-----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, VUUVuJAVlCNLkophHGdYplS/TC7O+rT0ePDdKfl+LCFLk6Ktamswg+4earVL/gON nxMMDs789pGkQhO6mf/JbQ== 0000105634-98-000012.txt : 19981030 0000105634-98-000012.hdr.sgml : 19981030 ACCESSION NUMBER: 0000105634-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981029 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: SEC FILE NUMBER: 000-02315 FILM NUMBER: 98732666 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 EMCOR GROUP, INC. SEPTEMBER 30, 1998 FORM 10-Q 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 September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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) N/A - -------------------------------------------------------------------------------- (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 __ Applicable Only To Issuers Involved In Bankruptcy Proceedings During The Previous Five Years ------------------- 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 __ Applicable Only To Corporate Issuers ------------------------------------ Number of shares of Common Stock outstanding as of the close of business on October 28, 1998: 9,952,803 shares. EMCOR GROUP, INC. INDEX Page No. PART I - Financial Information Item 1 Financial Statements Condensed consolidated balance sheets - as of September 30, 1998 and December 31, 1997 1 Condensed consolidated statements of operations - three months ended September 30, 1998 and 1997 3 Condensed consolidated statements of operations - nine months ended September 30, 1998 and 1997 4 Condensed consolidated statements of cash flows - nine months ended September 30, 1998 and 1997 5 Condensed consolidated statements of stockholders' equity and comprehensive income - nine months ended September 30, 1998 and 1997 6 Notes to condensed consolidated financial statements 7 Item 2 Management's discussion and analysis of financial condition and results of operations 13 PART II - Other Information Item 1 Legal Proceedings 16 Item 4 Submission of Matters to a Vote of Security Holders 16 Item 6 Exhibits and Reports on Form 8-K 16 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) - ---------------------------------------------------------------------- September 30, December 31, 1998 1997 (Unaudited) - ---------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $68,308 $49,376 Accounts receivable, net 551,749 480,997 Costs and estimated earnings in excess of billings on uncompleted contracts 85,093 73,974 Inventories 6,279 7,363 Prepaid expenses and other 9,400 10,951 ---------------------------------- Total Current Assets 720,829 622,661 ---------------------------------- Investments, Notes and Other Long-Term Receivables 6,831 5,901 Property, Plant and Equipment, Net 30,967 27,164 Other Assets 18,463 4,928 ---------------------------------- Total Assets $777,090 $660,654 ================================== See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) - ---------------------------------------------------------------------- September 30, December 31, 1998 1997 (Unaudited) - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Borrowings under working capital credit lines $-- $9,497 Current maturities of long-term debt 1,927 927 Accounts payable 236,587 239,117 Billings in excess of costs and estimated earnings on uncompleted contracts 147,944 112,833 Accrued payroll and benefits 57,970 49,058 Other accrued expenses and liabilities 54,022 45,163 --------------------------- Total Current Liabilities 498,450 456,595 --------------------------- Long-Term Debt 117,819 63,212 Other Long-Term Obligations 47,372 45,524 Stockholders' Equity: Common Stock - par value $0.01 Authorized - 30,000,000 shares Outstanding - 9,960,903 and 9,590,827 shares, respectively 108 96 Warrants 2,154 2,154 Capital Surplus 112,632 87,107 Accumulated Other Comprehensive Income (1,180) (195) Retained Earnings 11,620 6,161 Treasury Stock, at cost, 827,600 shares at September 30, 1998 and 0 shares at December 31, 1997 (11,885) -- --------------------------- Total Stockholders' Equity 113,449 95,323 --------------------------- Total Liabilities and Stockholders' Equity $777,090 $660,654 =========================== 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 September 30, 1998 1997 - ---------------------------------------------------------------------- Revenues $565,964 $521,975 Costs and Expenses: Cost of sales 508,010 473,445 Selling, general and administrative 45,939 39,940 ----------------------------- 553,949 513,385 ----------------------------- Operating Income 12,015 8,590 Interest Expense, Net 1,866 3,106 ----------------------------- Income Before Income Taxes 10,149 5,484 Provision for Income Taxes 4,389 2,248 ----------------------------- Net