<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934
________________________________________________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
__________________________________________________________________________
Commission file number 0-2315
------
EMCOR Group, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2125338
------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 Merritt Seven Corporate Park 06851-1060
Norwalk, Connecticut -------------------------
---------------------------------------- (Zip Code)
(Address of principal executive offices)
(203) 849-7800
-------------------------------
(Registrant's telephone number)
--------------------------------------------------------------------------
(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
--- ---
Number of shares of Common Stock outstanding as of the close of business on
August 11, 1995: 9,424,083 shares.
<PAGE>
EMCOR GROUP, INC.
INDEX
Part I - Financial Information
Page No.
--------
Item 1 Financial Statements
Condensed consolidated balance sheets -
as of June 30, 1995 and December 31, 1994 1
Condensed consolidated statements of operations -
three months ended June 30, 1995 and 1994 3
Condensed consolidated statements of operations -
six months ended June 30, 1995 and 1994 4
Condensed consolidated statements of cash flows -
six months ended June 30, 1995 and 1994 5
Condensed consolidated statement of shareholders'
equity for the six month period ended June 30, 1995 6
Notes to condensed consolidated financial statements 7
Item 2 Management's discussion and analysis of financial
condition and results of operations 15
Part II - Other Information
Item 1 Legal Proceedings 21
Item 6 Exhibits and Reports on Form 8-K 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,598 $ 52,505
Accounts receivable, net 417,990 438,958
Costs and estimated earnings in
excess of billings on uncompleted
contracts 52,240 52,347
Inventories 7,829 6,910
Prepaid expenses and other 7,312 8,115
Net assets held for sale 58,741 55,401
-------- --------
TOTAL CURRENT ASSETS 583,710 614,236
-------- --------
INVESTMENTS, NOTES AND OTHER LONG-TERM
RECEIVABLES 4,516 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 30,195 33,670
OTHER ASSETS
Insurance cash collateral 39,127 37,577
Miscellaneous 15,469 15,893
-------- --------
54,596 53,470
-------- --------
TOTAL ASSETS $673,017 $707,498
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 10,336 $ 4,803
Borrowings under working capital
credit line 35,000 40,000
Current maturities of long-term debt
and capital lease obligations 1,714 2,089
7% Senior Secured Notes (Series A) 58,741 55,401
Accounts payable 204,167 219,564
Billings in excess of costs and
estimated earnings on uncompleted
contracts 112,532 115,567
Accrued payroll and benefits 28,107 38,914
Other accrued expenses and
liabilities 36,114 45,660
-------- --------
TOTAL CURRENT LIABILITIES 486,711 521,998
-------- --------
LONG-TERM DEBT 64,258 59,782
OTHER LONG-TERM OBLIGATIONS 52,742 44,588
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,424,083 issued or
issuable under the Plan of
Reorganization 94 94
Warrants 2,179 2,179
Capital surplus 78,857 78,857
Cumulative translation adjustment 853 -
(Deficit) (12,677) -
-------- --------
TOTAL SHAREHOLDERS' EQUITY 69,306 81,130
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $673,017 $707,498
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Three Months Ended June 30, Company | Company
1995 | 1994
----------- | -----------
<S> <C> | <C>
REVENUES $381,562 | $433,541
|
COSTS AND EXPENSE |
Cost of sales 349,628 | 390,716
Selling, general and administrative 33,582 | 44,967
Reorganization charges -- | 3,300
-------- | --------
|
383,210 | 438,983
-------- | --------
|
OPERATING LOSS (1,648) | (5,442)
Interest expense, net (3,820) | (301)
Net loss on businesses sold or held |
for sale -- | (296)
-------- | --------
|
LOSS BEFORE INCOME TAXES (5,468) | (6,039)
Provision for income taxes 250 | 250
-------- | --------
|
LOSS FROM CONTINUING OPERATIONS (5,718) | (6,289)
|
INCOME FROM DISCONTINUED OPERATIONS -- | 2,683
-------- | --------
|
NET LOSS ($5,718) | ($3,606)
======== | ========
|
LOSS PER SHARE (1): ($0.61) | *
======== |
</TABLE>
(1) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalized and adopted Fresh-Start Reporting
as of December 31, 1994.
See notes to condensed consolidated financial statements.
3
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Six Months Ended June 30, Company | Company
1995 | 1994
----------- | -----------
<S> <C> | <C>
|
REVENUES $ 767,577 | $ 869,095
|
COSTS AND EXPENSES |
Cost of sales 703,776 | 783,973
Selling, general and administrative 68,353 | 90,656
Reorganization charges -- | 6,900
--------- | ---------
772,129 | 881,529
--------- | ---------
|
OPERATING LOSS (4,552) | (12,434)
Interest expense, net (7,625) | (477)
Net loss on businesses sold or held |
for sale -- | (296)
--------- | ---------
LOSS BEFORE INCOME TAXES (12,177) | (13,207)
Provision for income taxes 500 | 500
--------- | ---------
LOSS FROM CONTINUING OPERATIONS (12,677) | (13,707)
|
INCOME FROM DISCONTINUED OPERATIONS -- | 3,827
|
CUMULATIVE EFFECT OF CHANGE IN METHOD OF |
ACCOUNTING FOR POST-EMPLOYMENT BENEFITS -- | (2,100)
--------- | ---------
|
NET LOSS ($12,677) | ($11,980)
========= | =========
|
LOSS PER SHARE (1): ($1.35) | *
========= |
</TABLE>
(1) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalized and adopted Fresh-Start Reporting
as of December 31, 1994.
See notes to condensed consolidated financial statements.
