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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION
FILE NUMBER 0-2315
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
____None____
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of each class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filings pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. X
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on February 24, 1997 was approximately
$159,131,000
Number of shares of Common Stock outstanding as of the close of business on
February 24, 1997: 9,514,636 shares.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on June 20, 1997, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1996.
TABLE OF CONTENTS
Page
PART I
Item 1. Business
General...................................................... 1
The Business................................................. 1
Item 2. Properties..................................................... 3
Item 3. Legal Proceedings.............................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............ 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters ...................................................7
Item 6. Selected Financial Data........................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 10
Item 8. Financial Statements and Supplementary Data.................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant............. 50
Item 11. Executive Compensation......................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management. 50
Item 13. Certain Relationships and Related Transactions................. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 51
PART I
ITEM 1. BUSINESS
General
EMCOR Group, Inc. ("EMCOR" or the "Company") (formerly known as "JWP
INC.") is a leader in mechanical and electrical construction and facilities
services. EMCOR, which conducts its business through subsidiaries, specializes
in the design, integration, installation, start-up, testing, operation and
maintenance of complex mechanical and electrical systems. In addition, certain
of its subsidiaries operate and maintain mechanical and/or electrical systems
for customers under contracts and provide other services commonly referred to as
facilities services, including the management of facilities and the provision of
support services at the customers facilities. Mechanical and electrical
construction and facilities services are provided to a broad range of
commercial, industrial and institutional customers through offices located in
major markets throughout the United States, Canada, the United Kingdom, the
Middle East and Hong Kong.
On December 15, 1994 (the "Effective Date"), the Company emerged from
Chapter 11 of the United States Bankruptcy Code pursuant to its Third Amended
Joint Plan of Reorganization dated August 9, 1994, as amended (the "Plan of
Reorganization"), proposed by EMCOR and its subsidiary SellCo Corporation
("SellCo").
The Company, which employs approximately 12,000 people worldwide, provides
(i) mechanical and electrical construction services directly to end-users
(including corporations, municipalities and other governmental entities, owners,
developers and tenants of buildings) and, indirectly, by acting as subcontractor
to construction managers, general contractors, systems and equipment suppliers
and other subcontractors and (ii) facilities services directly to end-users such
as corporations, owners, property managers and tenants of buildings.
EMCOR is a Delaware corporation, formed in 1987 to continue the business
of its predecessor, a New York corporation with the name JWP INC. The Delaware
corporation was also originally named JWP INC. but changed its name to EMCOR
Group, Inc. on the Effective Date. The Company's executive offices are located
at 101 Merritt Seven Corporate Park, Norwalk, Connecticut 06851-1060, and its
telephone number at those offices is (203) 849-7800.
The Business. The Company specializes in complex mechanical and electrical
systems. The broad scope of the Company's operations are more particularly
described below. The Company had total revenues of approximately $1,669.3
million and $1,588.7 million in 1996 and 1995, respectively.
Mechanical and electrical construction services primarily involve the
design, integration, installation, start-up, testing, operation and maintenance
of (i) distribution systems for electrical power (including power cables,
conduits, distribution panels, transformers, generators, uninterruptible power
supply systems and related switch gear and controls); (ii) lighting systems,
including fixtures and controls; (iii) low-voltage systems, including fire
alarm, security, communications and process control systems; (iv) heating,
ventilation, air conditioning, refrigeration and clean-room process ventilation
systems; and (v) plumbing, process and high purity piping systems. EMCOR
believes its mechanical and electrical construction services business is the
largest of its kind in the United States and Canada and one of the largest in
the United Kingdom.
Mechanical and electrical construction services are principally of three
types: (i) large installation projects, with contracts generally in the
multi-million dollar range, in connection with construction of industrial,
institutional and public works facilities and commercial buildings and fit-out
of large blocks of space within commercial buildings; (ii) smaller installation
projects typically involving fit-out, renovation and retrofit work; and (iii)
testing and service of completed facilities.
The Company's largest installation projects include those (i) for
institutional use (such as water and wastewater treatment facilities, hospitals,
correctional facilities, schools and research laboratories); (ii) for industrial
use (such as pharmaceutical, semiconductor, steel, pulp and paper, chemical, and
automotive manufacturing plants and oil refining and water and waste treatment
facilities); (iii) for transportation systems (such as airports and transit
systems); and (iv) for commercial use (such as office buildings, hotels and
casinos, convention centers, shopping malls and resorts). These can be
multi-year projects ranging in size up to, and occasionally in excess of, $50.0
million.
Major projects are performed pursuant to contracts with owners, such as
corporations and municipalities and other governmental entities, general
contractors, construction managers, owners, developers and tenants of commercial
properties. Institutional and public works projects are frequently long-term,
complex projects requiring significant technical and management skills and
financial strength to, among other things, obtain bid and performance bonds,
which are often a condition to bidding for, and award of, contracts for such
projects.
Smaller projects, which are typically completed in less than a year,
involve mechanical and electrical construction services in connection with the
fit-out of space when an end-user or owner undertakes construction or
modification of a facility to accommodate a specific use, such as a trading
floor in a financial services business, a new production line in a manufacturing
plant, a process modification in a refinery, or an office arrangement in an
existing office building. These projects frequently require particular
mechanical and electrical systems to meet special needs such as redundant power
supply systems, special environmental controls, or high purity air systems.
These projects are not typically dependent upon the new construction market;
their demand is often prompted by the expiration of leases, changes in
technology or changes in the customer's plant or office layout in the normal
course of business.
The Company also installs and maintains street, highway, bridge and tunnel
lighting, traffic signals, computerized traffic control systems and signal and
communication systems for mass transit systems in several metropolitan areas. In
addition, in the United States, the Company operates sheet metal fabrication
facilities which manufacture and install sheet metal systems for both its own
mechanical construction operations and for unrelated mechanical contractors. The
Company also maintains welding and pipe fabrication shops for its own mechanical
operations.
In addition to mechanical and electrical construction services, the
Company provides facilities services which principally includes the testing,
operation, maintenance and service of mechanical and electrical installations of
customers under contracts ranging from one to several years, which vary widely
in scope. These services frequently require a number of the Company's employees
being permanently assigned to, and located at, the customer's building or
facility being serviced, occasionally on a 24 hour basis. In the United Kingdom,
the Company also provides a broad range of services, including building
maintenance, housekeeping, reprographics and catering services to customers, in
addition to operation and maintenance of mechanical and electrical systems. The
Company is currently in the process of expanding its mechanical and electrical
services business to include increased facilities services in the North American
market. The facilities services business continues to grow as customers seek to
"outsource" services not specifically related to the core services or the
products its customers offer for sale. In addition, increases in privatization
of government functions, particularly in the United Kingdom, has afforded
private enterprise the opportunity to operate, maintain, and often modernize and
expand government facilities.
Backlog. The Company had a backlog as of December 31, 1996 of
approximately $1,043.7 million, compared with a backlog of approximately
$1,060.7 million as of December 31, 1995.
Employees. The Company presently employs approximately 12,000 people,
approximately 75% of whom are represented by various unions. The Company
believes that its employee relations are generally satisfactory.
Competition. The business in which the Company engages is extremely
competitive. A majority of the Company's revenues are derived from jobs
requiring competitive bids; however, an invitation to bid is often conditioned
upon prior experience, technical capability and financial strength. The Company
competes with national, regional and local companies. The Company believes that,
at present, it is the largest provider of mechanical and electrical construction
and facilities services in the United States and Canada and one of the largest
in the United Kingdom.
Segment information relating to the geographic areas in which the Company
operates is included in Note P to the consolidated financial statements.
ITEM 2. PROPERTIES
......The operations of the Company are conducted primarily in leased
properties. The following table lists major facilities:
Lease
Approximate Expiration
Square Date, Unless
Feet Owned
----------- --------------
Corporate Headquarters
101 Merritt Seven Corporate Park
Norwalk, Connecticut 15,725 4/8/00
Operating Facilities
1200 North Sickles Road
Tempe, Arizona 29,000 Owned
3208 Landco Drive
Bakersfield, California 49,875 6/30/97
4462 Corporate Center Drive
Los Alamitos, California 41,400 12/31/00
4464 Alvarado Canyon Road
San Diego, California 53,800 10/31/00
9505 Chesapeake Drive
San Diego, California 44,000 1/31/01
345 Sheridan Boulevard
Lakewood, Colorado 63,000 Owned
5697 New Peachtree Road
Atlanta, Georgia 27,200 11/30/98
2100 South York Road
Oak Brook, Illinois 77,700 1/09/02
2655 Garfield Road
Highland, Indiana 34,600 7/08/01
3555 W. Oquendo Road
Las Vegas, Nevada 100,000 11/30/98
111-01 14th Avenue
College Point, New York 77,000 2/28/06
111 West 19th Street
New York, New York 27,200 5/31/98
Lease
Approximate Expiration
Square Date, Unless
Feet Owned
----------- --------------
Two Penn Plaza
New York, New York 57,200 2/01/06
165 Robertson Road
Ottawa, Ontario, Canada 35,400 4/01/02
5550 Airline Road
Houston, Texas 74,500 6/30/01
515 Norwood Road
Houston, Texas 26,600 6/30/01
1 Thameside Centre
Kew Bridge Road
Kew Bridge, Middlesex, United Kingdom 14,000 12/22/12
2116 Logan Avenue
Winnipeg, Manitoba, Canada 19,800 Owned
3455 Landmark Blvd.
Burlington, Ontario, Canada 16,100 Owned
1574 South West Temple
Salt Lake City, Utah 38,800 12/31/99
22930 Shaw Road
Sterling, Virginia 32,600 7/31/99
109-D Executive Drive
Sterling, Virginia 19,000 8/31/97
The Company believes that all of its property, plant and equipment is well
maintained, in good operating condition and suitable for purposes for which they
are used.
See Note K to the consolidated financial statements for additional
information regarding lease costs. The Company believes there will be no
difficulty either in negotiating the renewal of its real property leases as they
expire or in finding other satisfactory space.
ITEM 3. LEGAL PROCEEDINGS
The Dynalectric Company ("Dynalectric"), a wholly-owned subsidiary of the
Company, is a defendant in an action entitled Computran v. Dynalectric, et al.,
pending in Superior Court of New Jersey, Bergen County, arising out of its
participation in a joint venture. In the action, which was instituted in 1988,
the plaintiff, Computran, a participant in, and a subcontractor to the joint
venture, alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with other defendants to commit certain acts in violation of the
New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric
believes that Computran's claims are without merit and intends to defend this
matter vigorously. Dynalectric has filed counterclaims against Computran.
Discovery is ongoing and no trial date has been scheduled.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company
allegedly owned by Mr. Kohl were indicted by a New York County grand jury for
grand larceny, fraud, repeated failure to file New York City Corporate Tax
Returns and related money laundering charges. Mr. Kohl was also charged with
filing false personal income and earnings tax returns, perjury and offering
false instruments for filing with the New York City School Construction
Authority. In a press release announcing the indictment, the Manhattan District
Attorney said that the investigation disclosed that Mr. Kohl allegedly received
more than $7.0 million in kickbacks from subcontractors through a scheme in
which he allegedly inflated subcontracts on Herbert's construction contracts. At
a July 11, 1995 press conference following the indictment, the District Attorney
announced that the investigation was continuing and that he expected further
indictments in the investigation.
Forest performs electrical contracting services primarily in the New York
City commercial market and is one of EMCOR's largest subsidiaries.
In addition to the above, the Company is involved in other legal
proceedings and claims asserted by and against the Company, which have arisen in
the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Frank T. MacInnis, Age 50; Chairman of the Board, President and Chief
Executive Officer of the Company since April 1994. From April 1990 to April 1994
Mr. MacInnis served as President and Chief Executive Officer, and from August
1990 to April 1994 as Chairman of the Board, of Comstock Group, Inc., a
nationwide electrical contracting company. From 1986 to April 1990, Mr. MacInnis
was Senior Vice President and Chief Financial Officer of Comstock Group, Inc. In
addition, from 1986 to April 1994 Mr. MacInnis was also President of Spie Group
Inc., which owns or owned Comstock Group, Inc., Spie Construction Inc., a
Canadian pipeline construction company, and Spie Horizontal Drilling Inc., a
U.S. company engaged in underwater drilling for the installation of pipelines
and communications cable.
Sheldon I. Cammaker, Age 57; Executive Vice President and General Counsel
of the Company for more than the past five years.
Leicle E. Chesser, Age 50; Executive Vice President and Chief Financial
Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser
served as Executive Vice President and Chief Financial Officer of Comstock
Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and
Chief Financial Officer of Spie Group Inc.
Jeffrey M. Levy, Age 44; Executive Vice President of the Company since
November 1994, Senior Vice President of the Company from December 1993 to
November 1994 and Chief Operating Officer of the Company since February 1994.
From May 1992 to December 1993, Mr. Levy was President and Chief Executive
Officer of the Company's subsidiary EMCOR Mechanical/Electrical Services (East)
Inc. From January 1991 to May 1992 Mr. Levy served as Executive Vice President
and Chief Operating Officer of Lehrer McGovern Bovis, Inc., a construction
management and construction company.
R. Kevin Matz, Age 38; Vice President and Treasurer of the Company since
April 1996 and Staff Vice President - Financial Services of the Company from
March 1993 to April 1996. From March 1991 to March 1993, Mr. Matz was Treasurer
of Sprague Technologies Inc., a manufacturer of electronic components.
Mark A. Pompa, Age 32; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm, and from
June 1988 to June 1992 Mr. Pompa was a Senior Accountant at that firm.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol "EMCG". From December 15, 1994 through
December 27, 1995 the Common Stock was traded in the over-the-counter market.
The following table sets forth the high and low bid quotations (as reported
in the "pink sheets" of the National Quotation Bureau, Inc.) for the Common
Stock for each calendar quarter during the period from January 6, 1995, when bid
quotations were first readily available, through December 27, 1995. The
quotations reflect inter-dealer prices, without adjustments for retail mark-up,
mark-down or commissions and may not represent actual transactions. For the
period commencing December 28, 1995, when the Common Stock began trading on the
Nasdaq Stock Market, through December 31, 1996, the following table sets forth
high and low sales prices for the Common Stock.