Income $5,760 $3,236 ============================= Per Share Information: Basic Earnings Per Share $0.55 $0.34 ============================= Diluted Earnings Per Share $0.45 $0.32 ============================= See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited) - ---------------------------------------------------------------------- Nine months ended September 30, 1998 1997 - ---------------------------------------------------------------------- Revenues $1,605,434 $1,431,362 Costs and Expenses: Cost of sales 1,450,965 1,300,268 Selling, general and administrative 130,456 112,795 ----------------------------- 1,581,421 1,413,063 ----------------------------- Operating Income 24,013 18,299 Interest Expense, Net 5,637 9,165 ----------------------------- Income Before Income Taxes 18,376 9,134 Provision For Income Taxes 8,140 3,745 ----------------------------- Income Before Extraordinary Item 10,236 5,389 Extraordinary Item - Loss on Early Extinguishment of Debt, Net of Income Taxes (4,777) (1,004) ----------------------------- Net Income $5,459 $4,385 ============================= Per Share Information: Basic Earnings Per Share: Income Before Extraordinary Item $0.99 $0.57 Extraordinary Item - Loss on Early Extinguishment of Debt, Net of Income Taxes (0.46) (0.11) ----------------------------- Basic Earnings Per Share $0.53 $0.46 ============================= Diluted Earnings Per Share: Income Before Extraordinary Item $0.90 $0.53 Extraordinary Item - Loss on Early Extinguishment of Debt, Net of Income Taxes (0.34) (0.10) ----------------------------- Diluted Earnings Per Share $0.56 $0.43 ============================= See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) - ------------------------------------------------------------------------- Nine months ended September 30, 1998 1997 - ------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS: Net income $5,459 $4,385 Extraordinary Item - Loss on Early Extinguishment of Debt, Net of Income Taxes 4,777 1,004 Non-cash expenses 13,401 11,171 Changes in operating assets and liabilities (13,100) (7,899) ----------------------- NET CASH PROVIDED BY OPERATIONS 10,537 8,661 ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Convertible Subordinated Notes 115,000 -- Net proceeds from sale of Common Stock 22,485 -- Purchase of Treasury Stock (11,885) -- Debt issuance costs (4,074) -- Payment of Series C Notes (61,854) (11,920) Premiums paid on early extinguishment of debt (2,437) (590) Payment of working capital credit lines (9,497) (102,512) Borrowings under working capital credit lines -- 105,908 Payment of Supplemental SellCo Note (5,464) -- Issuance of long-term debt and capital lease obligations 1,630 58 Exercise of stock options 517 344 ----------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 44,421 (8,712) ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, net (8,228) (7,471) Proceeds from sale of property, plant and equipment 119 141 Acquisition of businesses (26,987) -- (Increase) decrease in investments, notes and other long-term receivables (930) 631 ----------------------- NET CASH USED IN INVESTING ACTIVITIES (36,026) (6,699) ----------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,932 (6,750) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 49,376 50,705 ----------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $68,308 $43,955 ======================= SUPPLEMENTAL CASH FLOW INFORMATION Cash Paid For: Interest $2,493 $6,997 Income Taxes $707 $361 See notes to condensed consolidated financial statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (In Thousands) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------- Accumulated Other Retained Common Capital Comprehensive Earnings/ Treasury Comprehensive Total Stock Warrants Surplus Income (1) (Deficit) Stock Income - --------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 $95,323 $96 $2,154 $87,107 $(195) $6,161 $-- Comprehensive income: Net income 5,459 -- -- -- -- 5,459 -- $5,459 Foreign currency translation adjustments (985) -- -- (985) -- -- (985) ---------- Comprehensive income -- -- -- -- -- -- -- $4,474 ========== NOL utilization 5,250 -- -- 5,250 -- -- -- Issuance of Common Stock 22,485 11 -- 22,474 -- -- -- Tax effect of extraordinary item (2,715) -- -- (2,715) -- -- -- Common Stock Issued under stock option plans 517 1 -- 516 -- -- -- Treasury stock, at cost 827,600 (11,885) -- -- -- -- -- (11,885) shares -------- -------- ------- ------- --------- -------- --------- Balance, September 30, 1998 $113,449 $108 $2,154 $112,632 $(1,180) $11,620 $(11,885) ======== ======== ======= ======= ========= ======== ========= Balance, January 1, 1997 $83,883 $95 $2,154 $81,672 $1,378 $(1,416) $-- Comprehensive income: Net income 4,385 -- -- -- -- 4,385 -- $4,385 Foreign currency translation adjustments (764) -- -- -- (764) -- -- (764) ---------- Comprehensive income -- -- -- -- -- -- -- $3,621 ========== NOL utilization 2,528 -- -- 2,528 -- -- -- Common Stock issued under stock option plans 344 1 -- 343 -- -- -- -------- -------- ------- ------- --------- -------- ------- Balance, September 30, 1997 $90,376 $96 $2,154 $84,543 $614 $2,969 $-- ======== ======== ======= ======= ========= ======== ======= (1) Represents cumulative foreign currency translation adjustments. 