<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 September 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
October 31, 1995: 9,413,212 shares.
<PAGE>
EMCOR GROUP, INC.
INDEX
Page No.
---------
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed consolidated balance sheets -
as of September 30, 1995 and December 31, 1994 1
Condensed consolidated statements of operations -
three months ended September 30, 1995 and 1994 3
Condensed consolidated statements of operations -
nine months ended September 30, 1995 and 1994 4
Condensed consolidated statements of cash flows -
nine months ended September 30, 1995 and 1994 5
Condensed consolidated statement of shareholders'
equity for the nine month period ended September 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>
September 30, December 31,
1995 1994
------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,255 $ 52,505
Accounts receivable, net 434,305 438,958
Costs and estimated earnings in excess
of billings on uncompleted contracts 59,162 52,347
Inventories 7,905 6,910
Prepaid expenses and other 5,992 8,115
Net assets held for sale 60,207 55,401
---------- ---------
TOTAL CURRENT ASSETS 608,826 614,236
---------- ---------
INVESTMENTS, NOTES AND OTHER LONG-TERM
RECEIVABLES 3,608 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 28,447 33,670
OTHER ASSETS
Insurance cash collateral 28,907 37,577
Miscellaneous 15,372 15,893
---------- ---------
44,279 53,470
---------- ---------
TOTAL ASSETS $685,160 $707,498
========== =========
</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>
September 30, December 31,
1995 1994
------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' (Unaudited)
EQUITY
CURRENT LIABILITIES
Notes payable $ 14,901 $ 4,803
Borrowings under working capital credit line 29,000 40,000
Current maturities of long-term debt
and capital lease obligations 1,685 2,089
7% Senior Secured Notes (Series A) 60,207 55,401
Accounts payable 208,686 219,564
Billings in excess of costs and estimated
earnings on uncompleted contracts 117,636 115,567
Accrued payroll and benefits 32,897 38,914
Other accrued expenses and liabilities 36,885 45,660
-------- -----------
TOTAL CURRENT LIABILITIES 501,897 521,998
-------- -----------
LONG-TERM DEBT 66,367 59,782
OTHER LONG-TERM OBLIGATIONS 46,972 44,588
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,424,083 issued or
issuable under the Plan of Reorganization 94 94
Warrants 2,179 2,179
Capital surplus 78,857 78,857
Cumulative translation adjustment 878 -
(Deficit) (12,084) -
-------- -----------
TOTAL SHAREHOLDERS' EQUITY 69,924 81,130
-------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $685,160 $707,498
======== ===========
</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
Company Company
Three months Ended September 30, 1995 1994
---------------------------------
<S> <C> <C>
REVENUES $403,941 $444,355
COSTS AND EXPENSES
Cost of sales 365,232 408,357
Selling, general and administrative 33,135 43,102
Reorganization charges -- 3,200
----------- ------------
398,367 454,659
----------- ------------
OPERATING INCOME (LOSS) 5,574 (10,304)
Interest expense, net (3,805) (707)
Net loss on businesses sold or held for sale (926) (236)
Loss on investment -- (4,092)
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 843 (15,339)
Provision for income taxes 250 250
----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 593 (15,589)
INCOME FROM DISCONTINUED OPERATIONS -- 5,559
----------- ------------
NET INCOME (LOSS) $ 593 $(10,030)
=========== ============
INCOME PER SHARE (1): $.06
===========
</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
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
Reorganized Predecessor
Company Company
Nine Months Ended September 30, 1995 1994
-----------------------------------
<S> <C> <C>
REVENUES $1,171,518 $1,313,450
COSTS AND EXPENSES
Cost of sales 1,069,008 1,192,330
Selling, general and administrative 101,488 133,758
Reorganization charges -- 10,100
------------- -------------
1,170,496 1,336,188
------------- -------------
OPERATING INCOME (LOSS) 1,022 (22,738)
Interest expense, net (11,430) (1,184)
Net loss on businesses sold or held for sale (926) (532)
Loss on investment -- (4,092)
------------- -------------
LOSS BEFORE INCOME TAXES (11,334) (28,546)
Provision for income taxes 750 750
------------- -------------
LOSS FROM CONTINUING OPERATIONS (12,084) (29,296)
INCOME FROM DISCONTINUED OPERATIONS -- 9,386
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR POST-EMPLOYMENT
BENEFITS -- (2,100)
------------- -------------
NET LOSS (12,084) $ (22,010)
------------- -------------
LOSS PER SHARE (1): $(1.27)
=============
</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
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
Reorganized Predecessor
Company Company
1995 1994