High Low
1996
First Quarter 12 3/8 9 3/8
Second Quarter 17 3/8 11 3/4
Third Quarter 17 3/8 14 1/8
Fourth Quarter 15 5/8 13
1995
First Quarter (commencing January 6, 5 1/2 4
1995)
Second Quarter 7 3/4 4 1/2
Third Quarter 9 6 3/4
Fourth Quarter (through December 27, 9 3/8 7
1995)
December 28, 1995 through December 9 5/8 9 3/8
31, 1995
Holders
As of February 24, 1997 there were 66 shareholders of record, and, as of
that date, the Company estimates there were approximately 800 beneficial owners
holding stock in nominee or "street" name.
Dividends
The Company did not pay dividends on its Common Stock during 1995 or 1996,
and it does not anticipate that it will pay dividends on its Common Stock in the
foreseeable future. The Company's working capital credit facility prohibits the
payment of dividends on its Common Stock prior to January 1, 1998 and thereafter
limits its payment of dividends; the Company's Series C Notes provide that
dividends are limited to 50% of consolidated net income (as defined) for the
period from December 15, 1994 to the most recently ended fiscal quarter.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data has been derived from audited
financial statements and should be read in conjunction with the consolidated
financial statements, the related notes thereto and the reports of independent
public accountants thereon, included elsewhere in this annual report on Form
10-K. The consolidated financial statements for the year ended December 31, 1992
were audited by Ernst & Young LLP whose report of independent public accountants
thereon dated June 30, 1994 includes a disclaimer of opinion due to going
concern considerations. A disclaimer of opinion due to going concern
considerations nevertheless provides assurance that there were no limitations on
the scope of the audit and that the accounting principles applied in the
preparation of the consolidated financial statements are in conformity with
generally accepted accounting principles. See Note A to the consolidated
financial statements regarding the basis of presentation and the Company's
emergence from bankruptcy.
Income Statement Data (a) (d)
Reorganized Company Predecessor Company
Year Ended December Year Ended December 31,
31,
1996 1995 1994 1993 1992
---------- ---------- --------- ---------- ---------
Revenues $1,669,274 $1,588,744 $1,763,961 $2,194,735 $2,404,577
Gross profit 160,788 143,147 156,372 151,177 243,854
Reorganization
items -- -- (91,318) -- --
Income (loss)
from continuing
operations
including
reorganization
items 9,437 (10,853) (118,934) (113,991) (363,515)
Income (loss) from
discontinued
operations -- -- 10,216 (9,087) (253,230)
Extraordinary
item -
gain on debt
discharge -- -- 413,249 -- --
Cumulative effect
of change in
method of
accounting for:
-Income taxes -- -- -- -- 4,315
-Post-employment
benefits -- -- (2,100) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) $9,437 $(10,853) $302,431 $(123,078) $(612,430)
========== ========== ========== ========== ==========
Supplemental net
income (loss)
per common
share and
common equivalent
share (b):
Continuing
operations $0.95 $(1.13) $(12.62)
Discontinued
operations -- -- 1.08
Extraordinary
item - gain on
debt discharge -- -- 43.85
Cumulative effect
of change in
method of
accounting for:
Post-employment
benefits -- -- (0.22)
---------- ---------- ---------
Net income (loss)
per common share
and common
equivalent share $0.95 $(1.13) $32.09
========== ========== =========
Balance Sheet Data (d)
Reorganized Company Predecessor
Company
As of December 31, As of December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Stockholders'
equity
(deficit)(c) ........ $ 83,883 $ 70,610 $ 81,130 $(302,262) $(175,979)
70,610 81,130
Total assets .......... 614,747 710,945 707,498 806,442 907,584
Net assets held
for sale............. -- 61,969 55,401
Notes payable ......... -- 14,665 4,803 172 6,452
Borrowings
under working
capital
credit lines......... 14,200 25,000 40,000 -- --
7% Senior
Secured Notes........ -- 61,969 55,401 -- --
Long-term debt,
including current
maturities........... 72,405 68,989 61,290 4,465 6,040
Debt in default ....... -- -- -- 501,007 501,007
Capital lease
obligations.......... $ 1,007 $ 1,284 $ 2,029 $ 2,561 $ 3,935
(a)The income statement data for the year ended December 31, 1995 excludes the
operating results of businesses held for sale since the operations of these
businesses accrued to the benefit of holders of the notes issued by the
Company's subsidiary SellCo Corporation, and prior to their payment in full
during 1996, the Company's Series A Notes, and certain other obligations (See
Notes F and G to the consolidated financial statements). Income statement
data has been reclassified for all periods presented prior to 1995 to reflect
the Company's water supply business and other businesses for sale as
discontinued operations (See Note L to the consolidated financial
statements).
(b)Historical per share data for periods prior to December 31, 1994 have not
been presented as it is not meaningful since the Company has been
recapitalized and adopted Fresh-Start Accounting as of December 31, 1994.
(c) No cash dividends on the Company's Common Stock have been paid during the
past five years.
(d) Selected financial data for periods as of and after the adoption of
Fresh-Start Accounting are not comparable to selected financial data of
periods presented prior to December 31, 1994 and have been separated by a
black line.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended (the "Plan
of Reorganization"), and proposed by the Company and its wholly-owned subsidiary
SellCo Corporation ("SellCo").
In connection with the Plan of Reorganization, the Company adopted the
American Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The Company has accounted for its reorganization by using the
principles of Fresh-Start Accounting as required by SOP 90-7. For accounting
purposes, the Company assumed that the Plan of Reorganization was consummated on
December 31, 1994. Under the principles of Fresh-Start Accounting, the Company's
total net assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable assets on the basis of their
estimated fair value. The primary valuation methodology employed by the Company,
with the assistance of its financial advisors to determine the reorganization
value of the Company, was a net present value approach. The valuation was based
on the Company's forecasts of unleveraged, after-tax cash flows calculated for
each year over the four-year period from 1994 to 1997, capitalizing projected
earnings before interest, taxes, depreciation and amortization at multiples
ranging from 3 to 10, selected to value earnings and cash flows beyond 1997, and
discounting the resulting amounts to present value at rates ranging from 10% to
30% selected to approximate the Company's projected weighted average cost of
capital. The excess of reorganization value over the value of identifiable
assets of $5.0 million was included in the Consolidated Balance Sheet as of
December 31, 1995 in Other Assets as "Miscellaneous" and was being amortized
over 15 years. In accordance with SOP 90-7, the Company's reduction of its
deferred tax valuation allowance during 1996 related to its federal and foreign
income tax provision was first allocated to reduce reorganization value in
excess of amounts allocable to identifiable assets to zero and then allocated to
capital surplus.
As a result of the implementation of Fresh-Start Accounting, the
consolidated financial statements of the Company for periods subsequent to
consummation of the Plan of Reorganization are not comparable to the Company's
consolidated financial statements for prior periods. Accordingly, a black line
has been used to separate the consolidated financial statements of the Company
after the consummation of the Plan of Reorganization from those of the Company
prior to the consummation of the Plan of Reorganization. The operating results
of businesses held for sale have been excluded from the consolidated financial
statements for the year ended December 31, 1995 since the operations of these
businesses accrued to the benefit of the holders of the notes issued by the
Company's subsidiary SellCo, and prior to their payment in full during 1996, the
Company's Series A Notes, and certain other obligations (See Notes F and G to
the consolidated financial statements). Operating results of businesses held for
sale substantially offset interest accrued on the Company's Series A Notes which
interest was recognized within the caption "Net assets held for sale" in the
Consolidated Balance Sheet as of December 31, 1995.
Results of Operations: Year Ended December 31, 1996 Compared to Year Ended
December 31, 1995
Revenues for the years ended December 31, 1996 and 1995 were $1,669.3
million and $1,588.7 million, respectively. Net income for the year ended
December 31, 1996 was $9.4 million or $0.95 per share compared to a net loss of
$10.9 million or $1.13 per share for the year ended December 31, 1995.
Income from continuing operations before reorganization items, income
taxes, extraordinary items and cumulative effect of accounting change was $17.0
million and a loss of $9.9 million for the years ended December 31, 1996 and
1995, respectively. 1996 income includes a gain of $12.5 million ($8.1 million
after-tax) on the sale of certain assets held for sale, including the sale of
substantially all of the assets of the Company's principal water supply
subsidiary Jamaica Water Supply Company ("JWS"). JWS and the Company's other
water supply subsidiary, Sea Cliff Water Company ("Sea Cliff"), are referred to
hereafter as the "Water Companies". The 1995 loss includes a third quarter loss
of $0.9 million associated with the disposition of a subsidiary engaged
principally in the installation of industrial boilers.
The Company generated operating income of $17.1 million for the year ended
December 31, 1996 compared with operating income of $5.9 million for the year
ended December 31, 1995. The improvement in operating income for 1996 was
principally attributable to continued improvement in gross profit due to cost
control efforts and improved job performance offset partially by an increase in
selling, general and administrative expenses in the first quarter of 1996
related to an adverse arbitration award requiring the Company to pay $4.8
million in damages in connection with a contract dispute involving its
subsidiary Pace Mechanical Services, Inc. (formerly known as T.L. Cholette,
Inc.). In October 1996, the Company settled the arbitration award for
approximately $4.3 million. Net interest expense for the year ended December 31,
1996 was $12.6 million compared to $14.8 million in the year earlier period.
Mechanical and Electrical Construction Services and Facilities Services
Revenues of the mechanical and electrical construction and facilities
services business units for the year ended December 31, 1996 were $1,669.3
million compared to $1,588.7 million for the year ended December 31, 1995.
Operating income of these business units for the year ended December 31, 1996
was $17.1 million compared to operating income of $5.9 million for the year
ended December 31, 1995.
Revenues for the year ended December 31, 1996 increased by approximately
5.1% when compared with the year earlier period. While revenues of business
units operating in the Western United States increased due to improved economic
conditions, these increases were substantially offset by decreased revenues (a)
in the Northeastern United States resulting from, among other things, adverse
weather conditions in the first quarter of 1996 and increased competition, and
(b) in the Midwestern United States due to reduced construction activity as
compared with 1995 and the Company's earlier downsizing of its Midwestern
operations and (c) in the United Kingdom due to decreased activity in the
commercial construction market.
Selling, general and administrative expenses ("SG&A") for the years ended
December 31, 1996 and 1995 were $143.7 million and $137.3 million, respectively.
The increase was primarily attributable to increased operating volume and the
$4.3 million adverse arbitration result discussed above.
At December 31, 1996, the mechanical and electrical construction and
facilities services business backlog was approximately $1,043.7 million compared
to approximately $1,060.7 million at December 31, 1995. The Company's backlog in
the United States increased by $56.7 million between December 31, 1996 and
December 31, 1995, whereas its backlog in Canada and the United Kingdom
decreased by $15.0 million and $58.7 million, respectively, during that same
period. The decline in Canadian backlog is attributable to the shift in emphasis
from multi-period commercial work to industrial work including both
modifications to existing facilities and new facilities, as well as completion
of certain large projects. The industrial work is characterized by shorter
schedules, frequently less than one year, than commercial work. The United
Kingdom decline is attributable to continued progress toward completion of
several large projects and the continued weakness in the United Kingdom
commercial construction market.
Results Of Operations: Year Ended December 31, 1995 Compared To Year Ended
December 31, 1994
Revenues for the years ended December 31, 1995 and 1994 were $1,588.7
million and $1,595.0 million, respectively, exclusive of $169.0 million
attributable to businesses held for sale or sold in 1994. Net loss for the year
ended December 31, 1995 was $10.9 million or $1.13 per share compared to net
income of $302.4 million or $32.09 per share for the year ended 1994. Net income
for 1994 includes an extraordinary item for the gain on debt discharge of $413.2
million as well as a charge for the required adoption of Financial Accounting
Standards No. 112, "Employers' Accounting for Post-employment Benefits" ("SFAS
112"), of $2.1 million. In addition, net income for 1994 includes charges for
reorganization items totaling $91.3 million consisting of professional fees of
$12.5 million and fresh-start adjustments of $78.8 million to record the
Company's assets and liabilities at fair value in accordance with the adoption
of Fresh-Start Accounting as prescribed by SOP 90-7. Net income for the year
ended December 31, 1994 includes income from discontinued operations of $10.2
million as well as a loss of $13.7 million attributable to other businesses held
for sale or sold.
Loss from continuing operations before reorganization items, income taxes,
extraordinary items and cumulative effect of accounting change was $9.9 million
and $27.9 million for the years ended December 31, 1995 and 1994, respectively.
The 1995 loss includes $14.8 million of net interest expense associated with
borrowings outstanding during 1995 under the Company's Old Credit Agreements
(hereafter defined) compared to $2.5 million in 1994 which amount excluded
interest on debt in default which the Company ceased accruing in December 1993.
In addition the 1995 loss includes a third quarter loss of $0.9 million
associated with the
disposition of a subsidiary engaged principally in the installation of
industrial boilers. The 1994 loss reflects, among other things: a gain of $1.9
million from the settlement of a construction claim; a net gain of $1.2 million
on the sale of certain businesses; a loss of $13.7 million attributable to other
businesses held for sale or sold; a loss of $4.5 million due to the write-down
of an investment; a loss of $10.8 million attributable to job write-downs and
provisions for loss contingencies on certain industrial and municipal projects;
a loss of $1.4 million for lender fees associated with the Company's working
capital and debtor-in-possession credit facilities; and a loss of $0.6 million
for severance of certain employees. The losses associated with job write-downs
in 1994 were primarily attributable to adverse weather conditions, inadequate
estimating of job costs and labor problems.
The Company generated operating income of $5.9 million for the year ended
December 31, 1995 compared with an operating loss of $22.2 million for the year
ended December 31, 1994, inclusive of $13.7 million of operating losses
attributable to businesses held for sale or sold. The increase in operating
income is attributable to: a $41.3 million reduction in SG&A expenses, inclusive
of $30.6 million of SG&A expenses attributable to businesses held for sale or
sold, as a result of the implementation of the Company's cost reduction plans;
an increase in gross profit of $3.7 million and as a percentage of revenues,
which is attributable to successful completion and close out of lower margin
contracts undertaken before the Company emerged from its Chapter 11 proceeding
as well as higher profitability of post-emergence contracts completed or
currently in process, exclusive of $16.9 million of gross profit attributable to
businesses held for sale or sold in 1994. Professional fees associated with the
Chapter 11 proceeding are classified as "Reorganization Items" in the 1994
Consolidated Statement of Operations. Net interest expense for the year ended
December 31, 1995 was $14.8 million compared to $2.5 million in the year earlier
period. The Company ceased accruing interest on debt in default in December 1993
upon the filing of an involuntary bankruptcy petition against the Company.
