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, 1995
------------------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 __________
__________________________________________________________________________- --------------------------------------------------------------------------
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
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(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 --- ---__
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
October 31, 1995: 9,413,21229, 1996:
9,514,636 shares.
EMCOR GROUP, INC.
INDEX
Page No.
---------
PART I - FINANCIAL INFORMATIONFinancial Information
Item 1 Financial Statements
Condensed consolidated balance sheets -
as of September 30, 19951996 and December 31, 19941995 1
Condensed consolidated statements of operations -
three months ended September 30, 19951996 and 19941995 3
Condensed consolidated statements of operations -
nine months ended September 30, 19951996 and 19941995 4
Condensed consolidated statements of cash flows -
nine months ended September 30, 19951996 and 19941995 5
Condensed consolidated statement of shareholders'stockholders'
equity for the- nine month periodmonths ended September 30, 19951996 6
Notes to condensed consolidated financial statements 7
Item 2 Management's discussion and analysis of financial condition and
results of operations 1513
PART II - OTHER INFORMATIONOther Information
Item 1 Legal Proceedings 2117
Item 6 Exhibits and Reports on Form 8-K 2117
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1995 1994
------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,255 $ 52,505
Accounts receivable, net 434,305 438,958
Costs and estimated earnings in excess
of billings on uncompleted contracts 59,162 52,347
Inventories 7,905 6,910
Prepaid expenses and other 5,992 8,115
Net assets held for sale 60,207 55,401
---------- ---------
TOTAL CURRENT ASSETS 608,826 614,236
---------- ---------
INVESTMENTS, NOTES AND OTHER LONG-TERM
RECEIVABLES 3,608 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 28,447 33,670
OTHER ASSETS
Insurance cash collateral 28,907 37,577
Miscellaneous 15,372 15,893
---------- ---------
44,279 53,470
---------- ---------
TOTAL ASSETS $685,160 $707,498
========== =========
- ----------------------------------------------------------------------
September 30, December 31,
1996 1995
(Unaudited)
- ----------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $45,494 $53,007
Accounts receivable, net 432,788 435,974
Costs and estimated earnings in
excess of billings on uncompleted
contracts 72,467 65,551
Inventories 8,115 8,031
Prepaid expenses and other 7,682 8,365
Net assets held for sale -- 61,969
----------------------------------
Total Current Assets 566,546 632,897
----------------------------------
Investments, Notes and Other Long-Term
Receivables 4,291 4,684
Property, Plant and Equipment, Net 25,475 27,137
Other Assets:
Insurance cash collateral -- 30,812
Miscellaneous 3,224 15,415
----------------------------------
3,224 46,227
----------------------------------
Total Assets $599,536 $710,945
==================================
See notes to condensed consolidated financial statements.
1
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share and Share Amounts)
September 30, December 31,
1995 1994
------------------------------
LIABILITIES AND SHAREHOLDERS' (Unaudited)
EQUITY
CURRENT LIABILITIES
Notes payable $ 14,901 $ 4,803
Borrowings under working capital credit line 29,000 40,000
Current maturities of long-term debt
and capital lease obligations 1,685 2,089
7% Senior Secured Notes (Series A) 60,207 55,401
Accounts payable 208,686 219,564
Billings in excess of costs and estimated
earnings on uncompleted contracts 117,636 115,567
Accrued payroll and benefits 32,897 38,914
Other accrued expenses and liabilities 36,885 45,660
-------- -----------
TOTAL CURRENT LIABILITIES 501,897 521,998
-------- -----------
LONG-TERM DEBT 66,367 59,782
OTHER LONG-TERM OBLIGATIONS 46,972 44,588
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,424,083 issued or
issuable under the Plan of Reorganization 94 94
Warrants 2,179 2,179
Capital surplus 78,857 78,857
Cumulative translation adjustment 878 -
(Deficit) (12,084) -
-------- -----------
TOTAL SHAREHOLDERS' EQUITY 69,924 81,130
-------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $685,160 $707,498
======== ===========
- ----------------------------------------------------------------------
September 30, December 31,
1996 1995
(Unaudited)
- ----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $10,955 $14,665
Borrowings under working capital credit
lines -- 25,000
Current maturities of long-term debt 1,452 1,875
7% Senior Secured Notes (Series A) -- 61,969
Accounts payable 207,348 224,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 115,527 113,590
Accrued payroll and benefits 38,783 38,928
Other accrued expenses and liabilities 43,444 45,287
---------------------------
Total Current Liabilities 417,509 525,316
---------------------------
Long-Term Debt 72,796 68,398
Other Long-Term Obligations 30,216 46,621
Stockholders' Equity:
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,514,636 and
9,424,706 issued and outstanding,
respectively 95 94
Warrants 2,179 2,179
Capital surplus 79,812 78,863
Cumulative translation adjustment 297 327
Accumulated Deficit (3,368) (10,853)
---------------------------
Total Stockholders' Equity 79,015 70,610
---------------------------
Total Liabilities and Stockholders' Equity $599,536 $710,945
===========================
See notes to condensed consolidated financial statements.
2
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
Reorganized Predecessor
Company Company
Three months Ended September 30, 1995 1994
---------------------------------
REVENUES $403,941 $444,355
COSTS AND EXPENSES
Cost of sales 365,232 408,357
Selling, general and administrative 33,135 43,102
Reorganization charges -- 3,200
----------- ------------
398,367 454,659
----------- ------------
OPERATING INCOME (LOSS) 5,574 (10,304)
Interest expense, net (3,805) (707)
Net loss on businesses sold or held for sale (926) (236)
Loss on investment -- (4,092)
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 843 (15,339)
Provision for income taxes 250 250
----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 593 (15,589)
INCOME FROM DISCONTINUED OPERATIONS -- 5,559
----------- ------------
NET INCOME (LOSS) $ 593 $(10,030)
=========== ============
INCOME PER SHARE (1): $.06
===========
(1) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalized- ----------------------------------------------------------------------
Three months ended September 30, 1996 1995
- ----------------------------------------------------------------------
Revenues $432,452 $403,941
Costs and adopted Fresh-Start Reporting
asExpenses:
Cost of December 31, 1994.sales 390,903 365,232
Selling, general and administrative 35,566 33,135
-----------------------------
426,469 398,367
-----------------------------
Operating Income 5,983 5,574
Interest Expense, Net 2,425 3,805
Net Loss on Businesses Sold -- 926
-----------------------------
Income Before Income Taxes 3,558 843
Provision For Income Taxes 1,627 250
-----------------------------
Net Income $1,931 $593
=============================
Income Per Common Share and Common
Equivalent Share: $0.19 $0.06
=============================
See notes to condensed consolidated financial statements.
