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
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission file number 0-2315
EMCOR Group, Inc.
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(Exact name of registrant as specified in its
charter)
Delaware 11-2125338
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
101 Merritt Seven Corporate Park 06851-1060
Norwalk, Connecticut -----------------------
- ------------------------------------------------- (Zip)
(Address of principal executive offices)
(203) 849-7800
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(Registrant's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No __
Applicable Only To Issuers Involved In Bankruptcy Proceedings During The
Previous Five Years
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange
Act of 1934, subsequent to the distribution of securities under a plan confirmed
by a court. Yes X No __
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on
April 30, 1999: 9,667,003 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
as of March 31, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income -
three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II - Other Information
Item 1 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6 Exhibits and Reports on Form 8-K 15
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
March 31 December 31,
1999 1998
ASSETS (Unaudited)
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Current assets:
Cash and cash equivalents .................................................. $ 94,172 $ 83,053
Accounts receivable, net ................................................... 523,520 538,457
Costs and estimated earnings in excess
of billings on uncompleted contracts ................................... 79,180 91,569
Inventories ................................................................ 8,086 7,188
Prepaid expenses and other ................................................. 9,151 11,702
-------- --------
714,109 731,969
Total current assets ...........................................................
Investments, notes and other long-term
receivables ................................................................ 6,938 6,974
Property, plant and equipment, net ............................................. 31,246 32,098
Other assets ................................................................... 30,112 29,961
-------- --------
Total assets ................................................................... $782,405 $801,002
======== ========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
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Current liabilities:
Current maturities of long-term debt and capital
lease obligations ....................................................... $ 1,708 $ 7,963
Borrowings under working capital credit lines............................... -- --
Accounts payable ........................................................... 220,320 246,856
Billings in excess of costs and estimated
earnings on uncompleted contracts ....................................... 145,253 135,094
Accrued payroll and benefits ............................................... 68,334 62,008
Other accrued expenses and liabilities ..................................... 60,232 59,996
-------- --------
Total current liabilities ............................................... 495,847 511,917
Long-term debt and capital lease obligations ............................... 117,201 117,274
Other long-term obligations ................................................ 49,208 51,995
-------- --------
Total liabilities ....................................................... 662,256 681,186
-------- --------
Stockholders' equity:
Preferred stock, $0.10 par value, 1,000,000 shares.......................... -- --
authorized zero issued and outstanding
Common stock, $0.01 par value, 1,370,000 shares
authorized, 9,667,003 and 9,830,603 shares issued
and outstanding or issuable, respectively................................ 109 109
Warrants ................................................................... 2,154 2,154
Capital surplus ............................................................ 116,252 114,867
Accumulated other comprehensive income ..................................... (2,057) (1,822)
Retained earnings .......................................................... 20,527 18,476
Treasury stock, at cost, 1,132,000 shares
and 957,900 shares, respectively ........................................ (16,836) (13,968)
--------- --------
Total stockholders' equity ..................................................... 120,149 119,816
--------- --------
Total liabilities and stockholders' equity ..................................... $782,405 $801,002
======== ========
See notes to Condensed Consolidated Financial Statements
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) (Unaudited)
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Three months ended March 31, 1999 1998
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Revenues ....................................................................... $539,983 $493,923
Costs and expenses:
Cost of sales .............................................................. 488,028 449,683
Selling, general and administrative ........................................ 46,907 40,305
-------- --------
534,935 489,988
--------
Operating income ............................................................... 5,048 3,935
Interest expense, net .......................................................... 1,473 2,406
-------- --------
Income before income taxes and extraordinary
item ....................................................................... 3,575 1,529
Provision for income taxes ..................................................... 1,524 727
-------- --------
Income before extraordinary item ............................................... 2,051 802
Extraordinary item - loss on early