Accordingly, no interest expense on debt in default is included in the
Consolidated Statement of Operations for the year ended December 31, 1994.
Mechanical and Electrical Construction Services and Facilities Services
Revenues of the mechanical and electrical construction and facilities
services business units for the year ended December 31, 1995 were $1,588.7
million compared to $1,595.0 million for the year ended December 31, 1994,
exclusive of $169.0 million attributable to businesses held for sale or sold.
Operating income of these business units (before deduction of general corporate
and other expenses discussed below) for the year ended December 31, 1995 was
$21.6 million compared to an operating loss of $6.4 million, inclusive of $13.7
of operating losses attributable to businesses held for sale or sold, for the
year ended December 31, 1994. In connection with the Company's restructuring
plan adopted in connection with its Plan of Reorganization, certain mechanical
and electrical business units have been sold or identified for sale. The
operating results of these units are excluded from operating results for the
year ended December 31, 1995.
Revenues for the year ended December 31, 1995 relating to business units
which the Company retained remained substantially unchanged compared with the
year earlier period. While 1995 revenues of business units operating in the
Eastern United States and Central United Kingdom increased due to improved
economic conditions, this increase was offset by decreased revenues in the
Midwestern and Western regions of the United States, Canada and Northern and
Southern parts of the United Kingdom due to, among other things, continuing poor
market conditions and downsizing.
Selling, general and administrative expenses, excluding general corporate
and other expenses, for the years ended December 31, 1995 and 1994 were $121.6
million and $162.8 million, respectively. The 1994 SG&A expenses include $132.3
million attributable to the continuing electrical and mechanical construction
and facilities services operations. The decrease in SG&A expenses was
attributable to cost cutting and downsizing.
At December 31, 1995, the mechanical and electrical construction and
facilities services business backlog was approximately $1,060.7 million compared
to approximately $1,046.4 million at December 31, 1994, exclusive of businesses
sold or held for sale. The Company's backlog in the United States increased by
$43.1 million between December 31, 1994 and December 31, 1995, whereas its
backlog in Canada and the United Kingdom decreased by $18.3 million and $10.5
million, respectively, during that same period. The decline in Canadian backlog
was principally attributable to the downsizing of the Canadian operations, while
the United Kingdom decline was attributable to poor market conditions.
General Corporate And Other Expenses
General corporate expenses for the years ended December 31, 1995 and 1994
were $15.7 million and $28.3 million, respectively, inclusive of $12.5 million
of legal and other professional fees incurred in connection with the Company's
reorganization in 1994. The higher amount of general corporate expenses,
exclusive of legal, consulting and other professional fees in 1994, was
attributable to debt issuance costs related to the Company's
debtor-in-possession credit facility ("DIP Loan"), severance paid to terminated
employees and insurance costs.
Net Assets Held for Sale
The operating results of businesses held for sale, which included the
Company's water supply business classified as discontinued operations prior to
the consummation of the Plan of Reorganization, have been excluded from the
consolidated financial statements for the year ended 1995 since the operation of
these businesses accrued to the benefit of the holders of notes issued by
SellCo, and prior to their payment in full during 1996, the Company's Series A
Notes, and certain other obligations. (See Notes F and G to the consolidated
financial statements). Businesses held for sale are recorded in the accompanying
Consolidated Balance Sheets at the lower of cost or estimated net realizable
value and are classified as current based on their estimated disposition dates.
Liquidity And Capital Resources:
The Company's consolidated cash balance decreased by $2.3 million from
$53.0 million at December 31, 1995 to $50.7 million at December 31, 1996. The
Company generated positive operating cash flow of $33.1 million for the year
ended December 31, 1996 which was used primarily to repay borrowings under the
Company's working capital credit lines and to fund capital expenditures
resulting in the consolidated cash balance decrease. The December 31, 1996 cash
balance includes approximately $4.5 million in foreign subsidiaries' bank
accounts which accounts are available only to support their respective
operations.
On June 19, 1996, the Company and its subsidiary Dyn Specialty Contracting
Inc. ("Dyn") entered into a credit agreement with Harris Trust and Savings Bank
("Harris") providing the Company with up to a $100.0 million revolving credit
facility (the "New Credit Facility") for a three year period. The New Credit
Facility, which is guaranteed by certain direct and indirect U.S. subsidiaries
of the Company and is secured by substantially all of the assets of the Company
and those subsidiaries, initially provided for up to $50.0 million in borrowing
capacity available in the form of revolving loans ("Revolving Loans") and/or
letters of credit ("LCs" or "LC"). As subsequently amended, the New Credit
Facility currently provides for up to $72.5 million in borrowing capacity. The
remaining $27.5 million in borrowing capacity is subject to: receipt of
additional commitments from other banks; consents of bonding companies providing
surety bonds to the Company's Canadian and United Kingdom subsidiaries; and the
guarantee by these subsidiaries of the facility and the collateralization of the
guarantees with liens upon their assets. The Revolving Loans bear interest at a
variable rate, which is Harris' prime rate (8.25% at December 31, 1996) plus
1.0% - 2.0% based on certain financial tests. The interest rate on the Revolving
Loans was 9.25% at December 31, 1996. LC fees ranging from 1.50% to 3.25% are
charged based on the type of LC issued. The New Credit Facility expires on June
19, 1999. As of December 31, 1996, the Company had approximately $29.1 million
of LCs outstanding under the New Credit Facility. In addition, there were $14.2
million of Revolving Loans outstanding as of December 31, 1996.
Pursuant to the Plan of Reorganization, the Company and SellCo issued, or
reserved for issuance, four series of notes (the "New Notes") and 9,424,083
shares of stock of the Company's Common Stock (constituting 100% of the issued
or issuable shares as of the Effective Date) to pre-petition creditors of the
Company, other than holders of the Company's pre-petition subordinated debt, in
settlement of their pre-petition claims and to Belmont Capital Partners II, L.P.
("Belmont"), which provided a debtor-in-possession credit facility ("DIP Loan"),
in payment of additional interest under the terms of the DIP Loan. The entire
$11.9 million principal amount of Series B Notes, a series of the New Notes, and
approximately $4.1 million principal amount of Series A Notes, a series of the
New Notes, were redeemed on the Effective Date with the net cash proceeds
derived from the sale of certain of the Company's subsidiaries, the stock of
which would have been pledged as part of the collateral securing the Series B
Notes had such subsidiaries not been sold (and an additional $600,000 of such
proceeds were reserved for prepayment of certain of the Series A Notes which
have been reserved for issuance in respect of disputed and unliquidated claims).
The Series A Notes were paid in full with proceeds received by the Company from
the sale of the Water Companies. Holders of SellCo Notes, a series of the New
Notes, will only be paid from and to the extent of any remaining net cash
proceeds (as defined) from the sale of SellCo's subsidiaries and the proceeds of
a $5.5
million promissory note issued by the Company to SellCo pursuant to the Plan of
Reorganization (the "EMCOR Supplemental SellCo Note"). Interest on the EMCOR
Supplemental SellCo Note is payable at maturity.
On December 14, 1994, the Company and certain of its subsidiaries entered
into two credit agreements (the "Old Credit Agreements") with Belmont and other
lenders providing the Company and certain of its subsidiaries with working
capital facilities of up to an aggregate of $45.0 million which became available
upon the Effective Date. The MES Credit Agreement, one of the Old Credit
Agreements, was among the Company, its subsidiary MES Holdings Corporation
("MES"), substantially all of the U.S. subsidiaries of MES, as guarantors, and
the lenders and provided the Company and MES with loans in an aggregate amount
of up to $35.0 million. The Dyn Credit Agreement, the other Old Credit
Agreement, was among the Company, Dyn, Dyn's subsidiaries, as guarantors, and
the lenders and provided Dyn with loans in an aggregate amount of up to $10.0
million. The loans bore interest on the principal amount thereof at the rate of
15% per annum.
The proceeds of the MES loans under the MES Credit Agreement were used to
repay amounts outstanding under the DIP Loan and pay fees and expenses in
connection with the MES Credit Agreement and the Plan of Reorganization and the
balance was used for the general working capital of MES, the MES subsidiaries
and the Company. The proceeds of the Dyn Credit Agreement were used to pay fees
and expenses in connection with the Dyn Credit Agreement and was used for the
general working capital of Dyn and the Dyn subsidiaries.
Borrowings outstanding under the Old Credit Agreements were repaid in part
on June 12, 1996 from proceeds received by the Company from the sale of the
Water Companies and the balance was repaid on June 20, 1996 from borrowings
under the New Credit Facility at which time these credit agreements were
terminated.
In December 1996, the Company's Canadian subsidiary Comstock Canada Ltd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $2.0 million. The facility is secured by certain assets of Comstock
Canada Ltd. and deposit instruments of another Canadian subsidiary of the
Company. The facility provides for interest at the bank's prime rate (4.75% at
December 31, 1996) plus 3/4% and expires on June 30, 1997. There were no
borrowings outstanding under this credit agreement at December 31, 1996. The
Company is seeking to include its Canadian subsidiary under the New Credit
Facility.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a U.K. bank for a credit
line of (pound)17.1 million (approximately U.S. $26.8 million). The credit
facility consisted of the following components with individual credit limits as
follows: an overdraft line of up to (pound)9.0 million (approximately U.S. $14.1
million) which overdraft line was subsequently reduced to (pound)7.0 million
(approximately U.S. $11.0 million); a facility for the issuance of guarantees,
bond and indemnities of up to (pound)7.3 million (approximately U.S. $11.4
million); and other credit facilities of up to (pound)0.8 million (approximately
U.S. $1.3 million). The facility was secured by substantially all of the assets
of the Company's principal U.K. subsidiaries. The overdraft facility provided
for interest at the bank's base rate, as defined (6.5% as of December 31, 1995),
plus 3.0% on the first (pound)5.0 million of borrowings and at the bank's base
rate plus 4.0% for borrowings over (pound)5.0 million. During the third quarter
of 1996, the Company obtained an (pound)7.4 million LC under the New Credit
Facility for use as collateral for bonds issued under the U.K. facility thereby
releasing funds previously deposited as collateral for those bonds. On October
1, 1996, the Company's United Kingdom subsidiaries replaced the U.K. facility
with Revolving Loans under the New Credit Facility.
As reported in the Company's Report on Form 8-K, dated February 29, 1996,
an aggregate majority of principal amount of the outstanding Series A Notes and
an aggregate majority of principal amount of the outstanding Series C Notes
consented to amendments to the Series A Indenture and Series C Indenture under
which the Series A Notes and the Series C Notes, respectively, were issued. The
amendments (i) reduced the ratio required to be maintained by the Company and
certain of its subsidiaries under a Consolidated Fixed Charge Coverage Ratio
(the "Ratio"), as defined, contained in each of the Indentures and (ii) provided
for the exclusion from the Ratio calculation certain non-cash interest payments
payable by the issuance of additional Series A Notes and Series C Notes. The
Series A Notes have been paid in their entirety.
The Company has no significant plans or commitments for capital
expenditures outside of those required for normal operations. Such expenditures
are anticipated to be funded by cash generated through continuing operations.
The Company believes that projected cash flows from operations combined
with the available funds under the New Credit Facility will provide sufficient
liquidity to meet the Company's operating, capital and scheduled debt service
requirements through at least 1997 based on the terms of the Company's existing
indentures and loan agreements, including interest and amortization terms.
Certain Insurance Matters
During the second quarter of 1996, the Company entered into an agreement
with one of its insurers to reinsure the Company's obligations to bear certain
losses incurred for insurance plan years from October 1, 1992 to September 30,
1995. Under this agreement, amounts previously deposited by the Company with one
of the Company's insurers as collateral to fund certain losses under the
deductible portion of the Company's insurance program were returned to the
Company and used to fund the cost of that agreement and to pay down, in July
1996, approximately $10.1 million of indebtedness under the New Credit Facility.