3
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
Reorganized Predecessor
Company Company
Nine Months Ended September 30, 1995 1994
-----------------------------------
REVENUES $1,171,518 $1,313,450
COSTS AND EXPENSES
Cost of sales 1,069,008 1,192,330
Selling, general and administrative 101,488 133,758
Reorganization charges -- 10,100
------------- -------------
1,170,496 1,336,188
------------- -------------
OPERATING INCOME (LOSS) 1,022 (22,738)
Interest expense, net (11,430) (1,184)
Net loss on businesses sold or held for sale (926) (532)
Loss on investment -- (4,092)
------------- -------------
LOSS BEFORE INCOME TAXES (11,334) (28,546)
Provision for income taxes 750 750
------------- -------------
LOSS FROM CONTINUING OPERATIONS (12,084) (29,296)
INCOME FROM DISCONTINUED OPERATIONS -- 9,386
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR POST-EMPLOYMENT
BENEFITS -- (2,100)
------------- -------------
NET LOSS (12,084) $ (22,010)
------------- -------------
LOSS PER SHARE (1): $(1.27)
=============
(1) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalizedCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
- ----------------------------------------------------------------------
Nine months ended September 30, 1996 1995
- ----------------------------------------------------------------------
Revenues $1,202,853 $1,171,518
Costs and adopted Fresh-Start Reporting
asExpenses:
Cost of December 31, 1994.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 ($12,084)
=============================
Income (Loss) Per Common Share and
Common Equivalent Share: $0.75 ($1.27)
=============================
See notes to condensed consolidated financial statements.
4
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
Reorganized Predecessor
Company Company
1995 1994
Nine months Ended September 30, ---------------------------------
CASH FLOWS FROM OPERATIONS
Net loss $(12,084) $(22,010)
Non-cash expenses 12,887 12,311
Write down of investment -- 4,092
Cumulative effect of accounting change -- 2,100
Loss on sale of businesses 926 532
Change in operating assets and liabilities,
excluding the effect of businesses sold (8,615) (33,975)
---------- ------------
NET CASH USED IN OPERATIONS (6,886) (36,950)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of working capital credit line (11,000) --
Proceeds from debtor-in-possession financing -- 25,000
Cash deposited in trust account for funding of
post-bankruptcy debt -- (7,501)
Payments of long-term debt and
capital lease obligations (1,007) (956)
Increase in notes payable, net 10,278 7,220
---------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,729) 23,763
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,285) (3,056)
Proceeds from sale of businesses and other assets 650 4,458
Decrease in cash balances of businesses held
for sale or sold -- 8,597
Net disbursements for investments to be sold -- (2,422)
Other -- 5,775
---------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (2,635) 13,352
---------- ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,250) 165
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 52,505 39,534
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 41,255 $ 39,699
========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For:
Interest $ 5,133 $ 1,194
Income Taxes $ 762 $ 412
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
- -------------------------------------------------------------------------
Nine months ended September 30, 1996 1995
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net income (loss) $7,485 ($12,084)
Non-cash expenses 10,129 12,887
Net loss on businesses sold -- 926
Changes in operating assets and liabilities 7,692 (8,615)
-----------------------
NET CASH PROVIDED BY (USED IN) OPERATIONS 25,306 (6,886)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of working capital credit lines (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
Change in notes payable, net (3,896) 10,278
Exercise of stock options 487 --
-----------------------
NET CASH USED IN FINANCING
ACTIVITIES (95,476) (1,729)
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment, net (4,480) (3,285)
Proceeds from sale of businesses
and other assets 314 650
Proceeds from sales of net assets
held for sale 66,424 --
Decrease in investments, notes and
other long-term receivables 399 --
-----------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 62,657 (2,635)
-----------------------
DECREASE IN CASH AND CASH EQUIVALENTS (7,513) (11,250)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 53,007 52,505
-----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $45,494 $41,255
=======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For:
Interest $5,311 $5,133
Income Taxes $239 $762
See notes to condensed consolidated financial statements.
5
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITY
(In Thousands) (Unaudited)
Cumulative
Common Capital Translation
Stock Warrants Surplus Adjustment Deficit Total
-----------------------------------------------------------------------------------
Balance, December 31,
1994 $94 $2,179 $78,857 $- $- $ 81,130
Net Loss - - - - (12,084) (12,084)
Translation
Adjustments - - - 878 - 878
-----------------------------------------------------------------------------------
Balance, September 30,
1995 $94 $2,179 $78,857 $878 $(12,084) $ 69,924
===================================================================================
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands) (Unaudited)
- ------------------------------------------------------------------------------
Cumulative
Common Capital TranslatioAccumulated
Stock Warrants Surplus Adjustment Deficit Total
- ------------------------------------------------------------------------------
Balance, December
31, 1995 $94 $2,179 $78,863 $327 ($10,853) $70,610
Net income -- -- -- -- 7,485 7,485
Common stock issued
under stock option
plans 1 -- 486 -- -- 487
NOL Utilization -- -- 463 -- -- 463
Translation
adjustments -- -- -- (30) -- (30)
--------------------------------------------------------
Balance, September
30, 1996 $95 $2,179 $79,812 $297 ($3,368) $79,015
========================================================
See notes to condensed consolidated financial statements
6statements.
================================================================================
EMCOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Group, Inc. and Subsidiaries
================================================================================
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE A BASIS OF PRESENTATION
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name toNature Of Operations
EMCOR Group, Inc. and subsidiaries ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, prepetition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The prepetition holders of the Company's
subordinated debt, common and preferred stock and warrants of participation
received warrants to purchase common stock of EMCOR is a multinational
corporation involved in exchange for their debt
and equity interests.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or
reserved for issuance to prepetition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR bank and senior institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a
debtor-in-possession credit facility to the Company, the following securities:
(i) 9,424,083 shares of newly authorized common stock of the Company
(constituting 100% of the issued and outstanding shares as of the Effective
Date); (ii) approximately $62.2 million principal amount of 7% Senior Secured
Notes, Series A, due 1997 of the Company ("Series A Notes") and $8.8 million
additional principal amount of Series A Notes for issuance to holders of general
unsecured claims and to Belmont upon resolution of disputed and unliquidated
pre-petition general unsecured claims (assuming such claims are ultimately
allowed in full); (iii) approximately $11.9 million principal amount of 7%
Senior Secured Notes, Series B, due 1997 ("Series B Notes"); (iv) approximately
$62.8 million principal amount of 11% Notes, Series C, due 2001 of the Company
("Series C Notes"); and (v) approximately $48.1 million principal amount of 12%
Subordinated Contingent Payment Notes due 2004 of SellCo (the "SellCo Notes").
