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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-2315
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EMCOR GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 11-2125338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
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101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
(Address of principal executive offices) (zip code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of each class)
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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 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 such
filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filings pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /x/ No / /
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on February 25, 1998 was approximately
$212,617,000
Number of shares of Common Stock outstanding as of the close of business on
February 25, 1998: 9,594,827 shares.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on June 19, 1998, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1997.
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TABLE OF CONTENTS
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PART I
Item 1. Business
General......................................................................................... 1
The Business.................................................................................... 1
Item 2. Properties...................................................................................... 11
Item 3. Legal Proceedings............................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............................................. 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................... 15
Item 6. Selected Financial Data......................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 18
Item 8. Financial Statements and Supplementary Data..................................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 45
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 45
Item 11. Executive Compensation.......................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 45
Item 13. Certain Relationships and Related Transactions.................................................. 45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 46
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PART 1
ITEM 1. BUSINESS
General
EMCOR Group, Inc. ('EMCOR' or the 'Company') (formerly known as 'JWP INC.')
is the largest mechanical and electrical construction and facilities services
firm in the United States and Canada and one of the largest in the United
Kingdom and the world with 1997 revenues totaling more than $1.95 billion. EMCOR
provides services to a broad range of commercial, industrial and institutional
customers through approximately 45 principal operating subsidiaries throughout
the United States, Canada and the United Kingdom and through its joint ventures
in the United Arab Emirates, Saudi Arabia, South Africa, Hong Kong and Macau.
The Company specializes in the design, integration, installation, start-up,
testing, operation and maintenance of:
o Distribution systems for electrical power
o Lighting systems;
o Low-voltage systems, such as fire alarm, security, communications and
process control systems;
o Heating, ventilation, air conditioning and refrigeration systems; and
o Plumbing, process and high-purity piping systems.
The Company also provides services required to maintain the physical
environments and supporting systems of customer facilities ('facilities
services'). Facilities services include the installation and upgrading of
equipment, the operation and maintenance of mechanical and electrical systems,
as well as building maintenance and related support services. EMCOR's mechanical
and electrical construction services business often leads to opportunities for
the Company to provide facilities services.
The Company provides mechanical and electrical construction services and
facilities services directly to corporations, municipalities and other
governmental entities, owners/developers and tenants of buildings and,
indirectly, by acting as a subcontractor to construction managers, general
contractors, systems suppliers and other subcontractors. Worldwide, the Company
employs approximately 14,000 people.
The Company's revenues are diversified geographically and by customer
industry. Of EMCOR's 1997 revenues, approximately 67% was generated in the
United States and approximately 33% was generated internationally, while
approximately 85% of revenues was derived from mechanical and electrical
construction services and approximately 15% from facilities services. For the
period 1995 through 1997, revenues and EBITDA grew at compound annual growth
rates of 11% and 55%, respectively.
EMCOR is a Delaware corporation previously known as JWP INC. The Company
filed for protection from its creditors under Chapter 11 of the United States
Bankruptcy Code in February 1994. None of the Company's subsidiaries were
involved in the Chapter 11 proceedings. The Company's filing was precipitated,
in large part, by a highly leveraged, aggressive acquisition strategy, that
included acquisitions in unrelated fields, implemented by its former management
team. The Company emerged from bankruptcy in December 1994 under its current
management, at which time it changed its name to EMCOR Group, Inc. Since the
restructuring, the Company has sold or otherwise disposed of its non-core
businesses, repaid substantial amounts of debt and returned to profitability.
The Company's executive offices are located at 101 Merritt Seven Corporate Park,
Norwalk, Connecticut 06851-1060, and its telephone number at those offices is
(203) 849-7800.
The Business
The Company operates in one business segment: the provision of mechanical
and electrical construction and facilities services.
Mechanical and Electrical Construction
The Company believes that the mechanical and electrical construction
services business is highly fragmented, consisting of hundreds of small
companies across the United States and around the world. This characteristic
provides EMCOR with a significant competitive advantage due to the Company's
financial strength. The mechanical and electrical construction services industry
has realized a higher growth rate than the
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overall construction industry due, in large part, to the increased content and
complexity of mechanical and electrical systems in all types of projects. This
increased content and complexity is, in part, a result of the expanded use of
computers and more technologically advanced voice and data communications,
lighting and environmental control systems in all types of facilities.
Consequently, these facilities consume more electricity per square foot than in
the past and thus need more advanced electrical distribution systems and power
and low voltage cabling. Moreover, the need for greater environmental controls
within a building, such as the heightened need for climate control to maintain
extensive computer systems at optimal temperatures, and the growing demand for
environmental control in individual spaces have created expanded opportunities
for the mechanical and electrical construction services business.
Mechanical and electrical construction services primarily involve 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 controls); (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, (collectively, 'HVAC'), refrigeration and
clean-room process ventilation systems; and (v) plumbing, process and
high-purity piping systems.
Mechanical and electrical construction services generally fall into one of
three categories: (i) large installation projects with contracts often in the
multi-million dollar range which are performed in connection with construction
of industrial and commercial buildings and institutional and public works
facilities or with the fit-out of large blocks of space within commercial
buildings; (ii) smaller installation projects typically involving fit-out,
renovation and retrofit work; and (iii) testing and service of completed
facilities.
Facilities Services
The Company's facilities services business principally involves analysis,
testing, operation, maintenance and service of mechanical and electrical
systems, as well as building maintenance and related support services. These
facilities services are often associated with outsourcing and privatization
programs whereby customers in both the private and public sectors seek to
contract out their non-core activities, i.e. those activities performed by the
customer which support but are not directly involved in the customer's business.
EMCOR provides facilities services under short- and long-term contracts on an
individual service basis and in combinations on a task-order or on-call basis.
Demand for facilities services has expanded as a result of the increasing
technical complexity of mechanical and electrical systems, systems upgrades and
the increasing dependence of customers' operations on the reliability of such
systems. In addition, trends toward outsourcing and privatization in the private
and public sectors, respectively, have increased demand for facilities services.
In the early 1990's, the market for facilities services grew rapidly in the
United Kingdom as a result of Thatcher government initiatives. More recently,
the United Kingdom has implemented private finance initiatives ('PFIs') which
have led to a further increase in demand for businesses offering facilities
services. PFIs seek to transfer ownership and management of government
facilities such as office buildings and hospitals to teams of financial
institutions, consulting service groups, construction groups and facilities
services providers, which competitively bid for PFI contracts.
The Company expects that the North American facilities services market
which is not as developed as the United Kingdom market will show significant
growth over the near term. The Company's North American facilities services
business is focused principally on opportunities arising from the deregulation
of the electric utility industry, deregulation and expansion of the
telecommunications industry, and the Real Estate Investment Trust ('REIT')
industry's consolidation of commercial real estate. The deregulation of, and
increased competition in, the utility industry (along with government mandates
calling for reduced energy consumption by government entities) has led to a
renewed focus on energy costs and conservation measures. These measures
typically include energy assessments and engineering studies, modifications to
electrical and mechanical systems to implement energy conservation savings
measures, and the long-term operation and maintenance of these measures to
ensure continued performance. The deregulation and growth of the
telecommunications industry also has led to a rapid expansion of that industry's
installed infrastructure, much of which has been built by companies that do not
have existing maintenance operations and which frequently seek to outsource such
services. In
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addition, the REIT-driven consolidation of the real estate industry is creating
large portfolios of properties that require the types of facilities services
offered by the Company.
Competitive Strengths
The Company's overall size and breadth of operations are unique in the
industry. As a result there is no single entity which competes with the Company
in all or even a majority of its markets. The Company believes it has the
following competitive strengths which differentiate it from its competitors in
its various markets:
o Leading Position in Target Markets. The Company believes that it has a
leading position in many of the markets in which it operates as a result
of its long standing customer relationships, financial resources and
reliable, technically-skilled workforce. Market leadership often
establishes the Company as a preferred provider for mechanical and
electrical construction services which is especially vital during
economic downturns when there is limited work available.
o Wide Network of Subsidiaries. The Company was first organized in 1966
and many of its subsidiaries have been in business for over 50 years in
their local markets which accounts for strong industry relationships and
expertise in specialized markets. The Company's wide network of
subsidiaries allows it to leverage the experience of its many operating
units and effectively allocate and share resources in offering its
services to a broad range of customers in different markets. For example,
Wasatch Electric, the Company's Salt Lake City business unit, developed
expertise in building cellular phone transmission towers and shared this
knowledge with other EMCOR subsidiaries which now provide those services
to customers in other regions. In addition, Wasatch Electric, which is
involved in installing data communications systems for military bases,
subcontracts some of this work to other EMCOR subsidiaries to be
performed at military bases in other parts of the country. The wide
subsidiary network also offers opportunities to pursue growth in existing
markets and to serve customers as they expand from one market to another.
For example, one of the Company's United States subsidiaries and one of
its United Kingdom subsidiaries successfully joined efforts to provide
mechanical and electrical construction services for a semi-conductor
facility for Intel Corp. in Costa Rica. The Company plans to continue to
capitalize on this strategy of combining the strengths of its
subsidiaries to offer greater services to its customers.
o Financial Strength and Stability. The Company believes it has greater
net worth, better access to capital and more surety bonding capacity than
most of its competitors which permit it to compete for large projects
that require surety bonds and significant amounts of working capital.
When a general contractor decides to solicit bids from only a few
companies, usually based upon a company's experience, bonding capacity,
past performance on similar projects, working capital and knowledge of
the field, frequently an EMCOR subsidiary will be on the 'short list.'
The Company's financial strength also allows it to make strategic
acquisitions and alliances. In addition, the Company's approximately
$170.0 million United States net operating loss carryforwards ('NOLs')
provides it with additional financial flexibility by reducing its amount
of cash taxes paid, thereby enhancing its cash flow and providing
additional capital for acquisitions and internal expansion. The Company's
use of its NOLs may, however, be limited in certain circumstances.
o Technical Expertise and Depth of Resources. The Company's size,
geographical diversity, work in specialized markets, experience with
complex projects, and well-established subsidiaries have allowed it to
develop personnel at the subsidiary and parent corporation levels with a
wide breadth of experience and critical technical skills. This broad
experience enables the Company to identify its business units' most
effective practices and to share those practices among the Company's
network of subsidiaries.
o Diverse Revenue Base. The Company believes that it is less susceptible
than its competitors to cyclical economic downturns in any one region or
industry because its national and international scope provides diversity
of operations. In addition, its expanding facilities services business is
not tied to construction industry cycles. Finally, the Company provides
services for both new construction projects and renovations and operates
in both the private and public sectors.
o Consistent Service and Single Point of Contact. The Company believes
there is an increasing opportunity to provide services from several
different locations to a single customer with national or
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global operations by offering consistent service delivery and a single
point of contact. For example, when a global brokerage firm initiated a
program to upgrade computer systems at its offices throughout the United
States, the Company was retained to survey, recommend changes and install
any required new electrical systems at 700 locations. This ongoing
project has been managed by one EMCOR subsidiary and performed by several
EMCOR subsidiaries saving the customer the expense of locating, managing
and training a reliable electrical construction services provider in each
region in which it has offices.
o Operating Flexibility and Enduring Regional Presence. As a result of its
financial resources, the Company is able to increase or decrease
the size and scope of its operations in a given market in order to take
advantage of opportunities as they arise in local markets or reduce
exposure in markets experiencing economic downturns. The Company believes
that its broad base of operations not only offers national and
international customers consistent service and a single point of contact,
but also the confidence that the Company is a stable service provider
that will remain in a market during cyclical downturns.
o Operations Reporting System. The Company has developed and implemented
an operations reporting system in a database format which complements its
financial reporting system and provides the basis for its operations
management programs. The system utilizes a common format work-in-progress
schedule for all business units that compares performance of major
projects over time and among customers to monitor performance against
expectations, trends and company-wide performance on similar projects.
o Broad Range of Services. The Company believes that its mechanical and
electrical construction services and related maintenance services offer
opportunities in the facilities services field which emerge from
completion of construction projects, outsourcing and privatization
programs, deregulation of the energy and telecommunications markets and
the growing REIT market. For example, after providing mechanical and
electrical construction services for the Jubilee Line Extension of
London's underground transit system, EMCOR's United Kingdom facilities
services unit was recently awarded a five-year operations and maintenance
contract for that line. In addition, the Company is able to provide
complex facilities services under multi-year contracts including
maintaining British Airways five million square feet of space at
Heathrow and Gatwick Airports in the United Kingdom and the new
one million square foot British Library in London.
o Diversity of Services and Industries. The Company provides a wide range
of mechanical and electrical construction and facilities services to
customers engaged in diverse industries.
Business Strategy
The Company's business strategy is to enhance its position as a leading
mechanical and electrical construction services firm and to expand its
facilities services operations in order to increase revenue and profitability.
It expects to achieve these goals by continuing to improve operations, expand
its business and markets through internal growth, acquisitions and strategic
alliances, and capitalize on long-term global trends in outsourcing and
privatization.
The following are the key elements of the Company's operating strategy:
o Exploit Industry Trends. Current trends in the mechanical and electrical
construction services and facilities services industry include
globalization, privatization, deregulation, and outsourcing. The Company
is poised to benefit from each of these trends:
o globalization of the Company's customers has created the opportunity
for companies like EMCOR with domestic and international operations to
provide services to international companies that seek to deal with
only a few international providers;
o privatization, such as in the United Kingdom, serves to open new
markets to private companies; this trend has already provided
opportunities for EMCOR such as multi-year facilities services
agreements for British Airways' facilities at Heathrow and
Gatwick Airports, the new British Library and the new
Jubilee Line Extension of the London Underground;
o deregulation of utilities and new government initiatives have led to a
renewed focus on energy costs and conservation measures resulting in
major energy management programs, including energy
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assessments and renovation projects creating subcontracting and joint
venture opportunities for EMCOR such as with PECO Energy Company and
DukeSolutions, Inc.; and
o outsourcing initiatives resulting from two major corporate trends--the
focus on core competencies and the increasing complexity of mechanical
and electrical systems--have increased the demand for both facilities
services and integrated service providers. EMCOR customers who have
retained EMCOR when outsourcing operations include Credit Suisse First
Boston and the New York Mercantile Exchange.
o Operate on a Decentralized Basis. With strong local management, the
Company's decentralized operations permit it to take advantage of local
business opportunities, to adapt rapidly to changing local market
conditions, to be identified as a local employer, and to develop strong
relationships with local organized labor. In addition, its decentralized
structure of operating through subsidiaries, many of which are managed by
former owners, permits the Company to retain entrepreneurial
characteristics, capitalize on local and regional market knowledge and
respond quickly to customer demand.
o Optimize Operating Efficiencies. The parent corporation maintains strong
operating and financial controls, which lead to consistent operations and
financial reporting. It develops and maintains centralized safety and
human resources programs, including employee benefits. It also provides
for insurance coverage, working capital facilities and bonding capacity.
The Company realizes operating efficiencies by centralizing many
accounting, treasury, marketing, legal, tax and other administrative
functions. At the same time, the Company facilitates the sharing of best
business practices among its business units.
o Maintain Strong Local Presence and Continue Operations in Temporarily
Weak Markets. Because of the Company's size and financial strength, it
is able to withstand downturns in a local economy. As a result, the
Company is able to create and develop long-term employee and customer
relationships and quickly seize opportunities in an improving market. The
Company's systems and procedures enable it to assess local operations
continuously, to evaluate long-term opportunities and to determine
whether a planned and orderly reduction in local market presence is
advisable. The Company is able to operate businesses in weak markets at
lower levels of operating expenses in order to withstand temporary market
downturns without abandoning markets which are difficult to reclaim.
o Maintain Excellent Labor Relations. Management at the local level often
is actively involved in the recruitment and training of labor to insure
an available and capable labor supply. To this end, such management is
involved in local industry associations and participates with organized
labor in training programs. In addition, each of the Company's
subsidiaries has its own recruiting and training programs and offers
expanded career paths with the assurance of a stable income that comes
from being part of a national enterprise. Although substantially all the
Company's employees are unionized, EMCOR is not a party to any national
or industry-wide collective bargaining agreement and none of its
subsidiaries has experienced a strike or any significant labor stoppage
in over ten years.
o Promote Awareness of the EMCOR Name. The Company has implemented a
marketing strategy to enhance industry awareness of EMCOR and promote
widespread identification of the EMCOR name as a national and
international enterprise providing integrated operations and consistent,
high-quality services. At the same time, the Company maintains local
identities to capitalize on name recognition at the local level.
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Growth Strategy
The key elements of the Company's growth strategy are to expand
geographically and into new customer markets through selective acquisitions,
joint ventures and strategic alliances, to develop facilities services
opportunities from leveraging its core mechanical and electrical construction
and maintenance services and to enhance existing operations through internal
growth and staff additions. Such expansion should further reduce the Company's
exposure to periodic downturns in individual markets. This expansion will be
accomplished through the following:
o Acquisitions. Acquisitions are planned in existing and new markets. The
Company continually evaluates numerous acquisition candidates. It has
acquired and expects to continue to acquire well established mechanical
and electrical construction services firms operating within its existing
markets to expand its presence in such markets so as to build additional
customer relationships and provide additional expertise in related
activities. In addition, the Company has made acquisitions and will
continue to seek acquisitions in geographic markets in which the Company
is not presently located to take advantage of growth opportunities and to
follow customers as they expand into new markets. The Company expects to
strengthen its facilities services business through acquisitions in order
to obtain a strong base of business, to gain expertise (particularly in
the energy consulting and engineering area) and to expand geographically.
The Company has implemented a disciplined approach to acquisitions and
seeks to enter into acquisitions which are accretive to earnings and fit
within its long-term strategic goals. Recently, the Company acquired an
Atlantic City mechanical contracting firm to gain access to the expanding
casino market there and to leverage the customer relationships and
expertise of its Nevada operations. It has also expanded into a new
market in Connecticut by acquiring a mechanical contracting company. In
addition, it has acquired an energy consulting company which has allowed
it to expand its capabilities in the energy consulting and engineering
services markets.
o Strategic Alliances. The Company will also engage in strategic alliances
a s part of its facilities services business, principally with energy
providers, such as those announced with DukeSolutions, Inc., a subsidiary
of Duke Energy Corp., and PECO Energy Company, to capitalize further on
its core competencies. Currently, the Company has formed alliances with
these two companies that have undertaken to provide retrofits or new
installations designed to conserve energy consumption. EMCOR expects to
be involved with the design, installation, operation and maintenance of
energy conservation savings measures to be provided by these and other
energy providers.
o Internal Growth. The Company intends to expand its existing mechanical
and electrical construction services business to respond to growth in
existing markets and to add capabilities to enhance opportunities for
growth. In addition, the Company is building its North American
facilities services business through its own nationwide sales and
administrative staff by using resources of existing and newly acquired
subsidiaries. The Company will also seek to build on its existing
capabilities and customer relationships to offer facilities services to
more customers in more locations.
Backlog
The Company had backlog as of December 31, 1997 of approximately $996.4
million, compared with backlog of approximately $1,043.7 million as of December
31, 1996. Backlog includes facilities services revenues to be derived during the
immediately succeeding 12 months pursuant to then-existing contracts. For the
year ended December 31, 1997, the Company has more than $1.95 billion in
revenues compared to more than $1.67 billion in revenues for the year ended
December 31, 1996. This increase in revenues despite a drop in backlog reflects
shorter periods in which jobs are performed and an increase in the rate of
acquiring new work.
Company Operations
The Company operates in one business segment: the provision of mechanical
and electrical construction and facilities services. It offers a broad range of
these services, which are performed through approximately 45 principal operating
units with offices in 19 states and the District of Columbia, seven provinces of
Canada, and four primary locations in the United Kingdom and through joint
ventures in the United Arab Emirates, Saudi Arabia, South Africa, Hong Kong and
Macau.
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The parent corporation, located in Norwalk, Connecticut, is responsible for
overall direction of subsidiary operations to foster consistent operating
practices and to provide financial, accounting, treasury, marketing, human
resources, legal, tax and insurance services to the consolidated enterprise. The
parent corporation, which employs approximately 45 people, has skilled senior
management with extensive experience in the construction industry.
In addition to offering administrative services and general direction, the
parent corporation provides long-term planning, contacts to support local
operations and working capital. The parent corporation also identifies market
opportunities, maintains national relationships with customers with broad based
operations, establishes strategic alliances to foster business opportunities and
promotes nationwide name recognition through marketing and communications
programs aimed at enhancing industry awareness of EMCOR. In addition, the parent
corporation develops safety programs, negotiates claims, reviews contracts,
handles bonding requirements and assists local companies in asserting leadership
positions in local marketplaces among owners, customers, suppliers and general
business communities. It also seeks to help its business units secure and
perform work based not only on their own capabilities but also on those
available from other operations within the enterprise.
Mechanical and Electrical Construction Services
EMCOR's mechanical and electrical construction services operations
generated approximately 85% of 1997 revenues. The Company provides mechanical
and electrical construction services for both large and small installation and
renovation projects and for testing and service of completed facilities. The
Company's largest projects include those (i) for institutional use (such as
water and wastewater treatment facilities, hospitals, correctional facilities,
schools and research laboratories); (ii) for industrial use (such as
pharmaceutical factories, steel, pulp and paper mills, chemical, automotive and
semiconductor plants, and oil refineries); (iii) for transportation systems
(such as airports and transit systems); and (iv) for commercial use (such as
office buildings, hotels, casinos, convention centers, sports stadiums, shopping
malls and resorts). Its largest projects, typically in excess of $10.0 million,
are usually multi-year projects and range in size up to, and occasionally in
excess of, $50.0 million, and accounted for approximately 22% of construction
services revenues in 1997.