4
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Six Months Ended June 30, Company | Company
1995 | 1994
----------- | -----------
<S> <C> | <C>
CASH FLOWS FROM OPERATIONS |
Net loss ($12,677) | ($11,980)
Non-cash expenses 8,289 | 11,760
Cumulative effect of accounting -- | 2,100
change |
Loss on sale of businesses -- | 296
Change in operating assets and |
liabilities, excluding |
the effect of businesses sold (6,900) | (35,360)
--------- | ---------
NET CASH USED IN OPERATIONS (11,288) | (33,184)
--------- | ---------
|
CASH FLOWS FROM FINANCING ACTIVITIES |
Payments of working capital credit |
line (5,000) | -
Proceeds from debtor-in-possession |
financing -- | 20,000
Payments of long-term debt and (333) | (994)
capital lease obligations |
Increase in notes payable, net 5,713 | 6,801
--------- | ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 380 | 25,807
--------- | ---------
|
CASH FLOWS FROM INVESTING ACTIVITIES |
Purchase of property, plant and |
equipment (1,999) | (5,551)
Proceeds from sale of businesses |
and other assets -- | 3,741
Decrease in cash balances of |
businesses held for sale or sold -- | 9,122
Net disbursements for investments |
to be sold -- | (2,422)
--------- | ---------
NET CASH (USED IN) PROVIDED BY INVESTING |
ACTIVITIES (1,999) | 4,890
--------- | ---------
|
DECREASE IN CASH AND CASH EQUIVALENTS (12,907) | (2,487)
|
CASH AND CASH EQUIVALENTS AT BEGINNING |
OF PERIOD 52,505 | 39,534
--------- | ---------
CASH AND CASH EQUIVALENTS AT END OF |
PERIOD $ 39,598 | $ 37,047
========= | =========
SUPPLEMENTAL CASH FLOW INFORMATION |
Cash Paid For: |
Interest $ 3,334 | $ 287
Income Taxes $ 443 | $ 249
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Capital Translation
Stock Warrants Surplus Adjustment Deficit Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 $94 $2,179 $78,857 $ - $ - $ 81,130
Net Loss - - - - (12,677) (12,677)
Translation
Adjustments - - - 853 - 853
-------------------------------------------------------------------
Balance, June 30,
1995 $94 $2,179 $78,857 $853 ($12,677) $ 69,306
===================================================================
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A BASIS OF PRESENTATION
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, prepetition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The prepetition holders of the Company's
subordinated debt, common and preferred stock and warrants of participation
received warrants to purchase common stock of EMCOR in exchange for their debt
and equity interests.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or
reserved for issuance to prepetition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR bank and senior institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a
debtor-in-possession credit facility to the Company, the following securities:
(i) 9,424,083 shares of newly authorized common stock of the Company ("New
Common Stock") (constituting 100% of the issued and outstanding shares as of the
Effective Date); (ii) approximately $62.2 million principal amount of 7% Senior
Secured Notes, Series A, due 1997 of the Company ("Series A Notes") and $8.8
million additional principal amount of Series A Notes which are reserved for
issuance to holders of general unsecured claims and to Belmont upon resolution
of disputed and unliquidated prepetition general unsecured claims (assuming such
claims are ultimately allowed in full); (iii) approximately $11.9 million
principal amount of 7% Senior Secured Notes, Series B, due 1997 ("Series B
Notes"); (iv) approximately $62.8 million principal amount of 11% Notes, Series
C, due 2001 of the Company ("Series C Notes"); and (v) approximately $48.1
million principal amount of 12% Subordinated Contingent Payment Notes due 2004
of SellCo (the "SellCo Notes"). The entire $11.9 million principal amount of
Series B Notes and approximately $4.1 million principal amount of the Series A
Notes issued on the Effective Date were immediately redeemed on that date at
their face amount in accordance with their terms from the proceeds realized from
the sale and liquidation of certain subsidiaries, the stock of which would have
been pledged as part of the collateral securing the Series B Notes had such
subsidiaries not been sold (and an additional $600,000 of such proceeds was
reserved for redemption of certain of the Series A Notes reserved for disputed
and unliquidated claims). The Company recorded the Series A Notes based upon an
assumed total of $100.0 million of prepetition general unsecured claims after
settlement of disputed and unliquidated prepetition general unsecured claims.
A description of the Company's significant accounting policies is included in
its Form 10 filed with the Securities and Exchange Commission (the "SEC") on
March 17, 1995, which Form 10 was amended on May 2, 1995, June 22, 1995 and
August 11, 1995 by Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and Form
10/A Amendment No 3, respectively. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Form 10/A Amendment No. 3.
As of December 31, 1994, in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"), the Company adopted "Fresh-Start Accounting." As a result of the
implementation of Fresh-Start Accounting, the condensed consolidated financial
statements of the Company after consummation of the Plan of Reorganization are
not comparable to the Company's condensed consolidated financial statements of
prior periods. The condensed consolidated statements of operations for the three
and six month periods ended
7
<PAGE>
June 30, 1995 and condensed consolidated statement of cash flows for the six
months ended June 30, 1995 are not comparable to the condensed consolidated
statement of operations and condensed consolidated statement of cash flows for
the same period in the prior year and are separated by a black line.
Prior to the commencement and during the continuation of the Company's Chapter
11 proceeding, the Company experienced significant constraints in its surety
bonding lines that adversely affected its operations. In addition, a surety
bonding company that was a primary source of surety bonds for the Company's
Dynalectric group of subsidiaries ("Dynalectric Companies") terminated its
surety business as of January 1994. As a result, these subsidiaries were without
any surety bonding facilities for most of 1994. In November 1994 the Company
entered into an arrangement with a new surety bonding company to provide surety
bonds for the Dynalectric Companies. The Dynalectric Companies accounted for
approximately 21% of the Company's revenues for the year ended December 31, 1994
attributable to mechanical and electrical subsidiaries EMCOR plans to retain.
