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, 2000 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 incorporation (I.R.S. Employer or organization) Identification Number) 101 Merritt Seven Corporate Park Norwalk, Connecticut 06851-1060 - ---------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) (203) 849-7800 ------------------------------- (Registrant's telephone number) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No __ Applicable Only To Corporate Issuers Number of shares of Common Stock outstanding as of the close of business on October 24, 2000: 10,456,796 shares. EMCOR GROUP, INC. INDEX Page No. PART I - Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets - as of September 30, 2000 and December 31, 1999 1 Condensed Consolidated Statements of Operations - three months ended September 30, 2000 and 1999 3 Condensed Consolidated Statements of Operations - nine months ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 2000 and 1999 5 Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income - nine months ended September 30, 2000 and 1999 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - Other Information Item 1 Legal Proceedings 19 Item 4 Submission of Matters to a Vote of Security Holders 19 Item 6 Exhibits and Reports on Form 8-K 20 6 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) - -------------------------------------------------------------------------------- September 30, December 31, 2000 1999 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 79,904 $ 58,552 Accounts receivable, net 867,568 713,593 Costs and estimated earnings in excess of billings on uncompleted contracts 156,223 137,048 Inventories 6,830 9,776 Prepaid expenses and other 10,212 9,018 ---------- ---------- Total current assets 1,120,737 927,987 Investments, notes and other long-term receivables 24,463 17,411 Property, plant and equipment, net 36,642 36,509 Goodwill 67,545 68,009 Other assets 6,633 6,573 ---------- ---------- Total assets $1,256,020 $1,056,489 ========== ========== See Notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) - -------------------------------------------------------------------------------- September 30, December 31, 2000 1999 (Unaudited) - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under working capital credit lines $ -- $ -- Current maturities of long-term debt and capital lease obligations 1,177 2,235 Accounts payable 358,036 342,917 Billings in excess of costs and estimated earnings on uncompleted contracts 334,384 216,152 Accrued payroll and benefits 93,598 84,496 Other accrued expenses and liabilities 79,904 71,782 ---------- ----------- Total current liabilities 867,099 717,582 Long-term debt and capital lease obligations 115,852 116,003 Other long-term obligations 63,915 52,655 ---------- ----------- Total liabilities 1,046,866 886,240 ---------- ----------- Stockholders' equity: Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 10,450,129 and 10,427,690 shares issued and outstanding, respectively 117 117 Capital surplus 158,474 142,894 Accumulated other comprehensive income (4,464) (2,223) Retained earnings 71,863 46,297 Treasury stock, at cost, 1,131,990 shares (16,836) (16,836) ---------- ----------- Total stockholders' equity 209,154 170,249 ---------- ----------- Total liabilities and stockholders' equity $1,256,020 $1,056,489 ========== =========== See notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- Three months ended September 30, 2000 1999 - -------------------------------------------------------------------------------- Revenues $921,568 $810,749 Costs and expenses: Cost of sales 833,099 732,732 Selling, general and administrative 65,946 59,865 -------- -------- 899,045 792,597 -------- -------- Operating income 22,523 18,152 Interest expense, net 2,026 2,378 -------- -------- Income before income taxes 20,497 15,774 Provision for income taxes 9,018 7,135 -------- -------- Net income $ 11,479 $ 8,639 ======== ======== Basic earnings per share $ 1.10 $ 0.89 ======== ======== Diluted earnings per share $ 0.83 $ 0.66 ======== ======== See Notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) - -------------------------------------------------------------------------------- Nine months ended September 30, 2000 1999 - -------------------------------------------------------------------------------- Revenues $2,529,940 $2,047,221 Costs and expenses: Cost of sales 2,283,583 1,850,621 Selling, general and administrative 194,708 161,394 ---------- ---------- 2,478,291 2,012,015 ---------- ---------- Operating income 51,649 35,206 Interest expense, net 5,996 6,313 ---------- ---------- Income before income taxes 45,653 28,893 Provision for income taxes 20,087 12,777 ---------- ---------- Net income $ 25,566 $ 16,116 ========== ========== Basic earnings per share $ 2.45 $ 1.66 ========== ========== Diluted earnings per share $ 1.91 $ 1.33 ========== ========== See Notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) - -------------------------------------------------------------------------------- Nine months ended September 30, 2000 1999 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $25,566 $16,116 Depreciation and amortization 8,045 7,901 Amortization of goodwill 3,360 2,437 Other non-cash expenses 19,124 11,445 Changes in operating assets and liabilities (14,598) (25,404) ------- ------- Net cash provided by operating activities 41,497 12,495 ------- -------- Cash flows from investing activities: Purchase of property, plant and equipment, net (8,178) (7,910) Payments for acquisition of businesses (2,896) (55,782) (Increase) decrease in Investments, notes and other long-term receivables (7,052) 5,473 Other, net 34 -- ------- ------- Net cash used in investing activities (18,092) (58,219) ------- ------- Cash flows from financing activities: Purchases of treasury stock -- (2,868) Borrowings under working capital credit lines, net -- 10,000 Payments of long-term debt and capital lease obligations, net (2,211) (6,821) Exercise of stock options 158 221 ------- ------- Net cash (used in) provided by financing activities (2,053) 532 ------- ------- Increase (decrease) in cash and cash equivalents 21,352 (45,192) Cash and cash equivalents at beginning of period 58,552 83,053 ------- ------- Cash and cash equivalents at end of period $79,904 $37,861 ======= ======= Supplemental cash flow information: Cash paid for: Interest $ 4,301 $ 3,879 Income taxes $ 3,552 $ 2,383 See Notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (In thousands) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated other Common Capital comprehensive Retained Treasury Comprehensive Total stock Warrants surplus income (loss) earnings stock income (1) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 2000 $170,249 $117 $ -- $142,894 $(2,223) $46,297 $(16,836) Net income 25,566 -- -- -- -- 25,566 -- $25,566 Foreign currency translation adjustments (2,241) -- -- -- (2,241) -- -- (2,241) ------- Comprehensive income -- -- -- -- -- -- -- $23,325 ======= Provision in lieu of income taxes 15,388 -- -- 15,388 -- -- -- Common stock issued under stock option plans 158 -- -- 158 -- -- -- Other, net 34 -- -- 34 -- -- -- -------- ---- ----- -------- ------- ------- -------- Balance, September 30, 2000 $209,154 $117 $ -- $158,474 $(4,464) $71,863 $(16,836) ======== ==== ===== ======== ======= ======= ======== Balance, January 1, 1999 $119,816 $109 $2,154 $114,867 $(1,822) $18,476 $(13,968) Net income 16,116 -- -- -- -- 16,116 -- $16,116 Foreign currency translation adjustments 1,713 -- -- -- 1,713 -- -- 1,713 ------- Comprehensive income -- -- -- -- -- -- -- $17,829 ======= Provision in lieu of income taxes 10,255 -- -- 10,255 -- -- -- Common stock issued under stock option plans 221 -- -- 221 -- -- -- Treasury stock repurchased (2,868) -- -- -- -- -- (2,868) -------- ---- ------ -------- ------- ------- -------- Balance, September 30, 1999 $145,253 $109 $2,154 $125,343 $ (109) $34,592 $(16,836) ======== ==== ====== ======== ======= ======= ======== (1) Represents cumulative foreign currency translation adjustments. See Notes to Condensed Consolidated Financial Statements. EMCOR Group, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A Basis of Presentation The accompanying condensed consolidated financial statements have been prepared by EMCOR Group, Inc. and Subsidiaries ("EMCOR"), without audit, pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto included in EMCOR's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of EMCOR, 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 EMCOR and the results of its operations. The results of operations for the three and nine month periods ended September 30, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000. Certain reclassifications of prior year amounts have been made to conform to current year presentation. NOTE B Income Taxes EMCOR files a consolidated federal income tax return including all its U.S. subsidiaries. At September 30, 2000, EMCOR had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $72.0 million. These NOL's expire in the years 2007 through 2018. The NOLs are subject to review by the Internal Revenue Service. Future changes in the ownership of EMCOR, as defined by Section 382 of the Internal Revenue Code, could limit the amount of EMCOR's NOLs available for use in any one year. As a result of the adoption of Fresh-Start Accounting, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of the date of EMCOR's emergence from Chapter 11 in December 1994 will result in a charge to the tax provision (provision in lieu of income taxes) and be allocated to capital surplus. EMCOR has provided a valuation allowance as of September 30, 2000 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, 2000 and 1999 represent a provision primarily for federal, foreign and state and local income taxes. EMCOR's utilization of NOLs and other deferred tax assets for the three month periods ended September 30, 2000 and 1999 of approximately $7.1 million and $6.4 million have been added to capital surplus, respectively. EMCOR's utilization of NOLs and other deferred tax assets for the nine month periods ended September 30, 2000 and 1999 of approximately $15.4 million and $10.3 million has been added to capital surplus, respectively. NOTE C Earnings Per Share The following tables summarize EMCOR's calculation of Basic and Diluted Earnings per share for the three and nine month periods ended September 30, 2000 and 1999: Three months ended September 30, 2000 ------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Income available to common stockholders $11,479,000 10,437,521 $1.10 ===== Effect of Dilutive Securities: Options -- 334,437 Convertible Subordinated Notes, including assumed interest savings, net of tax 997,295 4,206,291 ----------- ---------- Diluted EPS $12,476,295 14,978,249 $0.83 =========== ========== ===== Nine months ended September 30, 2000 -------------------------------- ---------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Income available to common stockholders $25,566,000 10,431,697 $2.45 ===== Effect of Dilutive Securities: Options -- 287,224 Convertible Subordinated Notes, including assumed interest savings, net of tax 2,970,205 4,206,291 ----------- ---------- Diluted EPS $28,536,205 14,925,212 $1.91 =========== ========== ===== Three months ended September 30, 2000 ------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Income available to common stockholders $8,639,000 9,685,048 $0.89 ===== Effect of Dilutive Securities: Options -- 284,690 Warrants -- 378,098 Convertible Subordinated Notes, including assumed interest savings, net of tax 1,033,362 4,206,291 ---------- ---------- Diluted EPS $9,672,362 14,554,127 $0.66 ========== ========== ===== Nine months ended September 30, 2000 -------------------------------- ---------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Income available to common stockholders $16,116,000 9,693,200 $1.66 ===== Effect of Dilutive Securities: Options -- 253,812 Warrants -- 295,824 Convertible Subordinated