As of December 31, 1996, the Company was utilizing $16.4 million of letters of
credit obtained under the New Credit Facility as collateral for its current
insurance obligations, and therefore presently is not required to deposit cash
for such obligations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR Group, Inc. And Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
December 31,
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $50,705 $53,007
Accounts receivable, less allowance
for doubtful accounts of $18,812
and $14,892, respectively 442,930 435,974
Costs and estimated earnings in
excess of billings on
uncompleted contracts 67,765 65,551
Inventories 9,108 8,031
Prepaid expenses and other 8,143 8,365
Net assets held for sale -- 61,969
------------ ------------
Total Current Assets 578,651 632,897
Investments, Notes And Other
Long-Term Receivables 5,737 4,684
Property, Plant And Equipment, Net 26,952 27,137
Other Assets:
Insurance cash collateral -- 30,812
Funds held in escrow -- 8,271
Miscellaneous 3,407 7,144
------------ ------------
3,407 46,227
------------ ------------
Total Assets $614,747 $710,945
============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
EMCOR Group, Inc. And Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
December 31,
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Borrowings under working capital
credit lines $14,200 $25,000
Notes payable -- 14,665
Current maturities of long-term debt
and capital lease obligations 361 1,875
7% Senior Secured Notes (Series A) -- 61,969
Accounts payable 218,099 224,002
Billings in excess of costs and
estimated earnings on
uncompleted contracts 105,653 113,590
Accrued payroll and benefits 43,789 38,928
Other accrued expenses and liabilities 39,596 45,287
------------ ------------
Total Current Liabilities 421,698 525,316
Long-Term Debt 73,051 68,398
Other Long-Term Obligations 36,115 46,621
Stockholders' Equity:
Preferred Stock, $.10 par value,
1,000,000 shares authorized,
zero issued and outstanding -- --
Common Stock, $.01 par value,
13,700,000 shares aythorized,
9,514,636 and 9,424,706
shares issued, or reserved
for issuance, and outstanding,
respectively 95 94
Warrants 2,154 2,179
Capital surplus 81,672 78,863
Cumulative translation adjustment 1,378 327
Accumulated deficit (1,416) (10,853)
------------ ------------
Total Stockholders' Equity 83,883 70,610
------------ ------------
Total Liabilities And Stockholders'
Equity $614,747 $710,945
============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
EMCOR Group, Inc. And Subsidiaries
Consolidated Statements Of Operations For The Years Ended December 31,
(In Thousands, Except Per Share Data)
Predecessor
Reorganized Company Company
1996 1995 1994
----------------------- ----------
Revenues $1,669,274 $1,588,744 $1,763,961
Costs And Expenses:
Cost of sales 1,508,486 1,445,597 1,607,589
Selling, general and administrative 143,674 137,254 178,575
--------- ----------- ----------
1,652,160 1,582,851 1,786,164
--------- ----------- ----------
Operating Income (Loss) 17,114 5,893 (22,203)
Other income 12,500 -- --
Interest expense (14,890) (17,453) (3,867)
Interest income 2,244 2,633 1,391
Net (loss) gain on businesses sold or
held for sale -- (926) 1,183
Loss on investment -- -- (4,452)
--------- ----------- ----------
Income (Loss) From Continuing
Operations Before
Reorganization Items, Income Taxes,
Extraordinary Item
And Cumulative Effect Of Accounting
Change 16,968 (9,853) (27,948)
--------- ----------- ----------
Reorganization Items:
Professional fees -- -- (12,535)
Fresh-start adjustments -- -- (78,783)
--------- ----------- ----------
-- -- (91,318)
--------- ----------- ----------
Income (Loss) From Continuing
Operations Including
Reorganiztion Items, Before Income
Taxes, Extraordinary Item And
Cumulative Effect Of
Accounting Change 16,968 (9,853) (119,266)
Income Tax Provision (Benefit) 7,531 1,000 (332)
--------- ----------- ----------
Income (Loss) From Continuing
Operations Including
Reorganization Items, Before
Extraordinary Item And
Cumulative Effect Of Accounting
Change 9,437 (10,853) (118,934)
===== ======= ========
Income From Discontinued Operations,
Net Of Income Taxes -- -- 10,216
Extraordinary Item - Gain On Debt
Discharge -- -- 413,249
Cumulative Effect Of Change In Method
Of Accounting For:
Post-employment benefits -- -- (2,100)
========= =========== ==========
Net Income (Loss) $9,437 $(10,853) $302,431
========= =========== ==========
Supplemental Income (Loss) Per Common
Share And Common Equivalent Share
Continuing operations before
extraordinary item and
cumulative effect of accounting
change $0.95 $(1.13) $(12.62)
Income from discontinued operations -- -- 1.08
Extraordinary item -- -- 43.85
Cumulative effect of change in method
of accounting for:
Post-employment benefits -- -- (0.22)
========= =========== ==========
Net Income (Loss) $0.95 $(1.13) $32.09
========= =========== ==========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
EMCOR Group, Inc. And Subsidiaries
Consolidated Statements Of Cash Flows For The Years Ended December 31,
(In Thousands)
Predecessor
Reorganized Company Company
1996 1995 1994
----------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $9,437 $(10,853) $ 302,431
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 7,864 8,912 15,724
Net loss (gain) from businesses sold
or held for sale -- 926 (1,183)
Write-down of investment -- -- 4,452
Stock compensation -- 6 --
Cumulative effect of change in
accounting for post-
employment benefits -- -- 2,100
Non-cash interest expense 4,748 7,690 --
Non-cash income tax provision 6,771 -- --
Other, net 252 465 --
----------- ---------- ------------
29,072 7,146 323,524
Change in Operating Assets and
Liabilities Excluding Effect of
Businesses Disposed of and
Acquired:
(Increase) decrease in accounts
receivable, net (6,956) 2,635 9,172
Increase in inventories and contracts
in progress (11,228) (16,320) (6,879)
(Decrease) increase in accounts
payable and other
accrued expenses and liabilities (6,891) 5,312 22,703
Decrease (increase) in insurance cash
collateral 30,812 6,765 (16,183)
Decrease (increase) funds held in
escrow 8,271 378 (8,314)
Changes in other assets and
liabilities, net (9,997) 4,785 3,794
Changes due to reorganization
activities:
Reorganization charges -
professional fees -- -- 12,535
Reorganization charges - fresh-start
adjustments -- -- 78,783
Gain on debt discharge -- -- (413,249)
----------- ----------- ----------
Net Cash Provided by Operations $33,083 $10,701 $5,886
----------- ----------- ----------
(continued)
EMCOR Group, Inc. And Subsidiaries
Consolidated Statements Of Cash Flows For The Years Ended December 31,
(In Thousands)(continued)
Predecessor
Reorganized Company Company
1996 1995 1994
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital credit
lines $45,625 $ -- $ 40,000
Payments of working capital credit lines (56,425) (15,000) --
Proceeds from debtor-in-possession
financing -- -- 30,000
Payment of debtor-in-possession financing -- -- (30,000)
Cash deposited in trust account for
funding of post-bankruptcy debt -- -- (15,940)
Proceeds from long-term debt and capital
lease obligations 226 180 --
Payments of long-term debt and capital
lease obligations (873) (1,379) (1,430)
Repayment of Series A Notes (66,424) -- (4,162)
Repayment of Series B Notes -- -- (11,892)
Exercise of stock options 487 -- --
Proceeds from notes payable 9,596 21,266 4,646
Payments of notes payable (24,363) (11,404) (172)
Debt issuance costs (1,600) -- (900)
---------- ---------- ----------
Net Cash (Used in) Provided by Financing
Activities (93,751) (6,337) 10,150
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses and
other assets 353 650 13,620
Proceeds from sales of net assets held
for sale 66,424 -- --
Purchase of property, plant and equipment (7,428) (4,512) (4,164)
Net disbursements for other investments (983) -- (2,442)
Change in cash balances of businesses
held for sale or sold -- -- (10,079)
---------- ---------- ----------
Net Cash Provided by (Used in) Investing
Activities 58,366 (3,862) (3,065)
---------- ---------- ----------
(Decrease) Increase in Cash and Cash
Equivalents (2,302) 502 12,971
Cash and Cash Equivalents at Beginning
of Year 53,007 52,505 39,534
========== ========== ==========
Cash and Cash Equivalents at End of Year $50,705 $53,007 $ 52,505
========== ========== ==========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
EMCOR Group, Inc. And Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands)
Old Retained
Old Warrants Cumulative Earnings Stockholders'
Common Preferred Old Common of New Capital Translation (Accumulated Equity
Stock Stock Stock Participation Warrants Surplus Adjustments Deficit) (Deficit)
- ------------------ ----------- ----------- ------------ ------------- --------- ---------- ------------ ------------- -------------
JANUARY 1, 1994 $-- $21,250 $4,072 $576 $-- $204,247 $(6,068) $(526,339) $(302,262)
Foreign currency
translation
adjustment -- -- -- -- -- -- (173) -- (173)
Exchange of
preferred
stock
for common
stock -- (345) 1 -- -- 344 -- -- --
Net income -- -- -- -- -- -- -- 302,431 302,431
Exchange of
stock and
fresh-
start
adjustments 94 (20,905) (4,073) (576) 2,179 (125,734) 6,241 223,908 81,134
----------- ----------- ------------ ----------- --------- ---------- ------------ ------------- -------------
BALANCE,
DECEMBER
31, 1994 94 -- -- -- 2,179 78,857 -- -- 81,130
Foreign currency
translation
adjustment -- -- -- -- -- -- 327 -- 327
Other -- -- -- -- -- 6 -- -- 6
Net loss -- -- -- -- -- -- -- (10,853) (10,853)
----------- ----------- ------------ ----------- --------- ---------- ------------ ------------- -------------
BALANCE,
DECEMBER
31, 1995 94 -- -- -- 2,179 78,863 327 (10,853) 70,610
Foreign currency
translation
adjustment -- -- -- -- -- -- 1,051 -- 1,051
Common Stock
issued under
stock
option plans 1 -- -- -- -- 486 -- -- 487
NOL utilization -- -- -- -- -- 2,298 -- -- 2,298
Net income -- -- -- -- -- -- -- 9,437 9,437
Other -- -- -- -- (25) 25 -- -- --
----------- ----------- ------------ ----------- --------- ---------- ------------ ------------- -------------
BALANCE,
DECEMBER 31,
1996 $95 $-- $-- $-- $2,154 $81,672 $1,378 $(1,416) $83,883
=========== =========== ============ ========== ========== ========== ============ ============= =============
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
EMCOR Group, Inc. And Subsidiaries
Notes To Consolidated Financial Statements
NOTE A BASIS OF PRESENTATION
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization (the "Plan of Reorganization") dated August
9, 1994, as amended and proposed by the Company and its wholly-owned subsidiary
SellCo Corporation ("SellCo"). Under the Plan of Reorganization, the old common
stock of the Company was extinguished and newly issued shares of Common Stock
were issued to creditors.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued
or reserved for issuance to pre-petition creditors of EMCOR (other than holders
of EMCOR's subordinated debentures and notes) in exchange for approximately
$525.7 million of EMCOR senior bank and institutional indebtedness and
substantially all other general unsecured claims, both allowed and disputed,
against the Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which
provided a debtor-in-possession credit facility ("DIP Loan") to the Company
during its Chapter 11 proceeding, the following securities: (i) 9,424,083 shares
of Common Stock of the Company (constituting 100% of the issued or issuable
shares as of the Effective Date); (ii) approximately $62.2 million principal
amount of 7% Senior Secured Notes, Series A, due 1997 of the Company ("Series A
Notes") issued on the Effective Date and up to a maximum of $8.8 million
additional principal amount of Series A Notes which were reserved for issuance
to holders of general unsecured claims and to Belmont upon resolution of
disputed and unliquidated pre-petition general unsecured claims (assuming such
claims are ultimately allowed in full); (iii) approximately $11.9 million
principal amount of 7% Senior Secured Notes, Series B, due 1997 ("Series B
Notes"); (iv) approximately $62.8 million principal amount of 11% Notes, Series
C, due 2001, of the Company ("Series C Notes"); and (v) approximately $48.1
million principal amount of 12% Subordinated Contingent Payment Notes, due 2004,
of SellCo (the "SellCo Notes"). The entire $11.9 million principal amount of
Series B Notes and approximately $4.1 million principal amount of the Series A
Notes issued on the Effective Date were immediately redeemed on that date at
their face amount in accordance with their terms from the proceeds realized from
the sale and liquidation of certain subsidiaries, the stock of which would have
been pledged as part of the collateral securing the Series B Notes had such
subsidiaries not been sold (and an additional $600,000 of such proceeds was
reserved for redemption of certain of the Series A Notes reserved for disputed
and unliquidated claims). The Company recorded the Series A Notes based upon an
assumed total of $100.0 million of pre-petition general unsecured claims after
settlement of disputed and unliquidated pre-petition general unsecured claims.
From February 14, 1994 to the Effective Date, the Company was a
debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code. The
accompanying 1994 consolidated financial statements were prepared on the basis
of the principles prescribed by the American Institute of Certified Public
Accountants' Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). As of December 21, 1993,
and through the Effective Date, the Company ceased to accrue interest on its
debt in default.
As of December 31, 1994, in accordance with SOP 90-7, the Company adopted
Fresh-Start Accounting. As a result of the implementation of Fresh-Start
Accounting, the consolidated financial statements of the Company for periods
subsequent to consummation of the Plan of Reorganization are not comparable to
the Company's consolidated financial statements for prior periods. Accordingly,
a black line has been used to separate the consolidated financial statements of
the Company after the consummation of the Plan of Reorganization from those of
the Company prior to the consummation of the Plan of Reorganization. The
operating results of businesses held for sale have been excluded from the
consolidated financial statements for the year ended December 31, 1995 since the
operations of these businesses accrued to the benefit of the holders of the
notes issued by the Company's subsidiary SellCo, and prior to their payment in
full during 1996, the Company's Series A Notes, and certain other obligations.
See Notes F and G. The operating results substantially offset interest accrued
on the Company's Series A Notes, which interest was recognized within the
caption "Net assets held for sale" ("NAHFS") in the Consolidated Balance Sheet
as of December 31, 1995.
As indicated in Notes L and M, during its bankruptcy proceeding the
Company developed and implemented a business restructuring plan which included
the sale of its water supply business and other non--core businesses. The net
assets of businesses that have been designated for sale are classified in the
Consolidated Balance Sheets as of December 31, 1995 as NAHFS. Operating results
for all periods presented prior to 1995 reflect the Company's water supply
business and other non-core businesses as discontinued operations. The water
supply business was sold during 1996. See Note L.
NOTE B NATURE OF OPERATIONS
EMCOR is a multinational corporation involved in mechanical and electrical
construction and facilities services. EMCOR's subsidiaries specialize in the
design, integration, installation, start-up, testing, operation and maintenance
of (i) distribution systems for electrical power (including power cables,
conduits, distribution panels, transformers, generators, uninterruptible power
supply systems and related switch gear and control); (ii) lighting systems,
including fixtures and controls; (iii) low-voltage systems, including fire
alarm, security, communications and process control systems; (iv) heating,
ventilation, air conditioning, refrigeration and clean-room process ventilation
systems; and (v) plumbing, process and high purity piping systems. EMCOR's
subsidiaries provide mechanical and electrical construction and facilities
services directly to end-users (including corporations, municipalities and other
governmental entities, owners/developers, and tenants of buildings) and,
indirectly, by acting as a subcontractor for construction managers, general
contractors and other subcontractors. Mechanical and electrical construction
services are principally either large installation projects with contracts
generally in the multi-million dollar range; smaller system installations
involving renovation and retrofit work; and maintenance and service. In
addition, certain of its subsidiaries operate and maintain mechanical and/or
electrical systems for customers under contracts and provide other services
commonly referred to as facilities services including the management of
facilities and the provision of support services to customers at the customer's
facilities. Mechanical and electrical construction and facilities services are
provided to a broad range of commercial, industrial and institutional customers
through offices located in major markets throughout the United States, Canada,
the United Kingdom, the Middle East and Hong Kong.
NOTE C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company continues to account for its stock option plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). See Note I for pro forma information relating to
treatment of the Company's stock option plans under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Post-employment Benefits" ("SFAS 112"). See Note S.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Reclassifications of prior year data have been made in the accompanying
consolidated financial statements where appropriate to conform to the 1996
presentation.