extinguishment of debt, net of income taxes ................................ -- (4,777)
-------- --------
Net income (loss) .............................................................. $ 2,051 $ (3,975)
======== ========
Basic earnings (loss) per share:
Income before extraordinary item ............................................... $ 0.21 $ 0.08
Extraordinary item - loss on early
extinguishment of debt, net of income taxes ................................ -- (0.49)
-------- --------
Basic earnings (loss) per share ................................................ $ 0.21 $ (0.41)
======== ========
Diluted earnings (loss) per share:
Income before extraordinary item ............................................... $ 0.20 $ 0.08
Extraordinary item - loss on early
extinguishment of debt, net of income taxes ................................ -- (0.49)
-------- --------
Diluted earnings (loss) per share .............................................. $ 0.20 $ (0.41)
======== ========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
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Three months ended March 31, 1999 1998
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Cash flows from operating activities:
Net income (loss)........................................................... $ 2,051 $ (3,975)
Extraordinary item - loss on early extinguishment of debt,
net of income taxes....................................................... -- 3,152
Depreciation and amortization............................................... 2,413 2,048
Amortization of goodwill.................................................... 446 94
Other non-cash expenses .................................................... 1,673 913
Changes in operating assets and liabilities ................................ 15,520 17,322
-------- --------
Net cash provided by operating activities ...................................... 22,103 19,554
-------- --------
Cash flows from financing activities:
Issuance of Convertible subordinated notes ................................. -- 115,000
Net proceeds from sale of Common stock ..................................... -- 22,485
Purchase of Treasury stock ................................................. (2,868) --
Debt issuance costs ........................................................ -- (4,074)
Payment of Series C Notes .................................................. -- (61,854)
Premiums paid on early extinguishment of debt .............................. -- (2,437)
Payment of working capital credit lines .................................... -- (9,497)
Payment of long-term debt and capital lease obligations..................... (6,328) (150)
Exercise of stock options .................................................. 67 56
-------- --------
Net cash (used for) provided by financing activities ........................... (9,129) 59,529
-------- --------
Cash flows from investing activities:
Purchase of Property, plant and equipment, net ............................. (1,891) (2,348)
Acquisition of businesses .................................................. -- (1,398)
Increase (decrease) in Investments, notes and other long-term
receivables .............................................................. 36 (825)
-------- --------
Net cash used in investing activities .......................................... (1,855) (4,571)
-------- --------
Increase in cash and cash equivalents .......................................... 11,119 74,512
Cash and cash equivalents at beginning of period ............................... 83,053 49,376
-------- --------
Cash and cash equivalents at end of period ..................................... $ 94,172 $123,888
======== ========
Supplemental cash flow information:
Cash paid for:
Interest ................................................................ $ 130 $ 1,697
Income Taxes ............................................................ $ 582 $ 159
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 Retained
other earnings
Common Capital comprehensive (accumulated Treasury Comprehensive
Total stock Warrants surplus income(loss)(1) deficit) stock income (loss)
====================================================================================================================================
Balance, January 1, 1998 $ 95,323 $ 96 $ 2,154 $ 87,107 $ (195) $ 6,161 --
Net loss (3,975) -- -- -- -- (3,975) -- $(3,975)
Foreign currency
translation adjustments 242 -- -- -- 242 -- -- 242
Comprehensive loss -- -- -- -- -- -- -- -------
$(3,733)
=======
NOL utilization, net (2,108) -- -- (2,108) -- -- --
Issuance of common stock 22,485 11 -- 22,474 -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance, March 31, 1998 $111,967 $ 107 $ 2,154 $107,473 $ 47 $ 2,186 --
======== ======== ======== ======== ======== ======== ========
Balance, January 1, 1999 $119,816 $ 109 $ 2,154 $114,867 $ (1,822) $ 18,476 $(13,968)
Net income 2,051 -- -- -- -- 2,051 -- $ 2,051
Foreign currency
translation adjustments (235) -- -- -- (235) -- -- (235)
-------
Comprehensive income -- -- -- -- -- -- -- $ 1,816
=======
NOL utilization, net 1,318 -- -- 1,318 -- -- --
Common stock issued under
stock option plans 67 -- -- 67 -- -- --
Treasury stock repurchased (2,868) -- -- -- -- -- (2,868)
-------- -------- -------- -------- -------- -------- --------
Balance, March 31, 1999 $120,149 $ 109 $ 2,154 $116,252 $ (2,057) $ 20,527 $(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 the Company, without audit, pursuant to the interim period reporting
requirements of Form 10-Q. Consequently, certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Readers of this report should refer to the consolidated financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of a normal
recurring nature) necessary to present fairly the financial position of the
Company and the results of its operations. The results of operations for the
three month period ended March 31, 1999 are not necessarily indicative of the
results to be expected for the year ending December 31, 1999.
