1
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 March 31, 2005
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 1-8267
EMCOR Group, Inc.
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(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
April 20, 2005: 15,500,408 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
as of March 31, 2005 and December 31, 2004 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 2005 and 2004 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income -
three months ended March 31, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 3 Quantitative and Qualitative Disclosures about Market Risk 21
Item 4 Controls and Procedures 21
PART II - Other Information
Item 1 Legal Proceedings 22
Item 6 Exhibits 23
PART I. - FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
March 31, December 31,
2005 2004
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 69,272 $ 70,404
Accounts receivable, net 1,038,357 1,073,454
Costs and estimated earnings in excess
of billings on uncompleted contracts 230,382 240,716
Inventories 9,359 10,580
Prepaid expenses and other 30,674 30,417
---------- ----------
Total current assets 1,378,044 1,425,571
Investments, notes and other long-term
receivables 26,783 26,472
Property, plant and equipment, net 54,447 56,468
Goodwill 279,929 279,432
Identifiable intangible assets, net 17,921 18,782
Other assets 10,362 11,244
---------- ----------
Total assets $1,767,486 $1,817,969
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
- --------------------------------------------------------------------------------
March 31, Dceember 31,
2005 2004
(Unaudited)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital credit line $ 82,400 $ 80,000
Current maturities of long-term debt and capital
lease obligations 828 806
Accounts payable 427,667 467,415
Billings in excess of costs and estimated
earnings on uncompleted contracts 351,827 359,667
Accrued payroll and benefits 129,578 138,771
Other accrued expenses and liabilities 112,604 115,714
---------- ----------
Total current liabilities 1,104,904 1,162,373
Long-term debt and capital lease obligations 1,360 1,332
Other long-term obligations 96,788 91,903
---------- ----------
Total liabilities 1,203,052 1,255,608
---------- ----------
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, 16,588,602 and 16,324,335 shares
issued, respectively 166 163
Capital surplus 320,480 318,122
Accumulated other comprehensive income 6,779 7,699
Retained earnings 255,041 253,128
Treasury stock, at cost 1,088,194 and 1,088,286
shares, respectively (18,032) (16,751)
---------- ----------
Total stockholders' equity 564,434 562,361
---------- ----------
Total liabilities and stockholders' equity $1,767,486 $1,817,969
========== ==========
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 March 31, 2005 2004
- -------------------------------------------------------------------------------
Revenues $1,093,208 $1,109,086
Cost of sales 993,125 1,007,923
---------- ----------
Gross profit 100,083 101,163
Selling, general and administrative expenses 93,384 100,533
Restructuring expenses 1,171 5,179
---------- ----------
Operating income (loss) 5,528 (4,549)
Interest expense, net (1,640) (1,678)
Minority interest (865) (468)
---------- ----------
Income (loss) before income taxes 3,023 (6,695)
Income tax provision (benefit) 1,110 (12,412)
---------- ----------
Net income $ 1,913 $ 5,717
========== ==========
Basic earning per share $ 0.12 $ 0.38
========== ==========
Diluted earnings per share $ 0.12 $ 0.37
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
- ---------------------------------------------------------------------------------------------
Three months ended March 31, 2005 2004
- ---------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,913 $ 5,717
Depreciation and amortization 4,384 5,070
Amortization of identifiable intangibles 861 861
Minority interest 865 468
Other non-cash expenses 420 670
Changes in operating assets and liabilities (9,046) (14,954)
--------- ---------
Net cash used in operating activities (603) (2,168)
--------- ---------
Cash flows from investing activities:
Payments for earn-out agreements (497) (1,310)
Proceeds from sale of property, plant and equipment 671 802
Purchase of property, plant and equipment (3,342) (2,409)
Net (disbursements) proceeds related to other investments (311) 544
--------- ---------
Net cash used in investing activities (3,479) (2,373)
--------- ---------
Cash flows from financing activities:
Proceeds from working capital credit lines 235,200 188,450
Repayments of working capital credit lines (232,800) (209,450)
Net repayments for long-term debt (17) (30)
Repayments for capital lease obligations (26) (50)
Net proceeds from exercise of stock options 593 357
