Acquisition

9 Months Ended

Sep. 30, 2018

Business Combination Disclosure [Text Block]

2. Acquisition

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 line of credit. Total consideration paid may include a portion subject to potential net asset adjustments which are expected to be finalized by the end of 2018. The Company’s preliminary estimate of these net asset adjustments was approximately $10.7 million as of the July 2, 2018 closing date and as of September 30, 2018, which will increase the total consideration to be paid

, and is recorded in accounts payable on the consolidated balance sheets.

The purchase agreement also includes contingent consideration provisions for margin guarantee adjustments based upon performance subsequent to the acquisition on certain contracts. The contracts are valued at fair value at the acquisition date, causing no margin guarantee estimate. Changes in contract estimates, such as modified costs to complete or change order recognition, will result in changes to these margin guarantee estimates.

Changes in contingent consideration

, subsequent to the acquisition,

related to the margin guarantee adjustments on certain contracts of approximately $2.3 million were recorded in other expense for the three and nine months ended September 30, 2018. Future margin guarantee adjustments, if any, are expected to be recognized through 2019. The Company could also be required to make compensation payments contingent on the successful achievement of certain performance targets and continued employment of certain key executives of the Huen Companies. These payments are recognized as compensation expense in the consolidated statements of operations as incurred. For the three months ended September 30, 2018 the Company recognized $0.2 million of compensation expense associated with these contingent payments.

The results of operations for Huen Companies are included in the Company’s consolidated statement of operations and the C&I segment from the date of acquisition. Costs of approximately $0.4 million related to the acquisition were included in selling, general and administrative expenses in the consolidated statement of operations for the nine months ended September 30, 2018

The following table summarizes the preliminary allocation of the opening balance sheet from the date of acquisition through September 30, 2018:

(in thousands)	(as of ‎ acquisition date) July 2, 2018

Consideration paid	$	47,082
Preliminary estimated net asset adjustments		10,749
Total consideration, net of net asset adjustments	$	57,831

Accounts receivable, net	$	33,903
Costs and estimated earnings in excess of billings on uncompleted contracts		10,570
Other current and long term assets		88
Property and equipment		3,188
Accounts payable		(9,592	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(6,394	)
Other current liabilities		(6,571	)
Net identifiable assets and liabilities		25,192
Unallocated intangible assets		9,800
Total acquired assets and liabilities		34,992
Fair value of acquired noncontrolling interests		(1,272	)
Goodwill	$	24,111

The Company has developed preliminary estimates of fair value of the assets acquired and liabilities assumed for the purposes of allocating the purchase price. In conjunction with the acquisition of the Huen Companies, the Company acquired a majority-ownership of an ongoing joint venture. The assets acquired within the joint venture are recorded at their fair value at the time of the acquisition, relate to a specific contract, and no assets or liabilities outside of the operations of the contract existed at the acquisition date. The goodwill to be recognized, which represents the excess of the purchase price over the net amount of the fair values assigned to assets acquired and liabilities assumed, is primarily attributable to the value of an assembled workforce and other non-identifiable assets. No synergies were anticipated in the acquisition as the three companies will function as individual districts within the Company’s operating structure. Further adjustments are expected to the allocation as third party valuations of identifiable intangible assets, including backlog, customer relationships, trade name and off-market component, are determined, and as net asset adjustments are finalized. Additionally, the Company will perform an analysis of the purchase price allocation and make appropriate adjustments based on the analysis. All of the goodwill and identifiable intangible assets are expected to be tax deductible per applicable Internal Revenue Service regulations.

The following unaudited supplemental pro forma results of operations have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors:

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands, except per share data)	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Contract revenues	$	399,537	$	399,015	$	1,166,273	$	1,119,375
Net income	$	8,373	$	6,952	$	24,986	$	11,724
Net income attributable to MYR Group, Inc.	$	8,373	$	6,952	$	24,268	$	10,898
Income per common share:
—Basic	$	0.51	$	0.43	$	1.48	$	0.67
—Diluted	$	0.50	$	0.42	$	1.46	$	0.66
Weighted average number of common shares and potential common shares outstanding:
—Basic		16,492		16,314		16,423		16,263
—Diluted		16,630		16,474		16,580		16,476

The pro forma combined results of operations for the three and nine months ended September 30, 2018 and 2017 were prepared by adjusting the historical results of the Company to include the historical results of the Huen Companies,

as if the acquisition

occurred on January 1, 2017. These pro forma results were adjusted for the following:



To include additional depreciation associated with the estimated step-up in fair value of the property and equipment acquired.



To record the net reduction in lease expense associated with the revised real estate lease contracts that were completed at the time of the acquisition.



To record transaction costs associated with the acquisition.



To record the estimated amortization related to the acquired intangible assets discussed above.



To record the additional interest expense related to the incremental borrowings of $

47.1

million on the Company’s credit facility with an interest rate of 2.90% for the three and nine months ended September 30, 2018 and 2.00% for the three and nine months ended September 30, 2017.

		To reflect the income tax effect of pro forma adjustments at the statutory tax rate.

		To record estimated compensation payments contingent on the successful achievement of certain performance targets.

Revenues of approximately $37.8 million and income before income taxes of approximately $0.2 million, were included in the Company’s consolidated results of operations for the three and nine months ended September 30, 2018 related to the acquisition of the Huen Companies.