600     $ —         $ (5,806 )       $ 17,154  

 

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 COMBINED STATEMENT OF OPERATIONS

 

    Year ended December 31, 2018  
(in thousands, except per share data)   MYR
Group, Inc.		     CSI
Electrical
Contractors, Inc		     Pro Forma
Reclassifications		       Pro Forma
Adjustments		     MYR Group
Pro Forma		  
                (unaudited)       (unaudited)     (unaudited)  
                                 
Contract revenues   $ 1,531,169     $ 302,476     $ —         $ —     $ 1,833,645  
Contract costs     1,364,109       244,066       12,370     (i)     1,500    (k)   1,622,045  
Gross profit     167,060       58,410       (12,370 )         (1,500 )     211,600  
Indirect expense     —       12,370       (12,370 )   (i)     —       —  
Selling, general and administrative expenses     118,737       32,208       —           3,618    (l), (m)   154,563  
Amortization of intangible assets     1,843       —       —           4,542   (n)   6,385  
Gain on sale of property and equipment     (3,832 )     —       (11 )   (j)     —       (3,843 )
Income from operations     50,312       13,832       11           (9,660 )     54,495  
Other income (expense):                                            
Gain on the sale of assets     —       11       (11 )   (j)     —       —  
Interest income     24       1       —           —       25  
Interest expense     (3,652 )     (385 )     —           (2,068 )  (o)   (6,105 )
Other expense, net     (3,616 )     —       —           —       (3,616 )
Income before income tax expense     43,068       13,459       —           (11,728 )     44,799  
Income tax expense     11,774       13       —           471    (p)   12,258  
Net income     31,294       13,446       —           (12,199 )     32,541  
Less: net income attributable to noncontrolling interests     207       —       —           —       207  
Net income attributable to MYR Group, Inc   $ 31,087     $ 13,446     $ —         $ (12,199 )   $ 32,334  
Income per common share attributable to MYR Group Inc.:                                            
—Basic   $ 1.89                                 $ 1.97  
—Diluted   $ 1.87                                 $ 1.95  
Weighted average number of common shares and potential common shares outstanding:                                            
—Basic     16,441                                   16,441  
—Diluted     16,585                                   16,585  
                                             
Net income   $ 31,294     $ 13,446     $ —         $ (12,199 )   $ 32,541  
Other comprehensive income:                                            
Foreign currency translation adjustment     106       —       —           —       106  
Other comprehensive income     106       —       —           —       106  
Total comprehensive income   $ 31,400     $ 13,446     $ —         $ (12,199 )   $ 32,647  
Less: net income attributable to noncontrolling interests     207       —       —           —       207  
Total comprehensive income attributable to MYR Group Inc   $ 31,193     $ 13,446     $ —         $ (12,199 )   $ 32,440  

 

See Note 3–Preliminary Pro Forma Reclassifications and Adjustments for further information related to the reclassifications and adjustments presented above.

 

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Notes to Unaudited Pro Forma Combined Financial Statements

 

1. Basis of Presentation

 

The unaudited pro forma 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 combined financial position 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 combined balance sheet as of June 30, 2019 gives effect to the Acquisition as if it had occurred on June 30, 2019. The unaudited pro forma combined statements of operations for the six months ended June 30, 2019 and the year ended December 31, 2018 give effect to the Acquisition as if it had occurred as of January 1, 2018.

 

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 15, 2019, 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 illustrative 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 CSI, or the combined companies. The future financial position and results of operations of CSI may 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 the Pro Forma 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.

 

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 its related 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.

 

Total consideration paid may include a portion subject to potential net asset adjustments which are expected to be finalized in 2020. The Company’s preliminary estimate of these net asset adjustments is approximately $0.8 million as of the July 15, 2019 closing date, which would increase the total consideration to be paid.

 

MYR has developed preliminary estimates of the 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 $26.0 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.

 

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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  $79,720 
Preliminary estimated net asset adjustments   805 
Total consideration, net of net asset adjustments  $80,525 
      
Accounts receivable, net  $59,579 
Contract assets   38,970 
Other current assets   254 
Property and equipment   7,964 
Operating lease right-of-use assets   9,287 
Intangible assets   26,000 
Other long term assets   149 
Accounts payable   (29,533)
Contract liabilities   (18,934)
Current portion of operating lease obligations   (2,702)
Other current liabilities   (4,776)
Operating lease obligations, net of current maturities   (6,585)
Long-term debt   (20)
Accrued salaries and benefits   (8,091)
Net identifiable assets   71,562 
Goodwill  $8,963 

 

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 impact 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 CSI recorded consolidated income tax provisions during the periods presented.

 

Balance Sheet Adjustments

 

(a)To adjust for assets and liabilities not acquired in the Acquisition and certain net asset adjustments based on the purchase price allocation as of the Acquisition date as shown in Note 2.

  

(b)To record the estimated step-up in fair value of the property and equipment acquired in the Acquisition.

  

(c)To record the preliminary right of use lease assets and lease liabilities acquired as part of the Acquisition.

  

(d)To record the preliminary estimate of goodwill, which represents the excess of the purchase price over the preliminary fair value of CSI’s 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 the incremental borrowing of $79.7 million on MYR’s credit facility to finance the Acquisition.

 

(g)To record preliminary estimated net asset adjustments due to CSI from MYR.

  

(h)To eliminate CSI’s historical equity balance.

 

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Statements of Operations Reclassifications

 

(i)Indirect expenses have been reclassified as contract costs to conform to MYR’s presentations of these items.

  

(j)(Gain) Loss on sale of property and equipment has been reclassified as income from operations to conform to MYR’s presentation of these items.

 

Statements of Operations Adjustments

 

(k)To record additional depreciation associated with the estimated step-up in fair value of the property and equipment acquired in the Acquisition.

 

(l)To record transaction costs associated with the Acquisition.

 

(m)To record estimated compensation expense related to contingent payments associated with the achievement of certain performance targets and continued employment of certain key executives of CSI.

  

(n)To record the estimated amortization related to the acquired intangible assets discussed in Note 2.

 

(o)To remove interest expense recorded by CSI and to record additional interest expense related to the incremental borrowings of $79.7 million on MYR’s credit facility with an interest rate of 3.51% for the six months ended June 30, 2019 and 3.08% for the year ended December 31, 2018.

  

(p)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, 2018, 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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