The entire $11.9 million principal amount of Series B Notes and approximately
$4.1 million principal amount of the Series A Notes issued on the Effective Date
were immediately redeemed on that date at their face amount in accordance with
their terms from the proceeds realized from the sale and liquidation of certain
subsidiaries, the stock of which would have been pledged as part of the
collateral securing the Series B Notes had such subsidiaries not been sold (and
an additional $600,000 of such proceeds was reserved for redemption of certain
of the Series A Notes reserved for disputed and unliquidated 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.
A description of the Company's significant accounting policies is included in
its Form 10 filed with the Securities and Exchange Commission (the "SEC") on
March 17, 1995, which Form 10 was amended on May 2, 1995, June 22, 1995 and
August 11, 1995 by Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and Form
10/A Amendment No. 3, respectively. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Form 10/A Amendment No. 3.
As of December 31, 1994, in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"), the Company adopted "Fresh-Start Accounting." As a result of the
implementation of Fresh-Start Accounting, the condensed consolidated financial
statements of the Company after consummation of the Plan of Reorganization are
not comparable to the Company's condensed consolidated financial statements for
prior periods. The condensed
7
consolidated statements of operations for the three and nine month periods ended
September 30, 1995 and condensed consolidated statement of cash flows for the
nine months ended September 30, 1995 are not comparable to the condensed
consolidated statements of operations and condensed consolidated statement of
cash flows for the same periods in the prior year and are separated by a black
line.
Prior to the commencement and during the continuation of the Company's Chapter
11 proceeding, the Company experienced significant constraints in its surety
bonding lines that adversely affected its operations. In addition, a surety
bonding company that was a primary source of surety bonds for the Company's
Dynalectric group of subsidiaries ("Dynalectric Companies") terminated its
surety business as of January 1994. As a result, these subsidiaries were
without any surety bonding facilities for most of 1994. In November 1994 the
Company entered into an arrangement with a new surety bonding company to provide
surety bonds for the Dynalectric Companies. The Dynalectric Companies accounted
for approximately 21% of the Company's revenues for the year ended December 31,
1994 attributable to 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 plansprovides (i) mechanical and electrical construction
services directly to retain. The absenceend-users (including corporations, municipalities and other
governmental entities, owners, developers, and tenants of available surety bondingbuildings) 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
Dynalectric Companies
resulted in a significant reduction in their backlog. The new surety bonding
arrangement has allowed the Dynalectric Companiescustomer's facilities, which services are commonly referred to obtain new contracts
thereby increasing backlog.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" ("SFAS 112"). This standard requires that the cost of
benefitsas facilities
management. Mechanical and electrical construction and facilities management
services are provided to former or inactive employees be recognized on an accrual
basisa broad range of accounting. The cumulative effectcommercial, 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 adopting SFAS 112 has been
reflected in the condensed consolidated statement of operations for the nine
months ended September 30, 1994 under the caption "Cumulative Effect of Change
in Method of Accounting for Post-employment Benefits."
The Company has developed and implemented a business restructuring plan which
presently includes the sale of its water supply business and other non-core
businesses. The net assets of businesses to be sold have been classified in the
condensed consolidated balance sheets as of September 30, 1995 and December 31,
1994 as "Net assets held for sale" and are carried as current assets on the
basis of their expected disposition dates. 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, 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 Note C).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 periods ended September 30, 19951996 are not necessarily
indicative of the results to be expected for the year ending December 31, 1995.1996.
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 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 B NET INCOME (LOSS) PER SHAREC Net Income (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 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.
8
PursuantNOTE D Net 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 agreement dated June 8, 1995,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 Company, on
September 15, 1995, sold certain"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 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 retained certainthe stock of its
liabilities resulting in a loss that hasSea Cliff).
The operating results of net assets held for sale have been reflected inexcluded from the accompanying
condensed consolidated financial statements of operations 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
caption "Net loss on businesses sold
or held for sale."
NOTE C DEBTNew Credit Facility. There were no Revolving Loans outstanding as of September
30, 1996.
MES CREDIT AGREEMENTCredit Agreement - On December 14, 1994, the Company and certain of its
subsidiaries entered into a credit agreement (the "MES Credit Agreement") with
Belmont and other lenders (the(collectively, the "Lenders") providing the Company and MES Holdings
Corporation ("MES"), a wholly-
ownedwholly-owned subsidiary of the Company, with revolving
credit loans (the "MES Loans") of up to an aggregate amount of $35$35.0 million.
The MES Loans arewere guaranteed by mostcertain direct and indirect United States
subsidiaries of the Company's U.S. mechanical/electrical subsidiariesMES (the " U.S."U.S. MES Subsidiaries") and arewere secured by, among
other things, substantially all of the assets of the Company, MES and most of the U.S.
MES Subsidiaries, as well asincluding the proceeds of the sale of stock or assets of the Company's two water supply
companies (the "Water Companies") to the extent of the first $15 million of such
proceeds, subject to the rights to such proceeds of the Lenders under the Dyn
credit facility referred to below. The MES Loans bear interest on the principal
amount thereof at the rate of 15% per annum and mature on June 14, 1996.
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 with the Lenders providing Dyn with
revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10
million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured
by substantially all of the assets of Dynthe
Company, MES and the Dyn subsidiaries, as well asU.S. MES Subsidiaries and the proceeds of the sale of stock
or assets of the Water Companies to the extent of the first $15$15.0 million of
such proceeds, subject to the rightsright to such proceeds of the Lenders under the
Dyn Credit Agreement referred to below. The MES Loans bore interest on the
principal amount thereof at the rate of 15.0% per annum. Borrowings under the
MES Credit Agreement ($25.0 million at December 31, 1995) are classified as
current liabilities under the caption "Borrowings under working capital credit
lines" in the accompanying condensed consolidated balance sheets.
Borrowings 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 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 were guaranteed by Dyn's
subsidiaries and were secured by substantially all of the assets of Dyn and
Dyn's subsidiaries and 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 right 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%15.0% per
annum and mature
on June 14, 1996.
9
Borrowings under the MES Credit Agreement, $29.0 million at September 30, 1995,
are classified as current liabilities under the caption "Borrowings under
working capital credit line" in the accompanying condensed consolidated balance
sheets. In November 1995, the Company repaid $4.0 million towards the MES Credit
Agreement.annum. No borrowings were outstanding under the Dyn Credit Agreement at September 30,December
31, 1995.