The Company's projects of less than $10.0 million accounted for
approximately 78% of 1997 construction services revenues and are typically
completed in less than a year. These projects usually involve mechanical and
electrical construction services in connection with the fit-out of space when an
end-user or owner undertakes construction or modification of a facility to
accommodate a specific use. These projects frequently require mechanical and
electrical systems to meet special needs such as redundant power supply systems,
special environmental controls, high-purity air systems, sophisticated
electrical and mechanical systems for trading floors in financial services
businesses, new production lines in manufacturing plants and office arrangements
in existing office buildings. These projects are not typically dependent upon
the new construction market; their demand is often prompted by the expiration of
leases, changes in technology or changes in the customer's plant or office
layout in the normal course of business.
Projects are performed pursuant to contracts with owners, such as
corporations, municipalities and other governmental entities, general
contractors, systems suppliers, construction managers, developers, other
subcontractors and tenants of commercial properties. Institutional and public
works projects are frequently long-term, complex projects requiring significant
technical and management skills and financial strength to, among other things,
obtain bid and performance bonds, which are often a condition to bidding for,
and award of, contracts for such projects.
The Company installs and maintains street, highway, bridge and tunnel
lighting, traffic signals, computerized traffic control systems and signal and
communication systems for mass transit systems in several metropolitan areas. In
addition, in the United States, the Company conducts sheet metal fabrication
operations, manufacturing and installing sheet metal air handling systems for
both its own mechanical construction operations and for unrelated mechanical
contractors. The Company also maintains welding and pipe fabrication shops for
some of its own mechanical operations.
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Facilities Services
In conjunction with mechanical and electrical construction services, the
Company provides services required to maintain the physical environment and
supporting systems in customer facilities frequently referred to as facilities
services, which generated approximately 15% of 1997 revenues. The Company has
historically provided technical support services to its customers following
completion of construction projects which typically include maintenance and
service of mechanical and electrical systems and small modification projects to
support the day-to-day needs of customers. As a result of its ability to provide
maintenance services as part of its construction services and an expanded demand
over the past 10 years for these services, the Company has sought to build on
these relationships and expand its business to meet new needs and to exploit
these emerging opportunities.
In the early 1990's the market for facilities services grew rapidly in the
United Kingdom as a result of Thatcher government initiatives. The Company's
United Kingdom subsidiary expanded its traditional technical service business in
response to these opportunities and established a dedicated unit to focus on the
facilities services business. This unit currently provides a full range of
facilities services to public and private sector customers under multi-year
agreements, including maintaining British Airways' facilities at Heathrow and
Gatwick Airports, the new British Library, the Department of Trade and Industry
offices in London, and the new Jubilee Line Extension of the London Underground.
The Company also provides facilities services at several automotive
manufacturing plants for the Rover Group and various British Aerospace
facilities. In addition, the United Kingdom operations provide on-call and
mobile service support on a task-order or contract basis, small renovation
project work, data communications, security system installation and maintenance
services.
The Company, by virtue of its construction and facilities services
expertise, is involved with teams for several private finance initiatives
('PFIs'), a new group of government programs in the United Kingdom. The PFIs,
which involve governmental bodies responsible for the national healthcare
system, social security, and air traffic control, among others, seek to transfer
ownership and management of government facilities, such as office buildings and
hospitals, to teams of financial institutions, consulting service groups,
construction groups and facilities services providers, which competitively bid
for PFI contracts. While there is no way to predict the timing or the recipients
of the PFI awards, the Company expects to be a member of one or more teams
awarded such projects and has already agreed to provide mechanical and
electrical services, ground maintenance and other ancillary services for the
next five to seven years to approximately 300 buildings which were formerly
owned and managed by the British Department of Social Services. The Company has
built on its United Kingdom experience to market its facilities services
business to international markets and currently provides facilities services
through joint ventures to, among others, the new Macau Airport and to several
companies in South Africa.
In 1997, the Company established a new subsidiary to expand its facilities
service operations in North America patterned on its United Kingdom business.
This operating unit seeks to build on existing capabilities, facilities services
operations at existing subsidiaries and client relationships to expand the scope
of services currently offered and to develop packages of services for customers
on a regional, national and global basis. For example, through its Penguin Air
Conditioning subsidiary ('Penguin'), based in New York City, the Company
provides mechanical and electrical facilities services to maintain Credit Suisse
First Boston's headquarters in New York City, where Penguin and other EMCOR
subsidiaries were involved with the construction of its space. Through its
Texas-based subsidiary, Gowan, the Company has performed facilities services
work for the Shell Research Center in Houston. The North American facilities
services business principally is focused on opportunities arising from private
and public sectors' outsourcing and privatization programs as these sectors
focus on their core functions. In the United States, management has targeted
opportunities arising from the deregulation of the electric utility industry,
deregulation and expansion of the telecommunications industry and the
REIT-driven consolidation of the commercial real estate industry as a basis for
growth in facilities services.
The deregulation of the utility industry, in general, has led to renewed
focus on energy costs and conservation measures as energy providers compete for
market share. In addition, United States Federal legislation and executive
orders, and similar directives at the state and local levels, have mandated
reductions in energy consumption at government facilities which may be
accomplished through private programs financed by the resulting energy cost
savings. These programs typically include energy assessments and engineering
studies, retrofit construction to implement the energy savings measures, and the
long-term operation and maintenance of
8
<PAGE>
these measures to ensure continued performance. Various subsidiaries of the
Company have participated in such programs in the past and have the requisite
expertise to perform them. The Company's facilities services subsidiary recently
established a strategic alliance with DukeSolutions, Inc., a subsidiary of Duke
Energy Corp., to provide energy assessment, design, installation, and operations
and maintenance services for various Department of Defense facilities located in
46 states, the District of Columbia and Puerto Rico, and a similar alliance with
PECO Energy Company to provide similar services to certain not-for-profit
institutions in Massachusetts.
The Company expects similar additional programs to be undertaken as the
deregulation of electric utilities continues in the United States, and believes
that its ability to be a single source provider of construction and facilities
services will place it at a significant competitive advantage. The Company
recently announced the acquisition of Newcomb, an energy consulting and
engineering services firm, to expand its capabilities in this market.
The deregulation and expansion of the telecommunications industry has led
to a rapid expansion of installed infrastructure, including wireless
communication systems and long distance networks. Much of the new infrastructure
has been built by companies that do not have existing maintenance operations and
which seek to focus on providing telecommunication services and not on
maintaining their infrastructure. The Company, through several subsidiaries, has
provided installation services for the infrastructure of telecommunication
companies and facilities services to support their operations. In this industry,
the Company has worked on facilities owned by such service providers as Sprint,
AT&T, and MCI, has installed and maintained equipment for suppliers such as
Lucent, Nortel, and Siemens, and has provided construction and maintenance
services to competitive local service providers, such as Teleport Communications
Group, and to users who maintain their own systems.
The REIT-driven consolidation of the real estate industry is creating large
portfolios of property that require the types of facilities services offered by
the Company. Large REITs and their property managers represent a target market
for the facilities services business whereby the Company can offer a
comprehensive package of services in addition to its traditional technical
services to maintain and service mechanical and electrical systems. While the
Company has not yet entered into any agreements with such customers in the North
American market, the Company believes that there is significant customer
interest in obtaining a provider such as the Company which can offer single
point responsibility for multiple property locations.
The Company offers its facilities services to customers on single-task and
multi-task bases depending on a customer's needs, under short-term and
multi-year agreements. Such services frequently involve the permanent assignment
of employees to customer premises for the duration of the contract, often around
the clock.
The Company believes its mechanical and electrical construction services
and facilities services businesses are complementary, permitting it to offer
customers a comprehensive package of services. The ability to offer both
construction and facilities services should enhance the Company's competitive
position with customers. Furthermore, the facilities services business tends to
be less cyclical than the construction business as such operations are more
responsive to the needs of an industry's operations rather than its construction
requirements.
Competition
The Company believes that the mechanical and electrical construction
services business is highly fragmented and competitive. A majority of the
Company's revenues are derived from jobs requiring competitive bids; however, an
invitation to bid is often conditioned upon prior experience, technical
capability and financial strength. The Company competes with national, regional
and local companies, most of which are small, owner-operated companies that
operate in a limited geographic area. There are few public companies focused on
providing mechanical and electrical construction services, although in the last
three years more public national and regional firms have been established. The
Company is the largest provider of mechanical and electrical construction
services in the United States and Canada and one of the largest in the United
Kingdom and the world. As such, the Company has a substantial operating history
and proven track record which more recent market entrants lack. In the future,
competition may be encountered from new entrants, such as public utilities and
other companies attempting to consolidate mechanical and electrical construction
services companies. Competitive factors in the mechanical and electrical
construction services business include: (i) the availability of
9
<PAGE>
qualified and/or licensed personnel; (ii) reputation for integrity and quality;
(iii) safety record; (iv) cost structure; (v) relationships with customers; (vi)
geographic diversity; (vii) ability to control project costs; (viii) experience
in specialized markets; (ix) ability to obtain bonding and (x) adequate working
capital.
While the facilities services business is also highly fragmented, a number
of large corporations such as Johnson Controls, Inc., Fluor Corp., and
ServiceMaster Limited Partnership are engaged in this field, and there are other
companies seeking to consolidate facilities services businesses. In addition,
the Company's facilities services operations are well established in the United
Kingdom but are in a development stage in the United States.
Employees
The Company presently employs approximately 14,000 people, approximately
75% of whom are represented by various unions. The Company believes that its
employee relations are generally good.
Segment information relating to the geographic areas in which the Company
operates is included in Note L to the consolidated financial statements.
10
<PAGE>
ITEM 2. PROPERTIES
The operations of the Company are conducted primarily in leased properties.
The following table lists major facilities:
<TABLE>
<CAPTION>
LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
----------- ----------------
<S> <C> <C>
CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park
Norwalk, Connecticut................................ 15,725 4/8/00
OPERATING FACILITIES
1200 North Sickles Road
Tempe, Arizona...................................... 29,000 Owned
3208 Landco Drive
Bakersfield, California............................. 49,875 6/30/02
4462 Corporate Center Drive
Los Alamitos, California............................ 41,400 12/31/00
4464 Alvarado Canyon Road
San Diego, California............................... 53,800 10/31/00
9505 Chesapeake Drive
San Diego, California............................... 44,000 1/31/01
345 Sheridan Boulevard
Lakewood, Colorado.................................. 63,000 Owned
5697 New Peachtree Road
Atlanta, Georgia.................................... 27,200 11/30/98
2100 South York Road
Oak Brook, Illinois................................. 77,700 1/09/02
2655 Garfield Road
Highland, Indiana................................... 34,600 7/08/01
3555 W. Oquendo Road
Las Vegas, Nevada................................... 100,000 11/30/98
111-01 14th Avenue
College Point, New York............................. 77,000 2/28/06
111 West 19th Street
New York, New York.................................. 27,200 5/31/98
Two Penn Plaza
New York, New York.................................. 57,200 2/01/06
5550 Airline Road
Houston, Texas...................................... 74,483 6/30/01
515 Norwood Road
Houston, Texas...................................... 26,676 6/30/01
1574 South West Temple
Salt Lake City, Utah................................ 38,800 12/31/99
22930 Shaw Road
Sterling, Virginia.................................. 32,600 7/31/99
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
----------- ----------------
<S> <C> <C>
109-D Executive Drive
Sterling, Virginia.................................. 19,000 8/31/99
1 Thameside Centre
Kew Bridge Road
Kew Bridge, Middlesex, United Kingdom............... 14,000 12/22/12
165 Robertson Road
Ottawa, Ontario, Canada............................. 35,400 4/01/02
2116 Logan Avenue
Winnipeg, Manitoba, Canada.......................... 19,800 Owned
3455 Landmark Blvd.
Burlington, Ontario, Canada......................... 16,100 Owned
</TABLE>
The Company believes that all of its property, plant and equipment are well
maintained, in good operating condition and suitable for purposes for which they
are used.
See Note I to the consolidated financial statements for additional
information regarding lease costs. The Company believes there will be no
difficulty either in negotiating the renewal of its real property leases as they
expire or in finding other satisfactory space.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is currently defending a lawsuit that was commenced against the
Dynalectric Company ('Dynalectric'), a subsidiary of the Company, in Superior
Court of New Jersey, Bergen County, arising out of Dynalectric's participation
in a joint venture with the plaintiff, Computran. In the action, which was
instituted in 1988, Computran, a participant in, and a subcontractor to, the
joint venture alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to 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. As a
result of a motion made by Dynalectric, the Superior Court of New Jersey has
recently ordered that the matters in dispute between Dynalectric and Computran
be resolved by binding arbitration in accordance with an original agreement
between the parties.
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 did 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 April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
Substantial settlements or damage judgements against a subsidiary of the
Company arising out of either of these matters could have a material adverse
effect on the Company's business, operating results and financial condition.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Frank T. MacInnis, Age 51; Chairman of the Board and Chief Executive
Officer of the Company since April 1994 and President of the Company from April
1994 to April 1997. From April 1990 to April 1994 Mr. MacInnis served as
President and Chief Executive Officer, and from August 1990 to April 1994 as
Chairman of the Board, of Comstock Group, Inc., a nationwide electrical
contracting company. From 1986 to April 1990, Mr. MacInnis was Senior Vice
President and Chief Financial Officer of Comstock Group, Inc. In addition, from
1986 to April 1994 Mr. MacInnis was also President of Spie Group Inc., which
owns or owned Comstock Group, Inc., Spie Construction Inc., a Canadian pipeline
construction company, and Spie Horizontal Drilling Inc., a U.S. company engaged
in underground drilling for the installation of pipelines and communications
cable.
Jeffrey M. Levy, Age 45; President of the Company since April 1997 and
Chief Operating Officer of the Company since February 1994, Executive Vice
President of the Company from November 1994 to April 1997, Senior Vice President
of the Company from December 1993 to November 1994. From May 1992 to December
1993, Mr. Levy was President and Chief Executive Officer of the Company's
subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From January 1991 to
May 1992 Mr. Levy served as Executive Vice President and Chief Operating Officer
of Lehrer McGovern Bovis, Inc., a construction management and construction
company.
Sheldon I. Cammaker, Age 58; Executive Vice President and General Counsel
of the Company since September 1987 and Secretary of the Company since May 1997.
Prior to September 1987, he was a senior partner of the New York City law firm
of Botein, Hays & Sklar.
Leicle E. Chesser, Age 51; Executive Vice President and Chief Financial
Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser
served as Executive Vice President and Chief Financial Officer of Comstock
Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and
Chief Financial Officer of Spie Group Inc.
Thomas D. Cunningham, Age 48; Executive Vice President of the Company since
July 1997. From March 1994 to May 1997, Mr. Cunningham was Executive Vice
President and Chief Financial Officer of Swiss Army Brands, Inc., an importer
and distributor of Swiss Army knives and watches and Sabatier and Forschner
cutlery. For more than five years prior thereto, Mr. Cunningham was a Managing
Director of J.P. Morgan & Co., an international bank.
R. Kevin Matz, Age 39; Vice President and Treasurer of the Company since
April 1996 and Staff Vice President -- Financial Services of the Company from
March 1993 to April 1996. From March 1991 to March 1993, Mr. Matz was Treasurer
of Sprague Technologies Inc., a manufacturer of electronic components.
Mark A. Pompa, Age 33; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information. The Company's Common Stock trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol 'EMCG'.
The following table sets forth high and low sales prices for the Common
Stock for the periods indicated as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
1997 HIGH LOW
- --------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
First Quarter........................................................ 17 3/16 12 3/4
Second Quarter....................................................... 16 5/8 13
Third Quarter........................................................ 20 1/4 15
Fourth Quarter....................................................... 22 1/4 16 1/2
1996
- ---------------------------------------------------------------------
First Quarter........................................................ 12 3/8 9 3/8
Second Quarter....................................................... 17 3/8 11 3/4
Third Quarter........................................................ 17 3/8 14 1/8
Fourth Quarter....................................................... 15 5/8 13
</TABLE>
Holders. As of February 4, 1998 there were 63 shareholders of record and,
as of that date, the Company estimates there were approximately 900 beneficial
owners holding stock in nominee or 'street' name.
Dividends. The Company did not pay dividends on its Common Stock during
1997 or 1996, and it does not anticipate that it will pay dividends on its
Common Stock in the foreseeable future. The Company's working capital credit
facility limits the payment of dividends on its Common Stock. Also, the
Company's Series C Notes Indenture provides that dividends are limited to 50% of
consolidated net income (as defined) for the period from December 15, 1994 to
the most recently ended fiscal quarter.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data has been derived from audited
financial statements and should be read in conjunction with the consolidated
financial statements, the related notes thereto and the reports of independent
public accountants thereon, included elsewhere in this annual report on Form
10-K and in previously filed annual reports on Form 10-K of the Company. On
December 15, 1994 (the 'Effective Date'), the Company emerged from Chapter 11 of
the United States Bankruptcy Code pursuant to its Third Amended Joint Plan of
Reorganization dated August 9, 1994, as amended (the 'Plan of Reorganization'),
proposed by EMCOR and its subsidiary SellCo Corporation ('SellCo'). In
connection with the Plan of Reorganization, the Company adopted the American
Institute of Certified Public Accountants' 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.
INCOME STATEMENT DATA (A) (B)
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
YEAR ENDED DECEMBER 31, | YEAR ENDED DECEMBER 31,
-------------------------------------- | ------------------------
1997 1996 1995 | 1994 1993
---------- ---------- ---------- | ---------- ----------
<S> <C> <C> <C> | <C> <C>
Revenues....................................... $1,950,868 $1,669,274 $1,588,744 | $1,763,961 $2,194,735
Gross profit................................... 182,183 160,788 143,147 | 156,372 151,177
Reorganization items........................... -- -- -- | (91,318) --
Income (loss) from continuing operations before |
extraordinary items and change in method of |
accounting................................... 8,581 9,437 (10,853) | (118,934) (113,991)
Income (loss) from discontinued operations..... -- -- -- | 10,216 (9,087)
Extraordinary items: |
-Loss on early extinguishment of debt, net of |
income taxes............................... (1,004) -- -- | -- --
-Gain on debt discharge...................... -- -- -- | 413,249 --
Cumulative effect of change in method of |
accounting for post employment benefits...... -- -- -- | (2,100) --
---------- ---------- ---------- | ---------- ----------
Net income (loss).............................. $ 7,577 $ 9,437 $ (10,853) | $ 302,431 $ (123,078)
---------- ---------- ---------- | ---------- ----------
---------- ---------- ---------- | ---------- ----------
Basic earnings (loss) per share: (d)(e)........ |
Income (loss) from continuing operations before |
extraordinary items and change in method of |
accounting................................... $ 0.90 $ 1.00 $ (1.13) | $ (12.62)
Discontinued operations........................ -- -- -- | 1.08
Extraordinary items: |
-Loss on early extinguishment of debt, net of |
income taxes............................... (0.11) -- -- | --
-Gain on debt discharge...................... -- -- -- | 43.85
Cumulative effect of change in method of |
accounting for post employment benefits...... -- -- -- | (0.22)
---------- ---------- ---------- | ----------
Basic earnings (loss) per share................ $ 0.79 $ 1.00 $ (1.13) | $ 32.09
---------- ---------- ---------- | ----------
---------- ---------- ---------- | ----------
Diluted earnings (loss) per share: (d)(e) |
Income (loss) from continuing operations before |
extraordinary items and change in method of |
accounting................................... $ 0.84 $ 0.96 $ (1.13) | $ (12.62)
Discontinued operations........................ -- -- -- | 1.08
Extraordinary items: |
-Loss on early extinguishment of debt, net of |
income taxes............................... (0.10) -- -- | --
-Gain on debt discharge...................... -- -- -- | 43.85
Cumulative effect of change in method of |
accounting for post employment benefits...... -- -- -- | (0.22)
---------- ---------- ---------- | ----------
Diluted earnings (loss) per share.............. $ 0.74 $ 0.96 $ (1.13) | $ 32.09
---------- ---------- ---------- | ----------
---------- ---------- ---------- | ----------
</TABLE>
16
<PAGE>
BALANCE SHEET DATA (B)
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
AS OF DECEMBER 31, | AS OF
-------------------------------------------- | DECEMBER 31,
1997 1996 1995 1994 | 1993
-------- -------- -------- -------- | -------------------
<S> <C> <C> <C> <C> | <C>
Stockholders' equity (deficit)(c).............. $ 95,323 $ 83,883 $ 70,610 $ 81,130 | $(302,262)
Total assets................................... 660,654 614,747 710,945 707,498 | 806,442
Net assets held for sale....................... -- -- 61,969 55,401 |
Notes payable.................................. -- -- 14,665 4,803 | 172
Borrowings under working capital credit |
lines........................................ 9,497 14,200 25,000 40,000 | --
7% Senior Secured Notes........................ -- -- 61,969 55,401 | --
Long-term debt, including current maturities... 62,657 72,405 68,989 61,290 | 4,465
Debt in default................................ -- -- -- -- | 501,007
Capital lease obligations...................... $ 1,482 $ 1,007 $ 1,284 $ 2,029 | $ 2,561
</TABLE>
- ------------------
(a) The income statement data for the year ended December 31, 1995 excludes the
operating results of businesses held for sale since the operations of these
businesses accrued to the benefit of holders of the notes issued by the
Company's subsidiary SellCo Corporation and, prior to their payment in full
during 1996, the Company's Series A Notes, and certain other obligations
(See Note D to the consolidated financial statements). Income statement data
has been reclassified for all periods presented prior to 1995 to reflect the
Company's water supply business and other businesses for sale as
discontinued operations.
(b) Selected financial data for periods as of and after the adoption of
Fresh-Start Accounting are not comparable to selected financial data of
periods presented prior to December 31, 1994 and have been separated by a
black line.
