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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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)
Delaware 11-2125338
- ------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
301 Merritt Seven Corporate Park
Norwalk, Connecticut 06851-1060
- -------------------------------- ----------
(Address of Principal Executive (Zip Code)
Offices)
(203) 849-7800
-----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No __
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on
July 15, 2004: 15,141,157 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
as of June 30, 2004 and December 31, 2003 1
Condensed Consolidated Statements of Operations -
three months ended June 30, 2004 and 2003 3
Condensed Consolidated Statements of Operations -
six months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 2004 and 2003 5
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income -
six months ended June 30, 2004 and 2003 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 23
Item 4 Controls and Procedures 24
PART II - Other Information
Item 1 Legal Proceedings 24
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 6 Exhibits and Reports on Form 8-K 26
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
June 30, December 31,
2004 2003
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 50,219 $ 78,260
Accounts receivable, net 1,066,924 1,009,170
Costs and estimated earnings in excess
of billings on uncompleted contracts 235,093 249,393
Inventories 10,030 9,863
Prepaid expenses and other 41,023 42,470
---------- ----------
Total current assets 1,403,289 1,389,156
Investments, notes and other long-term
receivables 28,404 26,452
Property, plant and equipment, net 62,693 66,156
Goodwill 279,500 277,994
Identifiable intangible assets, net 20,504 22,226
Other assets 13,514 13,263
---------- ----------
Total assets $1,807,904 $1,795,247
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
- --------------------------------------------------------------------------------
June 30, December 31,
2004 2003
(Unaudited)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital credit line $ 119,300 $ 139,400
Current maturities of long-term debt and capital
lease obligations 314 367
Accounts payable 434,576 451,713
Billings in excess of costs and estimated
earnings on uncompleted contracts 408,914 345,207
Accrued payroll and benefits 123,644 131,623
Other accrued expenses and liabilities 94,928 110,147
---------- ----------
Total current liabilities 1,181,676 1,178,457
Long-term debt and capital lease obligations 577 561
Other long-term obligations 98,875 94,873
---------- ----------
Total liabilities 1,281,128 1,273,891
---------- ----------
Stockholders' equity:
Preferred stock, $0.10 par value, 1,000,000 shares
authorized, zero issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 16,229,048 and 16,155,844 shares
issued, respectively 162 162
Capital surplus 317,168 316,729
Accumulated other comprehensive (loss) income (904) 1,257
Retained earnings 227,083 219,921
Treasury stock, at cost 1,087,891 and 1,123,651
shares, respectively (16,733) (16,713)
---------- ----------
Total stockholders' equity 526,776 521,356
---------- ----------
Total liabilities and stockholders' equity $1,807,904 $1,795,247
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
- --------------------------------------------------------------------------------
Three months ended June 30, 2004 2003
- --------------------------------------------------------------------------------
Revenues $1,193,213 $1,144,378
Cost of sales 1,091,701 1,021,103
---------- ----------
Gross profit 101,512 123,275
Selling, general and administrative expenses 97,141 106,638
Restructuring expenses 140 -
---------- ----------
Operating income 4,231 16,637
Interest expense, net (1,740) (1,842)
---------- ----------
Income before income taxes 2,491 14,795
Income tax provision 1,046 6,522
---------- ----------
Net income $ 1,445 $ 8,273
========== ==========
Basic earning per share $ 0.10 $ 0.55
========== ==========
Diluted earnings per share $ 0.09 $ 0.53
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
- --------------------------------------------------------------------------------
Six months ended June 30, 2004 2003
- --------------------------------------------------------------------------------
Revenues $2,302,299 $2,205,408
Cost of sales 2,099,624 1,965,364
---------- ----------
Gross profit 202,675 240,044
Selling, general and administrative expenses 198,142 215,813
Restructuring expenses 5,319 -
---------- ----------
Operating (loss) income (786) 24,231
Interest expense, net (3,418) (3,644)
---------- ----------
(Loss) income before income taxes (4,204) 20,587
Income tax (benefit) provision (11,366) 9,058
---------- ----------
Net income $ 7,162 $ 11,529
========== ==========
Basic earning per share $ 0.47 $ 0.77
========== ==========
Diluted earnings per share $ 0.46 $ 0.74
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
- --------------------------------------------------------------------------------
Six months ended June 30, 2004 2003
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 7,162 $ 11,529
Depreciation and amortization 10,554 10,347
Amortization of identifiable intangibles 1,722 1,751
Other non-cash expenses 1,930 4,153
Changes in operating assets and liabilities, excluding
the effect of businesses acquired (19,523) (80,927)
--------- ---------
Net cash provided by (used in) operating activities 1,845 (53,147)
--------- ---------
Cash flows from investing activities:
Payments for acquisitions of businesses, net of
cash acquired, and related earn-out agreements (1,506) (3,478)
Proceeds from sale of assets 1,170 732
Purchase of property, plant and equipment (8,114) (9,216)
Net disbursements related to other investments (1,952) (4,357)
--------- ---------
Net cash used in investing activities (10,402) (16,319)
--------- ---------
Cash flows from financing activities:
Proceeds from working capital credit lines 676,950 878,198
Repayments of working capital credit lines (697,050) (823,398)
Net repayments for long-term debt (39) (22,139)
Net borrowings (repayments) for capital lease obligations 2 235
Net proceeds from exercise of stock options 653 1,219
--------- ---------
Net cash (used in) provided by financing activities (19,484) 34,115
--------- ---------
Decrease in cash and cash equivalents (28,041) (35,351)
Cash and cash equivalents at beginning of year 78,260 93,103
--------- ---------
Cash and cash equivalents at end of period $ 50,219 $ 57,752
========= =========
Supplemental cash flow information:
Cash paid for:
Interest $ 3,710 $ 3,297
Income taxes $ 3,855 $ 11,597
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands)(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common Capital comprehensive Retained Treasury Comprehensive
Total stock surplus income (loss)(1) earnings stock income
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2003 $489,870 $161 $312,393 $(5,148) $199,300 $(16,836)
Net income 11,529 -- -- -- 11,529 -- $11,529
Foreign currency translation
adjustments 5,057 -- -- 5,057 -- -- 5,057
-------
Comprehensive income -- -- -- -- -- -- $16,586
=======
Common stock issued under
stock option plans 1,219 -- 1,180 -- -- 39
Value of Restricted Stock
Units (2) 1,434 -- 1,434 -- -- --
-------- ---- -------- ------- -------- --------
Balance, June 30, 2003 $509,109 $161 $315,007 $ (91) $210,829 $(16,797)
======== ==== ======== ======= ======== ========
Balance, January 1, 2004 $521,356 $162 $316,729 $ 1,257 $219,921 $(16,713)
Net income 7,162 -- -- -- 7,162 -- $ 7,162
Foreign currency translation
adjustments (2,161) -- -- (2,161) -- -- (2,161)
-------
Comprehensive income -- -- -- -- -- -- $ 5,001
=======
Issuance of treasury stock
for restricted stock units (3) -- -- (836) -- -- 836
Treasury stock, at cost (4) (856) -- -- -- -- (856)
Common stock issued under
stock option plans 607 -- 607 -- -- --
Value of Restricted Stock
Units (2) 668 -- 668 -- -- --
-------- ---- -------- ------- -------- --------
Balance, June 30, 2004 $526,776 $162 $317,168 $ (904) $227,083 $(16,733)
======== ==== ======== ======= ======== ========
(1) Represents cumulative foreign currency translation adjustments and minimum
pension liability adjustments.
(2) Shares of common stock will be issued in respect of restricted stock units
granted pursuant to EMCOR's Executive Stock Bonus Plan. This amount
represents the value of restricted stock units at the date of grant.
(3) Represents common stock transferred at cost from treasury stock upon the
vesting of restricted stock units.
(4) Represents value of shares of common stock withheld by EMCOR for income tax
withholding requirements upon the vesting of restricted stock units.
See Notes to Condensed Consolidated Financial Statements.