--------- ---------
Net cash provided by (used in) financing activities 2,950 (20,723)
--------- ---------
Decrease in cash and cash equivalents (1,132) (25,264)
Cash and cash equivalents at beginning of year 70,404 78,260
--------- ---------
Cash and cash equivalents at end of period $ 69,272 $ 52,996
========= =========
Supplemental cash flow information:
Cash paid for:
Interest $ 1,961 $ 1,926
Income taxes $ 1,479 $ 2,662
Non-cash financing activities:
Borrowings under capital lease obligations $ 93 $ --
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands, except share data)(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common Capital comprehensive Retained Treasury Comprehensive
Total stock surplus income (loss)(1) earnings stock income (loss)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2004 $521,356 $162 $316,729 $1,257 $219,921 $(16,713)
Net income 5,717 -- -- -- 5,717 -- $ 5,717
Foreign currency translation
adjustments (1,044) -- -- (1,044) -- -- (1,044)
-------
Comprehensive income $ 4,673
=======
Issuance of treasury stock
for restricted stock units (3) -- -- (836) -- -- 836
Treasury stock, at cost (4) (902) -- -- -- -- (902)
Common stock issued under
stock option plans, net 357 -- 357 -- -- --
Value of Restricted Stock
Units (2) 668 -- 668 -- -- --
-------- ---- -------- ------ -------- --------
Balance, March 31, 2004 $526,152 $162 $316,918 $ 213 $225,638 $(16,779)
======== ==== ======== ====== ======== ========
Balance, January 1, 2005 $562,361 $163 $318,122 $7,699 $253,128 $(16,751)
Net income 1,913 -- -- -- 1,913 -- $1,913
Foreign currency translation
adjustments (920) -- -- (920) -- -- (920)
------
Comprehensive income $ 993
======
Issuance of treasury stock
for restricted stock units (3) -- -- (540) -- -- 540
Treasury stock, at cost (4) (871) -- -- -- -- (871)
Common stock issued under
stock option plans, net (5) 593 3 1,540 -- -- (950)
Value of Restricted Stock
Units (2) 1,358 -- 1,358 -- -- --
-------- ---- -------- ------ -------- --------
Balance, March 31, 2005 $564,434 $166 $320,480 $6,779 $255,041 $(18,032)
======== ==== ======== ====== ======== ========
(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.
(5) The treasury stock amount includes $978.0 as the value of 20,468 shares
received as payment for the exercise price of stock options less $28.0 as
the value of the treasury shares delivered upon the exercise of other stock
options.
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 month
period ended March 31, 2005 are not necessarily indicative of the results to be
expected for the year ending December 31, 2005.
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 month periods ended March 31, 2005 and 2004:
Three months ended
March 31, 2005
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $1,913,000 15,353,231 $0.12
=====
Effect of Dilutive Securities
Options -- 346,257
---------- ----------
Diluted EPS $1,913,000 15,699,488 $0.12
========== ========== =====
Three months ended
March 31, 2004
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------
Basic EPS
Income available to common stockholders $5,717,000 15,057,308 $0.38
=====
Effect of Dilutive Securities
Options -- 405,633
---------- ----------
Diluted EPS $5,717,000 15,462,941 $0.37
========== ========== =====
There were 425,499 and 859,647 anti-dilutive stock options that were required to
be excluded from the calculation of diluted EPS for the three month periods
ended March 31, 2005 and 2004, respectively.
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 months ended March
31, 2005 and 2004 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" and SFAS 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure," 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" below
for the three month periods ended March 31 (in thousands, except per share
amounts):
For the three months ended
March 31,
--------------------------
2005 2004
--------------------------
Net income:
As reported ...................................................... $1,913 $5,717
Less: Total stock-based compensation expense determined
under fair value based method, net of related tax effects....... 299 719
------ ------
Pro Forma......................................................... $1,614 $4,998
====== ======
Basic EPS:
As reported....................................................... $ 0.12 $ 0.38
Pro Forma......................................................... $ 0.11 $ 0.33
Diluted EPS:
As reported....................................................... $ 0.12 $ 0.37
Pro Forma ........................................................ $ 0.10 $ 0.32
Common Stock
As of March 31, 2005 and December 31, 2004, 15,500,408 and 15,236,049 shares of
EMCOR common stock were outstanding, respectively.