(c) No cash dividends on the Company's Common Stock have been paid during the
past five years.
(d) Historical per share data for periods prior to December 31, 1994 have not
been presented as it is not meaningful since the Company was recapitalized
and adopted Fresh-Start Accounting as of December 31, 1994.
(e) Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Accordingly, earnings per
share information for years prior to December 31, 1997 have been restated to
conform to current year presentation. (See Note C to the consolidated
financial statements.)
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
EMCOR Group Inc.'s ('EMCOR' or the 'Company') revenues for the years ended
December 31, 1997 and 1996 were $1,950.9 million and $1,669.3 million,
respectively. Net income for the year ended December 31, 1997 was $7.6 million
compared to net income of $9.4 million for the year ended December 31, 1996.
Basic Earnings Per Share ('Basic EPS') as defined by Statement of Financial
Accounting Standards No. 128, 'Earnings Per Share,' was $0.79 per share for the
year ended December 31, 1997 compared to Basic EPS of $1.00 per share in the
year earlier period. Net income for the year ended December 31, 1997 includes an
after-tax charge of approximately $1.0 million ($1.7 million pre-tax) associated
with the early retirement of approximately $11.9 million of the Company's Series
C Notes. Net income for the year ended December 31, 1996 reflects a net
after-tax gain of $8.1 million ($12.5 million 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'). JWS and the Company's other water supply
subsidiary, Sea Cliff Water Company, are referred to hereafter as the 'Water
Companies.' Net income for 1996 also reflects an after-tax charge of $2.8
million ($4.3 million pre-tax) included in selling, general and administrative
expenses ('SG&A') related to an adverse arbitration award.
The 16.9% increase in revenues for the year ended December 31, 1997 when
compared to 1996 was primarily attributable to the continued increase in
commercial construction activity in the western United States, the acquisition
of the businesses of two mechanical construction companies in late 1996 and
early 1997 in Connecticut and New Jersey, respectively, a general increase in
industrial construction activity in Canada, and continued progress on several
large jobs in the United Kingdom.
SG&A for the year ended December 31, 1997 was $154.8 million, or 7.9% of
revenues, compared to $143.7 million, or 8.6% of revenues, for the year ended
December 31, 1996. SG&A expenses for the year ended December 31, 1996, exclusive
of the adverse arbitration award noted above, were $139.4 million, or 8.3% of
revenues. The dollar increase in SG&A for the year ended December 31, 1997
compared to the prior year is attributable to the increase in operating volume.
The reduction in SG&A as a percentage of revenues is due to the maintenance of
the fixed cost portion of SG&A.
The Company generated operating income of $27.4 million for the year ended
December 31, 1997 compared with operating income of $17.1 million for the year
ended December 31, 1996. Operating income for the year ended December 31, 1997
as compared to 1996 increased by $10.3 million due to increases in operating
volume during 1997 as well as reductions in SG&A as a percentage of revenues. In
addition, operating income for 1996 reflected the negative impact during 1996 of
the adverse arbitration award referred to above, in addition to favorable
closeouts of certain contracts in the first quarter of 1996.
The Company's backlog was $996.4 million at December 31, 1997 and $1,043.7
million at December 31, 1996. Between December 31, 1996 and December 31, 1997,
the Company's backlog in Canada increased by $0.5 million, its backlog in the
United Kingdom decreased by $43.8 million and its backlog in the United States
decreased by $4.0 million. The increase in the Company's Canadian backlog was
primarily attributable to improved economic conditions in western Canada. The
decrease in the United Kingdom backlog was due to the continued progress towards
completion of several large projects and exchange rate fluctuations. The decline
in the domestic backlog was due to the continued progress towards completion of
several large projects, primarily in the western United States.
The Company's interest expense decreased by $1.9 million to $13.0 million
in 1997 due to the Company's lower cost of capital, lower average outstanding
borrowings during 1997 and the repurchase and partial redemption of the
Company's Series C Notes discussed above. Beginning with the second quarter of
1997, the Company was relieved of obligations under the terms of its then
domestic bonding and revolving credit agreements restricting the use of cash
generated by certain subsidiaries, and the Company used this cash to reduce
borrowings under its New Credit Facility referred to below. As a consequence,
the Company maintained less cash on deposit in banks in 1997 than in 1996, and
interest income decreased from $2.2 million in 1996 to $1.1 million in 1997.
18
<PAGE>
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
Revenues for the years ended December 31, 1996 and 1995 were $1,669.3
million and $1,588.7 million, respectively. Net income for the year ended
December 31, 1996 was $9.4 million compared to a net loss of $10.9 million for
the year ended December 31, 1995. Basic EPS was $1.00 per share for the year
ended December 31, 1996 compared to Basic EPS of $(1.13) per share for the year
ended December 31, 1995. Net income for the year ended December 31, 1996
includes a gain of $12.5 million ($8.1 million after-tax) on the sale of JWS.
Net income for 1996 also reflects an after-tax charge of $2.8 million ($4.3
million pre-tax) included in SG&A related to an adverse arbitration award. The
1995 loss includes a loss of approximately $0.9 million associated with the
disposition of a subsidiary engaged principally in the installation of
industrial boilers.
Revenues for the year ended December 31, 1996 increased by approximately
5.1% when compared with the year earlier period. While revenues of business
units operating in the western United States increased due to improved economic
conditions, these increases were substantially offset by decreased revenues (a)
in the northeastern United States resulting from, among other things, adverse
weather conditions in the first quarter of 1996 and increased competition, (b)
in the midwestern United States due to reduced construction activity as compared
with 1995 and the Company's earlier downsizing of its midwestern operations and
(c) in the United Kingdom due to reduced activity in the commercial construction
market.
SG&A for the years ended December 31, 1996 and 1995 was $143.7 million and
$137.3 million, respectively. The increase was primarily attributable to
increased operating volume and the $4.3 million adverse arbitration result noted
above.
The Company generated operating income of $17.1 million for the year ended
December 31, 1996 compared with operating income of $5.9 million for the year
ended December 31, 1995. The improvement in operating income for 1996 was
principally attributable to continued improvement in gross profit due to cost
control efforts and improved job performance offset partially by an increase in
SG&A related to the adverse arbitration award noted above.
LIQUIDITY AND CAPITAL RESOURCES
On January 16, 1998, the Company filed a Registration Statement on Form S-3
to sell from time to time: (i) preferred stock, par value $0.10 per share (the
'Preferred Stock'), (ii) common stock, par value $0.01 per share (the 'Common
Stock'), (iii) unsecured debt securities consisting of notes, debentures or
other evidences of indebtedness (the 'Debt Securities') which may be senior,
senior subordinated or subordinated and (iv) warrants to purchase Preferred
Stock, Common Stock of Debt Securities (the 'Warrants'), or any combination of
the foregoing.
The Preferred Stock, Common Stock, Debt Securities and Warrants are
collectively referred to as the 'Securities.' Pursuant to the Shelf Registration
Statement, as amended, the Securities may be offered for sale from time to time
at an aggregate initial offering price not to exceed $200,000,000 at prices and
on terms to be determined at or prior to the time of sale.
Proceeds from the issuance of the Securities, if any, will be used for
general corporate purposes, including without limitation the repayment of
indebtedness including the Company's Series C Notes, Supplemental SellCo Note,
and borrowings under its revolving credit facility, and possible acquisitions.
Any loss resulting from the early retirement of the Series C Notes and
Supplemental SellCo Note would be reported as an extraordinary item in the
Company's consolidated financial statements.
The Company's consolidated cash balance decreased by $1.3 million from
$50.7 million at December 31, 1996 to $49.4 million at December 31, 1997. The
Company generated positive operating cash flow of $25.6 million for the year
ended December 31, 1997 which was primarily used to purchase or redeem
approximately $11.9 million of Series C Notes, to pay down a portion of the
Company's borrowings under its revolving credit facility and to fund capital
expenditures. The December 31, 1997 cash balance includes approximately $7.3
million in a foreign subsidiary's bank account which is available only to
support its operations.
19
<PAGE>
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 a working capital credit facility for
borrowings up to $100.0 million for a three-year period (the 'New Credit
Facility'). The New Credit Facility, as amended, which is guaranteed by certain
direct and indirect subsidiaries of the Company and is secured by substantially
all of the assets of the Company and those subsidiaries provides for borrowing
capacity available in the form of revolving loans ('Revolving Loans') and/or
letters of credit ('LCs'). The Revolving Loans bear interest at a variable rate,
which is the prime commercial lending rate announced by Harris from time to time
(8.5% at December 31, 1997) plus 1.0% to 2.0% based on certain financial tests.
The interest rate on the Revolving Loans was 9.5% at December 31, 1997. 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. As of December 31, 1997, the Company
had approximately $25.7 million of LCs and approximately $9.5 million of
Revolving Loans outstanding under the New Credit Facility.
On December 15, 1994, the Company and its wholly-owned subsidiary SellCo
Corporation ('SellCo'), issued, or reserved for issuance, four series of notes
(the 'New Notes') and 9,424,083 shares of the Company's Common Stock
(constituting 100% of the issued or issuable shares as of December 15, 1994) to
pre-petition creditors of the Company, other than holders of the Company's
pre-petition subordinated debt, in settlement of their pre-petition claims, and
to Belmont Capital Partners II, L.P., which provided a debtor-in-possession
credit facility ('DIP Loan'), in payment of additional interest under the terms
of the DIP Loan. The entire $11.9 million principal amount of Series B Notes and
approximately $4.1 million principal amount of Series A Notes, two of the four
series of the New Notes, were redeemed on December 15, 1994 with the net cash
proceeds derived from the sale of certain of the Company's 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 were reserved for prepayment of certain of the Series A Notes
which have been reserved for issuance in respect of disputed and unliquidated
claims). The Series A Notes were paid in full with proceeds received by the
Company from the sale of the Water Companies. Holders of SellCo Notes, also a
series of the New Notes, will only be paid from and to the extent of any
remaining net cash proceeds (as defined) from the sale of SellCo's subsidiaries
and the proceeds of the $5.5 million Supplemental SellCo Note issued by the
Company to SellCo. The SellCo Notes are not obligations of the Company, and
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 thereon.
Approximately $6.6 million and $1.7 million of SellCo Notes were redeemed during
1997 and 1996, respectively, with net cash proceeds from the sales of the Water
Companies. Interest on the Supplemental SellCo Note is payable at maturity.
In October 1997, the Company's Canadian subsidiary, Comstock Canada Ltd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.0% at December 31, 1997).
There were no borrowings outstanding under this credit agreement at December 31,
1997. The Canadian subsidiary may utilize the Company's revolving credit
facility for any future working capital requirements.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of pounds 17.1 million (approximately U.S. $26.8 million). The
facility was secured by substantially all of the assets of the Company's
principal United Kingdom subsidiaries. The overdraft facility provided for
interest at the bank's base rate, as defined (6.5% as of December 31, 1995),
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. During 1996, the
Company's United Kingdom subsidiaries replaced the United Kingdom facility with
Revolving Loans and LCs under the New Credit Facility.
As reported in the Company's Report on Form 8-K, dated February 29, 1996,
holders of a majority of principal amount of the outstanding Series A Notes and
holders of a majority of principal amount of the outstanding Series C Notes
consented to amendments to the Series A Indenture and Series C Indenture under
which the Series A Notes and the Series C Notes, respectively, were issued. The
amendments (i) reduced the Consolidated Fixed Charge Coverage Ratio (the
'Ratio'), as defined, required to be maintained by the Company and certain of
its subsidiaries, pursuant to each of the Indentures and (ii) excluded from the
calculation of the Ratio certain non-cash interest payments payable by the
issuance of additional Series A Notes and Series C Notes. The Series A Notes
have been paid in their entirety.
20
<PAGE>
CERTAIN INSURANCE MATTERS
During the second quarter of 1996, the Company entered into an agreement
with one of its insurers to reinsure the Company's 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 the Company's insurers as collateral to fund certain losses under the
deductible portion of the Company's insurance program were returned to the
Company and used to fund the cost of that agreement and to pay down, in July
1996, approximately $10.1 million of indebtedness under the New Credit Facility.
As of December 31, 1997, the Company was utilizing approximately $25.4 million
of letters 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.
YEAR 2000
The Company has performed a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue and is developing
a plan to resolve the issue. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test the systems to ensure Year
2000 compliance. Preliminary cost estimates of testing and converting system
applications range from $1.0 million to $2.0 million. Maintenance and
modification costs will be expensed as incurred, while costs of new software
will be capitalized and amortized over the expected useful life of the related
software.
The Company expects its Year 2000 conversion project to be completed on a
timely basis. However, there can be no assurance that the systems of other
companies on which the Company's systems rely also will be converted on a timely
basis. A failure to convert successfully by another company could have an
adverse effect on the Company's systems.
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995, particularly
statements regarding market opportunities, market share growth, competitive
growth, gross margin, and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, that could cause
actual results to differ materially from those in any such forward-looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including changes in the specific markets for the
Company's services, adverse business conditions, decreased or lack of growth in
the mechanical and electrical construction and facilities services industries,
increased competition, pricing pressures, risks associated with foreign
operations and other factors.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 49,376 $ 50,705
Accounts receivable, less allowance for doubtful accounts of $20,456 and
$18,812, respectively................................................................ 480,997 442,930
Costs and estimated earnings in excess of billings on uncompleted contracts............. 73,974 67,765
Inventories............................................................................. 7,363 9,108
Prepaid expenses and other.............................................................. 10,951 8,143
-------- --------
Total current assets............................................................... 622,661 578,651
Investments, notes and other
long-term receivables................................................................... 5,901 5,737
Property, plant and equipment, net........................................................ 27,164 26,952
Other assets.............................................................................. 4,928 3,407
-------- --------
Total assets.............................................................................. $660,654 $614,747
-------- --------
-------- --------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
22
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital credit lines............................................. $ 9,497 $ 14,200
Current maturities of long-term debt and capital lease obligations........................ 927 361
Accounts payable.......................................................................... 239,117 218,099
Billings in excess of costs and estimated earnings on uncompleted contracts............... 112,833 105,653
Accrued payroll and benefits.............................................................. 49,058 43,789
Other accrued expenses and liabilities.................................................... 45,163 39,596
-------- --------
Total current liabilities............................................................... 456,595 421,698
Long-term debt............................................................................ 63,212 73,051
Other long-term obligations............................................................... 45,524 36,115
Stockholders' equity:
Preferred Stock, $0.10 par value, 1,000,000 shares authorized, zero issued and
outstanding............................................................................. -- --
Common Stock, $0.01 par value, 13,700,000 shares authorized, 9,590,827 and 9,514,636
shares issued and outstanding or issuable, respectively................................. 96 95
Warrants.................................................................................. 2,154 2,154
Capital surplus........................................................................... 87,107 81,672
Cumulative translation adjustment......................................................... (195) 1,378
Retained earnings (accumulated deficit)................................................... 6,161 (1,416)
-------- --------
Total stockholders' equity.............................................................. 95,323 83,883
-------- --------
Total liabilities and stockholders' equity................................................ $660,654 $614,747
-------- --------
-------- --------
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
23
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................................ $1,950,868 $1,669,274 $1,588,744
Costs and expenses:
Cost of sales......................................................... 1,768,685 1,508,486 1,445,597
Selling, general and administrative................................... 154,769 143,674 137,254
---------- ---------- ----------
1,923,454 1,652,160 1,582,851
---------- ---------- ----------
Operating income........................................................ 27,414 17,114 5,893
Interest expense........................................................ (13,029) (14,890) (17,453)
Interest income......................................................... 1,077 2,244 2,633
Other income............................................................ -- 12,500 --
Net loss on business sold............................................... -- -- (926)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item................ 15,462 16,968 (9,853)
Income tax provision.................................................... 6,881 7,531 1,000
---------- ---------- ----------
Income (loss) before extraordinary item................................. 8,581 9,437 (10,853)
Extraordinary item--loss on early extinguishment of debt, net of income
taxes................................................................. (1,004) -- --
---------- ---------- ----------
Net income (loss)....................................................... $ 7,577 $ 9,437 $ (10,853)
---------- ---------- ----------
---------- ---------- ----------
Basic earnings (loss) per share:
Income (loss) before extraordinary item............................... $ 0.90 $ 1.00 $ (1.13)
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.11) -- --
---------- ---------- ----------
Basic earnings (loss) per share......................................... $ 0.79 $ 1.00 $ (1.13)
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings (loss) per share:
Income (loss) before extraordinary item............................... $ 0.84 $ 0.96 $ (1.13)
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.10) -- --
---------- ---------- ----------
Diluted earnings (loss) per share....................................... $ 0.74 $ 0.96 $ (1.13)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
24
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................................. $ 7,577 $ 9,437 $(10,853)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................ 8,192 7,864 8,912
Net loss from business sold.................................................. -- -- 926
Stock compensation........................................................... -- -- 6
Non-cash interest expense.................................................... 1,319 4,748 7,690
Non-cash income tax provision................................................ 5,587 6,771 --
Non-cash portion of extraordinary item....................................... 533 -- --
Other, net................................................................... 612 252 465
-------- ------- --------
23,820 29,072 7,146
Change in operating assets and liabilities excluding effect of businesses
disposed of and acquired:
(Increase) decrease in accounts receivable, net.............................. (37,585) (6,956) 2,635
(Increase) decrease in inventories and contracts in progress................. 3,029 (11,228) (16,320)
Increase (decrease) in accounts payable and other accrued expenses and
liabilities............................................................... 31,740 (6,891) 5,312
Decrease in insurance cash collateral........................................ -- 30,812 6,765
Decrease in funds held in escrow............................................. -- 8,271 378
Changes in other assets and liabilities, net................................. 4,613 (9,997) 4,785
-------- ------- --------
Net Cash Provided by Operations................................................ 25,617 33,083 10,701
-------- ------- --------
Cash flows from financing activities:
Proceeds from working capital credit lines................................... 136,862 45,625 --
Payments of working capital credit lines..................................... (141,565) (56,425) (15,000)
Proceeds from long-term debt and capital lease obligations................... 906 226 180
Payments of long-term debt and capital lease obligations..................... (685) (873) (1,379)
Repayment of Series A Notes.................................................. -- (66,424) --
Partial repayment and redemption of Series C Notes........................... (11,920) -- --
Exercise of stock options.................................................... 427 487 --
Proceeds from notes payable.................................................. -- 9,596 21,266
Payments of notes payable.................................................... -- (24,363) (11,404)
Debt issuance costs.......................................................... (304) (1,600) --
-------- ------- --------
Net Cash Used in Financing Activities.......................................... (16,279) (93,751) (6,337)
-------- ------- --------
Cash flows from investing activities:
Proceeds from sale of businesses and other assets............................ 750 353 650
Proceeds from sales of net assets held for sale.............................. -- 66,424 --
Purchase of property, plant and equipment.................................... (9,753) (7,428) (4,512)
Acquisition of business...................................................... (1,500) -- --
Net disbursements for other investments...................................... (164) (983) --
-------- ------- --------
Net Cash (Used in) Provided by Investing Activities............................ (10,667) 58,366 (3,862)
-------- ------- --------
(Decrease) Increase in Cash and Cash Equivalents............................... (1,329) (2,302) 502
Cash and Cash Equivalents at Beginning of Year................................. 50,705 53,007 52,505
-------- ------- --------
Cash and Cash Equivalents at End of Year....................................... $ 49,376 $50,705 $ 53,007
-------- ------- --------
-------- ------- --------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
25
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
CUMULATIVE EARNINGS TOTAL
COMMON CAPITAL TRANSLATION (ACCUMULATED STOCKHOLDERS'
STOCK WARRANTS SURPLUS ADJUSTMENT DEFICIT) EQUITY
------ -------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1995....................... $ 94 $2,179 $78,857 $-- $ -- $ 81,130
Foreign currency translation
adjustment....................... -- -- -- 327 -- 327
Other............................... -- -- 6 -- -- 6
Net loss............................ -- -- -- -- (10,853) (10,853)
------ -------- ------- ---------- ------------ -------------
Balance, December 31, 1995............ 94 2,179 78,863 327 (10,853) 70,610
Foreign currency translation
adjustment....................... -- -- -- 1,051 -- 1,051
Common Stock issued under stock
option plans..................... 1 -- 486 -- -- 487
NOL utilization..................... -- -- 2,298 -- -- 2,298
Net income.......................... -- -- -- -- 9,437 9,437
Other............................... -- (25) 25 -- -- --
------ -------- ------- ---------- ------------ -------------
Balance, December 31, 1996............ 95 2,154 81,672 1,378 (1,416) 83,883
Foreign currency translation
adjustment....................... -- -- -- (1,573) -- (1,573)
Common Stock issued under stock
option plans..................... 1 -- 426 -- -- 427
NOL utilization..................... -- -- 5,009 -- -- 5,009
Net income.......................... -- -- -- -- 7,577 7,577
------ -------- ------- ---------- ------------ -------------
Balance, December 31, 1997............ $ 96 $2,154 $87,107 $ (195) $ 6,161 $ 95,323
------ -------- ------- ---------- ------------ -------------
------ -------- ------- ---------- ------------ -------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
26
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--NATURE OF OPERATIONS
EMCOR Group, Inc. ('EMCOR' or the 'Company') is a multinational corporation
involved in mechanical and electrical construction services and facilities
services. EMCOR's subsidiaries specialize 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's subsidiaries provide
mechanical and electrical construction and facilities 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 for construction managers, general contractors,
systems suppliers and other subcontractors. Mechanical and electrical
construction services are principally either large installation projects with
contracts generally in the multi-million dollar range; smaller system
installations involving renovation and retrofit work; and maintenance and
service. In addition, certain of its subsidiaries operate and maintain
mechanical and/or electrical systems for customers under contracts and provide
other services commonly referred to as facilities services including the
management of facilities and the provision of support services to customers at
the customer's facilities. Mechanical and electrical construction and facilities
services are provided to a broad range of commercial, industrial and
institutional customers through offices located in major markets throughout the
United States, Canada and the United Kingdom and through its joint ventures in
the United Arab Emirates, Saudi Arabia, South Africa, Hong Kong and Macau.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. 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.