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 EMCOR Group, Inc. and Subsidiaries ("EMCOR"), 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 accounting principles generally accepted in the
United States have been condensed or omitted. Readers of this report should
refer to the consolidated financial statements and the notes thereto included in
EMCOR's latest Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
In the opinion of EMCOR, 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 EMCOR
and the results of its operations. The results of operations for the three and
six month periods ended June 30, 2004 are not necessarily indicative of the
results to be expected for the year ending December 31, 2004.
Certain reclassifications of prior year amounts have been made to conform to
current year presentation.
NOTE B Earnings Per Share
Calculation of Basic and Diluted Earnings per share
The following tables summarize EMCOR's calculation of Basic and Diluted Earnings
per Share ("EPS") for the three and six month periods ended June 30, 2004 and
2003:
Three months ended
June 30, 2004
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $1,445,000 15,139,887 $0.10
=====
Effect of Dilutive Securities:
Options -- 421,095
---------- ----------
Diluted EPS $1,445,000 15,560,982 $0.09
========== ========== =====
Six months ended
June 30, 2004
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $7,162,000 15,098,268 $0.47
=====
Effect of Dilutive Securities:
Options -- 447,491
---------- ----------
Diluted EPS $7,162,000 15,545,759 $0.46
========== ========== =====
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE B Earnings Per Share - (continued)
Three months ended
June 30, 2003
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $8,273,000 14,988,836 $0.55
=====
Effect of Dilutive Securities:
Options -- 517,963
---------- ----------
Diluted EPS $8,273,000 15,506,799 $0.53
========== ========== =====
Six months ended
June 30, 2003
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $11,529,000 14,959,666 $0.77
=====
Effect of Dilutive Securities:
Options -- 516,996
----------- ----------
Diluted EPS $11,529,000 15,476,662 $0.74
=========== ========== =====
There were 852,078 anti-dilutive stock options that were required to be excluded
from the calculation of diluted EPS for both the three and six month periods
ended June 30, 2004, respectively. There were 219,403 anti-dilutive stock
options that were required to be excluded from the calculation of diluted EPS
for both the three and six month periods ended June 30, 2003, respectively.
NOTE C Valuation of Stock Option Grants
EMCOR has stock-based compensation plans and programs. EMCOR applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized in the accompanying
Condensed Consolidated Statements of Operations for the three and six month
periods ended June 30, 2004 and 2003 in respect of stock options granted during
those periods inasmuch as EMCOR grants stock options at fair market value. Had
compensation cost for these options been determined consistent with SFAS 123,
"Accounting for Stock-Based Compensation", EMCOR's net income, basic earnings
per share ("Basic EPS") and diluted earnings per share ("Diluted EPS") would
have been reduced from the "as reported amounts" below to the "pro forma
amounts" (in thousands, except per share amounts):
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE C Valuation of Stock Option Grants - (continued)
For the three months For the six months
ended June 30, ended June 30,
--------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------
Net income:
As reported $1,445 $8,273 $7,162 $11,529
Less: Total stock-based compensation expense determined
under fair value based method, net of related tax effects 290 270 1,010 1,028
------ ------ ------ -------
Pro forma $1,155 $8,003 $6,152 $10,501
====== ====== ====== =======
Basic EPS:
As reported $ 0.10 $ 0.55 $ 0.47 $ 0.77
Pro forma $ 0.08 $ 0.53 $ 0.41 $ 0.70
Diluted EPS:
As reported $ 0.09 $ 0.53 $ 0.46 $ 0.74
Pro forma $ 0.07 $ 0.52 $ 0.40 $ 0.68
Common Stock
As of June 30, 2004 and December 31, 2003, 15,141,157 and 15,032,193 shares of
EMCOR common stock were outstanding, respectively.
NOTE D Segment Information
EMCOR has the following reportable segments which provide services associated
with the design, integration, installation, startup, operation and maintenance
of various systems: (a) United States electrical construction and facilities
services (involving systems for generation and distribution of electrical power,
lighting systems, low-voltage systems such as fire alarm, security,
communications and process control systems and voice and data systems); (b)
United States mechanical construction and facilities services (involving systems
for heating, ventilation, air conditioning, refrigeration and clean-room process
ventilation systems, and plumbing, process and high-purity piping systems); (c)
United States facilities services; (d) Canada construction and facilities
services; (e) United Kingdom construction and facilities services; and (f) Other
international construction and facilities services. The segment "United States
facilities services" principally consists of those operations which provide a
portfolio of services needed to support the operation and maintenance of
customers' facilities (mobile operation and maintenance services, site-based
operation and maintenance services, facility planning and consulting services
and energy management programs) and, although this segment occasionally performs
construction projects, this segment's services are not generally related to
customers' construction programs. The Canada, United Kingdom and Other
international segments perform electrical construction, mechanical construction
and facilities services. "Other international construction and facilities
services" represents EMCOR's operations outside of the United States, Canada and
the United Kingdom (primarily in South Africa and the Middle East during the
periods presented). The following tables present information about industry
segments and geographic areas (in thousands):
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D Segment Information -(continued)
For the three months ended June 30,
------------------------------------
2004 2003
------------------------------------
Revenues from unrelated entities:
United States electrical construction and facilities services $ 299,273 $ 322,035
United States mechanical construction and facilities services 469,025 426,088
United States facilities services 179,041 164,777
---------- ----------
Total United States operations 947,339 912,900
Canada construction and facilities services 65,441 91,264
United Kingdom construction and facilities services 180,433 140,214
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,193,213 $1,144,378
========== ==========
For the three months ended June 30,
------------------------------------
2004 2003
------------------------------------
Total revenues:
United States electrical construction and facilities services $ 302,278 $ 328,176
United States mechanical construction and facilities services 475,059 428,236
United States facilities services 179,080 165,174
Less intersegment revenues (9,078) (8,686)
---------- ----------
Total United States operations 947,339 912,900
Canada construction and facilities services 65,441 91,264
United Kingdom construction and facilities services 180,433 140,214
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,193,213 $1,144,378
========== ==========
For the six months ended June 30,
------------------------------------
2004 2003
------------------------------------
Revenues from unrelated entities:
United States electrical construction and facilities services $ 578,148 $ 575,909
United States mechanical construction and facilities services 891,739 842,591
United States facilities services 357,522 333,189
---------- ----------
Total United States operations 1,827,409 1,751,689
Canada construction and facilities services 141,124 184,326
United Kingdom construction and facilities services 333,766 269,393
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $2,302,299 $2,205,408
========== ==========
For the six months ended June 30,
------------------------------------
2004 2003
------------------------------------
Total revenues:
United States electrical construction and facilities services $ 584,249 $ 592,075
United States mechanical construction and facilities services 908,410 845,197
United States facilities services 357,916 334,266
Less intersegment revenues (23,166) (19,849)
---------- ----------
Total United States operations 1,827,409 1,751,689
Canada construction and facilities services 141,124 184,326
United Kingdom construction and facilities services 333,766 269,393
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $2,302,299 $2,205,408
========== ==========
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D Segment Information - (continued)
For the three months ended June 30,
------------------------------------
2004 2003
------------------------------------
Operating income (loss):
United States electrical construction and facilities services $ 8,829 $ 16,156
United States mechanical construction and facilities services 2,891 6,243
United States facilities services 3,988 4,566
---------- ----------
Total United States operations 15,708 26,965
Canada construction and facilities services (653) 1,145
United Kingdom construction and facilities services (1,269) (2,862)
Other international construction and facilities services (60) (272)
Corporate administration (9,355) (8,339)
Restructuring expenses (140) --
---------- ----------
Total worldwide operations 4,231 16,637
Other corporate items:
Interest expense (1,997) (2,031)
Interest income 257 189
---------- ----------
Income before income taxes $ 2,491 $ 14,795
========== ==========
For the six months ended June 30,
------------------------------------
2004 2003
------------------------------------
Operating income (loss):
United States electrical construction and facilities services $ 26,110 $ 29,110
United States mechanical construction and facilities services (4,851) 10,586
United States facilities services 2,362 6,740
---------- ----------
Total United States operations 23,621 46,436
Canada construction and facilities services (632) 1,766
United Kingdom construction and facilities services (2,594) (7,337)
Other international construction and facilities services 218 (115)
Corporate administration (16,080) (16,519)
Restructuring expenses (5,319) --
---------- ----------
Total worldwide operations (786) 24,231
Other corporate items:
Interest expense (3,844) (4,028)
Interest income 426 384
---------- ----------
(Loss) income before income taxes $ (4,204) $ 20,587
========== ==========
June 30, Dec. 31,
2004 2003
------------------------------------
Total assets:
United States electrical construction and facilities services $ 360,406 $ 362,306
United States mechanical construction and facilities services 777,737 771,730
United States facilities services 303,463 280,512
---------- ----------
Total United States operations 1,441,606 1,414,548
Canada construction and facilities services 102,689 98,191
United Kingdom construction and facilities services 193,036 198,397
Other international construction and facilities services 4,893 4,461
Corporate administration 65,680 79,650
---------- ----------
Total worldwide operations $1,807,904 $1,795,247
========== ==========
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE E Retirement Plans
Components of Net Periodic Pension Benefit Cost
The components of net periodic pension benefit cost for three and six month
periods ended June 30, 2004 and 2003 were as follows (in thousands):
For the three months For the six months
ended June 30, ended June 30,
----------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Service cost $ 1,198 $ 1,061 $ 2,384 $ 2,322
Interest cost 2,025 2,192 4,031 4,424
Expected return on plan assets (1,661) (2,222) (3,306) (4,456)
Amortization of prior service cost (2) (2) (4) (4)
Amortization of net loss 565 345 1,125 696
-------- -------- ------- --------
Net periodic pension benefit cost $ 2,125 $ 1,374 $ 4,230 $ 2,982
======== ======== ======= ========
Employer Contributions
During 2004, EMCOR's United Kingdom subsidiary contributed $3.3 million to its
defined benefit pension plan and anticipates contributing an additional $4.3
million in the remainder of 2004.