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. ("EMCOR" or the "Company") is a multinational corporation involved in mechanical and electrical construction services and facilities services. EMCOR's subsidiaries specialize 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's subsidiaries provide mechanical and electrical construction and facilities 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 for construction managers, general contractors, systems suppliers and other subcontractors. Mechanical and electrical construction services are principally either large installation projects, with contracts generally in the multi-million dollar range; smaller system installation projects involving fit-out, renovation and retrofit work; and maintenance and service. In addition, certain of its subsidiaries operate and maintain mechanical and/or electrical systems for customers under contracts and provide other services commonly referred to as facilities services including the management of facilities and the provision of support services to customers at the customer's facilities. Mechanical and electrical construction and facilities services are provided to a broad range of commercial, industrial and institutional customers through offices located in major markets throughout the United States, Canada and the United Kingdom and through joint ventures in the United Arab Emirates, Saudi Arabia, South Africa, Hong Kong and Macau. NOTE B Basis of Presentation The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. 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 and nine month periods ended September 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. Certain reclassifications of prior year amounts have been made to conform to current year presentation. NOTE C Other Assets Other assets at September 30, 1998 primarily consists of approximately $12.3 million of the excess of cost over fair market value of net identifiable assets ("Goodwill") of companies acquired in purchase transactions as well as approximately $3.5 million of debt issuance costs incurred in connection with the Company's offering of its 5.75% Convertible Subordinated Notes (hereafter discussed). Goodwill is being amortized using the straight-line method over 15 year periods. Debt issuance costs are amortized using the interest method through the Notes maturity date (April 1, 2005). Other assets at December 31, 1997 included approximately $1.0 million of Goodwill. The carrying value of Goodwill is periodically reviewed by the Company on the expected future undiscounted operating cash flow of the related business unit. Based upon its most recent analysis, the Company believes that no impairment of intangible assets exists at September 30, 1998 or December 31, 1997. NOTE D Long-Term Debt Long-Term Debt in the accompanying condensed consolidated balance sheets consists of the following amounts at September 30, 1998 and December 31, 1997 (in thousands): September 30 December 31, 1997 1997 ------------- ------------- Convertible Subordinated Notes, at 5.75%, due 2005 $115,000 $-- Series C Notes, outstanding face value of approximately $61.9 million at December 31, 1997, at 11.0%, discounted to a 14.0% effective rate, due 2001 -- 56,290 Other 4,746 7,849 ------------- ------------ 119,746 64,139 Less current maturities (1,927) (927) ------------- ------------ $117,819 $63,212 ============= ============ 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 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. The Company prepaid in full, including accrued interest thereon, the Supplemental SellCo Note during June 1998. On March 18, 1998, the Company sold, pursuant to an underwritten public offering, $100.0 million principal amount of 5.75% Convertible Subordinated Notes (the "Notes"). Interest on the Notes is payable semi-annually commencing October 1, 1998. The Notes are unsecured indebtedness of the Company and are convertible into Common Stock of the Company at a conversion price of $27.34 per share at any time. 