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,September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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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
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(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,October 29, 1996:
9,424,7069,514,636 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed consolidated balance sheets -
as of March 31,September 30, 1996 and December 31, 1995 1
Condensed consolidated statements of operations -
three months ended March 31,September 30, 1996 and 1995 3
Condensed consolidated statements of cash flowsoperations -
threenine months ended March 31,September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows -
nine months ended September 30, 1996 and 1995 5
Condensed consolidated statement of stockholders'
equity for the three month period- nine months ended March 31,September 30, 1996 56
Notes to condensed consolidated financial statements 67
Item 2 Management's discussion and analysis of financial condition and
results of operations 1213
PART II - Other Information
Item 1 Legal Proceedings 1517
Item 6 Exhibits and Reports on Form 8-K 1517
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- ------------------------------------------ ------------------ -----------------
March 31,----------------------------------------------------------------------
September 30, December 31,
1996 1995
(Unaudited)
- ------------------------------------------ ------------------ ---------------------------------------------------------------------------------------
ASSETS
(Unaudited)
Current AssetsAssets:
Cash and cash equivalents $54,820$45,494 $53,007
Accounts receivable, net 410,502432,788 435,974
Costs and estimated earnings in
excess of billings on uncompleted
contracts 62,15672,467 65,551
Inventories 9,5198,115 8,031
Prepaid expenses and other 6,9877,682 8,365
Net assets held for sale 63,819-- 61,969
------------------ ---------------------------------------------------
Total Current Assets 607,803566,546 632,897
------------------ ---------------------------------------------------
Investments, Notes and Other Long-Term
Receivables 4,6854,291 4,684
Property, Plant and Equipment, net 25,833Net 25,475 27,137
Other AssetsAssets:
Insurance cash collateral 33,944-- 30,812
Miscellaneous 14,9143,224 15,415
------------------ -----------------
48,858----------------------------------
3,224 46,227
------------------ ---------------------------------------------------
Total Assets $687,179$599,536 $710,945
================== ===================================================
See notes to condensed consolidated financial statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share and Per Share Amounts)
- ------------------------------------------ ------------------ -----------------
March 31,----------------------------------------------------------------------
September 30, December 31,
1996 1995
(Unaudited)
- ------------------------------------------ ------------------ ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
Current LiabilitiesLiabilities:
Notes payable $14,240$10,955 $14,665
Borrowings under working capital credit
lines 25,000-- 25,000
Current maturities of long-term debt and capital lease obligations 1,7661,452 1,875
7% Senior Secured Notes (Series A) 63,819-- 61,969
Accounts payable 196,583207,348 224,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 114,765115,527 113,590
Accrued payroll and benefits 44,47738,783 38,928
Other accrued expenses and liabilities 42,388 45,445
------------------ -----------------43,444 45,287
---------------------------
Total Current Liabilities 503,038 525,474
------------------ -----------------417,509 525,316
---------------------------
Long-Term Debt 70,354 68,24072,796 68,398
Other Long-Term Obligations 47,13730,216 46,621
Stockholders' EquityEquity:
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,424,7069,514,636 and
9,424,0839,424,706 issued and outstanding,
respectively. 94respectively 95 94
Warrants 2,179 2,179
Capital surplus 78,86379,812 78,863
Cumulative translation adjustment 20297 327
Accumulated Deficit (14,506)(3,368) (10,853)
------------------ --------------------------------------------
Total Stockholders' Equity 66,65079,015 70,610
------------------ --------------------------------------------
Total Liabilities and Stockholders' Equity $687,179$599,536 $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,September 30, 1996 1995
- ------------------------------------------ ------------------ ---------------------------------------------------------------------------------------
Revenues $382,744 $386,015$432,452 $403,941
Costs and ExpensesExpenses:
Cost of sales 345,572 354,148390,903 365,232
Selling, general and administrative 36,643 34,771
------------------ -----------------
382,215 388,919
------------------ -----------------35,566 33,135
-----------------------------
426,469 398,367
-----------------------------
Operating Income (Loss) 529 (2,904)5,983 5,574
Interest Expense, Net 3,7612,425 3,805
------------------ -----------------Net Loss on Businesses Sold -- 926
-----------------------------
Income Before Income Taxes (3,232) (6,709)3,558 843
Provision For Income Taxes 4211,627 250
------------------ ----------------------------------------------