NOTE F Income Taxes
For the three months ended June 30, 2004, the income tax provision was $1.0
million compared to $6.5 million for the three months ended June 30, 2003. For
the six months ended June 30, 2004, the income tax benefit was $11.4 million,
compared to an income tax provision of $9.1 million for the six months ended
June 30, 2003. The income tax benefit in the 2004 six month period included a
reversal of $9.6 million in the first quarter of 2004 of income tax reserves no
longer required based on a current analysis of probable exposures, plus a $1.8
million tax benefit on $4.2 million of loss before income taxes. The provision
(benefit) on income (loss) before income taxes for the three and six months
ended June 30, 2004 was recorded at an effective income tax rate of
approximately 42% for each period, respectively; and the income before income
taxes for the three and six months ended June 30, 2003 was recorded at an
effective income tax rate of approximately 44%. The decrease in the effective
income tax rate for the current year periods compared to the prior year periods
was primarily due to increased income anticipated in certain lower tax rate
jurisdictions.
NOTE G Legal Proceedings
See Part II - Other Information, Item 1 - Legal Proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Highlights
Operating Segments
EMCOR has the following reportable segments which provide services associated
with the design, integration, installation, startup, operation and maintenance
of various systems: (a) United States electrical construction and facilities
services (involving systems for generation and distribution of electrical power,
lighting systems, low-voltage systems such as fire alarm, security,
communications and process control systems and voice and data systems); (b)
United States mechanical construction and facilities services (involving systems
for heating, ventilation, air conditioning, refrigeration and clean-room process
ventilation systems, and plumbing, process and high-purity piping systems); (c)
United States facilities services; (d) Canada construction and facilities
services; (e) United Kingdom construction and facilities services; and (f) Other
international construction and facilities services. The segment "United States
facilities services" principally consists of those operations which provide a
portfolio of services needed to support the operation and maintenance of
customers' facilities (mobile operation and maintenance services, site-based
operation and maintenance services, facility planning and consulting services
and energy management programs) and, although this segment occasionally performs
construction projects, this segment's services are not generally related to
customers' construction programs. The Canada, United Kingdom and Other
international segments perform electrical construction, mechanical construction
and facilities services. "Other international construction and facilities
services" represents EMCOR's operations outside of the United States, Canada and
the United Kingdom (primarily in South Africa and the Middle East during the
periods presented).
Results of Operations
The results presented reflect certain reclassifications of prior period amounts
to conform to current year presentation.
Revenues
The following table presents EMCOR's operating segment revenues from unrelated
entities and their respective percentage of total revenues (in thousands, except
for percentages):
For the three months ended June 30,
-------------------------------------------------------
% of % of
2004 Total 2003 Total
---- ----- ---- -----
Revenues:
United States electrical construction and facilities services $ 299,273 25% $ 322,035 28%
United States mechanical construction and facilities services 469,025 39% 426,088 37%
United States facilities services 179,041 15% 164,777 14%
---------- ----------
Total United States operations 947,339 79% 912,900 80%
Canada construction and facilities services 65,441 6% 91,264 8%
United Kingdom construction and facilities services 180,433 15% 140,214 12%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $1,193,213 100% $1,144,378 100%
========== ==========
For the six months ended June 30,
-------------------------------------------------------
% of % of
2004 Total 2003 Total
---- ----- ---- -----
Revenues:
United States electrical construction and facilities services $ 578,148 25% $ 575,909 26%
United States mechanical construction and facilities services 891,739 39% 842,591 38%
United States facilities services 357,522 16% 333,189 15%
---------- ----------
Total United States operations 1,827,409 80% 1,751,689 79%
Canada construction and facilities services 141,124 6% 184,326 8%
United Kingdom construction and facilities services 333,766 14% 269,393 12%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $2,302,299 100% $2,205,408 100%
========== ==========
As described below in more detail, revenues for the three months ended June 30,
2004 increased 4.3% to $1.19 billion compared to $1.14 billion for the three
months ended June 30, 2003. Revenues for the six months ended June 30, 2004
increased 4.4% to $2.30 billion compared to $2.21 billion for the six months
ended June 30, 2003. This revenue growth was principally due to increased work
on United States transportation infrastructure, financial services, health care
and hospitality construction projects and increases in site-based facilities
services contracts. The increases in revenues in the three and six month periods
in 2004 compared to the same periods in 2003 were partially offset by lower
revenues from power generation projects, office and manufacturing construction
projects, discretionary small projects, and repair and maintenance work in the
United States and lower revenues from certain power generation projects in
Canada.
Revenues of United States electrical construction and facilities services
segment for the three months ended June 30, 2004 decreased $22.8 million
compared to the three months ended June 30, 2003. Revenues for the six months
ended June 30, 2004 increased $2.2 million compared to the six months ended June
30, 2003. The decrease in revenues for the three months ended June 30, 2004 was
primarily due to decreased power generation, office and manufacturing
construction projects, partially offset by an increase in transportation
infrastructure, financial services and hospitality work. The increase in
revenues for the six month period was due to increased transportation
infrastructure, financial services and hospitality work, mostly offset by
decreased power generation, office and manufacturing construction projects.
Revenues of United States mechanical construction and facilities services
segment for the three months ended June 30, 2004 increased $42.9 million
compared to the three months ended June 30, 2003. Revenues for the six months
ended June 30, 2004 increased $49.1 million compared to the six months ended
June 30, 2003. The increases in revenues were primarily attributable to
increased work on health care, hospitality and financial services construction
projects, partially offset by decreased power generation work, office work,
discretionary small projects, and repair and maintenance work.
United States facilities services revenues, which include those operations that
principally provide consulting and maintenance services, increased $14.3 million
for the three months ended June 30, 2004 compared to the three months ended June
30, 2003. Revenues for the six months ended June 30, 2004 increased $24.3
million compared to the six months ended June 30, 2003. The increase in revenues
for the three month period was primarily attributable to increased revenues from
site-based facilities services contracts and mobile services, but was partially
offset by decreased revenues from discretionary small projects and repair and
maintenance work. The increase in revenues for the six month period was
primarily attributable to revenues from new site-based facilities services
contracts, but was partially offset by decreased revenues from less mobile
services work during the first three months of the year and a decrease in
discretionary small projects and repair and maintenance work.