The absence of available surety bonding for the Dynalectric Companies resulted
in a significant reduction in their backlog. The new surety bonding arrangement
has allowed the Dynalectric Companies to obtain new contracts thereby increasing
backlog.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" ("SFAS 112"). This standard required that the cost of
benefits provided to former or inactive employees be recognized on an accrual
basis of accounting. The cumulative effect of adopting SFAS 112 has been
reflected in the condensed consolidated statement of operations for the six
months ended June 30, 1994 under the caption "Cumulative Effect of Change in
Method of Accounting for Post-employment Benefits."
The Company has developed and implemented a business restructuring plan which
presently includes the sale of its water supply business and non-core
businesses. The net assets of businesses to be sold have been classified in the
condensed consolidated balance sheets as of June 30, 1995 and December 31, 1994
as "Net assets held for sale" and carried as current assets on the basis of
their expected disposition dates. The operating results of net assets held for
sale have been excluded from the condensed consolidated financial statements for
the three and six month periods ended June 30, 1995 since the operation of these
businesses will only accrue to the benefit of the SellCo noteholders after
payment in full of the Series A Notes and certain other obligations (see Note
C).
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company and the results of its operations. The
results of operations for the three and six month periods ended June 30, 1995
are not necessarily indicative of the results to be expected for the year ending
December 31, 1995.
NOTE B NET LOSS PER SHARE
Net loss per common share for the three and six month periods ended June 30,
1995 has been calculated based on the weighted average number of shares of
common stock outstanding and common stock equivalents relating to stock options
outstanding when the effect of such equivalents are dilutive (9,424,083 shares).
The net loss per common share for the three and six month periods ended June 30,
1994 has not been presented since it is not meaningful due to the Company's
adoption of Fresh-Start Reporting pursuant to SOP 90-7, effective December 31,
1994.
8
<PAGE>
NOTE C DEBT
MES CREDIT AGREEMENT - On December 14, 1994, the Company and certain of its
subsidiaries entered into a credit agreement with Belmont and other lenders (the
"Lenders") providing the Company and MES Holdings Corporation ("MES"), a wholly-
owned subsidiary of the Company, with revolving credit loans (the "MES Loans")
of up to an aggregate amount of $35 million. The MES Loans are guaranteed by
most of the Company's U.S. mechanical/electrical subsidiaries (the "MES
Subsidiaries") and are secured by, among other things, substantially all of the
assets of the Company, MES and most of the U.S. MES subsidiaries, as well as the
proceeds of the sale of stock or assets of the Company's two water supply
companies (the "Water Companies") to the extent of the first $15 million of such
proceeds, subject to the rights to such proceeds of the Lenders under the Dyn
credit facility referred to below. The MES Loans bear interest on the principal
amount thereof at the rate of 15% per annum, and mature on June 14, 1996.
DYN CREDIT AGREEMENT - On December 14, 1994, the Company, Dyn Specialty
Contracting Inc. ("Dyn"), a wholly-owned subsidiary of the Company, and Dyn's
subsidiaries entered into a credit agreement with the Lenders providing Dyn with
revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10
million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured
by substantially all of the assets of Dyn and the Dyn subsidiaries, as well as
the proceeds of the sale of stock or assets of the Water Companies to the extent
of the first $15 million of such proceeds, subject to the rights to such
proceeds of the Lenders under the MES Credit Agreement. The Dyn Loans bear
interest on the principal amount thereof at the rate of 15% per annum and mature
on June 14, 1996.
Borrowings under the MES Credit Agreement, $35.0 million at June 30, 1995, are
classified as current liabilities under the caption "Borrowings under working
capital credit line" in the accompanying condensed consolidated balance sheets.
No borrowings were outstanding under the Dyn Credit Agreement at June 30, 1995.
SERIES A NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
the Company issued or reserved for issuance approximately $62.2 million
principal amount of Series A Notes and $8.8 million additional principal amount
of Series A Notes which are reserved for issuance upon resolution of disputed
and unliquidated pre-petition general unsecured claims (assuming such claims are
ultimately allowed in full). The Series A Notes are guaranteed by MES and
SellCo. The terms of the Series A Notes require that the net proceeds realized
from the sale of the stock or assets of the Company's subsidiaries be applied to
the prepayment of the Series A Notes (subject to the rights of the Lenders under
the MES and Dyn Credit Agreements to receive proceeds from the sale of the stock
or assets of the Company's mechanical and electrical subsidiaries and the first
$15.0 million of proceeds of the sale of stock or assets of the Water
Companies). The recorded amount includes the estimated amount of Series A Notes
to be issued upon resolution of the disputed and unliquidated prepetition
general unsecured claims. The Company recorded the Series A Notes based upon an
assumed total of $100.0 million of pre-petition general unsecured claims after
settlement of disputed and unliquidated pre-petition general and unsecured
claims. Approximately $4.1 million of the issued Series A Notes were redeemed
prior to December 31, 1994. The Series A Notes have been recorded at a discount
to the face amount to yield an estimated effective interest rate of 12%. The
Series A Notes have been classified as a current liability based on the expected
disposition of assets held for sale. Interest on the Series A Notes is payable
semiannually by the issuance of additional Series A Notes until maturity.