Certain reclassifications of prior year amounts have been made to conform to
current year presentation.
NOTE B Other Assets
Other assets at March 31, 1999 primarily consists of approximately $21.4 million
of the excess of cost over fair market value of net identifiable assets
("Goodwill") of companies acquired in purchase transactions. Additionally,
approximately $3.7 million of debt issuance costs, net of amortization, incurred
in connection with the Company's offering of its 5.75% Convertible Subordinated
Notes (hereafter discussed) are included in Other assets. Other assets at
December 31, 1998 included approximately $22.8 million of Goodwill and $3.9
million of debt issuance costs. Goodwill is being amortized using the
straight-line method over periods ranging from 5 to 15 years. Debt issuance
costs are amortized using the effective interest method.
At the end of each quarter, the Company reviews events and changes in
circumstances to determine whether the recoverability of the carrying value of
Goodwill should be reassessed. Should events or circumstances indicate that the
carrying value may not be recoverable based on undiscounted future cash flows,
an impairment loss measured by the difference between the discounted future cash
flows (or another acceptable method for determining fair value) and the carrying
value of Goodwill would be recognized by the Company.
NOTE C Long-Term Debt
Long-term debt in the accompanying Condensed Consolidated Balance Sheets
consists of the following amounts at March 31, 1999 and December 31, 1998
(in thousands):
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March 31, December 31,
1999 1998
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Convertible subordinated notes, at 5.75% , due 2005 $115,000 $115,000
Note payable, due 1999 -- 6,164
Other 3,909 4,073
-------- --------
118,909 125,237
Less: current maturities (1,708) (7,963)
-------- --------
$117,201 $117,274
======== ========
On March 18, 1998, the Company called for redemption of approximately $61.9
million principal amount of Series C Notes and irrevocably funded such amounts,
together with a redemption premium, with the trustee of the Series C Notes. In
accordance with the Indenture governing the Series C Notes, the redemption price
of the Series C Notes was 104% of the principal amount redeemed. The Company
recorded an extraordinary loss related to the early retirement of debt amounting
to approximately $4.8 million, net of income taxes. The extraordinary loss
consisted primarily of the write-off of the associated debt discount plus the
redemption premium and costs associated with the redemption, net of income tax
benefits.
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes ("Subordinated Notes"). On March 24, 1998, the underwriter of the
Subordinated Notes offering exercised in full its over-allotment option to
purchase an additional $15.0 million of Subordinated Notes, and accordingly,
Subordinated Notes in the additional principal amount of $15.0 million were
issued. The Subordinated Notes will mature on April 2005 and are general
unsecured obligations of the Company, subordinated in right to all existing and
future Senior Indebtedness (as defined in the indenture pursuant to which
Subordinated Notes were issued (the "Subordinated Indenture") of the Company.
The Subordinated Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of Indebtedness (as defined in the Subordinated
Indenture) or Senior Indebtedness (as defined in the Subordinated Indenture).
Holders of the Subordinated Notes have the right at any time to convert the
Subordinated Notes into Common Stock of the Company at a conversion price of
$27.34 per share.
NOTE D Income Taxes
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At March 31, 1999, the Company had net operating loss
carryforwards ("NOLs") for U.S. income tax purposes of approximately $150.0
million, which expire in the years 2007 through 2012. The NOLs are subject to
review by the Internal Revenue Service. Future changes in ownership of the
Company, as defined by Section 382 of the Internal Revenue Code, could limit the
amount of the Company'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 the Company's emergence from Chapter 11 in December
1994 will result in a charge to the tax provision (provision in lieu of income
taxes) and be allocated to Capital surplus.