Revenues of Canada construction and facilities services decreased by $25.8
million for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003. Revenues for the six months ended June 30, 2004 decreased
$43.2 million compared to the six months ended June 30, 2003. These decreases
were primarily due to the completion of certain long-term power generation
projects active in the prior year. However, these decreases were partially
offset by $1.9 million and $11.2 million in the three and six month periods,
respectively, of increased revenues related to the change in the rate of
exchange for Canadian dollars to United States dollars due to the strengthening
of the Canadian dollar.
United Kingdom construction and facilities services revenues increased $40.2
million for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased
$64.4 million compared to the six months ended June 30, 2003. These increases in
revenues were principally due to increases in transportation infrastructure work
and to increases of $18.9 million and $38.7 million for the three and six months
periods, respectively, caused by changes in the rate of exchange for British
pounds to United States dollars due to strengthening of the British pound.
Other international construction and facilities services activities consist of
operations primarily in the Middle East and South Africa. All of the current
projects in these markets are being performed by joint ventures, and
accordingly, the results of these joint venture operations are accounted for
under the equity method of accounting because EMCOR has less than majority
ownership. Therefore, revenues attributable to such joint ventures are not
reflected as revenues in the consolidated financial statements. EMCOR continues
to pursue new business selectively in the Middle East and in Continental Europe;
however, the availability of opportunities there has been significantly reduced
as a result of local economic factors.
Cost of sales and Gross profit
The following table presents EMCOR's cost of sales, gross profit, and gross
profit as a percentage of revenues (in thousands, except for percentages):
For the three months ended June 30,
-----------------------------------
2004 2003
---- ----
Cost of sales.............................. $1,091,701 $1,021,103
Gross profit............................... 101,512 123,275
Gross profit, as a percentage of revenues.. 8.5% 10.8%
For the six months ended June 30,
-----------------------------------
2004 2003
---- ----
Cost of sales.............................. $2,099,624 $1,965,364
Gross profit............................... 202,675 240,044
Gross profit, as a percentage of revenues.. 8.8% 10.9%
Gross profit (revenues less cost of sales) decreased $21.8 million and $37.4
million for the three and six months ended June 30, 2004 compared to the three
and six months ended June 30, 2003, respectively. Gross profit as a percentage
of revenues was 8.5% for the three months ended June 30, 2004 compared to 10.8%
for the three months ended June 30, 2003. Gross profit as a percentage of
revenues was 8.8% for the six months ended June 30, 2004 compared to 10.9% for
the six months ended June 30, 2003. The reduced gross profit for the 2004 three
and six month periods was primarily attributable to: a) poor contract
performance on certain construction work related to greater than originally
estimated labor requirements to perform the work and continued reduced labor
productivity due to the uncertain construction job market, b) continued
decreased availability of generally more profitable discretionary small projects
and repair and maintenance work, c) increased competition for, and a related
decrease in gross profit margin on, commercial and industrial work in the United
States, d) continued public sector construction work which typically has lower
gross profit margins than private sector construction work and e) unprofitable
performance attributable to labor requirements and other factors with respect to
certain power generation projects in the current year. In addition, in the
comparable 2003 periods, EMCOR realized operating income on power generation
projects completed in 2003 and larger operating losses from the United Kingdom
construction and facilities services segment than in the comparable three and
six month periods in 2004.
Selling, general and administrative expenses
The following table presents EMCOR's selling, general and administrative
expenses, and selling, general and administrative expenses as a percentage of
revenues (in thousands, except for percentages):
For the three months ended June 30,
-------------------------------------------
2004 2003
---- ----
Selling, general and administrative expenses............................... $ 97,141 $106,638
Selling, general and administrative expenses, as a percentage of revenues.. 8.1% 9.3%
For the six months ended June 30,
-------------------------------------------
2004 2003
---- ----
Selling, general and administrative expenses............................... $198,142 $215,813
Selling, general and administrative expenses, as a percentage of revenues.. 8.6% 9.8%
Selling, general and administrative expenses for the three and six months ended
June 30, 2004 decreased $9.5 million and $17.7 million compared to the three and
six months ended June 30, 2003, respectively. Selling, general and
administrative expenses as a percentage of revenues were 8.1% for the three
months ended June 30, 2004, compared to 9.3% for the three months ended June 30,
2003, and 8.6% for the six months ended June 30, 2004, compared to 9.8% for the
six months ended June 30, 2003. The decreases in selling, general and
administrative expenses both in dollars and as a percentage of revenues compared
to the same periods in the prior year was primarily attributable to a) reduced
incentive compensation because of less favorable financial performance and b)
reductions in personnel.
Restructuring expenses
Restructuring expenses, primarily relating to employee severance obligations,
were $0.1 million and $5.3 million for the three and six months ended June 30,
2004. Approximately $4.5 million of the restructuring obligations were paid as
of June 30, 2004. EMCOR anticipates paying approximately $0.3 million of the
remaining obligations in fiscal 2004 and $0.5 million, thereafter. There were no
restructuring expenses for the three and six months ended June 30, 2003.
Operating income
The following table presents EMCOR's operating income (loss), and operating
income (loss) as a percentage of segment revenues from unrelated entities (in
thousands, except for percentages):
For the three months ended June 30,
--------------------------------------------------
% of % of
Segment Segment
2004 Revenues 2003 Revenues
---- -------- ---- --------
Operating income (loss):
United States electrical construction and facilities services $ 8,829 2.9% $16,156 5.0%
United States mechanical construction and facilities services 2,891 0.6% 6,243 1.5%
United States facilities services 3,988 2.2% 4,566 2.8%
------- -------
Total United States operations 15,708 1.7% 26,965 3.0%
Canada construction and facilities services (653) (1.0)% 1,145 1.3%
United Kingdom construction and facilities services (1,269) (0.7)% (2,862) (2.0)%
Other international construction and facilities services (60) (272)
Corporate administration (9,355) (8,339)
Restructuring expenses (140) --
------- -------
Total worldwide operations 4,231 0.4% 16,637 1.5%
Other corporate items:
Interest expense (1,997) (2,031)
Interest income 257 189
------- -------
Income before income taxes $ 2,491 $14,795
======= =======
For the six months ended June 30,
----------------------------------------------------
% of % of
Segment Segment
2004 Revenues 2003 Revenues
---- -------- ---- --------
Operating (loss) income:
United States electrical construction and facilities services $ 26,110 4.5% $ 29,110 5.1%
United States mechanical construction and facilities services (4,851) (0.5)% 10,586 1.3%
United States facilities services 2,362 0.7% 6,740 2.0%
-------- --------
Total United States operations 23,621 1.3% 46,436 2.7%
Canada construction and facilities services (632) (0.4)% 1,766 1.0%
United Kingdom construction and facilities services (2,594) (0.8)% (7,337) (2.7)%
Other international construction and facilities services 218 (115)
Corporate administration (16,080) (16,519)
Restructuring expenses (5,319) --
-------- --------
Total worldwide operations (786) (0.0)% 24,231 1.1%
Other corporate items:
Interest expense (3,844) (4,028)
Interest income 426 384
-------- --------
(Loss) income before income taxes $ (4,204) $ 20,587
======== ========
As described below in more detail, operating income decreased by $12.4 million
and $25.0 million for the three and six months ended June 30, 2004 compared to
the three and six month periods ended June 30, 2003.
United States electrical construction and facilities services operating income
for the three months ended June 30, 2004 decreased $7.3 million compared to the
three months ended June 30, 2003. Operating income for the six months ended June
30, 2004 decreased $3.0 million compared to the six months ended June 30, 2003.
The decreases were primarily the result of a) decreases in the recovery of
estimated costs upon completion of certain projects, b) a continued decline in
the number of office and manufacturing projects and c) unprofitable performance
on certain power generation projects in the current year. However, the reduction
in operating income in the 2004 periods was partially offset by increased gross
profit on transportation infrastructure, financial services, and hospitality
construction projects. In the comparable 2003 periods, EMCOR realized operating
income on power generation projects completed in 2003. Selling, general and
administrative expenses decreased in both the three and six month periods
primarily due to reductions in personnel.
