Annual Report — Small Business — [x] Reg. S-B Item 405 — Form 10-KSB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10KSB40 Annual Report 58 351K
2: EX-3.(B) Amended and Restated By-Laws 20 49K
3: EX-4.1 Amendment and Restatement of Credit Agreement 104 395K
4: EX-10.(K) 1997 Non-Employee Directors' Non-Qualified Stock 8 29K
Option Plan
5: EX-10.(L) 1997 Stock Plan for Directors 6 26K
6: EX-11 Computation of Basic Eps and Diluted Eps 1 5K
7: EX-21 List of Significant Subsidiaries 1 5K
8: EX-23 Consent of Independent Public Accountants 1 6K
9: EX-27 Financial Data Schedule 1 9K
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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-2315
------------------------
EMCOR GROUP, INC.
(Exact name of registrant as specified in its charter)
[Download Table]
DELAWARE 11-2125338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
(Address of principal executive offices) (zip code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of each class)
------------------------
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 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 /x/ No / /
Indicate by check mark if disclosure of delinquent filings pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /x/ No / /
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on February 19, 1999 was approximately
$163,300,000.
Number of shares of Common Stock outstanding as of the close of business on
February 19, 1999: 9,706,503 shares.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on June 25, 1999, which proxy statement will be filed no later than
120 days after the close of the Registrant's fiscal year ended December 31,
1998.
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TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
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PART I
Item 1. Business
General...................................................................................... 1
The Business................................................................................. 2
Item 2. Properties...................................................................................... 6
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................... 11
Item 6. Selected Financial Data......................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 14
Item 8. Financial Statements and Supplementary Data..................................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 51
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 51
Item 11. Executive Compensation.......................................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 51
Item 13. Certain Relationships and Related Transactions.................................................. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 52
PART I
ITEM 1. BUSINESS
General
EMCOR Group, Inc. ("EMCOR" or the "Company") is the largest mechanical and
electrical construction and facilities services firm in the United States and
Canada and one of the largest in the United Kingdom and the world with 1998
revenues totaling more than $2.2 billion. EMCOR provides services to a broad
range of commercial, industrial, utility, and institutional customers through
approximately 53 principal operating subsidiaries with offices in 20 states and
the District of Columbia in the United States, seven provinces in Canada, and
six primary locations in the United Kingdom and through subsidiaries and joint
ventures in the United Arab Emirates, Saudi Arabia, South Africa and Hong Kong.
The Company specializes in the design, installation, integration and
start-up of:
o Distribution systems for electrical power;
o Lighting systems;
o Low-voltage systems, such as fire alarm, security, communications and
process control systems;
o Voice and data communications systems;
o Heating, ventilation, air conditioning, refrigeration and clean-room
process ventilation systems; and
o Plumbing, process and high-purity piping systems.
The Company also provides services required to support a customer's
facilities. These services, frequently referred to as facilities services,
include customer based operations and maintenance, mobile maintenance and
service, small modification and retrofit projects, consulting, program
development and management for energy systems and maintenance of facilities.
These services are provided to a wide range of commercial, industrial, utility
and institutional facilities, including those for which the Company provided
construction services and at others for which construction services were
provided by other contractors. The Company's facilities services are frequently
bundled to provide integrated service packages and, in addition to the Company's
core mechanical and electrical services, include such other services as building
maintenance and related support services.
The Company provides mechanical and electrical construction services and
facilities services directly to corporations, municipalities and other
governmental entities, owners/developers and tenants of buildings and,
indirectly, by acting as a subcontractor to construction managers, general
contractors, systems suppliers and other subcontractors. Worldwide, the Company
employs approximately 15,000 people.
The Company's revenues are diversified geographically and by customer and
industry. Of EMCOR's 1998 revenues, approximately 68% was generated in the
United States and approximately 32% was generated internationally, while
approximately 80% of revenues was derived from mechanical and electrical
construction services and approximately 20% from facilities services. For the
period 1995 through 1998, revenues and EBITDA grew at compound annual growth
rates of 11.63% and 47.09%, respectively.
EMCOR is a Delaware corporation previously known as JWP INC. The Company
filed for protection from its creditors under Chapter 11 of the United States
Bankruptcy Code in February 1994. None of the Company's subsidiaries were
involved in the Chapter 11 proceedings. The Company's filing was precipitated,
in large part, by a highly leveraged, aggressive acquisition strategy, that
included acquisitions in unrelated fields, implemented by its former management
team. The Company emerged from bankruptcy in December 1994 under its current
management, at which time it changed its name to EMCOR Group, Inc. Since the
restructuring, the Company has sold or otherwise disposed of its non-core
businesses, repaid substantial amounts of debt and returned to profitability.
The Company's executive offices are located at 101 Merritt Seven Corporate Park,
Norwalk, Connecticut 06851-1060, and its telephone number at those offices is
(203) 849-7800.
1
The Business
The broad scope of the Company's operations are more particularly described
below.
Mechanical and Electrical Construction Services and Facilities Services
The Company believes that the mechanical and electrical construction
services and facilities services business is highly fragmented, consisting of
hundreds of small companies across the United States and around the world. This
fragmentation provides EMCOR with a significant competitive advantage due, in
large part, to the Company's financial strength and expertise. The mechanical
and electrical construction services industry has realized a higher growth rate
than the overall construction industry due, principally, to the increase in
content and complexity of mechanical and electrical systems in all types of
projects. This increased content and complexity is, in part, a result of the
expanded use of computers and more technologically advanced voice and data
communications, lighting, and environmental control systems in all types of
facilities. For these reasons, buildings of all types consume more electricity
per square foot than in the past and thus need more extensive electrical
distribution systems. In addition, advanced voice and data communication systems
require more sophisticated power supplies and extensive low voltage and
fiber-optic communications cabling. Moreover, the need for greater environmental
controls within a building, such as the heightened need for climate control to
maintain extensive computer systems at optimal temperatures, and the growing
demand for environmental control in individual spaces, have created expanded
opportunities for the mechanical and electrical construction services and
facilities services business.
Mechanical and electrical construction services primarily involve the
design, integration, installation and start-up of: (i) distribution systems for
electrical power (including power cables, conduits, distribution panels,
transformers, generators, uninterruptible power supply systems and related
switch gear and controls); (ii) lighting systems, including fixtures and
controls; (iii) low-voltage systems, including fire alarm, security, and process
control systems; (iv) voice and data communications systems, including
fiber-optic and low voltage copper cabling; (v) heating, ventilation, air
conditioning (collectively, "HVAC"), refrigeration and clean-room process
ventilation systems; and (vi) plumbing, process and high-purity piping systems.
Mechanical and electrical construction services generally fall into one of
two categories: (i) large installation projects with contracts often in the
multi-million dollar range which are performed in connection with construction
of industrial and commercial buildings and institutional and public works
facilities or with the fit-out of large blocks of space within commercial
buildings and (ii) smaller installation projects typically involving fit-out,
renovation and retrofit work.
EMCOR's mechanical and electrical construction services operations
generated approximately 80% of 1998 revenues. The Company provides mechanical
and electrical construction services for both large and small installation and
renovation projects. The Company's largest projects include those (i) for
institutional use (such as water and wastewater treatment facilities, hospitals,
correctional facilities, schools and research laboratories); (ii) for industrial
use (such as pharmaceutical factories, steel, pulp and paper mills, chemical,
automotive and semiconductor plants, and oil refineries); (iii) for
transportation systems (such as airports and transit systems); and (iv) for
commercial use (such as office buildings, hotels, casinos, convention centers,
sports stadiums, shopping malls and resorts). Its largest projects, typically in
excess of $10.0 million, are usually multi-year projects and range in size up
to, and occasionally in excess of, $50.0 million; these projects accounted for
approximately 20% of construction services revenues in 1998.
The Company's projects of less than $10.0 million accounted for
approximately 80% of 1998 construction services revenues and are typically
completed in less than a year. These projects usually involve mechanical and
electrical construction services in connection with the fit-out of space when an
end-user or owner undertakes construction or modification of a facility to
accommodate a specific use. These projects frequently require mechanical and
electrical systems to meet special needs such as redundant power supply systems,
special environmental controls, high-purity air systems, sophisticated
electrical and mechanical systems for trading floors in financial services
businesses, new production lines in manufacturing plants and office arrangements
in existing office buildings. Such projects are not typically dependent upon the
new construction market; their demand is often prompted by the expiration of
leases, changes in technology or changes in the customer's plant or office
layout in the normal course of business.
2
Services are performed pursuant to contracts with owners, such as
corporations, municipalities and other governmental entities, general
contractors, systems suppliers, construction managers, developers, other
subcontractors and tenants of commercial properties. Institutional and public
works projects are frequently long-term, complex projects requiring significant
technical and management skills and financial strength to, among other things,
obtain bid and performance bonds, which are often a condition to bidding for,
and award of, contracts for such projects.
The Company also installs and maintains street, highway, bridge and tunnel
lighting, traffic signals, computerized traffic control systems and signal and
communication systems for mass transit systems in several metropolitan areas. In
addition, in the United States, the Company conducts sheet metal fabrication
operations, manufacturing and installing sheet metal air handling systems for
both its own mechanical construction operations and for unrelated mechanical
contractors. The Company also maintains welding and pipe fabrication shops for
some of its own mechanical operations.
The Company also provides services to support a customer's facilities.
These services, frequently referred to as facilities services, generated
approximately 20% of 1998 revenues. The Company has historically provided
technical support services to its customers, following completion of
construction projects, that typically include maintenance and service of
mechanical and electrical systems and small modification and retrofit projects
that support the day-to-day needs of its customers. In addition to the Company's
core mechanical and electrical services, services are provided to owners,
operators, tenants and managers of facilities of all types on both a contract
basis for a specified period of time and on an individual task order basis.
Facilities services also include customer-based operations and maintenance,
mobile maintenance, service and small modification and retrofit projects,
consulting, program development and management for energy systems and
maintenance activities. These services are provided to a wide range of
commercial, industrial and institutional facilities, including those for which
the Company provided construction services and for which construction services
were provided by others. The services are frequently bundled to provide
integrated service packages and may include services in addition to the
Company's core mechanical and electrical services.
The Company has experienced an expansion in the demand for such support
services which it believes is driven by customers' downsizing programs and their
concomitant focus on core competencies, the increasing technical complexity of
their facilities and their mechanical, electrical, voice and data and other
systems, and the need for increased reliability, especially in mechanical and
electrical systems. These trends have led to outsourcing and privatization
programs whereby customers in both the private and public sectors seek to
contract out their non-core activities, (i.e. those activities that support but
are not directly involved in the customer's business).
In the early 1990's the market for facilities services grew rapidly in the
United Kingdom as a result of Thatcher government initiatives. The Company's
United Kingdom subsidiary expanded its traditional technical service business in
response to these opportunities and established a dedicated unit to focus on the
facilities services business. This unit currently provides a full range of
facilities services to public and private sector customers under multi-year
agreements, including maintaining British Airways' facilities at Heathrow and
Gatwick Airports, the new British Library, the Department of Trade and Industry
offices in London, and the new Jubilee Line Extension of the London Underground.
The Company also provides facilities services at several automotive
manufacturing plants for the Rover Group and various British Aerospace
facilities. In addition, the United Kingdom operations provide on-call and
mobile service support on a task-order or contract basis, small renovation
project work, data communications, security system installation and maintenance
services.
The Company, by virtue of its construction and facilities services
expertise, is involved with teams for several private finance initiatives
("PFIs"), a new set of United Kingdom government programs. The PFIs, which
involve governmental bodies responsible for the national healthcare system,
social security, and air traffic control, among others, seek to transfer
ownership and management of United Kingdom government facilities, such as office
buildings and hospitals, to teams of financial institutions, consulting service
groups, construction groups and facilities services providers, which
competitively bid for PFI contracts. While there is no way to predict the timing
or the recipients of the PFI awards, the Company expects to be a member of one
or more teams awarded such projects. During 1998 the Company was awarded a
contract to provide mechanical and electrical services, ground maintenance and
other ancillary services for five to seven years to approximately 300 buildings
3
which were formerly owned and managed by the United Kingdom Department of Social
Services; these facilities were privatized as part of the PFI program. The
Company has built on its United Kingdom experience to market its facilities
services business to international markets and currently provides facilities
services through joint ventures to several companies in South Africa.
In 1997, the Company established a new subsidiary to expand its facilities
service operations in North America patterned on its United Kingdom business.
This operating unit seeks to build on existing mechanical and electrical service
capabilities, facilities services activities at existing subsidiaries and the
Company's client relationships to expand the scope of services currently offered
and to develop packages of services for customers on a regional, national and
global basis. The Company's North American facilities services strategy includes
initiation and expansion of facilities services activities at subsidiaries that
provide mechanical and electrical construction services, including the offering
of bundled facilities services programs, integrating two or more services, and
development of facilities services business independent of construction services
through an acquisition program. In addition, other development activities are
focused on opportunities arising from private and public sectors' outsourcing
and privatization programs as these sectors focus on their core operations. In
the United States, management also has targeted as opportunities those arising
from the deregulation of the electric utility industry, deregulation and
expansion of the telecommunications industry and the REIT-driven consolidation
of the commercial real estate industry as a basis for growth in facilities
services.
The deregulation of, and increased competition in the utility industry,
along with government mandates calling for reduced energy consumption by
government entities, has led to renewed focus on energy costs and conservation
measures. These measures typically include energy assessments and engineering
studies, retrofit construction to implement energy savings measures, and the
long-term operation and maintenance of energy savings measures to ensure
continued performance. Various subsidiaries of the Company have participated in
energy savings programs in the past. The Company's facilities services
subsidiary has established strategic alliances with, among others,
DukeSolutions, Inc., a subsidiary of Duke Energy Corp., to provide energy
assessment, design, installation, and operations and maintenance services for
various Department of Defense facilities located in 46 states, the District of
Columbia and Puerto Rico, and with PECO Energy Company to provide similar
services to certain not-for-profit institutions in Massachusetts.
The Company expects additional similar programs to be undertaken as the
deregulation of electric utilities continues in the United States, and believes
that its ability to be a single source provider of construction and facilities
services will place it at a significant competitive advantage. During the past
year, the Company acquired a Bakersfield, California based maintenance program
consulting services firm, a Los Angeles, California area based mobile,
mechanical services firm and a Richmond, Virginia based industrial facilities
services firm to expand its capabilities in this field.
The deregulation and expansion of the telecommunications industry has led
to a rapid expansion of installed infrastructure, including wireless
communication systems and long distance networks much of which has been built by
companies that do not have existing maintenance operations and which seek to
outsource such services. The Company has provided installation services for the
infrastructure of telecommunication companies and facilities services to support
their operations. In this industry, the Company has worked on facilities owned
by such service providers as Sprint, AT&T, and MCI, has installed and maintained
equipment for suppliers such as Lucent, Nortel, and Siemens, and has provided
construction and maintenance services to competitive local service providers,
such as Teleport Communications Group, and to users who maintain their own
systems.
The Company offers its facilities services to customers on single-task and
multi-task bases depending on a customer's needs, under short-term and
multi-year agreements. Such services frequently involve the permanent assignment
of employees to customer premises for the duration of the contract, often around
the clock.
The Company believes its mechanical and electrical construction services
and facilities services activities are complementary, permitting it to offer
customers a comprehensive package of services. The ability to offer both
construction and facilities services should enhance the Company's competitive
position with customers. Furthermore, the facilities services operations tend to
be less cyclical than the construction operations as such facilities services
are more responsive to the needs of an industry's operations requirements rather
than its construction requirements.
4
Competition
The Company believes that the mechanical and electrical construction
services business is highly fragmented and competitive. A majority of the
Company's revenues are derived from jobs requiring competitive bids; however, an
invitation to bid is often conditioned upon prior experience, technical
capability and financial strength. The Company competes with national, regional
and local companies, most of which are small, owner-operated entities that
operate in a limited geographic area. There are few public companies focused on
providing mechanical and electrical construction services, although in the last
three years more public national and regional firms have been established. The
Company is the largest provider of mechanical and electrical construction
services in the United States and Canada and one of the largest in the United
Kingdom and the world. In the future, significant competition may be encountered
from new entrants, such as public utilities and other companies attempting to
consolidate mechanical and electrical construction services companies.
