FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission file number 0-2315
EMCOR Group, Inc.
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(Exact name of registrant as specified in
its charter)
Delaware 11-2125338
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 Merritt Seven Corporate Park 06851-1060
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Norwalk, Connecticut (Zip Code)
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(Address of principal executive offices)
(203) 849-7800
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(Registrant's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange
Act of 1934, subsequent to the distribution of securities under a plan confirmed
by a court. Yes X No __
Number of shares of Common Stock outstanding as of the close of business on
July 31, 1996:
9,512,636 shares.
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EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed consolidated balance sheets -
as of June 30, 1996 and December 31, 1995 1
Condensed consolidated statements of operations -
three months ended June 30, 1996 and 1995 3
Condensed consolidated statements of operations -
six months ended June 30, 1996 and 1995 4
Condensed consolidated statements of cash flows -
six months ended June 30, 1996 and 1995 5
Condensed consolidated statement of stockholders'
equity - six months ended June 30, 1996 6
Notes to condensed consolidated financial statements 7
Item 2 Management's discussion and analysis of financial condition and
results of operations 13
PART II - Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 6 Exhibits and Reports on Form 8-K 17
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
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June 30, December 31,
1996 1995
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(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $59,046 $53,007
Accounts receivable, net 410,541 435,974
Costs and estimated earnings in
excess 69,585 65,551
of billings on uncompleted
contracts
Inventories 9,500 8,031
Prepaid expenses and other 8,383 8,365
Net assets held for sale -- 61,969
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Total Current Assets 557,055 632,897
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Investments, Notes and Other Long-Term
Receivables 4,234 4,684
Property, Plant and Equipment, net 24,878 27,137
Other Assets:
Insurance cash collateral -- 30,812
Miscellaneous 11,727 15,415
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11,727 46,227
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Total Assets $597,894 $710,945
==================================
See notes to condensed consolidated financial statements.
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share and Share Amounts)
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June 30, December
1996 31,
1995
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $16,637 $14,665
Borrowings under working capital credit 10,125 25,000
lines
Current maturities of long-term debt 1,594 1,875
7% Senior Secured Notes (Series A) -- 61,969
Accounts payable 202,928 224,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 113,958 113,590
Accrued payroll and benefits 34,092 38,928
Other accrued expenses and liabilities 46,160 45,445
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Total Current Liabilities 425,494 525,474
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Long-Term Debt 72,466 68,240
Other Long-Term Obligations 23,460 46,621
Stockholders' Equity:
Common Stock, $.01 par value, 13,700,000
shares authorized, 9,512,636 and
9,424,706 issued and outstanding,
respectively 95 94
Warrants 2,179 2,179
Capital surplus 79,338 78,863
Cumulative translation adjustment 161 327
Accumulated Deficit (5,299) (10,853)
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Total Stockholders' Equity 76,474 70,610
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Total Liabilities and Stockholders' Equity $597,894 $710,945
===========================
See notes to condensed consolidated financial statements.
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
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Three months ended June 30, 1996 1995
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Revenues $387,657 $381,562
Costs and Expenses:
Cost of sales 349,843 349,628
Selling, general and administrative 33,790 33,582
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383,633 383,210
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Operating Income (Loss) 4,024 (1,648)
Other Income, Net 12,500 --
Interest Expense, Net 3,729 3,820
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Income (Loss) Before Income Taxes 12,795 (5,468)
Provision For Income Taxes 3,588 250
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Net Income (Loss) $9,207 ($5,718)
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Income (Loss) Per Common Share and Common
Equivalent Share: $0.93 ($0.61)
=============================
See notes to condensed consolidated financial statements.
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts) (Unaudited)
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Six months ended June 30, 1996 1995
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Revenues $770,401 $767,577
Costs and Expenses:
Cost of sales 695,415 703,776
Selling, general and administrative 70,433 68,353
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765,848 772,129
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Operating Income (Loss) 4,553 (4,552)
Other Income, Net 12,500 --
Interest Expense, Net 7,490 7,625
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Income (Loss) Before Income Taxes 9,563 (12,177)
Provision For Income Taxes 4,009 500
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Net Income (Loss) $5,554 ($12,677)
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Income (Loss) Per Common Share and Common
Equivalent Share: $0.56 ($1.35)
=============================
See notes to condensed consolidated financial statements.