SERIES C NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
the Company issued, or reserved for issuance, approximately $62.8 million
principal amount of Series C Notes. For eighteen months from the Effective
Date, interest on the Series C Notes is payable semiannually by the issuance of
additional Series C Notes and thereafter is payable quarterly in cash. The
Series C Notes are unsecured senior indebtedness of the Company, but subordinate
to (i) the Series A Notes and (ii) up to $100.0 million of working capital
indebtedness of the Company or MES, and are guaranteed by MES subject to payment
9
<PAGE>
in full of the Series A Notes. The Series C Notes have been recorded at a
discount to their face amount to yield an estimated effective interest rate of
14%.
SUPPLEMENTAL SELLCO NOTE - Pursuant to the Plan of Reorganization, EMCOR has
issued to SellCo its 8% promissory note in the principal amount of approximately
$5,464,000 (the "Supplemental SellCo Note"). The note matures on the earlier of
(i) December 15, 2004 or (ii) one day prior to the date on which the SellCo
Notes are deemed canceled. If, at any time after the fifth anniversary of the
Effective Date and prior to the maturity date of the SellCo Notes, the value of
the consolidated assets of SellCo and its subsidiaries (excluding the
Supplemental SellCo Note) is determined by independent appraisal to be less than
$250,000, the balance of the SellCo Notes (not therefore paid from net sales
proceeds from the sale of the stock or assets of SellCo subsidiaries and the
proceeds of the Supplemental SellCo Note which will have become due and payable)
will be deemed canceled. Interest on the Supplemental SellCo Note is payable
upon maturity.
The Series C Notes and the Supplemental SellCo Note are included in the caption
"Long-Term Debt" in the accompanying condensed consolidated balance sheets.
SELLCO NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
SellCo issued approximately $48.1 million principal amount of SellCo Notes.
Interest is payable semiannually in additional SellCo Notes. Subject to the
prior payment in full of the Series A Notes and establishment of a cash reserve
for the payment of capital gains taxes arising from the sale of subsidiaries of
SellCo and the rights of the Lenders with respect to proceeds of the sale of the
Water Companies, the SellCo Notes are mandatorily prepayable to the extent of
net sales proceeds from the sale of stock or assets of SellCo subsidiaries.
Since the SellCo Notes will only be satisfied to the extent that net assets of
SellCo and its subsidiaries generate sufficient cash in excess of that required
to redeem the Series A Notes and prepay a portion of the indebtedness under the
MES and Dyn Credit Agreements, the SellCo Notes are included in the caption "Net
assets held for sale" in the accompanying condensed consolidated balance sheets.
The holders of the SellCo Notes may only look to EMCOR to the extent of EMCOR's
obligation to pay the Supplemental SellCo Note plus accrued interest. It is
remote that any significant portion of the SellCo Notes, other than the
principal amount of, plus accrued interest on, the Supplemental SellCo Note,
will be paid in view of the fair value of the net assets held for sale since the
proceeds of these assets will be applied first to redeem the Series A Notes and
to the extent proceeds are realized from the sale of the Water Companies, the
first $15.0 million of such proceeds will be used to repay indebtedness under
the New Credit Agreements. The Company has no liability for the SellCo Notes
except to the extent of the 8% Supplemental SellCo Note discussed above.
NOTE D NET ASSETS HELD FOR SALE
During the first six months of 1995, the Company sold selected assets of a
subsidiary. During the first six months of 1994, the Company sold its
minority ownership in an energy and environmental business and other non-core
businesses. No material gains or losses were realized as a result of these
sales. The operating results of the businesses sold during the first six months
of 1994 are included in loss from continuing operations for the six months ended
June 30, 1994. The operating results of net assets held for sale have been
excluded from the condensed consolidated financial statements for the three and
six month periods ended June 30, 1995 since the operation of these businesses
will only accrue to the benefit of the SellCo noteholders after payment in full
of the Series A Notes and certain other obligations (see Note C).
10
<PAGE>
The condensed consolidated balance sheet relating to net assets held for sale,
including discontinued operations, as of June 30, 1995, is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash $ 8,912 Current maturities of long-term
Accounts receivable, net 43,596 debt and capital lease
Costs and estimated obligations $ 16,998
earnings in excess of Accounts payable 22,593
billings 13,135 Billings in excess of costs and
Inventories 1,671 estimated earnings 5,040
Other current assets 1,068 Other accrued expenses 60,075
---------- ----------
68,382 104,706
Property, plant and Long-term debt 44,125
equipment, net 153,322 Other long-term liabilities 30,659
Other assets 16,527 Net assets held for sale 58,741
---------- ----------
$238,231 $238,231
========== ==========
</TABLE>
Selected pro forma financial information for the three and six month periods
ended June 30, 1994, excluding businesses held for sale and discontinued
operations, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six months
Ended June 30, Ended June 30,
1994 1994
-------------- --------------
<S> <C> <C>
Revenues $391,589 $777,767
Cost of Sales 353,325 702,344
Selling, general and administrative 36,773 74,513
Operating Loss (1,809) (5,990)
Net Loss ($2,231) ($8,675)
</TABLE>
NOTE E INCOME TAXES
The Company has approximately $500.0 million of net operating loss carry-
forwards ("NOL") available for U.S. income tax purposes expiring in years
through 2008. The Company has provided a valuation allowance to offset the full
amount of the net deferred tax assets arising from book and tax differences
including those from the NOLs.
Under Section 382(1)(6) of the Internal Revenue Code (the "Code") the use of the
NOL would be significantly limited. The Company intends, at the present time, to
determine its NOL in accordance with Code Section 382(1)(5) which would allow
the Company to use approximately $300.0 million of the NOL. However, a
subsequent ownership change (as defined by the Code) within two years from the
Effective Date would reduce to zero the future NOL benefits under Code Section
382(1)(5). An irreversible election must be made as to which method the Company
will use by September 15, 1995. Income tax expense recorded for the six months
ended June 30, 1995 and 1994 represents a provision primarily for state and
local income taxes.