SERIESSeries A NOTESNotes - Pursuant to the Plan of Reorganization, onOn 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 (assuming such claims are ultimately allowed
in full). The Series A Notes are guaranteed by MES and SellCo. 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 settlementpursuant to the Company's Plan of disputed and unliquidated pre-petition general unsecured claims.Reorganization adopted in connection with its
Chapter 11 proceeding. Approximately $4.7 million of the issued Series A Notes
were redeemed prior to September 30,
1995. The Series A Notes have been recorded at a discount to the face amount to
yield an estimated effective interest ratepayment in full of 12%. 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 semiannuallyduring the second
quarter of 1996 (approximately $66.5 million in principal and accrued interest)
with proceeds received by the issuanceCompany from the sale of additional Series A Notes until maturity and substantially offsets
income generated from net assets held for sale for the three and nine month
periods endedWater Companies.
NOTE F Long-Term Debt
Long-Term Debt in the accompanying condensed consolidated balance sheets
consists of the following amounts at September 30, 1995.
SERIES1996 and December 31, 1995
(in thousands):
September 30 December 31,
1996 1995
------------- -------------
Series C NOTESNotes, outstanding face value of
approximately $73.8 million at 11.0%,
discounted to a 14.0% effective rate,
due 2001 $65,959 $61,494
Supplemental SellCo Note, outstanding
face value of approximately $5.5
million at 8.0%, discounted to a
14.0% effective rate, due 2004 4,417 4,270
Capital Lease Obligations at weighted average
interest rates from 7.25% to 11.0%,
payable in varying amounts through 2004 821 1,284
Other, at weighted average interest rates of
approximately 10.75%, payable in varying
amounts through 2012 3,051 3,225
------------- ----------
74,248 70,273
Less current maturities (1,452) (1,875)
------------- ----------
$72,796 $68,398
============= ==========
Series C Notes - Pursuant to the Plan of Reorganization, onOn December 15, 1994 the Company issued or reserved for issuance, approximately $62.8
million principal amount of Series C Notes. For eighteen months from the Effective
Date, interestInterest 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 10
senior indebtedness of the Company butwhich 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 are 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%14.0%. SUPPLEMENTAL SELLCO NOTEThe Series C Notes mature on December 15, 2001.
Supplemental SellCo Note - Pursuant to the Plan of Reorganization,On December 15, 1994 EMCOR has 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 DateDecember 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 Series C Notes and the Supplemental SellCo Note are included in the caption
"Long-Term Debt" in the accompanying condensed consolidated balance sheets.
SELLCO NOTEShas been recorded at a discount to
its face amount to yield an estimated effective interest rate of 14.0%.
SellCo Notes - Pursuant to the Plan of Reorganization, onOn December 15, 1994 SellCo issued or reserved for issuance, approximately $48.1 million
principal amount of SellCo Notes. Interest is payable semiannually in additional
SellCo Notes. SubjectNet cash proceeds (as defined in the Indenture pursuant to the prior payment in full of the Series A Notes and
establishment of a cash reserve for the payment of capital gains taxes arising
from the sale of subsidiaries of SellCo and the rights of the lenders under the
MES and Dyn Credit Agreements with respect to proceeds of the sale of the Water
Companies,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. Sincesubsidiaries are to be used to redeem SellCo Notes. The SellCo Notes are not
obligations of EMCOR and the holders of the SellCo Notes willmay only be satisfiedlook to EMCOR
to the extent that netof EMCOR's obligation to pay the Supplemental SellCo Note plus
accrued interest thereon. Approximately $2.1 and $0.7 million of the proceeds
from the sale of the stock of Sea Cliff and the sale of assets of SellCo
and its subsidiaries generate sufficient cash in excess of that requiredJWS,
respectively, have been used to redeem, in part, the Series A NotesSellCo Notes. 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 sale of assets of JWS and prepay a portionthe stock of Sea Cliff are
released and post closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the indebtedness under the MES
and Dyn Credit Agreements, the SellCo Notes have been netted in the caption "Net
assets heldsales proceeds may become available, from time
to time, for sale" in the accompanying condensed consolidated balance sheets.
The Company is not a maker nor guarantoradditional redemptions of the SellCo Notes.
Other - Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements.
NOTE D NET ASSETS HELD FOR SALE
During the first nine months of 1995,G Income Taxes
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At September 30, 1996, the Company soldhad a subsidiary and certain
assets of another subsidiary. During the first nine months of 1994, the Company
sold its minority ownership in an energy and environmental business and other
non-core businesses. No material gains or losses were realized as a result of
these sales. The operating results of the businesses sold during the first nine
months of 1994 are included in loss from continuing operations for the nine
months ended September 30, 1994. 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, 1995 since the operation of
these businesses will only accrue to the benefit of the SellCo noteholders after
payment in full of the Series A Notes and certain other obligations (see Note
C).
11
The condensed consolidated balance sheet relating to net assets held for sale,
including discontinued operations, as of September 30, 1995, is as follows (in
thousands):
Cash $ 10,182 Current maturities of long-term
Accounts receivable, net 44,442 debt and capital lease
Costs and estimated obligations $ 14,554
earnings in excess of Accounts payable
billings 10,983 Billings in excess of costs and 20,046
Inventories 1,602 estimated earnings 7,025
Other current assets 947 Other accrued expenses 60,050
-------- --------
68,156 101,675
Long-term debt 43,116
Property, plant and 154,539 Other long-term liabilities 30,515
equipment, net
Other assets 12,818 Net assets held for sale 60,207
-------- --------
$235,513 $235,513
======== ========
Selected pro forma financial information for the three and nine month periods
ended September 30, 1994, excluding businesses held for sale and discontinued
operations, is as follows (in thousands):
Three Months Nine months
Ended September 30, Ended September 30,
1994 1994
-------------------------------------------
Revenues $ 397,375 $1,175,142
Cost of Sales 366,697 1,069,041
Selling, General and Administrative
Expenses 34,513 109,026
Operating Loss (7,035) (13,025)
Net Loss $ (12,520) $ (21,195)
NOTE E INCOME TAXES
The Company has approximately $500.0 million of net operating loss
carry-
forwardscarryforward ("NOL") available for U.S. income tax purposes expiring in years 2007 through
2008. The Company has provided a valuation allowance2011 which approximates $215.0 million, subject to offset the full
amount of the net deferred tax assets arising from book and tax differences
including those from the NOL.