Notes, including assumed interest savings, net of tax 3,077,621 4,206,291 ----------- ---------- Diluted EPS $19,193,621 14,449,127 $1.91 =========== ========== ===== For the three month periods ended September 30, 2000 and 1999, 12,913 and 18,000 options, respectively, were excluded from the calculation of Diluted EPS as the inclusion of these options would be antidilutive. For the nine month periods ended September 30, 2000 and 1999 27,082 and 49,324 options, respectively, were excluded from the calculation of Diluted EPS as the inclusion of these options would be antidilutive. NOTE D New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133", and Statement of Financial Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities" ("SFAS 138"), establishes for fiscal quarters of fiscal years beginning after June 15, 2000 accounting and reporting standards requiring derivative instruments, as defined, to be measured in the financial statements at fair value. SFAS 133 also requires that changes in the derivative instruments' fair value be recognized currently in earnings unless certain accounting criteria are met. EMCOR does not expect the provisions of SFAS 133 to have a significant effect on the financial condition or results of operations of EMCOR. NOTE E Segment Information EMCOR has the following reportable segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, United States other services, Canada construction and facilities services, United Kingdom construction and facilities services and Other International construction and facilities services. United States other services primarily represents those operations which principally provide consulting and maintenance services. Other International construction and facilities services represents EMCOR's operations outside of the United States, Canada, and the United Kingdom, primarily in the Middle East performing electrical construction, mechanical construction and facilities services. Inter-segment sales are not material for any of the periods presented. The following presents information about industry segments and geographic areas (in thousands): For the three months ended For the nine months ended ------------------------------------------------------------------ Sept. 30, 2000 Sept. 30, 1999 Sept. 30,2000 Sept. 30,1999 -------------- -------------- ------------- ------------- Revenues: United States electrical construction and facilities services $380,837 $ 257,027 $ 987,762 $ 708,519 United States mechanical construction and facilities services 327,605 320,986 913,595 741,150 United States other services 47,383 32,443 122,501 63,193 -------- ---------- ---------- ---------- Total United States Operations 755,825 610,456 2,023,858 1,512,862 Canada construction and facilities services 56,400 57,832 183,811 132,593 United Kingdom construction and facilities services 109,343 142,259 321,937 401,041 Other International construction and facilities services -- 202 334 725 -------- ---------- ---------- ---------- Total Worldwide Operations $921,568 $ 810,749 $2,529,940 $2,047,221 ======== ========== ========== ========== Operating income: United States electrical construction and facilities services $ 17,102 $ 10,659 $ 38,747 $ 25,419 United States mechanical construction and facilities services 7,741 11,624 23,933 25,423 United States other services (904) (595) (2,562) (3,170) -------- ---------- ---------- ---------- Total United States Operations 23,939 21,688 60,118 47,672 Canada construction and facilities services 1,381 881 4,412 2,430 United Kingdom construction and facilities services 1,859 812 1,792 (725) Other International construction and facilities services 356 (153) 562 (842) Corporate Administration (5,012) (5,076) (15,235) (13,329) --------- ---------- ---------- ---------- Total Worldwide Operations 22,523 18,152 51,649 35,206 Other Corporate items: Interest expense (2,473) (2,638) (7,385) (7,616) Interest income 447 260 1,389 1,303 -------- ---------- ---------- ---------- Income before income taxes $ 20,497 $ 15,774 $ 45,653 $ 28,893 ======== ========== ========== ========== Sept. 30, 2000 December 31, 1999 -------------- ----------------- United States electrical construction and facilities services $ 453,922 $ 343,309 United States mechanical construction and facilities services 445,255 378,813 United States other services 88,992 58,950 ---------- ---------- Total United States Operations 988,169 781,072 Canada construction and facilities services 61,560 62,141 United Kingdom construction and facilities services 137,160 151,414 Other International construction and facilities services 13,264 18,295 Corporate Administration 55,867 43,567 ---------- ---------- Total Worldwide Operations $1,256,020 $1,056,489 ========== ========== NOTE F Legal Proceedings Reference is made to Part II, Item 1 - Legal Proceeding, of this quarterly report on Form 10-Q for the period ended September 30, 2000. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Unaudited) Highlights Revenues of EMCOR Group, Inc. and subsidiaries ("EMCOR") for the three months ended September 30, 2000 and 1999 were $921.6 million and $810.7 million, respectively. Net income for the three months ended September 30, 2000 was $11.5 million compared to net income of $8.6 million for the three months ended September 30, 1999. Diluted earnings per share ("Diluted EPS") were $0.83 per share for the three months ended September 30, 2000 compared to Diluted EPS of $0.66 per share in the year earlier period. Revenues for the nine months ended September 30, 2000 and 1999 were $2,529.9 million and $2,047.2 million, respectively. Net income for the nine months ended September 30, 2000 was $25.6 million compared to net income of $16.1 million for the nine months ended September 30, 1999. Diluted EPS were $1.91 per share for the nine months ended September 30, 2000 compared to Diluted EPS of $1.33 per share in the year earlier period. Operating Segments EMCOR has the following reportable segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, United