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
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Six months ended June 30, 1996 1995
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CASH FLOWS FROM OPERATIONS:
Net income(loss) $5,554 ($12,677)
Non-cash expenses 7,757 8,289
Changes in operating assets and liabilities 6,977 (6,900)
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NET CASH PROVIDED BY (USED IN) OPERATIONS 20,288 (11,288)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of working capital credit lines (35,000) (5,000)
Borrowings under working capital credit lines 20,125 --
Payment of 7% Senior Secured Notes (Series A) (66,424) --
Payments of long-term debt and capital lease (456) (333)
obligations
Change in notes payable, net 1,881 5,713
Exercise of stock options 476 --
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NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (79,398) 380
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,016) (1,999)
Proceeds from sale of property, 288 --
plant and equipment
Proceeds from sales of net assets 66,424 --
held for sale
Decrease in investments, notes and 453 --
other long-term receivables
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NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 65,149 (1,999)
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,039 (12,907)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 53,007 52,505
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $59,046 $39,598
=======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For:
Interest $2,876 $3,334
Income Taxes $224 $443
See notes to condensed consolidated financial statements.
<PAGE>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands) (Unaudited)
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Cumulative
Common Capital TranslationAccumulated
Stock Warrants Surplus Adjustment Deficit Total
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Balance, December
31, 1995 $94 $2,179 $78,863 $327 $(10,853) $70,610
Net income -- -- -- -- 5,554 5,554
Common stock
issued under
stock option plans 1 -- 475 -- -- 476
Translation
adjustments -- -- -- (166) -- (166)
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Balance, June 30,
1996 $95 $2,179 $79,338 $161 $(5,299) $76,474
==========================================================
See notes to condensed consolidated financial statements
<PAGE>
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EMCOR Group, Inc. and Subsidiaries
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Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE A Nature Of Operations
EMCOR Group, Inc. and subsidiaries ("EMCOR" or the "Company") is a multinational
corporation involved in mechanical and electrical construction and facilities
management services. EMCOR, which conducts its business through subsidiaries,
specializes in the design, integration, installation, start-up, testing,
operation and maintenance of (i) distribution systems for electrical power
(including power cables, conduits, distribution panels, transformers,
generators, uninterruptible power supply systems and related switch gear and
control), (ii) lighting systems, including fixtures and controls, (iii)
low-voltage systems, including fire alarm, security, communications and process
control systems, (iv) heating, ventilation, air conditioning, refrigeration and
clean-room process ventilation systems, and (v) plumbing, process and high
purity piping systems. EMCOR provides (i) mechanical and electrical construction
services directly to end-users (including corporations, municipalities and other
governmental entities, owners, developers, and tenants of buildings) and,
indirectly, by acting as a subcontractor, to construction managers, general
contractors and other subcontractors and (ii) facilities management services
directly to end users such as corporations, owners, property managers and
tenants of buildings. Mechanical and electrical construction services are
principally of three types: (i) large installation projects, with contracts
generally in the multi-million dollar range, in connection with construction of
industrial, institutional and public work facilities and commercial buildings
and fit-out of large blocks of space within commercial buildings; (ii) smaller
system installation projects involving fit-out, renovation and retrofit work;
and (iii) testing and service of completed facilities. In addition, certain of
its subsidiaries operate and maintain mechanical and/or electrical systems for
customers under contracts and provide other services to customers, at the
customer's facilities, which services are commonly referred to as facilities
management. Mechanical and electrical construction and facilities management
services are provided to a broad range of commercial, industrial and
institutional customers through offices located in major markets throughout the
United States, Canada, the United Kingdom, the Middle East and Hong Kong.
NOTE B Basis of Presentation
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 six month periods ended June 30, 1996 are not necessarily indicative
of the results to be expected for the year ending December 31, 1996.
A description of the Company's significant accounting policies is included in
its December 31, 1995 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 13, 1996. The accompanying condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Form 10-K.
NOTE C Net Income (Loss) Per Common Share and Common Equivalent Share
Net income (loss) per common share and common equivalent share for the three and
six month periods ended June 30, 1996 and 1995 have been calculated based on the
weighted average number of shares of common stock outstanding and common stock
equivalents relating to warrants and stock options outstanding when the effect
of such equivalents are dilutive.
<PAGE>
NOTE D Net Assets Held For Sale
In May 1996, the Company completed the sale of substantially all of the assets
of its subsidiary Jamaica Water Supply Company ("JWS") to The City of New York
and the Water Authority of Western Nassau County for an aggregate purchase price
of approximately $179.0 million, subject to post-closing adjustments;
approximately $1.2 million of this purchase price is being held in escrow
pending determination of post-closing adjustments. In May 1996, the Company also
completed the sale of the stock of its other water supply subsidiary Sea Cliff
Water Company ("Sea Cliff") to a subsidiary of Aquarion Company for
approximately $2.6 million, subject to post-closing adjustments; approximately
$0.5 million of this purchase price is being held in escrow for a period of
approximately one year pending determination of post-closing adjustments and as
collateral security for certain indemnification obligations. JWS and Sea Cliff
are referred to herein collectively as the "Water Companies". Approximately 96%
of the Common Stock of JWS is owned by the Company.