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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,
energy management programs and the design and construction of energy-related
projects) which 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) performing electrical
construction, mechanical construction and facilities services. EMCOR's interest
in the South African joint venture was sold in August 2004. The following tables
present information about industry segments and geographic areas (in thousands):
For the three months ended March 31,
------------------------------------
2005 2004
---------- ----------
Revenues from unrelated entities:
United States electrical construction and facilities services $ 275,884 $ 278,875
United States mechanical construction and facilities services 402,341 422,714
United States facilities services 181,834 178,481
---------- ----------
Total United States operations 860,059 880,070
Canada construction and facilities services 66,202 75,683
United Kingdom construction and facilities services 166,947 153,333
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,093,208 $1,109,086
========== ==========
For the three months ended March 31,
------------------------------------
2005 2004
---- ----
Total revenues:
United States electrical construction and facilities services $ 279,725 $ 281,971
United States mechanical construction and facilities services 404,030 433,351
United States facilities services 182,296 178,836
Less intersegment revenues (5,992) (14,088)
---------- ----------
Total United States operations 860,059 880,070
Canada construction and facilities services 66,202 75,683
United Kingdom construction and facilities services 166,947 153,333
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,093,208 $1,109,086
========== ==========
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D Segment Information - (continued)
For the three months ended March 31,
------------------------------------
2005 2004
---- ----
Operating income (loss):
United States electrical construction and facilities services $ 15,979 $ 17,309
United States mechanical construction and facilities services (3,053) (7,609)
United States facilities services 4,422 (1,319)
---------- ----------
Total United States operations 17,348 8,381
Canada construction and facilities services (726) 21
United Kingdom construction and facilities services (472) (1,325)
Other international construction and facilities services (52) 278
Corporate administration (9,399) (6,725)
Restructuring expenses (1,171) (5,179)
---------- ----------
Total worldwide operations 5,528 (4,549)
Other corporate items:
Interest expense (2,213) (1,847)
Interest income 573 169
Minority Interest (865) (468)
---------- ----------
Income (loss) before income taxes $ 3,023 $ (6,695)
========== ==========
March 31, December 31,
---------------------------------
2005 2004
---- ----
Total assets:
United States electrical construction and facilities services $ 339,791 $ 358,056
United States mechanical construction and facilities services 736,892 757,725
United States facilities services 315,194 323,206
---------- ----------
Total United States operations 1,391,877 1,438,987
Canada construction and facilities services 120,655 108,843
United Kingdom construction and facilities services 196,147 199,138
Other international construction and facilities services 3,518 3,887
Corporate administration 55,289 67,114
---------- ----------
Total worldwide operations $1,767,486 $1,817,969
========== ==========
NOTE E Retirement Plans
Components of Net Periodic Pension Benefit Cost
The components of net periodic pension benefit cost for three months ended March
31, 2005 and 2004 were as follows (in thousands):
For the three months ended
March 31,
-----------------------------------
2005 2004
---- ----
Service cost $ 1,006 $ 1,261
Interest cost 2,499 2,232
Expected return on plan assets (2,548) (2,234)
Amortization of prior service cost
22 (2)
Amortization of net loss 348 351
------- -------
Net periodic pension benefit cost $ 1,327 $ 1,608
======= =======
EMCOR Group, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE E Retirement Plans - (continued)
Employer Contributions
For the three months ended March 31, 2005, EMCOR's United Kingdom subsidiary
contributed $1.6 million to its defined benefit pension plan and anticipates
contributing an additional $5.9 million during the remainder of 2005.
NOTE F Income Taxes
For the three months ended March 31, 2005, the income tax provision was $1.1
million based on $3.0 million of income before income taxes, an effective income
tax rate of 37%, compared to an income tax benefit of $12.4 million for the
three months ended March 31, 2004. The income tax benefit in the prior year
period was comprised of a reversal of $9.6 million in income tax reserves no
longer required based on a current analysis of probable exposures and $2.8
million of a tax benefit based on an effective income tax rate of 42% on a $6.7
million loss before income taxes. The decrease in the effective income tax rate
for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004 was primarily due to increased income anticipated in certain
lower effective tax rate jurisdictions.
NOTE G Legal Proceedings
See Part II - Other Information, Item 1 - Legal Proceedings.
NOTE H New Accounting Pronouncement
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123 (revised 2004), Share-Based Payment ("123(R)"), which is
a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally,
the approach in Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure will no longer
be an alternative. Statement 123(R) must be adopted no later than January 1,
2006 (postponed from July 1, 2005 by the United States Securities and Exchange
Commission on April 15, 2005). EMCOR will adopt Statement 123(R) on January 1,
2006.
As permitted by Statement 123, EMCOR currently accounts for share-based payments
to employees using Opinion 25's intrinsic value method and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly, the
adoption of Statement 123(R)'s fair value method will have a significant impact
on our result of operations, although it will have no impact on our overall
financial position. EMCOR is currently evaluating the impact that adoption of
Statement 123(R) will have on the results of operations in 2006. The impact of
the standard on future operating results cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
Statement 123(R) requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption. While EMCOR cannot estimate what those amounts will be in the
future (because they depend on, among other things, when employees exercise
stock options), the amounts of operating cash flows recognized in prior periods
for such excess tax deductions was not material.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Overview
Revenues for the three months ended March 31, 2005 were $1.09 billion compared
to $1.11 billion for the three months ended March 31, 2004. Net income was $1.9
million for the current period compared to $5.7 million for the prior year
period. Diluted earnings per share on net income were $0.12 per share for the
current period compared to $0.37 per share for the prior year period.
Revenues decreased in the first quarter of 2005 principally due to a planned
curtailment in the bidding on certain public sector and other longer-term
contracts by certain subsidiaries.
The first quarter 2004 results included a reversal of $9.6 million in income tax
reserves no longer required based on a then current analysis of probable
exposures, which positively impacted 2004 first quarter net income by that
amount. Positively impacting first quarter 2005 net income and diluted earnings
per share were (a) generally improved contract performance on contracts during
the period, (b) the settlement of an insurance coverage related dispute which
contributed approximately $5.6 million and (c) decreased selling, general and
administrative expenses related to personnel reductions and other cost reduction
actions. However, 2005 first quarter results were negatively impacted by a
non-cash expense of $8.7 million as a result of proceedings in a civil action
described in the following paragraph brought by a joint venture between EMCOR's
subsidiary Poole & Kent Corporation and an unrelated company against the Upper
Occoquan Sewage Authority.