States other services, Canada construction and facilities services, United Kingdom construction and facilities services and Other International construction and facilities services. United States other services primarily represents those operations which principally provide consulting and maintenance services. Other International construction and facilities services represents EMCOR's operations outside of the United States, Canada, and the United Kingdom, primarily operations in the Middle East performing electrical construction, mechanical construction and facilities services. Results of Operations Revenues The following table presents EMCOR's revenues by operating segment and percentage of total revenues (in thousands, except for percentages): For the three months ended Sept. 30, % of % of 2000 Total 1999 Total ---- ----- ---- ----- United States electrical construction and facilities services $380,837 41% $257,027 32% United States mechanical construction and facilities services 327,605 36% 320,986 40% United States other services 47,383 5% 32,443 4% -------- ---- -------- ---- Total United States Operations 755,825 82% 610,456 76% Canada construction and facilities services 56,400 6% 57,832 7% United Kingdom construction and facilities services 109,343 12% 142,259 17% Other International construction and facilities services -- -- 202 -- -------- ---- -------- ---- Total Worldwide Operations $921,568 100% $810,749 100% ======== ==== ======== ==== For the nine months ended Sept. 30, % of % of 2000 Total 1999 Total ---- ----- ---- ----- Revenues: United States electrical construction and facilities services $ 987,762 39% $ 708,519 35% United States mechanical construction and facilities services 913,595 36% 741,150 36% United States other services 122,501 5% 63,193 3% -------- --- ---------- ---- Total United States Operations 2,023,858 80% 1,512,862 74% Canada construction and facilities services 183,811 7% 132,593 6% United Kingdom construction and facilities services 321,937 13% 401,041 20% Other International construction and facilities services 334 -- 725 -- ---------- --- ---------- ---- Total Worldwide Operations $2,529,940 100% $2,047,221 100% ========== ==== ========== ==== EMCOR had a $110.8 million or a 13.7% increase in revenues for the three months ended September 30, 2000 compared to the same period in 1999. The increase over the prior year period was primarily attributable to revenue growth from EMCOR's operations (excluding revenues attributable to a majority owned facilities services venture known as Building Technology Engineers of North America, LLC ("BTENA") organized this year) of $97.1 million, or a 12.0% increase. Many of EMCOR's subsidiaries experienced a growth in revenues, particularly those located in New York City, Houston, Washington, D.C., California, Denver and Connecticut, due to an increased level of market activity. This increase in revenues was offset partially by decreases in revenues from its United Kingdom and Las Vegas markets and the Poole & Kent subsidiaries due primarily to their completion of large projects. EMCOR had a $482.7 million or a 23.6% increase in revenues for the nine months ended September 30, 2000 compared to the same period in 1999. The increase over the prior year period was primarily attributable to revenue growth from EMCOR's operations (excluding BTENA and 1999 acquisitions) of $353.3 million, or a 17.3% increase, and to the impact of BTENA and 1999 acquisitions which contributed approximately an aggregate of $129.4 million of revenues during 2000. Revenues of electrical construction and facilities services business units for the three months ended September 30, 2000 were $380.8 million compared to $257.0 million for the three months ended September 30, 1999. The $123.8 million or 48.2% increase in the revenues for the three months ended September 30, 2000 compared to the same period in 1999 was attributable to continuing favorable market conditions across the United States particularly in New York City, California and Washington, D.C.. Revenues for the nine months ended September 30, 2000 were $987.8 million compared to $708.5 million for the nine months ended September 30, 1999. The $279.2 million or 39.4% increase in revenues for the nine months ended September 30, 2000 compared to the same period in 1999 was attributable to the favorable market conditions previously identified, offset partially by the decrease in construction activity in the Las Vegas market. Revenues of mechanical construction and facilities services business units for the three months ended September 30, 2000 were $327.6 million compared to $321.0 million for the three months ended September 30, 1999. The $6.6 million or 2.1% increase in revenues was attributable to favorable market conditions in New York City, Houston, Connecticut and California offset by decreases in revenues for the Poole & Kent subsidiaries and in Las Vegas due to the recent completion of large projects. Revenues for the nine months ended September 30, 2000 were $913.6 million compared to $741.2 million for the nine months ended September 30, 1999. The $172.4 million or 23.3% increase in revenues was attributable to revenue growth from EMCOR's operations (excluding 1999 acquisitions) of $94.9 million, or a 12.8% increase, and to the impact of 1999 acquisitions which contributed approximately $77.5 million of additional revenues during 2000. Other United States services revenues of $47.4 million for the three months ended September 30, 2000, which include those operations which principally provide consulting and maintenance services, increased by $14.9 million compared to the same three months in 1999. The increase in revenues was primarily attributable to revenues from BTENA and 1999 acquired companies. Other United States services revenues of $122.5 million for the nine months ended September 30, 2000 increased by $59.3 million compared to $63.2 million for the same nine months in 1999. This increase was primarily attributable