-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KS2Z2OQnGFNOiCmetU4e4nupLqIyRk0w+p8+hfruKAPsieksSuD19XNBOtjhnRW9 DxupoF5aQBNDo31QtMg7cw== 0000105634-96-000003.txt : 19960513 0000105634-96-000003.hdr.sgml : 19960513 ACCESSION NUMBER: 0000105634-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCOR GROUP INC CENTRAL INDEX KEY: 0000105634 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] IRS NUMBER: 112125338 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02315 FILM NUMBER: 96559973 BUSINESS ADDRESS: STREET 1: 101 MERRITT SEVEN CORPORATE PK STREET 2: 7TH FLOOR CITY: NORWALK STATE: CT ZIP: 06851 BUSINESS PHONE: 2038497800 MAIL ADDRESS: STREET 1: 101 MERRITT SEVEN CORPORATE PARK STREET 2: 7TH FLOOR CITY: NORWALK STATE: CT ZIP: 06851 FORMER COMPANY: FORMER CONFORMED NAME: JWP INC/DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JAMAICA WATER PROPERTIES INC DATE OF NAME CHANGE: 19860518 FORMER COMPANY: FORMER CONFORMED NAME: WELSBACH CORP DATE OF NAME CHANGE: 19761119 10-Q 1 FORM 10-Q FIRST QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 - -------------------------------------------------------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ - -------------------------------------------------------------------------- Commission file number 0-2315 EMCOR Group, Inc. - ----------------- (Exact name of registrant as specified in its charter) Delaware 11-2125338 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 101 Merritt Seven Corporate Park 06851-1060 Norwalk, Connecticut ---------- -------------------------------- (Zip Code) (Address of principal executive offices) (203) 849-7800 -------------- (Registrant's telephone number) - ------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 and 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 filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant has filed all documents required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934, subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- Number of shares of Common Stock outstanding as of the close of business on April 30, 1996: 9,424,706 shares. EMCOR GROUP, INC. INDEX Page No. PART I - Financial Information Item 1 Financial Statements Condensed consolidated balance sheets - as of March 31, 1996 and December 31, 1995 1 Condensed consolidated statements of operations - three months ended March 31, 1996 and 1995 3 Condensed consolidated statements of cash flows - three months ended March 31, 1996 and 1995 4 Condensed consolidated statement of stockholders' equity for the three month period ended March 31, 1996 5 Notes to condensed consolidated financial statements 6 Item 2 Management's discussion and analysis of financial condition and results of operations 12 PART II - Other Information Item 1 Legal Proceedings 15 Item 6 Exhibits and Reports on Form 8-K 15 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) - ------------------------------------------ ------------------ ----------------- March 31, December 31, 1996 1995 - ------------------------------------------ ------------------ ----------------- ASSETS (Unaudited) Current Assets Cash and cash equivalents $54,820 $53,007 Accounts receivable, net 410,502 435,974 Costs and estimated earnings in excess of billings on uncompleted contracts 62,156 65,551 Inventories 9,519 8,031 Prepaid expenses and other 6,987 8,365 Net assets held for sale 63,819 61,969 ------------------ ----------------- Total Current Assets 607,803 632,897 ------------------ ----------------- Investments, Notes and Other Long-Term Receivables 4,685 4,684 Property, Plant and Equipment, net 25,833 27,137 Other Assets Insurance cash collateral 33,944 30,812 Miscellaneous 14,914 15,415 ------------------ ----------------- 48,858 46,227 ------------------ ----------------- Total Assets $687,179 $710,945 ================== ================= See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) - ------------------------------------------ ------------------ ----------------- March 31, December 31, 1996 1995 - ------------------------------------------ ------------------ ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current Liabilities Notes payable $14,240 $14,665 Borrowings under working capital credit lines 25,000 25,000 Current maturities of long-term debt and capital lease obligations 1,766 1,875 7% Senior Secured Notes (Series A) 63,819 61,969 Accounts payable 196,583 224,002 Billings in excess of costs and estimated earnings on uncompleted contracts 114,765 113,590 Accrued payroll and benefits 44,477 38,928 Other accrued expenses and liabilities 42,388 45,445 ------------------ ----------------- Total Current Liabilities 503,038 525,474 ------------------ ----------------- Long-Term Debt 70,354 68,240 Other Long-Term Obligations 47,137 46,621 Stockholders' Equity Common Stock, $.01 par value, 13,700,000 shares authorized, 9,424,706 and 9,424,083 issued and outstanding, respectively. 