The sales proceeds from the sale of its assets have been and will be applied by
JWS to pay its liabilities and preferred stock obligations and to satisfy
minority stock interests in JWS and as a reserve for litigation involving
Warrants of Participatin issued by the Company's predecessor. (See Note H.) Of
the balance, $15.0 million and approximately $66.5 million of the sales proceeds
were used to repay a portion of indebtedness under the Company's MES Credit
Agreement referred to below and to redeem in full its Series A Notes,
respectively. The remainder will be used to redeem notes issued by the Company's
subsidiary SellCo Corporation ("SellCo"). (See Note F for additional discussion
of the use of proceeds from the sale of JWS' assets and the stock of Sea Cliff).
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, 1996 and 1995 since the operation of these businesses will only
accrue to the benefit of the holders of notes issued by SellCo.
NOTE E Current Debt
New Credit Facility - On June 19, 1996 the Company and its subsidiary Dyn
Specialty Contracting Inc. ("Dyn") entered into a credit agreement with Harris
Trust and Savings Bank ("Harris") providing the Company with up to a $100.0
million revolving credit facility (the "New Credit Facility") for a three year
period. The New Credit Facility, which is guaranteed by certain direct and
indirect U.S. subsidiaries of the Company and is secured by substantially all of
the assets of the Company and those subsidiaries, currently provides for up to
$50 million in borrowing capacity and is available as revolving loans
("Revolving Loans") and/or letters of credit ("LCs" or "LC"). The remaining
borrowing capacity is subject to receipt of additional commitments from other
banks, an earnings test, consents of bonding companies providing surety bonds to
the Company's Canadian and United Kingdom subsidiaries and these subsidiaries
guaranteeing the facility and collateralizing their guarantees with liens upon
their assets. The Revolving Loans bear interest at a variable rate currently
representing Harris' prime rate (8.25% at June 30, 1996) plus 2% which interest
rate can be reduced by up to 1.0% upon the achievement of certain earnings
levels. LC fees ranging from 1.50% to 3.25% are charged based on the type of LC
issued. The New Credit Facility expires on June 19, 1999. Revolving Loans ($10.1
million as of June 30, 1996) are classified as current liabilities under the
caption "Borrowings under working capital credit lines" in the accompanying
condensed consolidated balance sheets. As of June 30, 1996, the Company had
approximately $12.2 million of LCs outstanding under the New Credit Facility.
MES Credit Agreement - On December 14, 1994, the Company and certain of its
subsidiaries entered into a credit agreement with lenders (collectively, 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 $35.0 million. The MES Loans were
guaranteed by certain direct and indirect United States subsidiaries of MES (the
"U.S. MES Subsidiaries") and were secured by, among other things, substantially
all of the assets of the Company, MES and the U.S. MES Subsidiaries, including
the proceeds of the sale of all of the assets of the Company, MES and the U.S.
MES Subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15.0 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 bore interest on the principal amount thereof
at the rate of 15.0% per annum. Borrowings under the MES Credit Agreement ($25.0
million at December 31, 1995) are classified as current liabilities under the
caption "Borrowings under working capital credit lines" in the accompanying
condensed consolidated balance sheets.
Dyn Credit Agreement - On December 14, 1994, the Company, Dyn and Dyn's
subsidiaries entered into a credit agreement (the "Dyn Credit Agreement") with
the Lenders providing revolving credit loans (the "Dyn Loans") of up to an
aggregate amount of $10.0 million. The Dyn Loans were guaranteed by Dyn's
subsidiaries and were secured by substantially all of the assets of Dyn and
Dyn's subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15.0 million of such proceeds, subject to
the rights to such proceeds of the Lenders under the MES Credit Agreement. The
Dyn Loans bore interest on the principal amount thereof at the rate of 15.0% per
annum. No borrowings were outstanding under the Dyn Credit Agreement at December
31, 1995.
Borrowings outstanding under the MES Loans and Dyn Loans were repaid on June 12,
1996, in part, from proceeds received by the Company from the sale of the Water
Companies (see Note D) and the balance was repaid on June 20, 1996 from
borrowings under the New Credit Facility and the loan agreements were
terminated.