Competitive factors in the mechanical and electrical construction services
business include: (i) the availability of qualified and/or licensed personnel;
(ii) reputation for integrity and quality; (iii) safety record; (iv) cost
structure; (v) relationships with customers; (vi) geographic diversity;
(vii) ability to control project costs; (viii) experience in specialized
markets; (ix) ability to obtain bonding; and (x) adequate working capital.
While the facilities services business is also highly fragmented, a number
of large corporations such as Johnson Controls, Inc., Fluor Corp., and
ServiceMaster Limited Partnership are engaged in this field, and there are other
companies seeking to consolidate facilities services businesses. The Company's
facilities services operations are well established in the United Kingdom but
are in the initial growth stage in the United States.
Employees
The Company presently employs approximately 15,000 people, approximately
75% of whom are represented by various unions pursuant to collective bargaining
agreements between the Company's individual subsidiaries and local unions. The
Company believes that its employee relations are generally good.
Backlog
The Company had backlog as of December 31, 1998 of approximately
$1,329.1 million, compared with backlog of approximately $996.5 million as of
December 31, 1997. Backlog includes facilities services revenues to be derived
during the immediately succeeding 12 months pursuant to then-existing contracts.
For the year ended December 31, 1998, the Company had more than $2.21 billion in
revenues compared to more than $1.95 billion in revenues for the year ended
December 31, 1997.
5
ITEM 2. PROPERTIES
The operations of the Company are conducted primarily in leased properties.
The following table lists major facilities:
[Download Table]
LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park
Norwalk, Connecticut................................ 15,725 4/8/00
OPERATING FACILITIES
1200 North Sickles Road
Tempe, Arizona...................................... 29,000 Owned
3208 Landco Drive
Bakersfield, California............................. 49,875 6/30/02
25601 Clawiter Road
Hayward, California................................. 34,800 6/30/03
3102-3120 Diablo Avenue
Hayward, California................................. 20,300 5/31/01
5 Vanderbilt
Irvine, California.................................. 18,000 7/31/04
4462 Corporate Center Drive
Los Alamitos, California............................ 41,400 12/31/00
825 Howe Road
Martinez, California................................ 109,800 12/31/02
4464 Alvarado Canyon Road
San Diego, California............................... 40,000 10/31/07
414 Brannan Street
San Francisco, California........................... 17,500 3/31/01
4405 and 4420 Race Street
Denver, Colorado.................................... 16,890 9/30/01
345 Sheridan Boulevard
Lakewood, Colorado.................................. 63,000 Owned
367 Research Parkway
Meriden, Connecticut................................ 23,500 7/31/04
5697 New Peachtree Road
Atlanta, Georgia.................................... 27,200 11/30/00
2100 South York Road
Oak Brook, Illinois................................. 77,700 5/31/08
2655 Garfield Road
Highland, Indiana................................... 39,644 7/08/01
70-70D Hawes Way
Stoughton, Massachusetts............................ 24,400 12/31/00
22925-22931 Industrial Drive West
St. Clair Shores, Michigan.......................... 19,000 4/30/05
6
[Download Table]
LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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1100 Combermere
Troy, Michigan...................................... 9,500 12/31/00
6060 Hix Road
Westland, Michigan.................................. 23,000 12/31/03
3555 W. Oquendo Road
Las Vegas, Nevada................................... 90,000 11/30/03
6325 South Valley Boulevard
Las Vegas, Nevada................................... 23,190 12/31/02
6754 W. Washington Avenue
Pleasantville, New Jersey........................... 45,400 1/14/02
26 West 81st Street
Brooklyn, New York.................................. 15,000 Owned
111-01 14th Avenue
College Point, New York............................. 77,000 2/28/06
305 Suburban Avenue
Deer Park, New York................................. 20,000 3/31/00
111 West 19th Street
New York, New York.................................. 27,200 5/31/03
Two Penn Plaza
New York, New York.................................. 57,200 2/01/06
4906 Barrow Avenue
Cincinnati, Ohio.................................... 16,300 9/28/03
2300-2310 International Street
Columbus, Ohio...................................... 25,500 8/30/01
5550 Airline Road
Houston, Texas...................................... 74,483 6/30/01
515 Norwood Road
Houston, Texas...................................... 26,676 6/30/01
1574 South West Temple
Salt Lake City, Utah................................ 38,800 12/31/99
2925-2941 Space Road
Richmond, Virginia.................................. 26,000 8/19/03
22930 Shaw Road
Dulles, Virginia.................................... 32,600 7/31/99
109-D Executive Drive
Dulles, Virginia.................................... 19,000 8/31/99
1 Thameside Centre
Kew Bridge Road
Kew Bridge, Middlesex, United Kingdom............... 14,000 12/22/12
86 Talbot Road
Old Trafford, Manchester, United Kingdom............ 24,300 12/24/06
7
[Download Table]
LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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2116 Logan Avenue
Winnipeg, Manitoba, Canada.......................... 19,800 Owned
3455 Landmark Bouldvard
Burlington, Ontario, Canada......................... 16,100 Owned
305 Milner Avenue
Scarborough, Ontario, Canada........................ 16,500 5/31/00
The Company believes that all of its property, plant and equipment are well
maintained, in good operating condition and suitable for the purposes for which
they are used.
See Note K to the consolidated financial statements for additional
information regarding lease costs. The Company utilizes substantially all of its
leased facilities and believes there will be no difficulty either in negotiating
the renewal of its real property leases as they expire or in finding alternative
space, if necessary.
8
ITEM 3. LEGAL PROCEEDINGS
The Company's subsidiary Dynalectric Company ("Dynalectric") is a party to
an arbitration proceeding arising out of Dynalectric's participation in a joint
venture with Computran Systems Corp. ("Computran"). The proceeding, which was
instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior
Court") by Computran, a participant in, and a subcontractor to, the joint
venture, alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with others to commit certain acts in violation of the New Jersey
Racketeering Influence and Corrupt Organization Act. Dynalectric believes that
Computran's claims are without merit and has defended this matter vigorously.
Dynalectric has filed counterclaims against Computran. As a result of a motion
made by Dynalectric, the Superior Court ordered that the matters in dispute
between Dynalectric and Computran be resolved by binding arbitration in
accordance with an original agreement between the parties. The parties are
awaiting a decision of the arbitrator.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that did business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
On July 31, 1998 a former employee of a subsidiary of EMCOR filed a
class-action complaint on behalf of the participants in two employee benefit
plans sponsored by EMCOR against EMCOR and other defendants for breach of
fiduciary duty under the Employee Retirement Income Security Act. All of the
claims relate to alleged acts or omissions which occurred during the period
May 1, 1991 to December 1994. The principal allegations of the complaint are
that the defendants breached their fiduciary duties by causing the plans to
purchase and hold stock of EMCOR when it was then known as JWP INC. and when the
defendants knew or should have known it was imprudent to do so. The plaintiff
has not made claim for a specific dollar amount of damages but generally seeks
to recover for the benefit plans the loss in value of JWP stock held by the
plans. EMCOR and the other defendants intend to vigorously defend the case.
Insurance coverage may be applicable under an EMCOR pension trust liability
insurance policy for EMCOR and those present and former employees of EMCOR who
are defendants in the action.
Substantial settlements or damage judgements arising out of these matters
could have a material adverse effect on the Company's business, operating
results and financial condition.
In addition to the above, the Company is involved in other legal
proceedings and claims asserted by and against the Company, which have arisen in
the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
EXECUTIVE OFFICERS OF THE REGISTRANT
FRANK T. MACINNIS, Age 52; Chairman of the Board and Chief Executive
Officer of the Company since April 1994 and President of the Company from April
1994 to April 1997. From April 1990 to April 1994 Mr. MacInnis served as
President and Chief Executive Officer, and from August 1990 to April 1994 as
Chairman of the Board, of Comstock Group, Inc., a nationwide electrical
contracting company. From 1986 to April 1990, Mr. MacInnis was Senior Vice
President and Chief Financial Officer of Comstock Group, Inc. In addition, from
1986 to April 1994 Mr. MacInnis was also President of Spie Group Inc., which
owned Comstock Group, Inc., Spie Construction Inc., a Canadian pipeline
construction company, and Spie Horizontal Drilling Inc., a U.S. company engaged
in underground drilling for the installation of pipelines and communications
cable.
JEFFREY M. LEVY, Age 46; President of the Company since April 1997 and
Chief Operating Officer of the Company since February 1994, Executive Vice
President of the Company from November 1994 to April 1997, Senior Vice President
of the Company from December 1993 to November 1994. From May 1992 to December
1993, Mr. Levy was President and Chief Executive Officer of the Company's
subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From January 1991 to
May 1992 Mr. Levy served as Executive Vice President and Chief Operating Officer
of Lehrer McGovern Bovis, Inc., a construction management and construction
company.
SHELDON I. CAMMAKER, Age 59; Executive Vice President and General Counsel
of the Company since September 1987 and Secretary of the Company since May 1997.
Prior to September 1987, he was a senior partner of the New York City law firm
of Botein, Hays & Sklar.
LEICLE E. CHESSER, Age 52; Executive Vice President and Chief Financial
Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser
served as Executive Vice President and Chief Financial Officer of Comstock
Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and
Chief Financial Offiert of Spie Group, Inc.
THOMAS D. CUNNINGHAM, Age 49; Executive Vice President of the Company since
July 1997. From March 1994 to May 1997, Mr. Cunningham was Executive Vice
President and Chief Financial Officer of Swiss Army Brands, Inc., an importer
and distributor of Swiss Army knives and watches and Sabatier and Forschner
cutlery. For more than five years prior thereto, Mr. Cunningham was a Managing
Director of J.P. Morgan & Co., an international bank.
R. KEVIN MATZ, Age 40; Vice President and Treasurer of the Company since
April 1996 and Staff Vice President--Financial Services of the Company from
March 1993 to April 1996. From March 1991 to March 1993, Mr. Matz was Treasurer
of Sprague Technologies Inc., a manufacturer of electronic components.
MARK A. POMPA, Age 34; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information. The Company's Common Stock trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol "EMCG".
The following table sets forth high and low sales prices for the Common
Stock for the periods indicated as reported by the Nasdaq National Market:
[Enlarge/Download Table]
1998 HIGH LOW
----------------------------------------------------------------- ------------- -----------
First Quarter.................................................... $23 1/8 $19 1/4
Second Quarter................................................... $22 1/8 $19 1/8
Third Quarter.................................................... $20 1/4 $12 1/2
Fourth Quarter................................................... $16 11/16 $13 3/8
1997
-----------------------------------------------------------------
First Quarter.................................................... $17 3/16 $12 3/4
Second Quarter................................................... $16 5/8 $13
Third Quarter.................................................... $20 1/4 $15
Fourth Quarter................................................... $22 1/4 $16 1/2
Holders. As of February 19, 1999 there were 72 shareholders of record and,
as of that date, the Company estimates there were approximately 1,100 beneficial
owners holding stock in nominee or "street" name.
Dividends. The Company did not pay dividends on its Common Stock during
1998 or 1997, and it does not anticipate that it will pay dividends on its
Common Stock in the foreseeable future. The Company's working capital credit
facility limits the payment of dividends on its Common Stock.
11
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data has been derived from audited
financial statements and should be read in conjunction with the consolidated
financial statements, the related notes thereto and the report of independent
public accountants thereon, included elsewhere in this Form 10-K and in
previously filed annual reports on Form 10-K of the Company. On December 15,
1994 (the "Effective Date"), the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to its Third Amended Joint Plan of
Reorganization dated August 9, 1994, as amended (the "Plan of Reorganization"),
proposed by EMCOR and its subsidiary SellCo Corporation ("SellCo"). In
connection with the Plan of Reorganization, the Company adopted the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The Company has accounted for its reorganization by using the
principles of Fresh-Start Accounting as required by SOP 90-7. For accounting
purposes, the Company assumed that the Plan of Reorganization was consummated on
December 31, 1994.
INCOME STATEMENT DATA (a) (b)
[Enlarge/Download Table]
PREDECESSOR
COMPANY
REORGANIZED COMPANY YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------- ------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ------------
Revenues....................................... $2,210,374 $1,950,868 $1,669,274 $1,588,744 $1,763,961
Gross profit................................... 223,287 182,183 160,788 143,147 156,372
Operating income (loss)........................ 37,224 27,414 17,114 5,893 (22,203)
Reorganization items........................... -- -- -- -- (91,318)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... 17,092 8,581 9,437 (10,853) (118,934)
Income from discontinued operations............ -- -- -- -- 10,216
Extraordinary items:
-Loss on early extinguishment of debt net of
income taxes............................... (4,777) (1,004) -- -- --
-Gain on debt discharge...................... -- -- -- -- 413,249
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (2,100)
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ 12,315 $ 7,577 $ 9,437 $ (10,853) $ 302,431
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic earnings (loss) per share: (c) (d)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... $ 1.67 $ 0.90 $ 1.00 $ (1.13) $ (12.62)
Discontinued operations........................ -- -- -- -- 1.08
Extraordinary items:
-Loss on early extinguishment of debt, net of
income taxes............................... (0.47) (0.11) -- -- --
-Gain on debt discharge...................... -- -- -- -- 43.85
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (0.22)
---------- ---------- ---------- ---------- ----------
Basic earnings (loss) per share................ $ 1.20 $ 0.79 $ 1.00 $ (1.13) $ 32.09
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Diluted earnings (loss) per share: (c) (d)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... $ 1.46 $ 0.84 $ 0.96 $ (1.13) $ (12.62)
Discontinued operations........................ -- -- -- -- 1.08
Extraordinary items:
-Loss on early extinguishment of debt, net of
income taxes............................... (0.35) (0.10) -- -- --
-Gain on debt discharge...................... -- -- -- -- 43.85
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (0.22)
---------- ---------- ---------- ---------- ----------
Diluted earnings (loss) per share.............. $ 1.11 $ 0.74 $ 0.96 $ (1.13) $ 32.09
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
12
BALANCE SHEET DATA
[Enlarge/Download Table]
REORGANIZED COMPANY
AS OF DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Stockholders' equity (d)................................ $119,816 $ 95,323 $ 83,883 $ 70,610 $ 81,130
Total assets............................................ $801,002 $660,654 $620,700 $710,945 $707,498
Net assets held for sale................................ -- -- -- $ 61,969 $ 55,401
Notes payable........................................... -- -- -- $ 14,665 $ 4,803
Borrowings under working capital credit lines........... -- $ 9,497 $ 14,200 $ 25,000 $ 40,000
7% Senior Secured Notes................................. -- -- -- $ 61,969 $ 55,401
Long-term debt, including current maturities............ $124,400 $ 62,657 $ 72,405 $ 68,989 $ 61,290
Capital lease obligations............................... $ 837 $ 1,482 $ 1,007 $ 1,284 $ 2,029
------------------
(a) The income statement data for the year ended December 31, 1995 exclude the
operating results of businesses held for sale since the operations of these
businesses accrued to the benefit of holders of the notes issued by the
Company's subsidiary SellCo Corporation and, prior to their payment in full
during 1996, the Company's Series A Notes, and certain other obligations
(See Note E and F to the consolidated financial statements). Income
statement data has been reclassified for 1994 to reflect the Company's water
supply business and other businesses for sale as discontinued operations.
(b) Selected financial data for periods as of and after the adoption of
Fresh-Start Accounting are not comparable to selected financial data of
periods presented prior to December 31, 1994 and have been separated by a
black line.
(c) Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Accordingly, earnings per
share information for years prior to December 31, 1997 has been restated to
conform to current year presentation. (See Note D to the consolidated
financial statements.)
(d) No cash dividends on the Company's Common Stock have been paid during the
past five years.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
EMCOR Group, Inc.'s ("EMCOR" or the "Company") Revenues for the years ended
December 31, 1998 and 1997 were $2,210.4 million and $1,950.9 million,
respectively. Net income for the year ended December 31, 1998 was $12.3 million
compared to net income of $7.6 million for the year ended December 31, 1997.
Basic Earnings Per Share ("Basic EPS") was $1.20 per share for the year ended
December 31, 1998 compared to Basic EPS of $0.79 per share in the year earlier
period. Net income for the years ended December 31, 1998 and 1997 includes
after-tax charges of approximately $4.8 million and $1.0 million ($7.5 million
and $1.7 million pre-tax) associated with the early retirement of approximately
$61.9 million and $11.9 million, respectively, of the Company's Series C Notes.
