UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012
OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to
Commission file number: 1-08325



MYR GROUP INC.
(Exact name of registrant as specified in its charter)

Delaware       36-3158643
(State or other jurisdiction of
incorporation or organization)
      (I.R.S. Employer Identification No.)


 

 

1701 Golf Road, Suite 3-1012
Rolling Meadows, IL
(Address of principal executive offices)

 


60008-4210
(Zip Code)

(847) 290-1891
(Registrant's telephone number, including area code)



        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller
reporting company)
   

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

        As of July 27, 2012 there were 20,533,426 outstanding shares of the registrant's $0.01 par value common stock.

WEBSITE ACCESS TO COMPANY'S REPORTS

        MYR Group Inc.'s internet website address is www.myrgroup.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act will be available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC").


Table of Contents


INDEX

 
   
  Page
  Part I—Financial Information  

Item 1.

 

Financial Statements

 



 

Consolidated Balance Sheets
As of June 30, 2012 (unaudited) and December 31, 2011

 

1


 

Unaudited Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2012 and 2011

 

2


 

Unaudited Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 30, 2012 and 2011

 

3


 

Notes to Consolidated Financial Statements

 

4

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of
    Operation

 

12

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

 

Controls and Procedures

 

24

 

 

Part II—Other Information

 

 

Item 1.

 

Legal Proceedings

 

25

Item 1A.

 

Risk Factors

 

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

Item 3.

 

Defaults Upon Senior Securities

 

25

Item 4.

 

Mine Safety Disclosures

 

25

Item 5.

 

Other Information

 

25

Item 6.

 

Exhibits

 

26

        Throughout this report, references to "MYR Group," the "Company," "we," "us" and "our" refer to MYR Group Inc. and its consolidated subsidiaries, except as otherwise indicated or as the context otherwise requires.

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MYR GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)
  June 30,
2012
  December 31,
2011
 
 
  (unaudited)
   
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 24,300   $ 34,013  

Accounts receivable, net of allowances of $1,142 and $1,078, respectively

    154,171     126,911  

Costs and estimated earnings in excess of billings on uncompleted contracts

    54,166     43,694  

Construction materials inventory

        4,003  

Deferred income tax assets

    13,253     13,253  

Receivable for insurance claims in excess of deductibles

    9,881     10,122  

Refundable income taxes

        884  

Other current assets

    2,679     3,071  
           

Total current assets

    258,450     235,951  

Property and equipment, net of accumulated depreciation of $75,742 and $64,345, respectively

    127,070     117,178  

Goodwill

    46,599     46,599  

Intangible assets, net of accumulated amortization of $2,390 and $2,223, respectively

    10,702     10,869  

Other assets

    1,948     1,971  
           

Total assets

  $ 444,769   $ 412,568  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Short-term borrowings

  $ 10,000   $ 10,000  

Accounts payable

    86,899     73,924  

Billings in excess of costs and estimated earnings on uncompleted contracts

    28,863     24,945  

Accrued self insurance

    38,338     38,850  

Accrued income taxes

    15      

Other current liabilities

    27,080     29,078  
           

Total current liabilities

    191,195     176,797  

Deferred income tax liabilities

    19,354     19,354  

Other liabilities

    1,230     679  
           

Total liabilities

    211,779     196,830  
           

Commitments and contingencies

             

Stockholders' equity:

             

Preferred stock—$0.01 par value per share; 4,000,000 authorized shares; none issued and outstanding at June 30, 2012 and December 31, 2011

         

Common stock—$0.01 par value per share; 100,000,000 authorized shares; 20,532,426 and 20,405,044 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

    203     203  

Additional paid-in capital

    151,384     149,877  

Retained earnings

    81,403     65,658  
           

Total stockholders' equity

    232,990     215,738  
           

Total liabilities and stockholders' equity

  $ 444,769   $ 412,568  
           

   

The accompanying notes are an integral part of these consolidated financial statements.

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MYR GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 
  Three months ended
June 30,
  Six months ended
June 30,
 
(In thousands, except per share data)
  2012   2011   2012   2011  

Contract revenues

  $ 260,410   $ 185,310   $ 500,638   $ 335,604  

Contract costs

    230,348     165,771     444,473     294,476  
                   

Gross profit

    30,062     19,539     56,165     41,128  

Selling, general and administrative expenses

    14,515     13,698     30,433     27,651  

Amortization of intangible assets

    83     83     167     167  

Gain on sale of property and equipment

    (193 )   (229 )   (320 )   (300 )
                   

Income from operations

    15,657     5,987     25,885     13,610  

Other income (expense)

                         

Interest income

    1     14     1     43  

Interest expense

    (204 )   (160 )   (386 )   (370 )

Other, net

    (32 )   (10 )   (59 )   (32 )
                   

Income before provision for income taxes

    15,422     5,831     25,441     13,251  

Income tax expense

    5,887     2,114     9,696     5,034  
                   

Net income

  $ 9,535   $ 3,717   $ 15,745   $ 8,217  
                   

Income per common share:

                         

—Basic

  $ 0.46   $ 0.19   $ 0.77   $ 0.41  

—Diluted

  $ 0.45   $ 0.18   $ 0.74   $ 0.39  

Weighted average number of common shares and potential common shares outstanding:

                         

—Basic

    20,338     20,059     20,319     20,021  

—Diluted

    21,094     20,978     21,098     20,956  

   

The accompanying notes are an integral part of these consolidated financial statements.

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MYR GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Three months ended
June 30,
  Six months ended
June 30,
 
(In thousands)
  2012   2011   2012   2011  

Cash flows from operating activities:

                         

Net income

  $ 9,535   $ 3,717   $ 15,745   $ 8,217  

Adjustments to reconcile net income to net cash flows provided by operating activities—

                         

Depreciation and amortization of property and equipment

    6,047     4,567     11,747     8,814  

Amortization of intangible assets

    83     83     167     167  

Stock-based compensation expense

    647     606     1,341     954  

Deferred income taxes

        46         46  

Gain on sale of property and equipment

    (193 )   (229 )   (320 )   (300 )

Other non-cash items

    34     17     68     61  

Changes in operating assets and liabilities

                         

Accounts receivable, net

    1,158     (7,886 )   (27,260 )   7,430  

Costs and estimated earnings in excess of billings on

                         

uncompleted contracts

    (293 )   (19,069 )   (10,472 )   (25,180 )

Construction materials inventory

    1,542         4,003      

Receivable for insurance claims in excess of deductibles

    61     (786 )   241     (749 )