United States mechanical construction and facilities services operating income
for the three months ended June 30, 2004 decreased $3.4 million compared to the
three months ended June 30, 2003. For the six months ended June 30, 2004, this
segment had an operating loss of $4.9 million compared to $10.6 million of
operating income for the six months ended June 30, 2003. The operating results
for both the three and six month periods were primarily attributable to: a) poor
contract performance on certain construction work related to greater labor
requirements than originally estimated to perform the work and continued reduced
labor productivity due to the uncertain construction job market, b) a continued
decreased availability of generally more profitable discretionary small projects
and repair and maintenance work and c) decreases in the recovery of estimated
costs upon completion of certain projects. Partially offsetting the operating
results were decreased selling, general and administrative expenses related to
reduced a) incentive compensation due to less favorable financial performance
and b) personnel reductions.
United States facilities services operating income for the three months ended
June 30, 2004 decreased $0.6 million compared to the three months ended June 30,
2003. Operating income for the six months ended June 30, 2004 decreased $4.4
million compared to the six months ended June 30, 2003. For the three months
ended June 30, 2004 compared to the three months ended June 30, 2003, there was
a decrease in revenues from, and profits earned on, discretionary small projects
and repair and maintenance work. For the six months ended June 30, 2004 compared
to the same period in 2003, the decrease in operating income was due to the
following: a) a decrease in discretionary small projects and repair and
maintenance work, b) approximately $2.3 million of losses during the first three
months of 2004 on certain construction projects, outside of the normal
facilities services operations of this segment, that were contracted for by
subsidiaries in this segment prior to their acquisition by EMCOR and c) expenses
incurred for site-based facilities services development. The decrease in
operating income in the current year periods was offset in part by a reduction
in selling, general and administrative expenses related to a) reduced incentive
compensation due to less favorable financial performance and b) reductions in
personnel.
Canada construction and facilities services operating income decreased $1.8
million for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003. Operating income decreased $2.4 million for the six months
ended June 30, 2004 compared to the six months ended June 30, 2003. The
decreased operating income for both the three and six month periods compared to
the prior year periods was primarily due to a) the completion of certain
long-term power generation projects active in the prior year, b) poor contract
performance on certain other construction work related to greater labor
requirements than originally estimated to perform the work and c) for the six
month period only, an increase in selling, general and administrative expenses
related to increased travel expenses and other direct selling expenses. Exchange
rates did not have a significant impact on reported operating losses for both
the three and six months ended June 30, 2004 compared to the same periods in the
prior year.
United Kingdom construction and facilities services operating losses for the
three months ended June 30, 2004 and 2003 were $1.3 million and $2.9 million,
respectively. Operating losses for the six months ended June 30, 2004 and 2003
were $2.6 million and $7.3 million, respectively. These decreases in operating
losses were attributable to reductions in selling, general and administrative
expenses related to a reorganization of the United Kingdom operations in late
2003 and an improvement in the 2004 gross profit. In the 2003 comparable
periods, there had been several unfavorable project close-outs and poor labor
performance. Exchange rates did not have a significant impact on reported
operating losses for both the three and six months ended June 30, 2004 compared
to the same periods in the prior year.
Other international construction and facilities services realized an operating
loss of $0.1 million for the three months ended June 30, 2004 and operating
income of $0.2 million for the six months ended June 30, 2004, compared to
operating losses of $0.3 million and $0.1 million for the three and six months
ended June 30, 2003, respectively. EMCOR continues to pursue new business
selectively in the Middle East as well as in Continental Europe; however, the
availability of opportunities has been significantly reduced as a result of
local economic factors.
Corporate administration expense increased $1.0 million for the three months
ended June 30, 2004, compared to the three months ended June 30, 2003. Corporate
administration expense decreased $0.4 million for the six months ended June 30,
2004, compared to the six months ended June 30, 2003. The increase in expense
for the three month period was primarily due to increased marketing expenditures
partially offset by general cost reductions.
Restructuring expenses, primarily relating to employee severance obligations,
were $0.1 million and $5.3 for the three and six months ended June 30, 2004.
There were no restructuring expenses for the three and six months ended June 30,
2003.
Interest expense for the three months ended June 30, 2004 and 2003 was $2.0
million in both periods, and interest expense was $3.8 million and $4.0 million
for the six months ended June 30, 2004 and 2003, respectively. Interest income
for the three months ended June 30, 2004 and 2003 was $0.3 million and $0.2
million, respectively, and interest income was $0.4 million for both of the six
month periods ended June 30, 2004 and 2003, respectively. Changes in the
interest rate on borrowings and on cash invested did not have a significant
impact on interest expense or income during the three or six months ended June
30, 2004 compared to the 2003 periods.
For the three months ended June 30, 2004, the income tax provision was $1.0
million compared to $6.5 million for the three months ended June 30, 2003. For
the six months ended June 30, 2004, the income tax benefit was $11.4 million,
compared to an income tax provision of $9.1 million for the six months ended
June 30, 2003. The income tax benefit in the 2004 six month period included a
reversal in the first quarter of 2004 of $9.6 million of income tax reserves no
longer required based on the then current analysis of probable exposures, plus a
$1.8 million tax benefit on $4.2 million of loss before income taxes. The
provision (benefit) on income (loss) before income taxes for the three and six
months ended June 30, 2004 was recorded at an effective income tax rate of
approximately 42% for each period, respectively, and the income before income
taxes for the three and six months ended June 30, 2003 was recorded at an
effective income tax rate of approximately 44%. The decrease in the effective
income tax rate for the current year periods compared to the prior year periods
was primarily due to increased income anticipated in certain lower tax rate
jurisdictions.
EMCOR's contract backlog at June 30, 2004 was $3.08 billion compared to $3.15
billion of contract backlog at June 30, 2003. The $0.07 billion decrease was
primarily due to a $0.2 billion total decrease in the United States electrical
construction and facilities services and the Canada construction and facilities
services segments' backlog and a $0.02 billion decrease in the United Kingdom
construction and facilities services backlog (which decrease was offset by an
increase of $0.05 million due to exchange rate changes) . These decreases were
partially offset by a $0.16 billion total increase in the United States
mechanical construction and facilities services and the United States facilities
services segments' backlog.
EMCOR's contract backlog was $3.08 billion at June 30, 2004 and $3.03 billion at
December 31, 2003. The $0.05 billion increase was primarily due to a $0.16
billion total increase in the United States mechanical construction and
facilities services and the United States facilities services segments' backlog,
partially offset by decreases in each of EMCOR's other segments' backlog.
Liquidity and Capital Resources
The following table presents EMCOR's net cash (used in) provided by operating
activities, investing activities and financing activities (in thousands):
For the six months
ended June 30,
--------------------------
2004 2003
---- ----
Net cash provided by (used in) operating activities... $ 1,845 $(53,147)
Net cash used in investing activities................. $(10,402) $(16,319)
Net cash (used in) provided by financing activities... $(19,484) $ 34,115
EMCOR's consolidated cash balance decreased by approximately $28.1 million from
$78.3 million at December 31, 2003 to $50.2 million at June 30, 2004. For the
six months ended June 30, 2003, $55.0 million more cash was used in operating
activities than in the first half of 2004 primarily due to the shift toward
increased public sector work in 2003, which work typically involves larger
projects and significant working capital requirements until initial billing
milestones can be reached. In the 2004 period, there was an improvement in
EMCOR's net over-billed position (which is the balance sheet accounts billings
in excess of costs and estimated earnings on uncompleted contracts less cost and
estimated earnings in excess of billings on uncompleted contracts) which
contributed to the improvement in cash provided by operating activities. Net
cash used in investing activities of $10.4 million in the first half of 2004
decreased $5.9 million compared to $16.3 million in the same period in the prior
year primarily due to a $1.1 million reduction in the purchase of property,
plant and equipment, $1.9 million cash disbursed in respect of investments and a
$2.0 million reduction in earn-out payments as earn-out periods provided for in
most acquisition agreements have expired. Net cash used in financing activities
of $19.5 million in the first half of 2004 was primarily attributable to net
repayments under the working capital credit line, compared to net borrowings
under the working capital credit line in 2003.