A civil action was brought by a joint venture (the "JV") between EMCOR's
subsidiary Poole & Kent Corporation ("Poole & Kent") and an unrelated company in
the Fairfax, Virginia Circuit Court based on a material breach by the Upper
Occoquan Sewage Authority ("UOSA") of a construction contract between the JV and
UOSA. While, as a result of a jury decision on March 11, 2005 in that action,
the JV will be entitled to be paid additional amounts in connection with the
UOSA project, which additional amounts are to be determined by the trial judge
following rulings on post-trial damage motions, EMCOR recorded a non-cash
expense of $8.7 million. Because the jury decision did not reflect the amount
the JV sought in the trial, the non-cash expense reflects a write-off of certain
unrecovered costs in completing a sub-contract related to this project based on
what EMCOR believes is probable of recovery by the JV based on current facts.
(The unrecovered costs were included in the balance sheet account "costs and
estimated earnings in excess of billings on uncompleted contracts" in EMCOR's
consolidated balance sheet as of December 31, 2004.) The JV has asserted
additional claims against UOSA relating to the same project which are also
pending in Fairfax, Virginia Circuit Court which could result in another trial
between the JV and UOSA, to be held at a date not yet determined and in which
the JV may claim damages in excess of $18.0 million. As a result of rulings on
the post-trial damage motions and/or the resolution of the additional damage
claims referred to in the immediately preceeding sentence, EMCOR may record
income or additional non-cash expense. The aforementioned civil action is
referred to hereafter as the "UOSA Action". In accordance with the joint venture
agreement establishing the JV, Poole & Kent will be entitled to approximately
one-half of the aggregate amounts paid and to be paid by UOSA to the joint
venture.
The 2005 and 2004 results were also positively affected by the implementation of
significant strategic decisions and management changes initiated by EMCOR Group,
Inc. senior management. These actions included the curtailment in the bidding
for certain public sector work, replacement of senior management at certain
business units and reductions in selling, general and administrative expenses in
all segments. Related to these actions were $1.2 million and $5.2 million of
restructuring expenses in the three months ended March 31, 2005 and 2004,
respectively, principally for employee severance obligations. EMCOR will
continue to focus during 2005 on controlling selling, general and administrative
expenses, increasing revenues from multi-year facilities services contracts and
selective estimating and bidding of construction work. At the same time, a
continued gradual improvement in commercial construction is anticipated.
Management believes it has positioned EMCOR to benefit from the strategic
decisions and management changes initiated in 2005 and during 2004; however,
there is no assurance that there will be significantly improved future results
if economic conditions, with respect to the availability of more profitable
private sector work affecting EMCOR and the construction industry generally, do
not continue to improve and competitive pressures do not ease.
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,
energy management programs and the design and construction of energy-related
projects) which 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) performing electrical
construction, mechanical construction and facilities services. EMCOR's interest
in the South African joint venture was sold in August 2004.
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 March 31,
-------------------------------------------------------
% of % of
2005 Total 2004 Total
---- ----- ---- -----
Revenues:
United States electrical construction and facilities services $ 275,884 25% $ 278,875 25%
United States mechanical construction and facilities services 402,341 37% 422,714 38%
United States facilities services 181,834 17% 178,481 16%
---------- ----------
Total United States operations 860,059 79% 880,070 79%
Canada construction and facilities services 66,202 6% 75,683 7%
United Kingdom construction and facilities services 166,947 15% 153,333 14%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $1,093,208 100% $1,109,086 100%
========== ==========
As described below in more detail, revenues for the three months ended March 31,
2005 decreased to $1.09 billion compared to $1.11 billion for the three months
ended March 31, 2004. The revenues decrease was principally due to a planned
decrease in activities of certain subsidiaries related to the curtailment of
their bidding on certain public sector and other longer-term contracts.
EMCOR's contract backlog at March 31, 2005 was $2.72 billion compared to $3.08
billion of contract backlog at March 31, 2004. EMCOR's contract backlog was
$2.72 billion at March 31, 2005 and $2.75 billion at December 31, 2004. These
decreases in backlog were primarily due to completion of contracts in 2004
backlog, combined with the bidding curtailment for certain public sector and
other longer-term contracts at certain subsidiaries. Backlog is not a term
recognized under accounting principles generally accepted in the United States;
however, it is a common measurement used in EMCOR's industry. Backlog includes
unrecognized revenues to be realized from uncompleted construction contracts
plus unrecognized revenues expected to be realized over the remaining term of
facilities services contracts. However, if the remaining term of a facilities
services contract exceeds 12 months, the unrecognized revenues attributable to
such contract included in backlog are limited to only 12 months of revenues.
Factors such as availability of additional work and the timing thereof, in 2005,
may impact total 2005 revenues. The impact of these factors, however, is not
possible to predict with certainty.