The Company has provided a valuation allowance as of March 31, 1999 for the full
amount of the tax benefit of its remaining NOLs and other deferred tax assets.
Income tax expense recorded for the three month periods ended March 31, 1999 and
1998 represent a provision primarily for federal, foreign and state and local
income taxes. The Company's utilization of NOLs and other deferred tax assets
for the three month periods ended March 31, 1999 and 1998 of approximately $1.3
million and $0.6 million have been added to Capital surplus, respectively.
NOTE E Earnings Per Share
The following tables summarize the Company's calculation of Basic and Diluted
Earnings per Share ("EPS") for the three month periods ended March 31, 1999 and
1998:
--------------------------------------------
Three months ended
March 31, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------------
Basic EPS
Income available to common
stockholders $2,051,000 9,700,162 $0.21
=====
Effect of Dilutive Securities:
Options -- 212,061
Warrants -- 148,493
---------- ----------
Diluted EPS $2,051,000 10,060,716 $0.20
========== =========== =====
--------------------------------------------
Three months ended
March 31, 1998
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator)) Amount
--------------------------------------------
Basic EPS
Income before extraordinary item
available to common stockholders $ 802,000 9,765,012 $0.08
=====
Effect of Dilutive Securities:
Options -- 363,007
Warrants -- 253,071
---------- ------------
Diluted EPS - before extraordinary
item $ 802,000 10,381,090 $0.08
========== ========== =====
For the three month periods ended March 31, 1999 and 1998, the "if converted"
amount of Subordinated Notes was excluded from the calculation of Diluted EPS as
the effect would be antidilutive.
For the three month periods ended March 31, 1999 and 1998, 129,973 and 5,000
options, respectively, were excluded from the calculation of Diluted EPS as the
inclusion of the options would be antidilutive.
NOTE F Common Stock
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, 1,100,000 shares of its Common Stock at a price of $21.875 per share.
The proceeds of the offering, together with the proceeds of the Subordinated
Notes public offering, were used to repay the Company's Series C Notes, the
Company's Supplemental SellCo Note and the Company's working capital credit
facility. The balance was used for general corporate purposes and acquisitions.
As a part of a program previously authorized by the Board of Directors, the
Company purchased 174,100 shares of its common stock in the three months ended
March 31, 1999 at an aggregate cost of approximately $2.9 million. This amount
is classified as a component of "Treasury stock, at cost" in the accompanying
Condensed Consolidated Balance Sheet.
NOTE G 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 No. 133" or "the Statement"), which establishes
accounting and reporting standards requiring derivative instruments, as defined,
to be measured in the financial statements at fair value. The Statement also
requires that changes in the derivatives' fair value be recognized currently in
earnings unless certain accounting criteria are met. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999 and cannot be applied
retroactively. The Company currently has two forward exchange contracts which
are designated as hedges against intercompany loans to the Company's U.K.
subsidiary. Therefore, the Company does not expect the provision of SFAS No. 133
to have a significant effect on the financial condition or results of operations
of the Company.
NOTE H Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", ("SFAS No. 131") which changed the way the
Company reports information about its operating segments. The Company evaluates
financial performance based on the operating income of the reportable business
units.
The Company has the following reportable segments pursuant to SFAS 131: United
States electrical construction and facilities services ("United States
Electrical Business Units"), United States mechanical construction and
facilities services ("United States Mechanical Business Units"), Canada
construction and facilities services ("Canada Business Units") and United
Kingdom construction and facilities services ("United Kingdom Business Units").