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, Notes in the additional principal amount of $15.0 million were issued. NOTE E Income Taxes The Company files a consolidated federal income tax return including all U.S. subsidiaries. At September 30, 1998, the Company had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $155.0 million, which expire in the years 2007 through 2010. 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. As a result of the adoption of Fresh-Start Accounting, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of the date of the Company's emergence from Chapter 11 in December 1994 will result in a charge to the tax provision (provision in lieu of income taxes) and be allocated to Capital Surplus. The Company has provided a valuation allowance as of September 30, 1998 for the full amount of the tax benefit of its remaining NOLs and other deferred tax assets. Income tax expense recorded for the three and nine month periods ended September 30, 1998 and 1997 represent a provision primarily for federal, foreign and state and local income taxes. The Company's utilization of NOLs and other deferred tax assets for the three and nine month periods ended September 30, 1998 of approximately $3.4 million and $5.3 million, respectively, have been added to Capital Surplus. NOTE F Legal Proceedings The Company is currently defending a lawsuit that was commenced against the Dynalectric Company ("Dynalectric"), a subsidiary of the Company, in Superior Court of New Jersey, Bergen County, arising out of Dynalectric's participation in a joint venture with the plaintiff, Computran. In the action, which was instituted in 1988, Computran, a participant in, and a subcontractor to, the joint venture alleges that Dynalectric wrongfully terminated its 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 is defending this matter vigorously. Dynalectric has filed counterclaims against Computran. As a result of a motion made by Dynalectric, the Superior Court of New Jersey ordered during 1997 that the matters in dispute between Dynalectric and Computran be resolved by binding arbitration in accordance with an original agreement between the parties. The arbitration is proceeding. 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 15, 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 pension 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 present and former employees of EMCOR who are defendants. Substantial settlements or damage judgements against the Company or a subsidiary of the Company arising out of any 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. NOTE G Earnings Per Share Effective December 31, 1997 the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128" or the "Statement"), "Earnings Per Share" ("EPS"), which established standards for computing and presenting EPS. The Statement replaced the presentation of Primary EPS with a presentation of Basic EPS, as defined, and Fully Diluted EPS with Diluted EPS, as defined. The following tables summarize the Company's calculation of Basic EPS and Diluted EPS for the three and nine month periods ended September 30, 1998 and 1997: Three Months Ended September 30, 1998 Income Shares Per Share (Numerator) (Denominator) Amount ------------- -------------------------- Basic EPS Income available to common stockholders $5,760,000 10,489,173 $0.55 ============= Effect of Dilutive Securities: Options -- 217,645 Warrants -- 158,531 Convertible Subordinated Notes 1,081,000 4,206,291 ------------- ------------- Diluted EPS $6,841,000 15,071,640 $0.45 ============= ========================== NOTE G Earnings Per Share (continued) Nine Months Ended September 30, 1998 Income Shares Per Share (Numerator) (Denominator) Amount ------------- -------------------------- Basic EPS Income before extraordinary item available to common stockholders $10,236,000 10,329,154 $0.99 ============= Effect of Dilutive Securities: Options -- 259,235 Warrants -- 279,291 Convertible Subordinated Notes 2,331,000 3,023,251 ------------- ------------- Diluted EPS $12,567,000 13,890,931 $0.90 ============= ========================== Three Months Ended September 30, 1997 Income Shares Per Share (Numerator) (Denominator)) Amount ------------ ------------- ------------ Basic EPS Income available to common stockholders $3,236,000 9,555,619 $0.34 ============ Effect of Dilutive Securities: Options -- 309,996 Warrants -- 299,481 ------------ ------------- Diluted EPS $3,236,000 10,165,096 $0.32 ============ ============= ============ Nine Months Ended September 30, 1997 Income Shares Per Share (Numerator) (Denominator)) Amount ------------ ------------- ------------ Basic EPS Income before extraordinary item available to common stockholders $5,389,000 9,535,467 $0.57 ============ Effect of Dilutive Securities: Options -- 309,996 Warrants -- 299,481 ------------ ------------- Diluted