Revenues of United States electrical construction and facilities services
segment for the three months ended March 31, 2005 decreased $3.0 million
compared to the three months ended March 31, 2004. The revenues decrease was due
to decreased transportation infrastructure and financial services contracts.
Revenues of United States mechanical construction and facilities services
segment for the three months ended March 31, 2005 decreased $20.4 million
compared to the three months ended March 31, 2004. The revenues decrease was
primarily attributable to a planned decrease in activities of certain
subsidiaries related to the curtailment in bidding on certain public sector and
other longer-term projects by certain subsidiaries, partially offset by
increased wastewater treatment and hospitality projects.
United States facilities services revenues, which include those operations that
principally provide consulting and maintenance services, increased $3.4 million
for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004. This increase in revenues was primarily attributable to
increased marketing efforts resulting in more site-based operations and
maintenance projects.
Revenues of Canada construction and facilities services decreased by $9.5
million for the three months ended March 31, 2005 compared to the three months
ended March 31, 2004. This decrease in revenues for the three months ended March
31, 2005 was due to a planned curtailment in bidding on certain public sector
and certain other types of other longer-term contracts. The decrease was
partially offset by $4.7 million 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 $13.6
million for the three months ended March 31, 2005 compared to the three months
ended March 31, 2004 principally due to an increase in discretionary project
work for existing customers in the United Kingdom facilities services division
and an increase in transportation infrastructure projects.
Other international construction and facilities services activities consist of
EMCOR's operations primarily in the Middle East. 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 or was not
subject to a majority of the risk of loss from the joint venture activities and
was not entitled to received a majority of the joint venture's residual returns.
Accordingly, revenues attributable to such joint ventures were not reflected as
revenues in the consolidated financial statements. EMCOR continues to pursue new
business selectively in the Middle Eastern and European markets; however, the
availability of opportunities there has been significantly reduced as a result
of local economic factors, particularly in the Middle East.
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
March 31,
---------------------------
2005 2004
---- ----
Cost of sales.................................... $993,125 $1,007,923
Gross profit..................................... 100,083 101,163
Gross profit, as a percentage of revenues........ 9.2% 9.1%
Gross profit (revenues less cost of sales) decreased $1.1 million for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
Gross profit as a percentage of revenues was 9.2% for the three months ended
March 31, 2005 compared to 9.1% for the three months ended March 31, 2004. The
reduction in gross profit for the 2005 first quarter was primarily attributable
to the jury decision in the UOSA Action described under "Overview" above,
resulting in a $8.7 million non-cash expense. The above-mentioned expense was
partially offset by improvements in gross profit from certain United States
construction work, compared to contract performance in the prior year period and
the settlement of an insurance coverage related dispute of approximately $5.6
million in the current period.
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
March 31,
---------------------------
2005 2004
---- ----
Selling, general and administrative expenses........ $93,384 $100,533
Selling, general and administrative expenses,
as a percentage of revenues....................... 8.5% 9.1%
Selling, general and administrative expenses for the three months ended March
31, 2005 decreased $7.1 million to $93.4 million compared to $100.5 million for
the three months ended March 31, 2004. Selling, general and administrative
expenses as a percentage of revenues were 8.5% for the three months ended March
31, 2005, compared to 9.1% for the three months ended March 31, 2004. For the
three month period ended March 31, 2005, compared to the three months ended
March 31, 2004, selling, general and administrative expenses decreased both in
dollars and as a percentage of revenues primarily as a result of a reduction in
personnel and other cost reduction actions.
Restructuring expenses
Restructuring expenses, primarily relating to employee severance obligations,
were $1.2 million and $5.2 million for the three months ended March 31, 2005 and
2004, respectively. As of March 31, 2005 there was approximately $0.4 million of
unpaid restructuring obligations which will be paid during the current year.
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 March 31,
-----------------------------------------------------------
% of % of
Segment Segment
2005 Revenues 2004 Revenues
---- -------- ---- --------
Operating income (loss):
United States electrical construction and facilities services $15,979 5.8% $17,309 6.2%
United States mechanical construction and facilities services (3,053) (0.8)% (7,609) (1.8)%
United States facilities services 4,422 2.4% (1,319) (0.7)%
------- -------
Total United States operations 17,348 2.0% 8,381 1.0%
Canada construction and facilities services (726) (1.1)% 21 --
United Kingdom construction and facilities services (472) (0.3)% (1,325) (0.9)%
Other international construction and facilities services (52) 278
Corporate administration (9,399) (6,725)
Restructuring expenses (1,171) (5,179)
------- -------
Total worldwide operations 5,528 0.5% (4,549) (0.4)%
Other corporate items:
Interest expense (2,213) (1,847)
Interest income 573 169
Minority interest (865) (468)
------- -------
Income (loss) before income taxes $ 3,023 $(6,695)
======= =======
As described below in more detail, operating income increased by $10.1 million
for the three months ended March 31, 2005 to $5.5 million compared to an
operating loss of $4.5 million for the three months ended March 31, 2004.
