The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Business and Basis of Presentation
Organization and Business
MYR Group Inc. (the “Company”)
is a holding company of specialty electrical construction service providers and conducts operations through its wholly owned subsidiaries,
including: The L. E. Myers Co., a Delaware corporation; Harlan Electric Company, a Michigan corporation; Great Southwestern Construction,
Inc., a Colorado corporation; Sturgeon Electric Company, Inc., a Michigan corporation; MYR Transmission Services, Inc., a Delaware
corporation; E.S. Boulos Company, a Delaware corporation; High Country Line Construction, Inc., a Nevada corporation; Sturgeon
Electric California, LLC, a Delaware limited liability company; GSW Integrated Services, LLC, a Delaware limited liability company;
MYR Transmission Services Canada, Ltd., a British Columbia corporation; Northern Transmission Services, Ltd., a British Columbia
corporation and Western Pacific Enterprises Ltd., a British Columbia corporation.
The Company performs construction services
in two business segments: Transmission and Distribution (“T&D”) and Commercial and Industrial (“C&I”).
T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent
power producers, independent transmission companies, industrial facility owners and other contractors. T&D provides a broad
range of services, which include design, engineering, procurement, construction, upgrade, maintenance and repair services, with
a particular focus on construction, maintenance and repair. The C&I customers include general contractors, commercial and industrial
facility owners, local governments and developers in the western and northeastern United States and western Canada. The C&I
segment provides services such as the design, installation, maintenance and repair of commercial and industrial wiring, installation
of traffic networks and the installation of bridge, roadway and tunnel lighting.
Basis of Presentation
Interim Consolidated Financial Information
The accompanying unaudited 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 (“SEC”). Certain information and footnote disclosures, normally included in annual financial
statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to the rules and regulations of the SEC.
The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position,
results of operations, comprehensive income and cash flows with respect to the interim consolidated financial statements, have
been included. Certain reclassifications were made to prior year amounts to conform to the current year presentation. The consolidated
balance sheet as of December 31, 2017 has been derived from the audited financial statements as of that date. The results of operations
and comprehensive income are not necessarily indicative of the results for the full year or the results for any future periods.
These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended
December 31, 2017, included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 7, 2018.
Foreign Currency
The functional currency for the Company’s
Canadian operations is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars
at the end-of-period exchange rate. Revenues and expenses are translated using average exchange rates for the periods reported.
Equity accounts are translated at historical rates. Cumulative translation adjustments are included as a separate component of
accumulated other comprehensive income in shareholders’ equity. Foreign currency transaction gains and losses, arising primarily
from changes in exchange rates on short-term monetary assets and liabilities, and ineffective long-term monetary assets and liabilities
are recorded in the “other income, net” line on the consolidated statements of operations. Foreign currency losses
were not significant for the six months ended June 30, 2018. The Company recorded $0.1 million of foreign currency loss for the
six months ended June 30, 2017. Effective foreign currency transaction gains and losses, arising primarily from long-term monetary
assets and liabilities, are recorded in the foreign currency translation adjustment line on the consolidated statements of comprehensive
income.
Accounts Receivable
The Company does not charge interest to
its customers and carries its customer receivables at their face amounts, less an allowance for doubtful accounts. Included in
accounts receivable are balances billed to customers pursuant to retainage provisions in certain contracts that are due upon completion
of the contract and acceptance by the customer, or earlier as provided by the contract. Based on the Company’s experience
in recent years, the majority of customer balances at each balance sheet date are collected within twelve months. As is common
practice in the industry, the Company classifies all accounts receivable, including retainage, as current assets. The contracting
cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may
extend beyond one year. The Company expects a majority of the retainage recorded at June 30, 2018 to be collected within one year.
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, the 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 of costs to complete on contracts, pending change orders and claims, shared savings, insurance reserves, income tax
reserves, estimates surrounding stock-based compensation, the recoverability of goodwill and intangibles and accounts receivable
reserves.
In the six months ended June 30, 2018 and
June 30, 3017, the Company recognized revenues of $6.7 million and $5.2 million, respectively, related to significant change orders
and/or claims that had been included as contract price adjustments on certain contracts which were in the process of being negotiated
in the normal course of business.
The percentage of completion method of accounting
requires the Company to make estimates about the expected revenue and gross profit on each of its contracts in process. During
the three months ended June 30, 2018, changes in estimates pertaining to certain projects increased consolidated gross margin by
0.1%, which resulted in increases in operating income of $0.2 million, net income of $0.2 million and diluted earnings per common
share of $0.01. During the six months ended June 30, 2018, changes in estimates pertaining to certain projects increased consolidated
gross margin by 0.1%, which resulted in increases in operating income of $0.1 million, net income of $0.1 million and no impact
to diluted earnings per common share.
During the three months ended June 30, 2017,
changes in estimates pertaining to certain projects decreased consolidated gross margin by 2.1%, which resulted in decreases in
operating income of $7.4 million, net income of $4.4 million and diluted earnings per common share of $0.27. During the six months
ended June 30, 2017, changes in estimates pertaining to certain projects decreased consolidated gross margin by 1.0%, which resulted
in decreases in operating income of $6.8 million, net income of $4.1 million and diluted earnings per common share of $0.25.
