<PAGE>
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934
------------------------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
-------------------------------------------------------------------
Commission file number 0-2315
------
EMCOR Group, Inc.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 11-2125338
- ------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) Number)
06851-1060
101 Merritt Seven Corporate Park ------------------------------------
Norwalk, Connecticut (Zip Code)
- -------------------------------------------------------------
(Address of principal executive offices)
(203) 849-7800
- -------------------------------------------------------------
(Registrant's telephone number)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No __ ---
Applicable Only To Issuers Involved In Bankruptcy Proceedings During
The Previous Five Years
--------------------------------------------------------------------
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange
Act of 1934, subsequent to the distribution of securities under a plan confirmed
by a court. Yes X No __
---
Applicable Only To Corporate Issuers
-------------------------------------
Number of shares of Common Stock outstanding as of the close of
business on October 26, 1999: 9,685,143 shares.
===============================================================================
<PAGE>
EMCOR GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
as of September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations -
three months ended September 30, 1999 and 1998 3
Condensed Consolidated Statements of Operations -
nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1999 and 1998 5
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income -
nine months ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
PART II - Other Information
Item 1 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 6 Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- ----------------------------------------------------------------------------------- -------------------
September 30, December 31,
1999 1998
(Unaudited)
- --------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,861 $ 83,053
Accounts receivable, net 722,282 538,457
Costs and estimated earnings in excess
of billings on uncompleted contracts 130,421 91,569
Inventories 7,522 7,188
Prepaid expenses and other 8,854 11,702
------------------- -------------------
Total current assets 906,940 731,969
Investments, notes and other long-term
receivables 17,635 6,974
Property, plant and equipment, net 37,178 32,098
Goodwill 60,019 22,745
Other assets 8,576 7,216
------------------- -------------------
Total assets $1,030,348 $801,002
=================== ===================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
- -------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
(Unaudited)
- --------------------------------------------------------------- -------------------- ------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital credit lines $ 10,000 $ --
Current maturities of long-term debt and capital
lease obligations 2,373 7,963
Accounts payable 318,666 246,856
Billings in excess of costs and estimated
earnings on uncompleted contracts 246,532 135,094
Accrued payroll and benefits 72,908 62,008
Other accrued expenses and liabilities 63,003 59,996
-------------------- ------------------
Total current liabilities 713,482 511,917
Long-term debt and capital lease obligations 116,056 117,274
Other long-term obligations 55,557 51,995
-------------------- ------------------
Total liabilities 885,095 681,186
-------------------- ------------------
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, 9,685,143 and 9,830,603 shares issued
and outstanding or issuable, respectively 109 109
Warrants 2,154 2,154
Capital surplus 125,343 114,867
Accumulated other comprehensive loss (109) (1,822)
Retained earnings 34,592 18,476
Treasury stock, at cost, 1,132,000 shares
and 957,900 shares, respectively (16,836) (13,968)
-------------------- ------------------
Total stockholders' equity 145,253 119,816
-------------------- ------------------
Total liabilities and stockholders' equity $1,030,348 $801,002
==================== ==================
</TABLE>
See notes to Condensed Consolidated Financial Statements.
2
<PAGE>
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<P<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
- ------------------------------------------------------------- -------------------- --------------------
Three months ended September 30, 1999 1998
- ------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Revenues $810,749 $565,964
Costs and expenses:
Cost of sales 732,732 508,010
Selling, general and administrative 59,865 45,939
-------------------- --------------------
792,597 553,949
-------------------- --------------------
Operating income 18,152 12,015
Interest expense, net 2,378 1,866
-------------------- --------------------
Income before income taxes 15,774 10,149
Provision for income taxes 7,135 4,389
-------------------- --------------------
Net income $8,639 $5,760
==================== ====================
Basic earnings per share $0.89 $0.55
==================== ====================
Diluted earnings per share $0.66 $0.45
==================== ====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
- ------------------------------------------------------------- -------------------- --------------------
Nine months ended September 30, 1999 1998
- ------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Revenues $2,047,221 $1,605,434
Costs and expenses:
Cost of sales 1,850,621 1,450,965
Selling, general and administrative 161,394 130,456
-------------------- --------------------
2,012,015 1,581,421
-------------------- --------------------
Operating income 35,206 24,013
Interest expense, net 6,313 5,637
-------------------- --------------------
Income before income taxes and extraordinary
item 28,893 18,376
Provision for income taxes 12,777 8,140
-------------------- --------------------
Income before extraordinary item 16,116 10,236
Extraordinary item - loss on early
extinguishment of debt, net of income taxes -- (4,777)
-------------------- --------------------
Net income $16,116 $5,459
==================== ====================
Basic earnings per share:
Income before extraordinary item $1.66 $0.99
Extraordinary item - loss on early
extinguishment of debt, net of income taxes -- (0.46)
==================== ====================
Basic earnings per share $1.66 $0.53
==================== ====================
Diluted earnings per share:
Income before extraordinary item $1.33 $0.90