Principles of Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenues from long-term contracts are recognized on the
percentage-of-completion method. Percentage-of-completion for the mechanical
contracting business is measured principally by the percentage of costs incurred
and accrued to date for each contract to the estimated total costs for each
contract at completion. Certain of the Company's electrical contracting business
units measure percentage-of-completion by the percentage of labor costs incurred
to date for each contract to the estimated labor costs for such contract, while
others are on the cost to cost method. Revenues from facilities services are
recognized when the earnings process is complete.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. In forecasting ultimate
profitability on certain contracts, estimated recoveries are included for work
performed under customer change orders to contracts for which firm prices have
not yet been negotiated. Due to uncertainties inherent in the estimation
process, it is reasonably possible that completion costs, including those
arising from contract penalty provisions and final contract settlements, will be
revised in the near-term. Such revisions to costs and income are recognized in
the period in which the revisions are determined.
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted
contracts arise when revenues have been recorded but the amounts cannot be
billed under the terms of the contracts. Such amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of the contract.
Also included in costs and estimated earnings on uncompleted contracts are
amounts the Company seeks or will seek to collect from customers or others for
errors or changes in contract specifications or design, contract change orders
in dispute or unapproved as to both scope and price, or other customer-related
causes of unanticipated additional contract costs (pending change orders and
claims). These amounts are recorded at their estimated net realizable value when
realization is probable and can be reasonably estimated. No profit is recognized
on the construction costs incurred in connection with these amounts. Pending
change orders involve the use of estimates and it is reasonably possible that
revisions to the estimated recoverable amounts of recorded pending change orders
may be made in the near-term. Claims made by the Company involve negotiation
and, in certain cases, litigation. The Company expenses such costs as incurred,
although it may seek to recover these costs as part of the claim. The Company
believes that it has established legal bases for pursuing recovery of recorded
claims and it is management's intention to pursue and litigate these claims, if
necessary, until a decision or settlement is reached. Claims also involve the
use of estimates and it is reasonably possible that revisions to the estimated
recoverable amounts of recorded claims may be made in the near-term. Claims
against the Company are recognized when a loss is considered probable and
amounts are reasonably determinable.
Costs and estimated earnings on uncompleted contracts and related amounts
billed as of December 31, 1996 and 1995 are as follows (in thousands):
1996 1995
------------ ------------
Costs incurred on uncompleted
contracts $2,442,197 $2,528,864
Estimated earnings 175,094 175,490
------------ ------------
2,617,291 2,704,354
Less billings to date 2,655,179 2,752,393
------------ ------------
$(37,888) $(48,039)
============ ============
Such amounts are included in the accompanying Consolidated Balance Sheets
at December 31, 1996 and 1995 under the following captions (in thousands):
1996 1995
------------ ------------
Costs and estimated earnings
in excess of
billings on uncompleted
contracts $67,765 $65,551
Billings in excess of costs
and estimated
earnings on uncompleted
contracts (105,653) (113,590)
------------ ------------
$(37,888) $(48,039)
============ ============
As of December 31, 1996 costs and estimated earnings in excess of billings
on uncompleted contracts includes unbilled revenues for pending change orders of
approximately $26.4 million and claims of approximately $13.3 million. In
addition, accounts receivable as of December 31, 1996 includes claims and
contractually billed amounts related to such contracts of approximately $49.2
million. Claims and related amounts aggregated approximately $73.2 million as of
December 31, 1995. Generally, contractually billed amounts will not be paid by
the customer to the Company until final resolution of the related claims.
Classification of Contract Amounts
In accordance with industry practice, the Company classifies as current
all assets and liabilities related to the performance of long-term contracts.
The contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Accounts receivable at December 31, 1996 and 1995
included $70.9 million and $64.8 million, respectively, of retainage billed
under terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1996 will be collected during 1997.
Restricted Cash
In connection with a bank credit agreement for the Company's Canadian
subsidiary, Comstock Canada Ltd. ("Comstock Canada"), approximately $1.5 million
of cash and cash equivalents, included in the accompanying Consolidated Balance
Sheet as of December 31, 1996, is deposited as security against borrowings under
this credit facility. The Company is precluded from withdrawing any of these
deposits if there are borrowings outstanding under the credit facility. Comstock
Canada has no borrowings under this facility at December 31, 1996 and
accordingly, the restricted deposits have been classified as a current asset.
As further described in Note F, the Company's various revolving credit
agreements include certain restrictions on the transfer of assets, including
cash and cash equivalents, between the Company and its foreign subsidiaries, as
well as certain domestic subsidiaries.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments", requires disclosure of the year-end value
of significant financial instruments, including long-term debt. At December 31,
1996 and 1995, cash and cash equivalents, current debt and long-term debt have
fair values that approximate their carrying amounts.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is recorded
principally using the straight--line method over estimated useful lives ranging
from 3 to 40 years.
Property, plant and equipment in the accompanying Consolidated Balance
Sheets consisted of the following amounts as of December 31, 1996 and 1995 (in
thousands):
1996 1995
------------------- ------------------
Machinery and equipment $22,615 $19,398
Furniture and fixtures 4,507 3,802
Land, buildings and
leasehold improvements 13,554 12,516
------------------- ------------------
40,676 35,716
Accumulated depreciation
and amortization (13,724) (8,579)
------------------- ------------------
$26,952 $27,137
=================== ==================
Inventories
Inventories, which consist primarily of construction materials, are stated
at the lower of cost or market. Cost is determined principally by using average
costs.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
On the Effective Date, the Company recorded $5.0 million of reorganization
value in excess of amounts allocable to identifiable assets and began straight
line amortization over 15 years. As of December 31, 1995, reorganization values
in excess of amounts allocable to identifiable assets was classified as Other
Assets under the caption "Miscellaneous" in the accompanying Consolidated
Balance Sheet. See Note H for discussion of the reduction of reorganization
value in excess of amounts allocable to identifiable assets during 1996.
Foreign Operations
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currency and translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation". Translation adjustments have been
accumulated as a separate component of stockholders' equity.
Other Income
Other income in the accompanying Consolidated Statement of Operations for
the year ended December 31, 1996 includes a gain of $12.5 million ($8.1 million
after-tax) on the sale of certain assets held for sale, including the sale of
substantially all of the assets of the Company's principal water supply
subsidiary Jamaica Water Supply Company ("JWS"). See Note L. JWS and the
Company's other water supply subsidiary, Sea Cliff Water Company ("Sea Cliff"),
are referred to hereafter as the "Water Companies".
Supplemental Net Income (Loss) Per Common Share and Common Equivalent Share
Supplemental net income (loss) per common share and common equivalent
share data have been calculated based on the assumed issuance of 9,424,083
shares of Common Stock as of January 1, 1994 and the weighted average number of
shares outstanding as of December 31, 1996 (9,938,651 shares) and 1995
(9,580,418 shares). When dilutive, stock options and warrants are included in
weighted average number of shares outstanding using the treasury stock method.
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
NOTE D REORGANIZATION ITEMS
For the year ended December 31, 1994, the Company recorded $12.5 million
of reorganization charges which are reflected in the accompanying Consolidated
Statement of Operations for various legal and other professional fees associated
with its Chapter 11 proceeding. Such reorganization charges are expensed as
incurred as prescribed by SOP 90-7. In addition, "Reorganization Items" in the
accompanying Consolidated Statement of Operations for the year ended December
31, 1994 include fresh-start adjustments (see Note U) which reflect the net
charge to state assets and liabilities at fair value.
NOTE E EXTRAORDINARY ITEM -- DISCHARGE OF DEBT
The Plan of Reorganization resulted in the discharge of pre-bankruptcy
liabilities totaling approximately $623.0 million. The value of securities
distributed pursuant to the Plan of Reorganization was $413.2 million less
allowed claims, and, accordingly, the resulting gain was recorded as an
extraordinary item in 1994.
NOTE F CURRENT DEBT
New Credit Facility
On June 19, 1996, the Company and its subsidiary Dyn Specialty Contracting
Inc. ("Dyn") entered into a credit agreement with Harris Trust and Savings Bank
("Harris") providing the Company with up to a $100.0 million revolving credit
facility (the "New Credit Facility") for a three year period. The New Credit
Facility, which is guaranteed by certain direct and indirect U.S. subsidiaries
of the Company and is secured by substantially all of the assets of the Company
and those subsidiaries, initially provided for up to $50.0 million in borrowing
capacity available in the form of revolving loans ("Revolving Loans") and/or
letters of credit ("LCs" or "LC"). As subsequently amended, the New Credit
Facility currently provides for up to $72.5 million in borrowing capacity. The
remaining $27.5 million in available credit is subject to: receipt of additional
commitments from other banks; consents of bonding companies providing surety
bonds to the Company's Canadian and United Kingdom subsidiaries; and the
guarantee by these subsidiaries of the facility and the collateralization of the
guarantees with liens upon their assets. The Revolving Loans bear interest at a
variable rate, which is Harris' prime rate (8.25% at December 31, 1996) plus
1.0% - 2.0% based on certain financial tests. The interest rate on the Revolving
Loans was 9.25% at December 31, 1996. LC fees ranging from 1.50% to 3.25% are
charged based on the type of LC issued. The New Credit Facility expires on June
19, 1999. As of December 31, 1996, the Company had approximately $29.1 million
of LCs outstanding under the New Credit Facility. In addition, there were $14.2
million of Revolving Loans outstanding as of December 31, 1996, which are
classified as Current Liabilities under the caption "Borrowings under working
capital credit lines" in the accompanying Consolidated Balance Sheet.
MES and Dyn Credit Agreements
On December 14, 1994, the Company and certain of its subsidiaries entered
into a credit agreement (the "MES Credit Agreement") with Belmont, certain
directors of the Company and/or their affiliates and other lenders (the
"Lenders") providing the Company and MES Holdings Corporation ("MES"), a
wholly-owned subsidiary of the Company, with revolving credit loans (the "MES
Loans") of up to an aggregate amount of $35.0 million. The MES Loans were
guaranteed by certain direct or indirect subsidiaries of MES (the "MES
Subsidiaries") and were secured by, among other things, substantially all of the
assets of the Company, MES and the U.S. MES Subsidiaries, including the proceeds
of the sale of all of the assets of the Company, MES and the U.S. MES
Subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15.0 million of such proceeds, subject to
the right to such proceeds of the Lenders under the Dyn Credit Agreement (as
that term is hereafter defined). The MES Loans bore interest on the principal
amount thereof at the rate of 15.0% per annum.
On December 14, 1994, the Company, Dyn, and Dyn's subsidiaries also
entered into a credit agreement (the "Dyn Credit Agreement") with the Lenders
providing revolving credit loans (the "Dyn Loans") of up to an aggregate amount
of $10.0 million. The Dyn Loans were guaranteed by the Dyn subsidiaries and were
secured by substantially all of the assets of Dyn and the Dyn subsidiaries,
including the proceeds of the sale of stock or assets of the Water Companies to
the extent of the first $15.0 million of such proceeds, subject to the right to
such proceeds of the Lenders under the MES Credit Agreement. The Dyn Loans bore
interest on the principal amount thereof at the rate of 15% per annum.
Borrowings under the MES and Dyn Credit Agreements of $25.0 million and $0
million, respectively, at December 31, 1995, are classified as Current
Liabilities under the caption "Borrowings under working capital credit lines" in
the accompanying Consolidated Balance Sheet. Albert Fried, Jr., a director of
the Company, the Managing Partner of Albert Fried & Company, which agreed to
loan up to $7.0 million as one of the Lenders under the MES and Dyn Credit
Agreements. Kevin C. Toner, a director of the Company, agreed to loan up to $1.0
million as one of the Lenders under the MES and Dyn Credit Agreements. In
addition, UBS Mortgage Finance Inc., an affiliate of UBS Securities Inc., Mr.
Toner's former employer, agreed to loan up to $2.0 million as one of the Lenders
under the MES and Dyn Credit Agreements. Borrowings outstanding as of December
31, 1995 related to the above individual lenders were $3.9 million, $0.6 and
$1.1 million, respectively, under the MES and Dyn Credit Agreements.
Borrowings outstanding under the MES Credit Agreement and Dyn Credit
Agreement were repaid in June 1996 from proceeds received by the Company from
the sale of the Water Companies (see Note L) and from borrowings under the New
Credit Facility at which time the MES and Dyn Credit Agreements were terminated.
Series A Notes
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company
issued or reserved for issuance approximately $62.2 million principal amount of
Series A Notes and reserved for issuance up to a maximum of $8.8 million
additional principal amount of Series A Notes upon resolution of disputed and
unliquidated pre-petition general unsecured claims. Approximately $4.7 million
of the issued Series A Notes were redeemed in 1995 and the balance of the Series
A Notes were paid in full during the second quarter of 1996 (approximately $66.5
million in principal and accrued interest thereon) with proceeds received by the
Company from the sale of the Water Companies. See Note L.
Foreign Borrowings
In December 1996, Comstock Canada renewed a credit agreement with a bank
providing for an overdraft facility of up to Cdn. $2.0 million. The facility is
secured by certain assets of Comstock Canada and deposit instruments of another
Canadian subsidiary of the Company. The facility provides for interest at the
bank's prime rate (4.75% at December 31, 1996) plus 3/4% and expires on June 30,
1997. There were no borrowings outstanding under this facility at December 31,
1996. The Company is seeking to include its Canadian operations under the New
Credit Facility.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a U.K. bank for a credit
line of (pound)17.1 million (approximately U.S. $26.8 million). The
credit facility consisted of the following components with the individual credit
limits as indicated: an overdraft line of up to (pound)9.0 million
(approximately U.S. $14.1 million) which overdraft line was subsequently reduced
to (pound)7.0 million (approximately U.S. $11.0 million); a facility for the
issuance of guarantees, bond and indemnities of up to (pound)7.3 million
(approximately U.S. $11.4 million); and other credit facilities of up to
(pound)0.8 million (approximately U.S. $1.3 million). The facility was secured
by substantially all of the assets of the Company's principal U.K. subsidiaries.