94 94 Warrants 2,179 2,179 Capital surplus 78,863 78,863 Cumulative translation adjustment 20 327 Accumulated Deficit (14,506) (10,853) ------------------ ----------------- Total Stockholders' Equity 66,650 70,610 ------------------ ----------------- Total Liabilities and Stockholders' Equity $687,179 $710,945 ================== ================= See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited) - ------------------------------------------ ------------------ ----------------- Three months ended March 31, 1996 1995 - ------------------------------------------ ------------------ ----------------- Revenues $382,744 $386,015 Costs and Expenses Cost of sales 345,572 354,148 Selling, general and administrative 36,643 34,771 ------------------ ----------------- 382,215 388,919 ------------------ ----------------- Operating Income (Loss) 529 (2,904) Interest Expense, Net 3,761 3,805 ------------------ ----------------- Loss Before Income Taxes (3,232) (6,709) Provision For Income Taxes 421 250 ------------------ ----------------- Net Loss ($3,653) ($6,959) ================== ================= Loss Per Common Share and Common Share Equivalent: ($0.37) ($0.74) ================== ================= See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) - ------------------------------------------ ------------------ ----------------- Three months ended March 31, 1996 1995 - ------------------------------------------ ------------------ ----------------- CASH FLOWS FROM OPERATIONS: Net loss ($3,653) ($6,959) Non-cash expenses 4,163 4,689 Change in operating assets and liabilities 2,816 (1,813) ------------------ ----------------- NET CASH PROVIDED BY (USED IN) OPERATIONS 3,326 (4,083) ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of working capital credit lines - (2,500) Payments of long-term debt and capital lease obligations (199) (315) Change in notes payable, net (425) 1,232 ------------------ ----------------- NET CASH USED IN FINANCING ACTIVITIES (624) (1,583) ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,170) (1,689) Proceeds from sales of property, plant and equipment 281 - ------------------ ----------------- NET CASH USED IN INVESTING ACTIVITIES (889) (1,689) ------------------ ----------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,813 (7,355) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,007 52,505 ------------------ ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $54,820 $45,150 ================== ================= SUPPLEMENTAL CASH FLOW INFORMATION Cash Paid For: Interest $1,449 $1,481 Income Taxes $62 $104 See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In Thousands) (Unaudited) - ------------------- ------- -------- -------- ------------ ------------ -------- Cumulative Common Capital Translation Accumulated Stock Warrants Surplus Adjustment Deficit Total - ------------------- ------- -------- -------- ------------ ------------ -------- Balance, December 31, 1995 $94 $2,179 $78,863 $327 $(10,853) $70,610 Net Loss - - - - (3,653) (3,653) Translation Adjustments - - - (307) - (307) ------- -------- -------- ------------ ------------ -------- Balance, March 31, 1996 $94 $2,179 $78,863 $20 ($14,506) $66,650 ======= ======== ======== ============ ============ ======== See notes to condensed consolidated financial statements ================================================================================ EMCOR Group, Inc. and Subsidiaries ================================================================================ Notes to Condensed Consolidated Financial Statements (unaudited) NOTE A NATURE OF OPERATIONS EMCOR Group, Inc. and subsidiaries ("EMCOR" or the "Company") is a multinational corporation involved in mechanical and electrical construction and facilities management services. EMCOR, which conducts its business through subsidiaries, specializes in the design, integration, installation, start-up, testing, operation and maintenance of (i) distribution systems for electrical power (including power cables, conduits, distribution panels, transformers, generators, uninterruptible power supply systems and related switch gear and control), (ii) lighting systems, including fixtures and controls, (iii) low-voltage systems, including fire alarm, security, communications and process control systems, (iv) heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems, and (v) plumbing, process and high purity piping systems. EMCOR provides (i) mechanical and electrical construction services directly to end-users (including corporations, municipalities and other governmental entities, owners, developers, and tenants of buildings) and, indirectly, by acting as a subcontractor, to construction managers, general contractors and other subcontractors, and (ii) facilities management services directly to end users such as corporations, owners, property managers and tenants of buildings. Mechanical and electrical construction services are principally of three types: (i) large installation projects, with contracts generally in the multi-million dollar range, in connection with construction of industrial, institutional and public work facilities and commercial buildings and fit-out of large blocks of space within commercial buildings; (ii) smaller system installation projects involving fit-out, renovation and retrofit work; and (iii) testing