11
<PAGE>
NOTE F LEGAL PROCEEDINGS
The information regarding legal proceedings contained in the Company's Form
10/A Amendment No. 3 filed on August 11, 1995 covers all events known to the
Company and occurring prior to that date. The following is a general description
of certain developments in the legal proceedings occurring from April 1, 1995
through August 14, 1995.
12
<PAGE>
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against JWSC by filing a complaint in the Supreme
Court of the State of New York, Westchester County, bearing the caption, Harold
------
F. Scattergood, Jr., et al. v. Jamaica Water Securities Corp. (Index No.
-------------------------------------------------------------
15992/94). On October 17, 1994, an amended complaint was served adding
additional plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to EMCOR's obligations
on the Warrants of Participation by reason of its 1977 acquisition of EMCOR's
96% stock interest in Jamaica Water Supply Company. The plaintiffs also claimed
that certain events constituted a disposition of the assets of Jamaica Water
Supply Company which triggered the Warrants of Participation, obligating Jamaica
Water Securities to issue shares of its own stock to plaintiffs.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiff's actions, holding that the assets of
Jamaica Water Supply Company had not been "disposed of" under the express terms
of the Warrants of Participation prior to their stated expiration on December
31, 1994. The court also held that it lacked the power to rewrite the "clear and
unambiguous provisions" of the Warrants of Participation Agreement to extend the
December 31, 1994 deadline. The Company does not yet know if the plaintiffs will
appeal the court's decision.
13
<PAGE>
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc. ("DPL"), a
company allegedly owned by Kohl, were indicted by a New York County grand jury
for grand larceny, fraud, repeated failure to file New York City Corporate Tax
Returns and related money laundering charges. Kohl was also charged with filing
false personal income and earnings tax returns, perjury and offering false
instruments for filing with the New York City School Construction Authority. In
a press release announcing the indictment, the Manhattan District Attorney said
that the investigation disclosed that Mr. Kohl allegedly received more than $7.0
million in kickbacks from subcontractors through a scheme in which he allegedly
inflated subcontracts on Herbert's construction contracts. At a press
conference following the Indictment, the District Attorney announced that the
investigation is continuing, and he expects further indictments in the
investigation.
Forest performs electrical contracting services primarily in the New
York City commercial market and is one of the largest subsidiaries in the MES
group of companies.
14
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, prepetition creditors of the
Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The prepetition holders of the Company's subordinated
debt, common and preferred stock and warrants of participation received warrants
to purchase common stock of EMCOR in exchange for their debt and equity
interests.
The Company's results of operations and financial condition as of and for the
period ended June 30, 1995 reflect the adoption of Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The Company has accounted for its reorganization by using the
principles of Fresh-Start Accounting as required by SOP 90-7. For accounting
purposes, the Company assumed that the Plan of Reorganization was consummated on
December 31, 1994. Under the principles of Fresh-Start Accounting, the Company's
total net assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable assets on the basis of their
estimated fair value. The primary valuation methodology employed by the Company,
with the assistance of its financial advisors to determine the reorganization
value of the Company, was a net present value approach. The valuation was based
on the Company's forecasts of unleveraged, after-tax cash flows calculated for
each year over the four-year period from 1994 to 1997, capitalizing projected
earnings before interest, taxes, depreciation and amortization at multiples
ranging from 3 to 10 selected to value earnings and cash flows beyond 1997, and
discounting the resulting amounts to present value at rates ranging from 10% to
30% selected to approximate the Company's projected weighted average cost of
capital. The excess of reorganization value over the value of identifiable
assets of $5.0 million is included in the accompanying condensed consolidated
balance sheets as of June 30, 1995 and December 31, 1994 in Other Assets as
"Miscellaneous" and is being amortized over 15 years.
As a result of the implementation of Fresh-Start Accounting, the financial
statements of the Company for periods subsequent to consummation of the Plan of
Reorganization will not be comparable to the Company's financial statements for
prior periods. The operating results of net assets held for sale have been
excluded from the condensed consolidated financial statements for the three and
six month periods ended June 30, 1995 since the operations of these businesses
will only accrue to the benefit of the SellCo noteholders after payment in full
of the Series A Notes and certain other obligations (See Note C) .
Revenues for the second quarter of 1995 were $381.6 million compared to $391.5
million, exclusive of revenues of $42.0 million attributable to businesses held
for sale or sold in the second quarter of 1994. In the second quarter of 1995
the Company incurred a net loss of $5.7 million or $0.61 per share compared to a
net loss of $2.2 million, exclusive of a net loss of $1.4 million attributable
to businesses held for sale or sold in the second quarter of 1994. The 1995
second quarter loss includes $3.8 million of net interest expense compared to
$0.3 million of net interest expense during the second quarter of 1994. Interest
expense in 1995 includes interest on borrowings under new working capital credit
facilities obtained by the Company in December 1994 and notes issued pursuant to
the Company's Plan of Reorganization. Net interest expense for the three
15
<PAGE>
months ended June 30, 1994 excludes interest on debt in default which the
Company ceased accruing in December 1993. Loss from continuing operations in the
second quarter of 1995 was $5.7 million or $0.61 per share compared to a loss of
$2.6 million, exclusive of losses of $3.7 million attributable to businesses
held for sale or sold, in the second quarter of 1994.