The Company has elected to determine its NOL in accordance with Internal Revenue Code ("Code") Section 382(1)(5) which would allow the Company to use
approximately $300.0 million of the NOL.Service
approval. However, a subsequent ownership change (as defined by the Code) within two years from the Effective Datein 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 and net deductible temporary
differences which existed as of the date of the Company's emergence from Chapter
11 result in a charge to the tax provision (provision in lieu of income taxes)
and are 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 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
September 30, 19951996 and 19941995 represents a provision primarily for federal,
foreign and state and local income taxes. NOTE F LEGAL PROCEEDINGS
InFor the three and nine month periods
ended September 1995,30, 1996 the Company reachedallocated 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
The Dynalectric Company ("Dynalectric"), a comprehensive settlement withsubsidiary of the SEC
relatingCompany, 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 matters underlyingjoint venture, alleges
that Dynalectric wrongfully terminated it from the subcontract, fraudulently
diverted funds due it, misappropriated its previously announced accounting
adjustmentstrade secrets and write-offs forproprietary
information, fraudulently induced it to enter into the fiscal year ended December 31, 1992,joint venture and
the
restatement of its net income for the fiscal year ended December 31, 1991. The
settlement is the culmination of an investigation the SEC commencedconspired with other defendants to commit certain acts in 1992.
12
The SEC allegations were contained in a Complaint filed September 21, 1995 in
the United States District Court for the Southern District of New York, against
the Company and four individuals, none of whom is still employed by the Company,
who served as officers and/or directors of JWP INC. and/or certain of its
subsidiaries at various times in 1991 and 1992. Without admitting or denying
any of those allegations, the Company entered into a formal Consent to the entry
of a Final Judgment of Permanent Injunction, which was filed simultaneously with
the Complaint. The Company consented to the entry of an order permanently
enjoining the Company from, among other things, committing violations of various
antifraud provisionsviolation of the federal securities laws,New
Jersey Racketeering Influence and failingCorrupt Organization Act. Dynalectric believes
that Computran's claims are without merit and intends to make and
keep books and records which accurately reflect the Company's transactions and
disposition of assets. The SEC's Complaint did not seek, nor does the Consent
require, payment of any monetary penalties by the Company.defend this matter
vigorously. Dynalectric has filed counterclaims against Computran. Discovery is
ongoing; no trial date is scheduled.
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against a subsidiary of the Company Jamaica Water
Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the
State of New York, Westchester County, bearing the caption, Harold F.
Scattergood Jr., et al. v. Jamaica ---------------------------------------------
Water Securities Corp. (Index No. 15992/94).
On October 17, 1994, an amended
- ---------------------- complaint was served adding additional
plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to EMCOR'sthe Company's
obligations on the Warrants of Participation by reason of its 1977 acquisition of EMCOR'sthe Company's
96% stock interest in Jamaica Water Supply Company.Company ("JWS"). The plaintiffs also
claimed that certain events constituted a disposition of the assets of Jamaica Water
Supply CompanyJWS which
triggered the Warrants, of Participation, obligating Jamaica
Water SecuritiesJWSC 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' actions,action holding that the assets of
Jamaica Water Supply CompanyJWS had not been "disposed of" under the express terms of the Warrants of Participation prior to
their stated expiration on December 31, 1994. The court also held that it lacked
the power to rewrite the "clear and unambiguous provisions" of the Warrants of ParticipationWarrant
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$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 the MES group of
companies.
13
The Dynalectric Company ("Dynalectric") is a defendant in an action entitled
Computran v. Dynalectric, et al., pending in Superior Court of New Jersey,
- --------------------------------
Bergen County, arising out of its participation in a joint venture. In the
action, which was instituted in 1988, the plaintiff, Computran, a participant in
and a subcontractor to the joint venture, alleges that Dynalectric wrongfully
terminated it from the subcontract, fraudulently diverted funds due it,
misappropriated its trade secrets and proprietary information, fraudulently
induced it to enter into the joint venture and conspired with other defendants
to commit certain acts in violation of the New Jersey Racketeering Influence and
Corrupt Organization Act. Dynalectric believes that Computran's claims are
without merit and intends to defend this matter vigorously. Dynalectric has
filed counterclaims against Computran. Discovery is ongoing; no trial date is
scheduled.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 itself inor assert these mattersclaims 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.
14
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
JWP INC. emerged from Chapter 11NOTE I Other
During the second quarter of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by1996, the Company andentered into an agreement with
one of its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, pre-petition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The pre-petition holders ofinsurers to reinsure the Company's subordinated debt, common and preferred stock and warrants of participation
received warrantsobligations to purchase common stock of EMCOR in exchangebear certain losses
incurred for their debt
and equity interests.
The Company's results of operations and financial condition as of and for the
period endedinsurance plan years from October 1, 1992 to September 30, 1995 reflect the adoption of Statement of Position
90-7, "Financial Reporting by Entities in Reorganization1995.
Under the Bankruptcy
Code" ("SOP 90-7"). The Company has accounted for its reorganization by using
the principles of Fresh-Start Accounting as required by SOP 90-7. For
accounting purposes, the Company assumed that the Plan of Reorganization was
consummated on December 31, 1994. Under the principles of Fresh-Start
Accounting, the Company's total net assets were recorded at their assumed
reorganization value, with the reorganization value allocated to identifiable
assets on the basis of their estimated fair value. The primary valuation
methodology employedthis agreement, amounts previously deposited by the Company with the assistanceone of
its financial
advisorsinsurers as collateral to determinefund certain losses under the reorganization valuedeductible 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 was a net present
value approach. The valuation was based on the Company's forecasts of unleveraged, after-tax cash flows calculated for each year over the four-year
period from 1994 to 1997, capitalizing projected earnings before interest,
taxes, depreciation and amortization at multiples ranging from 3 to 10 selected
to value earnings and cash flows beyond 1997, and discounting the resulting
amounts to present value at rates ranging from 10% to 30% selected to
approximate the Company's projected weighted average cost of capital. The
excess of reorganization value over the value of identifiable assets of $5.0
millionthis transaction, which is includedreflected 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: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenues for the third quarter of 1996 were $432.5 million compared to $403.9
million in the third quarter of 1995. In the third quarter of 1996 the Company
generated net income of $1.9 million or $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 $12.1 million or $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 prior year
is due to continued improvements in job performance, a reduction in the cost of
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 $6.0 million for the three months
ended September 30, 1996 compared to operating income of $5.6 million in the
same period of the prior year. The improvement in operating income for the three
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 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 for 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 increased due to improved economic conditions, these increases
were substantially offset by decreased revenues in the Northeastern 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
earlier downsizing of 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 September 30, 1996 and 1995 were
$32.0 million and $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.
In October 1996, the Company concluded its settlement of the arbitration award
for $4.3 million.
The Company's backlog was $1,082.5 million at September 30, 1996 and $1,060.7
million at December 31, 19941995. Between December 31, 1995 and September 30, 1996,
the Company's backlog in Otherthe United States increased by $73.9 million, its
backlog in Canada decreased minimally and its backlog in the United Kingdom
decreased by $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 United Kingdom backlog is due to the
continued progress on several large projects and the continued weakness in the
United Kingdom commercial construction market.
Net Assets as "Miscellaneous"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 amortized over 15 years.