These extraordinary charges are reflected in the accompanying Consolidated
Statements of Operations under the caption "Extraordinary item--loss on early
extinguishment of debt, net of income taxes".
The 13% increase in Revenues for the year ended December 31, 1998 compared
to 1997 was primarily attributable to the continued increase in new construction
projects started in 1998, an increase in project activity of all types in
previously lagging market segments in the Northeastern United States commercial
and Western United States industrial markets, and the acquisition of ten
businesses in 1998 which contributed approximately $65.0 million of additional
revenues.
Gross Profit (Revenues less COS) ("GP") increased to $233.3 million for
for the year ended December 31, 1998 compared to $182.2 million for the year
ended December 31, 1997. As a percentage of Revenues, GP increased to 10.1% from
9.3% for the years ended December 31, 1998 and 1997, respectively. The increase
in GP as a percentage of Revenues is a result of increased operating volume in
markets where higher gross profit projects are available.
Selling, general and administrative expenses ("SG&A") for the year ended
December 31, 1998 was $186.1 million, or 8.4% of Revenues, compared to
$154.8 million, or 7.9% of Revenues, for the year ended December 31, 1997. The
dollar increase in SG&A for the year ended December 31, 1998 compared to the
prior year is attributable to the increase in operating volume and corresponding
increases in variable SG&A costs. The increase in SG&A as a percentage of
Revenues is primarily due to the geographic area in which the revenue is earned
and the continued development of the Company's facilities services activities,
which activities usually require greater SG&A than construction services.
The Company had Operating income of $37.2 million for the year ended
December 31, 1998 compared with Operating income of $27.4 million for the year
ended December 31, 1997. The increase in operating income of $9.8 million for
the year ended December 31, 1998 as compared to the same period in 1997 was due
to increased Revenues, improved GP and incremental operating income
attributable to 1998 acquisitions.
The Company's Interest expense decreased by $2.0 million to $11.0 million
in 1998 due to the Company's lower cost of capital, lower average outstanding
borrowings during 1998 and the repurchase and redemption of the Company's Series
C Notes discussed above. Interest income increased to $3.6 from $1.1 million in
1998 versus 1997 due to an increase in cash available to invest principally as a
result of the common stock and debt offerings in March 1998 (see Notes F and H
to the consolidated financial statements in Item 8).
The Income tax provision increased by $5.7 million to $12.6 million for
1998, versus $6.9 million for 1997. The increase in dollars was due to increased
Income before taxes and extraordinary item, offset partially by a decrease in
the effective income tax rate for 1998 to 42.5% from 44.5% for 1997. The
decrease in the effective income tax rate is due to the tax jurisdiction in
which income is earned as well as continued income tax planning strategies. A
portion of the liability for income taxes, $8.2 million for 1998 and
$5.6 million for 1997, is not payable in cash due to the utilization of NOL's
and is recorded as an increase in Capital surplus for both years.
The Company's backlog was $1,329.1 million at December 31, 1998 and
$996.4 million at December 31, 1997. Between December 31, 1997 and December 31,
1998, the Company's backlog in Canada increased by $8.3 million, its backlog in
the United Kingdom increased by $37.1 million and its backlog in the United
States increased by $290.2 million. The increase in the Company's Canadian
backlog was primarily attributable to improved economic conditions in Eastern
Canada. The increase in the United Kingdom backlog was due to
14
improved economic conditions in the Southern United Kingdom and the award of
several large facilities service contracts. The increase in the United States
backlog was due primarily to the acquisition of new electrical and mechanical
construction and facilities services operations (approximately $158.8 million)
with organic growth throughout the United States which contributed an additional
$131.4 million to backlog.
UNITED STATES OPERATIONS
The Company's United States operations consist of three segments:
electrical construction and facilities services, mechanical construction and
facilities services and other.
Revenues of electrical construction and facilities services business units
("Electrical Business Units") for the year ended December 31, 1998 were
$888.6 million compared to $745.0 million for the year ended December 31, 1997.
Operating income of the Electric Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1998 was $36.3 million or 4.1% of Revenues compared to $28.7 million or 3.9% of
Revenues for the year ended December 31, 1997. The $143.6 million or 19.3%
increase in 1998 Revenues is attributable to $19.4 million of Revenues related
to 1998 acquisitions as well as continuing favorable market conditions in the
Eastern and Midwestern United States. Eastern United States activities were
favorably impacted by increased interior renovation projects in New York City
commercial office buildings principally attributable to corporate relocations.
Revenues of mechanical construction and facilities services business units
("Mechanical Business Units") for the year ended December 31, 1998 were
$599.6 million compared to $577.6 million for the year ended December 31, 1997.
Operating income of the Mechanical Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1998 was $21.0 million or 3.5% of Revenues compared to $18.6 million or 3.2% of
Revenues for the year ended December 31, 1997. The $22.0 million or 3.8%
increase in revenues is attributable to $38.2 million of Revenues related to
1998 acquisitions offset by the planned reduction of business activities in the
Western United States.
Other United States revenues of $14.4 million for the year ended
December 31, 1998, which include those operations which principally provide
consulting and maintenance services increased by $11.4 million which is
primarily attributable to 1998 acquisitions of $7.3 million. Increased
activities of the Company's subsidiaries in the Northeastern United States
accounted for the balance of the increase in Revenues. Operating losses relative
to these activities were $4.8 million for the year ended December 31, 1998
compared to $2.1 million of losses for the year ended December 31, 1997 which
included incremental costs associated with the continued development of its
facilities services activities.
INTERNATIONAL OPERATIONS
The Company's International operations consists of three segments; Canada
construction and facilities services, United Kingdom construction and facilities
services and other international construction and facilities services. Revenues
of Canada construction and facilities services business units ("Canada Business
Units") for the year ended December 31, 1998 were $201.9 million compared to
$179.0 million for the year ended December 31, 1997. Operating income of the
Canada Business Units (before deduction of general corporate and other expenses
discussed below) for the year ended December 31, 1998 was $5.0 million compared
to $4.2 million for the year ended December 31, 1997. The $22.9 million or 12.8%
increase in Revenues from 1997 levels is attributable to the increase in
construction and facilities service activities in the Eastern Canadian markets.
Revenues of United Kingdom construction and facilities services business
units ("United Kingdom Business Units") for the year ended December 31, 1998
were $493.3 million compared to $ 407.4 million for the year ended December 31,
1997. Operating losses of the United Kingdom Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1998 were $0.9 million compared to $4.9 million of losses for the
year ended December 31, 1997. The $85.8 million or 21.0% increase in Revenues is
attributable to the growth in the United Kingdom construction and facilities
services market primarily in the Southern United Kingdom.
15
Other International construction and facilities services business units
("Other International Business Units") primarily consists of the Company's
operations in the Middle East and Asia-Pacific. Revenues for the year ended
December 31, 1998 were $12.6 million compared to $38.8 million for the year
ended December 31, 1997. Operating losses of Other International Business Units
were $1.3 million compared to $1.1 million of losses for the year ended
December 31, 1997. The $26.2 million decline in 1998 Revenues compared to 1997
is due to the Company's planned reductions in activities outside of its core
geographic markets.
GENERAL CORPORATE AND OTHER EXPENSES
General Corporate expenses for the year ended December 31, 1998 and 1997
were $18.1 million and $16.0 million, respectively. The increase in General
Corporate expenses is attributable to increased variable overhead costs
associated with the Company's increased operating volume. Net interest expense
for the year ended December 31, 1998 was $7.5 million compared to $12.0 million
in the year earlier period. The $4.5 million decrease is attributable to the
Company's lower cost of capital and lower average outstanding borrowings during
1998 due to the repurchase and redemption of the Company's Series C Notes.
Additionally, the increase in available cash balances resulting from the sale of
Convertible Subordinated Notes and net proceeds from issuance of common stock
during 1998 contributed to increased interest income compared to 1997 as
discussed in Liquidity and Capital Resources.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
The Company's Revenues for the years ended December 31, 1997 and 1996 were
$1,950.9 million and $1,669.3 million, respectively. Net income for the year
ended December 31, 1997 was $7.6 million compared to Net income of $9.4 million
for the year ended December 31, 1996. Basic EPS was $0.79 per share for the year
ended December 31, 1997 compared to Basic EPS of $1.00 per share in the year
earlier period. Net income for the year ended December 31, 1997 includes an
after-tax charge of approximately $1.0 million ($1.7 million pre-tax) associated
with the early retirement of approximately $11.9 million of the Company's Series
C Notes. Net income for the year ended December 31, 1996 reflects a net
after-tax gain of $8.1 million ($12.5 million pre-tax) on the sale of certain
assets held for sale, including the sale of substantially all of the assets of
Jamaica Water Supply Company ("JWS"). JWS and the Company's other water supply
subsidiary, Sea Cliff Water Company, are referred to hereafter as the "Water
Companies". Net income for 1996 also reflects an after-tax charge of
$2.8 million ($4.3 million pre-tax) included in SG&A related to an adverse
arbitration award.
The 16.9% increase in Revenues for the year ended December 31, 1997 when
compared to 1996 was primarily attributable to the continued increase in
commercial construction activity in the Western United States, the acquisition
of the businesses of two mechanical construction companies in late 1996 and
early 1997 in Connecticut and New Jersey, respectively, a general increase in
industrial construction activity in Canada, and continued progress on several
large jobs in the United Kingdom.
GP increased to $182.2 million for the year ended December 31, 1997
compared to $160.8 million for the year ended December 31, 1996. GP as a
percentage of Revenues decreased to 9.3% from 9.6% for the years ended December
31, 1997 and 1996, respectively. This percentage decrease is due to lower GP on
certain projects, particularly in the United Kingdom in 1997.
SG&A for the year ended December 31, 1997 was $154.8 million, or 7.9% of
Revenues, compared to $143.7 million, or 8.6% of Revenues, for the year ended
December 31, 1996. SG&A expenses for the year ended December 31, 1996, exclusive
of the adverse arbitration award noted above, were $139.4 million, or 8.3% of
revenues. The dollar increase in SG&A for the year ended December 31, 1997
compared to the prior year is attributable to the increase in volume. The
reduction in SG&A as a percentage of Revenues is due to the maintenance of the
fixed cost portion of SG&A.
The Company generated operating income of $27.4 million for the year ended
December 31, 1997 compared with operating income of $17.1 million for the year
ended December 31, 1996. Operating income for the year ended December 31, 1997
as compared to 1996 increased by $10.3 million due to increases in operating
volume during 1997 as well as reductions in SG&A as a percentage of Revenues. In
addition, operating income for 1996 reflected the negative impact during 1996 of
the adverse arbitration award referred to above, offset against favorable
closeouts of certain contracts in the first quarter of 1996.
16
The Company's Interest expense decreased by $1.9 million to $13.0 million
in 1997 due to the Company's lower cost of capital, lower average outstanding
borrowings during 1997 and the repurchase and partial redemption of the
Company's Series C Notes discussed above. Beginning with the second quarter of
1997, the Company was relieved of covenants under the terms of its then domestic
bonding and revolving credit agreements. The covenants restricted the use of
cash generated by certain subsidiaries, and the Company used this cash to reduce
borrowings under its 1996 Credit Facility referred to below. As a consequence,
the Company maintained less cash on deposit in banks in 1997 than in 1996, and
interest income decreased from $2.2 million in 1996 to $1.1 million in 1997.
The Income tax provision decreased to $6.9 million for the year ended
December 31, 1997, versus $7.5 million for the year ended December 31, 1996. The
effective income tax rate for 1997 was 44.5%, versus 44.8% for 1996. The
decrease in dollars was due to lower Income before taxes and extraordinary item
in 1997 compared to 1996.
The Company's backlog was $996.4 million at December 31, 1997 and
$1,043.7 million at December 31, 1996. Between December 31, 1996 and
December 31, 1997, the Company's backlog in Canada increased by $0.5 million,
its backlog in the United Kingdom decreased by $43.8 million and its backlog in
the United States decreased by $4.0 million. The increase in the Company's
Canadian backlog was primarily attributable to improved economic conditions in
Western Canada. The decrease in the United Kingdom backlog was due to the
continued progress towards completion of several large projects and exchange
rate fluctuations. The decline in the domestic backlog was due to the continued
progress towards completion of several large projects, primarily in the Western
United States.
UNITED STATES OPERATIONS
Revenues of Electrical Business Units for the year ended December 31, 1997
were $745.0 million compared to $731.9 million for the year ended December 31,
1996. Operating income of the Electric Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1997 were $28.7 million or 3.9% of Revenues compared to $28.6
million or 3.9% of Revenues for the year ended December 31, 1996. The
$13.1 million or 1.8% increase in 1997 Revenues is attributable to growth in the
rocky mountain region of the United States primarily with customers in the
telecommunications and high tech industries.
Revenues of Mechanical Business Units for the year ended December 31, 1997
were $577.6 million compared to $399.2 million for the year ended December 31,
1996. Operating income of the Mechanical Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1997 were $18.6 million or 3.2% of Revenues compared to
$2.0 million or 0.5% of Revenues for the year ended December 31, 1996. The
$178.4 million or 24.4% increase in Revenues is attributable to $24.8 million of
Revenues related to 1997 acquisitions and to strong growth in the Midwestern and
Western United States.
Other United States revenues of $3.0 million for the year ended
December 31, 1997, which include those operations which principally provide
consulting and maintenance services, increased by $2.2 million which is
primarily attributable to organic growth. Operating losses relative to these
activities were $2.1 million for the year ended December 31, 1997 compared to
break even operations in 1996.
INTERNATIONAL OPERATIONS
Revenues of Canada Business Units for the year ended December 31, 1997 were
$179.0 million compared to $139.6 million for the year ended December 31, 1996.
Operating income of the Canada Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1997 was $4.2 million compared to $1.5 million for the year ended December 31,
1996. The $39.4 million or 28.2% increase in revenues from 1996 levels is
attributable to the increase in construction and facilities service activities
in the Western Canadian markets.
Revenues of United Kingdom Business Units for the year ended December 31,
1997 were $407.5 million compared to $358.3 million for the year ended
December 31, 1996. Operating losses of the United Kingdom
17
Business Units (before deduction of general corporate and other expenses
discussed below) for the year ended December 31,1997 were $4.9 million compared
to operating income of $0.9 million for the year ended December 31, 1996. The
$49.2 million or 13.7% increase in revenues is attributable to increased scope
of work in connection with the London Underground Project.
Other International Business Units primarily consists of the Company's
operations in the Middle East and Asia-Pacific. Revenues for the year ended
December 31, 1997 were $38.8 million compared to $39.5 million for the year
ended December 31, 1996. Operating losses of Other International Business Units
were $1.1 million for the year ended December 31, 1997 compared to $1.8 million
for the year ended December 31, 1996.
GENERAL CORPORATE AND OTHER EXPENSES
General Corporate expenses for the year ended December 31, 1997 and 1996
were $15.9 million and $14.2 million, respectively. The increase in general
expenses is attributable to increased variable overhead costs associated with
the Company's increased operating volume. Net interest expense for the year
ended December 31, 1997 was $12.0 million compared to $12.6 million in the year
earlier period.
LIQUIDITY AND CAPITAL RESOURCES
On March 18, 1998, the Company sold, pursuant to underwritten public
offerings, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes (the "Notes") and 1,100,000 shares of its Common Stock. Interest on the
Notes is payable semi-annually and commenced October 1, 1998. The Notes are
unsecured indebtedness of the Company and are convertible at any time into
Common Stock of the Company at a conversion price of $27.34 per share.
On March 24, 1998, the underwriter of the Notes offering exercised in full
its over-allotment option to purchase an additional $15.0 million of Notes, and,
accordingly, an additional $15.0 million principal amount of such notes were
issued.
During the third quarter of 1998, the Company's Board of Directors
authorized a stock repurchase program under which the Company may repurchase up
to $20.0 million of its common stock. As of December 31, 1998 the Company had
repurchased 957,900 shares of its Common Stock at an aggregate cost of
approximately $14.0 million.
Proceeds received from the sale of the Notes along with proceeds from the
sale of the Common Stock were used to redeem the Series C Notes, repay then
outstanding borrowings under the Company's working capital credit lines, prepay
the Supplemental SellCo Note and accrued interest thereon and for the
acquisition of certain businesses through December 31, 1998 and will be used for
possible additional acquisitions and for other general corporate purposes.