Series A Notes - 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
pursuant to the Company's Plan of Reorganization adopted in connection with its
Chapter 11 proceeding. Approximately $4.7 million of the issued Series A Notes
were redeemed prior to effective payment in full of the Series A Notes on June
28, 1996. The Series A Notes (approximately $66.5 million in principal and
accrued interest) were repaid in full from proceeds received by the Company from
the sale of the Water Companies.
NOTE F Long-Term Debt
Long-Term Debt in the accompanying condensed consolidated balance sheets
consists of the following amounts at June 30, 1996 and December 31, 1995 (in
thousands):
June 30, December
1996 31,
1995
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Series C Notes, outstanding face value of
approximately $73.8 million at 11%, discounted
to a 14% effective rate, due 2001 $65,877 $61,494
Supplemental SellCo Note, outstanding face value of
approximately $5.5 million at 8.0%, discounted
to a 14.0% effective rate, due 2004 4,112 4,112
Capital Lease Obligations at weighted average
interest rates from 7.25% to 11.0%, payable
in varying amounts through 2004 979 1,284
Other, at weighted average interest rates of
approximately 10.75%, payable in varying amounts
through 2012 3,092 3,225
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74,060 70,115
Less current maturities (1,594) (1,875)
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$72,466 $68,240
========== ============
<PAGE>
Series C Notes - On December 15, 1994 the Company issued approximately $62.8
million principal amount of Series C Notes. Interest on the Series C Notes is
payable semiannually through June 15, 1996 by the issuance of additional Series
C Notes and thereafter is payable quarterly in cash. The Series C Notes are
unsecured indebtedness of the Company subordinate to indebtedness under the
Company's New Credit Facility. The Series C Notes have been recorded at a
discount to their face amount to yield an estimated effective interest rate of
14.0%.
Supplemental SellCo Note - On December 15, 1994 EMCOR issued to its wholly owned
subsidiary SellCo Corporation ("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 Notes issued by SellCo (the "SellCo Notes") (hereafter described)
are deemed canceled. If at any time after the fifth anniversary of the effective
date of the Company's plan of reorganization 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 cash 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 Supplemental SellCo Note
has been recorded at a discount to its face amount to yield an estimated
effective interest rate of 14.0%.
SellCo Notes - On December 15, 1994 SellCo issued approximately $48.1 million
principal amount of SellCo Notes. Interest is payable semiannually in additional
SellCo Notes. Net cash proceeds (as defined in the Indenture pursuant to which
its SellCo Notes were issued) from sales of stock or assets of SellCo
subsidiaries are to be used to redeem SellCo Notes. The SellCo Notes are not
obligations of EMCOR and 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. Approximately $2.1 and $0.7 million of the proceeds from the
sale of the stock of Sea Cliff and the sale of assets of JWS, respectively, have
been used to redeem, in part, the SellCo Notes. In addition, as the liabilities
of JWS are finally determined, JWS' various contingent liabilities are resolved,
funds held in escrow under the sales agreements (the "Sales Agreements") for the
sale of the JWS assets and the stock of Sea Cliff are released and post closing
adjustments under the Sales Agreements are agreed upon, additional amounts of
the sales proceeds may become available, from time to time, for additional
redemptions of the SellCo Notes.
Other - Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements.
NOTE G Income Taxes
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At June 30, 1996, the Company had a net operating loss
carryforward ("NOL") for U.S. income tax purposes expiring in years 2007 through
2010 which approximates $225.0 million, subject to Internal Revenue Service
approval. In addition, the Company has a U.S. capital loss carryover of
approximately $15.0 million expiring in 1998 and 1999. However, a subsequent
ownership change (as defined in Internal Revenue Code Section 382) prior to
December 15, 1996 would reduce to zero the future NOL benefits under Internal
Revenue Code Section 382(1)(5).
As a result of the adoption of Fresh-Start Accounting, the tax benefit of the
Company's net operating loss carryforwards or net deductible temporary
differences which existed as of the date of its emergence from Chapter 11 will
result in a charge to the tax provision (provision in lieu of income taxes) and
is allocated to reorganization value in excess of amounts allocable to
identifiable assets established in connection with the Company's emergence from
bankruptcy and to capital surplus.
The Company has provided a valuation allowance as of June 30, 1996 for the full
amount of the tax benefit of its remaining NOLs and other deferred tax assets.