Reclassifications of prior years data have been made in the accompanying
consolidated financial statements where appropriate to conform to the current
presentation.
Revenue Recognition
Revenues from long-term contracts are recognized on the
percentage-of-completion method. Percentage-of-completion for the mechanical and
electrical construction services business is measured principally by the
percentage of costs incurred and accrued to date for each contract to the
estimated total costs for each contract at completion. Certain of the Company's
electrical contracting business units measure percentage-of-completion by the
percentage of labor costs incurred to date for each contract to the estimated
total labor costs for such contract, while others are on the cost to total cost
method. Revenues from facilities services are recognized as services are
provided.
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
27
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
arising from contract penalty provisions and final contract settlements, will be
revised in the near-term. Such revisions 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,
completion of specified units 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 (claims and pending change
orders). 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 and pending change
orders 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 as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts................................ $2,282,127 $2,442,197
Estimated earnings..................................................... 158,832 175,094
---------- ----------
2,440,959 2,617,291
Less billings to date.................................................. 2,479,998 2,655,179
---------- ----------
$ (39,039) $ (37,888)
---------- ----------
---------- ----------
</TABLE>
Such amounts are included in the accompanying Consolidated Balance Sheets
at December 31, 1997 and 1996 under the following captions (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts.............................................................. $ 73,794 $ 67,765
Billings in excess of costs and estimated earnings on uncompleted
contracts.............................................................. (112,833) (105,653)
--------- ---------
$ (39,039) $ (37,888)
--------- ---------
--------- ---------
</TABLE>
28
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
As of December 31, 1997 costs and estimated earnings in excess of billings
on uncompleted contracts include unbilled revenues for pending change orders of
approximately $14.5 million and claims of approximately $12.5 million. In
addition, accounts receivable as of December 31, 1997 included claims and
contractually billed amounts related to such contracts of approximately $44.5
million. Claims and related amounts, included in accounts receivable, aggregated
approximately $49.2 million as of December 31, 1996. Generally, contractually
billed amounts will not be paid by the customer to the Company until final
resolution of 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, 1997 and 1996
included $88.2 million and $70.9 million, respectively, of retainage billed
under terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1997 will be collected during 1998.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents. The Company maintains a centralized cash
management program whereby its excess cash balances are invested in high
quality, short-term, money market instruments which are considered cash
equivalents. At times, cash balances in the Company's bank accounts may exceed
federally insured limits.
Inventories
Inventories, which consist primarily of construction materials, are stated
at the lower of cost or market. Cost is determined principally using average
cost.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is recorded
principally using the straight-line method over estimated useful lives ranging
from 3 to 40 years.
Property, plant and equipment in the accompanying Consolidated Balance
Sheets consisted of the following amounts as of December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment..................................................... $ 24,824 $ 22,615
Furniture and fixtures...................................................... 5,728 4,507
Land, buildings and leasehold improvements.................................. 13,758 13,554
-------- --------
44,310 40,676
Accumulated depreciation and amortization................................... (17,146) (13,724)
-------- --------
$ 27,164 $ 26,952
-------- --------
-------- --------
</TABLE>
29
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable,
investments, notes and other long-term receivables, other assets, long-term debt
(excluding the Company's Series C Notes), foreign currency contracts and other
financing commitments whose carrying values approximate their fair values.
At December 31, 1997, the fair value of the Company's Series C Notes was
$64.3 million compared to the carrying value of $56.3 million. The fair value
was estimated based on quoted market prices and market interest rates as of
December 31, 1997.
Foreign Operations
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currency and translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52, 'Foreign Currency Translation'. Translation adjustments have been
accumulated as a separate component of stockholders' equity.
Other Income
Other income in the accompanying Consolidated Statement of Operations for
the year ended December 31, 1996 includes a pre-tax gain of $12.5 million ($8.1
million after-tax) on the sale of certain assets held for sale, including the
sale of substantially all of the assets of the Company's principal water supply
subsidiary Jamaica Water Supply Company ('JWS'). JWS and the Company's other
water supply subsidiary, Sea Cliff Water Company ('Sea Cliff'), are referred to
hereafter as the 'Water Companies.'
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' ('SFAS 109'). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Foreign Exchange Contracts
Gains and losses on contracts designated as hedges of net investments in
foreign subsidiaries are recognized in the Consolidated Statements of
Stockholders' Equity as exchange rates change as Cumulative Translation
Adjustment.
As of December 31, 1997, the Company had one forward contract that is
designated as, and is effective as, an economic hedge of a net investment in a
foreign entity. The amount of this forward contract is not material to the
consolidated financial statements.
Valuation of Stock Option Grants
The Company continues to account for its stock option plans under
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees' ('APB 25'). See Note G for pro forma information relating to
treatment of the Company's stock option plans under Statement of Financial
Accounting Standards No. 123, 'Accounting for Stock-Based Compensation' ('SFAS
123').
30
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--EARNINGS PER SHARE
Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128 ('SFAS No. 128' or the 'Statement'), 'Earnings Per
Share' ('EPS'), which established standards for computing and presenting EPS.
The Statement replaced the presentation of Primary EPS with a presentation of
Basic EPS, as defined, and Fully Diluted EPS with Diluted EPS, as defined.
The following tables summarize the Company's calculation of Basic EPS and
Diluted EPS for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 8,581,000 9,547,869 $ 0.90
---------
---------
EFFECT OF DILUTIVE SECURITIES:
Options...................................................... -- 305,336
Warrants..................................................... -- 321,690
----------- -------------
DILUTED EPS.................................................... $ 8,581,000 10,174,895 $ 0.84
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
1996
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 9,437,000 9,479,817 $ 1.00
---------
---------
Effect of Dilutive Securities:
Options...................................................... -- 276,960
Warrants..................................................... -- 54,226
----------- -------------
DILUTED EPS.................................................... $ 9,437,000 9,811,003 $ 0.96
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
1995
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Loss before extraordinary item available to common
stockholders.............................................. $ (10,853,000) 9,580,418 $ (1.13)
---------
---------
EFFECT OF DILUTIVE SECURITIES:
Options................................................... -- --
Warrants.................................................. -- --
------------- -------------
DILUTED EPS................................................. $ (10,853,000) 9,580,418 $ (1.13)
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
31
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--EARNINGS PER SHARE--(CONTINUED)
The number of the Company's warrants and options granted which were
excluded from the computation of Diluted EPS for the years ended December 31,
1997, 1996 and 1995 because they would be antidilutive is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ---------
<S> <C> <C> <C>
Series X............................................................. -- -- 605,000
Series Y............................................................. -- 605,000 605,000
Series Z(a).......................................................... -- -- 170,000
Options.............................................................. -- 33,000 --
------- ------- ---------
Total................................................................ -- 638,000 1,380,000
------- ------- ---------
------- ------- ---------
</TABLE>
(a) The Series Z Warrants expired on December 15, 1996.
As a result of adopting SFAS No. 128, the Company's reported earnings per
share for the years ended December 31, 1996 and 1995 were restated. The effect
of this accounting change on previously reported earnings per share data is as
follows:
<TABLE>
<CAPTION>
PER SHARE AMOUNTS 1996 1995
- ------------------------------------------------------------------ ------ ------
<S> <C> <C>
Primary EPS as reported........................................... $ 0.95 $(1.13)
Effect of SFAS No. 128............................................ 0.05 --
------ ------
Basic EPS as restated............................................. $ 1.00 $(1.13)
------ ------
------ ------
Fully diluted EPS as reported..................................... $ 0.95 $(1.13)
Effect of SFAS No. 128............................................ $ 0.01 --
------ ------
Diluted EPS as restated........................................... $ 0.96 $(1.13)
------ ------
------ ------
</TABLE>
NOTE D--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 a working capital credit facility for
borrowings up to $100.0 million for a three-year period (the 'New Credit
Facility'). The New Credit Facility, as amended, which is guaranteed by certain
direct and indirect subsidiaries of the Company and is secured by substantially
all of the assets of the Company and those subsidiaries, provides for borrowing
capacity available in the form of revolving loans ('Revolving Loans') and/or
letters of credit ('LCs'). The Revolving Loans bear interest at a variable rate,
which is the prime commercial lending rate announced by Harris from time to time
(8.5% at December 31, 1997) plus 1.0%--2.0% based on certain financial tests.
The interest rate on the Revolving Loans was 9.5% at December 31, 1997. 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. As of December 31, 1997, the Company
had approximately $25.7 million of LCs and approximately $9.5 million of
Revolving Loans outstanding under the New Credit Facility which are classified
as Current Liabilities under the caption 'Borrowings under working capital
credit lines' in the accompanying Consolidated Balance Sheets.
MES and Dyn Credit Agreements
On December 14, 1994, the Company and certain of its subsidiaries entered
into two credit agreements (the 'Old Credit Agreements') with Belmont Capital
Partners II, L.P. ('Belmont'), certain directors of the Company and/or their
affiliates and other lenders (the 'Lenders') providing the Company and MES and
certain of its subsidiaries with working capital facilities of up to an
aggregate amount of $45.0 million which became available December 15, 1994. The
MES Credit Agreement, one of the Old Credit Agreements, was among the Company,
its subsidiary MES Holdings Corporation ('MES'), substantially all of the U.S.
subsidiaries of MES, as guarantors, and the Lenders and provided the Company and
MES with loans in an aggregate amount of up to
32
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--CURRENT DEBT--(CONTINUED)
$35.0 million. The Dyn Credit Agreement, the other Old Credit Agreement, was
among the Company, Dyn, Dyn's subsidiaries, as guarantors, and the Lenders and
provided Dyn with loans in aggregate amount of up to $10.0 million. The loans
bore interest on the principle amount thereof at the rate of 15.0% per annum.
The proceeds from the Old Credit Agreements were used to repay amounts
outstanding under the Company's previous working capital loan, pay fees and
expenses in connection with the Old Credit Agreements and the balance was used
for general working capital purposes.
Borrowings outstanding under the Old Credit Agreements were repaid in June
1996 from proceeds received by the Company from the sale of the Water Companies
and from borrowings under the New Credit Facility at which time the Old Credit
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 reserved for
issuance up to a maximum of $8.8 million additional principal amount of Series A
Notes upon resolution of disputed and unliquidated pre-petition general
unsecured claims. Approximately $4.7 million of the outstanding Series A Notes
were redeemed in 1995 and the balance of the Series A Notes were paid in full
during the second quarter of 1996 (approximately $66.5 million in principal and
accrued interest thereon) with proceeds received by the Company from the sale of
the Water Companies.
Foreign Borrowings
In October 1997, the Company's Canadian subsidiary, Comstock Canada Ltd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.0% at December 31, 1997).
There were no borrowings outstanding under this facility at December 31, 1997
and 1996. The Canadian subsidiary may utilize the Company's revolving credit
facility for any future working capital requirements.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of pounds 17.1 million (approximately U.S. $26.8 million). The
facility was secured by substantially all of the assets of the Company's
principal United Kingdom subsidiaries. The overdraft facility provided for
interest at the bank's base rate, as defined (6.5% as of December 31, 1995),
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. During 1996, the
Company's United Kingdom subsidiaries replaced the overdraft line with Revolving
Loans and LCs under the New Credit Facility.
NOTE E--LONG-TERM DEBT
Long-Term Debt in the accompanying Consolidated Balance Sheets consist of
the following amounts as of December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Series C Notes, outstanding face value of approximately $61.9 million and $73.8 million,
respectively, at 11.0% discounted to a 14.0% effective rate, due 2001..................... $56,290 $66,039
Supplemental SellCo Note, outstanding face value of approximately $5.5 million at 8.0%,
discounted to a 14.0% effective rate, due 2004............................................ 4,733 4,474
Capitalized Lease Obligations at weighted average interest rates from 7.25% to 11.0%,
payable in varying amounts through 2004................................................... 1,482 1,007
Other, at weighted average interest rates of approximately 9.6%, payable in varying amounts
through 2012.............................................................................. 1,634 1,892
------- -------
64,139 73,412
Less current maturities..................................................................... (927) (361)
------- -------
$63,212 $73,051
------- -------
------- -------
</TABLE>
33
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--LONG-TERM DEBT--(CONTINUED)
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 was payable
semiannually through June 15, 1996 by the issuance of additional Series C Notes
and is currently payable quarterly in cash. The Series C Notes are unsecured
indebtedness of the Company and are 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%. The Series C Notes mature on December 15, 2001 and are currently
redeemable at a redemption price equal to 104% of the principal amount. The
redemption price decreases ratably to face value at maturity.
On June 3, 1997, the Company purchased $1.0 million of Series C Notes and
retired such notes. On June 27, 1997, the Company called for the partial
redemption of approximately $10.9 million principal amount of Series C Notes. In
accordance with the Indenture governing the Series C Notes, the redemption price
of the Series C Notes was 105% of the principal amount redeemed. Accordingly,
the Company recorded an extraordinary loss of approximately $1.0 million related
to the early retirement of debt. The extraordinary loss consisted primarily of
the write-off of the associated debt discount plus premiums and costs associated
with the redemption, net of income tax benefits of approximately $0.7 million.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series C Notes consented to amendments to the Series C Indenture
under which the Series C Notes were issued. The amendments (i) reduced the
Consolidated Fixed Charge Coverage Ratio (the 'Ratio'), as defined, required to
be maintained by the Company and certain of its subsidiaries under the Series C
Indenture and (ii) excluded from the calculation of the Ratio certain non-cash
interest payments payable by the issuance of additional Series C Notes.
Supplemental SellCo Note
On December 15, 1994, EMCOR issued to its wholly-owned subsidiary SellCo
Corporation ('SellCo') its 8.0% 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 (hereafter defined) are deemed canceled. If at any time after
December 15, 1999, prior to the maturity date of the SellCo Notes (December 15,
2004) 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 theretofore 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 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 12.0% Subordinated Contingent Payments Notes, due 2004, (the 'SellCo
Notes'). Interest is payable semiannually in additional SellCo Notes. Net Cash
Proceeds (as defined in the Indenture pursuant to which the SellCo Notes were
issued) from the 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
accordingly are not included in the accompanying Consolidated Balance Sheets as
of December 31, 1997 and 1996. 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 thereon. In May 1996, the Company completed the sale of
substantially all of the assets of its subsidiary JWS to The City of New York
and the Water Authority of Western Nassau County. In May 1996, the Company also
completed the sale of the stock of Sea Cliff to a subsidiary of Aquarion
Company. Approximately $2.1 and $0.7 million of the proceeds
34
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--LONG-TERM DEBT--(CONTINUED)
from the sale of the stock of Sea Cliff and the sale of assets of JWS,
respectively, were used to redeem, in part, the SellCo Notes during August 1996.
On February 28, 1997, the Company redeemed approximately $6.6 million of SellCo
Notes with proceeds from the sale of assets of JWS which monies had been
retained pending disposition of the lawsuit brought by certain holders of
Warrants of Participation ('Warrants') that had been issued by the Company prior
to its Chapter 11 proceedings. 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 assets of JWS 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 SellCo Notes mature on December 15, 2004 if not deemed canceled at an
earlier date as discussed above under Supplemental SellCo Note.
Other Long-Term Debt
Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements. As of December 31, 1997 and
1996, respectively, other long-term debt, excluding current maturities, totaling
$1.5 million and $1.8 million was owed by certain of the Company's subsidiaries.
The aggregate amount of other long-term debt maturing during the next five years
is approximately: $0.1 million in each of 1998, 1999, 2000, 2001, 2002; and $1.1
million thereafter.
NOTE F--INCOME TAXES
The Company files a consolidated federal income tax return including all
its U.S. subsidiaries. At December 31, 1997, the Company had net operating loss
carryforwards ('NOLs') for U.S. income tax purposes of approximately $170.0
million, which expire in the years 2007 through 2010. The NOLs are subject to
review by the Internal Revenue Service. Future changes in ownership of the
Company, as defined by Section 382 of the Internal Revenue Code, could limit the
amount of NOLs available for use in any one year.
The Company adopted Fresh-Start Accounting in connection with the Company's
reorganization in December, 1994. As a result, the tax benefit of any net
operating loss carryforwards or net deductible temporary differences which
existed as of December 15, 1994 will result in a charge to the tax provision
(provision in lieu of income taxes) and be 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. For the
year ended December 31, 1996 the Company allocated approximately $4.5 million of
its tax provision to reorganization value in excess of amounts allocable to
identifiable assets thereby reducing this balance to zero. The remaining
utilization of NOLs and other deferred tax assets, approximately $5.0 million
and $2.3 million for the years ended December 31, 1997 and 1996, respectively,
have been applied to capital surplus for the years then ended.
The income tax provision in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1997, 1996 and 1995 consists of (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................................. $5,508 $6,068 $ --
State and local.......................................................... 1,055 760 925
Foreign.................................................................. 1,418 703 75
------ ------ ------
7,981 7,531 1,000
------ ------ ------
Deferred:
Foreign.................................................................. (1,100) -- --
------ ------ ------
$6,881 $7,531 $1,000
------ ------ ------
------ ------ ------
</TABLE>
35
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--INCOME TAXES--(CONTINUED)
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1997, 1996
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Federal income taxes at the statutory rate................................ $5,412 $5,939 $(3,449)
State and local income taxes, net of federal tax benefits................. 686 494 650
Foreign income taxes...................................................... 1,630 1,094 --
Valuation allowance against deferred tax asset............................ -- -- 3,799
Other..................................................................... (847) 4 --
------ ------ -------
$6,881 $7,531 $ 1,000
------ ------ -------
------ ------ -------
</TABLE>
The components of the net deferred income tax asset included in 'Other
Assets' in the accompanying Consolidated Balance Sheets for the years ended
December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $63,241 $ 78,878
Excess of amounts expensed for financial statement purposes over
amounts deducted for income tax purposes............................. 29,975 28,527
Other.................................................................. 2,899 2,899
------- --------
Total deferred tax asset............................................... 96,115 110,304
------- --------
Deferred tax liabilities:
Costs capitalized for financial statement purposes and deducted to
income tax purposes.................................................. 17,799 19,175
------- --------
Total deferred tax liability........................................... 17,799 19,175
------- --------
Net deferred tax asset before valuation allowance...................... 78,316 91,129
Valuation allowance for net deferred tax asset......................... (77,216) (91,129)
------- --------
Net deferred income tax asset.......................................... $ 1,100 $ --
------- --------
------- --------
</TABLE>
Income (loss) before income taxes for the years ended December 31, 1997,
1996 and 1995 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
United States......................................................... $19,207 $18,086 $(10,063)
Foreign............................................................... (3,745) (1,118) 210
------- ------- --------
$15,462 $16,968 $ (9,853)
------- ------- --------
------- ------- --------
</TABLE>
NOTE G--STOCK OPTIONS AND WARRANTS
1994 MANAGEMENT STOCK OPTION PLAN
On December 15, 1994, the Company adopted a Management Stock Option Plan
(the '1994 Plan'), which was approved by the stockholders of the Company.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000 shares. The maximum
number of shares which may be the subject of options granted to any individual
in any calendar year may not exceed 500,000 shares. Options may be granted by
the Compensation Committee (the 'Committee') of the Board of Directors to
eligible employees as incentive stock options or as non-qualified stock options.
The exercise price of an incentive stock option and a non-qualified stock option
must be at least equal to the fair market value of the Common Stock on the date
of grant.
36
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--STOCK OPTIONS AND WARRANTS--(CONTINUED)
Such Options may not be exercised more than ten years after the date of
grant. Options may be exercisable at such rate and times as may be fixed by the
Compensation Committee of the Board of Directors on the date of grant; however,
the rate at which the Option first becomes exercisable may not be more rapid
than 33 1/3% on each of the first, second and third anniversaries, unless the
Committee otherwise determines at the time of grant of such Option.
1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On March 20, 1995, the Company adopted the 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan (the '1995 Plan'), which was approved by the
stockholders of the Company.
The 1995 Plan provides for automatic grants of non-qualified stock options
to directors of the Company who are not also employees of the Company or a
subsidiary of the Company. Pursuant to the 1995 Plan, each non-employee director
on March 20, 1995 was granted an option to purchase 7,500 shares of Common Stock
at an exercise price of $5.125 per share. Under the 1995 Plan, each person who
is elected to serve as a non-employee director after March 20, 1995 (including
those persons who were non-employee directors on March 20, 1995) is to be
granted an option during each calendar year (beginning with 1995) to purchase
3,000 shares of Common Stock. Accordingly on November 17, 1995, June 14, 1996
and June 20, 1997, each non-employee director was granted an option to purchase
3,000 shares of Common Stock at an exercise price of $9.375, $17.125 and
$16.3125 per share, respectively.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1995 Plan may not exceed 200,000 shares and no options may
be granted after March 20, 2005.
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the Common Stock on the date of grant. Such options are
fully exercisable as of the date of grant. However, no option may be exercised
more than ten years after the date of grant.
The Board of Directors may at any time withdraw or amend the 1995 Plan and
may, with the consent of the affected holder of an outstanding option, at any
time withdraw or amend the terms and conditions of outstanding options.
Amendments which would increase the number of shares issuable pursuant to
options, change the class of persons who are eligible to be granted options or
materially increase the benefits to participants in the 1995 Plan are subject to
the approval of the stockholders of the Company.
The following table summarizes the Company's stock option activity since
December 31, 1994.