Net Loss ($3,653) ($6,959)
================== =================
LossIncome $1,931 $593
=============================
Income Per Common Share and Common
Equivalent Share: $0.19 $0.06
=============================
See notes to condensed consolidated financial statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Equivalent:Amounts) (Unaudited)
- ----------------------------------------------------------------------
Nine months ended September 30, 1996 1995
- ----------------------------------------------------------------------
Revenues $1,202,853 $1,171,518
Costs and Expenses:
Cost of sales 1,086,318 1,069,008
Selling, general and administrative 105,999 101,488
-----------------------------
1,192,317 1,170,496
-----------------------------
Operating Income 10,536 1,022
Other Income, Net 12,500 --
Interest Expense, Net 9,915 11,430
Net Loss on Businesses Sold -- 926
-----------------------------
Income (Loss) Before Income Taxes 13,121 (11,334)
Provision For Income Taxes 5,636 750
-----------------------------
Net Income (Loss) $7,485 ($0.37)12,084)
=============================
Income (Loss) Per Common Share and
Common Equivalent Share: $0.75 ($0.74)
================== =================1.27)
=============================
See notes to condensed consolidated financial statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
- ------------------------------------------ ------------------ -----------------
Three-------------------------------------------------------------------------
Nine months ended March 31,September 30, 1996 1995
- ------------------------------------------ ------------------ ------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net lossincome (loss) $7,485 ($3,653) ($6,959)12,084)
Non-cash expenses 4,163 4,689
Change10,129 12,887
Net loss on businesses sold -- 926
Changes in operating assets and liabilities 2,816 (1,813)
------------------ -----------------7,692 (8,615)
-----------------------
NET CASH PROVIDED BY (USED IN) OPERATIONS 3,326 (4,083)
------------------ -----------------25,306 (6,886)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of working capital credit lines - (2,500)(45,125) (11,000)
Borrowings under working capital credit lines 20,125 --
Payment of 7% Senior Secured Notes (Series A) (66,424) --
Payments of long-term debt and capital lease (643) (1,007)
obligations (199) (315)
Change in notes payable, net (425) 1,232
------------------ -----------------(3,896) 10,278
Exercise of stock options 487 --
-----------------------
NET CASH USED IN FINANCING
ACTIVITIES (624) (1,583)
------------------ -----------------(95,476) (1,729)
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment, (1,170) (1,689)net (4,480) (3,285)
Proceeds from sale of businesses
and other assets 314 650
Proceeds from sales of property, plantnet assets
held for sale 66,424 --
Decrease in investments, notes and
equipment 281 -
------------------ -----------------other long-term receivables 399 --
-----------------------
NET CASH USED INPROVIDED BY (USED IN) INVESTING
ACTIVITIES (889) (1,689)
------------------ -----------------
INCREASE (DECREASE)62,657 (2,635)
-----------------------
DECREASE IN CASH AND CASH EQUIVALENTS 1,813 (7,355)(7,513) (11,250)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 53,007 52,505
------------------ ----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $54,820 $45,150
================== =================$45,494 $41,255
=======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For:
Interest $1,449 $1,481$5,311 $5,133
Income Taxes $62 $104$239 $762
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 AccumulatedTranslatioAccumulated
Stock Warrants Surplus Adjustment Deficit Total
- ------------------- ------- -------- -------- ------------ ------------ --------------------------------------------------------------------------------------
Balance, December
31, 1995 $94 $2,179 $78,863 $327 $(10,853)($10,853) $70,610
Net Loss - - - - (3,653) (3,653)income -- -- -- -- 7,485 7,485
Common stock issued
under stock option
plans 1 -- 486 -- -- 487
NOL Utilization -- -- 463 -- -- 463
Translation
Adjustments - - - (307) - (307)
------- -------- -------- ------------ ------------ --------adjustments -- -- -- (30) -- (30)
--------------------------------------------------------
Balance, March 31,September
30, 1996 $94$95 $2,179 $78,863 $20$79,812 $297 ($14,506) $66,650
======= ======== ======== ============ ============ ========3,368) $79,015
========================================================
See notes to condensed consolidated financial statementsstatements.
================================================================================
EMCOR Group, Inc. and Subsidiaries
================================================================================
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE A NATURE OF OPERATIONSNature 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 PRESENTATIONBasis 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 and nine month periodperiods ended March 31,September 30, 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 December 31, 1995 Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC") on March 13, 1996. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in the Form 10-K.
Certain reclassifications have been made to prior year financial statements to
conform to current year presentation.