Other assets

    654     (2,118 )   1,244     1,123  

Accounts payable

    5,544     22,273     11,721     16,417  

Billings in excess of costs and estimated earnings on uncompleted contracts

    113     (872 )   3,918     (3,552 )

Accrued self insurance

    135     913     (512 )   1,002  

Other liabilities

    (2,912 )   (814 )   (1,484 )   (208 )
                   

Net cash flows provided by operating activities

    22,155     448     10,147     14,242  
                   

Cash flows from investing activities:

                         

Proceeds from sale of property and equipment

    224     229     364     300  

Purchases of property and equipment

    (12,099 )   (10,601 )   (20,429 )   (22,824 )
                   

Net cash flows used in investing activities

    (11,875 )   (10,372 )   (20,065 )   (22,524 )
                   

Cash flows from financing activities:

                         

Repayments on term loan

                (20,000 )

Net borrowings (repayments) on revolving credit facility

    10,000              

Employee stock option transactions

    219     300     145     579  

Excess tax benefit from stock-based awards

    15     275     35     444  

Debt issuance costs

    (2 )       (13 )    

Other financing activities

    38     45     38     45  
                   

Net cash flows provided by (used in) financing activities

    10,270     620     205     (18,932 )
                   

Net increase (decrease) in cash and cash equivalents

    20,550     (9,304 )   (9,713 )   (27,214 )

Cash and cash equivalents:

                         

Beginning of period

    3,750     44,713     34,013     62,623  
                   

End of period

  $ 24,300   $ 35,409   $ 24,300   $ 35,409  
                   

   

The accompanying notes are an integral part of these consolidated financial statements.

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Business and Basis of Presentation

Organization

        MYR Group Inc. (the "Company") is a holding company of specialty electrical construction service providers and is comprised of the following operating subsidiaries: The L. E. Myers Co., a Delaware corporation; Hawkeye Construction, Inc., an Oregon corporation; Harlan Electric Company, a Michigan corporation; Sturgeon Electric Company, Inc., a Michigan corporation; MYR Transmission Services, Inc., a Delaware corporation; and Great Southwestern Construction, Inc., a Colorado corporation.

Business

        The Company performs construction services in two business segments: Transmission and Distribution ("T&D"), and Commercial and Industrial ("C&I"). T&D customers include electric utilities, cooperatives and municipalities. The Company provides a broad range of T&D services which includes design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction, maintenance and repair throughout the continental United States. The Company also provides C&I electrical contracting services to property owners and general contractors in the western United States.

Interim Consolidated Financial Information

        The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures typically included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with these rules and regulations. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial condition of the Company as of June 30, 2012, and the results of operations and cash flows for the three and six months ended June 30, 2012 and 2011. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results for the full year or the results for any future periods. The consolidated balance sheet as of December 31, 2011 has been derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2011, included in the Company's annual report on Form 10-K.

Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. The most significant estimates are related to estimates to complete on contracts, insurance reserves, the accounts receivable reserve, the recoverability of goodwill and intangibles and estimates surrounding stock-based compensation.

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Organization, Business and Basis of Presentation (Continued)

Reclassifications

        Certain amounts reported previously have been reclassified to conform to the current year presentation.

Recently Issued and Proposed Accounting Pronouncements

        Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB's Accounting Standards Codification (ASC).The Company considers the applicability and impact of all ASUs. The Company, based on its assessment, determined that any recent ASUs not listed below are either not applicable to the Company or have minimal impact on our consolidated financial statements.

        In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company currently believes the adoption of this standard will not have a significant impact on its consolidated financial statements.

        In June 2010, the FASB issued an exposure draft, Revenue from Contracts with Customers, which would supersede most of the existing guidance on revenue recognition in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. In November 2011, the FASB re-exposed the draft and the comment period ended in March, 2012. As the standard-setting process is still ongoing, the Company is unable to determine the impact this proposed change in accounting will have on the Company's consolidated financial statements at this time.

        In August 2010, the FASB issued an exposure draft, Leases, which would result in significant changes to the accounting requirements for both lessees and lessors in ASC Topic 840, Leases. In July 2011, the FASB announced its intention to re-expose the draft. As the standard-setting process is still ongoing, the Company is unable to determine the impact this proposed change in accounting will have on the Company's consolidated financial statements at this time.

Recently Adopted Accounting Pronouncements

        In September 2011, the FASB issued ASU No. 2011-08, Intangibles- Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This update was intended to simplify how entities test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more-likely-than-not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC 350. The "more-likely-than-not" threshold is defined as having a likelihood of more than 50%. ASU 2011-08 was effective for annual and interim goodwill impairment tests performed for reporting periods beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-08 in January 2012 and there was no effect on the Company's financial position, results of operations or cash flows.

        In April 2011, the FASB issued ASU No. 2011-04 to ASC 820 which generally converged U.S. GAAP and International Financial Reporting Standards requirements for fair value measurements and related disclosures. This update became effective for interim and annual reporting periods

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Organization, Business and Basis of Presentation (Continued)

beginning after December 15, 2011. The adoption of this standard in January 2012 did not have an impact on the Company's consolidated financial statements, and there were no material impacts to the Company's financial statement disclosures.

2. Fair Value Measurements

        The Company uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists; therefore requiring an entity to develop its own assumptions.

        As of June 30, 2012 and December 31, 2011, the carrying value of the Company's cash and cash equivalents approximated fair value based on Level 1 inputs. The Company determined that the carrying value of revolving borrowings under the credit facility at June 30, 2012 and December 31, 2011, which had short maturities and interest rates that were based upon variable reference rates, approximated fair value based on Level 2 inputs.

3. Contracts in Process

        The net asset (liability) position for contracts in process consisted of the following:

(In thousands)
  June 30,
2012
  December 31,
2011
 

Costs and estimated earnings on uncompleted contracts

  $ 1,257,243   $ 1,027,805  

Less: Billings to date

    1,231,940     1,009,056  
           

  $ 25,303   $ 18,749  
           

        The net asset (liability) position for contracts in process included in the accompanying consolidated balance sheets was as follows:

(In thousands)
  June 30,
2012
  December 31,
2011
 

Costs and estimated earnings in excess of billings on uncompleted contracts

  $ 54,166   $ 43,694  

Billings in excess of costs and estimated earnings on uncompleted contracts

    (28,863 )   (24,945 )
           

  $ 25,303   $ 18,749  
           

4. Income Taxes

        The difference between the U.S. federal statutory tax rate of 35% and the Company's effective tax rates for the three and six months ended June 30, 2012 and 2011 was principally due to state income taxes.