The Company's consolidated cash balance increased by $33.7 million from
$49.4 million at December 31, 1997 to $83.1 million at December 31, 1998. Net
cash provided by operating activities was $35.3 million for 1998, an increase of
$9.7 million from $25.6 million for 1997. This increase was primarily due to
increased net income and non-cash net income items. Net cash provided by
financing activities of $38.6 million was primarily due to the issuance of
convertible subordinated notes of $115.0 million, net proceeds from issuance of
common stock of $22.5 million, offset partially by the retirement of Series C
Notes for $61.9 million, purchases of treasury stock for $14.0 million, payment
of working capital credit lines of $9.5 million, and retirement of the
Supplemental SellCo Note for $5.5 million. In 1997, the primary generator of net
cash used in financing activities was the partial repayment and redemption of
Series C Notes for $11.9 million. Net cash used in investing activities for 1998
of $40.2 million primarily consisted of $28.5 million for acquisitions and
$10.9 million for the net purchase of property, plant and equipment, versus
$1.5 million and $9.8 million used in the same activities for 1997,
respectively.
On December 22, 1998 the Company and certain of its subsidiaries amended
and restated the June 19, 1996 Credit Agreement providing the Company with a
working capital credit facility (the "1998 Credit Facility") for borrowings up
to $150.0 million. The 1998 Credit Facility has an expiration date of June 30,
2002 and is guaranteed by certain direct and indirect subsidiaries of the
Company. It is secured by substantially all of the assets of the Company and
those subsidiaries and it provides for borrowing capacity available in the form
of
18
revolving loans ("Revolving Loans") and/or letters of credit ("LCs"). The
Revolving Loans bear interest at a rate, which is the prime commercial lending
rate announced by Harris Trust and Savings Bank from time to time (7.75% at
December 31, 1998) plus 0%--0.5%, based on certain financial tests, for Domestic
Rate Loans, as defined. Eurodollar Loans, as defined, bear interest at a
variable rate which is LIBOR as published from time to time (5.08% at December
31, 1998) plus 1.25%--2.0% based on certain financial tests. The interest rates
on Domestic Rate Loans and Eurodollar Loans, as defined, at December 31, 1998
were 7.75% and 6.58%, respectively. LC fees ranging from 0.5% to 2.0% are
charged based on type of LC issued and certain financial tests.
As of December 31, 1998, the Company had approximately $30.2 million of LCs
and no Revolving Loans outstanding under 1998 Credit Agreement.
On June 19, 1996, the Company and its subsidiary, Dyn Specialty Contracting
Inc. ("Dyn"), entered into a credit agreement with Harris Trust and Savings Bank
("Harris") providing the Company with a working capital credit facility for
borrowings up to $100.0 million for a three-year period (the "1996 Credit
Facility"). The 1996 Credit Facility, as amended, which was guaranteed by
certain direct and indirect subsidiaries of the Company and was secured by
substantially all of the assets of the Company and those subsidiaries provided
for borrowing capacity available in the form of revolving loans and/or letters
of credit. The Revolving Loans bear interest at a variable rate, which was the
prime commercial lending rate announced by Harris from time to time (8.5% at
December 31, 1997) plus 1.0% to 2.0% based on certain financial tests. The
interest rate on the Revolving Loans was 9.5% at December 31, 1997. LC fees
ranging from 1.50% to 3.25% were charged based on the type of LC issued. The
1996 Credit Facility expires on June 19, 1999. As of December 31, 1997, the
Company had approximately $25.7 million of LCs and approximately $9.5 million of
Revolving Loans outstanding under the 1996 Credit Facility. The 1996 Credit
Facility was replaced by the 1998 Credit Facility in December 1998.
In October 1997, the Company's Canadian subsidiary, Comstock Canada LTD.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.75% at December 31, 1998).
There were no borrowings outstanding under this credit agreement at
December 31, 1998 and 1997. The Canadian subsidiary may utilize the Company's
revolving credit facility for any future working capital requirements.
In 1998, the Company issued Notes Payable in connection with the
acquisition of two companies. One Note Payable, issued in August 1998 requires a
payment plus accrued interest of $1.0 million in August 1999 and $1.15 million,
in August 2000. The other Note Payable issued in December 1998 was paid in
January 1999.
The Company believes that current cash balances and borrowing capacity
available under lines of credit, combined with cash expected to be generated
from operations, will be sufficient to provide short-term and foreseeable
long-term liquidity and meet expected capital expenditure requirements.
CERTAIN INSURANCE MATTERS
As of December 31, 1998, the Company was utilizing approximately
$30.2 million of letters of credit obtained under the 1996 Credit Facility as
collateral for its current insurance obligations, and therefore presently is not
required to deposit cash for such obligations.
YEAR 2000
The Year 2000 issue concerns the potential inability of certain systems to
properly recognize and process date sensitive information beyond January 1,
2000.
The Company has performed a comprehensive review of its internal
application systems ("Internal Systems"), including information technology
("IT") system and Non-IT systems, to identify those systems that could be
affected by the Year 2000 issue (the "Issue") and has developed a plan to
resolve the Issue. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test its systems to ensure Year 2000
compliance.
The Company estimates that it is approximately 75% complete with its
Internal Systems modifications and expects the balance of any required
modifications to be completed by mid 1999. Cost estimates of testing and
19
converting system applications range from $1.0 million to $2.0 million.
Modification costs will be expensed as incurred and costs of new software will
be capitalized and amortized over the expected useful life of the related
software.
The Company expects its Year 2000 conversion project to be completed before
January 1, 2000. While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, the Company's operations and financial results
could be adversely impacted by the Year 2000 issue if the conversion schedule
and cost estimate for its Internal Systems are not met or suppliers and other
businesses on which the Company relies do not address the Issue successfully.
The Company is requesting that its significant suppliers confirm that they have
plans achieving Year 2000 compliance. The Company continues to assess these
risks in order to reduce any impact on the Company.
The Company has not yet been able to clearly identify the most reasonably
likely worst case scenarios, if any, and the appropriate contingency plans for
such scenarios. As the Company completes all phases of its Year 2000 conversion
project, it will prepare contingency plans, where identified as necessary, to
deal with any significant noncompliance risks.
Based on currently available information, the Company does not believe that
the matters discussed above related to its Internal Systems or to services
provided to customers will have a material adverse impact on the Company's
financial condition or overall trends in results of operations; however, it is
uncertain to what extent the Company may be affected by such matters. In
addition, there can be no assurance that the failure to ensure year 2000
capability by a supplier, customer or another third party would not have a
material adverse effect on the Company.
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995, particularly
statements regarding market opportunities, market share growth, competitive
growth, gross profit, and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, that could cause
actual results to differ materially from those in any such forward-looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including changes in the specific markets for the
Company's services, adverse business conditions, decreased or lack of growth in
the mechanical and electrical construction and facilities services industries,
increased competition, pricing pressures, risks associated with foreign
operations and other factors.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 83,053 $ 49,376
Accounts receivable, less allowance for doubtful accounts of $24,006 and $20,456,
respectively......................................................................... 538,457 480,997
Costs and estimated earnings in excess of billings on uncompleted contracts............. 91,569 73,974
Inventories............................................................................. 7,188 7,363
Prepaid expenses and other.............................................................. 11,702 10,951
-------- --------
Total current assets............................................................... 731,969 622,661
Investments, notes and other
long-term receivables................................................................... 6,974 5,901
Property, plant and equipment, net........................................................ 32,098 27,164
Other assets............................................................................ 29,961 4,928
-------- --------
Total assets.............................................................................. $801,002 $660,654
-------- --------
-------- --------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital lines.................................................. $ -- $ 9,497
Current maturities of long-term debt and capital lease obligations...................... 7,963 927
Accounts payable........................................................................ 246,856 234,714
Billings in excess of costs and estimated earnings on uncompleted contracts............. 135,094 112,833
Accrued payroll and benefits............................................................ 62,008 49,058
Other accrued expenses and liabilities.................................................. 59,996 49,566
-------- --------
Total current liabilities............................................................. 511,917 456,595
Long-term debt and capital lease obligations............................................ 117,274 63,212
Other long-term obligations............................................................. 51,995 45,524
-------- --------
Total liabilities..................................................................... 681,186 565,331
-------- --------
Stockholders' equity:
Preferred Stock, $0.10 par value, 1,000,000 shares authorized zero issued and
outstanding............................................................................. -- --
Common Stock, $0.01 par value, 13,700,000 shares authorized, 9,830,603 and 9,590,827
shares issued and outstanding or issuable, respectively................................. 109 96
Warrants.................................................................................. 2,154 2,154
Capital surplus........................................................................... 114,867 87,107
Accumulated other comprehensive income.................................................... (1,822) (195)
Retained earnings......................................................................... 18,476 6,161
Treasury stock, at cost, 957,900 shares................................................... (13,968) --
-------- --------
Total stockholders' equity.............................................................. 119,816 95,323
-------- --------
Total liabilities and stockholders' equity................................................ $801,002 $660,654
-------- --------
-------- --------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
1998 1997 1996
---------- ---------- ----------
Revenues................................................................ $2,210,374 $1,950,868 $1,669,274
Costs and expenses:
Cost of sales......................................................... 1,987,087 1,768,685 1,508,486
Selling, general and administrative................................... 186,063 154,769 143,674
---------- ---------- ----------
2,173,150 1,923,454 1,652,160
---------- ---------- ----------
Operating income........................................................ 37,224 27,414 17,114
Interest expense........................................................ (11,041) (13,029) (14,890)
Interest income......................................................... 3,558 1,077 2,244
Other income............................................................ -- -- 12,500
---------- ---------- ----------
Income before income taxes and extraordinary items...................... 29,741 15,462 16,968
Income tax provision.................................................... 12,649 6,881 7,531
---------- ---------- ----------
Income before extraordinary items....................................... 17,092 8,581 9,437
Extraordinary items--loss on early extinguishment of debt, net of income
taxes................................................................. (4,777) (1,004) --
---------- ---------- ----------
Net income.............................................................. $ 12,315 $ 7,577 $ 9,437
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share:
Income before extraordinary item...................................... $ 1.67 $ 0.90 $ 1.00
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.47) (0.11) --
---------- ---------- ----------
Basic earnings per share................................................ $ 1.20 $ 0.79 $ 1.00
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share:
Income before extraordinary item...................................... $ 1.46 $ 0.84 $ 0.96
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.35) (0.10) --
---------- ---------- ----------
Diluted earnings per share.............................................. $ 1.11 $ 0.74 $ 0.96
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
[Enlarge/Download Table]
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net income.................................................................... $ 12,315 $ 7,577 $ 9,437
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 9,846 8,140 7,864
Amortization of goodwill.................................................... 734 52 --
Provision for doubtful accounts............................................. 3,508 4,300 1,258
Non-cash interest expense................................................... 408 1,319 4,748
Non-cash income tax provision............................................... 8,151 5,587 6,771
Non-cash portion of extraordinary items..................................... 3,152 533 --
Other, net.................................................................. 416 612 252
-------- -------- --------
38,530 28,120 30,330
Change in operating assets and liabilities excluding effect of businesses
acquired:
Increase in accounts receivable............................................. (27,219) (41,885) (8,214)
Decrease (increase) in inventories and contracts in progress................ 1,236 3,029 (11,228)
Increase (decrease) in accounts payable and other accrued expenses and
liabilities.............................................................. 16,841 31,740 (6,891)
Decrease in insurance cash collateral....................................... -- -- 30,812
Decrease in funds held in escrow............................................ -- -- 8,271
Changes in other assets and liabilities, net................................ 5,924 4,613 (9,997)
-------- -------- --------
Net cash provided by operating activities..................................... 35,312 25,617 33,083
-------- -------- --------
Cash flows from financing activities:
Proceeds from working capital credit lines.................................. -- 136,862 45,625
Payments of working capital credit lines.................................... (9,497) (141,565) (56,425)
Net (payments) proceeds from long-term debt and capital lease obligations... (1,840) 221 (647)
Repayment of Series A Notes................................................. -- -- (66,424)
Repayment and redemption of Series C Notes.................................. (61,854) (11,920) --
Exercise of stock options................................................... 518 427 487
Premiums paid on early extinguishment of debt............................... (2,437) -- --
Repayment and redemption of Supplemental SellCo Note........................ (5,464) -- --
Issuance of convertible subordinated notes.................................. 115,000 -- --
Net proceeds from issuance of common stock.................................. 22,485 -- --
Purchase of common stock.................................................... (13,968) -- --
Proceeds from notes payable................................................. -- -- 9,596
Payments of notes payable................................................... -- -- (24,363)
Debt issuance costs......................................................... (4,347) (304) (1,600)
-------- -------- --------
Net cash provided by (used in) financing activities........................... 38,596 (16,279) (93,751)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets................................................ 308 750 353
Proceeds from sales of net assets held for sale............................. -- -- 66,424
Purchase of property, plant and equipment................................... (10,946) (9,753) (7,428)
Payments for acquisitions of businesses..................................... (28,520) (1,500) --
Net disbursements for other investments..................................... (1,073) (164) (983)
-------- -------- --------
Net cash (used in) provided by investing activities........................... (40,231) (10,667) 58,366
-------- -------- --------
Increase (decrease) in Cash and Cash Equivalents.............................. 33,677 (1,329) (2,302)
Cash and Cash Equivalents at Beginning of Year................................ 49,376 50,705 53,007
-------- -------- --------
Cash and Cash Equivalents at End of Year...................................... $ 83,053 $ 49,376 $ 50,705
-------- -------- --------
-------- -------- --------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(IN THOUSANDS)
[Enlarge/Download Table]
ACCUMULATIVE RETAINED
OTHER EARNINGS
COMMON CAPITAL COMPREHENSIVE (ACCUMULATED TREASURY COMPREHENSIVE
TOTAL STOCK WARRANTS SURPLUS INCOME DEFICIT) STOCK INCOME
-------- ------ -------- -------- ------------- ------------ -------- -------------
Balance, January 1, 1996..... $ 70,610 $ 94 $2,179 $ 78,863 $ 327(1) ($10,853) $ --
Net income................. 9,437 -- -- -- -- 9,437 -- $ 9,437
Foreign currency
translation adjustment... 1,051 -- -- -- 1,051 -- -- 1,051
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 10,488
---------
---------
NOL utilization, net....... 2,298 -- -- 2,298 -- -- --
Common stock issued under
stock option plans....... 487 1 -- 486 -- -- --
Other...................... -- -- (25) 25 -- -- --
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1996... 83,883 95 2,154 81,672 1,378 (1,416) --
Net income................. 7,577 -- -- -- -- 7,577 -- $ 7,577
Foreign currency
translation adjustment... (1,573) -- -- -- (1,573) -- -- (1,573)
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 6,004
---------
---------
NOL utilization, net....... 5,009 -- -- 5,009 -- -- --
Common stock issued under
stock option plans....... 427 1 -- 426 -- -- --
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1997... 95,323 96 2,154 87,107 (195) 6,161 --
Net income................. 12,315 -- -- -- -- 12,315 -- $ 12,315
Foreign currency
translation adjustment... (1,627) -- -- -- (1,627) -- -- (1,627)
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 10,688
---------
---------
NOL utilization, net....... 4,770 -- -- 4,770 -- -- --
Issuance of common stock... 22,485 11 -- 22,474 -- -- --
Common stock issued under
stock option plans....... 518 2 -- 516 -- -- --......