NOTE C NET LOSS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Net lossIncome (Loss) Per Common Share and Common Equivalent Share
Net income (loss) per common share and common equivalent share for the three and
nine month periods ended March 31,September 30, 1996 and 1995 hashave been calculated based
on the weighted average number of shares of common stock outstanding and common
stock equivalents relating to warrants and stock options outstanding when the
effect of such common stock equivalents are dilutive.
NOTE D CURRENT DEBTNet Assets Held For Sale
In May 1996, the Company completed the sale of substantially all of the assets
of its subsidiary Jamaica Water Supply Company ("JWS") to The City of New York
and the Water Authority of Western Nassau County for an aggregate purchase price
of approximately $179.0 million, subject to post-closing adjustments;
approximately $1.2 million of this purchase price is being held in escrow
pending determination of post-closing adjustments. In May 1996, the Company also
completed the sale of the stock of its other water supply subsidiary Sea Cliff
Water Company ("Sea Cliff") to a subsidiary of Aquarion Company for
approximately $2.6 million, subject to post-closing adjustments; approximately
$0.5 million of this purchase price is being held in escrow for a period of
approximately one year pending determination of post-closing adjustments and as
collateral security for certain indemnification obligations. JWS and Sea Cliff
are referred to herein collectively as the "Water Companies". Approximately 96%
of the Common Stock of JWS is owned by the Company.
The sales proceeds from the sale of JWS' assets have been and will be applied to
pay JWS liabilities and preferred stock obligations and to satisfy minority
stock interests in JWS and as a reserve for litigation involving Warrants of
Participation issued by the Company's predecessor (see Note H). Of the balance,
$15.0 million was used to repay a portion of indebtedness under the Company's
then outstanding MES CREDIT AGREEMENTCredit Agreement referred to below and approximately $66.5
million was used to redeem in full its Series A Notes. The remainder was and
will be used to redeem notes issued by the Company's subsidiary SellCo
Corporation ("SellCo"). (See Note F for additional discussion of the use of
proceeds from the sale of JWS' assets and the stock of Sea Cliff).
The operating results of net assets held for sale have been excluded from the
condensed consolidated financial statements for the three and nine month periods
ended September 30, 1996 and 1995 since the operation of these businesses will
primarily only accrue to the benefit of the holders of notes issued by SellCo.
NOTE E Current Debt
New Credit Facility - 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 up to a $100.0
million revolving credit facility (the "New Credit Facility") for a three year
period. The New Credit Facility, which is guaranteed by certain direct and
indirect U.S. subsidiaries of the Company and is secured by substantially all of
the assets of the Company and those subsidiaries, currently provides for up to
$50.0 million in borrowing capacity and is available in the form of revolving
loans ("Revolving Loans") and/or letters of credit ("LCs" or "LC"). As amended
on September 27, 1996, up to the U.S. Dollar equivalent of (pound)9.0 million
can be borrowed by the Company's United Kingdom subsidiary EMCOR (UK) Limited.
The remaining $50.0 million in borrowing capacity is subject to receipt of
additional commitments from other banks, an earnings test, consents of bonding
companies providing surety bonds to the Company's Canadian and United Kingdom
subsidiaries and these subsidiaries guaranteeing the facility and
collateralizing their guarantees with liens upon their assets. The Revolving
Loans bear interest at a variable rate representing Harris' prime rate (8.25% at
September 30, 1996) plus 1.0% - 2.0% based on certain financial covenants, as
defined. The interest rate on the Revolving Loans was 9.25% at September 30,
1996. LC fees ranging from 1.50% to 3.25% are charged based on the type of LC
issued. The New Credit Facility expires on June 19, 1999. As of September 30,
1996, the Company had approximately $23.8 million of LCs outstanding under the
New Credit Facility. There were no Revolving Loans outstanding as of September
30, 1996.
MES Credit Agreement - On December 14, 1994, the Company and certain of its
subsidiaries entered into a credit agreement (the "MES Credit Agreement") with
Belmont Capital Partners II,
L.P. ("Belmont") and other lenders (the(collectively, 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 arewere guaranteed by certain direct orand indirect United States
subsidiaries of MES (the " U.S."U.S. MES Subsidiaries") and arewere 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")Water Companies to the extent of the first $15.0 million of
such proceeds, subject to the rightsright to such proceeds of the Lenders under the
Dyn credit facilityCredit Agreement referred to below. The MES Loans bearbore interest on the
principal amount thereof at the rate of 15.0% per annum and mature on June 14, 1996.annum. Borrowings under the
MES Credit Agreement $25.0($25.0 million at March 31, 1996 and December 31, 1995,1995) are classified as
current liabilities under the caption "Borrowings under working capital credit
lines" in the accompanying condensed consolidated balance sheets.