and service of completed facilities. In addition, certain of its subsidiaries operate and maintain mechanical and/or electrical systems for customers under contracts and provide other services to customers, at the customer's facilities, which services are commonly referred to as facilities management. Mechanical and electrical construction and facilities management services are provided to a broad range of commercial, industrial and institutional customers through offices located in major markets throughout the United States, Canada, the United Kingdom, the Middle East and Hong Kong. NOTE B BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of a normal recurring nature) necessary to present fairly the financial position of the Company and the results of its operations. The results of operations for the three month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. A description of the Company's significant accounting policies is included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 13, 1996. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Form 10-K. NOTE C NET LOSS PER COMMON SHARE AND COMMON EQUIVALENT SHARE Net loss per common share and common equivalent share for the three month periods ended March 31, 1996 and 1995 has been calculated based on the weighted average number of shares of common stock outstanding and common stock equivalents relating to stock options outstanding when the effect of such equivalents are dilutive. NOTE D CURRENT DEBT MES CREDIT AGREEMENT - On December 14, 1994, the Company and certain of its subsidiaries entered into a credit agreement with Belmont Capital Partners II, L.P. ("Belmont") and other lenders (the "Lenders") providing the Company and MES Holdings Corporation ("MES"), a wholly-owned subsidiary of the Company, with revolving credit loans (the "MES Loans") of up to an aggregate amount of $35.0 million. The MES Loans are guaranteed by certain direct or indirect United States subsidiaries of MES (the " U.S. MES Subsidiaries") and are secured by, among other things, substantially all of the assets of the Company, MES and the U.S. MES Subsidiaries, including the proceeds of the sale of all of the assets of the Company, MES and the U.S. MES Subsidiaries and the proceeds of the sale of stock or assets of the Company's two water supply companies (the "Water Companies") to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the Lenders under the Dyn credit facility referred to below. The MES Loans bear interest on the principal amount thereof at the rate of 15.0% per annum and mature on June 14, 1996. Borrowings under the MES Credit Agreement, $25.0 million at March 31, 1996 and December 31, 1995, are classified as current liabilities under the caption "Borrowings under working capital credit lines" in the accompanying condensed consolidated balance sheets. DYN CREDIT AGREEMENT - On December 14, 1994, the Company, Dyn Specialty Contracting Inc. ("Dyn"), a wholly-owned subsidiary of the Company, and Dyn's subsidiaries entered into a credit agreement (the "Dyn Credit Agreement") with the Lenders providing revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10.0 million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured by substantially all of the assets of Dyn and the Dyn subsidiaries, including the proceeds of the sale of stock or assets of the Water Companies to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the Lenders under the MES Credit Agreement. The Dyn Loans bear interest on the principal amount thereof at the rate of 15.0% per annum and mature on June 14, 1996. No borrowings were outstanding under the Dyn Credit Agreement at March 31, 1996 and December 31, 1995. The Company is actively seeking to replace or extend its existing credit facilities that will expire in 1996. 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 $8.8 million additional principal amount of Series A Notes for issuance upon resolution of disputed and unliquidated pre-petition general unsecured claims pursuant to the Company's Plan of Reorganization adopted in connection with its Chapter 11 proceeding. A maximum of $7.2 million of Series A Notes are available as of March 31, 1996 for issuance. The Series A Notes are guaranteed by MES and SellCo Corporation ("SellCo"), a wholly-owned subsidiary of EMCOR which holds the other stock of subsidiaries of EMCOR designated for sale. The terms of the Series A Notes require that the net proceeds realized from the sale of the stock or assets of the Company's subsidiaries be applied to the prepayment of the Series A Notes (subject to the rights of the Lenders under the MES and Dyn Credit Agreements to receive proceeds from the sale of the stock or assets of the Company's mechanical and electrical subsidiaries and the first $15.0 million of proceeds of the sale of stock or assets of the Water Companies). The recorded amount includes the estimated amount of Series A Notes to be issued upon resolution of the disputed and unliquidated pre-petition general unsecured claims. The Company recorded the Series A Notes based upon an assumed total of $100.0 million of pre-petition general