EPS $5,389,000 10,144,944 $0.53 ============ ============= ============ For the three and nine month periods ended September 30, 1998, approximately 325,000 and 310,000 options, respectively, were excluded from the denominator in the calculation of Diluted EPS as the effect would be antidilutive. For the three months ended September 30, 1998, approximately 605,000 warrants were also excluded from the denominator in the calculation of Diluted EPS as the effect would be antidilutive. NOTE H Common Stock Issuance On March 18, 1998 the Company sold, pursuant to an underwritten public offering, 1,100,000 shares of its Common Stock at a price of $21.875 per share. NOTE I Common Stock As of September 30, 1998, the Company had 10,788,503 of its Common Stock issued or issuable of which 9,960,903 shares were outstanding as of that date. As of December 31, 1997, 9,590,827 shares of the Company's Common Stock were issued or issuable and outstanding. As a part of a program previously authorized by the Board of Directors, the Company purchased 827,600 shares of its common stock in the third quarter of 1998 at an aggregate cost of approximately $11.9 million which are classified as "Treasury Stock, at Cost" in the accompanying Condensed Consolidated Balance Sheets. NOTE J Other The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. The Company has chosen to disclose Comprehensive Income, which encompasses net income and foreign currency translation adjustments, in the condensed consolidated statements of stockholders' equity and comprehensive income (loss). Prior year financial information has been restated to conform with the reporting requirements of SFAS No. 130. In June 1998, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 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 No. 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 provision of SFAS No. 133 to have a significant effect on the current forward exchange contract or on the financial condition or results of operations of the Company. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues for the third quarter of 1998 were $566.0 million compared to $522.0 million in the third quarter of 1997. The increase in revenues for the third quarter of 1998 as well as the year to date 1998 period when compared to corresponding 1997 levels are due to: (a) an increase in large projects started in the second and third quarters of 1998: (b) an increase in revenues in previously lagging market segments within the United States including the Northeast commercial and Western industrial markets and; (c) the acquisition of certain businesses primarily in the third quarter of 1998. In the third quarter of 1998, the Company generated net income of $5.8 million, or $0.55 per basic and $0.45 per diluted share, compared to net income of $3.2 million, or $0.34 per basic share and $0.32 per diluted share, in the third quarter of 1997. In addition, net income for the third quarter of 1998 includes an income tax provision of $4.4 million, of which $3.4 million will not be paid in cash due to the utilization of tax net operating loss carry forwards ("NOLs"). Had the Company been able to offset these NOLs against the recorded income tax provision, net income would have been approximately $9.2 million. Revenues for the nine months ended September 30, 1998 were $1,605.4 million compared to $1,431.4 million in the same period in the prior year. For the nine months ended September 30, 1998, the Company generated net income of $5.5 million, or $0.53 per basic share and $0.56 per diluted share, as compared to net income of $4.4 million, or $0.46 per basic share and $0.43 per diluted share, for the nine months ended September 30, 1997. Net income for the nine months ended September 30, 1998 and 1997 included after-tax charges associated with the early retirement of approximately $61.9 million and $11.9 million, respectively, of the Company's Series C Notes, which are reflected in the accompanying condensed consolidated statements of operations under the caption "Extraordinary Item - Loss on Early Extinguishment of Debt, Net of Income Taxes." The extraordinary charges for the nine months ended September 30, 1998 and 1997 were $4.8 million and $1.0 million, respectively. Exclusive of these extraordinary items, net income for the first nine months of 1998 was $10.2 million, or $0.99 per basic share and $0.90 per diluted share, compared to $5.4 million, or $0.57 per basic share and $0.53 per diluted share, in the same period in 1997. The Company generated operating income of $12.0 million for the three months ended September 30, 1998 compared to operating income of $8.6 million in the same period of the prior year. The $3.4 million improvement in