DYN CREDIT AGREEMENTBorrowings outstanding under the MES Credit Agreement and Dyn Credit Agreement
(hereafter defined) were repaid, in part, on June 12, 1996 from proceeds
received by the Company from the sale of the Water Companies (see Note D) and
the balance was repaid on June 20, 1996 from borrowings under the New Credit
Facility at which time the credit agreements were terminated.
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 arewere guaranteed by the DynDyn's
subsidiaries and arewere secured by substantially all of the assets of Dyn and
the
DynDyn's subsidiaries includingand 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 rightsright to such proceeds of the Lenders under the MES Credit Agreement. The
Dyn Loans bearbore interest on the principal amount thereof at the rate of 15.0% per
annum and mature on June 14, 1996.annum. 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.
SERIESSeries A NOTESNotes - 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 balancepayment in full of the Series A Notes includedduring the second
quarter of 1996 (approximately $66.5 million in principal and accrued interest)
with proceeds received by the accompanying condensed consolidated balance sheet as of March 31, 1996 is
approximately $63.8 million. The outstanding face amountCompany from the sale of the Series A Notes
at March 31, 1996 is approximately $64.9 million.
Water Companies.
NOTE E LONG-TERM DEBTF Long-Term Debt
Long-Term Debt in the accompanying condensed consolidated balance sheets
consists of the following amounts at March 31,September 30, 1996 and December 31, 1995
(in thousands):
=========================================
March 31,September 30 December 31,
1996 1995
=========================================------------- -------------
Series C Notes, originaloutstanding face value of
$62,827approximately $73.8 million at 11.0%,
discounted to a 14.0% effective rate,
due 2001 $63,698$65,959 $61,494
Supplemental SellCo Note, originaloutstanding
face value of $5,464approximately $5.5
million at 8.0%, discounted to a
14.0% effective rate, due 2004 4,112 4,112
Capitalized4,417 4,270
Capital Lease Obligations at weighted average
interest rates from 7.25% to 11.0%,
payable in varying amounts through 2004 1,133821 1,284
Other, at weighted average interest rates of
approximately 10.75%, payable in varying
amounts through 3,1772012 3,051 3,225
2012
------------------- ---------------
72,120 70,115------------- ----------
74,248 70,273
Less current maturities (1,766)(1,452) (1,875)
------------------- ---------------
$70,354 $68,240
=================== ===============
SERIES------------- ----------
$72,796 $68,398
============= ==========
Series C NOTESNotes - On December 15, 1994 the Company issued approximately $62.8
million principal amount of Series C Notes. Interest on the Series C Notes iswas
payable semiannually through June 15, 1996 by the issuance of additional Series
C Notes and thereafter is currently payable quarterly in cash. The Series C Notes are
unsecured indebtedness of the Company which are subordinate to (i)indebtedness
under 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.Company's New 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%. Including accrued interest
paid-in-kind, the outstanding face amount ofThe Series C Notes at March 31, 1996 is
approximately $69.0 million.
SUPPLEMENTAL SELLCO NOTEmature on December 15, 2001.
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 theNotes issued by SellCo Notes(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 reorganizationDecember 15, 1999 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 salescash
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 NOTESNotes - 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 aNet 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) ofdefined in the sale
of the Water Companies,Indenture pursuant to which
the SellCo Notes are mandatorily prepayable to the
extent of netwere issued) from sales proceeds from the sale of stock or assets of SellCo
subsidiaries. Since thesubsidiaries are to be used to redeem SellCo Notes. The SellCo Notes will only be satisfied toare not
obligations of EMCOR and 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,interest thereon. Approximately $2.1 and $0.7 million of the Company cannot determine the amount of
net sale proceeds (as defined), if any,
from the sale of SellCo's subsidiaries
that will be availablethe stock of Sea Cliff and the sale of assets of JWS,
respectively, have been used to redeem, in part, the SellCo Notes. OTHERIn addition,
as the liabilities of JWS are finally determined, JWS' various contingent
liabilities are resolved, funds held in escrow under the sales agreements (the
"Sales Agreements") for the sale of assets of JWS and the stock of Sea Cliff are
released and post closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the sales proceeds may become available, from time
to time, for additional redemptions of the 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 TAXESIncome Taxes
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At March 31,September 30, 1996, the Company had a net operating loss
carryforward ("NOL") for U.S. income tax purposes expiring in years 2007 through
20102011 which approximates $225.0$215.0 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 (as defined in Internal Revenue
Code Section 382) 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 orand net deductible temporary
differences which existed as of the date of itsthe Company's emergence from Chapter
11 will result in a charge to the tax provision (provision in lieu of income taxes)
and isare 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,September 30, 1996 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
March 31,September 30, 1996 and 1995 represents a provision primarily for federal,
foreign and state and local income taxes. For the three and nine month periods
ended September 30, 1996 the Company allocated approximately $1.0 million and
$4.5 million, respectively, of its tax provision to reorganization value in
excess of amounts allocable to identifiable assets (included in Miscellaneous in
the accompanying condensed consolidated balance sheets) thereby reducing this
balance to zero. The remaining utilization of NOLs and other deferred tax assets
have been applied to capital surplus for the three and nine month periods ended
September 30, 1996.