The overdraft facility provided for interest at the bank's base rate, as defined
(6.5% as of December 31, 1995), plus 3.0% on the first (pound)5.0 million of
borrowings and at the bank's base rate plus 4.0% for borrowings over (pound)5.0
million. During the third quarter of 1996, the Company obtained an (pound)7.4
million LC under the New Credit Facility for use as collateral for bonds issued
under the U.K. facility discussed above thereby releasing funds previously
deposited as collateral for those bonds. On October 1, 1996, the Company's U.K.
subsidiaries replaced the overdraft line with Revolving Loans under the New
Credit Facility.
NOTE G LONG-TERM DEBT
Long-Term Debt in the accompanying Consolidated Balance Sheets consist of
the following amounts as of December 31, 1996 and 1995 (in thousands):
1996 1995
------------- ------------
Series C Notes, outstanding face value of
approximately $73.8 million
at 11.0% discounted to a 14% effective rate,
due 2001 $66,039 $61,494
Supplemental SellCo Note, outstanding face value
of approximately $5.5 million at
8.0%, discounted to a 14.0%
effective rate, due 2004 4,474 4,270
Capitalized Lease Obligations at weighted
average interest rates from 7.25%
to 11.0%, payable in varying amounts
through 2004 1,007 1,284
Other, at weighted average interest rates of
approximately 9.6%, payable in varying
amounts through 2012 1,892 3,225
------------- ------------
73,412 70,273
Less current maturities (361) (1,875)
------------- ------------
$73,051 $68,398
============= ============
Series C Notes
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company
issued approximately $62.8 million principal amount of Series C Notes. Interest
on the Series C Notes was payable semiannually through June 15, 1996 by the
issuance of additional Series C Notes and is currently payable quarterly in
cash. The Series C Notes are unsecured indebtedness of the Company which are
subordinate to indebtedness under the Company's New Credit Facility. The Series
C Notes have been recorded at a discount to their face amount to yield an
estimated effective interest rate of 14.0%. The Series C Notes mature on
December 15, 2001.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series C Notes consented to amendments to the Series C Indenture
under which the Series C Notes were issued. The amendments (i) reduced the ratio
required to be maintained by the Company and certain of its subsidiaries under a
Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined, and (ii)
provided for the exclusion from the Ratio calculation certain non-cash interest
payments payable by the issuance of additional Series C Notes.
Supplemental SellCo Note
Pursuant to the Plan of Reorganization, EMCOR issued to SellCo its 8.0%
promissory note in the principal amount of approximately $5.5 million (the
"Supplemental SellCo Note"). The note matures on the earlier of (i) December 15,
2004 or (ii) one day prior to the date on which the SellCo Notes are deemed
canceled. If at any time after the fifth anniversary of the Effective Date and
prior to the maturity date of the SellCo Notes (December 15, 2004) the value of
the consolidated assets of SellCo and its subsidiaries (excluding the
Supplemental SellCo Note) is determined by independent appraisal to be less than
$250,000, the balance of the SellCo Notes (not theretofore paid from net sales
proceeds from the sale of the stock or assets of SellCo subsidiaries and the
proceeds of the Supplemental SellCo Note which will have become due and payable)
will be deemed canceled. Interest on the Supplemental SellCo Note is payable
upon maturity. The Supplemental SellCo Note has been recorded at a discount to
its face amount to yield an estimated effective interest rate of 14.0%.
SellCo Notes
Pursuant to the Plan of Reorganization, on December 15, 1994, SellCo
issued approximately $48.1 million principal amount of SellCo Notes. Interest is
payable semiannually in additional SellCo Notes. Net Cash Proceeds (as defined
in the Indenture pursuant to which the SellCo Notes were issued) from the sales
of stock or assets of SellCo subsidiaries are to be used to redeem SellCo Notes.
The SellCo Notes are not obligations of EMCOR and accordingly are not included
in the accompanying Consolidated Balance Sheets as of December 31, 1996 and
1995. The holders of the SellCo Notes may only look to EMCOR to the extent of
EMCOR's obligation to pay the Supplemental SellCo Note plus accrued interest
thereon. In May 1996, the Company completed the sale of substantially all of the
assets of its subsidiary JWS to The City of New York and the Water Authority of
Western Nassau County. In May 1996, the Company also completed the sale of the
stock of Sea Cliff to a subsidiary of Aquarion Company. See Notes L and M.
Approximately $2.1 and $0.7 million of the proceeds from the sale of the stock
of Sea Cliff and the sale of assets of JWS, respectively, were used to redeem,
in part, the SellCo Notes during August 1996. On February 28, 1997, the Company
redeemed approximately $6.6 million of SellCo Notes with proceeds from the sale
of assets of JWS which monies had been retained pending disposition of the
lawsuit brought by certain holders of Warrants of Participation ("Warrants")
that had been issued by the Company prior to its Chapter 11 proceedings. As the
liabilities of JWS are finally determined, JWS' various contingent liabilities
are resolved, funds held in escrow under the sales agreements (the "Sales
Agreements") for the sale of assets of JWS and the stock of Sea Cliff are
released, and post closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the sales proceeds may become available, from time
to time, for additional redemptions of the SellCo Notes. The SellCo Notes mature
on December 15, 2004 if not deemed canceled at an earlier date as discussed
above under Supplemental SellCo Note.
Other Long-Term Debt
Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements. As of December 31, 1996 and
1995, respectively, long-term debt, excluding current maturities, totaling $1.8
million and $1.9 million was owed by certain of the Company's subsidiaries. The
aggregate amount of other long-term debt maturing during the next five years is
approximately: $0.1 million in 1997; $0.3 million in 1998; $0.1 million in each
of 1999; 2000, 2001 and $1.2 million thereafter.
NOTE H INCOME TAXES
The Company files a consolidated federal income tax return including all
its U.S. subsidiaries. At December 31, 1996, the Company had net operating loss
carryforwards ("NOLs") for U.S. income tax purposes of approximately $200.0
million, which expire in the years 2007 through 2011. The NOLs are subject to
review by the Internal Revenue Service. Future changes in ownership of the
Company, as defined by Section 382 of the Internal Revenue Code, could limit the
amount of NOLs available for use in any one year.
As a result of the adoption of Fresh-Start Accounting, the tax benefit of
any net operating loss carryforwards or net deductible temporary differences
which existed as of the Effective Date will result in a charge to the tax
provision (provision in lieu of income taxes) and be allocated to reorganization
value in excess of amounts allocable to identifiable assets established in
connection with the Company's emergence from bankruptcy and to capital surplus.
For the year ended December 31, 1996 the Company allocated approximately $4.5
million of its tax provision to reorganization value in excess of amounts
allocable to identifiable assets which was classified as Other Assets under the
caption "Miscellaneous" in the accompanying Consolidated Balance Sheet as of
December 31, 1995, thereby reducing this balance to zero. The remaining
utilization of NOLs and other deferred tax assets, approximately $2.3 million,
have been applied to capital surplus for the year ended December 31, 1996.
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company has provided
a valuation allowance as of December 31, 1996 and 1995 of $91.1 million and
$97.2 million, respectively, for the full amount of the tax benefit of its NOLs
and other deferred tax assets. The income tax
provision (benefit) relating to continuing operations in the accompanying
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 consists of (in thousands):
Predecessor
Reorganized Company Company
1996 1995 1994
------------ ------------ -----------
Current:
Federal $6,068 $-- $--
State and local 760 925 1,000
Foreign 703 75 --
------------ ------------ -----------
7,531 1,000 1,000
------------ ------------ -----------
Deferred:
State and Local -- -- (1,332)
------------ ------------ -----------
-- -- (1,332)
------------ ------------ -----------
$7,531 $1,000 $(332)
============ ============ ===========
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1996, 1995
and 1994 are as follows (in thousands):
Predecessor
Reorganized Company Company
1996 1995 1994
------------ ----------- ------------
Federal income taxes at the
statutory rate $5,939 $(3,449) $(9,782)
State and local income taxes,
net of federal
tax benefits 494 650 650
Foreign income taxes 1,094 -- --
Valuation allowance against
deferred tax asset -- 3,799 8,800
Other 4 -- --
------------ ----------- ------------
$7,531 $1,000 $(332)
============ =========== ============
Factors accounting for the variation from U.S. statutory income tax rates
relating to discounted operations for the year ended December 31, 1994 are as
follows (in thousands):
Predecessor
Company
1994
---------------
Federal income taxes at the
statutory rate $3,576
Valuation allowance against
deferred tax asset (3,576)
===============
$--
===============
The components of the net deferred income tax liability for the years
ended December 31, 1996 and 1995 are as follows (the 1996 and 1995 net deferred
income tax liability related to NAHFS have been netted against NAHFS) (in
thousands):
1996 1995
----------- ------------
Deferred tax assets:
Net operating loss carryforward $78,878 $91,987
Excess of amounts expensed for financial
statement purposes over amounts deducted
for income tax purposes 28,527 42,593
Other 2,899 2,899
----------- ------------
Total deferred tax asset 110,304 137,479
----------- ------------
Deferred tax liabilities:
Costs capitalized for financial statement
purposes and deducted to income tax
purposes 19,175 40,233
----------- ------------
Total deferred tax liability 19,175 40,233
----------- ------------
Net deferred tax asset before valuation
allowance 91,129 97,246
Valuation allowance for net deferred tax
asset (91,129) (97,246)
=========== ============
Net deferred income tax liability $-- $--
=========== ============
Income (loss) before income taxes from continuing operations for the years
ended December 31, 1996, 1995 and 1994 consists of the following (in thousands):
Predecessor
Reorganized Company Company
1996 1995 1994
--------------- ------------ ----------------
United States $18,086 $(10,063) $(10,897)
Foreign (1,118) 210 (17,051)
=============== ============ ================
$16,968 $(9,853) $(27,948)
=============== ============ ================
Income before income taxes from discontinued operations for the year ended
December 31, 1994 was derived entirely from domestic operations.
NOTE I STOCK OPTIONS AND WARRANTS
1994 Management Stock Option Plan
In connection with the Plan of Reorganization the Company adopted a
Management Stock Option Plan (the "1994 Plan"), which was approved by the
stockholders of the Company.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000 shares. The maximum
number of shares which may be the subject of options granted to any individual
in any calendar year may not exceed 500,000 shares.
Options may be granted by the Compensation Committee of the Board of
Directors to eligible employees as incentive stock options or as non-qualified
stock options.
The exercise price of an incentive stock option and a non-qualified stock
option must be at least equal to the fair market value of the Common Stock on
the date of grant.
Options may not be exercised more than ten years after the date of grant.
Options may be exercisable at such rate and times as may be fixed by the
Compensation Committee of the Board of Directors on the date of grant; however,
the rate at which the option first becomes exercisable may not be more rapid
than 33-1/3% on each of the first, second and third anniversaries.
1995 Non-Employee Directors' Non-Qualified Stock Option Plan
On March 20, 1995, the Company adopted the 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1995 Plan"), which was approved by
stockholders of the Company.
The 1995 Plan provides for automatic grants of non-qualified stock options
to directors of the Company who are not also employees of the Company or a
subsidiary. Pursuant to the 1995 Plan, each non-employee director on March 20,
1995 was granted an option to purchase 7,500 shares of Common Stock at an
exercise price of $5.125 per share. Under the 1995 Plan, each person who is
elected to serve as a non-employee director after March 20, 1995 (including
those persons who were non-employee directors on March 20, 1995) is to be
granted an option during each calendar year (beginning with 1995) to purchase
3,000 shares of Common Stock on the date on which the Board of Directors holds
its first meeting following the annual meeting of stockholders held during such
calendar year; however, if, beginning with 1996, an annual stockholders' meeting
does not occur within the period ending on the last day of the 16th month
following the month in which the prior year's annual meeting was held, such
option is to be granted on the last day of such 16th month. Accordingly on
November 17, 1995 and June 14, 1996, each non-employee director was granted an
option to purchase 3,000 shares of Common Stock at an exercise price of $9.375
and $17.125 per share, respectively.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1995 Plan may not exceed 200,000 shares.
The exercise price of an option granted under the 1995 Plan is equal to
the fair market value of the Common Stock on the date of grant. Such options are
fully exercisable as of the date of grant. However, no option may be exercised
more than ten years after the date of grant.
No options may be granted under the 1995 Plan after ten years following
the date of its adoption. The Board of Directors may at any time withdraw or
amend the 1995 Plan and may, with the consent of the affected holder of an
outstanding option, at any time withdraw or amend the terms and conditions of
outstanding options. Amendments which would increase the number of shares
issuable pursuant to options, change the class of persons who are eligible to be
granted options or materially increase the benefits to participants in the 1995
Plan are subject to the approval of the stockholders of the Company. In
addition, no amendment may be made more than once every six months to any
provision of the 1995 Plan that specifies the directors to whom options may be
granted, the timing of option grants, the number or purchase price of shares of
Common Stock that can be purchased under options or the time when options may be
exercised, except any amendment that is necessary to conform with changes in the
Internal Revenue Code or the Employee Retirement Income Security Act of 1974, as
amended.
The following table summarizes the Company's stock option activity since
the Effective Date.
1994 Plan 1995 Plan
Weighted Weighted
Average Average
Shared Price Shares Price
--------- ---------- ---------- ----------
Balance, December 15, 1994 -- $-- -- $--
Activity -- -- -- --
--------- ---------- ---------- ----------
Balance December 31, 1994 -- -- -- --
Granted 715,000 5.10 63,000 6.34
--------- ---------- ---------- ----------
Balance December 31, 1995 715,000 5.10 63,000 6.34
Granted 15,000 14.90 18,000 17.13
Forfeited (40,334) 5.13 -- --
Exercised (61,430) 5.13 (28,500) 6.02
--------- ---------- ---------- ----------
Balance December 31, 1996 628,236 $5.33 52,500 $10.21
========= ---------- ========== ----------
At December 31, 1996 and 1995, approximately 208,000 options and 63,000
options were exercisable, respectively. There were no options exercisable at
December 31, 1994. The weighted average exercise price of exercisable options at
December 31, 1996 and 1995 was approximately $6.33 and $6.34, respectively.