Nine months Ended September 30, ---------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss $(12,084) $(22,010)
Non-cash expenses 12,887 12,311
Write down of investment -- 4,092
Cumulative effect of accounting change -- 2,100
Loss on sale of businesses 926 532
Change in operating assets and liabilities,
excluding the effect of businesses sold (8,615) (33,975)
---------- ------------
NET CASH USED IN OPERATIONS (6,886) (36,950)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of working capital credit line (11,000) --
Proceeds from debtor-in-possession financing -- 25,000
Cash deposited in trust account for funding of
post-bankruptcy debt -- (7,501)
Payments of long-term debt and
capital lease obligations (1,007) (956)
Increase in notes payable, net 10,278 7,220
---------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,729) 23,763
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,285) (3,056)
Proceeds from sale of businesses and other assets 650 4,458
Decrease in cash balances of businesses held
for sale or sold -- 8,597
Net disbursements for investments to be sold -- (2,422)
Other -- 5,775
---------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (2,635) 13,352
---------- ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,250) 165
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 52,505 39,534
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 41,255 $ 39,699
========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For:
Interest $ 5,133 $ 1,194
Income Taxes $ 762 $ 412
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITY
(In Thousands) (Unaudited)
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 - - - - (12,084) (12,084)
Translation
Adjustments - - - 878 - 878
-----------------------------------------------------------------------------------
Balance, September 30,
1995 $94 $2,179 $78,857 $878 $(12,084) $ 69,924
===================================================================================
</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
(constituting 100% of the issued and outstanding shares as of the Effective
Date); (ii) approximately $62.2 million principal amount of 7% Senior Secured
Notes, Series A, due 1997 of the Company ("Series A Notes") and $8.8 million
additional principal amount of Series A Notes for issuance to holders of general
unsecured claims and to Belmont upon resolution of disputed and unliquidated
pre-petition general unsecured claims (assuming such claims are ultimately
allowed in full); (iii) approximately $11.9 million principal amount of 7%
Senior Secured Notes, Series B, due 1997 ("Series B Notes"); (iv) approximately
$62.8 million principal amount of 11% Notes, Series C, due 2001 of the Company
("Series C Notes"); and (v) approximately $48.1 million principal amount of 12%
Subordinated Contingent Payment Notes due 2004 of SellCo (the "SellCo Notes").
The entire $11.9 million principal amount of Series B Notes and approximately
$4.1 million principal amount of the Series A Notes issued on the Effective Date
were immediately redeemed on that date at their face amount in accordance with
their terms from the proceeds realized from the sale and liquidation of certain
subsidiaries, the stock of which would have been pledged as part of the
collateral securing the Series B Notes had such subsidiaries not been sold (and
an additional $600,000 of such proceeds was reserved for redemption of certain
of the Series A Notes reserved for disputed and unliquidated claims). The
Company recorded the Series A Notes based upon an assumed total of $100.0
million of pre-petition general unsecured claims after settlement of disputed
and unliquidated pre-petition general unsecured claims.
A description of the Company's significant accounting policies is included in
its Form 10 filed with the Securities and Exchange Commission (the "SEC") on
March 17, 1995, which Form 10 was amended on May 2, 1995, June 22, 1995 and
August 11, 1995 by Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and Form
10/A Amendment No. 3, respectively. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Form 10/A Amendment No. 3.
As of December 31, 1994, in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"), the Company adopted "Fresh-Start Accounting." As a result of the
implementation of Fresh-Start Accounting, the condensed consolidated financial
statements of the Company after consummation of the Plan of Reorganization are
not comparable to the Company's condensed consolidated financial statements for
prior periods. The condensed
7
<PAGE>
consolidated statements of operations for the three and nine month periods ended
September 30, 1995 and condensed consolidated statement of cash flows for the
nine months ended September 30, 1995 are not comparable to the condensed
consolidated statements of operations and condensed consolidated statement of
cash flows for the same periods in the prior year and are separated by a black
line.