Recent 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 recently issued or proposed ASUs not listed below are either
not applicable to the Company or adoption will have minimal impact on our consolidated financial statements
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The amendments under this pronouncement changed how an entity recognizes
revenue from contracts it enters to transfer goods, services or nonfinancial assets to its customers. These changes created a comprehensive
framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede
virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance
in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance
is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the
amendments require expanded disclosure to enable the users of the financial statements to understand the nature, timing and uncertainty
of revenue and cash flow arising from contracts with customers. On January 1, 2018, the Company adopted this ASU on a modified
retrospective basis. Results for reporting periods beginning after January 1, 2018 are presented under
Revenue from Contracts
with Customers (Topic 606)
, while prior period amounts were not adjusted and continue to be reported in accordance with the
Company’s historical accounting under
Revenue Recognition Topic 605
. See Note 2–Revenue Recognition to the Financial
Statements for further information related to the Company’s accounting policy and transition disclosures associated with
the adoption of this pronouncement.
In January 2017, the FASB issued ASU No.
2017-01
, Business Combinations (Topic 805): Clarifying the Definition of a Business
, which clarified the definition of a
business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for
as acquisitions (or disposals) of assets or businesses. The Company adopted this ASU on a prospective basis in January 2018 and
there was no effect on the Company’s financial position, results of operations or cash flows.
In October 2016, the FASB issued ASU No.
2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
, which modified existing guidance
and intended to reduce the diversity in practice with respect to the accounting for income tax consequences of intra-entity transfers
of assets. This update requires entities to immediately recognize the tax consequences on intercompany asset transfers (excluding
inventory) at the transaction date, and eliminated the recognition exception within previous guidance. The Company adopted this
ASU using a modified retrospective approach in January 2018 and there was no effect on the Company’s financial position,
results of operations or cash flows.
In August 2016, the FASB issued ASU No.
2016-15,
Statement of Cash Flows (Topic 230)
:
Classification of Certain Cash Receipts and Cash Payments
, which intended
to reduce diversity in practice in how eight specific transactions are classified in the statement of cash flows. The Company adopted
this ASU on a retrospective basis in January 2018 and there was no effect on the Company’s financial position, results of
operations or cash flows.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU No.
2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which simplifies
the subsequent measurement of goodwill, through the elimination of Step 2 from the goodwill impairment test. Instead, an entity
should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. The update is effective for any annual or interim goodwill impairment tests in fiscal years beginning after December 15,
2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The guidance requires application on a prospective basis. The Company does not expect that this pronouncement will have a significant
impact on its financial statements.
In February 2016, the FASB issued ASU No.
2016-02,
Leases (Topic 842)
. The amendments under this pronouncement will change the way all leases with durations in excess
of one year are treated. Under this guidance, lessees will be required to recognize virtually all leases on the balance sheet as
a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents
the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents
the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics,
leases are classified as financing leases or operating leases. Financing lease liabilities, which contain provisions similar to
capitalized leases, are amortized like capital leases under current accounting, as amortization expense and interest expense in
the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease
expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those
reporting periods, beginning after December 15, 2018.
The Company continues to evaluate the impact
that this pronouncement, and all amendments relating to this pronouncement, will have on its policies and procedures pertaining
to its existing and future lease arrangements, disclosure requirements and on the Company’s financial statements. The Company
expects that most existing operating lease commitments that extend beyond twelve months at the time of adoption will be recognized
as lease liabilities and right-of-use assets upon adoption. While the Company is still evaluating the requirements of this update,
it currently does not expect the adoption to have a material impact on the recognition, measurement or presentation of lease expenses
within the Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows. See Note 8–Lease
Obligations to the Financial Statements for further information related to the Company’s future minimum lease payments and
the timing of those payments.
2. Revenue Recognition
Adoption and Accounting Policy
On January 1, 2018, the Company adopted
ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
using the modified retrospective method for contracts
that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under
this new pronouncement, while prior period amounts are not adjusted and continue to be reported under the accounting standard
Revenue
Recognition Topic 605,
which was in effect for prior periods. The Company recorded an increase to opening retained earnings
of $0.7 million, net of tax, as of January 1, 2018 due to the cumulative impact of adopting Topic 606, representing revenues which
would have been recognized in prior periods under Topic 606. The impact to revenue for the three and six months ended June 30,
2018 was an increase of $0.2 million and $0.3 million, respectively, as a result of adopting Topic 606. The cumulative adjustment
and the impact experienced during the six months ended June 30, 2018 were due to accelerated recognition of contract provisions
related to variable consideration previously not permitted to be recognized under Topic 605 until no remaining contingency existed
related to this consideration.
Under Topic 606, the Company recognizes
revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects
to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers is recognized over
time as the Company’s performance creates or enhances customer controlled assets or creates or enhances an asset with no
alternative use, which the Company has an enforceable right to receive compensation as defined under the contract for performance
completed. To determine the amount of revenue to recognize over time, the Company estimates profit by determining the difference
between total estimated revenue and total estimated cost of a contract. The profit and corresponding revenue is recognized over
the contract term based on costs incurred under the cost-to-cost method. For purposes of recognizing revenue, the Company follows
the five step approach outlined in ASC 606-10-25.