Extraordinary item - loss on early
extinguishment of debt, net of income taxes -- (0.34)
==================== ====================
Diluted earnings per share $1.33 $0.56
==================== ====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
EMCOR Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $16,116 $ 5,459
Extraordinary item - loss on early extinguishment of debt,
net of income taxes -- 3,152
Depreciation and amortization 7,901 6,512
Amortization of goodwill 2,437 392
Other non-cash expenses 11,445 6,497
Changes in operating assets and liabilities (25,404) (11,475)
---------------- ----------------
Net cash provided by operating activities 12,495 10,537
---------------- ----------------
Cash flows from financing activities:
Issuance of Convertible subordinated notes -- 115,000
Net proceeds from sale of Common stock -- 22,485
Purchases of Treasury stock (2,868) (11,885)
Debt issuance costs -- (4,074)
Payment of Series C Notes -- (61,854)
Premiums paid on early extinguishment of debt -- (2,437)
Payment of Supplemental SellCo Note -- (5,464)
Borrowings (payments) under working capital credit lines 10,000 (9,497)
(Payments) issuance of long-term debt and capital lease
obligations (6,821) 1,630
Exercise of stock options 221 517
---------------- ----------------
Net cash provided by financing activities 532 44,421
---------------- ----------------
Cash flows from investing activities:
Purchase of Property, plant and equipment, net (7,910) (8,109)
Payments for acquisitions of businesses (55,782) (26,987)
Increase in Investments, notes and other long-term
receivables 5,473 (930)
---------------- ----------------
Net cash used in investing activities (58,219) (36,026)
---------------- ----------------
(Decrease) increase in cash and cash equivalents (45,192) 18,932
Cash and cash equivalents at beginning of period 83,053 49,376
---------------- ----------------
Cash and cash equivalents at end of period $37,861 $68,308
================ ================
Supplemental cash flow information:
Cash paid for:
Interest $2,864 $2,493
Income taxes $4,453 $707
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated Retained
other earnings
Common Capital comprehensive (accumulated Treasury Comprehensive
Total stock Warrants surplus income (loss)(1) deficit) stock income (loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $119,816 $109 $ 2,154 $114,867 $ (1,822) $18,476 $(13,968)
Net income 16,116 -- -- -- -- 16,116 -- $ 16,116
Foreign currency
translation
adjustments 1,713 -- -- -- 1,713 -- -- 1,713
------------
Comprehensive income -- -- -- -- -- -- -- $ 17,829
============
NOL utilization, net 10,255 -- -- 10,255 -- -- --
Common stock issued
under stock option plans 221 -- -- 221 -- -- --
Treasury stock
repurchased (2,868) -- -- -- -- -- (2,868)
----------- ----------- ----------- ------------ --------------- ------------- ----------
Balance, September 30, 1999 $145,253 $109 $ 2,154 $125,343 $ (109) $34,592 $(16,836)
=========== =========== =========== ============================ ============= ==========
Balance, January 1, 1998 $95,323 $ 96 $ 2,154 $87,107 $ (195) $6,161 --
Net income 5,459 -- -- -- -- 5,459 -- $ 5,459
Foreign currency
translation
adjustments (985) -- -- -- (985) -- -- (985)
------------
Comprehensive income -- -- -- -- -- -- -- $ 4,474
============
NOL utilization, net 5,250 -- -- 5,250 -- -- --
Issuance of common stock 22,485 11 -- 22,474 -- -- --
Tax effect of
extraordinary item (2,715) -- -- (2,715) -- -- --
Common stock issued
under stock option plans
plans 517 1 -- 516 -- -- --
Treasury stock
repurchased (11,885) -- -- -- -- -- (11,885)
----------- ----------- ----------- ------------ --------------- ------------- ----------
Balance, September 30, 1998 $113,449 $108 $ 2,154 $112,632 $(1,180) $11,620 $(11,885)
=========== =========== =========== ============ =============== ============= ==========
</TABLE>
(1) Represents cumulative foreign currency translation adjustments.
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the interim period reporting
requirements of Form 10-Q. Consequently, certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Readers of this report should refer to the consolidated financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of a normal
recurring nature) necessary to present fairly the financial position of the
Company and the results of its operations. The results of operations for the
three and nine month periods ended September 30, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
Certain reclassifications of prior year amounts have been made to conform to
current year presentation.
NOTE B Goodwill
Goodwill at September 30, 1999 was approximately $60.0 million, which represents
the excess of cost over fair market value of net identifiable assets of
companies acquired in purchase transactions. The increase in Goodwill of $37.3
million, net of amortization of $2.4 million for the nine months ended September
30, 1999, was primarily attributable to two acquisitions. In April 1999, the
Company acquired all of the capital stock of Monumental Investment Corporation
which owns all of the capital stock of the Poole & Kent group of companies,
providers of mechanical services to water and wastewater treatment facilities,
government agencies, transportation authorities, and commercial and industrial
clients in a variety of industries. The purchase price is subject to
finalization based on certain contingencies provided for in the purchase
agreement. In May 1999, the Company acquired all of the capital stock of Energy
Systems Industries, Inc., a provider of operations, maintenance and consulting
services for commercial, industrial and institutional clients. The accounting
for these transactions is of a preliminary basis and are subject to certain
purchase accounting adjustments. The goodwill associated with these transactions
will be amortized on a straight-line basis over 20 year periods. The total
purchase price paid in 1999 in connection with these two acquisitions, plus
additional payments made in 1999 by reason of earn-out terms of acquisitions
made prior to 1999, was $55.8 million.
At the end of each quarter, the Company reviews events and changes in
circumstances, if any, to determine whether the recoverability of the carrying
value of Goodwill should be reassessed. Should events or circumstances indicate
that the carrying value may not be recoverable based on undiscounted future cash
flows, an impairment loss measured by the difference between the discounted
future cash flows (or another acceptable method for determining fair value) and
the carrying value of Goodwill would be recognized by the Company.
