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
--------------- -----------------------------------------
    (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 ================= ===============