As the cost-to-cost method is driven by
incurred cost, the Company calculates the percentage of completion by dividing costs incurred-to-date by the total estimated cost.
The percentage of completion is then multiplied by estimated revenues to determine inception-to-date revenue. Revenue recognized
for the period is the current inception-to-date recognized revenue less the prior period inception-to-date recognized revenue.
If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined
and the amount of the loss is updated in subsequent reporting periods. Revenue recognition also includes an amount related to a
contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract asset
is recorded in costs and estimated earnings in excess of billings on uncompleted contracts. Conversely, if the amount billed to
the customer is greater than the recognized revenue, a contract liability is recorded in billings in excess of costs and estimated
earnings on uncompleted contracts. Contract costs incurred-to-date and expected total contract costs are continuously monitored
during the term of the contract. Changes in the job performance, job conditions and final contract settlements are factors that
influence management’s assessment of total contract value and the total estimated costs to complete those contracts, and
therefore, profit and revenue recognition.
Some of the Company’s contracts may
have contract terms that include variable consideration such as safety or performance bonuses or liquidated damages. In accordance
with ASC 606-10-32, the Company estimates the variable consideration using one of two methods. In contracts in which there is a
binary outcome, the most likely amount method is used. In instances in which there is a range of possible outcomes, the expected
value method is used. In accordance with ASC 606-10-32-11, the Company includes the estimated amount of variable consideration
in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative recognized
revenue will not result when the final outcome of the variable consideration is determined. In contracts in which a significant
reversal may occur, the Company uses constraint in recognizing revenue on variable consideration. Although the Company often enters
into contracts that contain liquidated damage clauses, the Company rarely incurs them, and as such, the Company does not include
amounts associated with liquidated damage clauses until it is probable that liquidated damages will occur. These items are continually
monitored by multiple levels of management throughout the reporting period.
A portion of the work the Company performs
requires financial assurances in the form of performance and payment bonds or letters of credit at the time of execution of the
contract. Most contracts include retention provisions of up to 10%, which are generally withheld from each progress payment as
retainage until the contract work has been completed and approved.
Disaggregation of Revenue
A majority of the Company’s revenues
are earned through contracts with customers that normally provide for payment upon completion of specified work or units of work
as identified in the contract. Although there is considerable variation in the terms of these contracts they are primarily structured
as fixed-price contracts, under which the Company agrees to do the entire project for a fixed amount, or unit-price contracts,
under which the Company agrees to do the work at a fixed price per unit of work as specified in the contract. The Company also
enters into time-and-equipment and time-and-materials contracts under which the Company is paid for labor and equipment at negotiated
hourly billing rates and for other expenses, including materials, as incurred. Finally, the Company sometimes enters into cost-plus
contracts, where the Company is paid for costs plus a negotiated margin. On occasion, time-and-equipment, time-and-materials and
cost plus contracts require the Company to include a guaranteed not-to-exceed maximum price.
Historically, fixed-price and unit-price
contracts have had the highest potential margins; however, they have had a greater risk in terms of profitability because cost
overruns may not be recoverable. Time-and-equipment, time-and-materials and cost-plus contracts have historically had less margin
upside, but generally have had a lower risk of cost overruns. The Company also provides services under master service agreements
(“MSAs”) and other variable-term service agreements. MSAs normally cover maintenance, upgrade and extension services,
as well as new construction. Work performed under MSAs is typically billed on a unit-price, time-and-materials or time-and-equipment
basis. MSAs are typically one to three years in duration; however, most of the Company’s contracts, including MSAs, may be
terminated by the customer on short notice, typically 30 to 90 days, even if the Company is not in default under the contract.
Under MSAs, customers generally agree to use the Company for certain services in a specified geographic region. Most MSAs include
no obligation for the contract counterparty to assign specific volumes of work to the Company and do not require the counterparty
to use the Company exclusively, although in some cases the MSA contract gives the Company a right of first refusal for certain
work. Additional information related to the Company’s market types is provided in Note 10–Segment Information to the
Financial Statements.