<TABLE>
<CAPTION>
1994 PLAN 1995 PLAN
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance December 31, 1994............................................. -- -- -- --
Granted............................................................. 715,000 $ 5.10 63,000 $ 6.34
------- -------- ------- --------
Balance December 31, 1995............................................. 715,000 5.10 63,000 6.34
------- -------
Granted............................................................. 15,000 14.90 18,000 17.13
Forfeited........................................................... (40,334) 5.13 -- --
Exercised........................................................... (61,430) 5.13 (28,500) 6.02
------- -------
Balance December 31, 1996............................................. 628,236 5.33 52,500 10.21
------- -------- ------- --------
Granted............................................................. 366,000 19.82 18,000 16.31
Forfeited........................................................... (2,668) 5.13 -- --
Exercised........................................................... (73,191) 5.13 (3,000) 17.13
------- -------
Balance December 31, 1997............................................. 918,377 $11.12 67,500 $11.53
------- -------- ------- --------
</TABLE>
At December 31, 1997, 1996 and 1995, approximately 386,000 options, 208,000
options and 63,000 options were exercisable, respectively. The weighted average
exercise price of exercisable options at December 31, 1997, 1996 and 1995 was
approximately $6.46, $6.33 and $6.34, respectively.
37
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The following table summarizes information about the Company's stock
options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ---------------------- ------- ------------------- ---------------- ------- -------------------
<S> <C> <C> <C> <C> <C>
1994 PLAN
$4.75-$5.13 525,377 7.3 Years $ 4.99 300,377 $ 4.96
9.63 12,000 7.9 Years 9.63 8,000 9.63
$14.13-$19.875 381,000 9.8 Years $19.62 10,000 $ 14.90
------- -------
918,377 318,377
------- -------
------- -------
1995 PLAN
$5.13 22,500 7.2 Years $ 5.13 22,500 $ 5.13
9.38 12,000 7.9 Years 9.38 12,000 9.38
$16.31-$17.13 33,000 9.0 Years $16.68 33,000 $ 16.68
------- -------
67,500 67,500
------- -------
------- -------
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 were $14.67, $10.10 and $3.28, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: risk-free interest rates of
5.9% to 7.1% representing the risk-free interest rate at the date of grant;
expected dividend yields of zero percent; expected lives of 6.5 years; and
expected volatility of 57% for options granted prior to December 31, 1996 and
expected volatility of 80% for options granted during 1997.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 for options granted during those years. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
the Company's net income, Basic EPS and Diluted EPS would have been reduced from
the following as reported amounts to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ --------
<S> <C> <C> <C>
Net Income (Loss):
As Reported........................................ $7,577 $9,437 $(10,853)
Pro Forma.......................................... $6,842 $8,840 $(11,354)
Basic EPS:
As Reported........................................ $ 0.79 $ 1.00 $ (1.13)
Pro Forma.......................................... $ 0.72 $ 0.93 $ (1.19)
Diluted EPS:
As Reported........................................ $ 0.74 $ 0.96 $ (1.13)
Pro Forma.......................................... $ 0.67 $ 0.90 $ (1.19)
</TABLE>
Warrants
On December 15, 1994, the Company issued to the holders of $7,040,000
principal amount of its pre-petition 7 3/4% Convertible Subordinated Debentures,
due 2012, and $9,600,000 principal amount of its pre-petition 12.0% Subordinated
Notes due 1996, their pro rata share of each of two series of five-year Warrants
to purchase shares of Common Stock, namely, 600,000 Series X Warrants and
600,000 Series Y Warrants, with an
38
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--STOCK OPTIONS AND WARRANTS--(CONTINUED)
exercise price of $12.55 per share and $17.55 per share, respectively. In
addition, the Company issued to pre-petition holders of other contingent and
statutory subordinate claims and to holders of EMCOR's pre-petition common
stock, preferred stock and Warrants of Participation, as well as to the
plaintiffs in a stockholder class action lawsuit, their pro rata share of
250,000 Series Z Warrants to purchase shares of Common Stock, which Series Z
Warrants had an exercise price of $50.00 per share. The Series X and Y Warrants
expire on December 15, 1999. The Series Z Warrants expired on December 15, 1996.
In addition to the warrants issued above, approximately 28,000 Series X
Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to
Belmont as a portion of additional interest under the DIP Loan.
If the Company's Common Stock trades at $30.46 per share for ten of the
preceding fifteen trading days at any time prior to December 15, 1999, the
Company may accelerate the expiration date of the Warrants to a date 15 days
after notice to such Warrant holders.
As of December 31, 1997, the number of Series X Warrants and Series Y
Warrants issued and outstanding were approximately 605,000 and 605,000,
respectively.
NOTE H--RETIREMENT PLANS
A foreign subsidiary has a defined benefit pension plan covering
substantially all eligible employees. The benefits under the plan are based on
wages and years of service with the subsidiary. The Company's policy is to fund
the minimum amount required by law.
Net pension expense for the foreign defined benefit plan included in the
accompanying Consolidated Statements of Operations for the years ended December
31, 1997, 1996 and 1995 consists of the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service costs--benefits earned........................................ $ 4,224 $ 4,222 $ 2,659
Interest on projected benefit obligations............................. 4,828 4,295 3,337
Actual return on plan assets.......................................... (9,750) (6,264) (6,493)
Net amortization and deferral......................................... 3,988 1,254 2,875
-------- -------- --------
Net pension expense................................................... $ 3,290 $ 3,507 $ 2,378
-------- -------- --------
-------- -------- --------
</TABLE>
The benefit obligations and funded status of the plan at December 31, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated benefit obligations:
Vested.......................................................................... $53,986 $49,663
Impact of future salary increases............................................... 8,611 7,936
------- -------
Projected benefit obligations..................................................... 62,597 57,599
Plan assets at market value....................................................... 69,078 58,991
------- -------
Excess of plan assets over projected benefit obligations.......................... 6,481 1,392
Unrecognized prior service cost................................................... 687 791
Unrecognized net gain from past experience different from that assumed and effect
of changes in assumptions....................................................... (8,378) (3,004)
Unrecognized net asset from initial application of SFAS No. 87.................... (558) (663)
------- -------
Accrued pension liability......................................................... $(1,768) $(1,484)
------- -------
------- -------
</TABLE>
39
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--RETIREMENT PLANS--(CONTINUED)
The assumptions used as of December 31, 1997, 1996 and 1995 in determining
the pension cost and liability shown above were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................................... 8.5% 8.5% 8.5%
Rate of salary progressions............................................. 6.5 6.5 6.5
Rate of return on assets................................................ 10.0% 10.0% 10.0%
</TABLE>
The unrecognized net asset of the foreign plan is being amortized over 15
years. The plan assets are invested approximately 80% in equity securities and
20% in fixed income securities.
The Company contributes to various union pension funds based upon wages
paid to union employees of the Company. Such contributions approximated $50.8
million, $41.1 million and $35.1 million for the years ended December 31, 1997,
1996 and 1995, respectively.
The Company has a defined contribution retirement plan that covers its U.S.
non-union eligible employees. Contributions to this plan are based on a
percentage of the employee's base compensation. The expense recognized for the
years ended December 31, 1997, 1996 and 1995, for the defined contribution plan
was $2.6 million, $2.1 million and $2.1 million, respectively.
NOTE I--COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expenses.
Future minimum payments, by year and in the aggregate, under capital
leases, non-cancelable operating leases and related sub-leases with initial or
remaining terms of one or more years at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES SUB-LEASES
------- --------- ----------
<S> <C> <C> <C>
Year 1................................................................. $ 444 $14,286 $ 3,580
Year 2................................................................. 403 11,576 2,474
Year 3................................................................. 354 8,246 2,425
Year 4................................................................. 130 4,658 2,217
Year 5................................................................. 394 3,966 2,048
Thereafter............................................................. -- 8,711 11,833
------- --------- ----------
Total minimum lease payments........................................... 1,725 $51,443 $ 24,577
--------- ----------
--------- ----------
Amounts representing interest.......................................... 243
-------
Present value of net minimum lease payments............................ $ 1,482
-------
-------
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was $20.5
million, $17.5 million and $17.5 million, respectively. Rent expense for the
years ended December 31, 1997, 1996 and 1995 includes sub-lease rentals of $2.3
million, $2.4 million and $1.7 million, respectively.
The Company has employment agreements with certain of its executive
officers and management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for salary continuation
for a specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights if a change of
control (as defined) of the Company occurs.
40
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company is contingently liable to sureties in respect of performance
and payment bonds issued by the sureties in connection with certain contracts
entered into by the Company in the normal course of business. The Company has
agreed to indemnify the sureties for any payments made by them in respect of
such bonds.
NOTE J--INSURANCE RESERVES
The Company's insurance liability is determined actuarially based on claims
filed and an estimate of claims incurred but not yet reported. The present value
of such claims was determined at December 31, 1997 and 1996 using a 4.0%
discount rate. The estimated current portion of the insurance liability was
approximately $5.1 million and $3.2 million at December 31, 1997 and 1996,
respectively. Such amounts are included in 'Other accrued expenses and
liabilities' in the accompanying Consolidated Balance Sheets. The non-current
portion of the insurance liability was approximately $24.8 million and $18.5
million at December 31, 1997 and 1996, respectively. Such amounts are included
in 'Other Long-Term Obligations'. The undiscounted liability was approximately
$33.7 million and $24.9 million at December 31, 1997 and 1996, respectively.
The Company is subject to regulation with respect to the handling of
certain materials used in construction which are classified as hazardous or
toxic by Federal, State and local agencies. The Company's practice is to avoid
participation in projects principally involving the remediation or removal of
such materials. However, where remediation is a required part of contract
performance, the Company believes it complies with all applicable regulations
governing the discharge of material into the environment or otherwise relating
to the protection of the environment.
NOTE K--ADDITIONAL CASH FLOW INFORMATION
The following presents information about cash paid for interest and income
taxes for the years ended December 31, 1997, 1996, and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid during the year for:
Interest....................................................... $9,116 $7,624 $6,797
Income taxes................................................... $ 521 $ 168 $ 886
</TABLE>
41
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE L--SEGMENT INFORMATION
The following presents information about continuing operations by
geographic areas for the years ended December 31, 1997, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
OPERATING NET LOSS ON NET ASSETS
INCOME BUSINESS IDENTIFIABLE HELD FOR
REVENUES (LOSS) SOLD ASSETS SALE
---------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1997
United States..................................... $1,325,605 $29,228 $ -- $438,283 $ --
United Kingdom.................................... 407,449 (4,859) -- 137,585 --
Canada............................................ 179,046 4,174 -- 43,546 --
Other............................................. 38,768 (1,129) -- 40,313 --
---------- --------- ----------- ------------ ----------
$1,950,868 $27,414 $ -- $659,727 $ --
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
1996
United States..................................... $1,131,882 $16,509 $ -- $405,954 $ --
United Kingdom.................................... 358,334 902 -- 139,620 --
Canada............................................ 139,554 1,517 -- 39,499 --
Other............................................. 39,504 (1,814) -- 29,674 --
---------- --------- ----------- ------------ ----------
$1,669,274 $17,114 $ -- $614,747 $ --
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
1995
United States..................................... $1,035,975 $ 4,847 $(926) $447,790 $ 61,969
United Kingdom.................................... 379,691 2,383 -- 139,000 --
Canada............................................ 135,031 1,307 -- 41,376 --
Other............................................. 38,047 (2,644) -- 20,810 --
---------- --------- ----------- ------------ ----------
$1,588,744 $ 5,893 $(926) $648,976 $ 61,969
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
</TABLE>
Other includes the Far East and Middle East.
NOTE M--SELECTED UNAUDITED QUARTERLY INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997 QUARTERLY RESULTS
Revenues......................................................... $433,770 $475,617 $521,975 $519,506
Gross profit..................................................... 39,065 43,499 48,530 51,089
Income before extraordinary item................................. 256 1,897 3,236 3,192
Net Income....................................................... $ 256 $ 893 $ 3,236 $ 3,192
-------- -------- -------- --------
-------- -------- -------- --------
Basic EPS before extraordinary item.............................. $ 0.03 $ 0.20 $ 0.34 $ 0.33
Basic EPS........................................................ $ 0.03 $ 0.09 $ 0.34 $ 0.33
-------- -------- -------- --------
-------- -------- -------- --------
1996 QUARTERLY RESULTS
Revenues......................................................... $382,744 $387,657 $432,452 $466,421
Gross profit..................................................... 37,172 37,814 41,549 44,253
Net (loss) income................................................ ($ 3,653) $ 9,207 $ 1,931 $ 1,952
-------- -------- -------- --------
-------- -------- -------- --------
Basic EPS........................................................ ($ 0.39) $ 0.97 $ 0.21 $ 0.21
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE N--LEGAL PROCEEDINGS
The Company is currently defending a lawsuit that was commenced against the
Dynalectric Company ('Dynalectric'), a subsidiary of the Company, in Superior
Court of New Jersey, Bergen County, arising out of Dynalectric's participation
in a joint venture with the plaintiff, Computran. In the action, which was
instituted in
42
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--LEGAL PROCEEDINGS--(CONTINUED)
1988, Computran, a participant in, and a subcontractor to, the joint
venture alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to 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. As a
result of a motion made by Dynalectric, the Superior Court of New Jersey has
recently ordered that the matters in dispute between Dynalectric and Computran
be resolved by binding arbitration in accordance with an original agreement
between the parties.
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 did 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 April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
Substantial settlements or damage judgements against a subsidiary of the
Company arising out of either of these matters could have a material adverse
effect on the Company's business, operating results and financial condition.
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.
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.:
We have audited the accompanying Consolidated Balance Sheets of EMCOR
Group, Inc. and subsidiaries (a Delaware corporation) (the 'Company') as of
December 31, 1997 and 1996, and the related Consolidated Statements of
Operations, Cash Flows and Stockholders' Equity for each of the years in the
three-year period ended December 31, 1997. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 11, 1998
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to identification of
directors is incorporated herein by reference to the material to be included
under the caption 'Election of Directors' in the Company's definitive proxy
statement for its Annual Meeting of Stockholders, at which Directors are to be
elected, which definitive proxy statement is to be filed not later than 120 days
after the end of the Company's fiscal year ended December 31, 1997.
The information called for by Item 10 with respect to 'Executive Officers
of the Registrant' is included in Part I under the caption 'Executive Officers
of the Registrant'.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 with respect to executive compensation
is incorporated herein by reference to the material to be included in the
Company's definitive proxy statement for its Annual Meeting of Stockholders, at
which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 with respect to certain beneficial
owners and management is incorporated herein by reference to the material under
the captions 'Security Ownership of Certain Beneficial Owners' and 'Security
Ownership of Management' in the Company's definitive proxy statement for its
Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days after the end
of the Company's fiscal year ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 with respect to certain transactions
with management and directors is incorporated herein by reference to the
material under the caption 'Certain Relationships and Related Transactions' in
the Company's definitive proxy statement for its Annual Meeting of Stockholders,
at which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1997.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of EMCOR
Group, Inc. and subsidiaries are included in Part II, Item 8:
Financial Statements:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Operations--Years Ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--Years Ended December
31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2) The following financial statement schedules are included in
this Form 10-K report:
Schedule II--Valuation And Qualifying Accounts
All other schedules are omitted because they are not
required, are inapplicable, or the information is otherwise
shown in the consolidated financial statements or notes
thereto.
(a)(3) The exhibits listed on the Exhibit Index following the
consolidated financial statements hereof are filed herewith in
response to this Item.
46
<PAGE>
SCHEDULE II
EMCOR GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION ADDITIONS
- -------------------------------------------- BALANCE AT CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997................ $ 18,812 $ 4,300 $ 2,615 $(5,271) $ 20,456
Year Ended December 31, 1996................ 14,892 1,258 2,736 (74) 18,812
Year Ended December 31, 1995................ $ 19,820 $ 2,538 $ (3,553) $(3,913) $ 14,892
</TABLE>
- ------------------
(1) Deductions represent uncollectible balances of accounts receivable written
off, net of recoveries.
47
<PAGE>
EMCOR GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
2(a) -- Disclosure Statement and Third Amended Joint Exhibit 2(a) to the Company's Registration
Plan of Reorganization (the 'Plan of Statement on Form 10 as originally filed March 17,
Reorganization') proposed by EMCOR Group, Inc. 1995 (the 'Form 10')
(formerly JWP INC.) (the 'Company' or 'EMCOR')
and its subsidiary SellCo Corporation
('SellCo'), as approved for dissemination by
the United States Bankruptcy Court, Southern
District of New York (the 'Bankruptcy Court'),
on August 22, 1994
2(b) -- Modification to the Plan of Reorganization Exhibit 2(b) to Form 10
dated September 29, 1994
2(c) -- Second Modification to the Plan of Exhibit 2(c) to Form 10
Reorganization dated September 30, 1994
2(d) -- Confirmation Order of the Bankruptcy Court Exhibit 2(d) to Form 10
dated September 30, 1994 (the 'Confirmation
Order') confirming the Plan of Reorganization,
as amended
2(e) -- Amendment to the Confirmation Order dated Exhibit 2(e) to Form 10
December 8, 1994
2(f) -- Post-confirmation modification to the Plan of Exhibit 2(f) to Form 10
Reorganization entered on December 13, 1994
2(g) -- Asset Acquisition Agreement dated February 9, Exhibit 2(g) to the Company's Annual Report on
1996 between The City of New York, Jamaica Form 10-K for the year ended December 31, 1995
Water Supply Company and EMCOR (the '1995 Form 10-K')
2(h) -- Asset Acquisition Agreement dated February 9, Exhibit 2(h) to 1995 Form 10-K
1996 between Water Authority of Western Nassau
County, Jamaica Water Supply Company and EMCOR
3(a-1) -- Restated Certificate of Incorporation of EMCOR Exhibit 3(a-5) to Form 10
filed December 15, 1994
3(a-2) -- Amendment dated November 28, 1995 to the Exhibit 3(a-2) to 1995 Form 10-K
Restated Certificate of Incorporation of EMCOR
3(a-3) -- Amendment dated February 12, 1998 to the page
Restated Certificate of Incorporation of EMCOR*
3(b) -- By-Laws Exhibit 3(b) to Form 10
3(c) -- Rights Agreement dated March 3, 1997 between Exhibit 1 to the Company's Report on Form 8-K
the Company and the Bank of New York dated March 3, 1997
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
4.1 -- Credit Agreement (the 'Credit Agreement') dated Exhibit 4 to the Company's Report on Form 8-K
as of June 19, 1996 among EMCOR, certain of its dated June 25, 1996
subsidiaries and Harris Trust and Savings Bank,
individually and as agent, and the lenders
which are or become parties thereto
4.2 -- First Amendment dated as of September 27, 1996 Exhibit 4.2 to the Company's Annual Report on Form
to Credit Agreement 10-K for the year ended December 31, 1996 (the
'1996 Form 10-K')
4.3 -- Second Amendment dated as of December 24, 1996 Exhibit 4.3 to 1996 Form 10-K
to Credit Agreement
4.4 -- Third Amendment dated as of February 28, 1997 Exhibit 4.4 to 1996 Form 10-K
to Credit Agreement
4.5 -- Fourth Amendment dated as of March 31, 1997 to page
Credit Agreement*
4.6 -- Fifth Amendment dated as of May 16, 1997 to page
Credit Agreement*
4.7 -- Sixth Amendment dated as of December 15, 1997 page
to Credit Agreement*
4.8 -- Indenture, dated as of December 15, 1994, among Exhibit 4.3 to Form 10
EMCOR, MES, as guarantor, and Fleet National
Bank of Connecticut, as trustee, in respect of
11% Series C Notes, Due 2001 ('Series C
Indenture')
4.9 -- First Supplemental Indenture dated as of Exhibit 4.4 to 1995 Form 10-K
January 28, 1995 to Series C Indenture
5.0 -- Second Supplemental Indenture dated as of Exhibit 4.9 to the Company's Registration
February 29, 1996 to Series C Indenture Statement on Form S-8 dated April 25, 1996
5.1 -- Indenture, dated as of December 15, 1994, Exhibit 4.4 to Form 10
between SellCo and Fleet National Bank of
Connecticut, as trustee, in respect of SellCo's
12% Subordinated Contingent Payment Notes, Due
2004
10(a-1) -- Employment Agreement dated as of September 14, Exhibit 10(e) to the Company's Annual Report on
1987 between the Company and Sheldon I. 10-K for the year ended December 31, 1987 (the
Cammaker '1987 Form 10-K')
10(a-2) -- Amendment dated March 15, 1988 to Employment Exhibit 10(f) to 1987 Form 10-K
Agreement dated as of September 14, 1987
between the Company and Sheldon I. Cammaker
10(b) -- Employment Agreement dated as of January 1, page
1998 between the Company and Frank T. MacInnis*
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
10(c) -- Employment Agreement dated as of January 1, Exhibit 10(c) to 1996 Form 10-K
1996 between the Company and Leicle E. Chesser
10(d) -- Employment Agreement dated as of January 1, Exhibit 10(d) to 1996 Form 10-K
1996 between the Company and Jeffrey M. Levy
10(e) -- 1994 Management Stock Option Plan Exhibit 10(o) to Form 10
10(f) -- 1995 Non-Employee Directors' Non-Qualified Exhibit 10(p) to Form 10
Stock Option Plan
10(g) -- Form of Indemnification Agreement Exhibit 10(q) to Form 10
10(h) -- Reliance Insurance Companies' Underwriting and Exhibit 10(r) to Form 10
Continuing Indemnity Agreement dated as of
November 22, 1994, among the Company, Dyn
Specialty Contracting, Inc. ('Dyn'), B&B
Contracting & Supply Company ('B&B'),
Dynalectric Company ('Dyn Co.'), Dynalectric
Company of Nevada ('Dyn-- Nevada'), Contra
Costa Electric, Inc. ('Contra Costa'), Kirkwood
Electric Co., Inc. ('Kirkwood') and Reliance
Surety Company, Reliance Insurance Company,
United Pacific Insurance Company, Reliance
National Indemnity Company, Reliance National
Insurance Company of New York and Reliance
Insurance Company of Illinois
10(i) -- Form of Security Agreement dated as of November Exhibit 10(s) to Form 10
22, 1994 made by each of Dyn, B&B, Dyn Co.,
Dyn--Nevada, Contra Costa, and Kirkwood, in
favor of and for the benefit of Reliance Surety
Company, Reliance Insurance Company, United
Pacific Insurance Company, Reliance National
Indemnity Company and Reliance Insurance
Company of Illinois
10(j) -- Pledge Agreement dated November 22, 1994 Exhibit 10(t) to Form 10
between the Company and Reliance Surety
Company, Reliance Insurance Company, United
Pacific Insurance Company, Reliance National
Indemnity Company and Reliance Insurance
Company of Illinois
10(k) -- Pledge Agreement dated November 22, 1994 Exhibit 10(u) to Form 10
between Dyn and Reliance Surety Company,
Reliance Insurance Company, United Pacific
Insurance Company Reliance National Indemnity
Company and Reliance Insurance Company of
Illinois
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
10(l) -- Subordination Agreement dated November 22, 1994 Exhibit 10(v) to Form 10
among Dyn, Dyn Co., B&B, Dyn--Nevada, Contra
Costa and Kirkwood and Reliance Surety Company,
Reliance Insurance Company, United Pacific
Insurance Company, Reliance National Indemnity
Company and Reliance Insurance Company of
Illinois
10(m) -- Employment Agreement dated as of July 15, 1997 page
between the Company and Thomas D. Cunningham*
11 -- Computation of Basic EPS and Diluted EPS for page
the years ended December 31, 1997and 1996.*
21 -- List of Significant Subsidiaries* page
23 -- Consent of Arthur Andersen LLP* page
27 -- Financial Data Schedule* page
</TABLE>
- ------------------
* Filed Herewith
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of
long-term debt of the Registrant's subsidiaries.