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.Legal Proceedings
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,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 WarrantsWarrant
Agreement to extend the December 31, 1994 deadline. The plaintiffs have appealed
the court's decision.decision and oral arguments on the appeal were heard before the
Appellate Division Third Department of the State of New York on October 3, 1996.
To date, no decision has been rendered by the Appellate Division.
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 Mr. 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. Mr. 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 $7.0 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.
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 I Other
During the second quarter of 1996, the Company entered into an agreement with
one of its insurers to reinsure the Company's obligations to bear certain losses
incurred for insurance plan years from October 1, 1992 to September 30, 1995.
Under this agreement, amounts previously deposited by the Company with one of
its insurers as collateral to fund certain losses under the deductible portion
of its insurance program were returned to the Company and used to fund the cost
of the above agreement and to pay down, in July 1996, approximately $10.1
million of indebtedness under the New Credit Facility. The net effect upon the
Company of this transaction, which is reflected in the accompanying condensed
consolidated balance sheets as of September 30, 1996, was to reduce to zero the
funds deposited by the Company as cash collateral for certain losses and reduce
Other Long-Term Obligations by the same amount. As of September 30, 1996, the
Company is utilizing a $12.2 million letter of credit obtained under the New
Credit Facility referred to in Note E as collateral for its current insurance
obligations, and therefore presently is not required to deposit cash as
collateral for such obligations.
ITEM 2: MANAGEMENTMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONSResults of Operations
Revenues for the firstthird quarter of 1996 were $382.7$432.5 million compared to $386.0$403.9
million in the firstthird quarter of 1995. In the firstthird quarter of 1996 the Company
had agenerated net lossincome of $3.7$1.9 million or $0.37$0.19 per share compared to net income
of $0.6 million or $0.06 per share in the third quarter of 1995. The improvement
in net income in the third quarter of 1996 as compared to the same period in the
prior year is primarily due to continued improvements in job performance and a
reduction in the Company's cost of borrowing offset partially by an increase in
selling, general and administrative expenses discussed below.
Revenues for the nine months ended September 30, 1996 were $1,202.9 million
compared to $1,171.5 million in the same period in the prior year. For the nine
months ended September 30, 1996 the Company generated net income of $7.5 million
or $0.75 per share compared to a net loss of $7.0$12.1 million or $0.74$1.27 per share
for the nine months ended September 30, 1995. The improvement for the nine
months ended September 30, 1996 as compared to the same period in the first quarterprior year
is due to continued improvements in job performance, a reduction in the cost of
1995.borrowing and a net after tax gain of $8.1 million ($12.5 pre-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"), offset partially by an increase in selling, general and
administrative expenses discussed below. JWS and the Company's other water
supply subsidiary, Sea Cliff Water Company ("Sea Cliff"), are referred to
hereafter as the "Water Companies".
The Company generated operating income of $0.5$6.0 million for the three months
ended March 31,September 30, 1996 compared to a $2.9operating income of $5.6 million operating loss in the
same period of the prior year. The improvement toin operating income for the first
three
months ofended September 30, 1996 was principally attributable to continued
improvements in gross profit due to cost control efforts and favorableimproved job
closeoutsperformance offset partially by an increase in selling, general and
administrative expenses due to the increased volume of operating activity. For
the nine months ended September 30, 1996, the Company had operating income of
$10.5 million compared to operating income of $1.0 million in the same period of
the prior year. The improvement in operating income for the nine months ended
September 30, 1996 was principally attributable to continued improvements in
gross profit due to cost control efforts and improved job performance offset
partially by an increase in selling, general and administrative expenses in the
first quarter of 1996 discussed below.