United States electrical construction and facilities services operating income
of $16.0 million for the three months ended March 31, 2005 decreased $1.3
million compared to operating income of $17.3 million for the three months ended
March 31, 2004. The decrease in operating income was primarily the result of
reduced transportation infrastructure and financial services projects in the
current period. Operating income includes approximately $4.5 million of the
total $5.6 million income from the settlement of the insurance coverage related
dispute. Selling, general and administrative expenses decreased primarily due to
a reduction in personnel and a reduction in incentive compensation earned
related to the decrease in transportation infrastructure and financial services
work.
United States mechanical construction and facilities services operating loss for
the three months ended March 31, 2005 was $3.1 million, a $4.6 million
improvement compared to an operating loss of $7.6 million the three months ended
March 31, 2004. The operating loss for the three months ended March 31, 2005
reflects an approximately $8.7 million reduction in gross profit as a result of
the write-off of unrecovered costs related to the previously discussed UOSA
trial. Excluding the UOSA gross profit reduction, this segment had generally
improved results from contract performance for the three months ended March 31,
2005 compared to the contract performance in the prior period. In addition,
operating income includes approximately $1.1 million of the total $5.6 million
income from the settlement of the insurance coverage related dispute. This
improvement in contract performance was partially attributable to planned
curtailment of bidding on certain public sector and other longer-term contracts
of certain subsidiaries. Decreased selling, general and administrative expenses
related to personnel reductions and other cost reduction activities also
contributed to the reduction in operating loss.
United States facilities services operating income for the three months ended
March 31, 2005 was $4.4 million compared to operating loss of $1.3 million for
the three months ended March 31, 2004. During the first quarter of 2005,
operating income improved due to improved gross margins on mobile services work
and decreased selling, general and administrative expenses related to a
reduction in personnel compared to the prior year period. In addition, during
the first quarter of 2004, approximately $2.3 million of losses had been
recorded 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.
Canada construction and facilities services operating loss was $0.7 million for
the three months ended March 31, 2005, compared to operating income of $0.02
million for the three months ended March 31, 2004. The operating loss was
attributable to an increase in selling, general and administrative expenses
related to increased sales efforts.
United Kingdom construction and facilities services operating losses for the
three months ended March 31, 2005 and 2004 were $0.5 million and $1.3 million,
respectively. This decrease in operating losses was primarily attributable to a
reduction in the current period selling, general and administrative expenses
related to a reorganization of the United Kingdom operations.
Other international construction and facilities services operating losses were
$0.05 million for the three months ended March 31, 2005 compared to operating
income of $0.3 million for the three months ended March 31, 2004. EMCOR
continues to pursue new business selectively in the Middle Eastern and European
markets; however, the availability of opportunities there has been significantly
reduced as a result of local economic factors, particularly in the Middle East.
Corporate administration expense for the three months ended March 31, 2005 was
$9.4 million compared to $6.7 million for the three months ended March 31, 2004.
The increase in expenses was primarily due to general cost reductions in the
prior period that did not recur in the current period.
Restructuring expenses, primarily relating to employee severance obligations,
were $1.2 million for the three months ended March 31, 2005 compared to $5.2
million for the three months ended March 31, 2004.
Interest expense for the three months ended March 31, 2005 and 2004 was $2.2
million and $1.8 million, respectively. The increase in interest expense was
primarily due to an increase in interest rates during the current year compared
to the prior year. Interest income for the three months ended March 31, 2005 was
$0.6 million compared to $0.2 million for the three months ended March 31, 2004,
this increase was related to increased cash available to be invested in the
United Kingdom at interest rates greater than the net cost of borrowing under
EMCOR's revolving credit facility.
For the three months ended March 31, 2005, the income tax provision was $1.1
million based on $3.0 million of income before income taxes, an effective income
tax rate of 37%, compared to an income tax benefit of $12.4 million for the
three months ended March 31, 2004. The income tax benefit in the prior period
was comprised of a reversal of $9.6 million in income tax reserves no longer
required based on a current analysis of probable exposures and $2.8 million of a
tax benefit based on an effective income tax rate of 42% on a $6.7 million loss
before income taxes. The decrease in the effective income tax rate for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004
was primarily due to increased income anticipated in certain lower effective tax
rate jurisdictions.