Treasury stock
repurchased.............. (13,968) -- -- -- -- -- (13,968)
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1998... $119,816 $109 $2,154 $114,867 $(1,822) $ 18,476 $(13,968)
-------- ---- ------ -------- ------- -------- --------
-------- ---- ------ -------- ------- -------- --------
------------------
(1) Represents cumulative foreign currency translation adjustments.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--NATURE OF OPERATIONS
EMCOR Group, Inc. ("EMCOR" or the "Company") is the largest mechanical and
electrical construction and facilities services firm in the United States and
Canada and one of the largest in the United Kingdom. The Company specializes in
the design, integration, installation and start-up of: (i) distribution systems
for electrical power (including power cables, conduits, distribution panels,
transformers, generators, uninterruptible power supply systems and related
switch gear and controls); (ii) lighting systems, including fixtures and
controls; (iii) low-voltage systems, including fire alarm, security and process
control systems; (iv) voice and data communications systems, including
fiber-optic and low voltage copper cabling; (v) heating, ventilation, air
conditioning, refrigeration and clean room process ventilation systems; and
(vi) plumbing, process and high-purity piping systems. EMCOR provides mechanical
and electrical construction services and facilities services directly to
corporations, municipalities and other governmental entities, owners/developers,
and tenants of buildings and, indirectly, by acting as a subcontractor to
construction managers, general contractors, systems suppliers and other
subcontractors. Mechanical and electrical construction services often fall into
one of two categories: (i) large installation projects with contracts often in
the multi-million dollar range and (ii) smaller installation projects typically
involving fit-out renovation and retrofit work. In addition, the Company also
provides services required to support customer's facilities. These services,
frequently referred to as facilities services, include customer-based operations
and maintenance, mobile maintenance and service, small modification and retrofit
projects, consulting, program development and management for energy systems and
maintenance activities. These services are provided to a wide range of
commercial, industrial, and institutional buildings, including facilities for
which the Company provided construction services and for which construction
services were provided by others. Facilities services are frequently bundled to
provide integrated service packages and include services in addition to the
Company's core mechanical and electrical services.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Principles of Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications of prior years data have been made in the accompanying
consolidated financial statements where appropriate to conform to the current
presentation.
Revenue Recognition
Revenues from long-term contracts are recognized on the
percentage-of-completion method. Percentage-of-completion is measured
principally by the percentage of costs incurred and accrued to date for each
contract to the estimated total costs for each contract at completion. Certain
of the Company's electrical contracting business units measure
percentage-of-completion by the percentage of labor costs incurred to date for
each contract to the estimated total labor costs for such contract.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. In forecasting ultimate
profitability on certain contracts, estimated recoveries are included for work
performed under customer change orders to contracts for which firm prices have
not yet been negotiated. Due to
26
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
uncertainties inherent in the estimation process, it is reasonably possible that
completion costs, including those arising from contract penalty provisions and
final contract settlements, will be revised in the near-term. Such revisions to
costs and income are recognized in the period in which the revisions are
determined.
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed under
the terms of the contracts. Such amounts are recoverable from customers upon
various measures of performance, including achievement of certain milestones,
completion of specified units or completion of the contract.
Also included in costs and estimated earnings on uncompleted contracts are
amounts the Company seeks or will seek to collect from customers or others for
errors or changes in contract specifications or design, contract change orders
in dispute or unapproved as to both scope and price, or other customer-related
causes of unanticipated additional contract costs (claims and pending change
orders). These amounts are recorded at their estimated net realizable value when
realization is probable and can be reasonably estimated. No profit is recognized
on the construction costs incurred in connection with these amounts. Pending
change orders involve the use of estimates and it is reasonably possible that
revisions to the estimated recoverable amounts of recorded pending change orders
may be made in the near-term. Claims made by the Company involve negotiation
and, in certain cases, litigation. The Company expenses such costs as incurred,
although it may seek to recover these costs as part of the claim. The Company
believes that it has established legal bases for pursuing recovery of recorded
claims and it is management's intention to pursue and litigate these claims, if
necessary, until a decision or settlement is reached. Claims also involve the
use of estimates and it is reasonably possible that revisions to the estimated
recoverable amounts of recorded claims may be made in the near-term. Claims
against the Company are recognized when a loss is considered probable and
amounts are reasonably determinable.
Costs and estimated earnings on uncompleted contracts and related amounts
billed as of December 31, 1998 and 1997 are as follows (in thousands):
[Enlarge/Download Table]
1998 1997
---------- ----------
Costs incurred on uncompleted contracts................................ $2,737,507 $2,282,127
Estimated earnings..................................................... 202,211 158,832
---------- ----------
2,939,718 2,440,959
Less: billings to date................................................. 2,983,243 2,479,998
---------- ----------
$ (43,525) $ (39,039)
---------- ----------
---------- ----------
Such amounts are included in the accompanying Consolidated Balance Sheets
at December 31, 1998 and 1997 under the following captions (in thousands):
[Enlarge/Download Table]
1998 1997
--------- ---------
Costs and estimated earnings in excess of billings on uncompleted
contracts.............................................................. $ 91,569 $ 73,794
Billings in excess of costs and estimated earnings on uncompleted
contracts.............................................................. (135,094) (112,833)
--------- ---------
$ (43,525) $ (39,039)
--------- ---------
--------- ---------
27
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
As of December 31, 1998 costs and estimated earnings in excess of billings
on uncompleted contracts included unbilled revenues for pending change orders of
approximately $17.3 million and claims of approximately $8.0 million. In
addition, accounts receivable as of December 31, 1998 includes claims and
contractually billed amounts related to such contracts of approximately
$29.0 million. Claims and related amounts, included in accounts receivable,
aggregated approximately $44.5 million as of December 31, 1997. Generally,
contractually billed amounts will not be paid by the customer to the Company
until final resolution of related claims.
Classification of Contract Amounts
In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Accounts receivable at December 31, 1998 and 1997
included $91.6 million and $88.2 million, respectively, of retainage billed
under terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1998 will be collected during 1999.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents. The Company maintains a centralized cash
management program whereby its excess cash balances are invested in high
quality, short-term, money market instruments which are considered cash
equivalents. At times, cash balances in the Company's bank accounts may exceed
federally insured limits.
Inventories
Inventories, which consist primarily of construction materials, are stated
at the lower of cost or market. Cost is determined principally using average
cost.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is recorded
principally using the straight-line method over estimated useful lives ranging
from 3 to 40 years.
Property, plant and equipment in the accompanying Consolidated Balance
Sheets consisted of the following amounts as of December 31, 1998 and 1997 (in
thousands):
[Enlarge/Download Table]
1998 1997
-------- --------
Machinery and equipment..................................................... $ 33,894 $ 24,824
Furniture and fixtures...................................................... 6,953 5,728
Land, buildings and leasehold improvements.................................. 15,566 13,758
-------- --------
56,413 44,310
Accumulated depreciation and amortization................................... (24,315) (17,146)
-------- --------
$ 32,098 $ 27,164
-------- --------
-------- --------
28
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other Assets
Other assets at December 31, 1998 primarily consists of approximately
$22.8 million of the excess of cost over fair market value of net identifiable
assets ("Goodwill") of companies acquired in purchase transactions.
Additionally, approximately $4.7 million of debt issuance costs incurred in
connection with the Company's offering of its 5.75% Convertible Subordinated
Notes (hereafter discussed) are included in Other assets. Other assets at
December 31, 1997 included approximately $1.0 million of Goodwill and
$0.3 million of debt issuance costs. Goodwill is being amortized using the
straight-line method over periods ranging from 5 to 15 year periods. Debt
issuance costs are amortized using the effective interest method.
At the end of each quarter, the Company reviews events and changes in
circumstances to determine whether the recoverability of the carrying value of
Goodwill should be reassessed. Should events or circumstances indicate that the
carrying value may not be recoverable based on undiscounted future cash flows,
an impairment loss measured by the difference between the discounted future cash
flows (or another acceptable method for determining fair value) and the carrying
value of Goodwill would be recognized by the Company.
Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable,
investments, notes and other long-term receivables, long-term debt (excluding
the Company's Series C Notes), foreign currency contracts and other financing
commitments whose carrying values approximate their fair values.
At December 31, 1998, the fair value of the Company's 5.75% Convertible
Subordinated Notes was $98.0 million compared to the carrying value of
$115.0 million. The fair value was estimated based on quoted market prices and
market interest rates as of December 31, 1998.
Foreign Operations
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currency and translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation". Translation adjustments have been
accumulated as a separate component of stockholders' equity.
Other Income
Other income in the accompanying Consolidated Statement of Operations for
the year ended December 31, 1996 includes a pre-tax gain of $12.5 million
($8.1 million after-tax) on the sale of certain assets held for sale, including
the sale of substantially all of the assets of the Company's principal water
supply subsidiary Jamaica Water Supply Company ("JWS"). JWS and the Company's
other water supply subsidiary, Sea Cliff Water Company ("Sea Cliff"), are
referred to hereafter as the "Water Companies."
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce net deferred tax assets to
the amount expected to be realized.
29
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Exchange Contracts
Gains and losses on contracts designated as hedges of net investments in
foreign subsidiaries are recognized in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income as a component of Accumulated
other comprehensive income.
As of December 31, 1998, the Company had one forward contract that is
designated as, and is effective as, an economic hedge of a net investment in a
foreign entity. The amount of this forward contract is not material to the
Consolidated Financial Statements.
Valuation of Stock Option Grants
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). See
Note I for pro forma information relating to treatment of the Company's stock
option plans under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133" or the "Statement"), which establishes
accounting and reporting standards requiring derivative instruments, as defined,
to be measured in the financial statements at fair value. The Statement also
requires that changes in the derivatives' fair value be recognized currently in
earnings unless certain accounting criteria are met. SFAS 133 is effective for
fiscal years beginning after June 15, 1999 and cannot be applied retroactively.
The Company currently has one forward exchange contract which is designated as a
hedge against intercompany loans to the Company's U.K. subsidiary. The Company
does not expect the provisions of SFAS 133 to have a significant effect on the
current forward exchange contract or on the financial condition or results of
operations of the Company.
NOTE C--ACQUISITIONS OF BUSINESSES
During 1998, the Company acquired ten businesses for an aggregate purchase
price of $36.8 million, $28.5 million of which was paid in cash, and
$8.3 million was paid in notes made by the Company. These acquisitions were
accounted for by the purchase method, and the purchase price has been allocated
to the assets acquired and liabilities assumed, based upon the estimated fair
values at the dates of acquisition. Goodwill, representing the excess purchase
price over the fair value of amounts assigned to the net tangible assets
acquired, was $21.8 million for all 1998 acquisitions and will be amortized over
15 years. Amortization expense for the year ended December 31, 1998 was
$0.7 million. The Company recorded Goodwill of approximately $1.0 million in
1997 and an additional $0.5 million in 1998, for an acquisition in the fourth
quarter of 1997. The pro forma effect on the Company's net income and earnings
per share for 1998 and 1997 is not material.
30
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--EARNINGS PER SHARE
The following tables summarize the Company's calculation of Basic and
Diluted Earnings per Share ("EPS") for the years ended December 31, 1998, 1997
and 1996:
[Enlarge/Download Table]
INCOME SHARES PER SHARE
1998 (NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------------------------------------- ----------- ------------- ---------
BASIC EPS
Income before extraordinary item available to common
stockholders................................................ $17,092,000 10,232,527 $1.67
-----
-----
EFFECT OF DILUTIVE SECURITIES
Convertible Subordinated Notes including assumed interest
savings..................................................... 2,785,000 2,952,672
Options....................................................... -- 215,531
Warrants...................................................... -- 228,995
----------- -----------
DILUTED EPS................................................... $19,877,000 13,629,725 $1.46
----------- ----------- -----
----------- ----------- -----
[Enlarge/Download Table]
INCOME SHARES PER SHARE
1997 (NUMERATOR) (DENOMINATOR) AMOUNT
--------------------------------------------------------------- ----------- ------------- ---------
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 8,581,000 9,547,869 $0.90
-----
-----
EFFECT OF DILUTIVE SECURITIES
Options...................................................... -- 305,336
Warrants..................................................... -- 321,690
----------- -----------
DILUTED EPS.................................................... $ 8,581,000 10,174,895 $0.84
----------- ----------- -----
----------- ----------- -----
[Enlarge/Download Table]
INCOME SHARES PER SHARE
1996 (NUMERATOR) (DENOMINATOR) AMOUNT
--------------------------------------------------------------- ----------- ------------- ---------
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 9,437,000 9,479,817 $1.00
-----
-----
EFFECT OF DILUTIVE SECURITIES
Options...................................................... -- 276,960
Warrants..................................................... -- 54,226
----------- -----------
DILUTED EPS.................................................... $ 9,437,000 9,811,003 $0.96
----------- ----------- -----
----------- ----------- -----
The number of the Company's warrants and options granted, which were
excluded from the computation of Diluted EPS for the years ended December 31,
1998, 1997 and 1996 because they would be antidilutive, is as follows:
[Enlarge/Download Table]
1998 1997 1996
------- ------- -------
Series Y..................................................... -- -- 605,000
Options...................................................... 306,785 -- 33,000
------- ------- -------
Total........................................................ 306,785 -- 638,000
------- ------- -------
------- ------- -------
31
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--CURRENT DEBT
1998 Credit Facility
On December 22, 1998 the Company and certain of its subsidiaries amended
the June 19, 1996 credit agreement with Harris Trust and Savings Bank ("Harris")
providing the Company with a working capital credit facility (the "1998 Credit
Facility") for borrowings of up to $150.0 million. The 1998 Credit Facility,
which has an expiration date of June 30, 2002, is guaranteed by certain direct
and indirect subsidiaries of the Company. It is secured by substantially all of
the assets of the Company and those subsidiaries and it provides for borrowing
capacity available in the form of revolving loans ("Revolving Loans") and/or
letters of credit ("LCs"). The Revolving Loans bear interest at a rate which is
the prime commercial lending rate announced by Harris from time to time (7.75%
at December 31, 1998) plus 0% to 0.5%, based on certain financial tests, for
Domestic Rate Loans, as defined. Eurodollar Loans, as defined, bear interest at
a variable rate which is LIBOR as published from time to time (5.08% at
December 31, 1998) plus 1.25% to 2.0% based on certain financial tests. The
interest rates for Domestic Rate Loans and Eurodollar Loans, as defined, at
December 31, 1998 were 7.75% and 6.58%, respectively. LC fees ranging from 0.5%
to 2.0% are charged based on type of LC issued and certain financial tests.
As of December 31, 1998, the Company had approximately $30.2 million of LCs
and no Revolving Loans outstanding under the 1998 Credit Facility.
1996 Credit Facility
On June 19, 1996, the Company and its subsidiary Dyn Specialty Contracting
Inc. ("Dyn") entered into a credit agreement with Harris providing the Company
with a working capital credit facility for borrowings up to $100.0 million for a
three-year period (the "1996 Credit Facility"). The 1996 Credit Facility, as
amended, which was guaranteed by certain direct and indirect subsidiaries of the
Company and was secured by substantially all of the assets of the Company and
those subsidiaries, provided for borrowing capacity available in the form of
Revolving Loans and/or LCs. The Revolving Loans bore interest at a variable
rate, which was the prime commercial lending rate announced by Harris from time
to time (8.5% at December 31, 1997) plus 1.0% to 2.0% based on certain financial
tests. The interest rate on the Revolving Loans was 9.5% at December 31, 1997.
LC fees ranging from 1.50% to 3.25% were charged based on the type of LC issued.
As of December 31, 1997, the Company had approximately $25.7 million of LCs and
approximately $9.5 million of Revolving Loans outstanding under the 1996 Credit
Facility which are classified as Current Liabilities under the caption
"Borrowings under working capital credit lines" in the accompanying Consolidated
Balance Sheets.
MES and Dyn Credit Agreements
On December 14, 1994, the Company and certain of its subsidiaries entered
into two credit agreements (the "1994 Credit Agreements") with Belmont Capital
Partners II, L.P. ("Belmont"), certain directors of the Company and/or their
affiliates and other lenders (the "Lenders") providing the Company and its
subsidiaries MES Holdings Corporation ("MES") and certain of its other
subsidiaries with working capital facilities of up to an aggregate amount of
$45.0 million. The loans bore interest on the principal amount thereof at the
rate of 15.0% per annum.
Borrowings outstanding under the 1994 Credit Agreements were repaid in June
1996 from proceeds received by the Company from the sale of the Water Companies
and from borrowings under the 1996 Credit Facility at which time the 1994 Credit
Agreements were terminated.
32
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--CURRENT DEBT--(CONTINUED)
Series A Notes
On December 15, 1994 the Company issued or reserved for issuance
approximately $62.2 million principal amount of Series A Notes and reserved for
issuance up to a maximum of $8.8 million additional principal amount of Series A
Notes upon resolution of disputed and unliquidated pre-petition general
unsecured claims. Approximately $4.7 million of the outstanding Series A Notes
were redeemed in 1995 and the balance of the Series A Notes were paid in full
during the second quarter of 1996 (approximately $66.5 million in principal and
accrued interest thereon) with proceeds received by the Company from the sale of
the Water Companies.
Foreign Borrowings
In October 1997, the Company's Canadian subsidiary, Comstock Canada Ltd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.75% at December 31, 1998).