The increase in revenues for the third quarter of 1996 as compared to the same
period in the prior year was primarily attributable to the continued increase in
commercial construction activity in the Western United States. Revenues remained substantially unchangedfor the
nine month period ended September 30, 1996 increased slightly 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 substantially offset by decreased revenues in the EasternNortheastern United
States resulting from, among other things, adverse weather conditions in the
first quarter of 1996 and increased competition, and in the Midwestern United
States due to reduced construction activity compared with 1995 and the Company's
previousearlier downsizing of those operations.its Midwestern operations and in the United Kingdom due to
decreased activity in the commercial construction market.
Selling, general and administrative expenses ("SG&A"), excluding general
corporate expenses, for the quarters ended March 31,September 30, 1996 and 1995 were
$33.0$32.0 million and $31.0$29.5 million, respectively, and for the nine month periods
ended September 30, 1996 and 1995 were $95.2 million and $90.6 million,
respectively. The increase in SG&A for the third quarter of 1996 compared to the
prior year's third quarter was primarily due to the increased volume of
operating activity. The increase in SG&A for the nine months ended September 30,
1996 was primarily attributable to an adverse arbitration award in the first
quarter of 1996 requiring the Company to pay $4.8 million in damages in
connection with a contract dispute involving its subsidiary T.L. Cholette, Inc.
TheIn October 1996, the Company is seeking to have the award set aside. SG&A decreased by $2.8
million, exclusiveconcluded its settlement of the arbitration award
in the first quarter of 1996 as
compared to the same period in the prior year.for $4.3 million.
The Company's backlog was $1,119.7$1,082.5 million at March 31,September 30, 1996 and $1,060.7
million at December 31, 1995. TheBetween December 31, 1995 and September 30, 1996,
the Company's backlog in the United States increased by $68.8$73.9 million, between December 31, 1995 and March 31, 1996, while its
backlog in Canada decreased minimally and its backlog in the United Kingdom
decreased by $5.4 million and $4.4
million, respectively.$41.2 million. The increase in the Company's domestic backlog was
primarily attributable to improved economic conditions in the Midwestern and
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 expensesthe
continued progress on several large projects and the continued weakness in the
United Kingdom commercial construction market.
Net Assets Held For Sale
In May 1996, the Company completed the sale of substantially all of the assets
of JWS to The City of New York and the Water Authority of Western Nassau County
for an aggregate purchase price of approximately $179.0 million, subject to
post-closing adjustments; approximately $1.2 million of this purchase price is
being held in escrow pending determination of the post-closing adjustments. In
May 1996, the Company also completed the sale of all of the stock of Sea Cliff
to a subsidiary of Aquarion Company for approximately $2.6 million, subject to
post-closing adjustments; approximately $0.5 million of this purchase price is
being held in escrow for a period of approximately one year pending
determination of the post-closing adjustments and as collateral security for
certain indemnification obligations.
The sales proceeds from the sale of JWS' assets have been and will be applied
first to pay JWS liabilities and preferred stock obligations and to satisfy
minority stock interests in JWS and as a reserve for litigation involving
Warrants of Participation issued by the Company's predecessor (See Note H). Of
the balance, $15.0 million was used to repay a portion of indebtedness under the
Company's then outstanding working capital line and approximately $66.5 million
was used to redeem in full its Series A Notes. Approximately $2.8 million of the
proceeds from the sale of the stock of Sea Cliff and the sale of assets of JWS,
respectively, have been used to redeem, in part, the notes ("SellCo Notes")
issued by the Company's subsidiary SellCo Corporation ("SellCo"). In addition,
as the liabilities of JWS are finally determined, JWS' various contingent
liabilities are resolved, funds held in escrow under the sales agreements (the
"Sales Agreements") for the quarters ended March 31, 1996sale of the JWS assets and 1995 were
$3.6 millionthe stock of Sea Cliff
are released and $3.8 million, respectively. The decrease in general corporate
expenses in 1996 was attributablepost closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the sales proceeds may become available, from time
to time, for additional redemptions of the Company's continued cost reduction
efforts.
NET ASSETS HELD FOR SALESellCo Notes. (See Note F for
additional discussion regarding the proceeds from the sale of JWS' assets.)