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income Taxes (Continued)

        The Company is subject to taxation in various jurisdictions. The Company's federal tax returns for 2010 and 2009 are currently under examination by the Internal Revenue Service. The Company continues to remain subject to examination by various state authorities for the years 2007 through 2010.

5. Commitments and Contingencies

Letters of Credit

        At both June 30, 2012 and December 31, 2011, the Company had two outstanding irrevocable standby letters of credit, including one for $15.0 million related to the Company's payment obligation under its insurance programs and another for approximately $2.2 million related to contract performance obligations.

Leases

        The Company leases real estate, construction equipment and office equipment under operating leases with terms ranging from one to nine years. As of June 30, 2012, future minimum lease payments for operating leases were as follows: $2.2 million for the remainder of 2012, $2.4 million for 2013, $0.9 million for 2014, $0.4 million for 2015, $0.2 million for 2016 and $0.5 million thereafter.

Purchase Commitments for Construction Equipment

        As of June 30, 2012, the Company had approximately $4.1 million in outstanding purchase orders for certain construction equipment with cash outlay requirements scheduled to occur over the next six months.

Insurance and Claims Accruals

        The Company carries insurance policies, which are subject to certain deductibles, for workers' compensation, general liability, automobile liability and other coverages. The deductible for each line of coverage is between $1.0 million and $1.5 million per claim, depending on whether the claim aggregate has been met. Once a policy's claim aggregate is reached per line of coverage, the deductible for that policy is reduced to $1.0 million per claim.

        Certain of the Company's health insurance benefit plans are subject to a $0.1 million deductible for qualified individuals. Losses up to the stop loss amounts are accrued based upon the Company's estimates of the ultimate liability for claims reported and an estimate of claims incurred but not yet reported.

        The insurance and claims accruals are based on known facts, actuarial estimates and historical trends. While recorded accruals are based on the ultimate liability, which includes amounts in excess of the stop loss deductible, a corresponding receivable for amounts in excess of the stop loss deductible is included in current assets in the consolidated balance sheets.

Surety Bonds

        In certain circumstances, the Company is required to provide performance bonds in connection with its future performance on contractual commitments. The Company typically indemnifies its surety for any expenses paid out under these performance bonds. As of June 30, 2012, an aggregate of

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Commitments and Contingencies (Continued)

approximately $914.1 million in original face amount of bonds issued by the surety were outstanding. The estimated remaining cost to complete those bonded projects was approximately $351.4 million as of June 30, 2012.

Indemnities

        From time to time, pursuant to its service arrangements, the Company indemnifies its customers for claims related to the services it provides under those service arrangements. These indemnification obligations may subject the Company to indemnity claims and liabilities and related litigation. The Company is not aware of any material unrecorded liabilities for asserted claims in connection with these indemnification obligations.

Collective Bargaining Agreements

        Many of the Company's subsidiaries' field labor employees are covered by collective bargaining agreements. The agreements require the subsidiaries to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If a subsidiary withdraws from one or more multi-employer pension plans, or if the plans become underfunded, the subsidiary could be assessed liabilities for additional contributions related to the underfunding of these plans. Although the Company has been informed that certain of the multi-employer pension plans to which our subsidiaries contribute have been labeled with a "critical" status, the Company is not aware of any significant liabilities related to these plans. However, if a subsidiary withdraws from a plan, or if an underfunded plan imposes a material surcharge in the future, the Company cannot be certain that the amount of liability imposed on it would not have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Litigation and Other Legal Matters

        The Company is, from time to time, party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, separately or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations or cash flows.

        The Company is routinely subject to other civil claims, litigation and arbitration, and regulatory investigations arising in the ordinary course of our present business as well as in respect of our divested businesses. Some of these include claims related to our current services and operations, and asbestos-related claims concerning historic operations of a predecessor affiliate. The Company believes that it has strong defenses to these claims as well as adequate insurance coverage in the event any asbestos-related claim is not resolved in our favor. These claims have not had a material impact on the Company to date and the Company believes that the likelihood that a future material adverse outcome will result from these claims is remote. However, if facts and circumstances change in the future, the Company cannot be certain that an adverse outcome of one or more of these claims would not have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation

        The Company maintains two award plans under which stock-based compensation has been granted, the 2006 Stock Option Plan (the "2006 Plan") and the 2007 Long-Term Incentive Plan (Amended and Restated as of May 5, 2011) (the "LTIP"). Upon the adoption of the LTIP, awards were no longer granted under the 2006 Plan. The LTIP provides for grants of (a) incentive stock options qualified as such under U.S. federal income tax laws, (b) stock options that do not qualify as incentive stock options, (c) stock appreciation rights, (d) restricted stock awards, (e) performance awards, (f) phantom stock, (g) stock bonuses, (h) dividend equivalents, and (i) any combination of such awards.

Stock Options

        On March 23, 2012, the Company granted options to purchase 145,354 shares of the Company's common stock to various employees, including the Company's executive officers. The grant date fair value of these options, using the Black- Scholes-Merton option-pricing model, was approximately $8.42 per share. These options vest ratably over a three-year period. On January 3, 2012, the Company granted options to purchase 23,734 shares of the Company's common stock to the Company's chief financial officer upon the beginning of his employment with the Company. The grant date fair value of these options, using the Black-Scholes-Merton option-pricing model, was approximately $9.48 per share. These options will vest ratably over a four-year period. The Company issued 36,992 new shares to option holders upon the exercise of vested stock options during the six months ended June 30, 2012. Total intrinsic value of options exercised during the six months ended June 30, 2012 was approximately $0.4 million.

Restricted Stock

        On March 23, 2012, the Company granted restricted stock awards covering 56,980 shares of common stock to various employees, including the Company's executive officers, and 24,024 shares of common stock to eligible members of the Board of Directors. The grant date fair value of the restricted stock was $17.48, which was equal to the closing market price of the Company's common stock on the date of grant. The restricted stock awards granted to employees vest ratably, on an annual basis, over a five-year period with the first tranche vesting on March 23, 2013. The restricted stock awards granted to the eligible members of the Board of Directors vest ratably, on an annual basis, over a three-year period with the first tranche vesting on March 23, 2013. On January 3, 2012, the Company granted restricted stock awards covering 17,562 shares of common stock to two employees, including the Company's chief financial officer. The grant date fair value of the restricted stock was $19.46, which was equal to the closing market price of the Company's common stock on the date of grant. The restricted stock awards vest over a five-year period. On March 24, 2012, a total of 25,248 shares of restricted stock from prior grants became vested and taxable to the individual holder of the restricted stock awards. The Company received 6,186 of those shares as payment for withholding taxes due by holders of the restricted stock awards. The withheld shares were retired.