unsecured claims after settlement of disputed and unliquidated pre-petition general unsecured claims. Approximately $4.7 million of the issued Series A Notes were redeemed prior to March 31, 1996. The Series A Notes have been recorded at a discount to the face amount to yield an estimated effective interest rate of 12.0%. The Series A Notes have been classified as a current liability based on the expected disposition of assets held for sale. Interest on the Series A Notes is payable semiannually by the issuance of additional Series A Notes until maturity and substantially offsets income generated from net assets held for sale for the three month periods ended March 31, 1996 and 1995. The outstanding balance of the Series A Notes included in the accompanying condensed consolidated balance sheet as of March 31, 1996 is approximately $63.8 million. The outstanding face amount of the Series A Notes at March 31, 1996 is approximately $64.9 million. NOTE E LONG-TERM DEBT Long-Term Debt in the accompanying condensed consolidated balance sheets consists of the following amounts at March 31, 1996 and December 31, 1995 (in thousands): ========================================= March 31, December 31, 1996 1995 ========================================= Series C Notes, original face value of $62,827 at 11.0% discounted to a 14.0% effective rate, due 2001 $63,698 $61,494 Supplemental SellCo Note, original face value of $5,464 at 8.0% discounted to a 14.0% effective rate, due 2004 4,112 4,112 Capitalized Lease Obligations at weighted average interest rates from 7.25% to 11.0%, payable in varying amounts through 2004 1,133 1,284 Other, at weighted average interest rates of approximately 10.75% payable in varying amounts through 3,177 3,225 2012 ------------------- --------------- 72,120 70,115 Less current maturities (1,766) (1,875) ------------------- --------------- $70,354 $68,240 =================== =============== 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 is payable semiannually through June 15, 1996 by the issuance of additional Series C Notes and thereafter is payable quarterly in cash. The Series C Notes are unsecured indebtedness of the Company subordinate to (i) the Series A Notes and (ii) up to $100.0 million of working capital indebtedness of the Company or MES and guaranteed by MES subject to payment in full of the Series A Notes. The Series C Notes have been recorded at a discount to their face amount to yield an estimated effective interest rate of 14.0%. Including accrued interest paid-in-kind, the outstanding face amount of Series C Notes at March 31, 1996 is approximately $69.0 million. SUPPLEMENTAL SELLCO NOTE - On December 15, 1994 EMCOR issued to SellCo its 8% promissory note in the principal amount of approximately $5.5 million (the "Supplemental SellCo Note"). The note matures on the earlier of (i) December 15, 2004 or (ii) one day prior to the date on which the SellCo Notes (hereafter described) are deemed canceled. If at any time after the fifth anniversary of the effective date of the Company's plan of reorganization and prior to the maturity date of the SellCo Notes, the value of the consolidated assets of SellCo and its subsidiaries (excluding the Supplemental SellCo Note) is determined by independent appraisal to be less than $250,000, the balance of the SellCo Notes (not therefore paid from net sales proceeds from the sale of the stock or assets of SellCo subsidiaries and the proceeds of the Supplemental SellCo Note which will have become due and payable) will be deemed canceled. Interest on the Supplemental SellCo Note is payable upon maturity. The Supplemental SellCo Note has been recorded at a discount to its face amount to yield an estimated effective interest rate of 14.0%. The outstanding face amount of the Supplemental SellCo Note at March 31, 1996 is approximately $5.5 million. SELLCO NOTES - On December 15, 1994 SellCo issued approximately $48.1 million principal amount of SellCo Notes. Interest is payable semiannually in additional SellCo Notes. Subject to the prior payment in full of the Series A Notes and establishment of a cash reserve for the payment of capital gains taxes arising from the sale of subsidiaries of SellCo and the rights of the Lenders under the MES and Dyn Credit Agreements with respect to proceeds (as defined) of the sale of the Water Companies, the SellCo Notes are mandatorily prepayable to the extent of net sales proceeds from the sale of stock or assets of SellCo subsidiaries. Since the SellCo Notes will only be satisfied to the extent that assets of SellCo and its subsidiaries generate sufficient cash in excess of that required to redeem the Series A Notes and to prepay a portion of the indebtedness under the MES and Dyn Credit Agreements, the SellCo Notes have been netted in the caption "Net assets held for sale" in the accompanying condensed consolidated balance sheets. The holders of the SellCo Notes may only look to EMCOR to the extent of EMCOR's obligation to pay the Supplemental SellCo Note plus accrued interest. At this time, the Company cannot determine the amount of net sale proceeds (as defined), if