The operating results of the remaining net assets held for sale have been
excluded from the condensed consolidated financial statements for the three and
nine month periods ended March 31,September 30, 1996 and 1995 since the operation of
these businesses will primarily 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 NotesNotes.
Liquidity 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 RESOURCESCapital Resources
The Company's consolidated cash balance increaseddecreased by $1.8$7.5 million from $53.0
million at December 31, 1995 to $54.8$45.5 million at March 31,September 30, 1996. The
March 31,September 30, 1996 cash balance included approximately $3.5$6.2 million in foreign
subsidiaries' bank accounts and reflected $25.0 million borrowed under the Company's MES Credit Agreement
referred to below. The foreign bankwhich accounts are available only to support the
Company's foreigntheir
respective operations. The Company generated positive operating cash flow wasfor
the nine months ended September 30, 1996 due to working capital improvements
which has been used primarily to repay borrowings under the Company's working
capital credit lines and to fund capital expenditures resulting in the
first quarterconsolidated cash balance decrease.
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 up to a $100.0 million revolving credit
facility (the "New Credit Facility") for a three year period. The New Credit
Facility, which is guaranteed by certain direct and indirect U.S. subsidiaries
of the Company and is secured by substantially all of the assets of the Company
and those subsidiaries, currently provides for up to $50.0 million in borrowing
capacity and is available in the form of revolving loans ("Revolving Loans")
and/or letters of credit ("LCs" or "LC"). As amended on September 27, 1996, up
to the U.S Dollar equivalent of (pound)9.0 million can be borrowed by the
Company's United Kingdom subsidiary EMCOR (UK) Limited. The remaining $50.0
million in borrowing capacity is subject to receipt of additional commitments
from other banks, an earnings test, consents of bonding companies providing
surety bonds to the Company's Canadian and United Kingdom subsidiaries and these
subsidiaries guaranteeing the facility and collateralizing their guarantees with
their assets. The Revolving Loans bear interest at a variable rate representing
Harris' prime rate (8.25% at September 30, 1996) plus 1.0% - 2.0% based on
certain financial covenants, as defined. The interest rate on the Revolving
Loans was 9.25% at September 30, 1996. LC fees ranging from 1.50% to 3.25% are
charged based on the type of LC issued. The New Credit Facility expires on June
19, 1999. As of September 30, 1996, the Company had approximately $23.8 million
of LCs outstanding under the New Credit Facility. There were no Revolving Loans
outstanding as of September 30, 1996.
On December 14, 1994, the Company and certain of its subsidiaries entered into a
credit agreement (the "MES Credit Agreement") with lenders (collectively, the
"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 arewere guaranteed by
certain direct and indirect United States subsidiaries of MES (the "U.S. MES
Subsidiaries") and arewere 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")Water
Companies to the extent of the first $15.0 million of such proceeds, subject to
the rightsright to such proceeds of the lendersLenders 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 outstanding under the MES Credit Agreement $25.0 million at March 31,and Dyn Credit Agreement
were repaid in part on June 12, 1996 are classified as current
liabilitiesfrom proceeds received by the Company from
the sale of the Water Companies and the balance was repaid on June 20, 1996 from
borrowings under the caption "Borrowings under working capitalNew Credit Facility at which time the credit lines" in
the accompanying condensed consolidated balance sheets.agreements
were terminated.
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 lendersthe Lenders providing
revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10.0
million. The Dyn Loans arewere guaranteed by the DynDyn's subsidiaries and arewere secured by
substantially all of the assets of Dyn and the DynDyn's subsidiaries includingand 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 rightsright to such proceeds of the
lendersLenders 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,September 30, 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$66.0 million of the Company's Series C
Notes that were issued in connection with the Company's emergence from bankruptcy.plan of reorganization.
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 iswas
payable semiannually through June 15, 1996 by the issuance of additional Series
C Notes and thereafter is currently payable quarterly in cash. The Series C Notes mature on
December 15, 2001.
The accompanying condensed consolidated balance sheet as of March 31,September 30, 1996
reflects approximately $5.5$4.4 million of aindebtedness evidenced by the Company's
promissory note (the "Supplemental SellCo Note") payable to the Company'sits subsidiary
SellCo Corporation, which note was issued in connection with the Company's emergence from bankruptcy.plan
of reorganization. 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. The
Supplemental SellCo Note matures on the earlier of (i) December 15, 2004 or (ii)
one day prior to the date on which the SellCo Notes are deemed canceled.