The components of the Company’s revenue
by contract type for the three and six months ended June 30, 2018 were as follows:
|
|
Three months ended June 30, 2018
|
|
|
|
T&D
|
|
|
C&I
|
|
|
Total
|
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Fixed price
|
|
$
|
77,230
|
|
|
|
39.2
|
%
|
|
$
|
90,439
|
|
|
|
63.4
|
%
|
|
$
|
167,669
|
|
|
|
49.4
|
%
|
Unit Price
|
|
|
41,631
|
|
|
|
21.1
|
|
|
|
15,408
|
|
|
|
10.8
|
|
|
|
57,039
|
|
|
|
16.8
|
|
T&E
|
|
|
68,073
|
|
|
|
34.6
|
|
|
|
8,942
|
|
|
|
6.3
|
|
|
|
77,015
|
|
|
|
22.7
|
|
Other
|
|
|
9,991
|
|
|
|
5.1
|
|
|
|
27,962
|
|
|
|
19.5
|
|
|
|
37,953
|
|
|
|
11.1
|
|
|
|
$
|
196,925
|
|
|
|
100.0
|
%
|
|
$
|
142,751
|
|
|
|
100.0
|
%
|
|
$
|
339,676
|
|
|
|
100.0
|
%
|
|
|
Six months ended June 30, 2018
|
|
|
|
T&D
|
|
|
C&I
|
|
|
Total
|
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Fixed price
|
|
$
|
156,665
|
|
|
|
37.9
|
%
|
|
$
|
179,594
|
|
|
|
66.0
|
%
|
|
$
|
336,259
|
|
|
|
49.1
|
%
|
Unit Price
|
|
|
87,307
|
|
|
|
21.1
|
|
|
|
25,058
|
|
|
|
9.2
|
|
|
|
112,365
|
|
|
|
16.4
|
|
T&E
|
|
|
148,418
|
|
|
|
35.9
|
|
|
|
18,399
|
|
|
|
6.8
|
|
|
|
166,817
|
|
|
|
24.3
|
|
Other
|
|
|
20,921
|
|
|
|
5.1
|
|
|
|
48,925
|
|
|
|
18.0
|
|
|
|
69,846
|
|
|
|
10.2
|
|
|
|
$
|
413,311
|
|
|
|
100.0
|
%
|
|
$
|
271,976
|
|
|
|
100.0
|
%
|
|
$
|
685,287
|
|
|
|
100.0
|
%
|
The components of the Company’s revenue
by market type for the three and six months ended June 30, 2018 were as follows:
|
|
Three months ended June 30, 2018
|
|
Six months ended June 30, 2018
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Segment
|
|
Amount
|
|
|
Percent
|
|
|
Segment
|
Transmission
|
|
$
|
121,708
|
|
|
|
35.8
|
%
|
|
T&D
|
|
$
|
256,161
|
|
|
|
37.4
|
%
|
|
T&D
|
Distribution
|
|
|
75,217
|
|
|
|
22.2
|
|
|
T&D
|
|
|
157,150
|
|
|
|
22.9
|
|
|
T&D
|
Electrical Construction
|
|
|
142,751
|
|
|
|
42.0
|
|
|
C&I
|
|
|
271,976
|
|
|
|
39.7
|
|
|
C&I
|
Total Revenue
|
|
$
|
339,676
|
|
|
|
100.0
|
%
|
|
|
|
$
|
685,287
|
|
|
|
100.0
|
%
|
|
|
Contract Assets and Liabilities
Contracts with customers usually stipulate
the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the
period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide
with the billing terms, which frequently include retention provisions contained in each contract. The following table provides
information about receivables, contract assets and contract liabilities from contracts with customers:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
$
|
87,356
|
|
|
$
|
78,260
|
|
|
$
|
9,096
|
|
Contract liabilities
|
|
|
(48,407
|
)
|
|
|
(28,919
|
)
|
|
|
(19,488
|
)
|
Net contract assets (liabilities)
|
|
$
|
38,949
|
|
|
$
|
49,341
|
|
|
$
|
(10,392
|
)
|
The difference between the opening and closing
balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s
performance and customer payment. The amounts of revenue recognized in the period that was included in the opening contract liability
balances was $20.5 million and $31.1 million for the three and six months ended June 30, 2018, respectively. This revenue
consists primarily of work performed on previous billings to customers.
Remaining Performance Obligations
On June 30, 2018, the Company had $930.6
million of remaining performance obligations. The Company’s remaining performance obligations includes projects that have
a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms
and conditions. The following table summarizes that amount of remaining performance obligations that the Company expects to be
realized as of June 30, 2018 and the amount of the remaining performance obligations that the Company reasonably estimates will
not be recognized within the next twelve months. The Company expects a vast majority of the remaining performance obligations to
be recognized within twenty-four months, although the timing of the Company’s performance is not always under its control.
Additionally, the difference between the remaining performance obligations and backlog is due to the exclusion of a portion of
the Company’s MSAs under certain contract types from the Company’s remaining performance obligations as these contracts
can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer.
Additional information related to backlog is provided in “Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations”.
|
|
Remaining Performance Obligations as of June 30, 2018
|
|
(In thousands)
|
|
Total
|
|
|
Amount estimated to not be
recognized within 12 months
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
406,376
|
|
|
$
|
53,876
|
|
C&I
|
|
|
524,239
|
|
|
|
128,238
|
|
Total
|
|
$
|
930,615
|
|
|
$
|
182,114
|
|
3. 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, 2018 and December 31, 2017,
the Company determined that the carrying value of cash and cash equivalents approximated fair value based on Level 1 inputs. As
of June 30, 2018 and December 31, 2017, the fair values of the Company’s long-term debt and capital lease obligations were
based on Level 2 inputs. The Company’s long-term debt was based on variable and fixed interest rates at June 30, 2018 and
December 31, 2017, for new issues with similar remaining maturities, and approximated carrying value. In addition, based on borrowing
rates currently available to the Company for borrowings with similar terms, the carrying values of the Company's capital lease
obligations also approximated fair value.