operating income for the three months ended September 30, 1998 was attributable to the increase in operating volume and the increase in gross profit on several large projects. Operating income for the first nine months of 1998 was $24.0 million compared to operating income of $18.3 million in the same period in the prior year, the increase being attributable to the items noted above for the third quarter of 1998. Selling, General & Administrative expenses ("SG&A") for the quarters ended September 30, 1998 and 1997 were $45.9 million, or 8.1% of revenues, and $39.9 million, or 7.7% of revenues, respectively. SG&A for the nine months ended September 30, 1998 was $130.5 million, or 8.1% of revenues, compared to SG&A of $112.8 million, or 7.9% of revenues, for the nine months ended September 30, 1997. The dollar increase in SG&A for the three and nine month periods ended September 30, 1998 compared to the same periods in 1997 are attributable to the increase in operating volume, the amortization of goodwill in connection with the acquisitions noted previously, expenses attributable to its facilities services business and a delay in the start of projects in the facilities services markets. On March 18, 1998, the Company called for the redemption of approximately $61.9 million principal amount of Series C Notes. In accordance with the Indenture governing the Series C Notes, the redemption price for the Series C Notes was 104% of the principal amount redeemed. Accordingly, the Company recorded an extraordinary loss 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. The Company prepaid in full, including accrued interest thereon, its Supplemental SellCo Note during June 1998. The Company's backlog was $1,269.9 million at September 30, 1998 and $996.4 million at December 31, 1997. Between December 31, 1997 and September 30, 1998, the Company's backlog in Canada increased by $18.2 million, its backlog in the United States increased by $161.1 million and its backlog in the United Kingdom increased by $94.2 million. 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 September 30, 1998 the Company had repurchased 827,600 shares of its Common Stock at an aggregate cost of approximately $11.9 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 September 30, 1998 and will be used for possible additional acquisitions and for other general corporate purposes. The Company's consolidated cash balance increased by approximately $18.9 million from $49.4 million at December 31, 1997 to $68.3 million at September 30, 1998, primarily as a result of the net proceeds received from the sale of Common Stock and Notes offset by the repayment of debt instruments, repurchase of the Company's Common Stock and acquisitions noted above. As of September 30, 1998 the Company's total borrowing capacity under its revolving credit facility was $100.0 million. The Company had approximately $30.0 million of letters of credit outstanding as of that date. There were no revolving loans outstanding as of September 30, 1998 under the credit facility. Year 2000 The Year 2000 issue concerns the inability of information 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 50% 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 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. Contingency plans will be developed if it appears that the Company or its significant suppliers will not be Year 2000 compliant and that such non-compliance could have a material adverse impact on the Company's operations. 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 Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. 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. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The information in Note F to the Company's September 30, 1998 Notes to Condensed Consolidated Financial Statements (unaudited) regarding legal proceedings is hereby incorporated herein by reference thereto. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the quarter ended September 30, 1998. 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: October 29, 1998 By: /s/FRANK T. MacINNIS --------------------------------- Frank T. MacInnis Chairman of the Board of Directors and Chief Executive Officer Date: October 29, 1998 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 EMCOR's Condensed Consolidated Financial Statements for the nine months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000105634 EMCOR Group, Inc. 1000 U.S. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 68308 0 574092 22343 6279 720829 52607 21640 777090 498450 117819 108 0 0 113341 777090 1605434 1605434 1450965 1581421 0 528 5637 18376 8140 10236 0 (4777) 0 5459 0.53 0.56
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