The weighted average fair value of options granted during 1996 and 1995
were $10.10 and $3.28, respectively.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 for options granted during those years. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per common share and common equivalent
share ("EPS") would have been reduced from the following as reported amounts to
the following pro forma amounts:
1996 1995
--------------- ---------------
Net Income (Loss): As Reported $9,437 $(10,853)
Pro Forma $8,840 $(11,354)
Primary EPS: As Reported $0.95 $(1.13)
Pro Forma $0.89 $(1.19)
Fully Diluted EPS: As Reported $0.95 $(1.13)
Pro Forma $0.89 $(1.18)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: risk-free interest rates from 5.9%
to 7.1% representing the risk-free interest rate at the date of grant; expected
dividend yields of zero percent; expected lives of 6.5 years; and expected
volatility of 57%.
Warrants
1,450,000 shares of Common Stock were reserved for issuance upon exercise
of Warrants to purchase Common Stock issued pursuant to the Plan of
Reorganization.
Pursuant to the Plan of Reorganization, the Company issued to the holders
of $7,040,000 principal amount of its pre-petition 7 3/4% Convertible
Subordinated Debentures, due 2012, and $9,600,000 principal amount of its
pre-petition 12% Subordinated Notes due 1996, their pro rata share of each of
two series of five-year Warrants to purchase shares of Common Stock, namely,
600,000 Series X Warrants and 600,000 Series Y Warrants, with an exercise price
of $12.55 per share and $17.55 per share, respectively. In addition, the Company
issued to pre-petition holders of other contingent and statutory subordinate
claims and to holders of EMCOR's pre-petition common stock, preferred stock and
Warrants of Participation, as well as to the plaintiffs in a stockholder class
action lawsuit, their pro rata share of 250,000 Series Z Warrants to purchase
shares of Common Stock, which Series Z Warrants had an exercise price of $50.00
per share. The Series Z Warrants expired on December 15, 1996.
In addition to the warrants issued above, approximately 28,000 Series X
Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to
Belmont as a portion of additional interest under the DIP Loan.
If the Company's Common Stock trades at $30.46 per share for ten of the
preceding fifteen trading days at any time prior to December 15, 1999, the
Company may accelerate the expiration date of the Warrants to a date 15 days
after notice to such Warrant holders.
As of December 31, 1996, the number of Series X Warrants and Series Y
Warrants issued and outstanding were approximately 605,000 and 605,000,
respectively.
NOTE J RETIREMENT PLANS
A foreign subsidiary has a defined benefit pension plan covering
substantially all eligible employees. The benefits under the plan are based on
wages and years of service with the subsidiary. The Company's policy is to fund
the minimum amount required by law.
Net pension expense for the foreign defined benefit plan included in the
accompanying Consolidated Statements of Operations for the years ended December
31, 1996, 1995 and 1994 consists of the following components (in thousands):
Predecessor
Reorganized Company Company
1996 1995 1994
------------- ------------- --------------
Service costs--benefits
earned $4,222 $2,659 $1,725
Interest on projected
benefit obligations 4,295 3,337 2,772
Actual return on plan assets (6,264) (6,493) 2,554
Net amortization and
deferral 1,254 2,875 (6,296)
============= ============= ==============
Net pension expense $3,507 $2,378 $755
============= ============= ==============
The benefit obligations and funded status of the plan at December 31, 1996
and 1995 are as follows (in thousands):
1996 1995
------------ ------------
Accumulated benefit obligations:
Vested $49,663 $38,825
Impact of future salary increases 7,936 6,367
------------ ------------
Projected benefit obligations 57,599 45,192
Plan assets at market value 58,991 45,503
------------ ------------
Excess of plan assets over
projected benefit obligations 1,392 311
Unrecognized prior service cost 791 790
Unrecognized net gain from past
experience different from
that assumed and effect of
changes in assumptions (663) (898)
Unrecognized net asset from initial
application of SFAS No. 87 (3,004) (679)
------------ ------------
Accrued pension $(1,484) $(476)
============ ============
The assumptions used as of December 31, 1996, 1995 and 1994 in determining
the pension cost and liability shown above were as follows:
1996 1995 1994
-----------------------
Discount rate 8.5% 8.5% 9.0%
Rate of salary progressions 6.5% 6.5% 7.0%
Rate of return on assets 10.0% 10.0% 10.0%
The unrecognized net asset of the foreign plan is being amortized over 15
years. The plan assets are invested approximately 80% in equity securities and
20% in fixed income securities.
The Company contributes to various union pension funds based upon wages
paid to union employees of the mechanical and electrical construction and
facilities services business units. Such contributions approximated $41.1
million, $35.1 million and $41.4 million for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company has a defined contribution retirement plan that covers its
U.S. non-union eligible employees. Contributions to this plan are based on a
percentage of the employee's base compensation. The expense recognized for the
years ended December 31, 1996, 1995 and 1994, relating to continuing operations
for the defined contribution plan was $2.1 million, $2.1 million and $6.9
million, respectively.
NOTE K COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expenses.
Future minimum payments, by year and in the aggregate, under capital
leases, non-cancelable operating leases and related sub-leases with initial or
remaining terms of one or more years at December 31, 1996 are as follows (in
thousands):
Capital Operating
Leases Leases Sub-leases
Year 1 $237 $12,708 $2,291
Year 2 168 10,330 2,405
Year 3 143 7,972 2,233
Year 4 101 4,698 2,222
Year 5 358 2,567 1,814
Thereafter -- 9,795 8,839
----------- ---------- -----------
Total minimum lease payments 1,007 $48,070 $19,804
========== ===========
Amounts representing interest 246
-----------
Present value of net minimum
lease payments $761
===========
Rent expense relating to continuing operations for the years ended
December 31, 1996, 1995 and 1994 was $17.5 million, $17.5 million and $20.2
million, respectively. Rent expense for the years ended December 31, 1996, 1995
and 1994 includes sub-lease rentals of $2.4 million, $1.7 million and $1.4
million, respectively. Rent expense relating to discontinued operations for the
year ended December 31, 1994 was $2.8 million.
The Company has employment agreements with certain of its executive
officers and management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for salary continuation
for a specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights if a change in
control (as defined) of the Company occurs.
The Company is contingently liable to sureties in respect of performance
and payment bonds issued by the sureties in connection with certain contracts
entered into by the Company in the normal course of business. The Company has
agreed to indemnify the sureties for any payments made by them in respect of
such bonds.
NOTE L DISCONTINUED OPERATIONS
As discussed in Note C, in May 1996, the Company completed the sale of
substantially all of the assets of JWS for an aggregate purchase price of
approximately $179.0 million, subject to post-closing adjustments; approximately
$1.2 million of this purchase price is being held in escrow pending
determination of post-closing adjustments, and in May 1996, the Company also
completed the sale of the stock of Sea Cliff for approximately $2.6 million,
subject to post-closing adjustments; approximately $0.5 million of this purchase
price is being held in escrow for a period of approximately one year pending
determination of post-closing adjustments and as collateral security for certain
indemnification obligations. Approximately 96% of the common stock of JWS is
owned by the Company.
The proceeds, as defined, from the sale of JWS' assets have been and will
be applied to pay JWS liabilities and preferred stock obligations and to satisfy
the minority stock interest in JWS. Of the balance, $15.0 million was used to
repay a portion of indebtedness under the Company's then outstanding MES Credit
Agreement and approximately $66.5 million was used to redeem in full its Series
A Notes. As the liabilities of JWS are finally determined, JWS' various
contingent liabilities are resolved, funds held in escrow under the Sales
Agreements for the sale of assets of JWS and the stock of Sea Cliff are
released, and post closing adjustments under the Sales Agreements are agreed
upon, additional amounts of the sales proceeds may become available, from time
to time, for additional redemptions of the SellCo Notes.
Revenues of the water supply business were $65.0 million for the year
ended December 31, 1994. Operating income of the water supply business was $14.3
million for the year ended December 31, 1994.
Operating results of discontinued operations (the water supply business)
for the year ended December 31, 1994 are as follows (in thousands):
Predecessor
Company
1994
-------------
Revenues $64,993
Costs and expenses 50,725
-------------
Operating income 14,268
Interest expense (4,052)
-------------
Income before
taxes 10,216
Provision for
income taxes --
=============
Income from
discontinued
operations $10,216
=============
NOTE M BUSINESSES SOLD AND OTHER NET ASSETS HELD FOR SALE
For the year ended December 31, 1994, the Company received cash proceeds
of $13.6 million from the sale of certain non-core businesses and other assets.
The assets sold included the sale of the Company's telephone systems business,
its minority ownership in an environmental business and other non-core
businesses.
Revenues and operating losses of businesses sold and other net assets held
for sale for the year ended December 31, 1994 are as follows (in thousands):
Predecessor
Company
1994
----------------
Revenues $168,939
Operating loss $(13,651)
NOTE N INSURANCE RESERVES
The Company's insurance liability is determined actuarially based on
claims filed and an estimate of claims incurred but not yet reported. The
present value of such claims was determined at December 31, 1996 and 1995 using
a 4% discount rate. The estimated current portion of the insurance liability was
approximately $3.2 million and $4.9 million at December 31, 1996 and 1995,
respectively. Such amounts are included in "Other accrued expenses and
liabilities" in the accompanying Consolidated Balance Sheets. The non-current
portion of the insurance liability was approximately $18.5 million and $32.2
million at December 31, 1996 and 1995, respectively. Such amounts are included
in "Other Long-Term Obligations". The undiscounted liability was approximately
$24.9 million and $42.3 million at December 31, 1996 and 1995, respectively.
During the second quarter of 1996, the Company entered into an agreement
with one of its insurers to reinsure the Company's obligations to bear certain
losses incurred for insurance plan years from October 1, 1992 to September 30,
1995. Under this agreement, amounts previously deposited by the Company with one
of its insurers as collateral to fund certain losses under the deductible
portion of its insurance program were returned to the Company and used to fund
the cost of that agreement and to pay down, in July 1996, approximately $10.1
million of indebtedness under the New Credit Facility. As of December 31, 1996,
the Company was utilizing $16.4 million of letters of credit obtained under the
New Credit Facility referred to in Note F as collateral for its current
insurance obligations, and therefore presently is not required to deposit cash
as collateral for such obligations.
The Company is subject to regulation with respect to the handling of
certain materials used in construction which are classified as hazardous or
toxic by Federal, State and local agencies. The Company's practice is to avoid
participation in projects principally involving the remediation or removal of
such materials. However, where remediation is a required part of contract
performance, the Company believes it complies with all applicable regulations
governing the discharge of material into the environment or otherwise relating
to the protection of the environment.
The Company believes that it maintains adequate insurance coverage for its
current operations.
NOTE O ADDITIONAL CASH FLOW INFORMATION (in thousands)
Reorganized Company Predecessor Company
December 31, December 31,
1996 1995 1994
---------- ---------- ------------------
Cash paid during the year for:
Interest $7,624 $6,797 $7,250
Income taxes $168 $886 $720
NOTE P SEGMENT INFORMATION
The following presents information about continuing operations by
geographic areas for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
Net
(Loss)
Gain On
Businesses Net
Operating Sold or Assets
Income Held For Identifiable Held
Revenues (loss) Sale Assets For Sale
----------- ----------- ---------- ---------- ---------
1996
United States $1,131,882 $16,509 $-- $405,954 $--
United Kingdom 358,334 902 -- 139,620 --
Canada 139,554 1,517 -- 39,499 --
Other 39,504 (1,814) -- 29,674 --
=========== =========== ========== ========== =========
$1,669,274 $17,114 $-- $614,747 $--
=========== =========== ========== ========== =========
1995
United States $1,035,975 $4,847 $(926) $447,790 $61,969
United Kingdom 379,691 2,383 -- 139,000 --
Canada 135,031 1,307 -- 41,376 --
Other 38,047 (2,644) -- 20,810 --
=========== =========== ========== ========== =========
$1,588,744 $ 5,893 $(926) $648,976 $61,969
=========== =========== ========== ========== =========
1994
United States $1,334,537 $(9,773) $1,183 $487,438 $55,401
United Kingdom 287,372 (5,274) -- 119,461 --
Canada 113,331 (6,966) -- 35,681 --
Other 28,721 (190) -- 12,588 --
=========== =========== ========== ========== =========
$1,763,961 $ (22,203) $1,183 $655,168 $55,401
=========== =========== ========== ========== =========
Other includes the Far East and Middle East.
NOTE Q - SELECTED UNAUDITED QUARTERLY INFORMATION (In Thousands, Except Per
Share Data)
1996 QUARTERLY RESULTS March 31 June 30 Sept 30 Dec 31
---------- ---------- --------- ---------
Revenues $382,744 $387,657 $432,452 $466,421
Gross profit 37,172 37,814 41,549 44,253
Net (loss) income ($3,653) $9,207 $1,931 $1,952
========== ========== ========= =========
Net (loss) income per
share ($0.37) $0.93 $0.19 $0.20
========== ========== ========= =========
1995 QUARTERLY RESULTS March 31 June 30 Sept 30 Dec 31
---------- ---------- --------- ---------
Revenues $386,015 $381,562 $403,941 $417,226
Gross profit 31,867 31,934 38,709 40,637
Net (loss) income ($6,959) ($5,718) $593 $1,231
========== ========== ========= =========
Net (loss) income per
share ($0.74) ($0.61) $0.06 $0.13
========== ========== ========= =========
NOTE R LEGAL PROCEEDINGS
The Dynalectric Company ("Dynalectric"), a wholly-owned subsidiary of the
Company, is a defendant in an action entitled Computran v. Dynalectric, et. al.,
pending in Superior Court of New Jersey, Bergen County, arising out of its
participation in a joint venture. In the action, which was instituted in 1988,
the plaintiff, Computran, a participant in and a subcontractor to the joint
venture, alleges that Dynalectric wrongfully terminated it from the subcontract,
fraudulently diverted funds due it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with other defendants to commit certain acts in violation of the
New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric
believes that Computran's claims are without merit and intends to defend this
matter vigorously. Dynalectric has filed counterclaims against Computran.
Discovery is ongoing and no trial date has been scheduled.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company
allegedly owned by Kohl, were indicted by a New York County grand jury for grand
larceny, fraud, repeated failure to file New York City Corporate Tax Returns and
related money laundering charges. Kohl was also charged with filing false
personal income and earnings tax returns, perjury and offering false instruments
for filing with the New York City School Construction Authority. In a press
release announcing the indictment, the Manhattan District Attorney said that the
investigation disclosed that Mr. Kohl allegedly received more than $7 million in
kickbacks from subcontractors through a scheme in which he allegedly inflated
subcontracts on Herbert's construction contracts. At a July 11, 1995 press
conference following the indictment, the District Attorney announced that the
investigation was continuing and that he expected further indictments in the
investigation.