There were no borrowings outstanding under this facility at December 31, 1998
and 1997. The Canadian subsidiary may utilize the Company's revolving credit
facility for any future working capital requirements.
NOTE F--LONG-TERM DEBT
Long-term debt in the accompanying Consolidated Balance Sheets consist of
the following amounts as of December 31, 1998 and 1997 (in thousands):
[Enlarge/Download Table]
1998 1997
-------- -------
Convertible Subordinated Notes at 5.75% due 2005........................................... $115,000 --
Series C Notes, outstanding face value of approximately $61.9 million, at 11.0% discounted
to a 14% effective rate, due 2001........................................................ -- $56,290
Supplemental SellCo Note, outstanding face value of approximately $5.5 million at 8.0%,
discounted to a 14.0% effective rate, due 2004........................................... -- 4,733
Notes Payable at 6.0%, $1.0 million due 1999, $1.15 million due 2000....................... 2,150 --
Note Payable, due 1999..................................................................... 6,164 --
Capitalized Lease Obligations at weighted average interest rates from 1.9% to 12.0%,
payable in varying amounts through 2002.................................................. 837 1,482
Other, at weighted average interest rates of approximately 9.6%, payable in varying amounts
through 2012............................................................................. 1,086 1,634
-------- -------
125,237 64,139
Less: current maturities................................................................. (7,963) (927)
-------- -------
$117,274 $63,212
-------- -------
-------- -------
Convertible Subordinated Notes
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes ("Subordinated Notes"). On March 24, 1998, the underwriter of the
Subordinated Notes offering exercised in full its over-allotment option to
purchase an additional $15.0 million of Subordinated Notes, and accordingly,
Subordinated Notes in the additional principal amount of $15.0 million were
issued. The Subordinated Notes will mature on April 2005 and are general,
unsecured obligations of the Company, subordinated in right to all existing and
future Senior Indebtedness (as defined in the indenture pursuant to which
Subordinated Notes were issued (the "Subordinated Indenture") of the Company.
33
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LONG-TERM DEBT--(CONTINUED)
The Subordinated Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of Indebtedness (as defined in the Subordinated
Indenture) or Senior Indebtedness. Holders of the Subordinated Notes have the
right at any time to convert the Subordinated Notes into Common Stock of the
Company at conversion price of $27.34 per share.
Series C Notes
On December 15, 1994 the Company issued approximately $62.8 million
principal amount of Series C Notes. Interest on the Series C Notes was payable
semiannually through June 15, 1996 by the issuance of additional Series C Notes
and was thereafter payable quarterly in cash until redemption. The Series C
Notes were unsecured indebtedness of the Company and were subordinate to
indebtedness under the Company's 1996 Credit Facility. The Series C Notes have
been recorded at a discount to their face amount to yield an estimated effective
interest rate of 14.0%.
On June 3, 1997, the Company purchased $1.0 million of Series C Notes and
retired such notes. On June 27, 1997, the Company called for the partial
redemption of approximately $10.9 million principal amount of Series C Notes. In
accordance with the Indenture governing the Series C Notes, the redemption price
of the Series C Notes was 105% of the principal amount redeemed. Accordingly,
the Company recorded an extraordinary loss of approximately $1.0 million related
to the early retirement of debt. The extraordinary loss consisted primarily of
the write-off of the associated debt discount plus premiums and costs associated
with the redemption, net of income tax benefits of approximately $0.7 million.
On March 18, 1998, the Company called for redemption of approximately
$61.9 million principal amount of Series C Notes and irrevocably funded such
amounts, together with a redemption premium, with the trustee of the Series C
Notes. In accordance with the Indenture governing the Series C Notes, the
redemption price of the Series C Notes was 104% of the principal amount
redeemed. Accordingly, the Company recorded an extraordinary loss of
$4.8 million net of income taxes related to the early retirement of debt. The
extraordinary loss consisted primarily of the write-off of the associated debt
discount plus the redemption premium and costs associated with the redemption,
net of income tax benefits.
Supplemental SellCo Note
On December 15, 1994, the Company issued to its wholly-owned subsidiary
SellCo Corporation ("SellCo") its 8.0% promissory note in the principal amount
of approximately $5.5 million (the "Supplemental SellCo Note"). The Supplemental
Sellco Note provided that it matured on the earlier of (i) December 15, 2004 or
(ii) one day prior to the date on which the SellCo Notes (hereafter defined) are
deemed canceled. The Supplemental SellCo Note was recorded at a discount to its
face amount to yield an estimated effective interest rate of 14.0%.
The Company prepaid in full, including accrued interest thereon, the
Supplemental SellCo Note during June 1998.
SellCo Notes
On December 15, 1994, SellCo issued approximately $48.1 million principal
amount of 12.0% Subordinated Contingent Payments Notes, due 2004, (the "SellCo
Notes"). Interest is payable semiannually in additional SellCo Notes. Net Cash
Proceeds (as defined in the Indenture pursuant to which the SellCo Notes were
issued) from the sales of stock or assets of SellCo subsidiaries are to be used
to redeem SellCo Notes. The SellCo Notes are not obligations of EMCOR and
accordingly are not included in the accompanying Consolidated Balance
34
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LONG-TERM DEBT--(CONTINUED)
Sheets as of December 31, 1998 and 1997. In May 1996, the Company completed the
sale of substantially all of the assets of its subsidiary JWS to the City of New
York and the Water Authority of Western Nassau County. In May 1996, the Company
also completed the sale of the stock of its subsidiary Sea Cliff to a subsidiary
of Aquarion Company. Approximately $2.1 and $0.7 million of the proceeds from
the sale of the stock of Sea Cliff and the sale of assets of JWS, respectively,
were used to redeem, in part, the SellCo Notes during August 1996. On
February 28, 1997, the Company redeemed approximately $6.6 million of SellCo
Notes with proceeds from the sale of assets of JWS which monies had been
retained pending disposition of the lawsuit brought by certain holders of
Warrants of Participation that had been issued by the Company prior to its
Chapter 11 proceedings. On June 22, 1998, the Company redeemed approximately
$9.1 million of SellCo Notes with proceeds from the prepayment by EMCOR of the
Supplemental SellCo Note (approximately $7.2 million) as well as proceeds from
the previously reported sales that were either held in escrow or received
pursuant to deferred payment arrangements. As the liabilities of JWS are finally
determined, JWS' various contingent liabilities are resolved, funds held in
escrow under the sales agreement (the "Sales Agreement") for the sale of assets
of JWS are released, and post closing adjustments under the Sales Agreement are
agreed upon, additional amounts of the sales proceeds may become available, from
time to time, for additional redemptions of the SellCo Notes. The SellCo Notes
mature on December 15, 2004 if not deemed canceled at an earlier date as
discussed above under Supplemental SellCo Note.
Notes Payable for Acquisitions
In 1998, the Company issued notes in connection with the acquisition of two
companies. One note, issued in August 1998, requires a principal payment of
$1.0 million in August 1999 and $1.15 million in August 2000; interest is
payable together with each principal payment. The other note, issued in the
principal amount of $6.2 million in December 1998 was paid in January 1999.
Other Long-Term Debt
Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements. As of December 31, 1998 and
1997, respectively, other long-term debt, excluding current maturities, totaling
$1.1 million and $1.6 million was owed by certain of the Company's subsidiaries.
The aggregate amount of other long-term debt maturing during the next five years
is approximately: $0.2 million in 1999, $0.2 million in 2000, $0.1 million in
2001, $0.05 million in each of 2002 and 2003, and $0.5 million thereafter.
NOTE G--INCOME TAXES
The Company files a consolidated federal income tax return including all
its U.S. subsidiaries. At December 31, 1998, the Company had net operating loss
carryforwards ("NOLs") for U.S. income tax purposes of approximately
$150.0 million, which expire in the years 2007 through 2012. The NOLs are
subject to review by the Internal Revenue Service. Future changes in ownership
of the Company, as defined by Section 382 of the Internal Revenue Code, could
limit the amount of NOLs available for use in any one year.
The Company adopted Fresh-Start Accounting in connection with the Company's
reorganization in December, 1994. As a result, the tax benefit of any net
operating loss carryforwards or net deductible temporary differences which
existed as of December 15, 1994 will result in a charge to the tax provision
(provision in lieu of income taxes) and be allocated to reorganization value in
excess of amounts allocable to identifiable assets established in connection
with the Company's emergence from bankruptcy and to capital surplus. For the
year ended December 31, 1996 the Company allocated approximately $4.5 million of
its tax provision to
35
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--INCOME TAXES--(CONTINUED)
reorganization value in excess of amounts allocable to identifiable assets
thereby reducing this balance to zero. The remaining utilization of NOLs and
other deferred tax assets, approximately $8.2 million and $5.6 million for the
years ended December 31, 1998 and 1997, respectively, have been applied to
capital surplus for the years then ended.
The income tax provision in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1998, 1997 and 1996 consists of (in
thousands):
[Enlarge/Download Table]
1998 1997 1996
------- ------ ------
Current:
Federal................................................................. $ 8,860 $5,508 $6,068
State and local......................................................... 1,628 1,055 760
Foreign................................................................. 2,161 1,418 703
------- ------ ------
12,649 7,981 7,531
Deferred:
Foreign................................................................. -- (1,100) --
------- ------ ------
$12,649 $6,881 $7,531
------- ------ ------
------- ------ ------
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1998, 1997
and 1996 are as follows (in thousands):
[Enlarge/Download Table]
1998 1997 1996
------- ------ ------
Federal income taxes at the statutory rate................................ $10,409 $5,412 $5,939
State and local income taxes, net of federal tax benefits................. 1,058 686 494
Foreign income taxes...................................................... 1,247 1,630 1,094
Other..................................................................... (65) (847) 4
------- ------ ------
$12,649 $6,881 $7,531
------- ------ ------
------- ------ ------
The components of the net deferred income tax asset included in "Other
Assets" in the accompanying Consolidated Balance Sheets for the years ended
December 31, 1998 and 1997 are as follows (in thousands):
[Enlarge/Download Table]
1998 1997
-------- --------
Deferred tax assets:
Net operating loss carryforward........................................ $ 57,998 $ 63,241
Excess of amounts expensed for financial statement purposes over
amounts deducted for income tax purposes............................. 30,177 29,975
Other.................................................................. 2,899 2,899
-------- --------
Total deferred tax asset............................................... 91,074 96,115
-------- --------
Deferred tax liabilities:
Costs capitalized for financial statement purposes and deducted for
income tax purposes.................................................. 17,823 17,799
-------- --------
Total deferred tax liability........................................... 17,823 17,799
-------- --------
Net deferred tax asset before valuation allowance...................... 73,251 78,316
Valuation allowance for net deferred tax asset......................... (72,151) (77,216)
-------- --------
Net deferred tax asset................................................. $ 1,100 $ 1,100
-------- --------
-------- --------
36
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--INCOME TAXES--(CONTINUED)
Income (loss) before income taxes and extraordinary items for the years
ended December 31, 1998, 1997 and 1996 consists of the following (in thousands):
[Enlarge/Download Table]
1998 1997 1996
------- ------- -------
United States........................................................... $27,130 $19,207 $18,086
Foreign................................................................. 2,611 (3,745) (1,118)
------- ------- -------
$29,741 $15,462 $16,968
------- ------- -------
------- ------- -------
NOTE H--COMMON STOCK
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, 1,100,000 of its Common Stock at a price of $21.875 per share. The
proceeds of the offering, together with the proceeds of the Subordinated Notes
public offering, will be used for general corporate purposes and possible
acquisitions. Following the public offerings, proceeds were used to repay the
Company's Series C Notes, the Company's Supplemental SellCo Note and the
Company's working capital credit facility.
As part of a program previously authorized by the Board of Directors, the
Company purchased 957,900 shares of its Common Stock during the third and fourth
quarters of 1998. The aggregate amount of $14.0 million paid for those shares
has been classified as "Treasury Stock, at Cost" in the Consolidated Balance
Sheet at December 31, 1998.
NOTE I--STOCK OPTIONS AND WARRANTS
1994 MANAGEMENT STOCK OPTION PLAN
On December 15, 1994, the Company adopted a Management Stock Option Plan
(the "1994 Plan"), which was approved by the stockholders of the Company.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000 shares. The maximum
number of shares which may be the subject of options granted to any individual
in any calendar year may not exceed 500,000 shares. Options may be granted by
the Compensation Committee (the "Committee") of the Board of Directors to
eligible employees as incentive stock options or as non- qualified stock
options. The exercise price of an incentive stock option and a non-qualified
stock option must be at least equal to the fair market value of the Common Stock
on the date of grant.
Such Options may not be exercised more than ten years after the date of
grant. Options may be exercisable at such rate and times as may be fixed by the
Committee on the date of grant; however, the rate at which the Option first
becomes exercisable may not be more rapid than 33 1/3% on each of the first,
second and third anniversaries, unless the Committee otherwise determines at the
time of grant of such Option.
1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On March 20, 1995, the Company adopted the 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1995 Plan"), which was approved by the
stockholders of the Company.
The 1995 Plan provides for automatic grants of non-qualified stock options
to directors of the Company who are not also employees of the Company or a
subsidiary of the Company. Pursuant to the 1995 Plan, each non-employee director
on March 20, 1995 was granted an option to purchase 7,500 shares of Common Stock
at an exercise price of $5.13 per share. Under the 1995 Plan, each person who is
elected to serve as a non-employee director after March 20, 1995 (including
those persons who were non-employee directors on March 20, 1995) is to be
granted an option during each calendar year (beginning with 1995) to purchase
3,000 shares of Common Stock. Accordingly on June 14, 1996, June 20, 1997 and
June 19, 1998 each non-employee director was granted an option to purchase 3,000
shares of Common Stock at an exercise price of $17.12, $16.31 and $19.63 per
share, respectively.
37
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the Common Stock on the date of grant. Such options are
fully exercisable as of the date of grant. However, no option may be exercised
more than ten years after the date of grant. The aggregate number of shares of
Common Stock that may be issued pursuant to options under the 1995 Plan may not
exceed 200,000 shares and no options may be granted after March 20, 2005.
1997 NON-EMPLOYEE DIRECTORS' NON QUALIFIED STOCK OPTION PLAN
On December 17, 1997, the Board of Directors adopted the 1997 Non-employee
Directors' Non-Qualified Stock Option Plan (the "1997 Directors' Stock Option
Plan"), which was approved by stockholders of the Company.
The 1997 Directors' Stock Option Plan provides, generally, that each
non-employee director (a "Director") may elect prior to the first day of each
calendar year, commencing with the 1998 calendar year, to receive one-third or
two-thirds (each, a "Portion") or all of his annual retainer in the form of
options to purchase shares of the Company's Common Stock. The number of options
to be issued in respect of a Director's annual retainer for a calendar year
shall be determined by dividing the amount of the annual cash retainer to be
converted into options by the value on the Issue Date (as hereafter defined) of
an option to purchase one share. If a Director elects to receive options in lieu
of all or a Portion of his annual cash retainer for a calendar year, the Company
shall also issue to that Director like options for an additional number of
shares equal to the product of 0.5 times the amount of options otherwise issued
to him as a result of such election.
The per share exercise price of an option granted under the 1997 Directors'
Stock Option Plan in respect of a calendar year is equal to the fair market
value of a share of Common Stock (a) on the first business day of such calendar
year with respect to options issued to individuals who are serving as Directors
on such date and (b) on the date of election to the Board of Directors of an
individual who is not a Director as of the first day of a calendar year but who
becomes a Director during the course of such calendar year ("New Director") with
respect to options issued to him (each such date, an "Issue Date"). No option
may be exercised more than five years after the date of issuance.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1997 Directors' Option Plan may not exceed 300,000.
Options to purchase 30,370 shares at $20.00 were granted in January 1998,
and options to purchase an additional 5,415 shares were granted in June 1998 at
$19.63 per share pursuant to the 1997 Directors' Stock Option Plan.
1997 STOCK PLAN FOR DIRECTORS
On December 17, 1997, the Board of Directors adopted the 1997 Stock Plan
for Directors (the "1997 Directors' Stock Plan"), which was approved by
stockholders of the Company.