any, from the sale of SellCo's subsidiaries that will be available to redeem SellCo Notes. OTHER - Other long-term debt consists primarily of loans for real estate, office equipment, automobiles and building improvements. NOTE F NET ASSETS HELD FOR SALE The operating results of net assets held for sale have been excluded from the condensed consolidated financial statements for the three month periods ended March 31, 1996 and 1995 since the operation of these businesses will only accrue to the benefit of the holders of the SellCo Notes after payment in full of the Series A Notes and certain other obligations (see Notes D and E). The condensed consolidated balance sheet relating to net assets held for sale as of March 31, 1996 is as follows (in thousands): Cash $4,084 Current maturities of long-term debt and Accounts receivable, net 19,535 capital lease obligations $12,173 Costs and estimated earnings Accounts payable in excess of billings 6,744 Billings in excess of costs 10,926 Inventories 1,058 and estimated earnings 6,655 Other current assets 1,120 Other accrued expenses 28,679 ---------- --------- 32,541 58,433 Long-term debt and capital lease obligations 42,259 Property, plant and equipment, Other long-term liabilities 28,704 net 153,354 Other assets 7,320 Net assets held for sale 63,819 ---------- ========= $193,215 $193,215 ========== ========= NOTE G INCOME TAXES The Company files a consolidated federal income tax return including all U.S. subsidiaries. At March 31, 1996, the Company had a net operating loss carryforward ("NOL") for U.S. income tax purposes expiring in years 2007 through 2010 which approximates $225.0 million, subject to Internal Revenue Service approval. In addition, the Company has a U.S. capital loss carryover of approximately $15.0 million expiring in 1998 and 1999. However, a subsequent ownership change prior to December 15, 1996 would reduce to zero the future NOL benefits under Internal Revenue Code Section 382(1)(5). As a result of the adoption of Fresh-Start Accounting, the tax benefit of the Company's net operating loss carryforwards or net deductible temporary differences which existed as of the date of its emergence from Chapter 11 will result in a charge to the tax provision (provision in lieu of income taxes) and is 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. The Company has provided a valuation allowance as of March 31, 1996 for the full amount of the tax benefit of its NOLs and other deferred tax assets. Income tax expense recorded for the three month periods ended March 31, 1996 and 1995 represents a provision primarily for foreign and state and local income taxes. NOTE H LEGAL PROCEEDINGS 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 does 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 July 11, 1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company allegedly owned by Kohl, were indicted by a New York County grand jury for grand larceny, fraud, repeated failure to file New York City Corporate Tax Returns and related money laundering charges. Kohl was also charged with filing false personal income and earnings tax returns, perjury and offering false instruments for filing with the New York City School Construction Authority. In a press release announcing the indictment, the Manhattan District Attorney said that the investigation disclosed that Mr. Kohl allegedly received more than $7 million in kickbacks from subcontractors through a scheme in which he allegedly inflated subcontracts on Herbert's construction contracts. At a press conference in July 1995 following the indictment, the District Attorney announced that the investigation is continuing, and he expects further indictments in the investigation. Forest performs electrical contracting services primarily in the New York City commercial market and is one of the Company's largest subsidiaries. The Dynalectric Company ("Dynalectric"), a subsidiary of the Company, is a defendant in an action entitled Computran v. Dynalectric, et. al., pending in Superior Court of New Jersey, Bergen County, arising out of its participation in a joint venture. In the action, which was instituted in 1988, the plaintiff, Computran, a participant in and a subcontractor to the joint venture, alleges that Dynalectric wrongfully terminated it from the subcontract, fraudulently diverted funds due it, misappropriated its trade secrets and proprietary information, fraudulently induced it to enter into the joint venture and conspired with other defendants 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 intends to defend this matter vigorously. Dynalectric has filed counterclaims against Computran. Discovery is ongoing, no trial date is scheduled. On September 26, 1994 certain holders of Warrants of Participation ("Warrants") that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a declaratory judgment action against a subsidiary of the Company Jamaica Water Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the State of New York, Westchester County, bearing the caption, Harold F. Scattergood Jr., et al. v. Jamaica Water Securities Corp. (Index No. 15992/94). On