Income tax expense recorded for the three and six month periods ended June 30,
1996 and 1995 represents a provision primarily for federal, foreign and state
and local income taxes. For the three and six month periods ended June 30, 1996
the Company allocated approximately $3.3 million and $3.5 million, respectively,
of its tax provision to reorganization value in excess of amounts allocable to
identifiable assets (included in Miscellaneous in the accompanying condensed
consolidated balance sheets).
NOTE H Legal Proceedings
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 in July
1995 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 Company's largest
subsidiaries.
The Dynalectric Company ("Dynalectric"), a subsidiary of 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 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.
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 a subsidiary of the Company 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 the Company's
obligations on the Warrants by reason of its 1977 acquisition of the Company's
96% stock interest in Jamaica Water Supply Company ("JWS"). The plaintiffs also
claimed that certain events constituted a disposition of the assets of JWS which
triggered the Warrants, obligating JWSC to issue shares of its own stock to
plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994
expiration date of the Warrants should be extended for some indefinite period of
time.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiffs' action holding that the assets of
JWS had not been "disposed of" under the express terms of the Warrants 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 Warrant
Agreement to extend the December 31, 1994 deadline. The plaintiffs have appealed
the court's decision.
In addition to the above, the Company is 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 the
Company 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 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.
NOTE I Other
During the second quarter of 1996, the Company entered into an agreement with
one of its insurers to reinsure its obligations to bear certain losses incurred
for insurance plan years from October 1, 1992 to September 30, 1995. Under this
agreement, amounts previously deposited by the Company with one of its insurers
as collateral to fund losses under the deductible portion of its insurance
program were returned to the Company and used to fund the cost of the above
agreement and to pay down, in July 1996, approximately $10.1 million of
indebtedness under the New Credit Facility. The net effect upon the Company of
this transaction, which is reflected in the accompanying condensed consolidated
balance sheets as of June 30, 1996, was to reduce to zero the funds deposited by
the Company as cash collateral for certain losses and reduce Other Long-Term
Obligations by the same amount. The Company is currently utilizing a $12.2
million letter of credit obtained under the New Credit Facility referred to in
Note E as collateral for its current insurance obligations, and therefore
presently is not required to deposit cash as collateral for such obligations.
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Revenues for the second quarter of 1996 were $387.7 million compared to $381.6
million in the second quarter of 1995. In the second quarter of 1996 the Company
generated net income of $9.2 million or $0.93 per share compared to a net loss
of $5.7 million or $0.61 per share in the second quarter of 1995. Net income in
the second quarter of 1996, as compared to the loss in the same period in the
prior year, reflects continued improvements in job closeouts together with a net
after tax gain of $8.1 million ($12.5 pre-tax) on the sale of certain assets
held for sale including the sale of substantially all of the assets of Jamaica
Water Supply Company ("JWS") and JWS and the Company's other water supply
subsidiary, Sea Cliff Water Company ("Sea Cliff"), are referred to hereafter as
the "Water Companies".
Revenues for the six months ended June 30, 1996 were $770.4 million compared to
$767.6 million in the same period in the prior year. For the six months ended
June 30, 1996 the Company generated net income of $5.6 million or $0.56 per
share compared to a net loss of $12.7 million or $1.35 per share for the six
months ended June 30, 1996. The improvement for the six months ended June 30,
1996 as compared to the same period in the prior year is due to the gain
discussed above and continued improvements in job closeouts offset partially by
an increase in selling, general and administrative expenses discussed below.
The Company generated operating income of $4.0 million for the three months
ended June 30, 1996 compared to a $1.6 million operating loss in the same period
of the prior year. For the six months ended June 30, 1996, the Company had
operating income of $4.6 million compared to a $4.6 million operating loss in
the same period of the prior year. The improvement in operating income for the
three and six months ended June 30, 1996 was principally attributable to
continued improvements in gross profit due to cost control efforts and favorable
job closeouts offset partially by an increase in selling, general and
administrative expenses in the first quarter of 1996 discussed below.
Revenues remained substantially unchanged compared with the year earlier
periods. While revenues of business units operating in the Western United States
increased due to improved economic conditions, these increases were offset by
decreased revenues in the Eastern United States resulting from, among other
things, adverse weather conditions, and in the Midwestern United States due to
the Company's earlier downsizing of its operations there.
Selling, general and administrative expenses ("SG&A"), excluding general
corporate expenses, for the quarters ended June 30, 1996 and 1995 were $30.3
million and $30.5 million, respectively, and for the six month periods ended
June 30, 1996 and 1995 were $63.2 million and $61.4 million, respectively. The
increase in SG&A for the six months ended June 30, 1996 was attributable to an
adverse arbitration award in the first quarter of 1996 which requires the
Company to pay $4.8 million in damages in connection with a contract dispute
involving its subsidiary T.L. Cholette, Inc. While the Company is seeking to
have the award set aside, there is no assurance the Company will be successful.