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 three months ended
March 31,
--------------------------
2005 2004
---- ----
Net cash used in operating activities................. $ (603) $ (2,168)
Net cash used in investing activities................. $(3,479) $ (2,373)
Net cash provided by (used in) financing activities... $ 2,950 $(20,723)
EMCOR's consolidated cash balance decreased by approximately $1.1 million from
$70.4 million at December 31, 2004 to $69.3 million at March 31, 2005. The $1.6
million improvement in net cash used in operating activities for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004
was primarily due to an improvement in EMCOR's working capital position of $9.9
million partially offset by a decrease in net income of $3.8 million due to the
2004 income tax benefit of $12.4 million, plus other items. Net cash used in
investing activities of $3.5 million in the first quarter of 2005 increased $1.1
million compared to $2.4 million in the same quarter in the prior year primarily
due to an increase in the purchase of property, plant and equipment of $0.9
million and an increase in disbursements related to investments of $0.9 million,
partially offset by reduced earn-out payments as earn-out periods provided for
in most acquisition agreements have expired. Net cash provided by financing
activities of $2.9 million in the first quarter of 2005 increased $23.7 million
from the net cash used in financing activities of $20.7 million for the first
quarter of 2004 and primarily was attributable to net repayments under the
working capital credit line in 2004 of $21.0 million compared to net borrowings
of $2.4 million in 2005.
Payments Due by Period
- ------------------------------------------------------------------------------------------------------------------------------------
Less
Contractual than 1-3 4-5 After
Obligations Total 1 year years years 5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term debt $ 0.5 $ 0.1 $ 0.2 $ 0.2 $ --
Capital lease obligations 1.7 0.7 0.8 0.2 --
Operating leases 161.3 39.1 56.6 32.2 33.4
Minimum funding requirement for pension plan 7.5 7.5 -- -- --
Open purchase obligations (1) 649.9 493.4 154.6 1.9 0.0
Other long-term obligations (2) 89.5 14.3 75.2 -- --
------ ------ ------ ----- -----
Total Contractual Obligations $910.4 $555.1 $287.4 $34.5 $33.4
====== ====== ====== ===== =====
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) $ 82.4 $ -- $ 82.4 $ -- $ --
Letters of credit 58.5 -- 58.5 -- --
Guarantees 25.0 -- -- -- 25.0
------ ------ ------ ----- -----
Total Commercial Obligations $165.9 $ -- $140.9 $ -- $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 March 31, 2005 and December 31,
2004, EMCOR had approximately $58.5 million and $54.3 million of letters of
credit outstanding, respectively, under the Revolving Credit Facility. The
amounts borrowed under the Revolving Credit Facility as of March 31, 2005 and
December 31, 2004 were $82.4 million and $80.0 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 such
obligations for wages and benefits payable to or for such employees. EMCOR
bonding requirements typically increase as the amount of public sector backlog
increases. As of March 31, 2005, sureties had issued bonds for the account of
EMCOR in the aggregate amount of approximately $1.6 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 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, such as the 2001
through 2004 period for the commercial construction industry, there are
typically fewer small and discretionary projects from the private sector and
companies such as EMCOR more aggressively bid more large long-term
infrastructure and public sector contracts. Performance of long duration
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
$121.4 million and $119.0 million as of March 31, 2005 and December 31, 2004,
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 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 $75.0 million. If
EMCOR were 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 March 31, 2005 and December 31, 2004, EMCOR was utilizing approximately
$47.9 million and $43.7 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 7 of the annual report on
Form 10-K for the year ended December 31, 2004. There was no initial adoption of
any accounting policies during the three months ended March 31, 2005. 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 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 (unapproved change orders and
claims). Such amounts are recorded at estimated net realizable value and take
into account factors that may affect the ability to bill unbilled revenues and
collect amounts after billing. 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: (a)
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 (b)
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 provision for bad debts during the three months
ended March 31, 2005 decreased $0.5 million as compared to an increase of $0.5
million during the three months ended March 31, 2004. At March 31, 2005 and
December 31, 2004, accounts receivable of $1,038.4 million and $1,073.5 million,
respectively, included allowances of $31.8 million and $36.2 million,
respectively. Specific accounts receivable are evaluated when EMCOR believes a
customer may not be able to meet its financial obligations due to a
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 an estimate of claims incurred but not reported. The 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 of $2.5 million at March 31, 2005 and December 31, 2004, 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 March 31, 2005 and December 31, 2004, the total valuation
allowance on net deferred tax assets was approximately $10.9 million.
Intangible Assets
As of March 31, 2005, EMCOR had goodwill and net identifiable intangible assets
(primarily the market value of its backlog, customer relationships and
trademarks and trade names) of $279.9 million and $17.9 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 (each October 1), 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. Changes in
strategy and/or market conditions may result in adjustments to recorded
intangible asset balances. As of March 31, 2005, no indicators of impairment of
its goodwill or identifiable intangible assets existed in accordance with the
provisions of SFAS 142 and Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("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 2004 Form 10-K 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 months ended March 31, 2005 and 2004, 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 the 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 March 31,
2005, there was $82.4 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 (5.75% at March 31,
2005) plus 0% to 1.0% based on certain financial tests or (2) United States
dollar LIBOR (at March 31, 2005 the rate was 2.85%) plus 1.5% to 2.5% based on
certain financial tests. The interest rates in effect at March 31, 2005 were
6.0% and 4.6% 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 and
are charged based on the type of letter of credit issued and certain financial
tests. Based on the borrowings outstanding of $82.4 million, if the overall
interest rates were to increase by 1.0%, the net of tax interest expense would
increase approximately $0.5 million in the next twelve months. Conversely, if
the overall interest rates were to decrease by 1.0%, interest expense would
decrease by approximately $0.5 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 settle 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.