In June 1995,September, 1996, the Company's Canadian subsidiary, Comstock Canada entered intoLtd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to CanadianCdn. $2.0 million. The facility is secured by certain assets of Comstock
Canada Ltd. and deposit instruments of aanother Canadian subsidiary of the
Company. The facility provides for interest at the bank's prime rate (6.75%(5.75% at
March 31,September 30, 1996) plus 3/4% and expires on SeptemberJune 30, 1996.1997. There were no
borrowings outstanding under this credit agreement at March 31,September 30, 1996. The
Company is seeking to include its Canadian operations under the New Credit
Facility.
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$26.8 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$14.1 million)
which overdraft line was subsequently reduced to (pound)7.0 million
(approximately U.S. $11.4 million); a facility for the issuance of guarantees,
bond and indemnities of up to pounds 7.3 million (approximately U.S. $11.2$11.4
million); and other credit facilities of up to pounds 0.8 million (approximately
U.S. $1.2$1.3 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%(5.75% as of March 31,September 30,
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 creditDuring the third
quarter of 1996, the Company obtained an $11.6 million LC under the New Credit
Facility for use as collateral for bonds issued under the U.K. facility
discussed above thereby releasing funds previously deposited as amended, expires June 30, 1996.
As of March 31,collateral for
those bonds. On October 1, 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 underreplaced the
overdraft line with Revolving Loans under the New Credit Facility.
During the second quarter of 1996, the Company entered into an agreement with
one of its insurers to reinsure the Company's obligations to bear certain losses
incurred for insurance plan years from October 1, 1992 to September 30, 1995.
Under this agreement, amounts previously deposited by the Company with one of
the Company's insurers as collateral to fund certain losses under the deductible
portion of the Company's insurance program were returned to the Company and used
to fund the cost of the above agreement and to pay down, in July 1996,
approximately $8.2$10.1 million forof indebtedness under the issuanceNew Credit Facility. As of
guarantees, and approximately $1.1 million under other credit
facilities.
TheSeptember 30, 1996, the Company is actively seeking to replace or extend its existingutilizing a $12.2 million letter of 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' obligationsobtained under the credit agreement become dueNew Credit Facility as collateral for its current insurance
obligations, 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 JWStherefore presently is not required to its stockholders of the proceeds ofdeposit cash for 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.obligations.
At March 31,September 30, 1996, the Company had a net operating loss carryforward ("NOL")
for U.S. income tax purposes expiring in years 2007 through 20102011 which
approximates $225.0$215.0 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 (as defined in Internal Revenue Code
Section 382) 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,September 30, 1996 for the full amount of the tax
benefit of its remaining 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,September 30, 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.11. Computation of Earnings Per Common Share and Common Equivalent
Share for the three and nine month periods ended
September 30, 1996.
(b) DuringNo reports on Form 8-K were filed 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.September 30,
1996.
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,October 30, 1996 By: /s/FRANK T. MacINNIS
--------------------------------------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Chief Executive Officer
Date: May 10,October 30, 1996 By: /s/LEICLE E. CHESSER
--------------------------------------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
Exhibit 11
EMCOR Group, Inc. and Subsidiaries
Computation of Earning Per Common Share and Common Equivalent Share for the
three and nine month periods ending September 30, 1996.
Three Months Nine Months
Ended September Ended
PRIMARY 30, 1996 September 30,
1996
- --------------------------------------- ----------------- ---------------
Net Income $1,931,000 $7,485,000
================= ===============
Weighted average number of common
shares outstanding 9,513,788 9,468,083
Add - common equivalent shares using
the treasury stock method 562,470 453,338
----------------- ---------------
Weighted average number of shares
used in calculation of primary
income per common and equivalent
share 10,076,258 9,921,421
================= ===============
Primary net income per common and
common equivalent share $0.19 $0.75
================= ===============
Three Months Nine Months
Ended September Ended September
FULLY DILUTED 30, 1996 30, 1996
- --------------------------------------- ----------------- ---------------
Net Income $1,931,000 $7,485,000
================= ===============
Weighted average number of shares
used in calculating primary income
per share 10,076,258 9,921,421
Shares issuable upon exercise of
stock options included in primary
calculation above (562,470) (453,338)
Shares issuable upon exercise of
stock options at period end
market price 551,431 551,431
----------------- ---------------
Weighted average number of shares
used in calculation of fully
diluted income per common and
common equivalent share 10,065,219 10,019,514
================= ===============
Fully diluted net income per common
and common equivalent share $0.19 $0.75
================= ===============