United States "Other" primarily represents those operations which principally
provide consulting operations and maintenance services. "Other International"
represents the Company's operations outside of the United States, Canada, and
the United Kingdom, primarily those in the Middle East and Asia-Pacific
performing electrical construction, mechanical construction and facilities
services ("Other International Business Units"). Inter-segment sales are not
material for any of the periods presented. The Extraordinary item - loss on
early extinguishment of debt, net of income taxes, of $4.8 million for the three
months ended March 31, 1998 is related to corporate administration of the
Company.
The following presents information about industry segments and geographic areas:
(in thousands):
- ------------------------------------------------------------------------------------------------------------------------------------
For the three months ended
March 31, March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues:
United States Electrical Business Units ..................................... $219,546 $199,333
United States Mechanical Business Units ..................................... 144,583 128,610
United States Other Business Units .......................................... 7,929 1,510
-------- --------
Total United States Operation ............................................... 372,058 329,453
Canada Operations Business Units ............................................ 33,182 46,616
United Kingdom Operations Business Units .................................... 134,336 112,707
Other International Operations Business Units ............................... 407 5,147
-------- --------
Total Worldwide Operations .................................................. $539,983 $493,923
======== ========
Operating income:
United States Electrical Business Units ..................................... $ 7,597 $ 5,526
United States Mechanical Business Units ..................................... 3,698 3,002
United States Other Business Units .......................................... (1,463) (997)
-------- --------
Total United States Operations .............................................. 9,832 7,531
Canada Operations Business Units ............................................ 79 612
United Kingdom Operations Business Units .................................... (661) (215)
Other International Operations Business Units .............................. (256) (33)
Corporate Administration .................................................... (3,946) (3,960)
-------- --------
Total Worldwide Operations .................................................. 5,048 3,935
Other Corporate items:
Interest expense ............................................................ (2,272) (3,137)
Interest income ............................................................. 799 731
-------- --------
Income before taxes and
extraordinary item ......................................................... $ 3,575 $ 1,529
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets:
United States Electrical Business Units ..................................... $283,856 $282,580
United States Mechanical Business Units ..................................... 201,381 204,469
United States Other Business Units .......................................... 23,221 25,725
--------- --------
Total United States Operations .............................................. 508,458 512,774
Canada Operations Business Units ............................................ 43,337 49,463
United Kingdom Operations Business Units .................................... 150,856 156,693
Other International Operations Business Units .............................. 21,514 14,605
Corporate Administration .................................................... 58,240 67,467
-------- --------
Total Worldwide Operations .................................................. $782,405 $801,002
======== ========
NOTE I Subsequent Event
On April 15, 1999, the Company acquired all of the capital stock of Monumental
Investment Corporation which owns all of the Poole & Kent companies, providers
of mechanical services to water and wastewater treatment utilities, government
agencies, transportation authorities, and commercial and industrial clients in a
variety of industries. The purchase price is subject to finalization based on
contingency adjustments per the purchase agreement. The acquisition will be
accounted for by the purchase method.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
EMCOR Group Inc.'s ("EMCOR" or the "Company") Revenues for the three months
ended March 31, 1999 and 1998 were $540.0 million and $493.9 million,
respectively. Net income for the three months ended March 31, 1999 was $2.1
million compared to net loss of $4.0 million for the three months ended March
31, 1998. Basic Earnings Per Share ("Basic EPS") were $0.21 per share for the
three months ended March 31, 1999 compared to a Basic EPS loss of $0.41 per
share in the year earlier period. Net income for the three months ended March
31, 1998 included after-tax charges of approximately $4.8 million ($7.5 million
pre-tax), or a loss of $0.49 per Basic share, associated with the early
retirement of approximately $61.9 million of the Company's Series C Notes. These
extraordinary charges are reflected in the accompanying Consolidated Statements
of Operations under the caption "Extraordinary item - loss on early
extinguishment of debt, net of income taxes".
The Company had a 9.3% increase in Revenues for the three months ended March 31,
1999 compared to 1998. The increase over the prior year period was primarily
attributable to the impact of 1998 acquisitions which contributed approximately
$45.0 million of additional revenues.