to an aggregate of $51.9 million of revenues from BTENA and 1999 acquired companies, as well as increases attributable to the balance of EMCOR's other United States operations. Revenues of Canada construction and facilities services for the three months ended September 30, 2000 were $56.4 million compared to $57.8 million for the three months ended September 30, 1999. Revenues for the nine months ended September 30, 2000 were $183.8 million compared to $132.6 million for the nine months ended September 30, 1999; this $51.2 million increase in revenues for the year to date period was primarily attributable to the increased level of activities in Western Canada. Revenues of United Kingdom construction and facilities services business units for the three months ended September 30, 2000 were $109.3 million compared to $142.3 million for the three months ended September 30, 1999. Revenues for the nine months ended September 30, 2000 were $322.0 million compared to $401.0 million for the nine months ended September 30, 1999. The decreases were principally attributable to the substantial completion in 1999 of the Jubilee Line project in London. Other International construction and facilities services primarily consist of EMCOR's operations in the Middle East. Substantially all of the current projects in this operating segment are being performed by joint ventures. The results of these operations are accounted for under the equity method of accounting because EMCOR has less than majority ownership in these joint ventures, and accordingly, no revenue attributable to such joint ventures was recorded. In 1999, several projects in which EMCOR had majority ownership were completed. EMCOR continues to pursue new business selectively in these markets; however, the availability of opportunities has been significantly reduced as a result of local economic factors. Cost of Sales and Gross Profit The following table presents EMCOR's cost of sales, gross profit, and gross profit as a percentage of revenues (in thousands, except for percentages): For the three months ended Sept 30, 2000 1999 ---- ---- Cost of sales ............................... $833,099 $732,732 Gross profit................................. $88,469 $78,017 Gross profit as a percentage of revenues..... 9.6% 9.6% For the nine months ended Sept. 30, 2000 1999 ---- ---- Cost of sales ............................... $2,283,583 $1,850,621 Gross profit................................. $246,357 $196,600 Gross profit as a percentage of revenues..... 9.7% 9.6% Gross profit (revenues less cost of sales) increased $10.5 million for the three months ended September 30, 2000 to $88.5 million compared to $78.0 million for the three months ended September 30, 1999. As a percentage of revenues, gross profit was 9.6% for each of the three months ended September 30, 2000 and 1999. The dollar increase in gross profit was due to an increase in revenues of EMCOR's operations, as well as incremental gross profit from BTENA and 1999 acquisitions, partially offset by losses on jobs in the South and North Carolina markets undertaken by its Poole & Kent subsidiaries prior to acquisition by EMCOR. Gross profit increased $49.8 million for the nine months ended September 30, 2000 to $246.4 million compared to $196.6 million for the nine months ended September 30, 1999. As a percentage of revenues, gross profit increased to 9.7% from 9.6% for the nine months ended September 30, 2000 and 1999, respectively. The dollar increase in gross profit was due to the increase in revenues of EMCOR's operations as well as incremental gross profit from BTENA and companies acquired in 1999. The increase in gross profit as a percentage of revenues was primarily a result of an increase in gross profits on projects due to overall favorable market conditions, partially offset by losses on jobs in the South and North Carolina markets undertaken by its Poole & Kent subsidiaries prior to acquisition by EMCOR. Selling, general and administrative expenses The following table presents EMCOR's selling, general and administrative expenses, and selling, general and administrative expenses as a percentage of revenues (in thousands, except for percentages): For the three months ended Sept. 30, 2000 1999 ---- ---- Selling, general and administrative expenses $65,946 $59,865 Selling, general and administrative expenses, as a percentage of revenues 7.2% 7.4% Selling, general and administrative expenses, as a percentage of revenues, excluding amortization of goodwill 7.1% 7.3% For the nine months ended Sept. 30, 2000 1999 ---- ---- Selling, general and administrative expenses $194,708 $161,394 Selling, general and administrative expenses, as a percentage of revenues 7.7% 7.9% Selling, general and administrative expenses, as a percentage of revenues, excluding amortization of goodwill 7.6% 7.8% Selling, general and administrative expenses for the three months ended September 30, 2000 increased $6.1 million. Selling, general and administrative expenses as a percentage of revenues was 7.2% for the three months ended September 30, 2000, compared to 7.4% for the three months ended September 30, 1999. For the nine months ended September 30, 2000 selling, general and administrative expenses increased $33.3 million compared to the same period in the prior year. Selling, general and administrative expenses as a percentage of revenues was 7.7% for the nine months ended September 30, 2000, compared to 7.9% for the nine months ended September 30, 1999. For both the three and nine month periods ended September 30, 2000, the dollar increase in selling, general and administrative expenses compared to the prior year comparable periods was attributable to an increase in revenues and corresponding increases in variable selling, general and administrative expenses required to support the increased revenue base, incremental fixed costs to support the current growth in operations, plus selling, general and administrative expenses associated with BTENA and 1999 acquisitions. The decrease