Performance Awards

        On March 23, 2012, the Company granted performance stock awards covering 41,755 shares of common stock, at target level, to certain key management personnel, including the Company's executive officers. The grant date fair value of the performance stock awards was $17.48, which was equal to the closing market price of the Company's common stock on the date of grant. The performance stock

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

awards will cliff vest on the third anniversary of the performance period, subject to achievement of certain specified levels of the Company's average return-on-equity over the performance period.

Stock-based Compensation Expense

        The Company recognizes stock-based compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense is adjusted for changes in estimated and actual forfeitures and also for changes in estimated performance shares that will be earned. The Company recognized stock-based compensation expense of approximately $1.3 million and $1.0 million for the six months ended June 30, 2012 and 2011, respectively, which was included in selling, general and administrative expenses in the accompanying consolidated statements of operations. Stock-based compensation expense for the six months ended June 30, 2011 included a net reduction in expense of $0.2 million for a change in the estimated forfeiture rates for the various awards and a change in the estimated number of performance shares that were expected to be earned. As of June 30, 2012, there was approximately $6.1 million of total unrecognized stock-based compensation cost related to awards granted under the LTIP, net of estimated forfeitures. Total unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.

7. Segment Information

        The information in the following table was derived from internal financial reports used for corporate management purposes:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
(In thousands)
  2012   2011   2012   2011  

Contract revenues:

                         

T&D

  $ 215,816   $ 139,662   $ 420,814   $ 257,687  

C&I

    44,594     45,648     79,824     77,917  
                   

  $ 260,410   $ 185,310   $ 500,638   $ 335,604  
                   

Operating income (loss):

                         

T&D

  $ 20,911   $ 11,832   $ 37,723   $ 25,375  

C&I

    1,860     824     2,959     1,676  

General Corporate

    (7,114 )   (6,669 )   (14,797 )   (13,441 )
                   

  $ 15,657   $ 5,987   $ 25,885   $ 13,610  
                   

8. Earnings Per Share

        The Company computes earnings per share using the two-class method, an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings, when that method results in a more dilutive effect than the treasury method. The Company's unvested grants of restricted stock contain non-forfeitable rights to dividends, should any be declared, and are treated as participating securities and included in the computation of earnings per share.

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MYR GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Earnings Per Share (Continued)

        Net income available to common shareholders and the weighted average number of common shares used to compute basic and diluted earnings per share was as follows:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
(In thousands except per share data)
  2012   2011   2012   2011  

Numerator:

                         

Net income

  $ 9,535   $ 3,717   $ 15,745   $ 8,217  

Less: Net income allocated to participating securities          

    83         120      
                   

Net income available to common shareholders

  $ 9,452   $ 3,717   $ 15,625   $ 8,217  
                   

Denominator:

                         

Weighted average common shares outstanding

    20,338     20,059     20,319     20,021  

Weighted average dilutive securities

    756     919     779     935  
                   

Weighted average common shares outstanding, diluted          

    21,094     20,978     21,098     20,956  
                   

Income per common share, basic

  $ 0.46   $ 0.19   $ 0.77   $ 0.41  

Income per common share, diluted

  $ 0.45   $ 0.18   $ 0.74   $ 0.39  

        Employee stock options to purchase approximately 358,000 and 112,000 shares of common stock during the three months and six months ended June 30, 2012, respectively, and employee stock options to purchase approximately 90,000 shares of common stock during the three months and six months ended June 30, 2011 were outstanding but not included in the calculation of diluted earnings per common share because the effect would have been anti-dilutive. Additionally, for the three and six months ended June 30, 2012 and 2011, potential common shares related to the unvested portion of performance awards of approximately 12,000 and 60,000, respectively, were excluded from the calculation of diluted earnings per share because the underlying performance obligation was not met as of the end of the period.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

        The following discussion should be read in conjunction with the accompanying consolidated financial statements as of June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011, and with our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Annual Report"). In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed herein under the captions labeled "Cautionary Statement Concerning Forward-Looking Statements and Information" and "Risk Factors," as well as in the 2011 Annual Report. We assume no obligation to update any of these forward-looking statements.

Overview and Outlook

        We are a leading specialty contractor serving the electrical infrastructure market in the United States. We are one of the largest national contractors servicing the T&D sector of the United States electric utility industry. Our T&D customers include electric utilities, cooperatives and municipalities. We provide a broad range of T&D services, which include design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction, maintenance and repair throughout the continental United States. We also provide C&I electrical contracting services to property owners and general contractors in the western United States.

        We had consolidated revenues, for the six months ended June 30, 2012, of $500.6 million, of which 84.1% was attributable to our T&D customers and 15.9% was attributable to our C&I customers. For the six months ended June 30, 2012 our net income and EBITDA(1) were $15.7 million and $37.7 million, respectively, compared to $8.2 million and $22.6 million, respectively, for the six months ended June 30, 2011.

        Our results have been driven primarily by successful bids for, and execution of, large transmission projects, our ability to capitalize on increased infrastructure spending in our markets and the breadth of our customer base. We believe our centralized fleet and skilled workforce provide us with a competitive advantage as spending in the transmission infrastructure market could impact demand for a limited supply of specialized equipment and labor. Our business is affected by the level of spending on T&D infrastructure throughout the United States and the level of C&I electrical construction activity in the western United States. While our backlog has decreased over the prior year period, primarily due to the ongoing construction of several large projects, transmission bidding activity remained strong in the first six months of 2012 with bidding activity for large and medium-sized projects increasing in the second quarter over the first quarter of 2012. We anticipate an expanding market for transmission projects of all sizes over the next several years and continued strong competition for those projects. We believe that capacity in the transmission market has tightened, with some regions experiencing shortages of skilled labor and specialized equipment resources. In the first six months of 2012, we saw an increase in bidding activity in some of our C&I markets and steady electric distribution demand. However, we believe that the economic conditions and uncertainties in the United States are still causing some of our customers, particularly those in the distribution market and C&I segment, to delay or reallocate their capital spending programs and, as a result, competition remains strong for the projects available for us to bid in those markets. We expect to grow our business organically, as well as through selectively considered strategic acquisitions or joint ventures that may improve our competitive position within our existing markets or expand our geographic footprint.