7
<PAGE>
NOTE C Long-Term Debt
Long-term debt in the accompanying Condensed Consolidated Balance Sheets
consists of the following amounts at September 30, 1999 and December 31, 1998
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Convertible subordinated notes, at 5.75% , due 2005 $115,000 $115,000
Note payable, due 1999 -- 6,164
Other 3,429 4,073
------------------ ---------------
118,429 125,237
Less: current maturities (2,373) (7,963)
------------------- ----------------
$116,056 $117,274
================== ===============
</TABLE>
On March 18, 1998, the Company called for redemption approximately $61.9 million
principal amount of Series C Notes and irrevocably funded such amounts, together
with a redemption premium, with the trustee of the Indenture under which the
Series C Notes were issued. In accordance with the Indenture governing the
Series C Notes, the redemption price of the Series C Notes was 104% of the
principal amount redeemed. The Company recorded an extraordinary loss related to
the early retirement of debt amounting to approximately $4.8 million, net of
income taxes. The extraordinary loss consisted primarily of the write-off of the
associated debt discount plus the redemption premium and other costs associated
with the redemption, net of income tax benefits.
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes ("Subordinated Notes"). On March 24, 1998, the underwriter of the
Subordinated Notes offering exercised in full its over-allotment option to
purchase an additional $15.0 million of Subordinated Notes, and accordingly,
Subordinated Notes in the additional principal amount of $15.0 million were
issued. The Subordinated Notes will mature in April 2005 and are general
unsecured obligations of the Company, subordinated in right to all existing and
future Senior Indebtedness (as defined in the indenture pursuant to which
Subordinated Notes were issued (the "Subordinated Indenture")) of the Company.
The Subordinated Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of Indebtedness (as defined in the Subordinated
Indenture) or Senior Indebtedness. Holders of the Subordinated Notes have the
right at any time to convert the Subordinated Notes into Common Stock of the
Company at a conversion price of $27.34 per share.
NOTE D Income Taxes
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At September 30, 1999, the Company had net operating loss
carryforwards ("NOLs") for U.S. income tax purposes of approximately $125.0
million, which expire in the years 2007 through 2012. 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 the Company's NOLs available for use in any one year.
As a result of the adoption of Fresh-Start Accounting, the recognition of a tax
benefit of any net operating loss carryforwards or net deductible temporary
differences which existed as of the date of the Company's emergence from Chapter
11 in December 1994 will result in a charge to the tax provision (provision in
lieu of income taxes) and be allocated to Capital surplus.
The Company has provided a valuation allowance as of September 30, 1999 for the
full amount of the tax benefit of its remaining NOLs and other deferred tax
assets. Income tax expense recorded for the three and nine month
8
<PAGE>
periods ended September 30, 1999 and 1998 represent a provision primarily for
federal, foreign and state and local income taxes. The Company's utilization of
NOLs and other deferred tax assets for the nine month periods ended September
30, 1999 and 1998 of approximately $10.3 million and $5.3 million have been
added to Capital surplus, respectively.
NOTE E Earnings Per Share
The following tables summarize the Company's calculation of Basic and Diluted
Earnings per Share ("EPS") for the three and nine month periods ended September
30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended
September 30, 1999
-----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Basic EPS
Net income available to common
stockholders $8,639,000 9,685,048 $0.89
==================
Effect of Dilutive Securities:
Options -- 284,690
Warrants -- 378,098
Convertible Subordinated Notes 1,033,362 4,206,291
-------------------- -------------------
Diluted EPS $9,672,362 14,554,127 $0.66
================= =================== ==================
</TABLE>
<TABLE>
<CAPTION>
T
Nine months ended
September 30, 1999
-----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator)) Amount
------------------ ------------------- -----------------
<S> <C> <C> <C>
Basic EPS
Income before extraordinary item
available to common stockholders $16,116,000 9,693,200 $1.66
=================
Effect of Dilutive Securities:
Options -- 253,812
Warrants -- 295,824
Convertible Subordinated Notes 3,077,621 4,206,291
------------------ -------------------
Diluted EPS - before extraordinary
item $19,193,621 14,449,127 $1.33
================== =================== =================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended
September 30, 1998
-----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Basic EPS
Net income available to common
stockholders $5,760,000 10,489,173 $0.55
==================
Effect of Dilutive Securities:
Options -- 217,645
Warrants -- 158,531
Convertible Subordinated Notes 1,081,000 4,206,291
-------------------- -------------------
Diluted EPS $6,841,000 15,071,640 $0.45
================= =================== ==================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
-----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator)) Amount
------------------ ------------------- -----------------
<S> <C> <C> <C>
Basic EPS
Income before extraordinary item
available to common stockholders $10,236,000 10,329,154 $0.99
=================
Effect of Dilutive Securities:
Options -- 259,235
Warrants -- 279,291
Convertible Subordinated Notes 2,331,000 3,023,251
------------------ -------------------
Diluted EPS - before extraordinary
item $12,567,000 13,890,931 $0.90
================== =================== =================
</TABLE>
For the nine month period ended September 30, 1999, 18,000 options were excluded
from the calculation of Diluted EPS as the inclusion of the options would be
antidilutive.
NOTE F Common Stock
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, 1,100,000 shares of its Common Stock at a price of $21.875 per share.
The proceeds of the offering, together with the proceeds of the Subordinated
Notes offering, were used to repay the Company's Series C Notes, the Company's
Supplemental SellCo Note and the Company's working capital credit facility. The
balance was used for general corporate purposes and acquisitions.
As a part of a program previously authorized by the Board of Directors, the
Company purchased 174,100 shares of its common stock during the nine months
ended September 30, 1999 at an aggregate cost of approximately $2.9 million.
This amount is classified as a component of "Treasury stock, at cost" in the
accompanying Condensed Consolidated Balance Sheet.
NOTE G New Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133" or "the Statement"). SFAS No. 133, as
amended by SFAS No. 137, establishes for fiscal quarters of fiscal years
beginning after June 15, 2000 accounting and reporting standards requiring
derivative instruments, as defined, to be measured in the financial statements
at fair value. The Statement also requires that changes in the derivatives'
10
<PAGE>
fair value be recognized currently in earnings unless certain accounting
criteria are met. The Company does not expect the provision of SFAS No. 133 to
have a significant effect on the financial condition or results of operations of
the Company.