As a resultheld in escrow pending determination of the implementationpost-closing adjustments. In
May 1996, the Company also completed the sale of Fresh-Start Accounting, the financial
statementsall of the stock of Sea Cliff
to a subsidiary of Aquarion Company for periods subsequentapproximately $2.6 million, subject to
consummationpost-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 Planpost-closing adjustments and as collateral security for
certain indemnification obligations.
The sales proceeds from the sale of ReorganizationJWS' assets have been and will not be comparableapplied
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 financial statementspredecessor (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 prior periods.the sale of the JWS assets 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. (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 September 30, 1996 and 1995 since the operationsoperation of
these businesses will primarily only accrue to the benefit of the holders of the
SellCo Notes after
payment in full of the Series A NotesNotes.
Liquidity and certain other obligations (See Note C
in the accompanying NotesCapital Resources
The Company's consolidated cash balance decreased by $7.5 million from $53.0
million at December 31, 1995 to Condensed Consolidated Financial Statements) and
the operating results substantially offset interest accrued on the Series A
Notes which interest has been recognized within the caption "Net assets held for
sale" in the accompanying condensed consolidated balance sheet as of$45.5 million at September 30, 1995.
Revenues for the third quarter of 1995 were $403.91996. The
September 30, 1996 cash balance included approximately $6.2 million comparedin foreign
subsidiaries' bank accounts which accounts are available only to $397.4
million, exclusive of revenues of $47.0 million attributable to businesses held
for sale or sold in the third quarter of 1994. In the third quarter of 1995 thesupport their
respective operations. The Company generated net income of $0.6 million or $.06 per share compared to a net
loss of $12.5 million, exclusive of net income of $2.5 million attributable to
businesses held for sale or sold in the third quarter of 1994. The 1995 third
quarter income reflects $3.8 million of net interest expense compared to $0.7
million of net interest expense during the third quarter of 1994. Interest
expense in 1995 includes interest on borrowings under new working capital credit
facilities obtained by the Company in December 1994 and notes issued pursuant to
the Company's Plan of Reorganization. Interest expense for the three months
ended September 30, 1994 excludes interest on debt in default which the Company
15
ceased accruing in December 1993. Income from continuing operations in the
third quarter of 1995 was $0.6 million or $.06 per share compared to a loss of
$12.5 million, exclusive of losses of $3.1 million attributable to businesses
held for sale or sold, in the third quarter of 1994.
Revenuespositive operating cash flow for
the nine months ended September 30, 1995 were $1,171.5 million
compared1996 due to $1,175.1 million, exclusive of revenues of $138.4 million
attributableworking capital improvements
which has been used primarily to businesses held for sale or sold, in the same period in the
prior year. For the nine months ended September 30, 1995, the Company incurred
a net loss of $12.1 million or $1.27 per share compared to a net loss of $21.2
million, exclusive of a net loss of $0.8 million attributable to businesses held
for sale or sold, in the same period in the prior year. The net loss for the
nine months ended September 30, 1995 includes $11.4 million of net interest
expense compared to $1.2 million of net interest expense during the same period
in the prior year. Interest expense in 1995 includes interest onrepay borrowings under newthe Company's working
capital credit facilities obtained by the Company in December
1994lines and notes issued pursuant to the Company's Plan of Reorganization.
Interest expense for the nine months ended September 30, 1994 excludes interest
on debt in default which the Company ceased accruing in December 1993. Loss
from continuing operations for the nine months ended September 30, 1995 was
$12.1 million or $1.27 per share compared to a loss of $21.2 million, exclusive
of losses of $10.2 million attributable to businesses held for sale or soldfund capital expenditures resulting in the same period in the prior year.
The Company generated operating income of $5.6 million for the three months
ended September 30, 1995 compared to a $7.0 million operating loss, exclusive of
losses of $3.3 million attributable to businesses held for sale or sold, in the
same quarter of 1994. Operating income in the third quarter of 1995 compared to
the operating loss in the third quarter of 1994 was attributable to a decrease
in selling, general and administrative expenses resulting from cost cutting; and
reduction in professional fees incurred for legal, consulting and other services
relating to the Company's 1994 Chapter 11 bankruptcy proceedings; and also
attributable to an increase in gross profit due to cost control efforts,
stricter job acceptance standards, favorable job closeouts and improved access
to work.
The Company generated operating income of $1.0 million for the nine months ended
September 30, 1995 compared to a $13.0 million operating loss, exclusive of
losses of $9.7 million attributable to businesses held for sale or sold, in the
same period of the prior year. The operating income for the first nine months
of 1995 was principally due to a 24.1% decrease, (6.9% excluding businesses sold
or held for sale) in selling, general and administrative expenses resulting from
cost cutting efforts as well as the elimination of professional fees incurred
for legal, consulting and other services relating to the Company's 1994 Chapter
11 bankruptcy proceedings.
Revenues relating to businesses which the Company plans to retain remained
substantially unchanged compared with the year earlier periods. While revenues
of business units operating in the Eastern United States and Central United
Kingdom increased due to improved economic conditions, this increase was offset
by decreased revenues in the Midwestern and Western regions of the United
States, Canada, Northern and Southern parts of the United Kingdom due to, among
other things, continuing poor market conditions.
The operating results for the nine months ended September 1995 and 1994 reflect,
among other things, the negative impact of the continued recession and
oversupply in the commercial real estate market which has caused intense
competition for new commercial work. As a result of the reduction of commercial
work since 1992, many of the Company's business units pursued noncommercial
projects, primarily governmental and municipal facilities, at lower margins than
were historically available in the commercial marketplace. Certain of these
business units were not as experienced in performing noncommercial projects and,
as a result, incurred losses particularly on certain long-term contracts.
Operating margins were also adversely affected by the continuing recessions in
the United Kingdom, Canada, and the Midwestern and Western regions of the United
States.
16
Selling, general and administrative expenses ("SG&A"), excluding general
corporate expenses, for the quarters ended September 30, 1995 and 1994 were
$29.5 million and $30.6 million, exclusive with respect to the third quarter of
1994 of $8.6 million of SG&A attributable to businesses held for sale or sold,
respectively. For the nine months ended September 30, 1995 and 1994, SG&A
expenses, excluding general corporate expenses were $90.6 million and $96.3
million, exclusive with respect to the nine months ended September 30, 1994 of
$24.7 million of SG&A attributable to businesses held for sale or sold. The
amount of SG&A expense in 1995 was lower than SG&A in the comparable 1994 period
as a result of the implementation of the Company's downsizing and cost reduction
plans.