Prior to the commencement and during the continuation of the Company's Chapter
11 proceeding, the Company experienced significant constraints in its surety
bonding lines that adversely affected its operations. In addition, a surety
bonding company that was a primary source of surety bonds for the Company's
Dynalectric group of subsidiaries ("Dynalectric Companies") terminated its
surety business as of January 1994. As a result, these subsidiaries were
without any surety bonding facilities for most of 1994. In November 1994 the
Company entered into an arrangement with a new surety bonding company to provide
surety bonds for the Dynalectric Companies. The Dynalectric Companies accounted
for approximately 21% of the Company's revenues for the year ended December 31,
1994 attributable to mechanical and electrical 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 requires 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 nine
months ended September 30, 1994 under the caption "Cumulative Effect of Change
in Method of Accounting for Post-employment Benefits."
The Company has developed and implemented a business restructuring plan which
presently includes the sale of its water supply business and other non-core
businesses. The net assets of businesses to be sold have been classified in the
condensed consolidated balance sheets as of September 30, 1995 and December 31,
1994 as "Net assets held for sale" and are carried as current assets on the
basis of their expected disposition dates. The operating results of net assets
held for sale have been excluded from the condensed consolidated financial
statements for the three and nine month periods ended September 30, 1995 since
the operation of these businesses will only accrue to the benefit of the holders
of the SellCo Notes after payment in full of the Series A Notes and certain
other obligations (see Note C).
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of a normal
recurring nature) necessary to present fairly the financial position of the
Company and the results of its operations. The results of operations for the
three and nine month periods ended September 30, 1995 are not necessarily
indicative of the results to be expected for the year ending December 31, 1995.
NOTE B NET INCOME (LOSS) PER SHARE
Net income (loss) per common share for the three and nine month periods ended
September 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.
8
<PAGE>
Pursuant to an agreement dated June 8, 1995, a subsidiary of the Company, on
September 15, 1995, sold certain of its assets and retained certain of its
liabilities resulting in a loss that has been reflected in the accompanying
condensed consolidated statements of operations for the three and nine month
periods ended September 30, 1995 under the caption "Net loss on businesses sold
or held for sale."
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 " U.S. 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.
9
<PAGE>
Borrowings under the MES Credit Agreement, $29.0 million at September 30, 1995,
are classified as current liabilities under the caption "Borrowings under
working capital credit line" in the accompanying condensed consolidated balance
sheets. In November 1995, the Company repaid $4.0 million towards the MES Credit
Agreement. No borrowings were outstanding under the Dyn Credit Agreement at
September 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 for issuance upon resolution of disputed and unliquidated pre-
petition general unsecured claims (assuming such claims are ultimately allowed
in full). The Series A Notes are guaranteed by MES and SellCo. The terms of
the Series A Notes require that the net proceeds realized from the sale of the
stock or assets of the Company's subsidiaries be applied to the prepayment of
the Series A Notes (subject to the rights of the Lenders under the MES and Dyn
Credit Agreements to receive proceeds from the sale of the stock or assets of
the Company's mechanical and electrical subsidiaries and the first $15.0 million
of proceeds of the sale of stock or assets of the Water Companies). The
recorded amount includes the estimated amount of Series A Notes to be issued
upon resolution of the disputed and unliquidated pre-petition general unsecured
claims. The Company recorded the Series A Notes based upon an assumed total of
$100.0 million of pre-petition general unsecured claims after settlement of
disputed and unliquidated pre-petition general unsecured claims. Approximately
$4.7 million of the issued Series A Notes were redeemed prior to September 30,
1995. The Series A Notes have been recorded at a discount to the face amount to
yield an estimated effective interest 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 and substantially offsets
income generated from net assets held for sale for the three and nine month
periods ended September 30, 1995.