Payments Due by Period
---------------------------------------------------
Less
Contractual than 1-3 4-5 After
Obligations Total 1 year years years 5 years
- --------------------------------------------- ----- ------ ----- ----- -------
Other long-term debt $ 0.6 $ 0.1 $ 0.2 $ 0.2 $ 0.1
Capital lease obligations 0.3 0.2 0.1 -- --
Operating leases 151.2 36.6 52.9 28.3 33.4
Minimum funding requirement for pension plan 7.6 7.6 -- -- --
Open purchase obligations (1) 668.1 500.6 163.5 4.0 --
Other long-term obligations (2) 98.9 -- 98.9 -- --
------ ------ ------ ----- -----
Total Contractual Obligations $926.7 $545.1 $315.6 $32.5 $33.5
====== ====== ====== ===== =====
Amount of Commitment Expiration by Period
---------------------------------------------------
Total Less
Other Commercial Amounts than 1-3 4-5 After
Commitments Committed 1 year years years 5 years
- --------------------------------------------- --------- ------ ----- ----- -------
Revolving credit facility (3) $119.3 $ -- $ -- $119.3 $ --
Letters of credit 55.6 -- -- 55.6 --
Guarantees 25.0 -- -- -- 25.0
------ ------ ------ ------ -----
Total Commercial Obligations $199.9 $ -- $ -- $174.9 $25.0
====== ====== ====== ====== =====
(1) Represent open purchase orders for material and subcontracting costs
related to the Company's construction and service contracts. These purchase
orders are not reflected in EMCOR's consolidated balance sheet and should
not impact future cash flows as amounts will be recovered through customer
billings.
(2) Represent primarily insurance related liabilities, classified as other
long-term liabilities in EMCOR's consolidated balance sheets. Cash payments
for insurance related liabilities may be payable beyond three years, but it
is not practical to estimate.
(3) EMCOR classifies these borrowings as short-term on its consolidated balance
sheet because of EMCOR's intent and ability to repay the amounts on a
short-term basis.
EMCOR's revolving credit agreement (the "Revolving Credit Facility") provides
for a credit facility of $350.0 million. As of June 30, 2004 and December 31,
2003, EMCOR had approximately $55.6 million and $42.9 million of letters of
credit outstanding, respectively, under the Revolving Credit Facility. The
amounts borrowed under the Revolving Credit Facility as of June 30, 2004 and
December 31, 2003 were $119.3 million and $139.4 million, respectively.
A subsidiary of EMCOR has guaranteed indebtedness of a venture in which it has a
40% interest; the other venture partner, Baltimore Gas and Electric, has a 60%
interest. The venture designs, constructs, owns, operates, leases and maintains
facilities to produce chilled water for sale to customers for use in air
conditioning commercial properties. These guarantees are not expected to have a
material effect on EMCOR's financial position or results of operations. Each of
the venturers is jointly and severally liable, in the event of default, for the
venture's $25.0 million borrowing due December 2031.
EMCOR is contingently liable to sureties in respect of performance and payment
bonds issued by sureties, usually at the request of customers in connection with
construction projects, which secure EMCOR payment and performance obligations
under contracts for such projects. In addition, at the request of labor unions
representing EMCOR employees, bonds are sometimes provided to secure obligations
for wages and benefits payable to or for such employees. EMCOR bonding
requirements typically increase as the amount of public sector work increases.
As of June 30, 2004, sureties had issued bonds for the account of EMCOR in the
aggregate amount of approximately $1.8 billion. The bonds are issued by EMCOR's
sureties in return for a premium, which varies depending on the size and type of
bond. The largest individual bond is approximately $170.0 million. EMCOR has
agreed to indemnify the sureties for any payments made by them in respect of
bonds issued on EMCOR's behalf.
EMCOR does not have any other material financial guarantees or off-balance sheet
arrangements other than those disclosed herein.
The primary source of liquidity for EMCOR has typically been, and is generally
expected to continue to be, cash generated by operating activities. EMCOR also
maintains the Revolving Credit Facility that may be utilized, among other
things, to meet short-term liquidity needs in the event cash generated by
operating activities is insufficient, or to enable EMCOR to seize opportunities
to participate in joint ventures or to make acquisitions that may require access
to cash on short notice or for any other reason. EMCOR may also increase
liquidity through an equity offering or other debt instruments. Short-term
changes in macroeconomic trends may have an effect, positively or negatively, on
liquidity. In addition to managing borrowings, EMCOR's focus on the facilities
services market is intended to provide an additional buffer against economic
downturns, as the facilities services market is characterized by annual and
multi-year contracts that provide a more predictable stream of cash flows than
the construction market. Short-term liquidity is also impacted by the type and
length of construction contracts in place. During economic downturns in
non-residential construction, such as during the period 2001 through June 30,
2004, there are typically fewer discretionary small projects from the private
sector, and companies such as EMCOR more aggressively bid large long-term
infrastructure and public sector contracts. Performance of long-term public
sector contracts typically requires working capital until initial billing
milestones are achieved. While EMCOR strives to maintain a net over-billed
position with its customers, there can be no assurance that a net over-billed
position can be maintained. EMCOR's net over-billings, defined as the balance
sheet accounts billings in excess of costs and estimated earnings on uncompleted
contracts less cost and estimated earnings in excess of billings on uncompleted
contracts, was $173.8 million and $95.8 million as of June 30, 2004 and December
31, 2003, respectively.
Long-term liquidity requirements can be expected to be met through cash
generated from operating activities, the Revolving Credit Facility, and the sale
of various secured or unsecured debt and/or equity interests in the public and
private markets. Based upon EMCOR's current credit ratings and financial
position, EMCOR can reasonably expect to be able to issue long-term debt
instruments and/or equity. Over the long term, EMCOR's primary revenue risk
factor continues to be the level of demand for non-residential construction
services, which is in turn influenced by macroeconomic trends including interest
rates and governmental economic policy. In order to provide protection against
demand cycles in private sector construction services, EMCOR has increased its
participation, and its backlog of contracts, in the public sector and in the
facilities services market. In addition to the primary revenue risk factor,
EMCOR's ability to perform work at profitable levels is critical to meeting
long-term liquidity requirements.
EMCOR believes that current cash balances and borrowing capacity available under
the Revolving Credit Facility or other forms of financing available through debt
or equity offerings, 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. However, EMCOR is
a party to lawsuits and other proceedings in which other parties seek to recover
from it amounts ranging from a few thousand dollars to over $70.0 million. If
EMCOR was required to pay damages in one or more such proceedings, such payments
could have a material adverse effect on its financial position, results of
operations and/or cash flows.
Certain Insurance Matters
As of June 30, 2004 and December 31, 2003, EMCOR was utilizing approximately
$45.1 million and $37.7 million, respectively, of letters of credit obtained
under its revolving credit facility as collateral for its insurance obligations.
Application of Critical Accounting Policies
The condensed consolidated financial statements are based on the application of
significant accounting policies, which require management to make significant
estimates and assumptions. EMCOR's significant accounting policies are described
in Note B - Summary of Significant Accounting Policies of the notes to
consolidated financial statements included in Item 8 of its annual report on
Form 10-K for the year ended December 31, 2003. There was no initial adoption of
any accounting policies during the three and six months ended June 30, 2004.
EMCOR believes that some of the more critical judgment areas in the application
of accounting policies that affect its financial condition and results of
operations are estimates and judgments pertaining to (a) revenue recognition
from (i) long-term construction contracts for which the percentage of completion
method of accounting is used and (ii) services contracts, (b) collectibility or
valuation of accounts receivable, (c) insurance liabilities, (d) income taxes
and (e) intangible assets.
