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Acquisitions | 12 Months Ended
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Dec. 31, 2019
Acquisitions |
Acquisitions | 2. Acquisitions CSI Electrical Contractors, Inc. On July 15, 2019, the Company completed the acquisition of substantially all the assets of CSI Electrical Contractors, Inc. (“CSI”), an electrical contracting firm based in California. CSI provides services to a broad array of end markets under the Company’s C&I segment. The total consideration, after net asset adjustments of approximately $1.0 million, was $80.7 million which was funded through borrowings under the Company’s credit facility. The Company has finalized the purchase price accounting relating to the acquisition of CSI. The purchase agreement also includes contingent consideration provisions for margin guarantee adjustments based upon contract performance subsequent to the acquisition. The contracts were valued at fair value at the acquisition date, causing no margin guarantee estimate or adjustments for fair value. Changes in contract estimates, such as modified costs to complete or change order recognition, will result in changes to these margin guarantee estimates. Changes in contingent consideration, subsequent to the acquisition, related to the margin guarantee adjustments on contracts of approximately $2.0 million were recorded in other expense for the year ended December 31, 2019. Future margin guarantee adjustments, if any, are expected to be recognized through 2020. 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 CSI. These payments are recognized as compensation expense on the Company’s consolidated statements of operations as incurred. For the year ended December 31, 2019 the Company recognized $0.4 million of compensation expense associated with these contingent payments. The results of operations for CSI are included on the Company’s consolidated statement of operations and the C&I segment from the date of acquisition. Costs of approximately $0.6 million related to the acquisition were included in selling, general and administrative expenses on the Company’s consolidated statement of operations for the year ended December 31, 2019. The following table summarizes the allocation of the opening balance sheet from the date of the CSI acquisition:
|  | (as of |  | Measurement |  |
|  | acquisition date) |  | Period |  | Final Acquisition
(in thousands) |  | July 15, 2019 |  | Adjustments |  | Allocation
Consideration paid |  | $ | 79,720 |  | $ | — |  | $ | 79,720
Net asset adjustments |  |  | 633 |  |  | 354 |  |  | 987
Total consideration, net of net asset adjustments |  | $ | 80,353 |  | $ | 354 |  | $ | 80,707
Accounts receivable, net |  | $ | 59,579 |  | $ | 186 |  | $ | 59,765
Contract assets |  |  | 38,970 |  |  | 994 |  |  | 39,964
Other current assets |  |  | 83 |  |  | — |  |  | 83
Property and equipment |  |  | 7,964 |  |  | — |  |  | 7,964
Operating lease right-of-use assets |  |  | 9,933 |  |  | — |  |  | 9,933
Intangible assets |  |  | 26,000 |  |  | (500) |  |  | 25,500
Other long term assets |  |  | 149 |  |  | — |  |  | 149
Accounts payable |  |  | (29,533) |  |  | (1,100) |  |  | (30,633)
Accrued salaries and benefits |  |  | (8,091) |  |  | — |  |  | (8,091)
Contract liabilities |  |  | (18,934) |  |  | 200 |  |  | (18,734)
Current portion of operating lease obligations |  |  | (2,526) |  |  | (36) |  |  | (2,562)
Other current liabilities |  |  | (4,776) |  |  | 73 |  |  | (4,703)
Operating lease obligations, net of current maturities |  |  | (7,407) |  |  | 36 |  |  | (7,371)
Long-term debt |  |  | (20) |  |  | — |  |  | (20)
Net identifiable assets and liabilities |  |  | 71,391 |  |  | (147) |  |  | 71,244
Goodwill |  | $ | 8,962 |  | $ | 501 |  | $ | 9,463
The Company has determined the fair value of the assets acquired and liabilities assumed for the purposes of allocating the purchase price. 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 CSI will function as an individual district within the Company’s operating structure. 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:
|  | Year ended December 31,
(in thousands, except per share data) |  | 2019 |  | 2018
|  | (unaudited) |  | (unaudited)
Contract revenues |  | $ | 2,243,224 |  | $ | 1,833,645
Net income |  | $ | 39,552 |  | $ | 33,165
Net income attributable to MYR Group, Inc. |  | $ | 41,028 |  | $ | 32,958
Income per common share attributable to MYR Group Inc.: |  |  |  |  |  |