51
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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: February 26, 1998 By /s/ FRANK T. MACINNIS
-----------------------------------
Frank T. MacInnis
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON FEBRUARY 26, 1998.
<TABLE>
<S> <C> <C>
/s/ FRANK T. MACINNIS Chairman of the Board of Directors and
- ------------------------------------------ Chief Executive Officer
Frank T. MacInnis
/s/ STEPHEN W. BERSHAD Director
- ------------------------------------------
Stephen W. Bershad
/s/ DAVID A.B. BROWN Director
- ------------------------------------------
David A.B. Brown
/s/ ALBERT FRIED, JR. Director
- ------------------------------------------
Albert Fried, Jr.
/s/ MALCOLM T. HOPKINS Director
- ------------------------------------------
Malcolm T. Hopkins
/s/ KEVIN C. TONER Director
- ------------------------------------------
Kevin C. Toner
/s/ LEICLE E. CHESSER Executive Vice President and
- ------------------------------------------ Chief Financial Officer
Leicle E. Chesser
/s/ MARK A. POMPA Vice President and Controller
- ------------------------------------------
Mark A. Pompa
</TABLE>
52
<PAGE>
Exhibit 3(a-3)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EMCOR GROUP, INC.
It is hereby certified that:
1.The name of the corporation (hereinafter referred to as the
"Corporation") is EMCOR Group, Inc.
2.The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting Article FOURTH thereof and by substituting
in lieu of said Article the following new Article:
"FOURTH. The total number of shares of all classes of
stock which the Corporation shall have the authority to issue
is Thirty One Million (31,000,000) shares, consisting of Thirty
Million shares of Common Stock, of a par value of $.01 per
share, and One Million (1,000,000) shares of Preferred Stock of
a par value of $.10 per share in such series and with such
voting powers, designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as may be
fixed from time to time by resolution or resolutions of the
Board of Directors for each series."
3.The amendment of the Restated Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Executed on February 12, 1998
/s/ Frank T. MacInnis
----------------------------------
Frank T. MacInnis
Chairman of the Board of Directors
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELEWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "EMCOR GROUP, INC.", FILED IN THIS OFFICE ON THE TWELFTH DAY OF
FEBRUARY, A.D. 1998, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE]
[SEAL OF THE
SECRETARY'S OFFICE /s/ Edward J. Freel
OF THE STATE OF -----------------------------------
DELAWARE] Edward J. Freel, Secretary of State
2122022 8100 AUTHENTICATION: 8920126
981057256 DATE: 02-13-98
<PAGE>
Exhibit 4.5
EMCOR GROUP, INC.
FOURTH AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois and the
other Lenders from time to time
party to the Credit
Agreement referred to below
Gentlemen:
We refer to the Credit Agreement dated as of June 19, 1996 as amended
and currently in effect between EMCOR Group, Inc., DYN Specialty Contracting,
Inc., Drake & Scull Engineering Ltd. and you (the "Credit Agreement"),
capitalized terms used without definition below to have the meanings ascribed to
them in the Credit Agreement. Upon your acceptance hereof in the space provided
for that purpose below, this letter shall serve to amend the Credit Agreement as
follows:
1. Adjustments in Commitments.
Subject to all of the terms and conditions hereof, the Commitments of
each of The Bank of Scotland and LaSalle National Bank (each of which shall be
an Activated Commitment) shall be increased to the amount set forth opposite
their signatures hereto, the Commitment of Harris Trust and Savings Bank shall
be reduced so as to be in the amount set forth opposite its signature hereto and
the Percentages of the Lenders shall be correspondingly adjusted to be as set
forth opposite their signatures hereto. After giving effect to the foregoing the
full amount of the Tranche D Activation provided for in Section 6.3(d) of the
Credit Agreement shall be deemed to have occurred and the maximum amount of the
Tranche B Activation which can occur under Section 6.3(b) of the Credit
Agreement upon satisfaction of the conditions precedent to activation set forth
therein shall be reduced from $20,000,000 to $13,375,000.
2. Conditions Precedent to Effectiveness.
This Fourth Amendment to Credit Agreement shall become effective upon
satisfaction of each of the following conditions precedent:
(a) The Agent shall have received counterparts hereof which,
taken together, bear the signatures of the Borrowers and the Lenders;
(b) The Bank of Scotland and LaSalle National Bank shall each
have received such non-refundable fees as may have been agreed to
between them, the Borrowers and the Agent; and
<PAGE>
(c) the Agent shall have paid to each of The Bank of Scotland
and LaSalle National Bank a percentage equal to the increase in its
Percentage occasioned by this Amendment of all Letter of Credit fees
payable under the first sentence of Section 3.3 of the Credit Agreement
for the period from the date this Fourth Amendment to Credit Agreement
becomes effective through the date through which such fees have been
paid;
Provided that the foregoing conditions precedent to effectiveness have
been satisfied the Agent shall so notify the Company and the Lenders and there
shall then be such nonratable borrowings and repayments of Revolving Loans under
the Credit Agreement as shall be necessary so that after giving effect thereto
the percentages of the Activated Commitments in use (including usage through
participation in Letter of Credit liabilities and the amount of Revolving Loans
owing each Lender) are identical. The Borrowers hereby authorize and direct the
Agent to effect the foregoing nonratable borrowings and repayments by calling
for borrowings from The Bank of Scotland and LaSalle National Bank on their
behalf and applying them to the repayment of Revolving Loans owing the other
Lenders.
7. Miscellaneous.
Except as specifically amended hereby all of the terms, conditions and
provisions of the Credit Agreement shall stand and remain unchanged and in full
force and effect. No reference to this Fourth Amendment to Credit Agreement need
be made in any instrument or document at any time referring to the Credit
Agreement, a reference to the Credit Agreement in any of such to be deemed to be
a reference to the Credit Agreement as amended hereby. This Fourth Amendment to
Credit Agreement shall be construed in accordance with and governed by the laws
of Illinois and may be executed in counterparts and by separate parties on
separate counterparts, each to constitute an original but all one and the same
instrument.
<PAGE>
Dated as of this 31st day of March, 1997
EMCOR GROUP, INC.
By /s/ Frank T. MacInnis
----------------------------------------
Its Chairman of the Board and President
-----------------------------------
DYN SPECIALTY CONTRACTING INC.
By /s/ Michael J. Parry
----------------------------------------
Its Senior Vice President
-----------------------------------
DRAKE & SCULL ENGINEERING LTD.
By /s/ Frank T. MacInnis
----------------------------------------
Its Director
-----------------------------------
COMSTOCK CANADA, LTD.
By /s/ Frank T. MacInnis
----------------------------------------
Its Chairman
-----------------------------------
3
<PAGE>
Accepted and agreed as of the date last above written
Commitment (both active and
inactive): $45,000,000 HARRIS TRUST AND SAVINGS BANK
Activated Commitment: $26,625,000
Percentage: 32.618683%
By: /s/ Wes W. Frangul
-----------------------------
Its Vice President
-------------------------
Activated Commitment: $20,000,000 BANK OF SCOTLAND
Percentage: 24.502297%%
By: /s/ Annie Chin Tat
------------------------------
Its Assistant Vice President
--------------------------
Activated Commitment: $20,000,000 LASALLE NATIONAL BANK
Percentage: 24.502297%
By: /s/ Robert W. Frentzel
-------------------------------
Its Senior Vice President
---------------------------
Activated Commitment: $15,000,000 CORESTATES BANK, N.A.
Percentage: 18.376722%
By: /s/ Michael J. Labrum
-----------------------------
Its Vice President
-------------------------
4
<PAGE>
Exhibit 4.6
EMCOR GROUP, INC.
FIFTH AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois and the
other Lenders from time to time
party to the Credit
Agreement referred to below
Gentlemen:
We refer to the Credit Agreement dated as of June 19, 1996 as amended
and currently in effect between EMCOR Group, Inc., DYN Specialty Contracting,
Inc., Drake & Scull Engineering Ltd. and you (the "Credit Agreement"),
capitalized terms used without definition below to have the meanings ascribed to
them in the Credit Agreement. Upon your acceptance hereof in the space provided
for that purpose below, this letter shall serve to amend the Credit Agreement as
follows:
Section 4.3 of the Credit Agreement (which was added thereto by the
December 24, 1996 Second Amendment to Credit Agreement) shall be amended by
striking the date "April 30, 1997" appearing therein and substituting the date
"June 30, 1997" therefor.
This Fifth Amendment to Credit Agreement shall become effective upon
receipt by the Agent of counterparts hereof which, taken together, bear the
signatures of the Borrowers and the Lenders but upon satisfaction of such
condition the effectiveness hereof shall relate back to April 30, 1997 all with
the same force and effect as though the Borrowers and the Lenders had executed
same on such date. Except as specifically amended hereby, all of the terms,
conditions and provisions of the Credit Agreement shall stand and remain
unchanged and in full force and effect. No reference to this Fifth Amendment to
Credit Agreement need be made in any instrument or document at any time
referring to the Credit Agreement, a reference to the Credit Agreement in any of
such to be deemed to be a reference to the Credit Agreement as amended hereby.
This Fifth Amendment to Credit Agreement shall be construed in accordance with
and governed by the laws of Illinois and may be executed in counterparts and by
separate parties hereto on separate counterparts, each to constitute an original
but all one and the same instrument.
<PAGE>
Dated as of this 16th day of May 1997 but to become Effective as of
April 30, 1997 as aforesaid.
EMCOR GROUP, INC.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
DYN SPECIALTY CONTRACTING INC.
By /s/ Jeffrey M. Levy
------------------------------------
Its President
---------------------------
DRAKE & SCULL ENGINEERING LTD.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
COMSTOCK CANADA, LTD.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
<PAGE>
Accepted and agreed as of the date last above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Wes W. Frangul
-------------------------------------
Its Vice President
------------------------------
BANK OF SCOTLAND.
By /s/ Annie Chin Tat
-------------------------------------
Its Vice President
------------------------------
LASALLE NATIONAL BANK
By /s/ Robert W. Frentzel
-------------------------------------
Its Senior Vice President
------------------------------
CORESTATES BANK, N.A.
By /s/ Michael J. Labrum
-------------------------------------
Its Vice President
------------------------------
<PAGE>
Exhibit 4.7
EMCOR GROUP, INC.
SIXTH AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois and the other
Lenders from time to time
party to the Credit Agreement
referred to below
Gentlemen:
We refer to the Credit Agreement dated as of June 19, 1996 as amended
and currently in effect between EMCOR Group, Inc., DYN Specialty Contracting,
Inc., Drake & Scull Engineering Ltd., Comstock Canada, Ltd. and you (the "Credit
Agreement"), capitalized terms used without definition below to have the
meanings ascribed to them in the Credit Agreement. Upon your acceptance hereof
in the space provided for that purpose below, this letter shall serve to amend
the Credit Agreement as follows:
1. Addition of The Fuji Bank, Limited as a Lender.
Subject to all the terms and conditions hereof, The Fuji Bank, Limited,
New York Branch ("Fuji") shall be and become a Lender under the Credit Agreement
with a Commitment (which shall be an Activated Commitment) in the amount set
forth opposite its signature hereto and with an address for notices as set forth
on the signature pages hereto. Fuji shall have all the rights and obligations of
a Lender under the Credit Agreement, as amended hereby, and under the other Loan
Documents and makes all acknowledgments and undertakings to the Agent and
Issuers as are set forth in Section 10 of the Credit Agreement. However, Fuji
shall only make Revolving Loans to the Company and DYN (collectively, the "U.S.
Borrowers") and shall only participate in those Letters of Credit which have
been applied for by one of the U.S. Borrowers and, accordingly, Fuji shall not
make Revolving Loans to Drake & Scull or to Comstock Canada (the "Non-U.S.
Borrowers") or participate in the credit risk incident to Letters of Credit
applied for by the Non-U.S. Borrowers.
Anything contained in the Credit Agreement to the contrary
notwithstanding, Revolving Loans to the Non-U.S. Borrowers shall be made ratably
by the Lenders other than Fuji in accordance with the respective amounts of
their Activated Commitments and the Lenders other than Fuji shall participate in
the credit risk incident to the Letters of Credit issued on the application of
either of the Non-U.S. Borrowers ratably in accordance with the respective
amounts of their Activated Commitments and all payments on account of the
foregoing shall be shared ratably among the Lenders other than Fuji in
accordance with the amounts of their Activated Commitments. Revolving
<PAGE>
Loans to the U.S. Borrowers and the credit risk incident to Letters of Credit
applied for by the U.S. Borrowers, shall be allocated so as to make each
Lender's percentage of the Activated Commitments in use as close to such
Lender's percentage of the total Commitments as is possible.
Payments shall be shared as follows: (i) payments of the commitment fee
called for by Section 3.1 of the Credit Agreement shall be shared among the
Lenders in accord with the respective unused amounts of their Activated
Commitments during the period for which the commitment fee was paid, (ii)
principal and interest payments made on Revolving Loans to the Non-U.S.
Borrowers and Letter of Credit Fees payable under the first sentence of Section
3.3 of the Credit Agreement ("Shared L/C Fees") in respect of Letters of Credit
applied for by the Non-U.S. Borrowers shall be shared ratably among the Lenders
other than Fuji in accordance with respective amounts of their Activated
Commitments and (iii) (x) payments of Shared L/C Fees in respect of Letters of
Credit issued on the application of the U.S. Borrowers shall be shared ratably
by the Lenders in accord with their respective shares of the credit risk
incident to such Letters of Credit during the period for which such fees accrued
and (y) payments of principal and interest on Revolving Loans made to the U.S.
Borrowers shall be shared among the Lenders ratably in accord with the
respective principal amounts of such Revolving Loans owing each, provided that
if at the time of receipt of a given payment of principal the percentage of the
Activated Commitment of Fuji in use is less than the percentage of the Activated
Commitments of the other Lenders in use, such payment shall first be distributed
to the other Lenders (ratably) until such time as the percentages of the
Activated Comi-nitments of all Lenders in use is identical. After the occurrence
of an Event of Default, payments and collections in respect of the Obligations
shall be distributed under the second paragraph of Section 3.7 of the Credit
Agreement ratably in accordance with their respective amounts of the particular
type of Obligation to which such collection is being applied (treating all
Revolving Loans as a group and all Letters of Credit as a group); provided that
if for any reason a collection cannot be so applied, then in that event the
Lenders receiving a disproportionate share of the collection in question shall
purchase without recourse a participation in the Obligations held by the other
Lenders to the extent necessary so that after giving effect thereto, such
payment has been shared ratably among the Lenders in accordance with the
foregoing.
2. Tranche C.
After giving effect to the transactions contemplated hereby, Tranche C
shall remain inactive and Section 6.3(c) of the Credit Agreement is hereby
amended by striking the figure "$5,000,000" wherever such figure appears therein
and substituting the figure "$3,375,0001, therefor.
<PAGE>
3. Other Amendments.
(a) Section 4.1 (the Collateral). Clause (i) in the second proviso to
the first sentence of Section 4.1 of the Credit Agreement shall be amended by
adding the following at the end thereof:
"; and Liens on those accounts receivable arising under contracts of the
Guarantors for which Seaboard Surety Company and/or its Affiliates have provided
payment and/or performance bonds and on inventory and materials and equipment
purchased for, installed in, or allocated to any such contracts, may be subject
to prior Liens in favor of Seaboard Surety Company and/or its Affiliates to
secure obligations in connection with such payment and performance bonds."
(b) Section 7.11 (Liens). Section 7.11(g) of the Credit Agreement shall
be amended by adding the phrase "or of Seaboard Surety Company and its
Affiliates" immediately after the phrase "and its Affiliates". Section 7. 11 (k)
of the Credit Agreement shall be further amended by adding the following at the
end thereof:
"liens on up to (pound)400,000 of cash collateral securing
reimbursement obligations owing Barclays Bank in connection with letters
of credit which it has issued and rights of Bank of Scotland to offset
credit balances in any account maintained with it by a Subsidiary
incorporated under the laws of United Kingdom against debit balances in
any other account maintained with Bank of Scotland by any such
Subsidiary (it being acknowledged by the Lenders that such rights of
offset shall be superior to any rights they may have in and to such
accounts or the balances as are from time to time standing on deposit
therein)."
4. Conditions Precedent to Effectiveness.
This Sixth Amendment to Credit Agreement shall become effective upon
satisfaction of each of the following conditions precedent:
(a) The Agent shall have received counterparts hereof which, taken
together, bear the signatures of the Borrowers, the Lenders and Fuji;
(b) The Agent shall have received for Fuji a Revolving Credit Note of
each U.S. Borrower properly signed and completed; and
(c) Fuji shall have received such non-refundable fees as may have been
agreed to between it and the Borrowers.
Upon satisfaction of the foregoing conditions precedent to
effectiveness, the Agent shall so notify the Company and the Lenders and there
shall then be such non-ratable
<PAGE>
borrowings and repayments of Revolving Loans from the U.S. Borrowers under the
Credit Agreement as shall be necessary so that after giving effect thereto and
to the acquisition by Fuji of a risk participation in Letters of Credit issued
on the application of the U.S. Borrowers, the percentage of the Activated
Commitment of Fuji in use is as close to identical to that of the other Lenders
as is possible. The U.S. Borrowers hereby authorize and direct the Agent to
affect the foregoing non-ratable borrowings and repayments by calling for
borrowings from Fuji on their behalf and applying them to the repayment of
Revolving Loans owing the other Lenders from the U.S. Borrowers.
<PAGE>
5. Miscellaneous.
Except as specifically amended hereby, all of the terms, conditions and
provisions of the Credit Agreement shall stand and remain unchanged and in full
force and effect. No reference to this Sixth Amendment to Credit Agreement need
be made in any instrument or document at any time referring to the Credit
Agreement, and any reference to the Credit Agreement in any of such shall be
deemed to be a reference to the Credit Agreement as amended hereby. The Agent is
authorized to enter into an intercreditor agreement with Seaboard Surety Company
and/or its Affiliates on terms which are not in any material respect more
detrimental to the Lenders than the intercreditor agreement currently extant
with Reliance Surety Company and its Affiliates. In no event shall the
outstanding amount of Revolving Loans from any Lender, when taken together with
such Lender's share of the L/C Obligations, exceed its Activated Commitment.
This Sixth Amendment to Credit Agreement shall be construed in accordance with
and governed by the laws of Illinois and may be executed in counterparts and by
separate parties hereto on separate counterparts, each to constitute an original
but all one and the same instrument.
<PAGE>
Dated as of this 15th day of December, 1997
EMCOR GROUP, INC.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
DYN SPECIALTY CONTRACTING INC.
By /s/ Frank T. MacInnis
------------------------------------
Its Executive Vice President
---------------------------
DRAKE & SCULL ENGINEERING LTD.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
COMSTOCK CANADA, LTD.
By /s/ Frank T. MacInnis
------------------------------------
Its Chairman of the Board
---------------------------
<PAGE>
Accepted and agreed as of the date last above written
Commitment (both active and
inactive): $30,000,000 HARRIS TRUST AND SAVINGS BANK
Activated Commitment: $26,625,000
Percentage: 27.5549806%
By: /s/ Wes W. Frangul
---------------------------------
Its Vice President
-------------------------
Activated Commitment: 420,000,000 BANK OF SCOTLAND
Percentage: 20.6985769%
By: /s/ Annie Chin Tat
---------------------------------
Its Vice President
-------------------------
Activated Commitment: $20,000,000 LASALLE NATIONAL BANK
Percentage: 20.6985769%
By: /s/ Robert W. Frentzel
---------------------------------
Its Senior Vice President
-------------------------
Activated Commitment: $15,000,000 CORESTATES BANK, N.A.