Revenue Recognition for Long-term Construction Contracts and Services Contracts
EMCOR believes its most critical accounting policy is revenue recognition from
long-term construction contracts for which EMCOR uses the
percentage-of-completion method of accounting. Percentage-of-completion
accounting is the prescribed method of accounting for long-term contracts in
accordance with accounting principles generally accepted in the United States,
Statement of Position No 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts," and, accordingly, the method used for
revenue recognition within EMCOR's industry. Percentage-of-completion for each
contract is measured principally by the ratio of costs incurred to date to
perform each contract to the estimated total costs to perform such contract at
completion. Certain of EMCOR's electrical contracting business units measure
percentage-of-completion by the percentage of labor costs incurred to date to
perform each contract to the estimated total labor costs to perform such
contract at completion. Provisions for the entirety of estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Application of percentage-of-completion accounting results in the
recognition of costs and estimated earnings in excess of billings on uncompleted
contracts in EMCOR's consolidated balance sheets. Costs and estimated earnings
in excess of billings on uncompleted contracts reflected in the consolidated
balance sheets arise when revenues have been recognized but the amounts cannot
be billed under the terms of contracts. Such amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of a contract. Costs and
estimated earnings in excess of billings on uncompleted contracts also include
amounts in dispute EMCOR 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
unapproved change orders). Such amounts are recorded at estimated net realizable
value and take into account factors that may affect the ability to bill and
collect amounts billed. Due to uncertainties inherent in estimates employed in
applying percentage-of-completion accounting, estimates may be revised as
project work progresses. Application of percentage-of-completion accounting
requires that the impact of revised estimates be reported prospectively in the
consolidated financial statements.
In addition to revenue recognition for long-term construction contracts, EMCOR
recognizes revenues from service contracts as such contracts are performed in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition, revised
and updated" ("SAB 104"). There are two basic types of services contracts: (1)
fixed price services contracts which are signed in advance for maintenance,
repair and retrofit work over periods typically ranging from one to three years
(for which there may be EMCOR employees on a customer's site full time) and (2)
services contracts which may or may not be signed in advance for similar
maintenance, repair and retrofit work on an as needed basis (frequently referred
to as time and material work). Fixed price services contracts are generally
performed evenly over the contract period, and, accordingly, revenue is
recognized on a pro-rata basis over the life of the contract. Revenues derived
from other services contracts are recognized when the services are performed in
accordance with SAB 104. Expenses related to all services contracts are
recognized as incurred.
Accounts Receivable
EMCOR is required to estimate the collectibility of accounts receivable. A
considerable amount of judgment is required in assessing the realization of
receivables, which assessment factors include the creditworthiness of the
customer, EMCOR's prior collection history with the customer and related aging
of the past due balances. The provisions for bad debts during the six months
ended June 30, 2004 and 2003 were $1.0 and $3.5 million, respectively. At June
30, 2004 and December 31, 2003, accounts receivable of $1,066.9 million and
$1,009.2 million, respectively, included allowances of $37.8 million and $43.7
million, respectively. Specific accounts receivable are evaluated when EMCOR
believes a customer may not be able to meet its financial obligations due to
deterioration of its financial condition or credit ratings or its bankruptcy.
The allowance requirements are based on the best facts available and are
re-evaluated as additional information is received.
Insurance Liabilities
EMCOR has deductibles for certain workers' compensation, auto liability, general
liability and property claims, has self-insured retentions for certain other
casualty claims, and is self-insured for employee-related health care claims.
Losses are recorded based upon estimates of the liability for claims incurred
and estimates of claims incurred but not reported. The estimates of liabilities
are derived from known facts, historical trends and industry averages utilizing
the assistance of an actuary to determine the best estimate of these
obligations. EMCOR believes its liabilities for these obligations are adequate.
However, such obligations are difficult to assess and estimate due to numerous
factors, including severity of injury, determination of liability in proportion
to other parties, timely reporting of occurrences and effectiveness of safety
and risk management programs. Therefore, if actual experience differs from the
assumptions and estimates used for recording the liabilities, adjustments may be
required and would be recorded in the period that the experience becomes known.
Income Taxes
EMCOR has net deferred tax assets primarily resulting from deductible temporary
differences, which will reduce taxable income in future periods. A valuation
allowance is required when it is more likely than not that all or a portion of a
deferred tax asset will not be realized. As of June 30, 2004 and December 31,
2003, the total valuation allowance on net deferred tax assets was approximately
$2.0 million.
Intangible Assets
As of June 30, 2004, EMCOR had goodwill and net identifiable intangible assets
(primarily the market value of its acquired backlog, customer relationships and
trademarks and tradenames) of $279.5 million and $20.5 million, respectively, in
connection with the acquisition of certain companies. The determination of
related estimated useful lives for identifiable intangible assets and whether
those assets are impaired involves significant judgments based upon short and
long-term projections of future performance. These forecasts reflect assumptions
regarding the ability to successfully integrate acquired companies. Statement of
Financial Accounting Standards No. 142,"Goodwill and Other Intangible Assets"
("SFAS 142") requires goodwill to be tested for impairment, on at least an
annual basis, and be written down when impaired, rather than amortized as
previous standards required. Furthermore, SFAS 142 requires identifiable
intangible assets other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite. Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") requires a review for impairment of the market
value ascribed to identifiable intangible assets with indefinite lives.
Trademarks and tradenames have indefinite lives and are not amortized. Changes
in strategy and/or market conditions may result in adjustments to recorded
intangible asset balances. As of June 30, 2004, no indicators of impairment of
EMCOR's goodwill or identifiable intangible assets existed in accordance with
the provisions of SFAS 142 or SFAS 144.
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. All
forward-looking statements included in this Quarterly Report are based upon
information available to EMCOR, and management's perception thereof, as of the
date of this Quarterly Report. EMCOR assumes no obligation to update any such
forward-looking statements. These forward-looking statements include statements
regarding market share growth, gross profit, project mix, projects with varying
profit margins, and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from the forward-looking statements.
Accordingly, these statements are no guarantee of future performance. Such risk
and uncertainties include, but are not limited to, adverse effects of general
economic conditions, changes in the political environment, changes in the
specific markets for EMCOR's services, adverse business conditions, increased
competition, unfavorable labor productivity, mix of business, and risks
associated with foreign operations. Certain of the risks and factors associated
with EMCOR's business are also discussed in EMCOR's 2003 Form 10-K, its Form
10-Q for the three months ended March 31, 2004 and in other reports filed by it
from time to time with the Securities and Exchange Commission. Readers should
take the aforementioned risks and factors into account in evaluating any
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EMCOR has not used derivative financial instruments for any purpose during the
three and six months ended June 30, 2004 and 2003, including trading or
speculation on changes in interest rates, or commodity prices of materials used
in its business.
EMCOR is exposed to market risk for changes in interest rates for borrowings
under its Revolving Credit Facility. Borrowings under that facility bear
interest at variable rates, and the fair value of this borrowing is not
significantly affected by changes in market interest rates. As of June 30, 2004,
there was $119.3 million of borrowings outstanding under the facility, and these
borrowings bear interest at (1) a rate which is the prime commercial lending
rate announced by Harris Nesbitt from time to time (4.25% at June 30, 2004) plus
0% to 1.0% based on certain financial tests or (2) United States dollar LIBOR
(at June 30, 2004 the rate was 1.33%) plus 1.5% to 2.5% based on certain
financial tests. The interest rates in effect at June 30, 2004 were 4.75% and
3.33% for the prime commercial lending rate and the United States dollar LIBOR,
respectively. Letter of credit fees issued under this facility range from 0.75%
to 2.5% of the respective face amounts of the letters of credit issued based on
the type of letter of credit issued and certain financial tests. Based on the
$119.3 million of borrowings, if overall interest rates were to increase by
1.0%, the net of tax interest expense would increase approximately $0.7 million
in the next twelve months. Conversely, if overall interest rates were to
decrease by 1.0%, interest expense would decrease by approximately $0.7 million
in the next twelve months. The Revolving Credit Facility expires in September
2007. There is no guarantee that EMCOR will be able to renew the facility at its
expiration.