NOTE H Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131") which changed the way the
Company reports information about its operating segments. The Company evaluates
financial performance based on the operating income of the reportable business
units.
The Company has the following reportable segments pursuant to SFAS No. 131:
United States electrical construction and facilities services ("United States
Electrical Business Units"), United States mechanical construction and
facilities services ("United States Mechanical Business Units"), Canada
construction and facilities services ("Canada Business Units") and United
Kingdom construction and facilities services ("United Kingdom Business Units").
United States "Other" primarily represents those operations that principally
provide consulting and maintenance services. "Other International Operations
Business Units" represents the Company's operations outside of the United
States, Canada, and the United Kingdom, primarily those in the Middle East and
Asia performing electrical construction, mechanical construction and facilities
services ("Other International Business Units"). Inter-segment sales are not
material for any of the periods presented. The Extraordinary item - loss on
early extinguishment of debt, net of income taxes, of $4.8 million for the nine
months ended September 30, 1998 is related to corporate administration of the
Company.
The following presents information about industry segments and geographic areas
(In thousands):
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------------ -----------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
United States Electrical Business Units $ 257,027 $ 224,740 $ 708,519 $ 645,050
United States Mechanical Business Units 320,986 152,825 741,150 432,799
United States Other Business Units 32,443 3,550 63,193 7,935
-------------- -------------- -------------- --------------
Total United States Operations 610,456 381,115 1,512,862 1,085,784
Canada Operations Business Units 57,832 53,534 132,593 149,813
United Kingdom Operations Business Units 142,259 128,724 401,041 359,755
Other International Operations Business Units 202 2,591 725 10,082
-------------- -------------- -------------- --------------
Total Worldwide Operations $ 810,749 $ 565,964 $2,047,221 $1,605,434
============== ============== ============== ==============
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Operating income:
United States Electrical Business Units $ 10,659 $ 11,807 $ 25,419 $ 23,996
United States Mechanical Business Units 11,624 5,523 25,423 13,706
United States Other Business Units (595) (1,073) (3,170) (3,229)
--------------- -------------- -------------- --------------
Total United States Operations 21,688 15,537 47,672 34,473
Canada Operations Business Units 881 1,685 2,430 4,123
United Kingdom Operations Business Units 812 (314) (725) (738)
Other International Operations Business Units (153) (233) (842) (928)
Corporate Administration (5,076) (4,660) (13,329) (12,917)
--------------- -------------- -------------- --------------
Total Worldwide Operations 18,152 12,015 35,206 24,013
Other Corporate items:
Interest expense (2,638) (3,468) (7,616) (9,787)
Interest income 260 1,602 1,303 4,150
--------------- -------------- -------------- --------------
Income before taxes and
extraordinary item $ 15,774 $ 10,149 $ 28,893 $ 18,376
=============== ============== ============== ==============
September 30, December 31,
1999 1998
---------------- --------------
Total assets:
United States Electrical Business Units $ 322,495 $282,580
United States Mechanical Business Units 403,135 204,469
United States Other Business Units 61,298 25,725
-------------- --------------
Total United States Operations 786,928 512,774
Canada Operations Business Units 56,886 49,463
United Kingdom Operations Business Units 146,664 156,693
Other International Operations Business Units 18,546 14,605
Corporate Administration 21,324 67,467
-------------- --------------
Total Worldwide Operations $1,030,348 $801,002
============== ==============
</TABLE>
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
EMCOR Group, Inc.'s ("EMCOR" or the "Company") Revenues for the three months
ended September 30, 1999 and 1998 were $810.7 million and $566.0 million,
respectively. Net income for the three months ended September 30, 1999 was $8.6
million, an improvement of $2.9 million over $5.8 million for the comparable
period in 1998. Basic Earnings per Share ("Basic EPS") were $0.89 per share for
the three months ended September 30, 1999, a 62% increase over Basic EPS of
$0.55 per share for the same 1998 period. Diluted Earnings per Share ("Diluted
EPS") were $0.66 per share for the three months ended September 30, 1999, a 47%
increase over Diluted EPS of $0.45 per share for the same 1998 period. The
increase in Revenues for 1999 compared to 1998 was attributable to $177.7
million of new Revenues from acquisitions (up to the first anniversary of the
date of acquisition) and revenue growth from existing operations of $67.0
million.
Revenues for the nine months ended September 30, 1999 and 1998 were $2,047.2
million and $1,605.4 million respectively. Net income for the nine months ended
September 30, 1999 was $16.1 million compared to a net income of $5.5 million
for the nine months ended September 30, 1998. Basic EPS were $1.66 per share for
the nine months ended September 30, 1999 compared to Basic EPS of $0.53 per
share in the year earlier period. Diluted EPS were $1.33 per share compared to
Diluted EPS of $0.56 per share for the nine months ended September 30, 1999 and
1998, respectively. Net income for the nine months ended September 30, 1998
included after-tax charges of approximately $4.8 million ($7.5 million pre-tax),
or a Basic EPS loss of $0.46 and a Diluted EPS loss of $0.34, respectively,
associated with the early retirement of approximately $61.9 million of the
Company's Series C Notes. These extraordinary charges are reflected in the
accompanying Consolidated Statements of Operations under the caption
"Extraordinary item - loss on early extinguishment of debt, net of income
taxes". The increase in Revenues for 1999 compared to 1998 was attributable to
$329.6 million of new Revenues from acquisitions and revenue growth from
existing operations of $112.4 million.