(1)
EBITDA, a performance measure used by management, is defined as net income plus: interest income and expense, provision for income taxes and depreciation and amortization, as shown in the following table. EBITDA, a non-GAAP financial measure, does not purport to be an alternative to net income as a measure of operating performance or to net cash flows provided by operating activities as a measure of liquidity. Because not all companies use identical calculations,

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  Three months ended
June 30,
  Six months ended
June 30,
 
 
(In thousands)
  2012   2011   2012   2011  
 

Reconciliation of Net Income to EBITDA:

                         
 

Net Income

  $ 9,535   $ 3,717   $ 15,745   $ 8,217  
 

Add:

                         
 

Interest expense, net

    203     146     385     327  
 

Provision for income taxes

    5,887     2,114     9,696     5,034  
 

Depreciation & amortization

    6,130     4,650     11,914     8,981  
                     
 

EBITDA

  $ 21,755   $ 10,627   $ 37,740   $ 22,559  
                     

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  Three months ended
June 30,
  Six months ended
June 30,
 
 
(In thousands)
  2012   2011   2012   2011  
 

Reconciliation of EBITDA to Net Cash Flows

                         
 

Provided By Operating Activities:

                         
 

EBITDA

  $ 21,755   $ 10,627   $ 37,740   $ 22,559  
 

Add/(subtract):

                         
 

Interest expense, net

    (203 )   (146 )   (385 )   (327 )
 

Provision for income taxes

    (5,887 )   (2,114 )   (9,696 )   (5,034 )
 

Depreciation & amortization

    (6,130 )   (4,650 )   (11,914 )   (8,981 )
 

Adjustments to reconcile net income to net cash flows provided by operating activities

    6,618     5,090     13,003     9,742  
 

Changes in operating assets and liabilities

    6,002     (8,359 )   (18,601 )   (3,717 )
                     
 

Net cash flows provided by operating activities

  $ 22,155   $ 448   $ 10,147   $ 14,242  
                     

Backlog

        We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as "backlog." We calculate backlog differently for different types of contracts. For our fixed-price contracts, we include the full remaining portion of the contract in our calculation of backlog. A customer's intention to award the Company work under a fixed-price contract is not included in backlog unless there is an actual award to perform a specific scope of work at specific terms and pricing. For many of our unit-price, time-and-equipment, time-and-materials and cost-plus contracts, we only include projected revenue for a three-month period in the calculation of backlog, although these types of contracts are generally awarded as part of master service agreements ("MSAs") that typically have a one- to three-year duration from execution. Given the duration of our contracts and MSAs and our method of calculating backlog, our backlog at any point in time may not accurately represent the revenue that we expect to realize during any period and our backlog as of the end of a fiscal year may not be indicative of the revenue we expect to generate in the following fiscal year and should not be viewed or relied upon as a stand-alone indicator.

        Certain of the projects that we undertake are not completed in one accounting period. Revenue on construction contracts is recorded based upon the percentage-of-completion accounting method determined by the ratio of costs incurred to date on the contracts to management's estimates of total contract costs. There can be no assurance as to the accuracy of our customers' requirements or of our estimates of existing and future needs under MSAs, or of the values of our cost or time-dependent contracts and, therefore, our current backlog may not be realized as part of our future revenues. Changes in backlog from period to period are primarily the result of fluctuations in the timing and revenue recognition of contracts.

        The following table summarizes the amount of our backlog that we believe to be firm as of the dates shown and the amount of our current backlog that we reasonably estimate will not be recognized within the next twelve months:

 
  Backlog at June 30, 2012    
 
(in thousands)
  Total   Amount estimated to
not be recognized
within 12 months of
June 30, 2012
  Total Backlog at
June 30, 2011
 

T&D

  $ 464,187   $ 92,720   $ 646,101  

C&I

    78,780     23,652     70,838  
               

Total

  $ 542,967   $ 116,372   $ 716,939  
               

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Project Bonding Requirements

        Historically, approximately 20% to 40% of our business required performance bonds or other means of financial assurance to secure contractual performance. These bonds are typically issued at the face value of the contract awarded. If we fail to perform or pay our subcontractors or vendors, the customer may demand that the surety provide services or make payments under the bond. In such a case, we would likely be required to reimburse the surety for any expenses or outlays it incurs. To date, we have not been required to make any reimbursements to our surety for claims against the surety bonds. As of June 30, 2012, we had approximately $914.1 million in original face amount of surety bonds outstanding. Our estimated remaining cost to complete these bonded projects was approximately $351.4 million as of June 30, 2012.

Consolidated Results of Operations

        The following table sets forth selected consolidated statements of operations data and such data as a percentage of revenues for the period indicated:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2012   2011   2012   2011  
(Dollars in thousands)
  Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent  

Contract revenues

  $ 260,410     100.0 % $ 185,310     100.0 % $ 500,638     100.0 % $ 335,604     100.0 %

Contract costs

    230,348     88.5     165,771     89.5     444,473     88.8     294,476     87.8  
                                   

Gross profit

    30,062     11.5     19,539     10.5     56,165     11.2     41,128     12.2  

Selling, general and administrative expenses

    14,515     5.6     13,698     7.4     30,433     6.1     27,651     8.2  

Amortization of intangible assets

    83         83         167         167      

Gain on sale of property and equipment

    (193 )   (0.1 )   (229 )   (0.1 )   (320 )   (0.1 )   (300 )   (0.1 )
                                   

Income from operations

    15,657     6.0     5,987     3.2     25,885     5.2     13,610     4.1  

Other income (expense)

                                                 

Interest income

    1         14         1         43      

Interest expense

    (204 )   (0.1 )   (160 )   (0.1 )   (386 )   (0.1 )   (370 )   (0.1 )

Other, net

    (32 )       (10 )       (59 )       (32 )    
                                   

Income before provision for income taxes

    15,422     5.9     5,831     3.1     25,441     5.1     13,251     4.0  

Income tax expense

    5,887     2.2     2,114     1.1     9,696     2.0     5,034     1.5  
                                   

Net income

  $ 9,535     3.7 % $ 3,717     2.0 % $ 15,745     3.1 % $ 8,217     2.5 %
                                   

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

        Revenues.    Revenues increased $75.1 million, or 40.5%, to $260.4 million for the three months ended June 30, 2012 from $185.3 million for the three months ended June 30, 2011. The majority of the increase in revenues was the result of an increase in revenues from several large transmission projects (greater than $10.0 million in contract value).