Percentage: 15.5239322272%
By: /s/ Michael J. Lebrun
---------------------------------
Its Vice President
--------------------------
Activated Commitment: $15,000,000 THE FUJI BANK, LIMITED, NEW YORK
Percentage: 15.52393272% BRANCH
By: /s/ Teiji Teramoto
---------------------------------
Its Vice President and Manager
--------------------------
Two World Trade Center
New York, New York 10048
Attention: Vincent M. Ingato
Senior Vice President
<PAGE>
Exhibit 10(b)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 1st day of January, 1998 by
and between EMCOR GROUP, INC.(the "Company") and FRANK T. MACINNIS("Executive").
RECITALS
In order to induce Executive to continue to serve as Chief
Executive Officer of the Company and as Chairman of the Board of Directors of
the Company ("the Board"), the Company desires to provide Executive with
compensation and other benefits under the conditions set forth in this
Agreement.
Executive is willing to accept such continuation of employment
and perform services for the Company and its subsidiaries, on the terms and
conditions, hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to continue to employ Executive during the Period of Employment
(as hereinafter defined) as the Chief Executive Officer of the Company. In his
capacity as Chief Executive Officer of the Company, Executive shall have the
customary powers, responsibilities and authorities of chief executive officers
of similar corporations of the size, type and nature of the Company as it may
exist from time to time, including, but not limited to, authority over all
personnel decisions and business policies and practices, subject to the
direction of the Board of Directors of the Company (the "Board").
1.2 The Company shall, during the Period of Employment (as
hereinafter defined,), make its best efforts to ensure the retention of
Executive as Chairman of the Board.
1.3 Subject to the terms and conditions hereof, Executive
hereby agrees to continue employment as Chief Executive Officer of the Company
and shall devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of the services, duties and
responsibilities in connection therewith and agrees to continue to serve, if
elected, as Chairman of the Board of the Company. Except upon the prior written
consent of the Board, Executive will not during the Period of Employment (as
hereinafter defined) (i) accept any other employment or (ii) engage, directly or
indirectly, in any other business activity (whether or not pursued for pecuniary
advantage), whether or not it may be competitive with, or whether or not it
might place him in a competing position to that of, the Company or any
subsidiary thereof. Nothing in this Agreement shall preclude the Executive from
(i) engaging, consistent with his duties and responsibilities hereunder, in
charitable community affairs, (ii) managing his personal investments, (iii)
continuing to serve on the boards of directors on which he presently serves (to
the extent such service is not precluded by federal or state law or by conflict
of
<PAGE>
interest by reason of his position with the Company), or (iv) serving, subject
to approval of the Board, as a member of boards of directors of other companies,
provided, that such activities do not interfere with the performance of
Executive's duties hereunder. Notwithstanding the foregoing, it is expressly
acknowledged that Executive's existing ownership interest in, and service as a
director and/or officer of, ComNet Communications, Inc. have been disclosed to
the Company and that the continuing ownership thereof and any reasonable actions
associated therewith, including without limitation, continuing as a director
and/or officer thereof, shall be permitted under the terms of this Agreement and
shall in no event constitute a breach hereof.
2. Period of Employment. Executive's period of employment
hereunder shall commence on January 1, 1998. (the "Commencement Date") and shall
continue through the earlier of December 31, 2000 or the date of termination
hereunder (the "Period of Employment"); provided, however, that the Period of
Employment shall automatically be extended for successive one-year periods
unless the Company or Executive, at least six months prior to the end of such
period, provides written notice to the other party of intent not to extend the
Period of Employment.
3. Compensation.
3.1 Salary. The Company shall pay Executive a base salary
("Base Salary") at the rate of $700,000 per annum for the Period of Employment.
Base Salary shall be payable in accordance with the ordinary payroll practices
the Company. Executive's rate of Base Salary shall be increased on the first day
of each calendar year occurring during the Period of Employment, beginning with
January 1, 1999, by the percentage increase for the prior year in the consumer
price index for the area in which the principal office of the Company is
located, as determined by the U.S. Department of Commerce, or the amount
specified by the Board, whichever is greater.
3.2 Bonus. In addition to his Base Salary, Executive shall be
entitled, while he remains employed hereunder, in respect of each calendar year,
to an annual bonus (the "Bonus") payable in cash and at such times as bonuses
are customarily paid to senior executives of the Company. For each calendar year
during the Period of Employment, the Compensation Committee of the Board (the
"Committee") shall establish, after consultation with Executive, a formula which
shall determine the amount of Executive's Bonus for the calendar year; provided
that Executive's target bonus shall be no less than $600,000 for each such year.
3.3 Supplemental Benefit Credits. Executive shall be fully
vested in all employee benefit plans of the Company with respect to which the
amount of any benefits payable thereunder is determined in whole or in part by
years of service with the Company.
3.4 Stock Options. (a) During each calendar year in the Period
of Employment, the Company shall recommend to the Compensation Committee of the
Board that Executive shall receive an option ("Option") to purchase not less
than 25,000 shares of common stock of the Company ("Shares") at fair market
value pursuant to the Company's then applicable stock option plan. Each such
Option shall be exercisable with respect to the Shares subject thereto on the
first anniversary of the date of grant.
<PAGE>
(b) In addition, Executive was granted on November 21, 1997,
an Option to purchase 200,000 Shares at fair market value pursuant to the
Company's stock option plan. This Option shall have a ten-year term and shall
vest in full on November 21, 2006, provided that with respect to successive
groups of 50,000 Shares, the Option shall, if earlier, vest when the fair market
value of a Share first equals or exceeds $25, $30, $35 and $40, respectively.
(c) In the event of Executive's termination of employment
under Section 6,1, each option shall become immediately exercisable in full and
shall remain exercisable for the balance of its ten-year term.
4. Employee Benefits.
4.1 Employee Benefit Plans and Programs. The Company shall
provide Executive during the Period of Employment with coverage under any
employee benefit programs, plans and practices (commensurate with his position
in the Company) in accordance with the terms thereof, which the Company
currently makes available generally to its senior executive officers hereafter,
including but not limited to (a) retirement, pension and profit sharing; and (b)
medical, dental, hospitalization, life insurance, short and long-term
disability, accidental death, and dismemberment and travel accident coverage;
provided that Executive shall pay such portion of the premiums therefor as is
customarily paid by senior executives of the Company.
4.2 Vacation, Fringe and Other Benefits. Executive shall be
entitled to the number of vacation days customarily accorded senior executives
of the Company. In addition, during the Period of Employment, the Company shall
pay Executive $700 per month for leasing (plus maintenance and insurance) of an
automobile. The Company shall also reimburse Executive for (a) all initiation
fees and monthly dues for membership in a club suitable for entertaining clients
of the Company and (b) all legal expenses incurred by Executive in connection
with the negotiation and drafting of this Agreement. The Company shall bear the
cost of any increased tax liability of Executive caused by the provisions of
this Section 4.2.
5. Directors and Officers Liability. The Company shall keep in
effect during the Period of Employment, a policy of directors' and officers'
liability insurance for officers and directors of the Company to the extent
reasonably available, at such reasonable levels of coverage as are agreed to by
Executive and the Board from time to time.
6. Termination of Employment.
6.1 Termination Not For Cause or For Good Reason. (a)The
Company may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If
Executive's employment is terminated by the Company other than
for Cause (as hereinafter defined), or Executive terminates
his employment for Good Reason (as hereinafter defined),
Executive shall be entitled to receive a lump sum cash payment
<PAGE>
(but not in substitution for compensation already earned) in
an amount equal to the sum of:
(i) the greater of (A) Executive's Base Salary at the
highest annual rate in effect during the Period of Employment, for the period
from the date of termination through December 31, 2000 or (B) two times
Executive's Base Salary at its then current annual rate;
(ii) the greater of (A) Executive's target Bonus pursuant to
Section 3.2 times the number full or partial calendar years remaining from the
date of termination through December 31, 2000 or (B) two times Executive's
target Bonus.
(iii) an amount equal to Executive's Bonus, for any calendar
year ending before such termination occurs, which would have been payable had
Executive remained in employment until the date such Bonus would otherwise have
been paid;
(iv) an amount equal to Executive's target Bonus for the
calendar year in which the termination of employment occurs, multiplied by a
fraction, the numerator of which is the number of days in such calendar year
that Executive was an employee of the Company, and the denominator of which is
365; and
(v) in the event of a termination of Executive's employment by
the Company other than for Cause or by Executive for Good Reason following a
Change in Control, the factor of two in clause (B) of subsections 6.1(a)(i) and
(ii) shall be increased to three.
(b) In addition to the amount described In subsections 6.1(a),
Executive shall be entitled to receive:
(i) until the earlier of December 31, 2000 or 18 months from
the date of termination, Executive (and, to the extent applicable, Executive's
dependents) shall continue to be covered, at the company's expense, under the
Company's medical, dental and hospitalization coverage plans, and until the
earlier Of December 31, 2000 or 6 months from the date of termination, Executive
shall continue to be covered, at the Company's expense, under the Company's
group life, short and long-term disability, accidental death and dismemberment
and travel accident coverage plans described in Section 4.1 hereof or the
Company will provide for equivalent coverage; and
(ii) all payments to which Executive has vested rights as of
the expiration of the Period of Employment under employee benefit, disability,
insurance and similar plans which provide for payments beyond the Period of
Employment.
(c) For purposes of this Agreement, "Good Reason" shall mean
any of the following (without Executive's express prior written consent):
(i) The assignment to Executive by the Company of duties
inconsistent with Executive's positions, duties, responsibilities, titles or
office as set forth in Section I hereof, or any reduction by the Company of his
duties or responsibilities or any removal of Executive from the position of
Chairman and Chief Executive Officer or
<PAGE>
any failure to elect or re-elect Executive as Chairman of the Board, except in
connection with the termination of Executive's employment (A) upon the
termination of the Period of Employment on December 31, 2000, (B) upon the
termination of a succeeding one-year Period of Employment (as provided for under
Section 2 hereof), (C) for Cause, (D) as a result of Executive's Permanent
Disability (as hereinafter defined) or death or (E) by Executive other than for
Good Reason;
(ii) A reduction by the Company in Executive's Base Salary,
except as provided herein, as in effect at the commencement of employment
hereunder or as the same may be increased from, time to time during the Period
of Employment;
(iii) The failure by the Company to obtain the specific
assumption of this Agreement by any successor or assign of the Company or any
person acquiring substantially all of the Company's assets;
(iv) Failure by the Company to perform in any material respect
its obligations under this Agreement, where such failure shall not have been
remedied within 30 days after Executive shall have notified the Company in
writing thereof;
(v) Any material reduction in Executive's compensation or
benefits following a Change in Control or Executive's principal business
location is changed to a location more than 30 miles from Executive's principal
business location (other than a relocation to Now York, New York) immediately
prior to a Change in Control; or
(vi) The Company shall cease to keep in effect the Policy of
directors' and officers' liability insurance for Executive described in Section
5;
(d) If all or any portion of the payments or benefits provided
under Section 6.1, either alone or together with other payments and benefits
which Executive receives or is then entitled to receive from the Company, would
constitute a "parachute payment" within the meaning Section 28OG of the Internal
Revenue Code of 1986, as amended ("Code"), Executive shall be entitled to such
additional payments as may be necessary to ensure that the net after tax benefit
of all payments under this Section 6.1, including the payment provided for in
this subsection 6.1(c) shall be equal to the net after tax benefit of Executive
as if no excise tax had been imposed under Section 4999 of the Code.
The foregoing calculations shall be made, at the Company's
expense, by the Company and Executive. If no agreement on the calculations is
reached, Executive and the Company shall agree to the selection of an accounting
firm, to make the calculations. If no agreement can be reached regarding the
selection of an accounting firm, the Company shall select a nationally
recognized accounting firm which has no current or recent business relationship
with the Company. The determination of any such firm selected shall be
conclusive and binding on all parties.
(e) For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred when:
<PAGE>
(i) any person or persons acting in concert (excluding Company
benefit plans) becomes the beneficial owner of securities of the Company having
at least 25% of the voting power of the Company's then outstanding securities
(unless the event causing the 25% threshold to be crossed is an acquisition of
voting common securities directly from the Company, other than upon the
conversion of convertible debt securities or other securities and/or the
exercise of options or warrants); or
(ii) the shareholders of the Company shall approve any merger
or other business combination of the Company, sale or lease of the Company's
assets or combination of the foregoing transactions (the "Transactions") other
than a Transaction immediately following which the shareholders of the Company
and any trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 65% of the voting power, directly or
indirectly, of (A) the surviving corporation in any such merger or other
business combination; (B) the purchaser or lessee of the Company's assets; or
(C) both the surviving corporation and the purchaser or lessee in the event of
any combination of Transactional or
(iii) within any 24 month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death) to
constitute at least a majority of the Board or the board of directors
of a successor to the Company. For this purpose, any director who was
not a director at the beginning of such period shall be deemed to be an
Incumbent Director if such director was elected to the Board by, or on
the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors (so long as
such director was not nominated by a person who has expressed an intent
to effect a Change of Control or engage in a proxy or other control
contest).
(f) All cash payments under this Section 6.1 shall be
made by the Company within 30 calendar days following the event giving rise to
such payments.
6.2 Permanent Disability. If as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties with the Company on a full-time basis for six consecutive
months (a "Permanent Disability") during his Period of Employment, the Company
or Executive may terminate his employment on written notice thereof, the Period
of Employment shall terminate on the giving of such notice, and the compensation
to which Executive is entitled pursuant to Section 3.1 shall be paid through the
last day of the month in which the notice is given. In addition, Executive shall
be entitled to receive:
(a) all unpaid amounts, as of the date of such termination, in
respect of any Bonus f or any calendar year ending before the calendar year in
which such termination occurs, which would have been payable had Executive
remained in employment until the date such Bonus would otherwise have been paid,
plus Executive's target Bonus for the calendar year in which his employment
terminates, multiplied by a fraction, the numerator of which is the number of
days in such calendar year the Executive was an employee of the company, and the
denominator of which is 365;
<PAGE>
(b) until the earlier of December 31, 2000 or 24 months from
the date of termination for Permanent Disability, Executive (and, to the extent
applicable, Executive's dependents) shall continue to be covered under Company's
medical, dental, hospitalization, group life, short and long-term disability,
accidental death and dismemberment and travel accident coverage plans described
in Section 4.1 or the Company will provide for equivalent coverage; provided
that if Executive is provided with comparable coverage by a successor employer
any such coverage by the Company shall cease; and
(c) all amounts payable under the Company's disability plans.
6.3 Death, In the event of Executive's death while employed
hereunder, the Period of Employment shall thereupon automatically terminate and
the Executive's estate or designated beneficiaries shall receive (i) payments of
Base Salary for a period of three months after the date of death; (ii) all
unpaid amounts, as of the date of such termination, in respect of any Bonus for
any calendar year ending before the calendar year in which such termination
occurs, which would have been payable had Executive remained in employment until
the date such Bonus would otherwise have been paid, plus Executive's target
Bonus for the calendar year in which his employment terminates, multiplied by a
fraction, the numerator of which is the number of days in such calendar year the
Executive was an employee of the Company, and the denominator of which is 365;
and (iii) any death benefits provided under the employee benefit program, in
accordance with their terms.
6.4 Voluntary Resignation; Discharge for Cause. If Executive
resigns voluntarily, other than for Good Reason or Permanent Disability, or the
Company terminates the employment of Executive at any time for Cause, the
Company's obligations under this Agreement to make any further payments to
Executive shall thereupon, to the extent permitted by law, cease and terminate
except with respect to all unpaid amounts, as of the date of such termination,
in respect of any Bonus for any calendar year ending before such termination
occurs, which would have been payable had Executive remained in employment until
the date such bonus would otherwise have been paid. In addition, Executive shall
remain entitled to all vested amounts and benefits under the Company's employee
benefit programs, plans and practices, Including, without limitation, the
supplemental benefit credits provided for under Section 3.3 hereof. The term
"Cause" shall be limited to (a) action by Executive involving willful
malfeasance in connection with his employment which results in material harm to
the Company, (b) material and continuing breach by Executive of the terms of
this Agreement which breach is not cured within 60 days after Executive receives
written notice from the Company of any such breach or (c) Executive being
convicted of a felony Termination of Executive for Cause pursuant to this
Section 6.4 shall be communicated by a Notice of Termination given within six
months after the Board both (i) had knowledge of conduct or an event allegedly
constituting Cause and (ii) had reason to believe that such conduct or event
could be grounds for Cause. For purposes of this Agreement a "Notice of
Termination" shall mean delivery to Executive of a copy of a resolution duly
adopted by the Board at a meeting of the Board called and held for that purpose
(after not less than 10 days' notice to Executive ("Preliminary Notice") and
reasonable opportunity for Executive, together with the Executive's counsel, to
be heard before the Board prior to such vote), finding that in the good faith
opinion of the Board, Executive was guilty of conduct set forth in the third
<PAGE>
sentence of this Section 6.4 and specifying the particulars thereof in detail.
The Board shall no later than 30 days after the receipt of the Preliminary
Notice by Executive communicate its findings to Executive. A failure by the
Board to make its finding of Cause or to communicate its conclusions within such
30-day period shall be deemed to be a finding that Executive was not guilty of
the conduct described in the second sentence of this Section 6.4.
6.5 Termination Obligations (a) Executive hereby acknowledges
and agrees that all personal property, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, and other documents, and
equipment furnished to or prepared by Executive in the course of or incident to
his employment, belong to the Company and shall be promptly returned to the
Company upon termination of the Period of Employment.
(b) Upon termination of the Period of Employment, the
Executive shall be deemed to have resigned from all offices and directorships
then held with the Company or any subsidiary or affiliate thereof.
7. Confidential Information. During and after the Period of
Employment, Executive shall not disclose to any person (other than an employee
or agent of the Company or any affiliate of the Company entitled to receive the
same) any confidential information relating to the business of the Company and
obtained by him while providing services to the Company, without the consent of
the Board, or until such information ceases to be confidential.
8. Non-Competition. In the event Executive's employment is
terminated by the Company for Cause or Executive terminates his employment with
the Company without Good Reason, Executive shall not, for a period ending on the
earlier of (i) 18 months from the date of such termination or (ii) December 31,
2000, accept any other employment or engage, directly or indirectly, in any
other business activity which is competitive with that of the Company or any
subsidiary thereof: provided, however, that Executive's ownership interest in,
and service as a director and/or officer of, ComNet Communications, Inc. shall
not be deemed to be competitive with the Company or any subsidiary thereof.
9. Expenses. Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement,
including expenses for travel and similar items related to such duties and
responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of an itemized account of such
expenditures.
10. No Obligation to Mitigate Damages. Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking (and no payment otherwise required hereunder shall be
reduced on account of) other employment or otherwise, nor will any payments
hereunder be subject to offset in respect of any claims which the Company may
have against Executive.
11. Notices. All notices or communications hereunder shall be
in writing, addressed as follows:
<PAGE>
to Executive:
Frank T. MacInnis
7 Sturges Hollow
Westport, CT 06880
to Company:
Sheldon I. Cammaker, Esq.
Executive Vice President and General Counsel
EMCOR Group, Inc.
101 Merritt Seven, 7th Floor
Norwalk, CT 06851
with a copy to:
Kenneth C. Edgar, Jr., Esq
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Any such notice or communication shall be delivered by hand or sent certified or
registered mail, return receipt requested, postage prepaid, addressed as above
(or to such other address as such party may designate in a notice duly delivered
as described above), and the actual date of delivery or mailing shall determine
the time at which notice was given.
12. Agreement to Perform Necessary Acts. Each party agrees to
perform any further acts and to execute and deliver any further documents that
may be reasonably necessary to carry out the provisions of this Agreement.
13. Separability Legal Actions; Legal Fees. If any provision
of this Agreement shall be declared to be invalid or unenforceable, in whole or
in part, such invalidity or unenforceability shall not affect the remaining
provisions hereof, which shall remain in full force and effect. Any controversy
or claim arising out of or relating to this Agreement or the breach of this
Agreement that cannot be resolved by Executive and the Company, including any
dispute as to the calculation of Executive's benefits or any payments hereunder,
shall be submitted to arbitration in New York, New York in accordance with the
laws of the State of New York and the procedures of the American Arbitration
Association, except that if Executive institutes an action relating to this
Agreement, Executive may, at Executive's option, bring that action in any court
of competent jurisdiction. All expenses, including legal expenses incurred by
Executive, relating to any arbitration shall be paid by the Company. Judgment
may be entered on an arbitrator(s)' award in any court having jurisdiction.
<PAGE>
14. Assignment. This contract shall be binding upon and inure
to the benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or Otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by the Company
(any such purported assignment by either shall be null and void), except that
the Company may assign this Agreement to any successor (whether by merger,
purchase or otherwise) to all or substantially all of the stock, assets or
business of the Company,
15. Amendment; Waiver. The Agreement may be amended at any
time, but only by mutual written agreement of the parties, hereto. Any party
may waive compliance by the other party with any provision hereof, but only by
an instrument in writing executed by the party granting such waiver.
16. Entire Agreement. The terms of this Agreement are intended
by the parties to be the final expression of their agreement with respect to the
employment of Executive by the Company and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement shall constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding involving this Agreement.
17. Death or Incompetence. In the event of Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his estate or other
legal representative.
18. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section are in addition to the survivorship provisions of any
other section of this Agreement.
19. Governing Law. This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of New York
without reference to rules relating to conflicts of law.
20. Withholdings. The Company shall be entitled to withhold
from payment any amount of withholding required by law.