October 17, 1994, an amended complaint was served adding additional plaintiffs. The plaintiffs sought a declaration that JWSC succeeded to the Company's obligations on the Warrants by reason of its 1977 acquisition of the Company's 96% stock interest in Jamaica Water Supply Company ("JWS"). The plaintiffs also claimed that certain events constituted a disposition of the assets of JWS which triggered the Warrants, obligating JWSC to issue shares of its own stock to plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994 expiration date of the Warrants should be extended for some indefinite period of time. By a Decision and Order, entered on June 22, 1995, the court granted the Company's motion to dismiss the plaintiffs' action holding that the assets of JWS had not been "disposed of" under the express terms of the Warrants prior to their stated expiration on December 31, 1994. The court also held that it lacked the power to rewrite the "clear and unambiguous provisions" of the Warrants Agreement to extend the December 31, 1994 deadline. The plaintiffs have appealed the court's decision. 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 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues for the first quarter of 1996 were $382.7 million compared to $386.0 million in the first quarter of 1995. In the first quarter of 1996 the Company had a net loss of $3.7 million or $0.37 per share compared to a net loss of $7.0 million or $0.74 per share in the first quarter of 1995. The Company generated operating income of $0.5 million for the three months ended March 31, 1996 compared to a $2.9 million operating loss in the same period of the prior year. The improvement to operating income for the first three months of 1996 was principally attributable to continued improvements in gross profit due to cost control efforts and favorable job closeouts offset partially by an increase in selling, general and administrative expenses discussed below. Revenues remained substantially unchanged compared with the year earlier periods. While revenues of business units operating in the Western United States and Canada increased due to improved economic conditions, these increases were offset by decreased revenues in the Eastern United States resulting from, among other things, adverse weather conditions, and in the Midwestern United States due to the Company's previous downsizing of those operations. Selling, general and administrative expenses ("SG&A"), excluding general corporate expenses, for the quarters ended March 31, 1996 and 1995 were $33.0 million and $31.0 million, respectively. The increase in SG&A was attributable to an arbitration award requiring the Company to pay $4.8 million in damages in connection with a contract dispute involving its subsidiary T.L. Cholette, Inc. The Company is seeking to have the award set aside. SG&A decreased by $2.8 million, exclusive of the arbitration award, in the first quarter of 1996 as compared to the same period in the prior year. The Company's backlog was $1,119.7 million at March 31, 1996 and $1,060.7 million at December 31, 1995. The Company's backlog in the United States increased by $68.8 million between December 31, 1995 and March 31, 1996, while its backlog in Canada and the United Kingdom decreased by $5.4 million and $4.4 million, respectively. The increase in the Company's domestic backlog was primarily attributable to improved economic conditions in the Western United States. The decline in the Canadian backlog is principally attributable to the downsizing of its Canadian operations while the decline in the United Kingdom backlog is due to normal operating cycles. GENERAL CORPORATE AND OTHER EXPENSES General corporate expenses for the quarters ended March 31, 1996 and 1995 were $3.6 million and $3.8 million, respectively. The decrease in general corporate expenses in 1996 was attributable to the Company's continued cost reduction efforts. NET ASSETS HELD FOR SALE The operating results of net assets held for sale have been excluded from the condensed consolidated financial statements for the three month periods ended March 31, 1996 and 1995 since the operation of these businesses will only accrue to the benefit of the holders of notes issued by the Company's subsidiary, SellCo Corporation, after payment in full of the Company's Series A Notes and certain other obligations (See Note D in the accompanying Notes to Condensed Consolidated Financial Statements). Net assets held for sale are recorded in the condensed consolidated balance sheets at the lower of cost or estimated net realizable value and are classified as current based on their estimated disposition dates. The Company has entered into agreements to sell substantially all of the stock and/or assets of its principal business held for sale, collectively known as the "Water Companies". LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash balance increased by $1.8 million from $53.0 million at December 31, 1995 to $54.8 million at March 31, 1996. The March 31, 1996 cash balance included approximately $3.5 million in foreign bank accounts and reflected $25.0 million