The Company's backlog was $1,142.7 million at September 30, 1995 and $1,054.1
million at December 31, 1994 with respect to companies which the Company
currently intends to retain. The Company's backlog in the United States and the
United Kingdom increased by $90.5 million and $12.5 million, respectively,
between December 31, 1994 and September 30, 1995, while its backlog in Canada
decreased by $14.4 million. The decline in the Canadian backlog is principally
attributable to the downsizing of the Canadian operations.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the quarters ended September 30, 1995 and 1994
were $3.6 million and $3.9 million, respectively. General corporate expenses
for the nine months ended September 30, 1995 and 1994 were $10.9 million and
$12.8 million, respectively. Legal and other professional fees for 1994
incurred as a result of the bankruptcy proceeding are reflected under the
caption "Reorganization charges" in the condensed consolidated statement of
operations. These expenses for the three and nine month periods ended September
30, 1994 were approximately $3.2 million and $10.1 million, respectively. The
higher amount of general corporate expenses in 1994 is attributable to debt
issuance costs related to the Company's debtor-in-possession credit facility
("DIP Loan"), severance paid to terminated employees and insurance costs.
NET ASSETS HELD FOR SALE
The operating results of net assets held for sale, which included the Company's
water supply business classified as discontinued operations prior to the
consummation of the Plan of Reorganization, have been excluded from the
condensed consolidated financial statements for the three and nine month periods
ended September 30, 1995 since the operation of these businesses will only
accrue to the benefit of the holders of SellCo Notes after payment in full of
the Series A Notes and certain other obligations (See Note C 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's
consolidated cash balance decreased by $11.2 million from $52.5
million at December 31, 1994 to $41.3 million at September 30, 1995. The
September 30, 1995 cash balance included $5.5 million in foreign bank accounts
and reflected $29.0 million borrowed under the MES Credit Agreement referred to
below. The foreign bank accounts are available only to support the Company's
foreign operations. The negative operating cash flow was due to funding for the
start-up of new projects as well as other working capital requirements.
An asset disposition program was initiated in the third quarter of 1992 with
respect to the Company's non-core businesses and certain other assets to raise
cash for working capital and to reduce debt. For the nine months ended
September 30, 1994, the Company received net cash proceeds of $4.5 million from
the sale of the Company's minority ownership in an energy and environmental
business, other non-core businesses and other assets.
17
In February 1994decrease.
On June 19, 1996 the Company and substantially all of its subsidiariessubsidiary Dyn Specialty Contracting Inc.
("Dyn") entered into ana credit agreement with Belmont Capital Partners II, L.P.Harris Trust and Savings Bank
("Belmont"Harris") which
providedproviding the DIP Loan. The DIP Loan agreement providedCompany with up to a $100.0 million revolving credit
facility to(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 of up to $35.0 million at an interest rate of 12% per annum during the
period of the Company's Chapter 11 proceeding. Belmont also received, as
additional interest, a percentage of the securities issued pursuant to the Plan
of Reorganization. The DIP Loan wasand is secured by a first lien on substantially all of the assets of the Company
and mostthose subsidiaries, currently provides for up to $50.0 million in borrowing
capacity and is available in the form of its subsidiaries.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 DIP Loanremaining $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 repaid upon9.25% at September 30, 1996. LC fees ranging from 1.50% to 3.25% are
charged based on the Effective Date with borrowingstype 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 MES
credit agreement referred to below.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 its subsidiary and MES Holdings CorpCorp. ("MES"), a wholly-owned
subsidiary of the Company, with revolving credit loans (the "MES Loans") of up
to an aggregate amount of $35$35.0 million. The MES Loans arewere guaranteed by
certain direct orand indirect U.S.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, as well asincluding the proceeds
of the sale of stock
or assets of the Company's two water supply companies (the "Water Companies") to
the extent of the first $15 million of such proceeds, subject to the rights to
such proceeds of the lenders under the Dyn credit agreement referred to below.
The MES Loans bear interest on the principal amount thereof at the rate of 15%
per annum, and mature on June 14, 1996. Borrowings under the MES Credit
Agreement, $29.0 million at September 30, 1995, are classified as current
liabilities under the caption "Borrowings under working capital credit line" in
the accompanying condensed consolidated balance sheets. In November 1995, the
Company repaid $4 million towards the MES Credit Agreement.
Also, on December 14, 1994, the Company and its subsidiaries Dyn Specialty
Contracting Inc. ("Dyn") and Dyn's subsidiaries entered into a credit agreement
with the lenders providing revolving credit loans (the "Dyn Loans") of up to an
aggregate amount of $10 million. The Dyn Loans are guaranteed by the Dyn
subsidiaries and are secured by substantially all of the assets of Dynthe Company, MES and the Dyn subsidiaries, as well asU.S. MES
Subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15$15.0 million of such proceeds, subject to
the rightsright to such proceeds of the lendersLenders under the Dyn Credit Agreement
referred to below.
Borrowings outstanding under the MES Credit Agreement and Dyn Credit Agreement
were repaid in part on June 12, 1996 from 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 New Credit Facility at which time the credit agreements
were terminated.
Also on December 14, 1994, the Company, Dyn 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 were guaranteed by Dyn's subsidiaries and were secured by
substantially all of the assets of Dyn and Dyn's subsidiaries and 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 right to such proceeds of the
Lenders under the MES Credit Agreement.
Included in the accompanying condensed consolidated balance sheet as of
September 30, 1996 are approximately $66.0 million of the Company's Series C
Notes that were issued in connection with the Company's plan of reorganization.
The Dyn Loans bear interestSeries C Notes have been recorded at a discount to their face amount to
yield an estimated effective rate of 14.0%. Interest on the principal amount thereof atSeries C Notes was
payable semiannually through June 15, 1996 by the rateissuance of 15%
per annum,additional Series
C Notes and is currently payable quarterly in cash. The Series C Notes mature on
June 14, 1996. No borrowings are currently outstanding
under the Dyn Credit Agreement atDecember 15, 2001.
The accompanying condensed consolidated balance sheet as of September 30, 1995.
Under1996
reflects approximately $4.4 million of indebtedness evidenced by the Plan of Reorganization, pre-petition creditors of the Company (other
than holders of subordinated debt) received certain notes of EMCOR andCompany's
promissory note (the "Supplemental SellCo Note") payable to its subsidiary
SellCo and substantially all of the common stock of EMCOR. The
pre-petition holders ofCorporation, which note was issued in connection with the Company's subordinated debt, common and preferred
stock and warrantsplan
of participation received warrantsreorganization. The Supplemental SellCo Note has been recorded at a discount
to purchase common stockits face amount to yield an estimated effective interest rate of EMCOR in exchange for their debt and equity interests.
Pursuant14.0%.