– Basic |  | $ | 2.47 |  | $ | 2.00
– Diluted |  | $ | 2.46 |  | $ | 1.99
Weighted average number of common shares and potential common shares outstanding: |  |  |  |  |  |
– Basic |  |  | 16,587 |  |  | 16,441
– Diluted |  |  | 16,699 |  |  | 16,585
The pro forma combined results of operations for the year ended December 31, 2019 and 2018 were prepared by adjusting the historical results of the Company to include the historical results of CSI, as if the acquisition occurred on January 1, 2018. These pro forma results were adjusted for the following:
| · |  | additional depreciation associated with the estimated step-up in fair value of the property and equipment acquired;
| · |  | transaction costs associated with the acquisition;
| · |  | estimated compensation expense related to contingent payments associated with the achievement of certain performance targets and continued employment of certain key executives of CSI;
| · |  | the estimated amortization related to the acquired intangible assets discussed above;
| · |  | interest expense recorded by CSI and the additional interest expense related to the incremental borrowings of $79.7 million on the Company’s credit facility as if the borrowing occurred on January 1, 2018; and
| · |  | the income tax effect of pro forma adjustments at the statutory tax rate.
Revenues of approximately $137.7 million and net loss before income taxes of approximately $1.5 million, net of CSI margin guarantee adjustments on contracts of $2.0 million and intangible asset amortization of $1.8 million, were included on the Company’s consolidated results of operations for the year ended December 31, 2019 related to the acquisition of CSI. Huen Electric, Inc. On July 2, 2018, the Company completed the acquisition of substantially all 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 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, after net asset adjustments of approximately $10.8 million, was $57.9 million which was funded through borrowings under the Company’s credit facility. The Company has finalized the purchase price accounting relating to the acquisition of the Huen Companies. All goodwill and identifiable intangible assets are expected to be tax deductible per applicable Internal Revenue Service regulations. 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 or adjustments for fair value. Changes in contract estimates, such as modified costs to complete or change order recognition, have resulted and will continue to 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 $1.5 million were recorded in other expense for the year ended December 31, 2019. Margin guarantee adjustments are expected to be finalized in early 2020. 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 on the Company’s consolidated statements of operations as incurred. For the year ended December 31, 2019 the Company recognized $1.9 million of compensation expense associated with these contingent payments. The following table summarizes the allocation of the opening balance sheet from the date of the Huen acquisition:
|  | (as of |  | Measurement |  |
|  | acquisition date) |  | Period |  | Final Acquisition
(in thousands) |  | July 2, 2018 |  | Adjustments |  | Allocation
Consideration paid |  | $ | 47,082 |  | $ | — |  | $ | 47,082
Preliminary estimated net asset adjustments |  |  | 10,749 |  |  | 85 |  |  | 10,834
Total consideration, net of net asset adjustments |  | $ | 57,831 |  | $ | 85 |  | $ | 57,916
Accounts receivable, net |  | $ | 33,903 |  | $ | (207) |  | $ | 33,696
Contract assets |  |  | 10,570 |  |  | 1,010 |  |  | 11,580
Other current and long term assets |  |  | 88 |  |  | (11) |  |  | 77
Property and equipment |  |  | 3,188 |  |  | — |  |  | 3,188
Intangible assets |  |  | — |  |  | 24,300 |  |  | 24,300
Accounts payable |  |  | (9,592) |  |  | (1,274) |  |  | (10,866)
Contract liabilities |  |  | (6,394) |  |  | 525 |  |  | (5,869)
Other current liabilities |  |  | (6,570) |  |  | 49 |  |  | (6,521)
Net identifiable assets and liabilites |  |  | 25,193 |  |  | 24,392 |  |  | 49,585
Unallocated intangible assets |  |  | 9,800 |  |  | (9,800) |  |  | —
Total aquired assets and liabilites |  |  | 34,993 |  |  | 14,592 |  |  | 49,585
Fair value of aquired noncontrolling interests |  |  | (1,273) |  |  | (7) |  |  | (1,280)
Goodwill |  | $ | 24,111 |  | $ | (14,500) |  | $ | 9,611

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