The 1997 Directors' Stock Plan provides, generally, that each Director may
elect prior to the first day of each calendar year, commencing with 1998, to
receive one-third or two-thirds (each, a "Portion") or all of his annual
retainer in the form of Deferred Stock Units in respect of which shares of the
Company's Common Stock will be issued. The number of Deferred Stock Units to be
issued in respect of a Director's annual retainer for a calendar year,
generally, is to be determined by dividing the amount of the annual cash
retainer to be converted into Deferred Stock Units, by the fair market value of
a share of Common Stock as of the close of business on the first business day of
the applicable calendar year. In addition, if a Director elects to receive
Deferred Stock Units in lieu of all or a Portion of his annual cash retainer for
a calendar year the Company shall also issue to that Director additional
Deferred Stock Units equal to the product of 0.2 times the amount of the
Deferred Stock Units otherwise issued to him as a result of such election.
38
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The following table summarizes the Company's stock option activity since
December 31, 1995.
[Enlarge/Download Table]
1997 DIRECTORS'
STOCK 1997 DIRECTORS'
1994 PLAN 1995 PLAN OPTION PLAN STOCK PLAN
------------------- ------------------ ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- ------- -------- ------ -------- ------ --------
Balance December 31, 1995.............. 715,000 $ 5.10 63,000 $ 6.34 -- -- -- --
Granted.............................. 15,000 $ 14.90 18,000 $17.13 -- -- -- --
Forfeited............................ (40,334) $ 5.13 -- -- -- -- -- --
Exercised............................ (61,430) $ 5.13 (28,500) $ 6.02 -- -- -- --
-------- ------- ------ ------
Balance December 31, 1996.............. 628,236 $ 5.33 52,500 $10.21 -- -- -- --
Granted.............................. 366,000 $ 19.82 18,000 $16.31 -- -- -- --
Forfeited............................ (2,668) $ 5.13 -- -- -- -- -- --
Exercised............................ (73,191) $ 5.13 (3,000) $17.13 -- -- -- --
-------- ------- ------ ------
Balance December 31, 1997.............. 918,377 $ 11.12 67,500 $11.53 -- -- -- --
Granted.............................. 90,000 $ 20.06 18,000 $19.63 35,785 $19.94 1,800 $20.00
Forfeited............................ (205,000) $ 19.73 -- -- -- -- -- --
Exercised............................ (81,676) $ 5.29 -- -- -- -- -- --
-------- ------- ------ ------
Balance December 31, 1998.............. 721,701 $ 10.44 85,500 $13.24 35,785 $19.94 1,800 $20.00
-------- ------- ------ ------
-------- ------- ------ ------
At December 31, 1998, 1997 and 1996, approximately 642,000, 386,000 and
208,000 options were exercisable, respectively. The weighted average exercise
price of exercisable options at December 31, 1998, 1997 and 1996 was
approximately $8.43, $6.46 and $6.33, respectively.
The following table summarizes information about the Company's stock
options at December 31, 1998:
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
------------------ ------- ------------------- ---------------- ------- -------------------
1994 PLAN
$4.75-$5.13 443,367 6.3 Years $ 4.96 443,367 $ 4.96
$9.63-$14.31 20,334 7.3 Years $11.50 17,001 $ 10.97
$14.93-$20.38 258,000 8.9 Years $19.77 59,000 $ 19.48
------- -------
721,701 519,368
------- -------
------- -------
1995 PLAN
$5.13 22,500 6.2 Years $ 5.13 22,500 $ 5.13
$9.38 12,000 6.9 Years $ 9.38 12,000 $ 9.38
$16.31-$19.63 51,000 8.6 Years $17.72 51,000 $ 17.72
------- -------
85,500 85,500
------- -------
------- -------
1997 DIRECTORS'
STOCK OPTION PLAN
$19.63-$20.00 35,785 4.1 Years $19.94 35,785 $ 19.94
------- -------
------- -------
1997 DIRECTORS'
STOCK PLAN
$20.00 1,800 4.0 Years $20.00 1,800 $ 20.00
------- -------
------- -------
39
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The weighted average fair value of options granted during 1998, 1997 and
1996 were $15.18, $14.67 and $10.10, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: risk-free interest rates of
4.6% to 5.7% representing the risk-free interest rate at the date of grant;
expected dividend yields of zero percent; expected lives of 4.0 to 6.5 years;
and expected volatility of 56.53% for options granted prior to December 31,
1996, and 87.3% and 79.8% for options granted during 1998 and 1997,
respectively.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 for options granted during those years. Had
compensation cost for these plans been determined consistent with SFAS 123, the
Company's net income, Basic EPS and Diluted EPS would have been reduced from the
following as reported amounts to the following pro forma amounts (in thousands):
[Download Table]
1998 1997 1996
------- ------ ------
Net Income:
As Reported......................................... $12,315 $7,577 $9,437
Pro Forma........................................... $10,176 $6,842 $8,840
Basic EPS:
As Reported......................................... $ 1.20 $ 0.79 $ 1.00
Pro Forma........................................... $ 0.99 $ 0.72 $ 0.93
Diluted EPS:
As Reported......................................... $ 1.11 $ 0.74 $ 0.96
Pro Forma........................................... $ 0.75 $ 0.67 $ 0.90
Warrants
On December 15, 1994, the Company issued to the holders of $7,040,000
principal amount of its pre-petition 7.75% Convertible Subordinated
Debentures and $9,600,000 principal amount of its pre-petition 12.0%
Subordinated Notes, their pro rata share of each of two series of five-year
Warrants to purchase shares of Common Stock, namely Series X Warrants and Series
Y Warrants, with an exercise price of $12.55 per share and $17.55 per share,
respectively. In addition, the Company issued to pre-petition holders of other
contingent and statutory subordinate claims and to holders of EMCOR's
pre-petition common stock, preferred stock and Warrants of Participation, as
well as to the plaintiffs in a stockholder class action lawsuit, their pro rata
share of 250,000 Series Z Warrants to purchase shares of Common Stock, which
Series Z Warrants had an exercise price of $50.00 per share. The Series X and Y
Warrants expire on December 15, 1999. The Series Z Warrants expired on December
15, 1996.
In addition to the warrants issued above, approximately 28,000 Series X
Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to
Belmont Capital Partners II, L. P. as a portion of additional interest under a
debtor-in-possession credit facility.
If the Company's Common Stock trades at $30.46 per share for ten of the
preceding fifteen trading days, the Company may accelerate the expiration date
of the Warrants to a date 15 days after notice to such Warrant holders.
As of December 31, 1998 and 1997, there were 605,000 Series X Warrants and
605,000 Series Y Warrants issued and outstanding at each date, respectively.
40
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--RETIREMENT PLANS
The Company's United Kingdom subsidiary has a defined benefit pension plan
covering substantially all eligible employees. The benefits under the plan are
based on wages and years of service with the subsidiary. The Company's policy is
to fund the minimum amount required by law.
The change in benefit obligation and plan assets for the years ended
December 31, 1998, 1997 and 1996 consists of the following components (in
thousands):
[Enlarge/Download Table]
1998 1997
------- -------
CHANGE IN PENSION BENEFIT OBLIGATION
Benefit obligation at beginning of year........................................... $62,597 $57,599
Service cost...................................................................... 4,994 4,224
Interest cost..................................................................... 5,554 4,828
Changes in actuarial assumptions.................................................. 16,679 443
Benefits paid..................................................................... (2,870) (2,708)
Foreign currency exchange rate changes............................................ 620 (1,789)
------- -------
Benefit obligation at end of year................................................. 87,574 62,597
------- -------
CHANGE IN PENSION PLAN ASSETS
Fair value of plan assets at beginning of year.................................... 69,078 58,991
Actual return on plan assets...................................................... 9,666 9,750
Employer contributions............................................................ 3,763 3,019
Plan participants' contributions.................................................. 2,107 1,899
Benefits paid..................................................................... (2,870) (2,708)
Foreign currency exchange rate changes............................................ 684 (1,873)
------- -------
Fair values of plan assets at end of year......................................... 82,428 69,078
------- -------
Funded status..................................................................... (5,146) 6,481
Unrecognized transition amount.................................................... (480) (558)
Unrecognized prior service cost................................................... 615 687
Unrecognized losses/(gains)....................................................... 3,671 (8,378)
------- -------
Net amount recognized............................................................. $(1,340) $(1,768)
------- -------
------- -------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED FINANCIAL STATEMENTS
Employer contributions............................................................ $ 3,763 $ 3,019
Net periodic pension benefit cost................................................. (3,318) (3,290)
Accrued pension cost brought forward.............................................. (1,768) (1,484)
Foreign currency exchange rate changes............................................ (17) (13)
------- -------
Net amount recognized as accrued pension liability................................ $(1,340) $(1,768)
------- -------
------- -------
41
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--RETIREMENT PLANS--(CONTINUED)
The assumptions used as of December 31, 1998, 1997 and 1996 in determining
pension cost and liability shown above were as follows:
[Download Table]
1998 1997 1996
------ ------ --------
Discount rate........................................ 6.0% 8.5% 8.5%
Annual rate of salary provisions..................... 6.5% 6.5% 6.5%
Annual rate of return on plan assets................. 10.0% 10.0% 10.0%
For measurement purposes, a 5.0% annual rate of increase in the per capita
cost of covered pension benefits was assumed for 1998. The rate is assumed to
decrease to 2.5% annually beginning in 1999 and remain level thereafter.
The components of net periodic pension benefit cost for the years ended
December 31, 1998, 1997 and 1996 were as follows (in thousands):
[Download Table]
1998 1997 1996
------- ------- -------
Service cost........................................ $ 4,994 $ 4,224 $ 4,222
Interest cost....................................... 5,554 4,828 4,295
Expected return on plan assets...................... (9,666) (9,750) (6,264)
Net amortization of prior service cost and actuarial
(gain)/loss....................................... 2,436 3,988 1,254
------- ------- -------
Net periodic pension benefit cost................... $ 3,318 $ 3,290 $ 3,507
------- ------- -------
------- ------- -------
The Company contributes to various union pension funds and based upon wages
paid to union employees of the Company. Such contributions approximated
$57.4 million, $50.8 million and $41.1 million for the years ended December 31,
1998, 1997 and 1996, respectively.
The Company has a defined contribution retirement plan that covers its U.S.
non-union eligible employees. Contributions to this plan are based on a
percentage of the employee's base compensation. The expense recognized for the
years ended December 31, 1998, 1997 and 1996, for the defined contribution plan
was $1.9 million, $2.6 million and $2.1 million, respectively.
NOTE K--COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expenses.
42
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum payments, by year and in the aggregate, under capital
leases, non-cancelable operating leases and related sub-leases with initial or
remaining terms of one or more years at December 31, 1998 are as follows (in
thousands):
[Download Table]
CAPITAL OPERATING
LEASE LEASE
------- ---------
1999........................................................... $ 519 $16,476
2000........................................................... 299 13,391
2001........................................................... 83 8,501
2002........................................................... 15 6,649
2003........................................................... -- 4,485
Thereafter..................................................... -- 9,378
------- -------
Total minimum lease payment.................................... 916 $58,880
-------
-------
Amounts representing interest.................................. 79
-------
Present value of net minimum lease payments.................... $ 837
-------
-------
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$18.9 million, $20.5 million and $17.5 million, respectively. Rent expense for
the years ended December 31, 1998, 1997 and 1996 includes sub-lease rentals of
$0.1 million, $2.3 million and $2.4 million, respectively.
The Company has employment agreements with certain of its executive
officers and management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for salary continuation
for a specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights if a change of
control (as defined) of the Company occurs.
The Company is contingently liable to sureties in respect of performance
and payment bonds issued by the sureties in connection with certain contracts
entered into by the Company in the normal course of business. The Company has
agreed to indemnify the sureties for any payments made by them in respect of
such bonds.
The Company is subject to regulation with respect to the handling of
certain materials used in construction which are classified as hazardous or
toxic by Federal, State and local agencies. The Company's practice is to avoid
participation in projects principally involving the remediation or removal of
such materials. However, where remediation is a required part of contract
performance, the Company believes it complies with all applicable regulations
governing the discharge of material into the environment or otherwise relating
to the protection of the environment.
NOTE L--INSURANCE RESERVES
The Company's insurance liability is determined actuarially based on claims
filed and an estimate of claims incurred but not yet reported. The present value
of such claims was determined at December 31, 1998 and 1997 using a 4.0%
discount rate. The estimated current portion of the insurance liability was
approximately $6.2 million and $5.1 million at December 31, 1998 and 1997,
respectively. Such amounts are included in "Other accrued expenses and
liabilities" in the accompanying Consolidated Balance Sheets. The non-current
portion of the insurance liability was approximately $27.2 million and
$24.8 million at December 31, 1998 and 1997, respectively. Such amounts are
included in "Other Long-Term Obligations". The undiscounted liability was
approximately $37.5 million and $33.7 million at December 31, 1998 and 1997,
respectively.
43
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE M--ADDITIONAL CASH FLOW INFORMATION
The following presents information about cash paid for interest and income
taxes for the years ended December 31, 1998, 1997, and 1996 (in thousands):
[Download Table]
1998 1997 1996
------- ------- -------
Cash paid during the year for:
Interest......................................... $10,849 $ 9,116 $ 7,624
Income taxes..................................... $ 1,480 $ 521 $ 168
NOTE N--SEGMENT INFORMATION
The Company adopted SFAS 131, "Disclosures About Segments of on Enterprise
and Related Information" ("SFAS 131") in 1998 which changed the way the Company
reports information about its operating segments. The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies. The Company evaluates financial performance based on the
operating income of the reportable business units.
The Company has the following reportable segments pursuant to SFAS 131:
United States electrical construction and facilities services ("United States
Electrical Business Units"), United States mechanical construction and
facilities services ("United States Mechanical Business Units"), Canada
construction and facilities services ("Canada Business Units") and United
Kingdom construction and facilities services ("United Kingdom Business Units").
United States Other primarily represents those operations which principally
provide consulting and maintenance services. Other International represents the
Company's operations outside of the United States, Canada, and the United
Kingdom, primarily in the Middle East and Asia-Pacific performing electrical
construction, mechanical construction and facilities services ("Other
International Business Units"). Inter-segment sales are not material for any of
the periods presented. The Extraordinary items--loss on early extinguishment of
debt, net of income taxes, of $4.8 million and $1.0 million for the years ended
December 31, 1998 and 1997, respectively, are related to Corporate
Administration of the Company.