The Company's backlog was $1,113.5 million at June 30, 1996 and $1,060.7 million
at December 31, 1995. The Company's backlog in the United States increased by
$77.1 million between December 31, 1995 and June 30, 1996, its backlog in Canada
increased minimally and the backlog in the United Kingdom decreased by $27.1
million. The increase in the Company's domestic backlog was primarily
attributable to improved economic conditions in the Western United States. The
decline in the United Kingdom backlog is due to the recognition of revenues on
several large existing projects.
<PAGE>
Net Assets Held For Sale
In May 1996, the Company completed the sale of substantially all of the assets
of its subsidiary Jamaica Water Supply Company ("JWS") to The City of New York
and the Water Authority of Western Nassau County for an aggregate purchase price
of approximately $179.0 million, subject to post-closing adjustments;
approximately $1.2 million of this purchase price is being held in escrow
pending determination of the post-closing adjustments. In May 1996, the Company
also completed the sale of all of the stock of its other water supply subsidiary
Sea Cliff Water Company ("Sea Cliff") to a subsidiary of Aquarion Company for
approximately $2.6 million, subject to post-closing adjustments; approximately
$0.5 million of this purchase price is being held in escrow for a period of
approximately one year pending determination of the post-closing adjustments and
as collateral security for certain indemnification obligations.
The sales proceeds from the sale of its assets have been and will be applied by
JWS first to pay its liabilities and preferred stock obligations and to satisfy
minority stock interests in JWS held by third parties and as a reserve for
litigation involving Warrants of Participation issued by the Company's
predecessor. (See Note H.) Of the balance, $15.0 million and approximately $66.5
million were used to repay a portion of indebtedness under the Company's then
outstanding working capital line and to redeem in full its Series A Notes,
respectively. The remainder will be used to redeem notes issued by the Company's
subsidiary SellCo Corporation ("SellCo"). (See Note F for additional discussion
regarding the proceeds from the sale of JWS' assets.)
Approximately $2.1 and $0.7 million of the proceeds from the sale of the stock
of Sea Cliff and the sale of assets of JWS, respectively, have been used to
redeem, in part, the notes ("SellCo Notes") issued by the SellCo. In addition,
as the liabilities of JWS are finally determined, JWS' various contingent
liabilities are resolved, funds held in escrow under the sales agreements (the
"Sales Agreements") for the sale of the JWS assets and the stock of Sea Cliff
are released and post closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the sales proceeds may become available, from time
to time, for additional redemptions of the SellCo Notes.
The operating results of the remaining net assets held for sale have been
excluded from the condensed consolidated financial statements for the three and
six month periods ended June 30, 1996 and 1995 since the operation of these
businesses will only accrue to the benefit of the holders of the SellCo Notes.
Liquidity and Capital Resources
The Company's consolidated cash balance increased by $6.0 million from $53.0
million at December 31, 1995 to $59.0 million at June 30, 1996. The June 30,
1996 cash balance included approximately $5.3 million in foreign bank accounts
and reflected $10.1 million borrowed under the Company's New Credit Facility
referred to below. The foreign bank accounts are available only to support the
Company's foreign operations. The positive operating cash flow was due to
working capital improvements in the second quarter of 1996.
As of June 19, 1996 the Company and its subsidiary Dyn Specialty Contracting
Inc. entered into a credit agreement with Harris Trust and Savings Bank
("Harris") providing the Company with up to a $100.0 million revolving credit
facility (the "New Credit Facility") for a three year period. The New Credit
Facility, which is guaranteed by certain direct and indirect U.S. subsidiaries
of the Company and is secured by substantially all of the assets of the Company
and those subsidiaries, currently provides for up to $50 million in borrowing
capacity and is available as revolving loans ("Revolving Loans") and/or letters
of credit ("LCs" or "LC"). The remaining borrowing capacity is subject to
receipt of additional commitments from other banks, an earnings test, consents
of bonding companies providing surety bonds to the Company's Canadian and United
Kingdom subsidiaries and these subsidiaries guaranteeing the facility and
collateralizing their guarantees with their assets. The Revolving Loans bear
interest at a variable rate currently representing Harris' prime rate (8.25% at
June 30, 1996) plus 2% which interest rate can be reduced by up to 1.0% upon the
achievement of certain earnings levels. LC fees ranging from 1.50% to 3.25% are
charged based on the type of LC issued. The New Credit Facility expires on June
19, 1999. Revolving Loans ($10.1 million as of June 30, 1996) are classified as
current liabilities under the caption "Borrowings under working capital credit
lines" in the accompanying condensed consolidated balance sheets. As of June 30,
1996, the Company had an approximately $12.2 million LC outstanding under the
New Credit Facility.