4. Contracts in Process
The net asset position for contracts in
process consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Costs and estimated earnings on uncompleted contracts
|
|
$
|
2,105,022
|
|
|
$
|
1,978,981
|
|
Less: Billings to date
|
|
|
2,066,073
|
|
|
|
1,929,640
|
|
|
|
$
|
38,949
|
|
|
$
|
49,341
|
|
The net asset position for contracts in
process included in the accompanying consolidated balance sheets was as follows:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
87,356
|
|
|
$
|
78,260
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
(48,407
|
)
|
|
|
(28,919
|
)
|
|
|
$
|
38,949
|
|
|
$
|
49,341
|
|
5. Debt
On June 30, 2016, the Company entered into
a five-year amended and restated credit agreement (the “Credit Agreement”) with a syndicate of banks led by JPMorgan
Chase Bank, N.A. and Bank of America, N.A. The Credit Agreement provides for a facility of $250 million (the “Facility”)
that may be used for revolving loans and letters of credit. The Facility also allows for revolving loans and letters of credit
in Canadian dollars and other currencies, up to the U.S. dollar equivalent of $50 million. The Company has an expansion option
to increase the commitments under the Facility or enter into incremental term loans, subject to certain conditions, by up to an
additional $100 million upon receipt of additional commitments from new or existing lenders. Subject to certain exceptions, the
Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries and by a pledge of substantially
all of the capital stock of the Company’s domestic subsidiaries and 65% of the capital stock of the direct foreign subsidiaries
of the Company. Additionally, subject to certain exceptions, the Company’s domestic subsidiaries also guarantee the repayment
of all amounts due under the Credit Agreement. 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 Facility may be accelerated and may become or be declared
immediately due and payable. Borrowings under the Credit Agreement are used for working capital, capital expenditures, acquisitions,
stock repurchases and other general corporate purposes.
Amounts borrowed under the Credit Agreement
bear interest, at the Company’s option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement),
plus an applicable margin ranging from 0.00% to 1.00%; or (2) Adjusted LIBO Rate (as defined in the Credit Agreement) plus an applicable
margin ranging from 1.00% to 2.00%. The applicable margin is determined based on the Company’s consolidated leverage ratio
(the “Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness divided by Consolidated
EBITDA (as defined in the Credit Agreement). Letters of credit issued under the Facility are subject to a letter of credit fee
of 1.125% to 2.125% for non-performance letters of credit or 0.625% to 1.125% for performance letters of credit, based on the Company’s
consolidated Leverage Ratio. The Company is subject to a commitment fee of 0.20% to 0.375%, based on the Company’s consolidated
Leverage Ratio, on any unused portion of the Facility. The Credit Agreement restricts certain types of payments when the Company’s
consolidated Leverage Ratio exceeds 2.25. The weighted average interest rate on borrowings outstanding for the six months ended
June 30, 2018 was 2.86% per annum.
Under the Credit Agreement, the Company
is subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.0 and a minimum interest
coverage ratio of 3.0, which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided
by interest expense (as defined in the Credit Agreement). The Credit Agreement also contains a number of covenants, including limitations
on asset sales, investments, indebtedness and liens. In connection with any permitted acquisition where the total consideration
exceeds $50 million, the Company may request that the maximum permitted consolidated Leverage Ratio increase from 3.0 to 3.5. Any
such increase shall begin in the quarter in which such permitted acquisition is consummated and shall continue in effect for four
consecutive fiscal quarters. The Company was in compliance with all of its financial covenants under the Credit Agreement as of
June 30, 2018.
The amount outstanding on the Facility as
of June 30, 2018 and December 31, 2017, was $57.8 million and $79.0 million, respectively.
As of June 30, 2018, the Company had irrevocable
standby letters of credit outstanding under the Facility of approximately $20.6 million, including $17.6 million related to the
Company’s payment obligation under its insurance programs and approximately $3.0 million related to contract performance
obligations. As of December 31, 2017, the Company had irrevocable standby letters of credit outstanding under the Facility of approximately
$20.9 million, including $17.6 million related to the Company’s payment obligation under its insurance programs and approximately
$3.3 million related to contract performance obligations.
The Company has remaining deferred debt
issuance costs totaling $0.7 million as of June 30, 2018, related to the line of credit. As permitted under ASU No. 2015-15, debt
issuance costs have been deferred and are presented as an asset within other assets, which is amortized as interest expense over
the term of the line of credit.
6. Income Taxes
The U.S. federal statutory tax rate was
21% for the three and six months ended June 30, 2018 and 35% for the three and six months ended June 30, 2017. The Company’s
effective tax rate for the three and six months ended June 30, 2018 was 28.8% of pretax income, compared to the effective tax rate
for the three and six months ended June 30, 2017 of 67.3% and 47.2%, respectively.
The difference between the U.S. federal
statutory tax rate and the Company’s effective tax rate for the three and six months ended June 30, 2018 was primarily due
to state income taxes and the inability to utilize losses experienced in certain Canadian operations.
The difference between the U.S. federal
statutory tax rate and the Company’s effective tax rate for the three months ended June 30, 2017 was primarily caused by
the inability to utilize losses experienced in certain Canadian operations
.
The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the six months ended
June 30, 2017 was caused by
the inability to utilize losses experienced
in certain Canadian operations, partially offset by
excess tax benefits of approximately $1.0 million pertaining to the
vesting of stock awards and the exercise of stock options.
The Company had unrecognized tax benefits
of approximately $0.4 million as of June 30, 2018 and $0.8 million as of December 31, 2017, which were included in other liabilities
in the accompanying consolidated balance sheets.
The Company’s policy is to recognize
interest and penalties related to income tax liabilities as a component of income tax expense in the consolidated statements of
operations. The amount of interest and penalties charged to income tax expense because of the unrecognized tax benefits was not
significant for the three and six months ended June 30, 2018 and 2017.
The Company is subject to taxation in various
jurisdictions. The Company’s tax returns for 2015 and 2016 are subject to examination by U.S. federal authorities. The Company’s
tax returns are subject to examination by various state authorities for the years 2013 through 2016.
7. Commitments and Contingencies
Purchase Commitments
As of June 30, 2018, the Company had approximately
$7.3 million in outstanding purchase orders for certain construction equipment, with cash outlay scheduled to occur over the next
three 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 per occurrence for each line of coverage is up to $1.0 million, except for wildfire coverage which has a deductible
of $2.0 million. The Company’s health benefit plans are subject to deductibles of up to $0.2 million for qualified individuals.
Losses up to the deductible 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 deductible, a corresponding receivable for amounts in excess of the deductible is included in current
and long-term assets in the consolidated balance sheets.
Performance and Payment Bonds and Parent Guarantees
In certain circumstances, the Company is
required to provide performance and payment bonds in connection with its future performance on certain contractual commitments.
The Company has indemnified its sureties for any expenses paid out under these bonds. As of June 30, 2018, an aggregate of approximately
$606.1 million in original face amount of bonds issued by the Company’s sureties were outstanding. Our estimated remaining
cost to complete these bonded projects was approximately $247.3 million as of June 30, 2018.
From time to time the Company guarantees
the obligations of wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease agreements,
and, in some states, obligations in connection with obtaining contractors’ licenses. Additionally, from time to time the
Company is required to post letters of credit to guarantee the obligations of wholly owned subsidiaries, which reduces the borrowing
availability under the Facility.
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’
craft 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
any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the subsidiary could incur liabilities
for additional contributions related to these plans. Although the Company has been informed that the underfunding of some of the
multi-employer pension plans to which its subsidiaries contribute have been classified as “critical” status, the Company
is not currently aware of any potential liabilities related to this issue.
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, property damages, punitive damages, civil penalties
or other losses, or injunctive or declaratory relief.
The Company is routinely subject to other
civil claims, litigation and arbitration, and regulatory investigations arising in the ordinary course of our business, as well
as in respect of our divested businesses. These claims, lawsuits and other proceedings include claims related to the Company’s
current services and operations, as well as our historic operations.
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, would be expected
to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
8. Lease Obligations
From time to time, the Company enters into
leasing arrangements for real estate, vehicles and construction equipment, including master leasing arrangements for vehicles and
construction equipment. Some of the leases entered into under these agreements met the requirements for capitalization and were
recorded as capital leases, while others were treated as operating leases. As of June 30, 2018, the Company had no outstanding
commitments to enter into future leases under its master lease agreements.
Capital Leases
The Company leases some vehicles and certain
equipment under capital leases. The economic substance of the leases is a financing transaction for acquisition of the vehicles
and equipment. Accordingly, these leases are included in the balance sheets in property and equipment, net of accumulated depreciation,
with a corresponding amount recorded in current portion of capital lease obligations or capital lease obligations, net of current
maturities, as appropriate. The capital lease assets are amortized over the life of the lease or, if shorter, the life of the leased
asset, on a straight-line basis and included in depreciation expense in the statements of operations. The interest associated with
capital lease obligations is included in interest expense in the statements of operations.
As of June 30, 2018, the Company had approximately
$3.2 million of capital lease obligations outstanding, $1.1 million of which was classified as a current liability. As of December
31, 2017, the Company had approximately $3.7 million of capital lease obligations outstanding, $1.1 million of which was classified
as a current liability.
As of June 30, 2018 and December 31, 2017,
$3.1 million and $3.7 million, respectively, of leased assets were capitalized in construction equipment, net of accumulated depreciation.
Operating Leases
The Company, from time to time, leases real
estate, construction equipment and office equipment under operating leases with remaining terms ranging from one to six years.
Future Minimum Lease Payments
The future minimum lease payments required
under capital leases and operating leases, together with the present value of capital leases, as of June 30, 2018 were as follows:
|
|
Capital
|
|
|
Operating
|
|
(In thousands)
|
|
Lease
Obligations
|
|
|
Lease
Obligations
|
|
|
|
|
|
|
|
|
Remainder of 2018
|
|
$
|
592
|
|
|
$
|
2,219
|
|
2019
|
|
|
1,185
|
|
|
|
3,413
|
|
2020
|
|
|
1,185
|
|
|
|
2,338
|
|
2021
|
|
|
355
|
|
|
|
1,680
|
|
2022
|
|
|
—
|
|
|
|
1,081
|
|
Thereafter
|
|
|
—
|
|
|
|
514
|
|
Total minimum lease payments
|
|
$
|
3,317
|
|
|
$
|
11,245
|
|
Interest
|
|
|
(147
|
)
|
|
|
|
|
Net present value of minimum lease payments
|
|
|
3,170
|
|
|
|
|
|
Less: Current portion of capital lease obligations
|
|
|
1,102
|
|
|
|
|
|
Long-term capital lease obligations
|
|
$
|
2,068
|
|
|
|
|
|
9. Stock-Based Compensation
The Company maintains two equity compensation
plans under which stock-based compensation has been granted: the 2017 Long-Term Incentive Plan, (the “LTIP”) and the
2007 Long-Term Incentive Plan (the “2007 Plan”). Upon the adoption of the LTIP during the second quarter of 2017, awards
were no longer granted under the 2007 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) restricted stock units, (f) performance share awards, (g) phantom stock, (h) stock bonuses, (i)
dividend equivalents, and (j) any combination of such awards.
The company grants time-vested stock awards
in the form of restricted stock awards, restricted stock units or equity-settled phantom stock. During the six months ended June
30, 2018, the Company granted 92,244 shares of time-vested stock awards under the LTIP, which primarily vest ratably over three
years, at a weighted average grant date fair value of $30.16. Additionally, 86,870 shares of time-vested stock awards vested during
the six months ended June 30, 2018, at a weighted average grant date fair value of $29.40.
During the six months ended June 30, 2018,
the Company granted 66,764 performance share awards under the LTIP at target, which cliff vest on December 31, 2020, at a weighted
average grant date fair value of $34.52. The number of shares actually earned under a performance award may vary from zero to 200%
of the target shares awarded, based upon the Company’s performance compared to certain metrics. The metrics used were determined
at grant by the Compensation Committee of the Board of Directors and were either based on internal measures, such as the Company’s
financial performance compared to target, or on a market-based metric, such as the Company’s stock performance compared to
a peer group. Performance awards cliff vest upon attainment of the stated performance targets and minimum service requirements
and are paid in common shares of the Company’s stock. During the six months ended June 30, 2018, management concluded that
it was probable that the minimum performance criteria would not be met for certain performance shares that were granted during
2016. As a result, during the first quarter of 2018, the Company reversed $0.4 million in stock compensation from previous accruals.
During the six months ended June 30, 2018,
plan participants exercised 87,557 stock options with a weighted average exercise price of $21.55.
The Company recognizes stock-based compensation
expense related to restricted stock awards, phantom stock awards and restricted stock units based on the grant date fair value,
which was the closing price of the Company’s stock on the date of grant. The fair value is expensed over the service period.
The Company recognizes stock-based compensation expense related to market-based performance awards based on the grant date fair
value, which is computed using a Monte Carlo simulation. The fair value is expensed over the service period, which is approximately
2.8 years. The Company recognizes stock-based compensation expense related to internal measure-based performance awards based on
the grant date fair value, which was the closing price of the Company’s stock on the date of grant. The fair value is expensed
over the service period of approximately 2.8 years, and the Company adjusts the stock-based compensation expense related to internal
metric-based performance awards according to its determination of the potential achievement of the performance target at each reporting
date. The fair value of restricted stock units that were granted to directors during the second quarter of 2018 will be expensed
over an amortization period of 1.0 year. The fair value of restricted stock units granted to directors in 2017 was expensed on
the date of the grant because the award agreements contain provisions which call for the vesting of all shares awarded upon change
in control or resignation from the board for any reason except breach of fiduciary duty.
10. Segment Information
MYR Group is a holding company of specialty
contractors serving electrical utility infrastructure and commercial construction markets in the United States and western Canada.
The Company has two reporting segments, each a separate operating segment, which are referred to as T&D and C&I. Performance
measurement and resource allocation for the reporting segments are based on many factors. The primary financial measures used to
evaluate the segment information are contract revenues and income from operations, excluding general corporate expenses. General
corporate expenses include corporate facility and staffing costs, which includes safety costs, professional fees, IT expenses,
management fees, and intangible amortization. The accounting policies of the segments are the same as those described in the Summary
of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Transmission and Distribution: The T&D
segment provides a broad range of services on electric transmission and distribution networks and substation facilities which include
design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction,
maintenance and repair. T&D services include the construction and maintenance of high voltage transmission lines, substations
and lower voltage underground and overhead distribution systems. The T&D segment also provides emergency restoration services
in response to hurricane, ice or other storm-related damage. T&D customers include investor-owned utilities, cooperatives,
private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility
owners and other contractors.
Commercial and Industrial: The C&I
segment provides services such as the design, installation, maintenance and repair of commercial and industrial wiring, installation
of traffic networks and the installation of bridge, roadway and tunnel lighting. Typical C&I contracts cover electrical contracting
services for airports, hospitals, data centers, hotels, stadiums, convention centers, manufacturing plants, processing facilities,
waste-water treatment facilities, mining facilities and transportation control and management systems. C&I segment services
are generally performed in the western and northeastern United States and in western Canada. The C&I segment generally provides
electric construction and maintenance services as a subcontractor to general contractors in the C&I industry, but also contracts
directly with facility owners. The C&I segment has a diverse customer base with many long-standing relationships.
The information in the following table is
derived from the segment’s internal financial reports used for corporate management purposes:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
196,925
|
|
|
$
|
239,794
|
|
|
$
|
413,311
|
|
|
$
|
435,528
|
|
C&I
|
|
|
142,751
|
|
|
|
116,391
|
|
|
|
271,976
|
|
|
|
220,786
|
|
|
|
$
|
339,676
|
|
|
$
|
356,185
|
|
|
$
|
685,287
|
|
|
$
|
656,314
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
11,018
|
|
|
$
|
8,074
|
|
|
$
|
24,559
|
|
|
$
|
13,216
|
|
C&I
|
|
|
9,635
|
|
|
|
4,751
|
|
|
|
14,971
|
|
|
|
9,165
|
|
General Corporate
|
|
|
(10,296
|
)
|
|
|
(9,223
|
)
|
|
|
(20,766
|
)
|
|
|
(18,299
|
)
|
|
|
$
|
10,357
|
|
|
$
|
3,602
|
|
|
$
|
18,764
|
|
|
$
|
4,082
|
|
For the three and six months ended June
30, 2018, contract revenues attributable to the Company’s Canadian operations were $14.5 million and $29.2 million, respectively,
predominantly in the C&I segment. For the three and six months ended June 30, 2017, contract revenues attributable to the Company’s
Canadian operations were $17.2 million and $36.4 million, respectively, predominantly in the C&I segment.
11. Earnings Per Share
The Company computes earnings per share
using the treasury stock method. Under the treasury stock method, basic earnings per share are computed by dividing net income
available to shareholders by the weighted average number of common shares outstanding during the period, and diluted earnings per
share are computed by dividing net income available to shareholders by the weighted average number of common shares outstanding
during the period plus all potentially dilutive common stock equivalents, except in cases where the effect of the common stock
equivalent would be anti-dilutive.
Net income available to common shareholders
and the weighted average number of common shares used to compute basic and diluted earnings per share were as follows:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,835
|
|
|
$
|
1,230
|
|
|
$
|
12,479
|
|
|
$
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
16,455
|
|
|
|
16,312
|
|
|
|
16,388
|
|
|
|
16,237
|
|
Weighted average dilutive securities
|
|
|
137
|
|
|
|
191
|
|
|
|
167
|
|
|
|
239
|
|
Weighted average common shares outstanding, diluted
|
|
|
16,592
|
|
|
|
16,503
|
|
|
|
16,555
|
|
|
|
16,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share, basic
|
|
$
|
0.42
|
|
|
$
|
0.08
|
|
|
$
|
0.76
|
|
|
$
|
0.15
|
|
Income per common share, diluted
|
|
$
|
0.41
|
|
|
$
|
0.07
|
|
|
$
|
0.75
|
|
|
$
|
0.15
|
|
For the three and six months ended June
30, 2018 and 2017, certain common stock equivalents were excluded from the calculation of dilutive securities because their inclusion
would either have been anti-dilutive or, for stock options, the exercise prices of those stock options were greater than the average
market price of the Company’s common stock for the period. All of the Company’s non-participating unvested restricted
shares were included in the computation of weighted average dilutive securities.
The following table summarizes the shares
of common stock underlying the Company’s unvested stock options and performance awards that were excluded from the calculation
of dilutive securities:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
30
|
|
|
|
44
|
|
|
|
1
|
|
|
|
44
|
|
Performance awards
|
|
|
68
|
|
|
|
50
|
|
|
|
86
|
|
|
|
127
|
|
12. Subsequent Events
On July 2, 2018, the Company completed the
acquisition of substantially all of the assets of Huen Electric, Inc., an electrical contracting firm based in Illinois, Huen Electric
New Jersey Inc., an electrical contracting firm based in New Jersey, and Huen New York, Inc., an electrical contracting firm based
in New York (collectively, the “Huen Companies”). The Huen Companies will provide a wide range of commercial and industrial
electrical construction capabilities under the Company’s C&I segment in Illinois, New Jersey and New York. The total
consideration paid was approximately $47.1 million, subject to working capital and net asset adjustments, which was funded through
borrowings on the Facility. Additionally, there could also be contingent payments based on the successful achievement of certain
performance targets and continued employment of certain key executives of the Huen Companies. The costs associated with these contingent
payments will be recognized as compensation expense in the consolidated statements of operations and comprehensive income as earned
over the period achievement becomes probable. As this transaction was effective on July 2, 2018, the results of the Huen Companies
will be included in the Company’s consolidated financial statements beginning on such date. The Company expects the Huen
Companies’ profits to be material to MYR Group’s 2018 operating results. Approximately $0.2 million of
acquisition-related costs associated with this acquisition were expensed by the Company in the six months ended June 30, 2018.
It is impractical to provide the pro forma results of operations that include the impact of the Huen Companies due to the timing
of this acquisition.