The following presents information about industry segments and geographic
areas for the years ended December 31, 1998, 1997 and 1996 (in thousands):
[Enlarge/Download Table]
1998 1997 1996
---------- ---------- ----------
Revenues:
United States Electrical Business Units............................... $ 888,594 $ 744,996 $ 731,853
United States Mechanical Business Units............................... 599,616 577,590 399,196
United States Other Business Units.................................... 14,392 3,019 833
---------- ---------- ----------
Total United States Operations........................................ 1,502,602 1,325,605 1,131,882
Canada Business Units................................................. 201,918 179,046 139,554
United Kingdom Business Units......................................... 493,278 407,449 358,334
Other International Business Units.................................... 12,576 38,768 39,504
---------- ---------- ----------
Total Worldwide Operations............................................ $2,210,374 $1,950,868 $1,669,274
---------- ---------- ----------
---------- ---------- ----------
44
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--SEGMENT INFORMATION--(CONTINUED)
[Enlarge/Download Table]
1998 1997 1996
-------- -------- --------
Operating income:
United States Electrical Business Units..................................... $ 36,315 $ 28,696 $ 28,649
United States Mechanical Business Units..................................... 20,955 18,627 1,990
United States Other Business Units.......................................... (4,783) (2,103) 59
-------- -------- --------
Total United States Operations.............................................. 52,487 45,220 30,698
Canada Operations Business Units............................................ 5,000 4,174 1,517
United Kingdom Operations Business Units.................................... (876) (4,859) 902
Other International Operations Business Units............................... (1,260) (1,129) (1,814)
Corporate Administration.................................................... (18,127) (15,992) (14,189)
-------- -------- --------
Total Worldwide Operations.................................................. 37,224 27,414 17,114
Other Corporate Items:
Interest expense............................................................ (11,041) (13,029) (14,890)
Interest income............................................................. 3,558 1,077 2,244
Other income................................................................ -- -- 12,500
-------- -------- --------
Income before taxes and extraordinary items................................. $ 29,741 $ 15,462 $ 16,968
-------- -------- --------
-------- -------- --------
Capital expenditures:
United States Electrical Business Units..................................... $ 2,928 $ 2,378 $ 1,791
United States Mechanical Business Units..................................... 2,473 3,507 1,725
United States Other Business Units.......................................... 116 95 --
-------- -------- --------
Total United States Operations.............................................. 5,517 5,980 3,516
Canada Operations Business Units............................................ 990 575 270
United Kingdom Operations Business Units.................................... 3,928 2,594 2,896
Other International Operations Business Units............................... 48 379 604
Corporate Administration.................................................... 463 225 142
-------- -------- --------
Total Worldwide Operations.................................................. $ 10,946 $ 9,753 $ 7,428
-------- -------- --------
-------- -------- --------
Depreciation and amortization:
United States Electrical Business Units..................................... $ 3,315 $ 2,009 $ 2,133
United States Mechanical Business Units..................................... 2,664 2,143 1,963
United States Other Business Units.......................................... 526 36 --
-------- -------- --------
Total United States Operations.............................................. 6,505 4,188 4,096
Canada Operations Business Units............................................ 651 1,364 1,305
United Kingdom Operations Business Units.................................... 3,072 2,203 1,468
Other International Operations Business Units............................... 207 277 692
Corporate Administration.................................................... 145 160 303
-------- -------- --------
Total Worldwide Operations.................................................. $ 10,580 $ 8,192 $ 7,864
-------- -------- --------
-------- -------- --------
45
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--SEGMENT INFORMATION--(CONTINUED)
[Enlarge/Download Table]
1998 1997
-------- --------
Costs and estimated earnings in excess of billings on uncompleted contracts:
United States Electrical Business Units................................................. $ 33,346 $ 30,416
United States Mechanical Business Units................................................. 34,830 27,096
United States Other Business Units...................................................... 1,942 421
-------- --------
Total United States Operations.......................................................... 70,118 57,933
Canada Operations Business Units........................................................ 4,346 5,253
United Kingdom Operations Business Units................................................ 17,095 9,491
Other International Operations Business Units........................................... 10 1,297
-------- --------
Total Worldwide Operations.............................................................. $ 91,569 $ 73,974
-------- --------
-------- --------
Billings in excess of costs and estimated earnings on uncompleted contracts:
United States Electrical Business Units................................................. $ 74,193 $ 56,401
United States Mechanical Business Units................................................. 34,977 22,663
United States Other Business Units...................................................... 1,341 95
-------- --------
Total United States Operations.......................................................... 110,511 79,159
Canada Operations Business Units........................................................ 6,568 8,337
United Kingdom Operations Business Units................................................ 16,896 12,048
Other International Operations Business Units........................................... 1,119 13,289
-------- --------
Total Worldwide Operations.............................................................. $135,094 $112,833
-------- --------
-------- --------
Total assets:
United States Electrical Business Units................................................. $282,580 $263,207
United States Mechanical Business Units................................................. 204,469 164,786
United States Other Business Units...................................................... 25,725 3,870
-------- --------
Total United States Operations.......................................................... 512,774 431,863
Canada Operations Business Units........................................................ 49,463 43,546
United Kingdom Operations Business Units................................................ 156,693 137,585
Other International Operations Business Units........................................... 14,605 40,313
Corporate Administration................................................................ 67,467 7,347
-------- --------
Total Worldwide Operations.............................................................. $801,002 $660,654
-------- --------
-------- --------
46
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE O--SELECTED UNAUDITED QUARTERLY INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
1998 QUARTERLY RESULTS
Revenues......................................................... $493,923 $545,547 $565,964 $604,940
Gross profit..................................................... $ 44,240 $ 52,275 $ 57,954 $ 68,818
Income before extraordinary item................................. $ 802 $ 3,674 $ 5,760 $ 6,856
Net (loss) income................................................ $ (3,975) $ 3,674 $ 5,760 $ 6,856
Basic EPS before extraordinary item.............................. $0.08 $0.34 $0.55 $0.69
----- ----- ----- -----
----- ----- ----- -----
Basic EPS (loss)................................................. $(0.41) $0.34 $0.55 $0.69
------ ----- ----- -----
------ ----- ----- -----
1997 QUARTERLY RESULTS
Revenues......................................................... $433,770 $475,617 $521,975 $519,506
Gross profit..................................................... $ 39,065 $ 43,499 $ 48,530 $ 51,089
Income before extraordinary item................................. $ 256 $ 1,897 $ 3,236 $ 3,192
Net income....................................................... $ 256 $ 893 $ 3,236 $ 3,192
Basic EPS before extraordinary item.............................. $0.03 $0.20 $0.34 $0.33
----- ----- ----- -----
----- ----- ----- -----
Basic EPS........................................................ $0.03 $0.09 $0.34 $0.33
----- ----- ----- -----
----- ----- ----- -----
NOTE P--LEGAL PROCEEDINGS
The Company's subsidiary Dynalectric Company ("Dynalectric") is a party to
an arbitration proceeding arising out of Dynalectric's participation in a joint
venture with Computran Systems Corp. ("Computran"). The proceeding which was
instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior
Court"), by Computran, a participant in, and a subcontractor to, the joint
venture alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with others to commit certain acts in violation of the New Jersey
Racketeering Influence and Corrupt Organization Act. Dynalectric believes that
Computran's claims are without merit and has defended this matter vigorously.
Dynalectric has filed counterclaims against Computran. As a result of a motion
made by Dynalectric, the Superior Court has ordered that the matters in dispute
between Dynalectric and Computran be resolved by binding arbitration in
accordance with an original agreement between the parties. The parties are
awaiting the decision of the arbitrator.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that did business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
On July 31, 1998 a former employee of a subsidiary of EMCOR filed a
class-action complaint on behalf of the participants in two employee benefit
plans sponsored by EMCOR against EMCOR and other defendants for breach of
fiduciary duty under the Employee Retirement Income Security Act. All of the
claims relate to alleged
47
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P--LEGAL PROCEEDINGS--(CONTINUED)
acts or omissions which occurred during the period May 1, 1991 to December 1994.
The principal allegations of the complaint are that the defendants breached
their fiduciary duties by causing the plans to purchase and hold stock of EMCOR
when it was then known as JWP INC. and when the defendants knew or should have
known it was imprudent to do so. The plaintiff has not made claim for a specific
dollar amount of damages but generally seeks to recover for the benefit plans
the loss in value of JWP stock held by the plans. EMCOR and the other defendants
intend to vigorously defend the case. Insurance coverage may be applicable under
an EMCOR pension trust liability insurance policy for EMCOR and those present
and former employees of EMCOR who are defendants in the action.
Substantial settlements or damage judgements against the Company arising
out of these matters could have a material adverse effect on the Company's
business, operating results and financial condition.
In addition to the above, the Company is involved in other legal
proceedings and claims, asserted by and against the Company, which have arisen
in the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.:
We have audited the accompanying consolidated balance sheets of EMCOR Group,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and comprehensive income and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 12, 1999
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to identification of
directors is incorporated herein by reference to the material to be included
under the caption "Election of Directors" in the Company's definitive proxy
statement for its Annual Meeting of Stockholders, at which Directors are to be
elected, which definitive proxy statement is to be filed not later than
120 days after the end of the Company's fiscal year ended December 31, 1998.
The information called for by Item 10 with respect to "Executive Officers
of the Registrant" is included in Part I under the caption "Executive Officers
of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 with respect to executive compensation
is incorporated herein by reference to the material to be included in the
Company's definitive proxy statement for its Annual Meeting of Stockholders, at
which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 with respect to certain beneficial
owners and management is incorporated herein by reference to the material under
the captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Company's definitive proxy statement for its
Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days after the end
of the Company's fiscal year ended December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 with respect to certain transactions
with management and directors is incorporated herein by reference to the
material under the caption "Certain Relationships and Related Transactions" in
the Company's definitive proxy statement for its Annual Meeting of Stockholders,
at which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998.
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of EMCOR
Group, Inc. and Subsidiaries are included in Part II,
Item 8:
Financial Statements:
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Operations--Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity and
Comprehensive Income--Years Ended December 31, 1998, 1997 and
1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2) The following financial statement schedules are included in
this Form 10-K report:
Schedule II--Valuation And Qualifying Accounts
All other schedules are omitted because they are not
required, are inapplicable, or the information is otherwise
shown in the consolidated financial statements or notes
thereto.
(a)(3) The exhibits listed on the Exhibit Index following the
consolidated financial statements hereof are filed herewith
in response to this Item.
51
SCHEDULE II
EMCOR GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
[Enlarge/Download Table]
ADDITIONS
BALANCE AT CHARGE TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
-------------------------------------------- ------------ --------- ---------- ------------- --------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31, 1998................ $ 20,456 3,508 475 (433) $ 24,006
Year Ended December 31, 1997................ $ 18,812 4,300 2,615 (5,271) 20,456
Year Ended December 31, 1996................ $ 14,892 1,258 2,736 (74) 18,812
------------------
(1) Deductions represent uncollectible balances of accounts receivable written
of, net off recoveries.
52
EMCOR GROUP, INC.
EXHIBIT INDEX
[Enlarge/Download Table]
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
-------- -------------------------------------------------- --------------------------------------------------
2(a) -- Disclosure Statement and Third Amended Joint Exhibit 2(a) to the Company's Registration
Plan of Reorganization (the "Plan of Statement on Form 10 as originally filed
Reorganization") proposed by EMCOR Group, Inc. March 17, 1995 (the "Form 10")
(formerly JWP INC.) (the "Company" or
"EMCOR")and its subsidiary SellCo
Corporation("SellCo"), as approved for
dissemination by the United States Bankruptcy
Court, Southern District of New York (the
"Bankruptcy Court"), on August 22, 1994.
2(b) -- Modification to the Plan of Reorganization Exhibit 2(b) to Form 10
dated September 29, 1994
2(c) -- Second Modification to the Plan of Exhibit 2(c) to Form 10
Reorganization dated September 30, 1994
2(d) -- Confirmation Order of the Bankruptcy Court Exhibit 2(d) to Form 10
dated September 30, 1994 (the "Confirmation
Order") confirming the Plan of Reorganization,
as amended
2(e) -- Amendment to the Confirmation Order dated Exhibit 2(e) to Form 10
December 8, 1994
2(f) -- Post-confirmation modification to the Plan of Exhibit 2(f) to Form 10
Reorganization entered on December 13, 1994
3(a-1) -- Restated Certificate of Incorporation of EMCOR Exhibit 3(a-5) to Form 10
filed December 15, 1994
3(a-2) -- Amendment dated November 28, 1995 to the Exhibit 3(a-2) to the Company's Annual Report on
Restated Certificate of Incorporation of EMCOR Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K")
3(a-3) -- Amendment dated February 12, 1998 to the Exhibit 3(a-3) to the Company's Annual Report on
Restated Certificate of Incorporation Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K")
3(b) -- Amended and Restated By-Laws* page
3(c) -- Rights Agreement dated March 3, 1997 between Exhibit 1 to the Company's Report on Form 8-K
the Company and the Bank of New York dated March 3, 1997
4.1 -- Amendment and Restatement of Credit Agreement page
(the "Credit Agreement") dated as of
December 22, 1998 among EMCOR, certain of its
subsidiaries and Harris Trust and Savings Bank,
individually and as agent, and the Lenders
which are or become parties thereto*
53
[Enlarge/Download Table]
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
-------- -------------------------------------------------- --------------------------------------------------
4.2 -- Subordinated Indenture dated as of March 18, Exhibit 4(b) to the Company's Quarterly Report on
1998 ("Indenture") between EMCOR and State Form 10-Q for the quarter ended March 31, 1998
Street Bank and Trust Company, as Trustee ("March 1998 Form 10-Q")
("State Street Bank")
4.3 -- First Supplemental Indenture dated as of Exhibit 4(c) to March 1998 Form 10-Q
March 18, 1998 to Indenture between EMCOR and
State Street Bank
4.4 -- Indenture dated as of December 15, 1994, Exhibit 4.4 Form 10
between SellCo and Fleet National Bank of
Connecticut, as trustee, in respect of SellCo's
12% Subordinated Contingent Payment Notes, Due
2004
10(a-1) -- Employment Agreement dated as of September 14, Exhibit 10(e) to the Company's Annual Report on
1997 between the Company and Sheldon I. 10-K for the year ended December 31, 1987 (the
Cammaker "1987 Form 10-K")
10(a-2) -- Amendment dated March 15, 1998 to Employment Exhibit 10(f) to 1987 Form 10-K
Agreement dated as of September 14, 1987
between the Company and Sheldon I. Cammaker
10(b) -- Employment Agreement made as of January 1, 1998 Exhibit 10(a) to March 1998 Form 10-Q
between the Company and Frank T. MacInnis
10(c) -- Employment Agreement made as of January 1, 1998 Exhibit 10(b) to March 1998 Form 10-Q
between the Company and Jeffrey M. Levy
10(d) -- Employment Agreement made as of January 1, 1998 Exhibit 10(c) to March 1998 Form 10-Q
between the Company and Leicle E. Chesser
10(e) -- Employment Agreement made as of January 1, 1998 Exhibit 10(d) to March 1998 Form 10-Q
between the Company and Thomas D. Cunningham
10(f) -- Employment Agreement made as of January 1, 1998 Exhibit 10(e) to March 1998 Form 10-Q
between the Company and R. Kevin Matz
10(g) -- Employment Agreement made as of January 1, 1998 Exhibit 10(f) to March 1998 Form 10-Q
between the Company and Mark A. Pompa
10(h) -- Letter Agreement made as of January 1, 1998 Exhibit 10(g) to March 1998 Form 10-Q
between the Company and Sheldon I. Cammaker
10(i) -- 1994 Management Stock Option Plan Exhibit 10(o) to Form 10
10(j) -- 1995 Non-Employee Directors' Non-Qualified Exhibit 10(p) to Form 10
Stock Option Plan
10(k) -- 1997 Non-Employee Directors' Non-Qualified page
Stock Option Plan*
54
[Enlarge/Download Table]
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
-------- -------------------------------------------------- --------------------------------------------------
10(l) -- 1997 Stock Plan for Directors* page
10(m) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(a) to the Company's Quarterly Report on
between Frank T. MacInnis and the Company Form 10-Q for the quarter ended June 30, 1998
("June 1998 Form 10-Q")
10(n) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(b) to the June 1998 Form 10-Q
between Jeffrey M. Levy and the Company
10(o) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(c) to the June 1998 Form 10-Q
between the Company and Sheldon I. Cammaker
10(p) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(d) to the June 1998 Form 10-Q
between the Company and Leicle E. Chesser
10(q) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(e) to the June 1998 Form 10-Q
between the Company and Thomas D. Cunningham
10(r) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(f) to the June 1998 Form 10-Q
between the Company and R. Kevin Matz
10(s) -- Continuity Agreement dated as of Junen22, 1998 Exhibit 10(g) to the June 1998 Form 10-Q
between the Company and Mark A. Pompa
11 -- Computation of Basic EPS and Diluted EPS for page
the years ended December 31, 1998 and 1997*
21 -- List of Significant Subsidiaries* page
23 -- Consent of Arthur Andersen LLP* page
27 -- Financial Data Schedule* page
------------------
* Filed Herewith
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of
long-term debt of the Registrant's subsidiaries.
55
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
EMCOR GROUP, INC.
(Registrant)
Date: February 24, 1999 By /s/ FRANK T. MACINNIS
-----------------------------------
Frank T. MacInnis
Chairman of the Board of Directors
and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON FEBRUARY 24, 1999.
[Download Table]
/s/ FRANK T. MACINNIS Chairman of the Board of Directors and
------------------------------------------ Chief Executive Officer
Frank T. MacInnis
/s/ STEPHEN W. BERSHAD Director
------------------------------------------
Stephen W. Bershad
/s/ DAVID A.B. BROWN Director
------------------------------------------
David A.B. Brown
/s/ GEORGES L. DE BUFFEVENT Director
------------------------------------------
Georges L. de Buffevent
/s/ ALBERT FRIED, JR. Director
------------------------------------------
Albert Fried, Jr.
/s/ RICHARD F. HAMM, JR. Director
------------------------------------------
Richard F. Hamm, Jr.
/s/ KEVIN C. TONER Director
------------------------------------------
Kevin C. Toner
/s/ LEICLE E. CHESSER Executive Vice President and
------------------------------------------ Chief Financial Officer
Leicle E. Chesser
/s/ MARK A. POMPA Vice President and Controller
------------------------------------------
Mark A. Pompa
56
Dates Referenced Herein and Documents Incorporated by Reference
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