Based on an evaluation of EMCOR's disclosure controls and procedures (as
required by Rule 13a-15(b) of the Securities Exchange Act of 1934), the Chairman
of the Board and Chief Executive Officer of EMCOR, Frank T. MacInnis, and the
Chief Financial Officer of EMCOR, Leicle E. Chesser, have concluded that EMCOR's
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchanges Act of 1934) are effective as of the end of the period
covered by this report.
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the
Exchange Act) during the fiscal quarter ended March 31, 2005 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. - OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
Except for the legal proceedings described below, there have been no new
developments during the quarter ended March 31, 2005 regarding legal proceedings
reported in EMCOR's Annual Report on Form 10-K for the year ended December 31,
2004.
A civil action was brought by a joint venture (the "JV") between EMCOR's
subsidiary Poole & Kent Corporation ("Poole & Kent") and an unrelated company in
the Fairfax, Virginia Circuit Court based on a material breach by the Upper
Occoquan Sewage Authority ("UOSA") of a construction contract between the JV and
UOSA. While, as a result of a jury decision on March 11, 2005 in that action,
the JV will be entitled to be paid additional amounts in connection with the
UOSA project, which additional amounts are to be determined by the trial judge
following rulings on post-trial damage motions, EMCOR recorded a non-cash
expense of $8.7 million. Because the jury decision did not reflect the amount
the JV sought in the trial, the non-cash expense reflects a write-off of certain
unrecovered costs in completing a sub-contract related to this project based on
what EMCOR believes is probable of recovery by the JV based on current facts.
(The unrecovered costs were included in the balance sheet account "costs and
estimated earnings in excess of billings on uncompleted contracts" in EMCOR's
consolidated balance sheet as of December 31, 2004.) The JV has asserted
additional claims against UOSA relating to the same project which are also
pending in Fairfax, Virginia Circuit Court which could result in another trial
between the JV and UOSA, to be held at a date not yet determined and in which
the JV may claim damages in excess of $18.0 million. As a result of rulings on
the post-trial damage motions and/or the resolution of the additional claims
referred to in the immediately preceding sentence, EMCOR may record income or
additional non-cash expense. In accordance with the joint venture agreement
establishing the JV, Poole & Kent will be entitled to approximately one-half of
the aggregate amounts paid and to be paid by UOSA to the joint venture.
ITEM 6. EXHIBITS.
(a) Exhibits
Incorporated by Reference to,
Exhibit No. Description or Page Number
- ------------------ ---------------------------------------------- -----------------------------------------------
3(a-1) Restated Certificate of Incorporation of Exhibit 3(a-5) 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 Annual 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 ("2002 Form 10-K")
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 ( "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
ITEM 6. EXHIBITS. - (continued)
Incorporated by Reference to,
Exhibit No. Description or Page Number
- ------------------ ---------------------------------------------- -------------------------------------
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
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
10.1 Form of Stock Option Agreement evidencing Exhibit 10.1 to EMCOR's current
grant of stock options under the 2003 Management Report on Form 8-K filed
Stock Incentive Plan January 5, 2005
10.2 Form of Certificate Representing RSU's Exhibit 10.1 to EMCOR's current
Mandatorily Awarded Report on Form 8-K filed
January 4, 2005 ("the March 4, 2005
Form 8-K")
10.3 Form of Certificate Representing RSU's Exhibit 10.2 to March 4, 2005
Voluntarily Awarded Form 8-K
10.4 Incentive Plan for Senior Executive Officers Exhibit 10.3 to March 4, 2005
of EMCOR Group, Inc. Form 8-K
11 Computation of Basic Note B of the Notes
EPS and Diluted EPS to the Condensed Consolidated
for the three months Financial Statements
ended March 31, 2005 and 2004
31.1 Additional Exhibit - Page
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chairman
of the Board of Directors and Chief
Executive Officer*
31.2 Additional Exhibit - Page
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief
Financial Officer*
32.1 Additional Exhibit - Page
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chairman
of the Board of Directors and Chief
Executive Officer**
32.2 Additional Exhibit - Page
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief
Financial Officer**
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: April 28, 2005
EMCOR GROUP, INC.
------------------------------------
(Registrant)
/s/FRANK T. MACINNIS
------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
/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
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 cashflows 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), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) 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
d) Disclosed in this report any change in the registrants 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: April 28, 2005
/s/FRANK T. MACINNIS
------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
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
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), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) 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
d) Disclosed in this report any change in the registrants 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: April 28, 2005
/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 March 31, 2005 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: April 28, 2005 /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 March 31, 2005 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: April 28, 2005 /s/ LEICLE E. CHESSER
-----------------------------------
Leicle E. Chesser
Chief Financial Officer