in selling, general and administrative expenses as a percentage of revenues was primarily due to the leveraging of fixed costs over increased revenues. Operating income The following table presents EMCOR's operating income, and operating income as percentage of segment revenues: (in thousands, except for percentages) For the three months ended Sept. 30, % of % of Segment Segment 2000 Revenues 1999 Revenues ---- -------- ---- -------- Operating income (loss): United States electrical construction and facilities services $17,102 4.5% $10,659 4.1% United States mechanical construction and facilities services 7,741 2.4% 11,624 3.6% United States other services (904) -- (595) -- ------- ---- ------- ---- Total United States Operations 23,939 3.2% 21,688 3.6% Canada construction and facilities services 1,381 2.4% 881 1.5% United Kingdom construction and facilities services 1,859 1.7% 812 0.6% Other International construction and facilities services 356 -- (153) -- Corporate Administration (5,012) -- (5,076) -- ------- ---- ------- ---- Total Worldwide Operations 22,523 2.4% 18,152 2.2% Other Corporate Items: Interest expense (2,473) (2,638) Interest income 447 260 ------- ------- Income before income taxes $20,497 $15,774 ======= ======= For the nine months ended Sept. 30, % of % of Segment Segment 2000 Revenues 1999 Revenues ---- -------- ---- -------- Operating income (loss): United States electrical construction and facilities services $38,747 3.9% $25,419 3.6% United States mechanical construction and facilities services 23,933 2.6% 25,423 3.4% United States other services (2,562) -- (3,170) -- ------- ---- ------- ---- Total United States Operations 60,118 2.9% 47,672 3.2% Canada construction and facilities services 4,412 2.4% 2,430 1.8% United Kingdom construction and facilities services 1,792 0.6% (725) -- Other International construction and facilities services 562 -- (842) -- Corporate Administration (15,235) -- (13,329) -- ------- ---- ------- ---- Total Worldwide Operations 51,649 2.0% 35,206 1.7% Other Corporate Items: Interest expense (7,385) (7,616) Interest income 1,389 1,303 ------- ------- Income before income taxes $45,653 $28,893 ======= ======= EMCOR had operating income of $22.5 million for the three months ended September 30, 2000 compared with operating income of $18.2 million for the three months ended September 30, 1999. The increase of $4.4 million or 24.1% in operating income for the three months ended September 30, 2000 as compared to the same period in 1999 was due to increased revenues and gross profits from EMCOR's operations excluding BTENA and 1999 acquired companies, as well as revenues and incremental operating income attributable to BTENA and 1999 acquired companies. Operating income for the nine months ended September 30, 2000 was $51.6 million compared to $35.2 million for the same period in 1999. The increase of $16.4 million or 46.7% was due to increased revenues and gross profits from EMCOR's operations excluding BTENA and 1999 acquired companies, as well as revenues and incremental operating income attributable to businesses acquired in 1999 and the impact of BTENA. United States electrical construction and facilities services operating income for the three months ended September 30, 2000 was $17.1 million or 4.5% of revenues, compared to $10.7 million or 4.1% of revenues for the three months ended September 30, 1999. The $6.4 million increase in operating income for the three months ended September 30, 2000 compared to the same period in 1999 was primarily attributable to the continuing favorable market conditions across the United States, particularly in New York City, California and Washington, D.C. Operating income for the nine months ended September 30, 2000 was $38.7 million or 3.9% of revenues, compared to $25.4 million or 3.6% of revenues for the nine months ended September 30, 1999. The increase in operating income, similar to the three months ended September 30, 2000, was attributable to continuing favorable market conditions, particularly in New York City, California and Washington, D.C. United States mechanical construction and facilities services operating income for the three months ended September 30, 2000 was $7.7 million or 2.4% of revenues, compared to $11.6 million or 3.6% of revenues for the three months ended September 30, 1999. Operating income for the nine months ended September 30, 2000 was $23.9 million or 2.6% of revenues, compared to $25.4 million or 3.4% of revenues for the nine months ended September 30, 1999. The decrease in operating income for both the three and nine month periods ended September 30, 2000 compared to the same periods in 1999 was primarily attributable to losses on jobs in the South and North Carolina markets undertaken by its Poole & Kent subsidiaries prior to acquisition by EMCOR. Other United States services operating losses were $0.9 million and $0.6 million for the three months ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000, operating losses were $2.6 million compared to $3.2 million for the nine months ended September 30, 1999. These operating losses were primarily attributable to costs associated with the continued development of EMCOR's consulting operations and maintenance services activities. Canada construction and facilities services operating income was $1.4 million compared to $0.9 million for the three months ended September 30, 2000 and 1999, respectively. Operating income for the nine months ended September 30, 2000 and 1999 was $4.4 million and $2.4 million, respectively. The increase in operating income in the 2000 three and nine month periods was primarily due to an increased level of activities in Western Canada. United Kingdom construction and facilities services operating income for the three months ended September 30, 2000 was $1.9 million compared to $0.8 million for the three months ended September 30, 1999. Operating income for the nine months ended September 30, 2000 was $1.8 million compared to an operating loss of $0.7 million