Gross Profit (Revenues less Cost of sales) ("GP") increased to $78.0 million for
the three months ended September 30, 1999 compared to $58.0 million for the
three months ended September 30, 1998. As a percentage of Revenues, GP was 9.6%
and 10.2% for the three months ended September 30, 1999 and 1998, respectively.
GP increased to $196.6 million for the nine months ended September 30, 1999, a
$42.1 million increase over the GP of $154.5 million for the nine months ended
September 30, 1998. As a percentage of Revenues, GP was 9.6% for the nine months
ended September 30, 1999 and 1998. The decrease in GP as a percentage of
Revenues for the three months ended September 30, 1999 compared to the same
period last year was primarily attributable to the fact that GP as a percentage
of Revenues, of certain acquired companies, was slightly lower than the GP as a
percentage of Revenues for other Company operations.
Selling, general and administrative expenses ("SG&A") for the three months ended
September 30, 1999 were $59.9 million, or 7.4% of Revenues, compared to $45.9
million, or 8.1% of Revenues for the three months ended September 30, 1998. SG&A
expenses for the nine months ended September 30, 1999 were $161.4 million, or
7.9% of Revenues, compared to $130.5 million, or 8.1% of Revenues, for the same
period in 1998. The dollar increase in SG&A for the three and nine months ended
September 30, 1999 compared to the comparable prior year periods was due to
companies acquired during 1998 and 1999 and volume growth of existing Company
operations. The decrease in SG&A as a percentage of Revenues was primarily due
to the geographic area in which the Revenue was earned in 1999 and 1998 and the
generally lower SG&A costs as a percentage of Revenues for acquired companies.
This decrease in SG&A was offset partially by increases due to the continued
development of the Company's facilities services operations, which operations
generally require greater SG&A than construction services.
The Company had Operating income of $18.2 million, or 2.2% of Revenues, for the
three
13
<PAGE>
months ended September 30, 1999 compared with Operating income of $12.0 million,
or 2.1% of Revenues, for the three months ended September 30, 1998. Operating
income for the nine months ended September 30, 1999 was $35.2 million or 1.7% of
Revenues, compared to $24.0 million or 1.5 % of Revenues for the same 1998
period. The increase in Operating income for the three and nine months ended
September 30, 1999 as compared to the same periods in 1998 was due to income
attributable to businesses acquired in 1998 and 1999 plus revenue growth of
other operations, offset partially by increases in SG&A due to the continued
development of the Company's facilities services operations.
EMCOR's Interest expense, net, increased by $0.5 million for the three months
ended September 30, 1999 from the comparable 1998 period primarily due to
borrowings on its working capital credit line in the 1999 period, and reduced
cash available to invest in 1999 when compared to the same 1998 period, due
primarily to payments for companies acquired during the second quarter of 1999.
For the nine months ended September 30, 1999 Interest expense, net, increased by
$0.7 million compared to the nine months ended September 30, 1998. This increase
in Interest expense, net, for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998 was due to the reasons
cited above with respect to the three month periods ended September 30, 1999 and
1998, offset by borrowings at lower interest rates plus more cash available to
invest during the first three months of 1999 versus the first three months of
1998.
The Income tax provision was $7.1 million for the three months ended September
30, 1999, compared to $4.4 million for the same period in 1998. For the nine
months ended September 30, 1999 the Income tax provision increased to $12.8
million compared to $8.1 million for the same 1998 period. The increase in the
provision was due to increased Income before taxes and extraordinary item, plus
an increase in the effective income tax rate for the three months ended
September 30, 1999 compared to the same three months in 1998 due to changes in
the jurisdictions in which income was earned. A portion of the liability for
income taxes, $10.3 million for 1999 and $5.3 million for 1998, is not payable
in cash due to the utilization of NOL's and was recorded as an increase in
Capital surplus for both years.
The Company's backlog was $1,830.5 million at September 30, 1999 and $1,329.1
million at December 31, 1998. Between December 31, 1998 and September 30, 1999,
the Company's backlog in Canada increased by $47.4 million, its backlog in the
United Kingdom and Other International Operations increased by $19.1 million and
its backlog in the United States increased by $434.9 million. The increase in
the Company's Canadian backlog was primarily attributable to several large
contract awards in Western Canada. The increase in the United Kingdom and Other
International backlog was due to contracts awarded in the three months ended
September 30, 1999. The increase in the United States backlog was due to
acquisitions contributing an additional $372.7 million to backlog, plus
increases in backlog related to growth of the Company's existing domestic
businesses. The Company's backlog at September 30, 1998 was $1,269.9 million.
Excluding acquisitions, backlog rose $182.1 million, or 14%, in the last 12
months.
United States Operations
The Company's United States operations consist of three segments: electrical
construction and facilities services, mechanical construction and facilities
services and other services.
Revenues of electrical construction and facilities services business units
("Electrical Business Units") for the three months ended September 30, 1999 were
$257.0 million compared to $224.7 million for the three months ended September
30, 1998. Operating income of the Electrical Business Units (before deduction of
general corporate and other expenses discussed below) for the three months ended
September 30, 1999 was $10.7 million or 4.1% of Revenues compared to $11.1
million or 4.9% of Revenues for the three months ended September 30, 1998.
Revenues for the nine months ended September 30, 1999 were $708.5 million
compared to $645.1 million for the same nine months in 1998. Operating income
was $25.4 million or 3.6% of Revenues for the nine months of 1999, an increase
of $1.4 million compared to $24.0 million or 3.7% of Revenues for the same nine
months of 1998. The increase in Revenues and Operating income for both the three
and nine month periods ended
14
<PAGE>
September 30, 1999 and 1998 was primarily attributable to increasing market
strength in the Eastern United States driven by renovation projects and new
construction, in addition to acquisitions made during 1998.