On December 14, 1994, the Company and certain of its subsidiaries entered into a
credit agreement with lenders (the "Lenders') providing the Company and MES
Holdings Corp. ("MES"), a wholly-owned subsidiary of the Company, with revolving
credit loans (the "MES Loans") of up to an aggregate amount of $35.0 million.
The MES Loans were guaranteed by certain direct and indirect United States
subsidiaries of MES (the "U.S. MES Subsidiaries") and were secured by, among
other things, substantially all of the assets of the Company, MES and the U.S.
MES Subsidiaries, including the proceeds of the sale of all of the assets of the
Company, MES and the U.S. MES Subsidiaries and the proceeds of the sale of stock
or assets of the Water Companies to the extent of the first $15.0 million of
such proceeds, subject to the rights to such proceeds of the Lenders under the
Dyn Credit Agreement referred to below.
Also on December 14, 1994, the Company, its subsidiary Dyn Specialty Contracting
Inc. ("Dyn") and Dyn's subsidiaries entered into a credit agreement (the "Dyn
Credit Agreement") with the Lenders providing revolving credit loans (the "Dyn
Loans") of up to an aggregate amount of $10.0 million. The Dyn Loans were
guaranteed by the Dyn subsidiaries and were secured by substantially all of the
assets of Dyn and the Dyn subsidiaries, including the proceeds of the sale of
stock or assets of the Water Companies to the extent of the first $15.0 million
of such proceeds, subject to the rights to such proceeds of the Lenders under
the MES Credit Agreement.
Borrowings outstanding under the MES Loans and Dyn Loans were repaid on June 12,
1996, in part, from proceeds received by the Company from the sale of the Water
Companies and the balance was repaid on June 20, 1996 from borrowings under the
New Credit Facility and the loan agreements were terminated.
Included in the accompanying condensed consolidated balance sheet as of June 30,
1996 are approximately $65.9 million of the Company's Series C Notes that were
issued in connection with the Company's emergence from bankruptcy. The Series C
Notes have been recorded at a discount to their face amount to yield an
estimated effective rate of 14.0%. Interest on the Series C Notes was payable
semiannually through June 15, 1996 by the issuance of additional Series C Notes
and thereafter is payable quarterly in cash.
The accompanying condensed consolidated balance sheet as of June 30, 1996
reflects approximately $5.5 million of indebtedness evidenced by the Company's
promissory note (the "Supplemental SellCo Note") payable to its subsidiary
SellCo Corporation, which note was issued in connection with the Company's
emergence from bankruptcy. The Supplemental SellCo Note has been recorded at a
discount to its face amount to yield an estimated effective interest rate of
14.0%. Interest on the Supplemental SellCo Note is payable upon maturity.
In June 1995, the Company's Canadian subsidiary, Comstock Canada, entered into a
credit agreement with a bank providing for an overdraft facility of up to Cdn.
$2.0 million. The facility is secured by certain assets of Comstock Canada and
deposit instruments of another Canadian subsidiary of the Company. The facility
provides for interest at the bank's prime rate (6.5% at June 30, 1996) plus 3/4%
and expires on September 30, 1996. There were no borrowings outstanding under
this credit agreement at June 30, 1996.
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. $26.5 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. $14.0 million); a
facility for the issuance of guarantees, bond and indemnities of up to pounds
7.3 million (approximately U.S. $11.3 million); and other credit facilities of
up to pounds 0.8 million (approximately U.S. $1.2 million). The amount of
borrowings available under the overdraft line are limited to (pound)8.0 million
(approximately U.S. $12.4 million) for the period from July 16, 1996 through
August 30, 1996 and (pound)7.0 million (approximately U.S. $10.9 million) for
the period from August 31, 1996 through September 30, 1996. 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 (5.8% as of June 30, 1996), plus 3.0% on the first pounds 5.0
million of borrowings and at the bank's base rate plus 4.0% for borrowings over
pounds 5.0 million. This credit facility, as amended, expires September 30,
1996.
As of June 30, 1996, the Company's U.K. subsidiaries had utilized approximately
$24.9 million of the credit facilities as follows: approximately $14.0 million
of borrowings under the overdraft line, approximately $9.7 million for the
issuance of guarantees, and approximately $1.2 million under other credit
facilities.