for the nine months ended September 30, 1999. The improvement in operating income for the three and nine month periods ended September 30, 2000 compared to the same periods in 1999 was primarily attributable to the commencement of new projects that have resulted in higher gross profits in the 2000 periods, as compared to projects that resulted in operating losses in 1999 that have since been completed. Substantially all of the current projects in the Other International construction and facilities services operating segment are being performed by joint ventures. The operating income of these operations are accounted for under the equity method of accounting because EMCOR has less than majority ownership in these joint ventures. In 1999, several projects in which EMCOR had majority ownership were completed. EMCOR continues to pursue new business selectively in these markets; however, the availability of opportunities has been significantly reduced as a result of local economic factors. General corporate expenses for the three months ended September 30, 2000 were $5.0 million compared to $5.1 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, general corporate expenses were $15.2 million and $13.3 million, respectively. The increase in general corporate expenses for the nine months ended September 30, 2000 was due to increased variable overhead costs associated with EMCOR's increased revenues, as well as incremental fixed costs to support current growth in operations. Interest expense for the three months ended September 30, 2000 and 1999 was $2.5 million and $2.6 million, respectively. For the nine months ended September 30, 2000 and 1999, interest expense was $7.4 million and $7.6 million, respectively. Interest income for the three months ended September 30, 2000 was $0.4 million compared to $0.3 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, interest income was $1.4 million compared to $1.3 for the nine months ended September 30, 1999. The income tax provision increased by $1.9 million to $9.0 million for the three months ended September 30, 2000, as compared to the same period in 1999. The income tax provision increased by $7.3 million to $20.1 million for the nine months ended September 30, 2000 as compared to $12.8 million for the nine months ended September 30, 1999. The increase in provision for both the three and nine months periods was primarily due to increased income before taxes for the three and nine months ended September 30, 2000 compared with the same periods in the prior year. A portion of the liability for income taxes, $15.4 million at September 30, 2000 and $10.3 million at September 30, 1999, was not payable due to the utilization of NOL's and was recorded as an increase in capital surplus for both years. EMCOR's backlog was approximately $1.9 billion at September 30, 2000 and approximately $1.8 billion at December 31, 1999. Between December 31, 1999 and September 30, 2000, EMCOR's backlog in the United States increased by $0.2 billion, its backlog in the United Kingdom decreased by $0.06 billion and its backlog in Canada decreased by $0.04 billion. The decrease in the Canada and United Kingdom backlogs was due to work performed on projects awarded in the fourth quarter of 1999 in Canada, and the completion of several large projects in the United Kingdom offsetting new contract awards. The increase in the United States backlog was due to continued favorable economic conditions and to $0.05 billion of backlog attributable to BTENA. The September 30, 1999 backlog was $1.8 billion. Liquidity and Capital Resources The following table presents EMCOR's net cash provided by operating activities, net cash used in investing activities and net cash (used in) provided by financing activities (in thousands): For the nine months ended Sept. 30, 2000 1999 ---- ---- Net cash provided by operating activities $ 41,497 $ 12,495 Net cash used in investing activities $(18,092) $(58,219) Net cash (used in) provided by financing activities $ (2,053) $ 532 EMCOR's consolidated cash balance increased by approximately $21.4 million from $58.6 million at December 31, 1999 to $79.9 million at September 30, 2000. Net cash provided by operating activities for the nine months ended September 30, 2000 of $41.5 million was a $29.0 million increase from the same period last year. The increase in net cash provided by operating activities was primarily attributable to higher net income and non-cash expenses partially offset by increased changes in operating assets and liabilities due to an increase in business activity. Net cash used in investing activities of $18.1 million for the nine months ended September 30, 2000 decreased by $40.1 million compared to the $58.2 million of cash used in investing activities in the same period last year. The decrease in net cash used in investing activities was due primarily to the acquisition of businesses in the nine months ended September 30, 1999 which utilized $55.8 million in cash. Net cash used in financing activities of $2.1 million was a decrease of $2.6 million from $0.5 million of net cash provided by financing activities for the nine months ended September 30, 1999. The decrease in net cash provided by financing activities was primarily attributable to no borrowing under working capital credit lines outstanding at September 30, 2000 compared to $10.0 million of borrowings outstanding at September 30, 1999; to lower net payments for long-term debt and capital lease obligations in the nine months ended September 30, 2000 of $2.2 million compared to net payments of $6.8 million in the nine months ended September 30, 1999; and the purchases of treasury stock of $2.9 million in the nine months ended September 30, 1999 compared to no purchases of treasury stock in the nine months ended September 30, 2000. As of September 30, 2000, EMCOR's total borrowing capacity under its revolving credit facility was $150.0 million. EMCOR had approximately $10.5 million of letters of credit outstanding as of that date. There