        Gross profit.    Gross profit increased $10.5 million, or 53.9%, to $30.1 million for the three months ended June 30, 2012 from $19.5 million for the three months ended June 30, 2011, primarily as a result of the increase in volume. As a percentage of overall revenues, gross margin increased to 11.5% for the three months ended June 30, 2012 from 10.5% for the three months ended June 30, 2011. The increase in gross profit as a percentage of revenues was mainly attributable to improved overall project margins on small (less than $3.0 million in contract value) and medium-sized (between $3.0 million and $10.0 million in contract value) projects in both segments and to improved utilization of fleet assets.

        Selling, general and administrative expenses.    Selling, general and administrative expenses increased approximately $0.8 million, or 6.0%, to $14.5 million for the three months ended June 30, 2012 from $13.7 million for the three months ended June 30, 2011. The increase was mainly due to an increase in

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employee compensation related primarily to the increased number of support personnel. As a percentage of revenues, these expenses decreased to 5.6% for the three months ended June 30, 2012 from 7.4% for the three months ended June 30, 2011.

        Gain on sale of property and equipment.    Gains from the sale of property and equipment remained consistent at $0.2 million for the three months ended June 30, 2012 and June 30, 2011. Gains from the sale of property and equipment are attributable to routine sales of property and equipment that is no longer useful or valuable to our ongoing operations.

        Interest income.    Interest income decreased for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011, primarily due to a decrease in the amount of our average daily cash balance.

        Interest expense.    Interest expense remained consistent for the three-month periods ended June 30, 2012 and 2011 at $0.2 million.

        Provision for income taxes.    The provision for income taxes was $5.9 million for the three months ended June 30, 2012, with an effective tax rate of 38.2%, compared to a provision of $2.1 million for the three months ended June 30, 2011, with an effective tax rate of 36.3%. The lower overall effective tax rate for the three months ended June 30, 2011 was mainly due to certain discrete tax adjustments and state income taxes.

        Net income.    Net income for the three months ended June 30, 2012 was $9.5 million compared to net income for the three months ended June 30, 2011 of $3.7 million for the reasons stated above.

Segment Results

        The following table sets forth, for the periods indicated, statements of operations data by segment, segment net sales as percentage of total net sales and segment operating income as a percentage of segment net sales.

 
  Three months ended June 30,  
 
  2012   2011  
(Dollars in thousands)
  Amount   Percent   Amount   Percent  

Contract revenues:

                         

Transmission & Distribution

  $ 215,816     82.9 % $ 139,662     75.4 %

Commercial & Industrial

    44,594     17.1     45,648     24.6  
                   

Total

  $ 260,410     100.0   $ 185,310     100.0  
                   

Operating income (loss):

                         

Transmission & Distribution

  $ 20,911     9.7   $ 11,832     8.5  

Commercial & Industrial

    1,860     4.2     824     1.8  
                   

Total

    22,771     8.7     12,656     6.8  

Corporate

    (7,114 )   (2.7 )   (6,669 )   (3.6 )
                   

Consolidated

  $ 15,657     6.0 % $ 5,987     3.2 %
                   

Transmission & Distribution

        Revenues for our T&D segment for the three months ended June 30, 2012 were $215.8 million compared to $139.7 million for the three months ended June 30, 2011, an increase of $76.1 million, or 54.5%. The increase in revenues was primarily the result of an increase in revenues from several large transmission projects as well as an increase in revenues from many small transmission projects, which were partially offset by a decrease in distribution revenues.

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        Revenues from transmission projects represented 86.9% and 70.2% of T&D segment revenue for the three months ended June 30, 2012 and 2011, respectively.

        Operating income for our T&D segment for the three months ended June 30, 2012 was $20.9 million compared to $11.8 million for the three months ended June 30, 2011, an increase of approximately $9.1 million, or 76.7%, primarily as a result of higher volume in large and small transmission projects. As a percentage of revenues, operating income for our T&D segment increased to 9.7% for the three months ended June 30, 2012 from 8.5% for the three months ended June 30, 2011. The increase in operating income, as a percentage of revenues, was mostly attributable to higher project margins on small and medium-sized transmission projects and small distribution projects, in addition to improved utilization of fleet assets over the prior period.

Commercial & Industrial

        Revenues for our C&I segment for the three months ended June 30, 2012 were $44.6 million compared to $45.6 million for the three months ended June 30, 2011, a decrease of $1.0 million,or 2.3%.

        Operating income for our C&I segment for the three months ended June 30, 2012 was $1.9 million compared to $0.8 million for the three months ended June 30, 2011, an increase of $1.0 million, or 125.7%. As a percentage of revenues, operating income for our C&I segment increased to 4.2% for the three months ended June 30, 2012 from 1.8% for the three months ended June 30, 2011. The increase in operating income, as a percentage of revenues, in the C&I segment was mainly attributable to an overall increase in project margins on small and medium-sized projects, which was partially offset by a decrease in project margins on large projects.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

        Revenues.    Revenues increased $165.0 million, or 49.2%, to $500.6 million for the six months ended June 30, 2012 from $335.6 million for the six months ended June 30, 2011. The majority of the increase in revenues was the result of an increase in revenues from several large and many small transmission projects, coupled with an increase in revenues from the C&I segment.

        Gross profit.    Gross profit increased $15.0 million, or 36.6%, to $56.2 million for the six months ended June 30, 2012 from $41.1 million for the six months ended June 30, 2011, primarily as a result of the increase in volume. As a percentage of overall revenues, gross margin decreased to 11.2% for the six months ended June 30, 2012 from 12.2% for the six months ended June 30, 2011. The decrease in gross profit as a percentage of revenues was mainly attributable to a few large transmission projects which experienced above-average margins of approximately $5.8 million in the first three months of 2011 when they were in the final stages of completion. The decrease was partially offset by improved utilization of fleet assets during the first six months of 2012.

        Selling, general and administrative expenses.    Selling, general and administrative expenses increased approximately $2.8 million, or 10.1%, to $30.4 million for the six months ended June 30, 2012 from $27.7 million for the six months ended June 30, 2011. The increase was mostly due to an increase in employee compensation and benefit costs related primarily to the increased number of support personnel. As a percentage of revenues, these expenses decreased to 6.1% for the six months ended June 30, 2012 from 8.2% for the six months ended June 30, 2011.

        Gain on sale of property and equipment.    Gains from the sale of property and equipment remained consistent at $0.3 million for the six months ended June 30, 2012 and June 30, 2011. Gains from the sale of property and equipment are attributable to routine sales of property and equipment that is no longer useful or valuable to our ongoing operations.