The Company is actively seeking to include its U.K. and Canadian operations
under the New Credit Facility. The exisiting U.K. and Canadian credit facilities
expire on September 30, 1996 unless extended.
During the second quarter of 1996, the Company entered into an agreement with
one of its insurers to bear certain losses incurred for insurance plan years
from October 1, 1992 to September 30, 1995. Under this agreement, Company funds
previously deposited with one of the Company's insurers as collateral to fund
certain losses under the deductible portion of its insurance program were
returned to the Company and used to fund the cost of the above agreement and to
pay down, in July 1996, approximately $10.1 million of indebtedness under the
New Credit Facility. The Company is currently utilizing a $12.2 million letter
of credit obtained under the New Credit Facility as collateral for its current
insurance obligations, and therefore presently is not required to deposit cash
for such obligations.
At June 30, 1996, the Company had a net operating loss carryforward ("NOL") for
U.S. income tax purposes expiring in years 2007 through 2010 which approximates
$225.0 million, subject to Internal Revenue Service approval. In addition, the
Company has a U.S. capital loss carryover of approximately $15.0 million
expiring in 1998 and 1999. However, a subsequent ownership change (as defined in
Internal Revenue Code Section 382) prior to December 15, 1996 would reduce to
zero the future NOL benefits under Internal Revenue Code Section 382(1)(5). The
Company has provided a valuation allowance as of June 30, 1996 for the full
amount of the tax benefit of its NOLs and other deferred tax assets.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The information in Note H to the Company's June 30, 1996 Notes to Condensed
Consolidated Financial Statements (unaudited) regarding legal proceedings is
hereby incorporated herein by reference thereto.
ITEM 2 - CHANGES IN SECURITIES
As previously reported in its Form 8-K - Date of Report June 19, 1996, the
Company entered into a Credit Agreement dated as of June 19, 1996 (the "Credit
Agreement") by and among it and certain of its subsidiaries and Harris Trust and
Savings Bank individually and as agent and other lenders which are or become
parties thereto to provide the Company with up to a $100.0 million credit
facility for a three year period. Under the terms of the Credit Agreement, $50.0
million of borrowing capacity is immediately available; the remaining borrowing
capacity is subject to the receipt of additional commitments from other banks,
an earnings test, and consents of bonding companies providing surety bonds to
the Company's Canadian and United Kingdom subsidiaries.
The terms of the Credit Agreement prohibit the Company from paying cash
dividends on its Common Stock prior to January 1, 1998 and thereafter limit the
Company's ability to pay cash dividends.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On June 14, 1996 the Company held an annual meeting of stockholders.
(b) At the annual meeting all of the seven directors of the Company stood for
re-election, and each of them was re-elected for the ensuing year. Each of
Messrs. Stephen W. Bershad, Thomas D. Cunningham, Albert Fried, Jr.,
Malcolm T. Hopkins and Frank T. MacInnis received 8,536,825 votes, and each
of Messrs. David A.B. Brown and Kevin C. Toner received 8,536,532 votes.
The only votes withheld were the 293 which did not vote for Mr. Brown and
Mr. Toner. There were no broker non-votes.
(c) The stockholders also voted upon a proposal to ratify the appointment by
the Audit Committee of the Board of Directors of Arthur Andersen LLP,
independent public accountants, as the Company's independent public
accountants for 1996. 8,539,725 shares were voted in favor of
ratification, 9,100 shares were voted against ratification, and no shares
abstained from voting thereon; there were no broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. 4. U.S. $100,000,000 Credit Agreement by and among EMCOR Group,
Inc. and Certain Of Its Subsidiaries and Harris Trust and Savings Bank
individually and as Agent and the Lenders which are or become parties
thereto, dated as of June 19, 1996. Incorporated by reference to Exhibit
4 to Form 8-K - Date of Report June 19, 1996.
Exhibit No. 27. Financial Data Schedule. Page.
(b) During the quarter ended June 30, 1996, the Company filed Reports on Form
8-K - Date of Report May 10, 1996 reporting information with respect to
Item 5 of such Form, Form 8-K - Date of Report May 29, 1996 reporting
information with respect to Items 2 and 7 of such Form, and Form 8-K - Date
of Report June 19, 1996 reporting information with respect to Items 5 and 7
of such Form.
<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: July 30, 1996 By: /s/FRANK T. MacINNIS
---------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Chief Executive Officer
Date: July 30, 1996 By: /s/LEICLE E. CHESSER
---------------------------------
---------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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