Gross Profit (Revenues less Cost of Sales ("GP")) increased to $52.0 million for
the three months ended March 31, 1999 compared to $44.2 million for the three
months ended March 31, 1998. As a percentage of Revenues, GP increased to 9.6%
from 9.0% for the three months ended March 31, 1999 and 1998, respectively. The
increase in GP as a percentage of Revenues was a result of increased volume in
markets where higher gross profit projects are available.
Selling, general and administrative expenses ("SG&A") for the three months ended
March 31, 1999 were $46.9 million, or 8.7% of Revenues, compared to $40.3
million, or 8.2% of Revenues, for the three months ended March 31, 1998. The
dollar increase in SG&A for the three months ended March 31, 1999 compared to
the prior year was attributable to companies acquired during 1998 and to the
increase in operating volume and corresponding increases in variable SG&A costs.
The increase in SG&A as a percentage of Revenues was primarily due to the
geographic area in which the Revenue was earned and the continued development of
the Company's facilities services activities, which activities usually require
greater SG&A than construction services.
The Company had Operating income of $5.0 million for the three months ended
March 31, 1999 compared with Operating income of $3.9 million for the three
months ended March 31, 1998. The increase in Operating income of $1.1 million
for the year ended March 31, 1999 as compared to the same period in 1998 was due
to increased Revenues and incremental Operating income attributable to
businesses acquired in 1998, offset by increased expenses associated with the
development of the Company's facilities services activities.
The Company's Interest expense, net decreased by $0.9 million to $1.5 million in
the three months ended March 31, 1999 due to the Company's lower interest rates
on borrowings, due to the repurchase and redemption of the Company's Series C
Notes discussed above, offset by lower average outstanding borrowings during
1998.
The Income tax provision increased by $0.8 million to $1.5 million for the three
months ended March 31, 1999, versus $0.7 million for the same period in 1998.
The increase in provision was due to increased Income before taxes and
extraordinary item, offset partially by a decrease in the effective income tax
rate for the three months ended March 31, 1999 to 43% from 48% for 1998. The
decrease in the effective income tax rate was due to changes in the tax
jurisdictions in which income was earned as well as continued income tax
planning strategies. A portion of the liability for Income taxes, $1.3 million
for 1999 and $0.6 million for 1998, was not payable in cash due to the
utilization of NOL's and was recorded as an increase in Capital surplus for both
years.
The Company's backlog was $1,399.1 million at March 31, 1999 and $1,329.1
million at December 31, 1998. Between December 31, 1998 and March 31, 1999, the
Company's backlog in Canada increased by $8.3 million, its backlog in the United
Kingdom increased by $31.1 million and its backlog in the United States
increased by $30.6 million. The increase in the Company's Canadian backlog was
primarily attributable to several large contract awards in Western Canada. The
increase in the United Kingdom backlog was due to the continued improvement of
economic conditions in the United Kingdom and change orders on the Jubilee Line
Contract. The increase in the United States backlog was due to large contract
awards in the East and Midwest with two acquisitions contributing an additional
$15.4 million to backlog.
United States Operations
The Company's United States operations consist of three segments: electrical
construction and facilities services, mechanical construction and facilities
services and other.
Revenues of electrical construction and facilities services business units
("Electrical Business Units") for the three months ended March 31, 1999 were
$219.5 million compared to $199.5 million for the three months ended March 31,
1998. Operating income of the Electrical Business Units (before deduction of
general corporate and other expenses discussed below) for the three months ended
March 31, 1999 was $7.6 million or 3.4% of Revenues compared to $5.5 million or
2.8% of Revenues for the three months ended March 31, 1998. The $20.2 million
increase in current quarter Revenues was attributable to $7.8 million of
Revenues related to 1998 acquisitions and continuing favorable market conditions
in the Eastern United States.