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        Interest income.    Interest income decreased for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011, primarily due to a decrease in the amount of our average daily cash balance.

        Interest expense.    Interest expense remained consistent for the six-month periods ended June 30, 2012 and 2011 at $0.4 million.

        Provision for income taxes.    The provision for income taxes was $9.7 million for the six months ended June 30, 2012, with an effective tax rate of 38.1%, compared to a provision of $5.0 million for the six months ended June 30, 2011, with an effective tax rate of 38.0%.

        Net income.    Net income for the six months ended June 30, 2012 was $15.7 million compared to net income for the six months ended June 30, 2011 of $8.2 million for the reasons stated above.

Segment Results

        The following table sets forth, for the periods indicated, statements of operations data by segment, segment net sales as percentage of total net sales and segment operating income as a percentage of segment net sales.

 
  Six months ended June 30,  
 
  2012   2011  
(Dollars in thousands)
  Amount   Percent   Amount   Percent  

Contract revenues:

                         

Transmission & Distribution

  $ 420,814     84.1 % $ 257,687     76.8 %

Commercial & Industrial

    79,824     15.9     77,917     23.2  
                   

Total

  $ 500,638     100.0   $ 335,604     100.0  
                   

Operating income (loss):

                         

Transmission & Distribution

  $ 37,723     9.0   $ 25,375     9.8  

Commercial & Industrial

    2,959     3.7     1,676     2.2  
                   

Total

    40,682     8.1     27,051     8.1  

Corporate

    (14,797 )   (2.9 )   (13,441 )   (4.0 )
                   

Consolidated

  $ 25,885     5.2 % $ 13,610     4.1 %
                   

Transmission & Distribution

        Revenues for our T&D segment for the six months ended June 30, 2012 were $420.8 million compared to $257.7 million for the six months ended June 30, 2011, an increase of $163.1 million, or 63.3%. The increase in revenues was primarily the result of an increase in revenues from several large and many small transmission projects. The increase in transmission revenues was partially offset by a reduction in distribution revenues in the six months ended June 30, 2012.

        Revenues from transmission projects represented 85.4% and 69.3% of T&D segment revenue for the six months ended June 30, 2012 and 2011, respectively. Additionally, for the six months ended June 30, 2012, measured by revenue in our T&D segment, we provided 48.5% of our T&D services under fixed-price contracts, as compared to 38.1% for the six months ended June 30, 2011.

        Operating income for our T&D segment for the six months ended June 30, 2012 was $37.7 million compared to $25.4 million for the six months ended June 30, 2011, an increase of approximately $12.3 million, or 48.7%, primarily as a result of higher volume in large and small transmission projects. As a percentage of revenues, operating income for our T&D segment decreased to 9.0% for the six months ended June 30, 2012 from 9.8% for the six months ended June 30, 2011. The decrease in gross

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profit as a percentage of revenues was mainly attributable to a few large transmission projects which experienced above-average margins of approximately $5.8 million in the first three months of 2011 when they were in the final stages of completion. Utilization of fleet assets in the first six months of 2012 improved over the prior year period.

Commercial & Industrial

        Revenues for our C&I segment for the six months ended June 30, 2012 were $79.8 million compared to $77.9 million for the six months ended June 30, 2011, an increase of $1.9 million or 2.4%. The increase in revenues was mainly due to an increase in revenues from medium-sized projects.

        Measured by revenue in our C&I segment, for the six months ended June 30, 2012, we provided 54.7% of our services under fixed-price contracts as compared to 56.6% for the six months ended June 30, 2011.

        Operating income for our C&I segment for the six months ended June 30, 2012 was $3.0 million compared to $1.7 million for the six months ended June 30, 2011, an increase of $1.3 million, or 76.6%. As a percentage of revenues, operating income for our C&I segment increased to 3.7% for the six months ended June 30, 2012 from 2.2% for the six months ended June 30, 2011. The increase in operating income, as a percentage of revenues, in the C&I segment was mainly attributable to an overall increase in margins on small and medium-sized projects.

Liquidity and Capital Resources

        As of June 30, 2012, we had cash and cash equivalents of $24.3 million and $147.8 million available for borrowing under the Credit Agreement. During the six months ended June 30, 2012, consolidated operating activities of our business generated cash of $10.1 million, compared to generating $14.2 million of cash for the six months ended June 30, 2011. Cash flow from operating activities is primarily influenced by demand for our services, operating margins and the type of services we provide our customers. During the six months ended June 30, 2012 and 2011, we used net cash in investing activities of $20.1 million and $22.5 million, respectively, primarily for capital expenditures. We generated $0.2 million in cash from financing activities during the first six months of 2012, compared to using net cash of $18.9 million during the first six months of 2011, which was primarily used to prepay $20.0 million of our term loan.

        The changes in various working capital accounts (such as: accounts receivable, including retention; costs and estimated earnings in excess of billings on uncompleted contracts; accounts payable; and billings in excess of costs and estimated earnings on uncompleted contracts) are due to normal timing fluctuations in our operating activities. In particular, the gross amount of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts used cash of $22.1 million in the first six months of 2012, compared to $4.9 million in the first six months of 2011, largely due to the increased construction activity on large transmission projects in the first six months of 2012 compared to the prior period. We typically experience higher working capital needs in the early stages of projects, when cash is being used on personnel, equipment, supplies and other project costs prior to cash flow being received from the customer. As the project progresses, the working capital needs typically stabilize or decrease as cash flow from customers begins to meet or exceed cash outlaid for operating expenses. Specifically, accounts receivable used $27.3 million in cash in the first six months of 2012, and generated $7.4 million in cash in the prior-year period. Receivable balances increased as our revenues increased in the six months ended June 30, 2012, and retainages in accounts receivable related to large projects also increased.

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        We anticipate that our cash and cash equivalents on hand, our $147.8 million borrowing availability under our credit facility, and our future cash flow from operations will provide sufficient cash to enable us to meet our future operating needs, debt service requirements, and planned capital expenditures. Although we believe that we have adequate cash and availability under our credit facility to meet our liquidity needs, our involvement in any large-scale project may require additional working capital, depending upon the size and duration of the project and the financial terms of the underlying agreement.

Debt Instruments

        On December 21, 2011, we entered into a five-year syndicated credit agreement for an initial facility of $175.0 million. The entire facility is available for revolving loans and the issuance of letters of credit and up to $25.0 million of the facility is available for swingline loans. We have the option to increase the commitments under the Credit Agreement or enter into incremental term loans, subject to certain conditions, by up to an additional $75.0 million upon receipt of additional commitments from new or existing lenders.