Revenues for the six months ended June 30, 1995 were $767.6 million compared to
$777.8 million, exclusive of revenues of $91.3 million attributable to
businesses held for sale or sold in the same period in the prior year. For the
six months ended June 30, 1995, the Company incurred a net loss of $12.7 million
or $1.35 per share compared to a net loss of $8.7 million, exclusive of a net
loss of $3.3 million attributable to businesses held for sale or sold in the
same period, in the prior year. The net loss for the six months ended June 30,
1995 includes $7.6 million of net interest expense compared to $0.5 million of
net interest expense during the same period in the prior year. Interest expense
in 1995 includes interest on borrowings under new working capital credit
facilities obtained by the Company in December 1994 and notes issued pursuant to
the Company's Plan of Reorganization. Net interest expense for the six months
ended June 30, 1994 excludes interest on debt in default which the Company
ceased accruing in December 1993. Loss from continuing operations in the six
months ended June 30, 1995 was $12.7 million or $1.35 per share compared to a
loss of $7.2 million, exclusive of losses of $6.5 million attributable to
businesses held for sale or sold in the same period in the prior year.
The Company incurred an operating loss of $1.7 million for the three months
ended June 30, 1995 compared to a $1.8 million operating loss, exclusive of
losses of $3.6 million attributable to businesses held for sale or sold, in the
same quarter of 1994. The decrease in the operating loss for the second quarter
of 1995 was principally due to a decrease in selling, general and administrative
expenses resulting from cost cutting efforts and a reduction in professional
fees incurred for legal, consulting and other services relating to the Company's
1994 Chapter 11 bankruptcy proceedings.
The Company incurred an operating loss of $4.6 million for the six months ended
June 30, 1995 compared to a $6.0 million operating loss, exclusive of losses of
$6.4 million attributable to businesses held for sale or sold, in the same
period of the prior year. The decrease in the operating loss for the first six
months of 1995 was principally due to a decrease in selling, general and
administrative expenses resulting from cost cutting efforts and a reduction in
professional fees incurred for legal, consulting and other services relating to
the Company's 1994 Chapter 11 bankruptcy proceedings
Revenues relating to businesses which the Company plans to retain remained
substantially unchanged compared with the year earlier period. While revenues of
business units operating in the Eastern United States and Central United Kingdom
increased due to positive economic factors, this increase was offset by
decreased revenues in the Midwestern and Western regions of the United States,
Northern and Southern parts of the United Kingdom due to, among other things,
continuing poor market conditions.
The operating results for the six months ended June 1995 and 1994 reflect, among
other things, the negative impact of the continued recession and oversupply in
the commercial real estate market which has caused intense competition for new
commercial work. As a result of the reduction of commercial work in 1994, many
of the Company's business units pursued noncommercial projects, primarily
governmental and municipal facilities, at lower margins than historically
available in the commercial marketplace. Certain of these business units were
not as experienced in performing noncommercial projects and, as a result,
incurred losses particularly on certain long-term contracts. Operating margins
were also adversely affected by the continuing recessions in the United Kingdom,
Midwestern and Western United States.
16
<PAGE>
Selling, general and administrative ("SG&A") expenses, excluding general
corporate expenses, for the quarters ended June 30, 1995 and 1994 were $30.5
million and $32.3 million, exclusive with respect to the second quarter of 1994
of $8.2 million of SG&A attributable to businesses held for sale or sold,
respectively. For the six months ended June 30, 1995 and 1994, SG&A expenses,
excluding general corporate expenses were $61.4 million and $65.7 million,
exclusive with respect to the six months ended June 30, 1994 of $16.1 million of
SG&A attributable to businesses held for sale or sold. The amount of SG&A
expense in 1995 was lower than SG&A in the comparable 1994 period as a result
of the implementation of the Company's downsizing plans.
The Company's backlog was $1,126.9 million at June 30, 1995 and $1,054.1 million
at December 31, 1994 with respect to companies which the Company currently
intends to retain. The Company's backlog in the United States increased by $88.6
million between December 31, 1994 and June 30, 1995, while its backlog in the
United Kingdom and Canada decreased by $14.2 million and $1.6 million,
respectively, during that same period. The decline in the United Kingdom backlog
is due to the discontinuation of a large governmental contract while the decline
in the Canadian backlog is principally attributable to the downsizing of the
Canadian operations.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the quarters ended June 30, 1995 and 1994 were
$3.5 million and $4.5 million, respectively. General corporate expenses for the
six months ended June 30, 1995 and 1994 were $7.3 million and $8.8 million,
respectively. Legal and other professional fees for 1994 incurred as a result of
the bankruptcy proceeding are reflected under the caption "Reorganization
charges" in the condensed consolidated statement of operations. These expenses
for the six months ended June 30, 1994 were approximately $6.9 million. The
higher amount of general corporate expenses in 1994 is attributable to debt
issuance costs related to the Company's debtor-in-possession credit facility,
severance paid to terminated employees and an increase in insurance costs. Net
interest expense for the six months ended June 30, 1995 was $7.6 million
compared to $0.5 million for the same period in the prior year. Interest expense
in 1995 includes interest on borrowings resulting from the issuance of debt
instruments under the Plan of Reorganization as well as borrowings under new
working capital facilities obtained by the Company in December 1994. Net
interest expense for the six months ended June 30, 1994 excludes interest
attributable to debt in default which the Company ceased accruing on December
21, 1993.
NET ASSETS HELD FOR SALE
The operating results of net assets held for sale, which included the Company's
water supply business classified as discontinued operations prior to the
consummation of the Plan of Reorganization, have been excluded from the
condensed consolidated financial statements for the three and six month periods
ended June 30, 1995 since the operation of these businesses will only accrue to
the benefit of the SellCo noteholders after payment in full of the Series A
Notes and certain other obligations (See Note C). Net assets held for sale are
valued in the condensed consolidated balance sheets at the lower of cost or
estimated net realizable value and are classified as current based on their
estimated disposition dates.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance decreased by $12.9 million from $52.5
million at December 31, 1994 to $39.6 million at June 30, 1995. The June 30,
1995 cash balance included $5.3 million in foreign bank accounts and reflected
$35.0 million borrowed under the MES Credit Agreement referred to below. The
foreign bank accounts are available only to support the Company's foreign
operations. The negative operating cash flow was due to funding for the start-up
of new projects as well as other working capital requirements.