borrowed under the Company's MES Credit Agreement referred to below. The foreign bank accounts are available only to support the Company's foreign operations. The positive operating cash flow was due to working capital improvements in the first quarter of 1996. On December 14, 1994, the Company and certain of its subsidiaries entered into a credit agreement with lenders providing the Company and MES Holdings Corp. ("MES"), a wholly-owned subsidiary of the Company, with revolving credit loans (the "MES Loans") of up to an aggregate amount of $35.0 million. The MES Loans are guaranteed by certain direct and indirect United States subsidiaries of MES (the "U.S. MES Subsidiaries") and are secured by, among other things, substantially all of the assets of the Company, MES and the U.S. MES Subsidiaries, including the proceeds of the sale of all of the assets of the Company, MES and the U.S. MES Subsidiaries and the proceeds of the sale of stock or assets of the Company's two water supply companies (the "Water Companies") to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the lenders under the Dyn Credit Agreement referred to below. The MES Loans bear interest on the principal amount thereof at the rate of 15.0% per annum, and mature on June 14, 1996. Borrowings under the MES Credit Agreement, $25.0 million at March 31, 1996, are classified as current liabilities under the caption "Borrowings under working capital credit lines" in the accompanying condensed consolidated balance sheets. Also on December 14, 1994, the Company, its subsidiary Dyn Specialty Contracting Inc. ("Dyn") and Dyn's subsidiaries entered into a credit agreement (the "Dyn Credit Agreement") with lenders providing revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10.0 million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured by substantially all of the assets of Dyn and the Dyn subsidiaries, including the proceeds of the sale of stock or assets of the Water Companies to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the lenders under the MES Credit Agreement. The Dyn Loans bear interest on the principal amount thereof at the rate of 15.0% per annum, and mature on June 14, 1996. No borrowings were outstanding under the Dyn Credit Agreement at March 31, 1996. Included in the accompanying condensed consolidated balance sheet as of March 31, 1996 are approximately $63.8 million of Series A Notes that were issued or reserved for issuance in connection with the Company's emergence from bankruptcy. The Series A Notes have been recorded at a discount to the face amount to yield an estimated effective interest rate of 12.0%. Interest on the Series A Notes is payable semiannually by the issuance of additional Series A Notes until maturity and substantially offsets income generated from net assets held for sale for the three month periods ended March 31, 1996 and 1995. Also included in the accompanying condensed consolidated balance sheet as of March 31, 1996 are approximately $63.7 million of the Company's Series C Notes that were issued in connection with the Company's emergence from bankruptcy. The Series C Notes have been recorded at a discount to their face amount to yield an estimated effective rate of 14.0%. Interest on the Series C Notes is payable semiannually through June 15, 1996 by the issuance of additional Series C Notes and thereafter is payable quarterly in cash. The accompanying condensed consolidated balance sheet as of March 31, 1996 reflects approximately $5.5 million of a promissory note (the "Supplemental SellCo Note") payable to the Company's subsidiary SellCo Corporation, which note was issued in connection with the Company's emergence from bankruptcy. The Supplemental SellCo Note has been recorded at a discount to its face amount to yield an estimated effective interest rate of 14.0%. Interest on the Supplemental SellCo Note is payable upon maturity. In June 1995, the Company's Canadian subsidiary, Comstock Canada, entered into a credit agreement providing for an overdraft facility of up to Canadian $2.0 million. The facility is secured by certain assets of Comstock Canada and deposit instruments of a Canadian subsidiary of the Company. The facility provides for interest at the bank's prime rate (6.75% at March 31, 1996) plus 3/4% and expires on September 30, 1996. There were no borrowings outstanding under this credit agreement at March 31, 1996. In September 1995, a number of the Company's U.K. subsidiaries renegotiated and renewed a demand credit facility with a U.K. bank for a credit line of pounds 17.1 million (approximately U.S. $26.1 million). The credit facility consists of the following components with the individual credit limits as indicated: an overdraft line of up to pounds 9.0 million (approximately U.S. $13.7 million); a facility for the issuance of guarantees, bond and indemnities of up to pounds 7.3 million (approximately U.S. $11.2 million); and other credit facilities of up to pounds 0.8 million (approximately U.S. $1.2 million). The facility is secured by substantially all of the assets of the Company's principal U.K. subsidiaries. The overdraft