        Revolving loans under the Credit Agreement bear interest, at our option, at either (1) ABR, which is the greatest of the Prime Rate, the Federal Funds Effective Rate plus 0.50% or LIBOR plus 1.00%, plus in each case an applicable margin ranging from 0.00% to 1.00%; or (2) LIBOR plus an applicable margin, ranging from 1.00% to 2.00%. The applicable margin is determined based on our leverage ratio. Letters of credit issued under the Credit Agreement are subject to a letter of credit fee of 1.00% to 2.00%, based on our leverage ratio and a facing fee of 0.125%. Swingline loans will bear interest at the ABR Rate. We are required to pay a 0.2% commitment fee on the unused portion of the credit facility.

        Subject to certain exceptions, the Credit Agreement is secured by substantially all of our assets and the assets of all of our subsidiaries and by a pledge of all of the capital stock of our subsidiaries. Our subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement. The Credit Agreement provides for customary events of default. If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit Agreement, amounts outstanding under the Credit Agreement may be accelerated and may become or be declared immediately due and payable.

        Under the Credit Agreement, we are subject to certain financial covenants, a leveraged debt ratio and a minimum interest coverage ratio. We were in compliance at June 30, 2012. The Credit Agreement also contains a number of covenants including limitations on asset sales, investments, indebtedness and liens.

        As of June 30, 2012, we had $10.0 million in revolving loans outstanding under the Credit Agreement at an interest rate of 1.25%. We had approximately $17.2 million in letters of credit outstanding under the facility at a rate of 1.13%. Also, as of June 30, 2012, we had $147.8 million available for borrowing under the Credit Agreement. As of December 31, 2011, we had $10.0 million in revolving loans outstanding under the Credit Agreement at an interest rate of 1.31%, and approximately $17.2 million in letters of credit outstanding under the Credit Agreement at a rate of 1.13%.

Concentration of Credit Risk

        We grant trade credit under normal payment terms, generally without collateral, to our customers, which include high credit quality electric power companies, governmental entities, general contractors and builders, owners and managers of commercial and industrial properties located in the United States. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States. However, we generally have certain statutory lien rights

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with respect to services provided. Under certain circumstances such as foreclosures or negotiated settlements, we may take title to the underlying assets in lieu of cash in settlement of receivables. As of June 30, 2012, one customer individually exceeded 10.0% of consolidated accounts receivable with approximately 14.8% of the total consolidated accounts receivable amount (excluding the impact of allowance for doubtful accounts). As of June 30, 2011, one customer individually exceeded 10.0% of consolidated accounts receivable with approximately 11.0% of the total consolidated accounts receivable amount (excluding the impact of allowance for doubtful accounts). Management believes the terms and conditions in its contracts, billing and collection policies are adequate to minimize the potential credit risk.

New Accounting Pronouncements

        For a discussion regarding new accounting pronouncements, please refer to Note 1. "Organization, Business and Basis of Presentation—Recently Issued Accounting Pronouncements" in the accompanying Notes to Consolidated Financial Statements.

Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates. For further information regarding our critical accounting policies and estimates, please refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies" included in our 2011 Annual Report.

Cautionary Statement Concerning Forward-Looking Statements and Information

        We are including the following discussion to inform you of some of the risks and uncertainties that can affect our company and to take advantage of the protections for forward-looking statements that applicable federal securities law affords.

        Various statements contained in this quarterly report on Form 10-Q are forward-looking statements, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenue, income and capital spending. Our forward-looking statements are generally accompanied by words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "outlook," "plan," "project," "possible," "potential," "should" or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this quarterly report on Form 10-Q speak only as of the date of this quarterly report on Form 10-Q. 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 expectations and assumptions about future events. While our management considers these expectations and 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 in Item 1A "Risk Factors" in our 2011 Annual Report, may cause our actual results, performance or achievements to differ

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materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

        These risks, contingencies and uncertainties include, but are not limited to, the following:

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of June 30, 2012, we were not party to any derivative instruments. We did not use any material derivative financial instruments during the six months ended June 30, 2012 and 2011, including trading or speculation on changes in interest rates or commodity prices of materials used in our business.

        Borrowings under the Credit Agreement are based upon an interest rate that will vary depending upon the prime rate, federal funds rate and LIBOR. If the prime rate, federal funds rate or LIBOR rises, our interest payment obligations on outstanding borrowings will increase and have a negative effect on our cash flow and financial condition. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings. As of June 30, 2012, we had $10.0 million in borrowings outstanding under the Credit Agreement. An increase or decrease of 0.125% in the interest rate would have the effect of changing our interest expense by $12,500 per year.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        Under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012.

Changes in Internal Control Over Financial Reporting

        During the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        For further discussion regarding legal proceedings, please refer to Note 5, "Commitments and Contingencies—Litigation and Other Legal Matters" in the accompanying Notes to Consolidated Financial Statements.

ITEM 1A.    RISK FACTORS

        As of the date of this filing, there have been no material changes to the risk factors previously discussed in Item 1A to our 2011 Annual Report. An investment in our common stock involves various risks. When considering an investment in our company, you should carefully consider all of the risk factors described in our 2011 Annual Report. These risks and uncertainties are not the only ones facing us and there may be additional matters that are not known to us or that we currently consider immaterial. These risks and uncertainties could adversely affect our business, financial condition or future results and, thus, the value of our common stock and any investment in our company.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        Issuances of Common Stock.    During the three months ended June 30, 2012, a total of 2,385 shares of unregistered stock, valued at $38,470, were issued to two directors of the Company who elected to receive a portion of their annual director retainer fee in stock in lieu of cash.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not Applicable.

ITEM 5.    OTHER INFORMATION

        None.

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ITEM 6.    EXHIBITS

Number   Description
  31.1   Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) †

 

31.2

 

Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) †

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350 *

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350 *

 

101.1

 

The following materials from MYR Group's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011; (ii) the Consolidated Statements of Operations for the three months and six months ended June 30, 2012 and 2011; (iii) the Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2012 and 2011; (iv) Notes to Consolidated Financial Statements; and (v) document and entity information. *

Filed herewith

*
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101.1 hereto are deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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 thereunto duly authorized.

    MYR GROUP INC.
    (Registrant)

 

 

 
August 7, 2012   /s/ PAUL J. EVANS

Vice President, Chief Financial Officer and
Treasurer

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