<PAGE>
21. Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original
EMCOR GROUP, INC
By: /s/ Sheldon I. Cammaker
---------------------------
EXECUTIVE
By: /s/ Frank T. MacInnis
---------------------------
<PAGE>
Exhibit 10(m)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 15th day of July, 1997 by and between EMCOR
GROUP, INC., a Delaware Corporation (the "Company"), and THOMAS D. CUNNINGHAM
("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice President of the
Company, the Company desires to provide Executive with compensation and other
benefits under the conditions set forth in this Agreement.
Executive is willing to perform services for the Company and its subsidiaries,
on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the Period of Employment (as
hereinafter defined) as Executive Vice President of the Company with
such duties of a senior executive nature as shall be assigned to him
from time to time by the Chief Executive Officer of the Company (the
"CEO"). Executive shall have the customary powers, responsibilities and
authorities of similarly situated executive officers of similar
corporations of the size, type and nature of the Company as it may
exist from time to time, subject to the direction of the CEO.
1.2 Subject to the terms and condition hereof, Executive hereby agrees
to serve as Executive Vice President of the Company and shall devote
his full working time and efforts, to the best of his ability,
experience and talent, to the performance of the services, duties and
responsibilities in connection therewith. Except upon the prior written
consent of the CEO, Executive will not during the Period of Employment
(as hereinafter defined) (i) accept any other employment or (ii)
engage, directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage), whether or not it may be
competitive with, or whether or not it might place him in a competing
position to that of, the Company or any subsidiary thereof. Nothing in
this Agreement shall preclude the Executive from (i) engaging,
consistent with his duties and responsibilities hereunder, in
charitable community affairs, (ii) managing his personal investments,
(iii) continuing to serve on the boards of directors on which he
presently serves (to the extent such service is not precluded by
federal or state law or by
1
<PAGE>
conflict of interest by reason of his position with the Company), or
(iv) serving, subject to approval of the CEO, as a member of boards of
directors of other companies, provided, that such activities do not
interfere with the performance of Executive's duties hereunder.
2. Period of Employment.
Executive's employment under this Agreement shall commence on July 15,
1997 (the "Commencement Date") and shall continue through the earlier
of December 31, 1997 or the date of termination hereunder (the "Period
of Employment"); provided, however, that the Period of Employment shall
automatically be extended for successive one-year periods commencing
January 1, unless the Company or Executive, at least six months prior
to the end of such period, provides written notice to the other party
of intent not to extend the Period of Employment.
3. Compensation.
. 3.1 Salary. The Company shall pay Executive a base salary ("Base
Salary") at the rate of $275,000 per annum for the Period of
Employment. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. Executive's rate of Base
Salary shall be increased on the first day of each calendar year
occurring during the Period of Employment by the amount specified by
the Compensation and Personnel Committee of the Board of Directors of
the Company (the "Committee").
3.2 Bonus. In addition to his Base Salary, Executive shall be entitled,
while he remains employed hereunder, in respect of each calendar year,
to an annual bonus (the "Bonus") payable in cash and at such times as
bonuses are customarily paid to senior executives of the Company. The
amount of the Bonus shall be determined by the Committee in its sole
discretion.
4. Employee Benefits.
4.1 Employee Benefit Plans and Programs. The Company shall provide the
Executive during the Period of Employment with coverage under any
employee benefit programs, plans and practices (commensurate with his
position in the Company) in accordance with the terms thereof, which
the Company currently makes available generally to its senior executive
officers, or which the Company, with Committee approval, elects to make
available generally to its senior executive officers hereafter,
including, but not limited to (a) retirement, pension and
profit-sharing; and (b) medical, dental, hospitalization, life
insurance, short and long-term disability,
2
<PAGE>
accidental death and dismemberment and travel accident coverage;
provided that Executive shall pay such portion of the premiums therefor
as is customarily paid by senior executives of the Company.
4.2 Vacation, Fringe and Other Benefits. Executive shall be entitled to
the number of vacation days customarily accorded senior executives of
the Company. In addition, during the Period of Employment, the Company
shall pay Executive $650 per month for leasing (plus maintenance and
insurance) of an automobile and shall make the initial capital cost
reduction payment with respect to the leasing of such automobile on
Executive's behalf. The Company shall also reimburse Executive for (a)
all initiation fees and monthly dues for membership in a club suitable
for entertaining clients of the Company and (b) all legal expenses
incurred by Executive in connection with the negotiation and drafting
of this Agreement. The Company shall bear the cost of any increased tax
liability of Executive caused by the provisions of this Section 4.2.
5. Directors and Officers Liability.
The Company shall keep in effect during and after the Period of
Employment, a policy of directors' and officers' liability insurance
("Insurance Policy") for directors and officers of the Company at such
reasonable amount of coverage as are agreed to by Executive and the
Board from time to time and which Insurance Policy shall be on a claims
made basis.
6. Termination of Employment.
6.1 Termination Not for Cause or For Good Reason. (a) The Company may
terminate Executive's employment at any time, and Executive may
terminate his employment at any time. If Executive's employment is
terminated by the Company other than for Cause (as hereinafter
defined), or Executive terminates his employment for Good Reason (as
hereinafter defined), Executive shall be entitled to receive a lump sum
cash payment (but not in substitution for compensation already earned)
in an amount equal to the sum of:
(i) the greater of (A) Executive's Base Salary at the highest
annual rate in effect during the Period of Employment, for the
period from the date of termination through December 31, 1997
or (B) one times Executive's Base Salary at its then current
annual rate; and
(ii) the greater of (A) Bonus payable by the Company pursuant
to Section 3.2 times the number of full or partial calendar
years remaining from the date of termination through December
31, 1997
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<PAGE>
or (B) one times Executive's Bonus. For purposes of this
Section 6.1 (a), the amount of the Bonus shall be deemed to be
the highest Bonus paid to Executive during the Period of
Employment; and
(iii) In the event of termination of Executive's employment
for Good Reason (within 60 days following the occurrence of
such Good Reason) following a Change in Control (as
hereinafter defined), the amounts payable pursuant to
subsections 6.1 (a) (i) and (ii) shall be increased by 50%;
provided, however, that this clause (iii) shall only apply in
the case of a Change in Control.
In addition to the amount described in subsections 6.1 (a) (i)
- (iii), Executive shall be entitled to receive:
(iv) all unpaid amounts, as of the date of such termination,
in respect of any Bonus, for any calendar year ending before
such termination occurs, which would have been payable had
Executive remained in employment until the date such Bonus
would otherwise have been paid;
(v) until December 31 of the year in which Executive's
employment terminates, Executive (and, to the extent
applicable, Executive's dependents) shall continue to be
covered, at the Company's expense, under the Company's
medical, dental and hospitalization coverage plans, and until
December 31 of the year in which Executive's employment
terminates, Executive shall continue to be covered, at the
Company's expense, under the Company's group life, short and
long-term disability, accidental death and dismemberment and
travel accident coverage plans described in Section 4.1 hereof
or the Company will provide for equivalent coverage; and
(vi) all payments to which Executive has vested rights as of
the expiration of the Period of Employment under employee
benefit, disability, insurance and similar plans which provide
for payments beyond the Period of Employment.
(b) If Executive's employment is terminated by the Company
other than for Cause or Executive terminates his employment
for Good Reason, the Company shall take all action necessary
to cause the Executive to be fully vested as of the expiration
of the Period of Employment in employee benefit plans of the
Company (other than stock options) with respect to which the
amount of any benefit payable thereunder is determined in
whole or in part by years of
4
<PAGE>
service with the Company. In the event the terms of any such
employee benefit plan do not permit such vesting, the Company
shall pay to the Executive an amount equal to such unvested
benefit.
(c) For purposes of this Agreement, "Good Reason" shall mean
any of the following (without Executive's express prior
written consent):
(i) Any material reduction by the Company of Executive's
duties or responsibilities or any removal of Executive from
his position, except in connection with the termination of
Executive's employment (A) upon the termination of the Period
of Employment on December 31, 1997, (B) upon the termination
of a succeeding one-year Period of Employment (as provided for
under Section 2 hereof), (C) for Cause, (D) as a result of
Executive's Permanent Disability (as hereinafter defined) or
death or (E) by Executive other than for Good Reason;
(ii) A reduction by the Company in Executive's Base Salary as
in effect at the commencement of employment hereunder or as
the same may be increased from time to time during the Period
of Employment;
(iii) The failure by the Company to obtain the specific
assumption of this Agreement by any successor or assign of the
Company or any person acquiring substantially all of the
Company's assets;
(iv) Failure by the Company to perform in any material respect
its obligations under this Agreement, where such failure shall
not have been remedied with 30 days after Executive shall have
notified the Company in writing thereof;
(v) Any material reduction in Executive's compensation or
benefits following a Change in Control or Executive's
principal business location is changed to a location more than
30 miles from Executive's principal business location
immediately prior to a Change in Control;
(vi) The Company shall cease to keep in effect the policy of
directors' and officers' liability insurance for Executive
described in Section 5; or
(vii) The termination of the Indemnity Agreement effective as
of March 20, 1997 between the Executive and the Company.
5
<PAGE>
(d) If all or any portion of the payments or benefits provided
under this Section 6.1, either alone or together with other
payments and benefits which Executive receives or is then
entitled to receive from the Company, would constitute a
"parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), Executive
shall be entitled to such additional payments as may be
necessary to ensure that the net after tax benefit of all
payments under this Section 6.1, including the payment
provided for in this subsection 6.1 (d) shall be equal to the
net after tax benefit of Executive as if no excise tax had
been imposed under Section 4999 of the Code.
The foregoing calculations shall be made, at the Company's
expense, by the Company and Executive. If no agreement on the
calculations is reached, Executive and the Company shall agree
to the selection of an accounting firm to make the
calculations. If no agreement can be reached regarding the
selection of an accounting firm, the Company shall select a
nationally recognized accounting firm which has no current or
recent business relationship with the Company. The
determination of any such firm selected shall be conclusive
and binding on all parties.
(e) For purposes of this Agreement, a "Change in Control of
the Company" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended), other than a
trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the
beneficial owner (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding securities, (ii) during any period
of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority thereof, (iii) the stockholders of
the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger consolidation
which would result in the voting securities of the
6
<PAGE>
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company (in one transaction or a series of
transactions) of all or substantially all the Company's
assets, (iv) there occurs any sale, lease, exchange or other
transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of
the Company or (v) there occurs any other event designated as
a Change in Control by the Board for purposes of this
Agreement.
(f) All cash payments under this Section 6.1 shall be made by
the Company within 30 calendar days following the event giving
rise to such payments.
6.2. Permanent Disability. If as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from
his duties with the Company on a full-time basis for six consecutive
months (a "Permanent Disability") during his Period of Employment, the
Company or Executive may terminate his employment on written notice
thereof, the Period of Employment shall terminate on the giving of such
notice, and the compensation to which Executive is entitled pursuant to
Section 3.1 shall be paid through the last day of the month in which
the notice is given. In addition, Executive shall be entitled to
receive:
(a) all unpaid amounts, as of the date of such termination, in
respect of any Bonus, for any calendar year ending before, and
the calendar year in which, such termination occurs, which
would have been payable had Executive remained in employment
until the date such Bonus would otherwise have been paid,
provided, however, that any amount described in this
subsection (a) in respect of the calendar year in which
Executive's employment terminates shall be determined with
respect to the period commencing January 1 of such year and
expiring on the day on which the Period of Employment
terminates except if Executive's employment terminates in 1997
such amount shall be determined with respect to the period
commencing July 15, 1997 and expiring on the date on which the
Period of Employment terminates;
(b) until December 31 of the year in which Executive's
employment terminates, Executive (and, to the extent
applicable, Executive's
7
<PAGE>
dependents shall continue to be covered under Company's
medical, dental, hospitalization, group life, short and
long-term disability, accidental death and dismemberment and
travel accident coverage plans described in Section 4.1 or the
Company will provide for equivalent coverage; provided that if
Executive is provided with comparable coverage by a successor
employer any such coverage by the Company shall cease; and
(c) all amounts payable under the Company's disability plans.
6.3 Death. In the event of Executive's death while employed hereunder,
the Period of Employment shall thereupon automatically terminate and
the Executive's estate or designated beneficiaries shall receive (i)
payments of Base Salary for a period of three months after the date of
death; (ii) all unpaid amounts, as of the date of such termination, in
respect of any Bonus, for any calendar year ending before, and the
calendar year in which, such termination occurs, which would have been
payable had Executive remained in employment until the date such Bonus
would otherwise have been paid, provided, however, that any amount
described in this Section 6.3 in respect of the calendar year in which
Executive's employment terminates shall be determined with respect to
the period commencing January 1 of such year and expiring on the day on
which the Period of Employment terminates except if Executive's
employment terminates in 1997 such amount shall be determined with
respect to the period commencing July 15, 1997 and expiring on the date
on which the Period of Employment terminates; and (iii) any death
benefits provided under the employee benefit programs, in accordance
with their terms.
6.4 Voluntary Resignation; Discharge for Cause. If Executive resigns
voluntarily, other than for Good Reason or Permanent Disability, or the
Company terminates the employment of Executive at any time for Cause,
the Company's obligations under this Agreement to make any further
payments to Executive shall thereupon, to the extent permitted by law,
cease and terminate except with respect to all unpaid amounts, as of
the date of such termination, in respect of any Bonus for any calendar
year ending before such termination occurs, which would have been
payable had Executive remained in employment until the date such Bonus
would otherwise have been paid. In addition, Executive shall remain
entitled to all vested amounts and benefits under the Company's
employee benefit programs, plans and practices, including, without
limitation, the benefits referred to in subsection 6.1(b) hereof. The
term "Cause" shall be limited to (a) action by Executive involving
willful malfeasance in connection with his employment which results in
material harm to the Company, (b) material and continuing breach by
Executive of the terms of this Agreement which breach is not cured
within 30 days after Executive
8
<PAGE>
receives written notice from the Company of any such breach or (c)
Executive being convicted of a felony. Termination of Executive for
Cause pursuant to this Section 6.4 shall be communicated by a Notice of
Termination given within six months after the Board of Directors of the
Company (the "Board") both (i) had knowledge of conduct or an event
allegedly constituting Cause and (ii) had reason to believe that such
conduct or event could be grounds for Cause. For purposes of this
Agreement a "Notice of Termination" shall mean delivery to Executive of
a copy of a resolution duly adopted by the Board at a meeting of the
Board called and held for the purpose (after not less than 10 days'
notice to Executive ("Preliminary Notice") and reasonable opportunity
for Executive, together with the Executive's counsel, to be heard
before the Board prior to such vote), finding that in the good faith
opinion of the Board Executive was guilty of conduct set forth in the
third sentence of this Section 6.4 and specifying the particulars
thereof in detail. The Board shall no later than 30 days after the
receipt of the Preliminary Notice by Executive communicate its findings
to Executive. A failure by the Board to make its finding of Cause or to
communicate its conclusions within such 30-day period shall be deemed
to be a finding that Executive was not guilty of the conduct described
in the third sentence of this Section 6.4
6.5 Termination Obligations.
(a) Executive hereby acknowledges and agrees that all personal
property, including, without limitation, all books, manuals, records,
reports, notes, contracts, lists, and other documents, and equipment
furnished to or prepared by Executive in the course of or incident to
his employment, belong to the Company and shall be promptly returned to
the Company upon termination of the Period of Employment.
(b) Upon termination of the Period of Employment, Executive shall be
deemed to have resigned from all offices and directorships then held
with the Company or any subsidiary or affiliate thereof.
7. Confidential Information.
During and after the Period of Employment, Executive shall not disclose
to any person (other than an employee or agent of the Company or any
affiliate of the Company entitled to receive the same) any confidential
information relating to the business of the Company and obtained by him
while providing services to the Company, without the consent of the
Board, or until such information ceases to be confidential.
9
<PAGE>
8. Non-Competition.
In the event Executive's employment is terminated by the Company for
Cause or Executive terminates his employment with the Company without
Good Reason, Executive shall not, for a period ending on December 31 of
the year in which Executive's employment terminates, accept any other
employment or engage, directly or indirectly, in any other business
activity which is competitive with that of the Company or any
subsidiary thereof.
9. Expenses.
Executive is authorized to incur reasonable expenses in carrying out
his duties and responsibilities under this Agreement, including
expenses for travel and similar items related to such duties and
responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of an
itemized account of such expenditures.
10. No Obligation to Mitigate Damages.
Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking (and no
payment otherwise required hereunder shall be reduced on account of)
other employment or otherwise, nor will any payments hereunder be
subject to offset in respect of any claims which the Company may have
against Executive.
11. Notices.
All notices or communications hereunder shall be in writing, addressed
as follows:
to Executive:
Thomas D. Cunningham
101 Merritt Seven, 7th Floor
Norwalk, CT 06851
to Company:
Frank T. MacInnis
Chairman, President and Chief Executive Officer
EMCOR Group, Inc.
101 Merritt Seven, 7th Floor
Norwalk, CT 06851
10
<PAGE>
with a copy to:
Sheldon I. Cammaker, Esq.
EMCOR Group, Inc.
101 Merritt Seven
7th Floor
Norwalk, CT 06851
Any such notice or communication shall be delivered by hand or sent
certified or registered mail, return receipt requested, postage
prepaid, addressed as above (or to such other address as such party may
designate in a notice duly delivered as described above), and the
actual date of delivery or mailing shall determine the time at which
notice was given.
12. Agreement to Perform Necessary Acts.
Each party agrees to perform any further acts and to execute and
deliver any further documents that may be reasonably necessary to carry
out the provisions of this Agreement.
13. Separability; Legal Actions; Legal Fees.
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability
shall not affect the remaining provisions hereof, which shall remain in
full force and effect. Any controversy or claim arising out of or
relating to this Agreement or the breach of this Agreement that cannot
be resolved by Executive and the Company, including any dispute as to
the calculation of Executive's benefits or any payments hereunder,
shall be submitted to arbitration in New York, New York in accordance
with the laws of the State of New York and the procedures of the
American Arbitration Association, except that if Executive institutes
an action relating to this Agreement, Executive may, at Executive's
option, bring that action in any court of competent jurisdiction. All
expenses, including legal expenses incurred by Executive, relating to
any arbitration shall be paid by the Company. Judgment may be entered
on an arbitrator(s)' award in any court having jurisdiction.
14. Assignment.
This contract shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors
of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive
(except by
11
<PAGE>
will or by operation of the laws of intestate succession) or by the
Company (any such purported assignment by either shall be null and
void), except that the Company may assign this Agreement to any
successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or business of the Company.
15. Amendment; Waiver.
The Agreement may be amended at any time, but only by mutual written
agreement of the parties hereto. Any party may waive compliance by the
other party with any provision hereof, but only by an instrument in
writing executed by the party granting such waiver.
16. Entire Agreement.
The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of
Executive by the Company and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that
this Agreement shall constitute the complete and exclusive statement of
its terms and that no extrinsic evidence whatsoever may be introduced
in any judicial, administrative or other legal proceeding involving
this Agreement.
17. Death or Incompetence.
In the event of Executive's death or a judicial determination of his
incompetence, reference in this Agreement to Executive shall be deemed,
where appropriate, to refer to his estate or other legal
representative.
18. Survivorship.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to
the intended preservation of such rights and obligations. The
provisions of this Section are in addition to the survivorship
provisions of any other section of this Agreement.
19. Governing Law.
This Agreement shall be construed, interpreted, and governed in
accordance with the laws of the State of New York without reference to
rules relating to conflicts of law.
12
<PAGE>
20. Withholding.
The Company shall be entitled to withhold from payment the amount of
any taxes required to be withheld by law.
21. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which will be deemed an original.
EMCOR GROUP, INC.
By: /s/ Frank T. MacInnis
---------------------
EXECUTIVE
/s/ Thomas D. Cunningham
------------------------
Thomas D. Cunningham
<PAGE>
EXHIBIT 11
SEE NOTE C TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS FOR INFORMATION
RELATING TO THE CALCULATION OF BASIC EPS AND DILUTED EPS.
<PAGE>
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES
Dyn Specialty Contracting, Inc.
MES Holdings Corporation
SellCo Corporation
EMCOR Construction Holdings Services Inc.
EMCOR International, Inc.
EMCOR Mechanical/Electrical Services (East), Inc.
EMCOR Mechanical/Electrical Services (MidWest), Inc.
EMCOR Mechanical/Electrical Services (West), Inc.
EMCOR Mechanical/Electrical Services (South), Inc.
EMCOR (UK) Limited
Drake & Scull Engineering Ltd.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accoubntants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement Filed No. 333-44369.
Stamford, Connecticut
February 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from EMCOR Group
Inc, Consolidated Financial Statements for the year ended December 31, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 49,376
<SECURITIES> 0
<RECEIVABLES> 501,453
<ALLOWANCES> 20,456
<INVENTORY> 7,363
<CURRENT-ASSETS> 622,661
<PP&E> 44,310
<DEPRECIATION> 17,146
<TOTAL-ASSETS> 660,654
<CURRENT-LIABILITIES> 456,595
<BONDS> 63,212
0
0
<COMMON> 96
<OTHER-SE> 95,227
<TOTAL-LIABILITY-AND-EQUITY> 660,654
<SALES> 1,950,868
<TOTAL-REVENUES> 1,950,868
<CGS> 1,768,685
<TOTAL-COSTS> 1,923,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,300
<INTEREST-EXPENSE> 11,952
<INCOME-PRETAX> 15,462
<INCOME-TAX> 6,881
<INCOME-CONTINUING> 8,581
<DISCONTINUED> 0
<EXTRAORDINARY> (1,004)
<CHANGES> 0
<NET-INCOME> 7,577
<EPS-PRIMARY> 79
<EPS-DILUTED> 74
</TABLE>