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
10
<PAGE>
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 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
$5.5 million (the "Supplemental SellCo Note"). The note matures on the earlier
of (i) December 15, 2004 or (ii) one day prior to the date on which 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, or reserved for issuance, 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 under the
MES and Dyn Credit Agreements 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 have been netted in the caption "Net
assets held for sale" in the accompanying condensed consolidated balance sheets.
The Company is not a maker nor guarantor of the SellCo Notes.
NOTE D NET ASSETS HELD FOR SALE
During the first nine months of 1995, the Company sold a subsidiary and certain
assets of another subsidiary. During the first nine months of 1994, the Company
sold its minority ownership in an energy and environmental business and other
non-core businesses. No material gains or losses were realized as a result of
these sales. The operating results of the businesses sold during the first nine
months of 1994 are included in loss from continuing operations for the nine
months ended September 30, 1994. The operating results of net assets held for
sale have been excluded from the condensed consolidated financial statements for
the three and nine month periods ended September 30, 1995 since the operation of
these businesses will only accrue to the benefit of the SellCo noteholders after
payment in full of the Series A Notes and certain other obligations (see Note
C).
11
<PAGE>
The condensed consolidated balance sheet relating to net assets held for sale,
including discontinued operations, as of September 30, 1995, is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash $ 10,182 Current maturities of long-term
Accounts receivable, net 44,442 debt and capital lease
Costs and estimated obligations $ 14,554
earnings in excess of Accounts payable
billings 10,983 Billings in excess of costs and 20,046
Inventories 1,602 estimated earnings 7,025
Other current assets 947 Other accrued expenses 60,050
-------- --------
68,156 101,675
Long-term debt 43,116
Property, plant and 154,539 Other long-term liabilities 30,515
equipment, net
Other assets 12,818 Net assets held for sale 60,207
-------- --------
$235,513 $235,513
======== ========
</TABLE>
Selected pro forma financial information for the three and nine month periods
ended September 30, 1994, excluding businesses held for sale and discontinued
operations, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
1994 1994
-------------------------------------------
<S> <C> <C>
Revenues $ 397,375 $1,175,142
Cost of Sales 366,697 1,069,041
Selling, General and Administrative
Expenses 34,513 109,026
Operating Loss (7,035) (13,025)
Net Loss $ (12,520) $ (21,195)
</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 NOL.
The Company has elected to determine its NOL in accordance with Internal Revenue
Code ("Code") Section 382(1)(5) which would allow the Company to use
approximately $300.0 million of the NOL. 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). Income tax
expense recorded for the three and nine month periods ended September 30, 1995
and 1994 represents a provision primarily for state and local income taxes.
NOTE F LEGAL PROCEEDINGS
In September 1995, the Company reached a comprehensive settlement with the SEC
relating to the matters underlying its previously announced accounting
adjustments and write-offs for the fiscal year ended December 31, 1992, and the
restatement of its net income for the fiscal year ended December 31, 1991. The
settlement is the culmination of an investigation the SEC commenced in 1992.
12
<PAGE>
The SEC allegations were contained in a Complaint filed September 21, 1995 in
the United States District Court for the Southern District of New York, against
the Company and four individuals, none of whom is still employed by the Company,
who served as officers and/or directors of JWP INC. and/or certain of its
subsidiaries at various times in 1991 and 1992. Without admitting or denying
any of those allegations, the Company entered into a formal Consent to the entry
of a Final Judgment of Permanent Injunction, which was filed simultaneously with
the Complaint. The Company consented to the entry of an order permanently
enjoining the Company from, among other things, committing violations of various
antifraud provisions of the federal securities laws, and failing to make and
keep books and records which accurately reflect the Company's transactions and
disposition of assets. The SEC's Complaint did not seek, nor does the Consent
require, payment of any monetary penalties by the Company.
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 Jamaica Water Securities Corp. ("JWSC") by
filing a complaint in the Supreme Court of the State of New York, Westchester
County, bearing the caption, Harold F. Scattergood, Jr., et al. v. Jamaica
---------------------------------------------
Water Securities Corp. (Index No. 15992/94). On October 17, 1994, an amended
- ----------------------
complaint was served adding additional plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to EMCOR'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 plaintiffs' 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 plaintiffs have appealed the court's
decision.
In February 1995 as part of an investigation by the New York County District
Attorney's office into the business affairs of Herbert Construction Company
("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company
allegedly owned by 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 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.
13
<PAGE>
The Dynalectric Company ("Dynalectric") is a defendant in an action entitled
Computran v. Dynalectric, et al., pending in Superior Court of New Jersey,
- --------------------------------
Bergen County, arising out of its participation in a joint venture. In the
action, which was instituted in 1988, the plaintiff, Computran, a participant in
and a subcontractor to the joint venture, alleges that Dynalectric wrongfully
terminated it from the subcontract, fraudulently diverted funds due it,
misappropriated its trade secrets and proprietary information, fraudulently
induced it to enter into the joint venture and conspired with other defendants
to commit certain acts in violation of the New Jersey Racketeering Influence and
Corrupt Organization Act. Dynalectric believes that Computran's claims are
without merit and intends to defend this matter vigorously. Dynalectric has
filed counterclaims against Computran. Discovery is ongoing; no trial date is
scheduled.
In addition to the above, the Company is involved in other legal proceedings and
claims which have arisen in the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and the
Company intends to vigorously defend itself in these matters and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
14
<PAGE>
ITEM 2: MANAGEMENT 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, pre-petition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The pre-petition holders 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 September 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 September 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
nine month periods ended September 30, 1995 since the operations of these
businesses will only accrue to the benefit of the holders of SellCo Notes after
payment in full of the Series A Notes and certain other obligations (See Note C
in the accompanying Notes to Condensed Consolidated Financial Statements) and
the operating results substantially offset interest accrued on the Series A
Notes which interest has been recognized within the caption "Net assets held for
sale" in the accompanying condensed consolidated balance sheet as of September
30, 1995.
Revenues for the third quarter of 1995 were $403.9 million compared to $397.4
million, exclusive of revenues of $47.0 million attributable to businesses held
for sale or sold in the third quarter of 1994. In the third quarter of 1995 the
Company generated net income of $0.6 million or $.06 per share compared to a net
loss of $12.5 million, exclusive of net income of $2.5 million attributable to
businesses held for sale or sold in the third quarter of 1994. The 1995 third
quarter income reflects $3.8 million of net interest expense compared to $0.7
million of net interest expense during the third quarter of 1994. Interest
expense in 1995 includes interest on borrowings under new working capital credit
facilities obtained by the Company in December 1994 and notes issued pursuant to
the Company's Plan of Reorganization. Interest expense for the three months
ended September 30, 1994 excludes interest on debt in default which the Company
15
<PAGE>
ceased accruing in December 1993. Income from continuing operations in the
third quarter of 1995 was $0.6 million or $.06 per share compared to a loss of
$12.5 million, exclusive of losses of $3.1 million attributable to businesses
held for sale or sold, in the third quarter of 1994.
Revenues for the nine months ended September 30, 1995 were $1,171.5 million
compared to $1,175.1 million, exclusive of revenues of $138.4 million
attributable to businesses held for sale or sold, in the same period in the
prior year. For the nine months ended September 30, 1995, the Company incurred
a net loss of $12.1 million or $1.27 per share compared to a net loss of $21.2
million, exclusive of a net loss of $0.8 million attributable to businesses held
for sale or sold, in the same period in the prior year. The net loss for the
nine months ended September 30, 1995 includes $11.4 million of net interest
expense compared to $1.2 million of net interest expense during the same period
in the prior year. Interest expense in 1995 includes interest on borrowings
under new working capital credit facilities obtained by the Company in December
1994 and notes issued pursuant to the Company's Plan of Reorganization.
Interest expense for the nine months ended September 30, 1994 excludes interest
on debt in default which the Company ceased accruing in December 1993. Loss
from continuing operations for the nine months ended September 30, 1995 was
$12.1 million or $1.27 per share compared to a loss of $21.2 million, exclusive
of losses of $10.2 million attributable to businesses held for sale or sold in
the same period in the prior year.
The Company generated operating income of $5.6 million for the three months
ended September 30, 1995 compared to a $7.0 million operating loss, exclusive of
losses of $3.3 million attributable to businesses held for sale or sold, in the
same quarter of 1994. Operating income in the third quarter of 1995 compared to
the operating loss in the third quarter of 1994 was attributable to a decrease
in selling, general and administrative expenses resulting from cost cutting; and
reduction in professional fees incurred for legal, consulting and other services
relating to the Company's 1994 Chapter 11 bankruptcy proceedings; and also
attributable to an increase in gross profit due to cost control efforts,
stricter job acceptance standards, favorable job closeouts and improved access
to work.
The Company generated operating income of $1.0 million for the nine months ended
September 30, 1995 compared to a $13.0 million operating loss, exclusive of
losses of $9.7 million attributable to businesses held for sale or sold, in the
same period of the prior year. The operating income for the first nine months
of 1995 was principally due to a 24.1% decrease, (6.9% excluding businesses sold
or held for sale) in selling, general and administrative expenses resulting from
cost cutting efforts as well as the elimination of professional fees incurred
for legal, consulting and other services relating to the Company's 1994 Chapter
11 bankruptcy proceedings.
Revenues relating to businesses which the Company plans to retain remained
substantially unchanged compared with the year earlier periods. While revenues
of business units operating in the Eastern United States and Central United
Kingdom increased due to improved economic conditions, this increase was offset
by decreased revenues in the Midwestern and Western regions of the United
States, Canada, Northern and Southern parts of the United Kingdom due to, among
other things, continuing poor market conditions.
The operating results for the nine months ended September 1995 and 1994 reflect,
among other things, the negative impact of the continued recession and
oversupply in the commercial real estate market which has caused intense
competition for new commercial work. As a result of the reduction of commercial
work since 1992, many of the Company's business units pursued noncommercial
projects, primarily governmental and municipal facilities, at lower margins than
were historically available in the commercial marketplace. Certain of these
business units were not as experienced in performing noncommercial projects and,
as a result, incurred losses particularly on certain long-term contracts.
Operating margins were also adversely affected by the continuing recessions in
the United Kingdom, Canada, and the Midwestern and Western regions of the United
States.
16
<PAGE>
Selling, general and administrative expenses ("SG&A"), excluding general
corporate expenses, for the quarters ended September 30, 1995 and 1994 were
$29.5 million and $30.6 million, exclusive with respect to the third quarter of
1994 of $8.6 million of SG&A attributable to businesses held for sale or sold,
respectively. For the nine months ended September 30, 1995 and 1994, SG&A
expenses, excluding general corporate expenses were $90.6 million and $96.3
million, exclusive with respect to the nine months ended September 30, 1994 of
$24.7 million of SG&A attributable to businesses held for sale or sold. The
amount of SG&A expense in 1995 was lower than SG&A in the comparable 1994 period
as a result of the implementation of the Company's downsizing and cost reduction
plans.
The Company's backlog was $1,142.7 million at September 30, 1995 and $1,054.1
million at December 31, 1994 with respect to companies which the Company
currently intends to retain. The Company's backlog in the United States and the
United Kingdom increased by $90.5 million and $12.5 million, respectively,
between December 31, 1994 and September 30, 1995, while its backlog in Canada
decreased by $14.4 million. The decline in the Canadian backlog is principally
attributable to the downsizing of the Canadian operations.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the quarters ended September 30, 1995 and 1994
were $3.6 million and $3.9 million, respectively. General corporate expenses
for the nine months ended September 30, 1995 and 1994 were $10.9 million and
$12.8 million, respectively. Legal and other professional fees for 1994
incurred as a result of the bankruptcy proceeding are reflected under the
caption "Reorganization charges" in the condensed consolidated statement of
operations. These expenses for the three and nine month periods ended September
30, 1994 were approximately $3.2 million and $10.1 million, respectively. The
higher amount of general corporate expenses in 1994 is attributable to debt
issuance costs related to the Company's debtor-in-possession credit facility
("DIP Loan"), severance paid to terminated employees and insurance costs.
NET ASSETS HELD FOR SALE
The operating results of net assets held for sale, which included the Company's
water supply business classified as discontinued operations prior to the
consummation of the Plan of Reorganization, have been excluded from the
condensed consolidated financial statements for the three and nine month periods
ended September 30, 1995 since the operation of these businesses will only
accrue to the benefit of the holders of SellCo Notes after payment in full of
the Series A Notes and certain other obligations (See Note C in the accompanying
Notes to Condensed Consolidated Financial Statements). Net assets held for sale
are recorded in the condensed consolidated balance sheets at the lower of cost
or estimated net realizable value and are classified as current based on their
estimated disposition dates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance decreased by $11.2 million from $52.5
million at December 31, 1994 to $41.3 million at September 30, 1995. The
September 30, 1995 cash balance included $5.5 million in foreign bank accounts
and reflected $29.0 million borrowed under the MES Credit Agreement referred to
below. The foreign bank accounts are available only to support the Company's
foreign operations. The negative operating cash flow was due to funding for the
start-up of new projects as well as other working capital requirements.
An asset disposition program was initiated in the third quarter of 1992 with
respect to the Company's non-core businesses and certain other assets to raise
cash for working capital and to reduce debt. For the nine months ended
September 30, 1994, the Company received net cash proceeds of $4.5 million from
the sale of the Company's minority ownership in an energy and environmental
business, other non-core businesses and other assets.
17
<PAGE>
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 the DIP Loan. The DIP Loan agreement provided a credit facility to the
Company of up to $35.0 million at an interest rate of 12% per annum during the
period of the Company's Chapter 11 proceeding. Belmont also received, as
additional interest, a percentage of the securities issued pursuant to the Plan
of Reorganization. The DIP Loan 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 "U.S. 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. Borrowings under the MES Credit
Agreement, $29.0 million at September 30, 1995, are classified as current
liabilities under the caption "Borrowings under working capital credit line" in
the accompanying condensed consolidated balance sheets. In November 1995, the
Company repaid $4 million towards the MES Credit Agreement.
Also, on December 14, 1994, the Company and its subsidiaries Dyn Specialty
Contracting Inc. ("Dyn") and Dyn's subsidiaries entered into a credit agreement
with the lenders providing revolving credit loans (the "Dyn Loans") of up to an
aggregate amount of $10 million. The Dyn Loans are guaranteed by the Dyn
subsidiaries and are secured by substantially all of the assets of 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 September 30, 1995.
Under the Plan of Reorganization, pre-petition creditors of the Company (other
than holders of subordinated debt) received certain notes of EMCOR and its
subsidiary SellCo and substantially all of the common stock of EMCOR. The
pre-petition 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 pre-petition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR senior bank and institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont the following securities: (i) 9,424,083 shares of newly
authorized common stock of the Company ("New Common Stock") (constituting 100%
of the issued and outstanding shares as of the Effective Date); (ii)
approximately $62.2 million principal amount of 7% Senior Secured Notes, Series
A, due 1997 of the Company ("Series A Notes") and $8.8 million additional
principal amount of Series A Notes reserved for issuance to holders of
general unsecured claims and to Belmont upon resolution of disputed and
unliquidated pre-petition general unsecured claims (assuming such claims are
ultimately allowed in full); (iii) approximately $11.9 million principal amount
of 7% Senior Secured Notes, Series B, due 1997
18
<PAGE>
("Series B Notes"); (iv) approximately $62.8 million principal amount of 11%
Notes, Series C, due 2001 of the Company ("Series C Notes"); and (v)
approximately $48.1 million principal amount of SellCo 12% Subordinated
Contingent Payment Notes due 2004. The entire $11.9 million principal amount of
Series B Notes and approximately $4.1 million principal amount of the Series A
Notes issued on the Effective Date were immediately redeemed on that date at
their face amount in accordance with their terms from the proceeds realized from
the sale and liquidation of certain subsidiaries, the stock of which would have
been pledged as part of the collateral securing the Series B Notes had such
subsidiaries not been sold (and an additional $600,000 of such proceeds was
reserved for redemption of certain of the Series A Notes reserved for disputed
and unliquidated claims). The Company recorded the Series A Notes based upon an
assumed total of $100 million of pre-petition general unsecured claims after
settlement of disputed and unliquidated pre-petition general unsecured claims.
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 (8.0% at September 30, 1995) plus
.75% and expires on September 30, 1996. Borrowings outstanding under this
credit agreement were $0.4 million at September 30, 1995.
In September 1995, a number of the Company's U.K. subsidiaries renegotiated and
renewed a demand credit facility with a U.K. bank for a credit line of Pounds
17.1 million (approximately U.S. $27.1 million). The credit facility consists of
the following components with the individual credit limits as indicated: an
overdraft line of up to Pounds 9.0 million (approximately U.S. $14.2 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 September 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 June 30,
1996.
As of September 30, 1995, the Company's U.K. subsidiaries had utilized
approximately $24.1 million of the credit facilities as follows: approximately
$11.3 million of borrowings under the overdraft line, approximately $11.6
million for the issuance of guarantees and approximately $1.2 million under
other credit facilities.
On November 4, 1994, Jamaica Water Supply Company ("JWS") and Sea Cliff Water
Company ("SCW"), entered into a credit agreement providing for a credit facility
to JWS of $17.9 million and for a credit facility to SCW of $2.1 million at an
interest rate based upon either prime rate, LIBOR plus 5/8% or bid rate, as
those terms are defined in the credit agreement. These borrowings are reflected
as current liabilities in the condensed consolidated balance sheet of "Net
assets held for sale" which is presented in Note D to the condensed consolidated
financial statements. This credit agreement was extended from November 4, 1995
to November 17, 1995. During the period from November 4, 1995 to November 17,
1995, the Company is precluded from additional drawings under the credit
agreement and indebtedness bears interest at the banks prime rate (8.75% at
November 9, 1995). The Company is negotiating the terms of an extension of the
credit agreement; however, there can be no assurance the credit agreement will
be extended or, if so, its terms.
On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau
County, certain other governmental bodies and a consumer advocate group entered
into an agreement that ended several regulatory and legal proceedings involving
JWS. This agreement was approved by the New York State Public Service
Commission (the "PSC") on February 2, 1994. The agreement provides for, among
other things, a three year moratorium on general rates charged by JWS,
resolution of economic issues raised by
19
<PAGE>
the PSC arising from its 1992 audit of JWS, settlement of related litigation and
the dismissal of an action brought against JWS by Nassau County of the State of
New York alleging violations of the Racketeer Influenced and Corrupt
Organizations Act and common law fraud. Among other things, JWS agreed to make
payments over the 1994-1997 period totaling $11.7 million to customers in Nassau
and Queens Counties in the State of New York. The estimated payments to
customers were provided against 1993 operations. The agreement also provides
that JWS, subject to limited specified exceptions, will not seek to have a
general rate increase become effective prior to January 1, 1997 and will use its
best efforts to bring about the separation of Jamaica Water Securities Corp., a
subsidiary 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, a significant portion of the NOL may not be available to
reduce future U.S. taxable income. At September 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 NOL.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). The cumulative effect of adopting SFAS 112 was
to record a charge of $2.1 million as of January 1, 1994. Such amount has been
reflected in the condensed consolidated statement of operations under the
caption "Cumulative Effect of Change in Method of Accounting for Post-employment
Benefits." The adoption of this standard did not materially affect the 1994
loss before cumulative effect of change in method of accounting for post-
employment benefits.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - LEGAL PROCEEDINGS
The information in Note F to the Company's September 30, 1995 Notes to Condensed
Consolidated Financial Statements (unaudited) regarding legal proceedings is
hereby incorporated herein by reference thereto.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibit No. 27; Article 5, Financial Data Schedule; Page.
(b) During the quarter ended September 30, 1995, the Company filed a Report on
Form 8-K dated August 14, 1995 reporting information with respect to Item
5 of such Form and a Report on Form 8-K dated September 31, 1995 reporting
information with respect to Items 4 and 7 of such Form.
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)
Date: November 13, 1995 s/ FRANK T. MacINNIS
------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Chief Executive Officer
Date: November 13, 1995 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
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 41,255
<SECURITIES> 0
<RECEIVABLES> 450,656
<ALLOWANCES> 16,351
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<OTHER-SE> 69,830
<TOTAL-LIABILITY-AND-EQUITY> 685,160
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