Revenues at mechanical construction and facilities services business units
("Mechanical Business Units") for the three months ended March 31, 1999 were
$144.6 million compared to $128.6 million for the three months ended March 31,
1998. Operating income of the Mechanical Business Units (before deduction of
general corporate and other expenses discussed below) for the three months ended
March 31, 1999 was $3.7 million or 2.7% of Revenues compared to $3.0 million or
2.3% of Revenues for the three months ended March 31, 1998. The $16.0 million or
12.4% increase in Revenues were attributable to $22.3 million of Revenues from
1998 acquisitions offset by the continued planned reduction of certain business
activities in the Western United States.
Other United States Revenues of $7.9 million for the three months ended March
31, 1999, which include those operations which principally provide consulting
and maintenance services increased by $6.4 million compared to the same three
months in 1998. The increase in Revenues was primarily attributable to 1998
acquisitions. Operating losses relative to these activities were $1.5 million
and $1.0 million for the three months end March 31, 1999 and 1998, respectively.
These Operating losses were primarily attributable to costs associated with the
continued development of the consulting operations and maintenance services
activities.
International Operations
The Company's International Operations consist of three segments: Canada
construction and facilities services, United Kingdom construction and facilities
services and other international construction and facilities services. Revenues
of Canada construction and facilities services business units ("Canada Business
Units") for the three months ended March 31, 1999 were $33.2 million compared to
$46.6 million for the three months ended March 31, 1998. Operating income of the
Canada Business Units was $0.1 million compared to $0.6 million for the three
months ended March 31, 1999 and 1998, respectively. The decrease in both
Revenues and Operating income in the current period was primarily due to
decreased level of activities in Eastern Canada and from short-term delays in
the commencement of certain projects.
Revenues of United Kingdom construction and facilities services business units
("United Kingdom Business Units") for the three months ended March 31, 1999 were
$134.3 million compared to $112.7 million for the three months ended March 31,
1998. Operating losses of the United Kingdom business units (before deduction of
general and other expenses discussed below) for the three months ended March 31,
1999 were $0.7 million compared to $0.2 million of the three months ended March
31, 1998. The $21.6 million increase in Revenues is attributable to continued
growth in the United Kingdom construction facilities services market. The
activity in this segment continued to produce operating losses for the quarter
ended March 31, 1999.
Other International construction and facilities services business units ("Other
International Business Units") primarily consists of the Company's operations in
the Middle East and Asia-Pacific. Revenues for the three months ended March 31,
1999 were $0.5 million compared to $5.1 million for the three months ended March
31, 1998. Operating losses increased by $0.2 million for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. The decline in
Revenues was due to the completion of several large projects in the Middle East
and Asia/Pacific markets that were active last year. The increase in Operating
losses was due to costs associated with the administration and completion of the
activities in these regions. The Company 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 and Other Expenses
General Corporate expenses for the three months ended March 31, 1999 were $3.9
million compared to $4.0 million for the three months ended March 31, 1998.
Interest expense for the three months ended March 31, 1999 was $2.3 million
compared to $3.1 million for the three months ended March 31, 1998. The decrease
in Interest expense was attributable to the Company's lower interest rates on
borrowings, partially offset by the lower outstanding borrowings during the
three months ended March 31, 1998 due to the repurchase and redemption of the
Company's Series C Notes on March 18, 1998. The increase in Interest income of
$0.1 million for the three months ended March 31, 1999 compared to the same
three months in 1998 is attributable to increased available cash balances
resulting from the sale of Convertible Subordinated Notes and net proceeds from
issuance of common stock that also occurred on March 18, 1998.
Liquidity and Capital Resources
During the third quarter of 1998, the Company's Board of Directors authorized a
stock repurchase program under which the Company may repurchase up to $20.0
million of its Common Stock. As of March 31, 1999 the Company had repurchased
1,132,000 shares of its Common Stock at an aggregate cost of approximately $16.8
million.
The Company's consolidated cash balance increased by approximately $11.1 million
from $83.1 million at December 31, 1998 to $94.2 million at March 31, 1999,
primarily as a result of Net cash provided by operating activities of $22.1
million, partially offset by Net cash used for financing activities of $9.1
million and Net cash used in investing activities of $1.9 million.