Revenues of mechanical construction and facilities services business units
("Mechanical Business Units") for the three months ended September 30, 1999 were
$321.0 million compared to $152.8 million for the three months ended September
30, 1998. Operating income of the Mechanical Business Units (before deduction of
general corporate and other expenses discussed below) for the three months ended
September 30, 1999 was $11.6 million or 3.6% of Revenues compared to $5.5
million or 3.6% of Revenues for the three months ended September 30, 1998.
Revenues for the nine months ended September 30, 1999 were $741.2 million versus
$432.8 million for the nine months ended September 30, 1998. Operating income
was $25.4 million, or 3.4% of Revenues, for the nine months of 1999, a $11.7
million increase compared to $13.7 million, or 3.2% of Revenues, for the same
nine months of 1998. Acquisitions contributed $142.9 million and $265.9 million
to the increase in Revenues in the three and nine month comparable periods,
respectively. Additionally, an increase in revenues attributable to the Western
United States operations in the three months ended September 30, 1999
contributed to higher Revenues for both the three and nine month periods of 1999
compared to the same periods in 1998.
Other United States Revenues of $32.4 million for the three months ended
September 30, 1999, which include those operations that principally provide
consulting and maintenance services, increased by $28.9 million compared to the
same three months in 1998. Revenues for the nine months ended September 30, 1999
were $63.2 million compared to $7.9 million for the nine months ended September
30, 1998. The increase in Revenues for the three and nine month periods ended
September 30, 1999 compared to the three and nine month periods ended September
30, 1998 was primarily attributable to acquisitions made in 1999 and 1998.
Operating losses attributable to consulting and maintenance services were $0.6
million and $1.1 million for the three months ended September 30, 1999 and 1998,
respectively. Operating losses for the nine months ended September 30, 1999 and
1998 were $3.2 million for each period. The Operating losses for both the three
and nine month comparable periods were primarily attributable to costs
associated with the continued development of the consulting operations and
maintenance services activities.
International Operations
The Company's International Operations consist of three segments: Canada
construction and facilities services, United Kingdom construction and facilities
services and other international construction and facilities services. Revenues
of Canada construction and facilities services business units ("Canada Business
Units") for the three months ended September 30, 1999 were $57.8 million
compared to $53.5 million for the three months ended September 30, 1998.
Revenues for the nine months ended September 30, 1999 and 1998 were $132.6
million and $149.8 million, respectively. Operating income of the Canada
Business Units was $0.9 million compared to $1.7 million for the three months
ended September 30, 1999 and 1998, respectively. For the nine months ended
September 30, 1999 and 1998, operating income was $2.4 million and $4.1 million,
respectively. The decrease in both Revenues and Operating income for the nine
months ended September 30, 1999 period compared to the same period in 1998 was
primarily due to a reduced level of activities in Eastern Canada and from delays
early in 1999 on the commencement of certain projects. The impact of decreased
Revenues and Operating income has been partially offset by increased GP as a
percentage of Revenues in the nine month period of 1999.
Revenues of United Kingdom construction and facilities services business units
("United Kingdom Business Units") for the three months ended September 30, 1999
were $142.3 million compared to $128.7 million for the three months ended
September 30, 1998. Revenues for the nine months ended September 30, 1999 and
1998 were $401.0 million and $359.8 million, respectively. Operating income of
the United Kingdom business units (before deduction of general and other
expenses discussed below) for the three months ended September 30, 1999 was $0.8
million compared to a $0.3 million loss for the three months ended September 30,
1998. Operating losses for the nine months ended September 30, 1999 and 1998
were $0.7 million. The increase in Revenues for the three and nine month periods
ended September 30, 1999 compared to the three and nine month periods ended
September 30, 1998 was primarily attributable to continued growth in selected
15
<PAGE>
construction and facilities services markets, combined with an increase in
revenue associated with two major projects. The activity in this segment
produced operating losses for the nine month period ended September 30, 1999,
however, profitability was achieved in the three months ended September 30,
1999.
Other International construction and facilities services business units ("Other
International Business Units") primarily consists of the Company's operations in
the Middle East and Asia. Revenues for the three months ended September 30, 1999
were $0.2 million compared to $2.6 million for the three months ended September
30, 1998. Revenues for the nine months ended September 30, 1999 and 1998 were
$0.7 million and $10.1 million, respectively. Operating losses were
approximately $0.2 million for the three months ended September 30, 1999 and
1998. Operating losses for the nine months ended September 30, 1999 and 1998
were $0.8 million and $0.9 million, respectively. The decline in Revenues for
both the three and nine month comparable periods, was due to the completion of
several large projects in the Middle East and Asia markets that were active last
year, as well as a reduction of the level of ownership and related share of
revenues for certain joint ventures. The Operating losses were due to costs
associated with the administration and completion of the activities in these
regions. The Company continues to pursue new business selectively in these
markets; however, the availability of opportunities has been reduced
significantly as a result of local economic factors.
General Corporate and Other Expenses
General Corporate expenses for the three months ended September 30, 1999 and
1998 were $5.1 million and $4.7 million, respectively. For the nine months ended
September 30, 1999 and 1998, General Corporate Expenses were $13.3 million and
$12.9 million, respectively. Interest expense for the three months ended
September 30, 1999 was $2.6 million compared to $3.5 million for the same three
months in 1998. Interest expense for the nine months ended September 30, 1999
was $7.6 million compared to $9.8 million for the nine months ended September
30, 1998. Interest income for the three months ended September 30, 1999 was $0.3
million compared to $1.6 million for the three months ended September 30, 1998.