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 Plan of Reorganization,date on which the Effective Date EMCOR issued or
reserved for issuance to pre-petition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR senior bank and institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont the following securities: (i) 9,424,083 shares of newly
authorized common stock of the Company ("New Common Stock") (constituting 100%
of the issued and outstanding shares as of the Effective Date); (ii)
approximately $62.2 million principal amount of 7% Senior SecuredSellCo Notes Series
A, due 1997 of the Company ("Series A Notes") and $8.8 million additional
principal amount of Series A Notes reserved for issuance to holders of
general unsecured claims and to Belmont upon resolution of disputed and
unliquidated pre-petition general unsecured claims (assuming such claims are ultimately allowed in full); (iii) approximately $11.9 million principal amount
of 7% Senior Secured Notes, Series B, due 1997
18
("Series B Notes"); (iv) approximately $62.8 million principal amount of 11%
Notes, Series C, due 2001 of the Company ("Series C Notes"); and (v)
approximately $48.1 million principal amount of SellCo 12% Subordinated
Contingent Payment Notes due 2004. The entire $11.9 million principal amount of
Series B Notes and approximately $4.1 million principal amount of the Series A
Notes issued on the Effective Date were immediately redeemed on that date at
their face amount in accordance with their terms from the proceeds realized from
the sale and liquidation of certain subsidiaries, the stock of which would have
been pledged as part of the collateral securing the Series B Notes had such
subsidiaries not been sold (and an additional $600,000 of such proceeds was
reserved for redemption of certain of the Series A Notes reserved for disputed
and unliquidated claims). The Company recorded the Series A Notes based upon an
assumed total of $100 million of pre-petition general unsecured claims after
settlement of disputed and unliquidated pre-petition general unsecured claims.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 (8.0%(5.75% at
September 30, 1995)1996) plus .75%3/4% and expires on SeptemberJune 30, 1996. Borrowings1997. There were no
borrowings outstanding under this credit agreement were $0.4 million at September 30, 1995.1996. 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 Poundspounds
17.1 million (approximately U.S. $27.1$26.8 million). The credit facility consists of
the following components with the individual credit limits as indicated: an
overdraft line of up to Poundspounds 9.0 million (approximately U.S. $14.2$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 Poundspounds 7.3 million (approximately U.S. $11.6$11.4
million); and other credit facilities of up to Poundspounds 0.8 million (approximately
U.S. $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 (6.75%(5.75% as of September 30,
1995)1996), plus 3%3.0% on the first Poundspounds 5.0 million of borrowings and at the bank's
base rate plus 4%4.0% for borrowings over Poundspounds 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 Junecollateral for
those bonds. On October 1, 1996, the Company's U.K. subsidiaries replaced 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, 1996.1995.
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 $10.1 million of indebtedness under the New Credit Facility. As of
September 30, 1995, the Company's U.K. subsidiaries had utilized
approximately $24.1 million of the credit facilities as follows: approximately
$11.3 million of borrowings under the overdraft line, approximately $11.6
million for the issuance of guarantees and approximately $1.2 million under
other credit facilities.
On November 4, 1994, 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 D to the condensed consolidated
financial statements. This credit agreement was extended from November 4, 1995
to November 17, 1995. During the period from November 4, 1995 to November 17,
1995,1996, the Company is precluded from additional drawingsutilizing a $12.2 million letter of credit
obtained under the credit
agreementNew Credit Facility as collateral for its current insurance
obligations, and indebtedness bears interest at the banks prime rate (8.75% at
November 9, 1995). The Companytherefore presently is negotiating the terms of an extension of the
credit agreement; however, there can be no assurance the credit agreement will
be extended or, if so, its terms.
On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau
County, certain other governmental bodies and a consumer advocate group entered
into an agreement that ended several regulatory and legal proceedings involving
JWS. This agreement was approved by the New York State Public Service
Commission (the "PSC") on February 2, 1994. The agreement providesnot required to deposit cash for among
other things, a three year moratorium on general rates charged by JWS,
resolution of economic issues raised by
19
the PSC arising from its 1992 audit of JWS, settlement of related litigation and
the dismissal of an action brought against JWS by Nassau County of the State of
New York alleging violations of the Racketeer Influenced and Corrupt
Organizations Act and common law fraud. Among other things, JWS agreed to make
payments over the 1994-1997 period totaling $11.7 million to customers in Nassau
and Queens Counties in the State of New York. The estimated payments to
customers were provided against 1993 operations. The agreement also provides
that JWS, subject to limited specified exceptions, will not seek to have a
general rate increase become effective prior to January 1, 1997 and will use its
best efforts to bring about the separation of Jamaica Water Securities Corp., a
subsidiary ofsuch
obligations.
At September 30, 1996, the Company which holds substantially all the common stock of JWS,
from the Company.
The Company has substantialhad a net operating loss carryforwardscarryforward ("NOL")
for U.S. Federal income tax purposes. Aspurposes expiring in years 2007 through 2011 which
approximates $215.0 million, subject to Internal Revenue Service approval.
However, a subsequent ownership change (as defined in Internal Revenue Code
Section 382) prior to December 15, 1996 would reduce to zero the Company exchanged newly issued equity in
exchange for debt, a significant portion of thefuture NOL
may not be available to
reduce future U.S. taxable income. At September 30, 1995, thebenefits under Internal Revenue Code Section 382(1)(5). The Company has provided
a valuation allowance to offsetas of September 30, 1996 for the full amount of the nettax
benefit of its remaining NOLs and other deferred tax asset arising from book and tax differences including those from the NOL.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). The cumulative effect of adopting SFAS 112 was
to record a charge of $2.1 million as of January 1, 1994. Such amount has been
reflected in the condensed consolidated statement of operations under the
caption "Cumulative Effect of Change in Method of Accounting for Post-employment
Benefits." The adoption of this standard did not materially affect the 1994
loss before cumulative effect of change in method of accounting for post-
employment benefits.
20assets.
PART II - OTHER INFORMATION
ITEM 21 - LEGAL PROCEEDINGS
The information in Note FH to the Company's September 30, 19951996 Notes to Condensed
Consolidated Financial Statements (unaudited) regarding legal proceedings is
hereby incorporated herein by reference thereto.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibit No. 27; Article 5, 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 September 30,
1995, the Company filed a Report on
Form 8-K dated August 14, 1995 reporting information with respect to Item
5 of such Form and a Report on Form 8-K dated September 31, 1995 reporting
information with respect to Items 4 and 7 of such Form.
211996.
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: November 13, 1995 s/ October 30, 1996 By: /s/FRANK T. MacINNIS
---------------------------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Chief Executive Officer
Date: November 13, 1995 s/ October 30, 1996 By: /s/LEICLE E. CHESSER
------------------------------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
22
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
================= ===============