EMCOR is also exposed to market risk and its potential related impact on
accounts receivable or costs and estimated earnings in excess of billings on
uncompleted contracts. The amounts recorded may be at risk if customers' ability
to pay these obligations is negatively impacted by economic conditions. EMCOR
continually monitors the creditworthiness of its customers and maintains
on-going discussions with customers regarding contract status with respect to
change orders and billing terms. Therefore, EMCOR believes it takes appropriate
action to manage market and other risks, but there is no assurance that it will
be able to reasonably identify all risks with respect to collectibility of these
assets. See also the previous discussion of Accounts Receivable under the
heading, "Application of Critical Accounting Policies" in the Management's
Discussion and Analysis of Results of Operations and Financial Condition.
Amounts invested in EMCOR's foreign operations are translated into U.S. dollars
at the exchange rates in effect at the end of the period. The resulting
translation adjustments are recorded as accumulated other comprehensive income
(loss), a component of stockholders' equity, in the condensed consolidated
balance sheets. EMCOR believes the exposure to the effects that fluctuating
foreign currencies may have on the consolidated results of operations is limited
because the foreign operations primarily invoice customers and collect
obligations in their respective local currencies. Additionally, expenses
associated with these transactions are generally contracted and paid for in
their same local currencies.
In addition, EMCOR is exposed to market risk of fluctuations in certain
commodity prices of materials such as copper and steel utilized in both its
construction and facilities services operations. EMCOR believes it can be
successful in recovery of commodity price escalations.
ITEM 4. CONTROLS AND PROCEDURES
EMCOR's management evaluated, with the participation of its Chief Executive
Officer and Chief Financial Officer, the effectiveness of EMCOR's disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that EMCOR's disclosure controls and procedures were
effective as of the end of the period covered by this report. There has been no
change in EMCOR's internal control over financial reporting that occurred during
the quarter covered by this report that has materially affected, or is
reasonably likely to materially affect, EMCOR's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see EMCOR's Annual Report on Form
10-K for the year ended December 31, 2003 and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 2004.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of EMCOR was held on June 10, 2004.
(b) The Board of Directors of EMCOR consists of seven individuals each of whom
was nominated at the annual meeting for re-election as a director of EMCOR
for the ensuing year. Each director was re-elected.
(c) Set forth below are the names of each director elected at the annual
meeting, the number of shares voted for his election and the number of
votes withheld from his election. There were no broker non-votes.
Name Votes For Votes Withheld
Stephen W. Bershad 13,784,607 606,148
David A. B. Brown 14,031,359 359,396
Larry J. Bump 13,784,107 606,648
Albert Fried, Jr. 13,910,750 480,005
Richard F. Hamm, Jr. 14,044,413 346,342
Frank T. MacInnis 14,047,038 343,717
Michael T. Yonker 13,911,225 479,530
At the annual meeting, the stockholders also voted upon a proposal to ratify the
appointment by the Audit Committee of the Board of Directors of Ernst & Young,
LLP, independent auditors, as EMCOR's independent auditors for 2004; 14,226,846
shares voted in favor of ratification, 154,807 shares voted against ratification
and 9,102 shares abstained from voting thereon. There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporated by Reference to,
Exhibit No. Description or Page Number
- ----------- ---------------------------------------------- -----------------------------
3(a-1) Restated Certificate of Incorporation of Exhibit 3(a-1) to Form 10
EMCOR filed December 15, 1994
3(a-2) Amendment dated November 28, 1995 to the Exhibit 3(a-2) to EMCOR's
Restated Certificate of Incorporation of Annual Report on Form 10-K for
EMCOR the year ended December 31, 1995
3(a-3) Amendment dated February 12, 1998 to the Exhibit 3(a-3) to EMCOR's
Restated Certificate of Incorporation Annu Report on Form 10-K for
the year ended December 31, 1997
3(b) Amended and Restated By-Laws Exhibit 3(b) to EMCOR's
Annual Report on Form 10-K for the
year ended December 31, 1998
4.1(a) U.S. $275,000,000 Credit Agreement by and Exhibit 4.1(a) to EMCOR's Report
among EMCOR Group, Inc. and certain of its On Form 8-K dated October 4, 2002
Subsidiaries and Harris Trust and Savings
Bank individually and as Agent and the
Lenders which are or become parties thereto
dated as of September 26, 2002 (the "Credit
Agreement")
4.1(b) Amendment and Waiver letter dated Exhibit 4.1(b) to EMCOR's Annual
December 10, 2002 to the Credit Agreement Report on Form 10-K for the year
ended December 31, 2002
4.1(c) First Amendment to Credit Agreement dated Exhibit 4.1(c) to EMCOR's Quarterly
as of June 2003 Report on Form 10-Q for the quarter
ended June 30, 2003 (the "June 2003
Form 10-Q")
4.1(d) Second Amendment to Credit Agreement Exhibit 4.1(d) to June 2003 Form
dated as of June 2003 10-Q
4.1(e) Commitment Amount Increase Request Exhibit 4.1(e) to June 2003 Form
dated June 26, 2003 among Harris, National 10-Q
City Bank and EMCOR
4.1(f) Commitment Amount Increase Request Exhibit 4.1(f) to June 2003 Form
dated June 26, 2003 among Harris, Webster 10-Q
Bank and EMCOR
4.1(g) Commitment Amount Increase Request Exhibit 4.1(g) to June 2003 Form
dated June 26, 2003 among Harris, Union 10-Q
Bank of California, N.A. and EMCOR
4.1(h) Commitment Amount Increase Request Exhibit 4.1(h) to June 2003 Form
dated June 26, 2003 among Harris, Sovereign 10-Q
Bank and EMCOR
4.1(i) Commitment Amount Increase Request Exhibit 4.1(i) to June 2003 Form
dated July 9, 2003 among Harris, Bank 10-Q
Hapoalim B.M. and EMCOR
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (continued)
Incorporated by Reference to,
Exhibit No. Description or Page Number
- ------------------ ---------------------------------------------- -------------------------------------
4.1(j) Commitment Amount Increase Request Exhibit 4.1(j) to June 2003 Form
dated July 9, 2003 among Harris, The 10-Q
Governor and Company of Bank of Scotland
and EMCOR
4.1(k) Commitment Amount Increase Request Exhibit 4.1(k) to June 2003 Form
dated July 9, 2003 among Harris, U.S. Bank, 10-Q
National Association and EMCOR
11 Computation of Basic Note B of the Notes
EPS and Diluted EPS to the Condensed Consolidated
for the three and six months Financial Statements
ended June 30, 2004 and 2003
31.1 Additional Exhibit - Page
Certification Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002 by the Chief
Executive Officer
31.2 Additional Exhibit - Page
Certification Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002 by the Chief
Financial Officer
32.1 Additional Exhibit - Page
Certification Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 by the Chief
Executive Officer
32.2 Additional Exhibit - Page
Certification Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 by the Chief
Financial Officer
(b) Reports of Form 8-K
(1) Current report on Form 8-K, dated April 29, 2004 - Press release dated
April 29, 2004 with respect to the results of operations for EMCOR's fiscal
2004 first quarter ended March 31, 2004.
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.
Date: July 22, 2004
EMCOR GROUP, INC.
-------------------------------------
(Registrant)
/s/FRANK T. MACINNIS
-------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors,
Chief Executive Officer
and President
/s/LEICLE E. CHESSER
-------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/MARK A. POMPA
-------------------------------------
Mark A. Pompa
Senior Vice President,
Chief Accounting Officer
and Treasurer
(Principal Accounting Officer)
CERTIFICATION
I, Frank T. MacInnis, Chairman of the Board and Chief Executive Officer of EMCOR
Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: July 22, 2004
/s/FRANK T. MACINNIS
-------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors,
Chief Executive Officer
and President
CERTIFICATION
I, Leicle E. Chesser, Executive Vice President and Chief Financial Officer of
EMCOR Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: July 22, 2004
/s/LEICLE E. CHESSER
------------------------------------
Leicle E. Chesser
Executive Vice President
and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Frank
T. MacInnis, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: July 22, 2004 /s/ FRANK T. MACINNIS
-----------------------------------
Frank T. MacInnis
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Leicle
E. Chesser, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: July 22, 2004 /s/ LEICLE E. CHESSER
-----------------------------------
Leicle E. Chesser
Chief Financial Officer