An asset disposition program was initiated in the third quarter of 1992 with
respect to the Company's non-core businesses and certain other assets to raise
cash for working capital and to reduce debt. For the six months ended June 30,
1994, the Company received net cash proceeds of $3.7 million from the sale of
the Company's minority ownership in an energy and environmental business, other
non-core businesses and other assets.
In February 1994 the Company and substantially all of its subsidiaries entered
into an agreement with Belmont Capital Partners II, L.P. ("Belmont") which
provided a debtor-in-possession credit facility ("DIP Loan"). The DIP Loan
agreement provided a credit facility to the Company of up to $35 million at an
interest rate of 12% per annum during the period of the Company's Chapter 11
proceeding. Belmont also received, as additional interest, a percentage of the
securities issued pursuant to the Plan of Reorganization. The DIP Loan was
secured by a first lien on substantially all of the assets of the Company and
most of its subsidiaries.
The DIP Loan was repaid upon the Effective Date with borrowings under the MES
credit agreement referred to below.
On December 14, 1994, the Company and certain of its subsidiaries entered into a
credit agreement with lenders providing the Company and its subsidiary and MES
Holdings Corp ("MES") with revolving credit loans (the "MES Loans") of up to an
aggregate amount of $35 million. The MES Loans are guaranteed by certain direct
or indirect U.S. subsidiaries of MES (the "MES Subsidiaries") and are secured
by, among other things, substantially all of the assets of the Company, MES and
the U.S. MES Subsidiaries, as well as the proceeds of the sale of stock or
assets of the Company's two water supply companies (the "Water Companies") to
the extent of the first $15 million of such proceeds, subject to the rights to
such proceeds of the lenders under the Dyn credit agreement referred to below.
The MES Loans bear interest on the principal amount thereof at the rate of 15%
per annum, and mature on June 14, 1996.
Also, on December 14, 1994, the Company and its subsidiaries Dyn Specialty
Contracting Inc. ("Dyn") and Dyn's subsidiaries entered into a credit agreement
with the lenders providing revolving credit loans (the "Dyn Loans") of up to an
aggregate amount of $10 million. The Dyn Loans are guaranteed by the Dyn
subsidiaries and are secured by substantially all of the assets of Dyn and the
Dyn subsidiaries, as well as the proceeds of the sale of stock or assets of the
Water Companies to the extent of the first $15 million of such proceeds, subject
to the rights to such proceeds of the lenders under the MES Credit Agreement.
The Dyn Loans bear interest on the principal amount thereof at the rate of 15%
per annum, and mature on June 14, 1996. No borrowings are currently outstanding
under the Dyn Credit Agreement at June 30, 1995.
18
<PAGE>
Under the Plan of Reorganization, prepetition creditors of the Company (other
than holders of subordinated debt) received certain notes of EMCOR and its
subsidiary SellCo Corporation ("SellCo") and substantially all of the common
stock of EMCOR. The prepetition holders of the Company's subordinated debt,
common and preferred stock and warrants of participation received warrants to
purchase common stock of EMCOR in exchange for their debt and equity interests.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or
reserved for issuance to prepetition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR senior bank and institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont the following securities: (i) 9,424,083 shares of newly
authorized common stock of the Company ("New Common Stock") (constituting 100%
of the issued and outstanding shares as of the Effective Date); (ii)
approximately $62.2 million principal amount of 7% Senior Secured Notes, Series
A, due 1997 of the Company ("Series A Notes") and $8.8 million additional
principal amount of Series A Notes which are reserved for issuance to holders of
general unsecured claims and to Belmont upon resolution of disputed and
unliquidated prepetition general unsecured claims (assuming such claims are
ultimately allowed in full); (iii) approximately $11.9 million principal amount
of 7% Senior Secured Notes, Series B, due 1997 ("Series B Notes"); (iv)
approximately $62.8 million principal amount of 11% Notes, Series C, due 2001 of
the Company ("Series C Notes"); and (v) approximately $48.1 million principal
amount of 12% Subordinated Contingent Payment Notes due 2004 of SellCo. The
entire $11.9 million principal amount of Series B Notes and approximately $4.1
million principal amount of the Series A Notes issued on the Effective Date were
immediately redeemed on that date at their face amount in accordance with their
terms from the proceeds realized from the sale and liquidation of certain
subsidiaries, the stock of which would have been pledged as part of the
collateral securing the Series B Notes had such subsidiaries not been sold (and
an additional $600,000 of such proceeds was reserved for redemption of certain
of the Series A Notes reserved for disputed and unliquidated claims). The
Company recorded the Series A Notes based upon an assumed total of $100 million
of pre-petition general unsecured claims after settlement of disputed and
unliquidated pre-petition general unsecured claims.
In June 1995, the Company's Canadian subsidiary, Comstock Canada entered into a
credit agreement providing for an overdraft facility of up to Canadian $2.0
million. The facility is secured by certain assets of Comstock Canada and
deposit instruments of a Canadian subsidiary of the Company. The facility
provides for interest at the bank's prime rate (8.5% at June 30, 1995) plus .75%
and expires on June 30, 1996.
In June 1994, a number of the Company's U.K. subsidiaries entered into a demand
credit facility with a U.K. bank for a credit line of (Pounds) 14.1 million
(approximately U.S. $22.5 million). The credit facility consists of the
following components with the individual credit limits as indicated: an
overdraft line of up to (Pounds) 6.0 million (approximately U.S. $9.6 million);
a facility for the issuance of guarantees, bond and indemnities of up to
(Pounds) 7.3 million (approximately U.S. $11.6 million); and other credit
facilities of up to (Pounds) 0.8 million (approximately U.S. $1.3 million). The
facility is secured by substantially all of the assets of the Company's
principal U.K. subsidiaries. The overdraft facility provides for interest at the
bank's base rate, as defined (6.75% as of June 30, 1995), plus 3% on the first
(Pounds) 5.0 million of borrowings and at the bank's base rate plus 4% for
borrowings over (Pounds) 5.0 million. This credit facility, as amended, expires
September 30, 1995. The U.K. subsidiaries are negotiating the terms of an
extension of the credit facility; however, there can be no assurance the credit
facility will be extended or, if so, its terms.
19
<PAGE>
As of June 30, 1995, the Company's U.K. subsidiaries had utilized $20.8 million
of the credit facilities as follows: $8.0 million of borrowings under the
overdraft line, $11.6 million for the issuance of guarantees and $1.2 million
under other credit facilities.
On November 4, 1994, Jamaica Water Supply Company ("JWS") and Sea Cliff Water
Company ("SCW"), entered into a new credit agreement providing for a credit
facility to JWS of $17.9 million and for a credit facility to SCW of $2.1
million at an interest rate based upon either prime rate, LIBOR plus 5/8% or bid
rate. These borrowings are reflected as current liabilities in the condensed
consolidated balance sheet of "Net assets held for sale" which is presented in
Note D to the condensed consolidated financial statements. These credit
facilities will expire November 3, 1995.
On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau
County, certain other governmental bodies and a consumer advocate group entered
into an agreement that ended several regulatory and legal proceedings involving
JWS. This agreement was approved by the New York State Public Service Commission
(the "PSC") on February 2, 1994. The agreement provides for, among other things,
a three year moratorium on general rates charged by JWS, resolution of economic
issues raised by the PSC arising from its 1992 audit of JWS, settlement of
related litigation and the dismissal of an action brought against JWS by Nassau
County of the State of New York alleging violations of the Racketeer Influenced
and Corrupt Organizations Act and common law fraud. Among other things, JWS, in
consideration of avoided litigation and other costs associated with the
proceedings, agreed to make payments over the 1994-1997 period totaling $11.7
million to customers in Nassau and Queens Counties in the State of New York. The
estimated payments to customers was provided against 1993 operations. The
agreement also provides that JWS, subject to limited specified exceptions, will
not seek to have a general rate increase become effective prior to January 1,
1997 and will use its best efforts to bring about the separation of Jamaica
Water Securities Corp., a subsidiary of the Company which holds substantially
all the common stock of JWS, from the Company.
The Company has substantial net operating loss carryforwards ("NOL") for U.S.
Federal income tax purposes. As the Company exchanged newly issued equity in
exchange for debt as contemplated by the Plan of Reorganization, a significant
portion of the NOL may not be available to reduce future U.S. taxable income.
At June 30, 1995, the Company has provided a valuation allowance to offset for
the full amount of the net deferred tax asset arising from book and tax
differences including those from the NOLs.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). The cumulative effect of adopting SFAS 112 was
to record a charge of $2.1 million as of January 1, 1994. Such amount has been
reflected in the condensed consolidated statement of operations under the
caption "Cumulative Effect of Change in Method of Accounting for Post-employment
Benefits." The adoption of this standard did not materially affect the 1994 loss
before cumulative effect of change in method of accounting for post-employment
benefits.
20
<PAGE>
Part II - Other Information
Item 2 - Legal Proceedings
The information regarding legal proceedings contained in the Company's Form
10/A Amendment No. 3 filed on August 11, 1995 covers all events known to the
Company and occurring prior to that date. The following is a general description
of certain developments in the legal proceedings occurring from April 1, 1995
through August 14, 1995.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc. ("DPL"), a
company allegedly owned by Kohl, were indicted by a New York County grand jury
for grand larceny, fraud, repeated failure to file New York City Corporate Tax
Returns and related money laundering charges. Kohl was also charged with filing
false personal income and earnings tax returns, perjury and offering false
instruments for filing with the New York City School Construction Authority. In
a press release announcing the indictment, the Manhattan District Attorney said
that the investigation disclosed that Mr. Kohl allegedly received more than $7.0
million in kickbacks from subcontractors through a scheme in which he allegedly
inflated subcontracts on Herbert's construction contracts. At a press
conference following the Indictment, the District Attorney announced that the
investigation is continuing, and he expects further indictments in the
investigation.
Forest performs electrical contracting services primarily in the New
York City commercial market and is one of the largest subsidiaries in the MES
group of companies.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. Exhibit No. 27: Article 5, Financial Data Schedule; Page.
(b) Report on Form 8-K filed during the quarter ended June 30, 1995. None.
21
<PAGE>
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)
s/ FRANK T. MacINNIS
Date: August 14, 1995 -------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Date: August 14, 1995 Chief Executive Officer
s/ LEICLE E. CHESSER
-------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
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</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 39,598
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<RECEIVABLES> 434,477
<ALLOWANCES> 16,487
<INVENTORY> 7,829
<CURRENT-ASSETS> 583,710
<PP&E> 34,439
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<TOTAL-ASSETS> 673,017
<CURRENT-LIABILITIES> 486,711
<BONDS> 64,258
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0
<OTHER-SE> 69,212
<TOTAL-LIABILITY-AND-EQUITY> 673,017
<SALES> 767,577
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<INCOME-PRETAX> (12,177)
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