For the nine months ended September 30, 1999, Interest income was $1.3 million,
a $2.9 million decrease from $4.2 million for the same period in 1998. For the
three month periods ended September 30, 1999 and 1998, both Interest expense and
Interest income were impacted by borrowings under working capital credit lines
in the 1999 period and by less cash available to invest in 1999 than in the 1998
period. This increase in Interest expense for the nine months ended September
30, 1999 compared to the nine months ended September 30, 1998 was due to the
same reasons cited with respect to the three month periods ended September 30,
1999 and 1998, offset by borrowings at lower interest rates, and more cash
available to invest during the first three months of 1999 versus the first three
months of 1998.
Liquidity and Capital Resources
During the third quarter of 1998, the Company's Board of Directors authorized a
stock repurchase program under which the Company could repurchase up to $20.0
million of its Common Stock. As of September 30, 1999 the Company had
cumulatively repurchased 1,132,000 shares of its Common Stock at an aggregate
cost of approximately $16.8 million.
The Company's consolidated cash balance decreased by approximately $45.2 million
from $83.1 million at December 31, 1998 to $37.9 million at September 30, 1999,
as a result of Net cash provided by operating activities of $12.5 million, Net
cash provided by financing activities of $0.5 million, offset by Net cash used
in investing activities of $58.2 million (primarily due to cash paid for
acquisitions of $55.8 million).
As of September 30, 1999 the Company's total borrowing capacity under its
revolving credit facility was $150.0 million. The Company had approximately
$17.4 million of letters of credit outstanding as of that date. There were $10.0
million of revolving loans outstanding as of September 30, 1999 and none at
December 31, 1998 under the credit facility.
The Company believes that current cash balances and borrowing capacity available
under its line of credit,
16
<PAGE>
combined with cash expected to be generated from operations, will be sufficient
to provide short-term and foreseeable long-term liquidity and meet expected
capital expenditure requirements.
Year 2000
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date sensitive information beyond January 1, 2000.
The Company has performed a comprehensive review of its internal application
systems ("Internal Systems"), including information technology ("IT") systems
and Non-IT systems, to identify those systems that could be affected by the Year
2000 issue and has developed a plan to resolve the Year 2000 issue. The Company
defines IT systems as those systems which are software applications and related
computer hardware critical to operation of its business. These IT systems
include, but are not limited to, accounting systems that encompass billing and
estimating, accounts payable and payroll. Additionally, IT systems include other
non-accounting software applications that are part of business operations such
as network hardware and software, computerized drafting hardware and software,
telephone systems and sheet metal fabrication equipment. Non-IT systems would
primarily include software applications and related computer hardware that are
used in building systems such as, but not limited to, temperature controls,
security systems and other building systems.
The Company estimates that it is approximately 95% complete with required
modifications to its IT Systems and expects the balance of any required
modifications to be completed by November, 1999. With respect to Non-IT systems,
the modifications required were substantially complete by the end of the third
quarter of 1999. Modification costs have and will be expensed as SG&A as
incurred and costs of new software have and will be capitalized and amortized
over the expected useful life of the related software.
Since the inception of the Company's efforts to address the Year 2000 issues,
approximately $0.8 million has been expensed as incurred. Additional
modification and testing costs to be incurred are not anticipated to exceed an
additional $0.2 million. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test its systems to ensure Year
2000 compliance.
The Company expects its Year 2000 conversion project to be completed before
January 1, 2000. While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, the Company's operations and financial results
could be adversely impacted by the Year 2000 issue if the conversion schedule
and cost estimate for its Internal Systems are not met or suppliers and or
customers and other businesses on which the Company relies do not address the
Year 2000 issue successfully. The Company has requested that its significant
suppliers confirm that they have plans for achieving Year 2000 compliance.
Additionally, the Company has been independently investigating third party
compliance for critical services and equipment. The Company continues to assess
these risks in order to reduce any impact on the Company. Contingency plans
include but are not limited to both ordering and receiving where practical,
prior to January 1, 2000, an inventory of general supplies to be used on jobs
and identifying back-up suppliers for these items. Specific supplies, which may
only be available from limited resources will be identified, and if necessary,
ordered in advance to meet anticipated job requirements near the January 1, 2000
date where practical.
The Company has identified failure in basic infrastructure such as banking
services, telecommunications or electrical distribution as the most reasonably
likely worst case scenario with respect to the Year 2000 issue. However, failure
of basic infrastructure would most likely be isolated and short-lived. With
respect to such a failure, management believes it is to the Company's advantage
that it operates in a variety of markets in the United States, Canada, the
United Kingdom and other countries, and in a number of local markets within
these regions. Consequently, it does not believe that a Company-wide risk
associated with the Year 2000 issue will likely exist. However, the Company will
continue to monitor all identifiable scenarios and prepare contingency plans as
necessary to attempt to mitigate any exposures.
17
<PAGE>
Based on currently available information, the Company does not believe that the
matters discussed above related to its Internal Systems or to services provided
to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure Year 2000 capability by a
supplier, customer or another third party will not have a material adverse
effect on the Company.
This Quarterly Report on Form 10-Q 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 profit, and selling, general and administrative expenses. These
forward-looking statements involved 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.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Except as hereafter indicated, the information on legal proceedings is hereby
incorporated by reference to Note P of the Company's Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998. The arbitrator in the arbitration
proceeding arising out of the participation of the Company's subsidiary
Dynalectric Company ("Dynalectric") in a joint venture with Computran has made
an award requiring Dynalectric to pay Computran damages, plus interest thereon,
and certain costs of the arbitration. As a consequence, Dynalectric is required
to pay to Computran approximately $468,000 (net of amounts for which a third
party has agreed to indemnify Dynalectric) in respect of the damage and related
interest award and approximately $190,000 (net of amounts for which a third
party has agreed to indemnify Dynalectric) in respect of the award of costs
representing a portion of the arbitrator's fees and expenses and a portion of
Computran's legal fees and related expenses. In addition, Dynalectric is to pay
interest on the foregoing amounts from the date of the award until paid. As to
Dynalectric, Computran has made a motion with the Superior Court of the District
of Columbia to confirm the award as it relates to the damage and related
interest award but to have the award vacated as to certain causes of action that
the arbitrator found in favor of Dynalectric and other defendants and vacated as
to the award of costs (including legal fees) and has requested the court to
determine and grant Computran's legal fees and costs. Dynalectric will not
object to the confirmation of the damage and related interest award and will
seek to have confirmed the arbitrator's award in its entirety, including the
award as to costs (including legal fees).
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 28, 1999 the Company held its annual meeting of stockholders.
(a) Each of the seven individuals nominated for election as a director of the
Company for the ensuing year was elected. The seven directors constituted
all of the members of the Board of Directors of the Company.
Name Votes For Votes Withheld
Stephen W. Bershad 7,106,262 1,303,954
David A. B. Brown 7,105,262 1,304,954
Georges L. de Buffevent 7,105,262 1,304,954
Albert Fried, Jr. 7,106,012 1,304,204
Richard F. Hamm, Jr. 8,083,866 326,350
Frank T. MacInnis 8,395,941 14,275
Kevin C. Toner 7,106,212 1,304,004
There were no broker non-votes.
(b) The stockholders voted upon a stockholder proposed resolution requesting
the Company's Board of Directors to terminate its stockholder rights plan
and to refrain from adopting similar plans or a staggered board. 3,205,412
shares were voted for the resolution, 3,222,906 shares were voted against
resolution, and 23,840 shares abstained from voting thereon. There were
1,958,058 broker non-votes.
(c) The stockholders also voted upon a proposal to ratify the appointment by
the Audit Committee of the Board of Directors of Arthur Andersen LLP,
certified public accountants, as the Company's independent public
accountants for 1999. 8,408,886 shares voted in favor of ratification, no
shares voted against ratification, and 1,330 shares abstained from voting
thereon. There were no broker non-votes.
19
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Incorporated by Reference to,
Exhibit No Description or Page Number
---------- ------------ -----------------------------
<S> <C> <C> <C>
11 Computation of Basic Note E of the Notes
EPS and Diluted EPS to the Condensed Consolidated
for the nine months Financial Statements.
ended September 30, 1999
and 1998
27 Financial Data Schedule Filed herewith.
99 Copy of Note P of the Company's Filed herewith
Notes to Consolidated Financial
Statements included in the Company's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1998
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
EMCOR GROUP, INC.
------------------------------------------------
(Registrant)
Date: October 28, 1999 By: /s/FRANK T. MACINNIS
------------------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
Date: October 28, 1999 By: /s/LEICLE E. CHESSER
------------------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
21
</TABLE>
<PAGE>
Exhibit 99
Copy of Note P of the Company's Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
NOTE P - LEGAL PROCEEDINGS
The Company's subsidiary Dynalectric Company ("Dynalectric") is party to an
arbitration proceeding arising out of Dynalectric's participation in a joint
venture with Computran Systems Corp. ("Computran"). The proceeding which was
instituted in 1998 in Superior Court of New Jersey, Bergen County ("Superior
Court"), by 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 others 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 has defended this matter vigorously.
Dynalelectric has filed counterclaims against Computran. As a result of a motion
made by Dynalectric, the Superior Court has ordered that the matters in dispute
Dynalectric and Computran be resolved by binding arbitration in accordance with
an original agreement between the parties. The parties are awaiting the decision
of the arbitrator.
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.
On July 31, 1998 a former employee of a subsidiary of EMCOR filed a
class-action complaint on behalf of the participants in two employee benefit
plans sponsored by EMCOR against EMCOR and other defendants for breach of
fiduciary duty under the Employee Retirement Income Security Act. All of the
claims relate to alleged acts or omissions which occurred during the period May
1, 1991 to December 1994. The principal allegations of the complaint are that
the defendants breached their fiduciary duties by causing the plans to purchase
and hold stock of EMCOR when it was then known as JWP INC. and when the
defendants knew or should have known it was imprudent to do so. The plaintiff
has not made claim for a specific dollar amount of damages but generally seeks
to recover for the benefit plans the loss in the value of JWP stock held by the
plans. EMCOR and the other defendants intend to vigorously defend the case.
Insurance coverage may be applicable under an EMCOR pension trust liability
insurance policy for EMCOR and those present and former employees of EMCOR who
are defendants in the action.
Substantial settlements or damage judgements against the Company arising
out 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.
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from EMCOR's
Condensed Consolidated Financial Statements for the nine months ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 37,861
<SECURITIES> 0
<RECEIVABLES> 722,282
<ALLOWANCES> 26,350
<INVENTORY> 7,522
<CURRENT-ASSETS> 906,940
<PP&E> 67,001
<DEPRECIATION> 29,823
<TOTAL-ASSETS> 1,030,348
<CURRENT-LIABILITIES> 713,482
<BONDS> 116,056
0
0
<COMMON> 109
<OTHER-SE> 145,144
<TOTAL-LIABILITY-AND-EQUITY> 1,030,348
<SALES> 2,047,221
<TOTAL-REVENUES> 2,047,221
<CGS> 1,850,621
<TOTAL-COSTS> 2,012,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 6,313
<INCOME-PRETAX> 28,893
<INCOME-TAX> 12,777
<INCOME-CONTINUING> 16,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,116
<EPS-BASIC> 1.66
<EPS-DILUTED> 1.33
</TABLE>