were no revolving loans outstanding as of September 30, 2000 and December 31, 1999 under the revolving credit facility. EMCOR believes that current cash balances and borrowing capacity available under lines of credit, combined with cash expected to be generated from operations, will be sufficient to provide short-term and foreseeable long-term liquidity and meet expected capital expenditure requirements. This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995, particularly statements regarding market opportunities, market share growth, competitive growth, gross profit, and selling, general and administrative expenses. These forward-looking statements involved risks and uncertainties, that could cause actual results to differ materially from those in any such forward-looking statements. Such factors include, but are not limited to adverse changes in general economic conditions, including changes in the specific markets for EMCOR's services, adverse business conditions, decreased or lack of growth in the mechanical and electrical construction and facilities services industries, increased competition, pricing pressures, risks associated with foreign operations and other factors. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In February 1995, as part of an investigation by the New York County District Attorney's office into the business affairs of a general contractor that did business with EMCOR's subsidiary, Forest Electric Corp. ("Forest"), a search warrant was executed at Forest's executive offices. On July 12, 2000, Forest was served with a Subpoena Duces Tecum to produce certain documents as part of a broader investigation by the New York County District Attorney's office into illegal business practices in the New York City construction industry. Forest has been informed by the New York County District Attorney's office that it and certain of its officers are targets of the investigation. Forest intends to produce documents in response to the subpoena and to cooperate fully with the District Attorney's office investigation as it proceeds. On July 31, 1998, a former employee of a subsidiary of EMCOR filed a class-action complaint on behalf of the participants in two employee benefit plans sponsored by EMCOR against EMCOR and other defendants for breach of fiduciary duty under the Employee Retirement Income Security Act. All of the claims relate to alleged acts or omissions which occurred during the period May 1, 1991 to December 1994. The principal allegations of the complaint are that the defendants breached their fiduciary duties by causing the plans to purchase and hold stock of EMCOR when it was known as JWP INC. and when the defendants knew or should have known it was imprudent to do so. The plaintiff has not made claim for a specific dollar amount of damages but generally seeks to recover for the benefit plans the loss in the value of JWP stock held by the plans. EMCOR and the other defendants intend to vigorously defend the case. Insurance coverage may be applicable under an EMCOR pension trust liability insurance policy for EMCOR and those present and former employees of EMCOR who are defendants in the action. Substantial settlements or damage judgements against EMCOR arising out of these matters could have a material adverse effect on EMCOR's business, operating results and financial condition. In addition to the above, EMCOR is involved in other legal proceedings and claims, asserted by and against EMCOR, which have arisen in the ordinary course of business. EMCOR believes it has a number of valid defenses to these actions and EMCOR intends to vigorously defend or assert these claims and does not believe that a significant liability will result. However, EMCOR cannot predict the outcome thereof or the impact that an adverse result of the matters discussed above will have upon EMCOR's financial position or results of operations. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On July 27, 2000 the Company held its annual meeting of stockholders. (a) Each of the seven individuals nominated for election as a director of the Company for the ensuing year was elected. The seven directors constituted all of the members of the Board of Directors of the Company. Name Votes For Votes Withheld Stephen W. Bershad 8,513,903 1,458,406 David A. B. Brown 8,510,303 1,462,006 Georges L. de Buffevent 8,503,703 1,468,606 Albert Fried, Jr. 8,486,103 1,486,206 Richard F. Hamm, Jr. 8,510,303 1,462,006 Frank T. MacInnis 9,515,548 456,761 Kevin C. Toner 8,511,703 1,460,606 There were no broker non-votes. (b) The stockholders voted upon a stockholder proposed resolution requesting the Company's Board of Directors to terminate its stockholder rights plan and to refrain from adopting similar plans or a staggered board. 4,232,263 shares were voted for the resolution, 4,604,270 were voted against the resolution, and 194,561 shares abstained from voting thereon. There were 941,215 broker non-votes. (c) The stockholders also voted upon a proposal to ratify the appointment by the Audit Committee of the Board of Directors of Arthur Andersen LLP, certified public accountants, as the Company's independent public accountants for 2000, 9,965,242 shares voted in favor of ratification, 925 shares voted against ratification, and 6,142 shares abstained from voting thereon. There were no broker non-votes. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Incorporated by Reference to, Exhibit No Description or Page Number 27 Financial Data Schedule Filed herewith. (b) No reports on Form 8-K were filed during the quarter ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMCOR GROUP, INC. ------------------------------------------ (Registrant) Date: October 26, 2000 By: /s/FRANK T. MACINNIS ------------------------------------------ Frank T. MacInnis Chairmn of the Board of Directors and Chief Executive Officer Date: October 26, 2000 By: /s/LEICLE E. CHESSER ------------------------------------------ Leicle E. Chesser Executive Vice President and Chief Financial Officer