As of March 31, 1999 the Company's total borrowing capacity under its revolving
credit facility was $150.0 million. The Company had approximately $17.5 million
of letters of credit outstanding as of that date. There were no revolving loans
outstanding as of March 31, 1999 and December 31, 1998 under the credit
facility.
The Company 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.
Year 2000
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date sensitive information beyond January 1, 2000.
The Company has performed a comprehensive review of its internal application
systems ("Internal Systems"), including information technology ("IT") systems
and Non-IT systems, to identify those systems that could be affected by the Year
2000 issue (the "Issue") and has developed a plan to resolve the Issue. The
Company defines IT systems as those systems , which are software applications
and related computer hardware critical to operation of the business. These IT
systems would include, but not be limited to, accounting systems that encompass
billing and estimating, accounts payable and payroll. Additionally, other
non-accounting software applications that are part of business operations would
be included. Non-IT systems would primarily include software applications and
related computer hardware that are used in building systems such as, but not
limited to, temperature controls, security systems and other building systems.
The Company estimates that it is approximately 90% complete with its IT Systems
modifications and expects the balance of any required modifications to be
completed by mid 1999. With respect to Non-IT systems, the Company has completed
approximately 50% of the modifications required and anticipates that the
modifications will be substantially complete by the end of the third quarter of
1999. Modification costs have and will be expensed as SG&A as incurred and costs
of new software have and will be capitalized and amortized over the expected
useful life of the related software.
Since the inception of the Company's efforts to address the Year 2000 issues,
approximately $0.5 million has been expensed as incurred. Additional
modification and testing costs to be incurred are not anticipated to exceed an
additional $0.5 million. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test its systems to ensure Year
2000 compliance.
The Company expects its Year 2000 conversion project to be completed before
January 1, 2000. While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, the Company's operations and financial results
could be adversely impacted by the Year 2000 issue if the conversion schedule
and cost estimate for its Internal Systems are not met or suppliers and or
customers and other businesses on which the Company relies do not address the
Issue successfully. The Company is requesting that its significant suppliers
confirm that they have plans for achieving Year 2000 compliance. The Company
continues to assess these risks in order to reduce any impact on the Company.
Contingency plans include both ordering and receiving, prior to January 1, 2000,
an inventory of general supplies to be used on jobs and identifying back-up
suppliers for these items. Specific supplies, which may only be available from
limited resources will be identified, and if necessary, ordered in advance to
meet anticipated job requirements near the January 1, 2000 date.
The Company has not yet been able to clearly identify the most reasonably likely
worst case scenarios, if any, and the appropriate contingency plans for such
scenarios. The Company operates in a variety of markets in the United States,
Canada, the United Kingdom and other countries, and in a number of local markets
within these regions, consequently, it does not believe that a Company-wide risk
associated with the Issue will likely exist. However, the Company will continue
to monitor all identifiable scenarios and prepare contingency plans as necessary
to attempt to mitigate any exposures.
Based on currently available information, the Company does not believe that the
matters discussed above related to its Internal Systems or to services provided
to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure Year 2000 capability by a
supplier, customer or another third party would not have a material adverse
effect on the Company.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The information on legal proceedings is hereby incorporated by reference to Note
P of the Company's Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporated by Reference to,
Exhibit No Description or Page Number
---------- ----------- ------------------------------
10(t) Employment Agreement made as Page 19
of March 1, 1999 between the
Company and Sheldon I. Cammaker
10(u) Continuity Agreement dated as Page 27
of March 1, 1999 between the
Company and Sheldon I. Cammaker
11 Computation of Basic Note E of the Notes
EPS and Diluted EPS to the Condensed Consolidated
for the three months Financial Statements.
end March 31, 1999
and 1998
27 Financial Data Schedule Filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMCOR GROUP, INC.
---------------------------------------
(Registrant)
Date: May 4, 1999 By: /s/FRANK T. MACINNIS
---------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
Date: May 4, 1999 By: /s/LEICLE E. CHESSER
---------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer