<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT ( DATE OF EARLIEST EVENT REPORTED) MARCH 29, 1996
EMCOR GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-2315 11-2125338
................................................................................
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
101 MERRITT SEVEN CORPORATE PARK, NORWALK, CT 06851
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
N/A
................................................................................
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 5: OTHER EVENTS
Without acknowledging it is of importance to security holders, the following
financial statements of Dyn Specialty Contracting, Inc. ("Dyn") and its
subsidiaries are provided for informational purposes only (Dyn is a wholly owned
subsidiary of EMCOR Group, Inc.).
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Dyn Specialty Contracting, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Dyn Specialty
Contracting, Inc. (a Virginia corporation and a wholly owned subsidiary of EMCOR
Group, Inc.) and subsidiaries (the "Company") as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dyn Specialty
Contracting, Inc. and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.,
February 28, 1996
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 17,031
Accounts receivable, less allowance
for doubtful accounts of $1,229 76,047
Costs and estimated earnings in
excess of billings on uncompleted
contracts 15,542
Inventories 703
Prepaid expenses and other 134
--------
Total current assets 109,457
PROPERTY, PLANT, AND EQUIPMENT, Net 2,645
OTHER ASSETS 3,766
--------
TOTAL ASSETS $115,868
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt and capital lease
obligations $ 1,054
Accounts payable 28,924
Billings in excess of costs and
estimated earnings on uncompleted
contracts 30,875
Accrued payroll and benefits 10,303
Other accrued expenses and liabilities 3,659
--------
Total current liabilities 74,815
LONG-TERM DEBT 1
OTHER LONG-TERM OBLIGATIONS 230
DUE TO PARENT COMPANY, NET 9,146
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value - 100
shares authorized, issued, and
outstanding 1
Capital surplus 16,852
Retained earnings 14,823
--------
Total stockholder's equity 31,676
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $115,868
========
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
CONSTRUCTION REVENUES $303,101
COSTS AND EXPENSES:
Cost of construction 274,043
Selling, general and
administrative 26,840
----------
OPERATING INCOME 2,218
OTHER EXPENSES (INCOME):
Interest Expense 648
Interest Income (489)
Management fee - related
party 2,870
----------
LOSS BEFORE INCOME TAXES (811)
PROVISION FOR INCOME TAXES -
----------
NET LOSS $ (811)
==========
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------ ------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 $ 1 $16,852 $ 15,634 $ $32,487
Net loss - - (811) (811)
------ ------- -------- ----------
BALANCE, December 31, 1995 $ 1 $16,852 $ 14,823 $ $31,676
====== ======= ======== ==========
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (811)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 1,322
Gain on disposals of property, plant,
and equipment (46)
Changes in operating assets and
liabilities:
Accounts receivable, net 8,281
Costs and estimated earnings in
excess of billings on uncompleted
contracts (311)
Inventories 84
Prepaid expenses and other 497
Accounts payable 341
Due to parent company, net 1,810
Billings in excess of costs and
estimated earnings on uncompleted
contracts 988
Accrued payroll and benefits 638
Other accrued expenses and
liabilities (2,500)
Other Long-term obligations (3,572)
-------
Net Cash Provided by Operating
Activities 6,721
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property,
plant, and equipment 92
Purchases of property, plant, and
equipment (737)
-------
Net Cash Used in Investing Activities (645)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of working capital credit line (5,000)
Repayments of long-term liabilities
and capital lease obligations (106)
-------
Net Cash Used in Financing
Activities (5,106)
-------
INCREASE IN CASH AND CASH EQUIVALENTS 970
CASH AND CASH EQUIVALENTS, Beginning of Year 16,061
-------
CASH AND CASH EQUIVALENTS, End of Year $17,031
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-Cash paid for interest $ 653
=======
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
<PAGE>
DYN SPECIALTY CONTRACTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Dyn Specialty Contracting, Inc. (the "Company") is a wholly owned subsidiary of
EMCOR Group, Inc. ("EMCOR").
The Company specializes in the design, distribution, integration, installation,
and maintenance of complex electrical systems. Services are provided to a broad
range of commercial, industrial, and institutional customers throughout the
United States.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. The Company's subsidiaries consist of the
following legal entities: Dynalectric Company; Dynalectric Company of Nevada;
Contra Costa Electric, Inc. ("Contra Costa"); B&B Contracting and Supply Company
("B&B"); and KDC Inc. (formerly named JWP Systems/Kirkwood Electric Co., Inc.
("Kirkwood")). Significant intercompany accounts and transactions have been
eliminated.
PRINCIPLES OF PREPARATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues on long-term contracts are recognized on the percentage-of-completion
method. Percentage-of-completion is measured principally by the percentage of
labor costs incurred and accrued to date for each contract to the estimated
total labor costs at completion for such contract, while percentage-of-
completion on other contracts is measured by the percentage of costs incurred
and accrued to date for each contract to the estimated total cost for each
contract at completion.
<PAGE>
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. In forecasting ultimate profitability on
certain contracts, estimated recoveries are included for work performed under
customer change orders to contracts for which firm prices have not yet been
negotiated. Due to uncertainties inherent in the estimation process, it is
reasonably possible that completion costs, including those arising from contract
penalty provisions and final contract settlements, will be revised in the near-
term. Such revision to costs and income are recognized in the period in which
the revisions are determined.
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed under
the terms of the contracts. Such amounts are recoverable from customers upon
various measures of performance, including achievement of certain milestones or
completion of the contract.
Also included in costs and estimated earnings on uncompleted contracts are
amounts the Company seeks or will seek to collect from customers or others for
errors or changes in contract specifications or design, contract change orders
in dispute or unapproved as to both scope and price, or other customer-related
causes of unanticipated additional contract costs (pending change orders and
claims). These amounts are recorded at their estimated net realizable value
when realization is probable and can be reasonably estimated. No profit is
recognized on the construction costs incurred in connection with these amounts.
Pending change orders involve the use of estimates and it is reasonably possible
that revisions to the estimated recoverable amounts of recorded pending change
orders may be made in the near-term. Claims made by the Company involve
negotiation and, in certain cases, litigation. The Company expenses such costs
as incurred, although it may seek to recover these costs as part of the claim.
The Company believes that it has established legal bases for pursuing recovery
of recorded claims and it is management's intention to pursue and litigate these
claims, if necessary, until a decision or settlement is reached. Claims also
involve the use of estimates and it is reasonably possible that revisions to the
estimated recoverable amounts of recorded claims may be made in the near-term.
Claims against the Company are recognized when a loss is considered probable and
amounts are reasonably determinable.
Costs and estimated earnings on uncompleted contracts and related amounts billed
at December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $610,048
Estimated earnings 30,607
--------
640,655
Less billings to date 655,988
--------
$(15,333)
========
</TABLE>
<PAGE>
Such amounts are included in the accompanying consolidated balance sheet at
December 31, 1995 under the following captions (in thousands):
<TABLE>
<S> <C>
Costs and estimated
earnings in excess of $ 15,542
billings on uncompleted
contracts
Billings in excess of costs
and estimated earnings on
uncompleted contracts (30,875)
--------
$(15,333)
========
</TABLE>
Included in accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts are pending change orders and claims in the
process of negotiation which aggregate approximately $22.4 million at December
31, 1995. Also included in accounts receivable are billed receivables and
retainage of approximately $2.6 million related to contracts involving claims at
December 31,1995. Such amounts generally will not be paid by the customer to
SFAS 107 the Company until final resolution of the related claims.
CLASSIFICATION OF CONTRACT AMOUNTS
In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Accounts receivable at December 31, 1995 includes
$15.8 million of retainage billed under terms of the contracts. The Company
estimates that approximately 64% of the retainage recorded at December 31, 1995
will be collected during 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" ("SFAS 107"), requires disclosure of the year-
end value of significant financial instruments, as defined in SFAS 107. At
December 31, 1995, all financial instruments, as defined in SFAS 107, have fair
values that approximate their carrying amounts.
INVENTORIES
Inventories, which consist primarily of construction materials, are stated at a
lower of cost or market. Cost is determined principally by using average costs.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Depreciation is recorded
using accelerated and straight-line methods over estimated useful lives ranging
from 5 to 31.5 years.
STATEMENT OF CASH FLOWS
For purposes of the consolidated statement of cash flows, the Company considers
all highly liquid instruments with original maturities of three months or less
to be cash equivalents.
<PAGE>
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1995 consists of the following (in
thousands):
Demand deposits $ 2,921
Overnight investments 14,110
-------
$17,031
=======
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1995 consists of the
following (in thousands):
Machinery and equipment $ 9,972
Furniture and fixtures 5,783
Land, buildings, and leasehold
improvements 1,711
--------
17,466
Accumulated depreciation and
amortization (14,821)
--------
$ 2,645
========
4. DEBT
CREDIT AGREEMENT
On December 14, 1994, EMCOR and the Company entered into a credit agreement with
a group of lenders. The credit agreement provides the Company with a secured
revolving loan facility in the maximum aggregate principal amount of $10.0
million. Borrowings under the agreement bear interest at the rate of 15%. The
agreement requires quarterly commitment fee payments of $100,000. The agreement
terminates on June 14, 1996. There were no borrowings outstanding under the
agreement at December 31, 1995.
Borrowings under the agreement were secured by a lien upon and security interest
in all assets of the Company including a pledge of all of the stock of the
Company's subsidiaries, a pledge of all of EMCOR's stock of the Company, a
security interest in the contractual right to certain of the Company's bank
accounts, and a lien upon and security interest in certain assets of EMCOR and
its other subsidiaries. The agreement requires the Company to follow certain
procedures with regard to deposits to and transfers from its various bank
accounts. The agreement contains certain compliance covenants, the most
restrictive of which require the Company to maintain minimum levels of backlog
during the term of the agreement and limit aggregate losses from operations of
the Company.
Emcor and the Company are actively seeking to replace or extend their existing
credit facility.
<PAGE>
LONG-TERM DEBT
In connection with the purchase of certain assets by a subsidiary in 1988, the
Company assumed a loan payable to a bank. The loan was evidenced by a Recapture
Note (the "Note") in the amount of $988,112 payable to the bank. The Note was
non-interest bearing. The Note is due in annual installments, beginning in
1988, based upon the annual pre-tax earnings of the subsidiary. The Note
expires and the final payment, if any, is due on March 31, 1996. The Company
has not repaid any amounts outstanding on the Note. The total amount of the
Note is shown within current maturities of long-term debt and capital lease
obligations as of December 31, 1995 in the accompanying consolidated balance
sheet.
5. INCOME TAXES
EMCOR and its domestic subsidiaries, including the Company, file a consolidated
Federal income tax return. The provision for income taxes in the accompanying
consolidated statement of operations includes Federal and state income taxes
that have been calculated by the Company as if it were a separate taxpayer.
Deferred income taxes are provided for differences in reporting income and
expenses for financial statement and tax purposes arising from differences in
the methods of accounting for construction contracts, depreciation, and certain
accruals and reserves. Construction contracts are reported for tax purposes on
the percentage-of-completion-total-cost method, and for financial statement
purposes primarily on the percentage-of-completion-total labor-cost method.
Accelerated depreciation is used primarily for tax reporting, and a combination
of accelerated and straight-line depreciation is used for financial statement
reporting. Certain accruals and reserves are deductible for tax purposes when
the related amounts are paid, but are deductible for financial statement
purposes when the expense is incurred. The Company has not recorded a tax
benefit for the value of its net operating loss carryforward, as it is more
likely than not that some or all of the deferred tax asset will not be realized.
Tax-related balances are included as a component of due to parent company, net
in the accompanying consolidated balance sheet.
6. RELATED PARTY TRANSACTIONS
Amounts due to EMCOR as of December 31, 1995 are $9.1 million.
The Company's principal insurance coverage is provided under plans administered
by EMCOR (see Note 8). Additionally, EMCOR charges the Company a management
fee, and an allocation for income taxes (see Note 5). The balance due to EMCOR
primarily represents the cumulative unpaid amount of charges for insurance,
interest (previously charged), management fee, and income taxes.
Total revenues from related parties (affiliates of EMCOR) were approximately
$23,000 in 1995.
7. RETIREMENT PLANS
The company participates in EMCOR's defined contribution retirement plans that
cover substantially all of the Company's non-union eligible employees.
Contributions to these plans are based on a percentage of the employees' base
compensation. The expense recognized in 1995 for the defined contribution plans
was $844,000.
The Company contributes to various union pension funds based upon wages paid to
union employees. Such contributions were approximately $10.7 million in 1995.
<PAGE>
8. INSURANCE
The Company's workers' compensation, automobile and general liability insurance
is provided under plans administered by EMCOR. The insurance liability is
determined actuarially based on claims filed and an estimate of claims incurred
but not yet reported. EMCOR charges the total insurance liability to its
various affiliates, including the Company, based upon experience data for each
of the affiliates. The Company has recorded $2.1 million of insurance
liabilities, classified as other accrued expenses and liabilities in the
accompanying consolidated balance sheet, as of December 31, 1995. These
insurance liabilities represent the difference between amounts charged by EMCOR,
which are initially based upon factors using estimated levels of business volume
and historical claims loss experience data, and amounts expensed by the Company
based upon actual levels of business volume and current claims loss experience
data.
In 1994, the Company was required to make cash collateral deposits to an
insurance carrier to secure a portion of their insurance obligations under a
separate insurance agreement. Such cash collateral deposits totaled $3.7
million as of December 31, 1995, and are classified as other assets in the
accompanying consolidated balance sheet.
9. LEASE COMMITMENTS
The Company and its subsidiaries lease land, buildings, and equipment under
various noncancelable lease agreements. The lease agreements frequently include
renewal options and require the Company to pay for utilities, taxes, insurance,
and maintenance expense. Rent expense for 1995 was $2.5 million.
Future minimum payments, by year and in the aggregate, under capital leases and
noncancelable operating leases with initial or remaining terms of one year or
more at December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996 $ 69 $ 2,242
1997 1 2,083
1998 - 1,573
1999 - 1,060
2000 - 561
Thereafter - -
------- ---------
Total minimum lease payments 70 $ 7,519
=========
Amounts representing interest 4
-------
Present value of net minimum lease
payments $ 66
=======
</TABLE>
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company 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 the Company wrongfully terminated it from the
subcontract, fraudulently diverted funds due to Computran, misappropriated its
trade secrets and proprietary information, fraudulently induced it to enter into
the joint venture, and conspired with other defendants to commit acts in
violation of the New Jersey Racketeering Influence and Corrupt Organization Act.
The Company believes that Computran's claims are without merit and intends to
defend this matter vigorously. The Company has filed counterclaims against
Computran. Discovery is ongoing; no trial date has been scheduled.
The Company is also involved in other legal proceedings and claims asserted by
and against the Company, which have arisen in the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
intends to vigorously defend or assert these claims and does not believe that a
significant liability will result. However, the Company cannot predict the
outcome of these actions or the impact, if any, that the ultimate resolution of
such matters will have upon the Company's financial position or results of
operations.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
EMCOR Group, Inc.
March 29, 1996 By: /s/Frank T. MacInnis
--------------------
Frank T. MacInnis, Chairman of the
Board, President and Chief Executive
Officer