facility provides for interest at the bank's base rate, as defined (6.5% as of March 31, 1996), plus 3.0% on the first pounds 5.0 million of borrowings and at the bank's base rate plus 4.0% for borrowings over pounds 5.0 million. This credit facility, as amended, expires June 30, 1996. As of March 31, 1996, the Company's U.K. subsidiaries had utilized approximately $22.4 million of the credit facilities as follows: approximately $13.1 million of borrowings under the overdraft line, approximately $8.2 million for the issuance of guarantees, and approximately $1.1 million under other credit facilities. The Company is actively seeking to replace or extend its existing credit facilities that will expire in 1996. On November 4, 1994, the Company's two water supply subsidiaries Jamaica Water Supply Company ("JWS") and Sea Cliff Water Company ("SCW"), entered into a credit agreement providing for a credit facility to JWS of $17.9 million and for a credit facility to SCW of $2.1 million at an interest rate based upon either prime rate, LIBOR plus 5/8% or bid rate, as those terms are defined in the credit agreement. These borrowings are reflected as current liabilities in the condensed consolidated balance sheet of "Net assets held for sale" which is presented in Note F to the condensed consolidated financial statements. This credit agreement has been extended from November 4, 1995 to August 1, 1996. During the period from November 4, 1995 to August 1, 1996, the Company's borrowings are limited to $12.0 million for JWS. JWS' obligations under the credit agreement become due and payable on the earlier of (a) August 1, 1996 or (b) the tenth business day following any disposition by JWS outside the ordinary course of business of assets with an aggregate value in excess of $5,000,000. Sea Cliff's obligations under the credit agreement become due and payable on the earlier of (a) August 1, 1996 or (b) the tenth business day following any disposition by JWS outside the ordinary course of business of assets with an aggregate fair market value in excess of $5,000,000, (c) a distribution by JWS to its stockholders of the proceeds of such disposition, or (d) a disposition by Sea Cliff outside the ordinary course of business of assets with an aggregate fair market value in excess of $50,000. At March 31, 1996, the Company had a net operating loss carryforward ("NOL") for U.S. income tax purposes expiring in years 2007 through 2010 which approximates $225.0 million, subject to Internal Revenue Service approval. In addition, the Company has a U.S. capital loss carryover of approximately $15.0 million expiring in 1998 and 1999. However, a subsequent ownership change prior to December 15, 1996 would reduce to zero the future NOL benefits under Internal Revenue Code Section 382(1)(5). The Company has provided a valuation allowance as of March 31, 1996 for the full amount of the tax benefit of its NOLs and other deferred tax assets. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The information in Note H to the Company's March 31, 1996 Notes to Condensed Consolidated Financial Statements (unaudited) regarding legal proceedings is hereby incorporated herein by reference thereto. In addition, in connection with a contract dispute involving the Company's subsidiary T.L. Cholette, Inc. ("Cholette") and Gallagher Kaiser, Inc. ("GK"), a general contractor with whom Cholette contracted, an arbitration panel in April 1996 awarded damages against Cholette and in favor of GK in the amount of $4,835,702. Also in April 1996, Cholette commenced an action against GK in the Circuit Court for the County of Wayne, State of Michigan to have the arbitration award vacated alleging the arbitrators exceeded their powers and/or committed material and/or substantive errors of law and fact, ignored the controlling, material, and/or essential provisions of law and the contract, and acted in manifest disregard of the law. GK has commenced an action in the same court seeking to have judgment entered upon the arbitration award in GK's favor. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. 27. Financial Data Schedule. Page. (b) During the quarter ended March 31, 1996, the Company filed Reports on Form 8-K dated February 5, 1996, February 29, 1996 and March 29, 1996 reporting information with respect to Item 5. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMCOR GROUP, INC. ----------------------------------- (Registrant) Date: May 10, 1996 By: /s/FRANK T. MacINNIS ----------------------------------- Frank T. MacInnis Chairman of the Board of Directors, President and Chief Executive Officer Date: May 10, 1996 By: /s/LEICLE E. CHESSER ----------------------------------- Leicle E. Chesser Executive Vice President and Chief Financial Officer EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000105634 EMCOR GROUP, INC. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 54,820 0 422,306 11,804 9,519 607,803 39,496 13,663 687,179 503,038 70,354 94 0 0 66,556 687,179 382,744 382,744 345,572 382,215 0 128 3,761 (3,232) 421 (3,653) 0 0 0 (3,653) (.37) (.37)
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