Forest performs electrical contracting services primarily in the New York
City commercial market and is one of the Company's largest subsidiaries.
In addition to the above, the Company is involved in other legal
proceedings and claims, asserted by and against the Company, which have arisen
in the ordinary course of business.
The Company believes it has a number of valid defenses to these actions
and the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
NOTE S ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1994, the Company adopted the provisions of SFAS 112.
This standard requires that the cost of benefits provided to former or inactive
employees be recognized on an accrual basis of accounting. Previously, the
Company recognized such post employment benefit costs (primarily short-term
disability and severance costs) when paid. The cumulative effect of adopting
SFAS 112 was to record a charge of $2.1 million as of January 1, 1994. Such
amount has been reflected in the Consolidated Statements of Operations for the
year ended December 31, 1994 under the caption "Cumulative Effect of Change in
Method of Accounting for Post -employment Benefits". The adoption of SFAS 112
did not have a material effect on the 1994 loss before extraordinary item and
cumulative effect of accounting changes.
NOTE T OTHER
During 1994, the Company wrote down its investment in Health Care
International Ltd. ("HCI"), a Scottish hospital, due to its deteriorating
financial condition. HCI was placed in receivership in November, 1994.
NOTE U FRESH-START REPORTING
The Company has accounted for its reorganization by using the principles
of Fresh-Start Accounting as required by SOP 90-7. For accounting purposes, the
Company assumed that the Plan of Reorganization was consummated on December 31,
1994. Under the principles of Fresh-Start Accounting, the Company's total net
assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable assets on the basis of their
estimated fair value. Accordingly, the Company's accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts were
reduced by approximately $11.6 million. In addition, its intangible assets of
approximately $60.5 million were written off. The Company's accumulated
stockholders' deficit of approximately $334.5 million and cumulative translation
adjustments of $6.2 million were eliminated. The excess of reorganization value
over the value of identifiable assets is reported as "Reorganization value in
excess of amounts allocable to identifiable assets" (the "Excess Reorganization
Value").
The primary valuation methodology employed by the Company, with the
assistance of its financial advisors, to determine the reorganization value of
the Company was a net present value approach. The valuation was based on the
Company's forecasts of unleveraged, after-tax cash flows calculated for each
year over the four year period from 1994 to 1997, capitalizing projected
earnings before interest, taxes, depreciation and amortization at multiples
ranging from 3 to 10 selected to value earnings and cash flows beyond 1997, and
discounting the resulting amounts to present value at rates ranging from 10% to
30% selected to approximate the Company's projected weighted average cost of
capital. The above calculations resulted in an estimated reorganization value of
approximately $81.1 million, of which the Excess Reorganization Value was $5.0
million.
As a result of the implementation of Fresh-Start Accounting, the
consolidated financial statements of the Company after consummation of the Plan
of Reorganization are not comparable to the Company's consolidated financial
statements of prior periods, and have been separated by a black line.
The effect of the Plan of Reorganization, including the discharge of debt,
and the implementation of Fresh-Start Accounting on the Company's Consolidated
Balance Sheet as of December 31, 1994 was as follows (in thousands):
Adjustments to Record Plan of Reorganization
---------------------------------------------------
Debt
Pre-Fresh-Start Discharge Fresh-Start
Balance and Balance
Sheet Exchange Fresh-Start Sheet
December of Stock Adjustments December
31, 1994 (a) (f) 31, 1994
---------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $52,505 $-- $ -- $52,505
Accounts receivable, net 441,958 -- (3,000) 438,958
Costs and estimated
earnings in excess
of billings on
uncompleted contracts 60,912 -- (8,565) 52,347
Inventories 6,910 -- -- 6,910
Prepaid expenses and
other 8,115 -- -- 8,115
Net assets held for sale 83,113 -- (27,712)(g) 55,401
------------- ---------- ----------- -----------
TOTAL CURRENT ASSETS 653,513 -- (39,277) 614,236
------------- ---------- ----------- -----------
INVESTMENTS, NOTES, AND
OTHER LONG-TERM
RECEIVABLES 6,122 -- -- 6,122
PROPERTY, PLANT AND
EQUIPMENT, NET 33,670 -- -- 33,670
Other assets:
Excess of cost of
acquired
businesses over net
assets 57,435 -- (57,435) --
Reorganization value in
excess of
amounts allocable to
identifiable
assets -- -- 5,000 5,000
Miscellaneous 51,595 -- (3,125) 48,470
------------- ---------- ----------- -----------
109,030 -- (55,560) 53,470
============= ========== =========== ===========
TOTAL ASSETS $ 802,335 $-- $(94,837) $ 707,498
============= ========== =========== ===========
(continued)
Adjustments to Record Plan of Reorganization
------------------------------------------------------
Pre-Fresh- Debt
Start Discharge
Balance and Fresh-Start
Sheet Exchange Fresh-Start Sheet
December of Stock Adjustments December
31, 1994 (a) (f) 31, 1994
------------------------------------------------------
CURRENT LIABILITIES:
Notes payable $4,803 $-- $-- $4,803
Borrowings under working
capital
credit lines 40,000 -- -- 40,000
Current maturities of
long term
debt of capital lease
obligations 2,627 (538)(b) -- 2,089
Series A Senior Notes -- 63,785(b) (8,384)(g) 55,401
Accounts payable 219,564 -- -- 219,564
Billings in excess of
costs and estimated
earnings on uncompleted
contracts 115,567 -- -- 115,567
Accrued expenses and
other liabilities 84,574 -- -- 84,574
------------ ------------ ------------- -----------
TOTAL CURRENT
LIABILITIES 467,135 63,247 (8,384) 521,998
------------ ------------ ------------- -----------
LONG TERM DEBT 3,667 68,292(b) (10,729) 61,230
------------ ------------ ------------- -----------
OTHER LONG TERM
OBLIGATIONS 43,140 -- -- 43,140
------------ ------------ ------------- -----------
PRE-CONSENT DATE
LIABILITIES SUBJECT TO
COMPROMISE 622,859 (622,859)(b)(c) -- --
------------ ------------ ------------- -----------
STOCKHOLDERS' (DEFICIT)
EQUITY
Old Series A Preferred
Stock 20,905 (20,905)(d) -- --
Old Common Stock 4,073 (4,073)(d) -- --
New Common Stock -- 94 (d) -- 94
Old Warrants of
Participation 576 (576)(d) -- --
New Warrants -- -- 2,179 2,179
Capital Surplus 204,591 25,460 (151,194) 78,857
Cumulative translation
adjustments (6,241) -- 6,241 --
(Deficit) (558,370) 491,320 (e) 67,050 --
------------ ------------ ------------- -----------
TOTAL STOCKHOLDERS'
(DEFICIT) EQUITY (334,466) 491,320 (75,724) 81,130
------------ ------------ ------------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'
(DEFICIT) EQUITY $802,335 $-- $(94,837) $707,498
============ ============ ============= ===========
(a) Reflects adjustments relating to discharge of debt and exchange of newly
issued debt and equity securities pursuant to the Plan of Reorganization.
(b) Reflects the discharge of old debt and issuance of new debt under the Plan
of Reorganization as follows (In thousands):
Historical Restructure Fresh
Carrying Discharge/ Start
Amount Exchange Balance*
------------ ------------ ------------
Senior Notes Payable under
Revolving Credit Facility $155,795 $(155,795) $--
Senior Notes Payable under Various
Indentures 328,572 (328,572) --
Subordinated Note Payable 9,600 (9,600) --
Convertible Subordinated Debentures 7,040 (7,040) --
------------ ------------ ------------
Total Debt in Default $501,007 $(501,007) --
============ ============ ============
Other Senior Notes (included in
current maturities
of long-term debt) $538 $(538) $--
============ ============ ============
New 7% Series A Senior Secured Notes $-- $63,785(1) $63,785
============ ============ ============
New 11% Series C Notes (included in
long-term debt) $-- $62,827 $62,827
============ ============ ============
New 8% Supplemental SellCo Note
(included in long-term debt) $-- $5,464 $ 5,464
============ ============ ============
* The pro forma adjustments to the recorded debt balances reflect the
differences between the historical carrying amounts of the old debt
securities and the face amount of the new debt securities issued pursuant
to the Plan of Reorganization before fresh-start adjustments.
(1) The amount of Series A Notes to be issued are based upon an assumed total
of $100.0 million of pre-petition general unsecured claims after
settlement of disputed and unliquidated pre-petition general unsecured
claims. An additional $7.2 million of Series A Notes were available to be
issued to holders of general unsecured claims calculated as follows (in
millions):
Authorized value of Series A Notes $71.0
Series A Notes issued or estimated to be issued 63.8
Series A Notes available for issue $ 7.2
======
(c) Reflects reduction of recorded amounts of accrued interest, insurance
reserves, other impaired liabilities and unexpired leases rejected by the
Company during its bankruptcy proceeding classified as pre-consent
liabilities subject to compromise (in thousands):
Long
Accounts Accrued Term
Payable Expenses Liabilities Total
Accrued interest $-- $43,315 $-- $ 43,315
Insurance reserves -- 9,600 26,800 36,400
Amount due to JWP
Information
Services, Inc. -- 24,933 -- 24,933
Foreign debt guarantees -- 6,037 -- 6,037
Stock price guarantees -- 5,118 -- 5,118
Preferred dividends in
arrears -- 2,257 -- 2,257
Unexpired leases -- -- 1,718 1,718
Directors' retirement
benefits -- -- 975 975
Other impaired claims 400 699 -- 1,099
--------- --------- --------- --------
Total $ 400 $91,959 $29,493 $121,852
========= ========= ========= =========
(d) Reflects the elimination of the recorded book value of old common stock,
old preferred stock and warrants of participation upon consummation of the
Plan of Reorganization and the issuance of 1,518,000 Warrants and 9,424,083
shares of Common Stock, $.01 par value.
(e) The deficit was reduced by the net reduction in debt due to the discharge
of old debt and issuance of new debt instruments at face value, as well as
the reduction of recorded amounts of impaired liabilities as described in
Note (c). Reconciliation to "Gain on debt discharge" shown in the
Consolidated Statement of Operations (in thousands):
$491,320 Equity adjustment to record plan of reorganization
14,951 Debt discount recorded as Fresh start adjustment
(81,130) Fair value of equity securities issue recorded as
Fresh-start adjustment
(11,892) Series B Notes which were paid on the Effective
-------
Date
$413,249 Gain on debt discharge
========
(f) To record the adjustments to state assets and liabilities at fair value and
to eliminate the deficit in accumulated earnings against additional paid-in
capital. Reconciliation to "Fresh-start adjustments" shown in the
Consolidated Statement of Operations (in thousands):
$ 75,724 Equity adjustment to record plan of reorganization
14,951 Debt discount included in calculation of gain on
debt discharge
(11,892) Series B Notes which were paid on the Effective
-------
Date
$ 78,783 Fresh-start adjustments
========
(g) Amount includes approximately $4.1 million of principal reduction of Series
A Notes on the Effective Date.
NOTE V PRO FORMA STATEMENT OF OPERATIONS
The following unaudited Consolidated Pro Forma Statement of Operations
reflects the financial results of the Company as if the reorganization had been
effective January 1, 1994 (in thousands, except per share data):
Operations
Sold or Other
Held For Pro Forma Pro Forma
Historical Sale (a) Adjustments Reorganized
---------- -------- ----------- -----------
REVENUES $1,763,961 $(168,939) $-- $1,595,022
----------- ------------ ----------- ------------
COSTS AND EXPENSES:
Cost of sales 1,607,589 (152,023) -- 1,455,566
Selling, general and
administrative 178,575 (30,567) (3,646)(b) 144,362
----------- ------------ ----------- ------------
1,786,164 (182,590) (3,646) 1,599,928
----------- ------------ ----------- ------------
OPERATING LOSS: (22,203) 13,651 3,646 (4,906)
Interest expense, net (2,476) 120 (13,211)(c) (15,567)
Net gain on businesses
sold or held
for sale 1,183 -- (1,183)(d) --
Loss on investment (4,452) -- -- (4,452)
REORGANIZATION ITEMS:
Professional fees (12,535) -- 12,535(e) --
Fresh--start adjustments (78,783) -- 78,783(e) --
----------- ------------ ----------- ------------
(119,266) 13,771 80,570 (24,925)
INCOME TAX BENEFIT (332) -- -- (332)
----------- ------------ ----------- ------------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $(118,934) $13,771 $80,570 $(24,593)
=========== ============ =========== ============
NET INCOME (LOSS) PER
SHARE FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $(12.62) $1.46 $8.55 $(2.61)
=========== ============ =========== ============
(a) Reflects adjustments to the Company's
historical Consolidated Statement of
Operations to eliminate revenues, cost and
expenses and interest.
(b) Reflects the following adjustments to
selling, general and administrative expenses:
To eliminate amortization of goodwill and
other intangibles $ 3,646
=======
(c) Reflects the following adjustments to
interest expense, net:
To record interest expense on 11% Series C
Notes based upon the pro forma discounted
carrying value and assuming a discount rate
of 14% $ 7,745
To record interest expense on 8% SellCo
Supplemental Note (as that term is hereafter
defined) based upon the pro forma discounted
carrying value and assuming a discount rate
of 14% 596
To record interest expense on new working
capital credit facilities assuming an average of
$30.0 million outstanding at 15%(f) 4,500
To reverse interest on debtor-in-possession
credit facility (2,030)
To record debt issuance costs at closing 2,400
-----
$13,211
=======
Interest expense on the 7% Series A Notes
and Series B Notes is not included as a
component of interest expense as amounts
will be paid from the net cash proceeds of
sale of stock or assets of subsidiaries of
SellCo and other net assets held for sale.
Under the terms of the Series A Notes,
interest expense would have been $6.8
million for the year ended December 31, 1994.
(d) To eliminate net gain on sale of businesses $ 1,183
=======
(e) To eliminate various legal and other
professional fees associated with the
Chapter 11 proceeding and to record
fair value adjustments in accordance
with SOP 90-7.
(f) The amount of borrowings under credit lines
made available to the Company on the Effective
Date was contingent upon the cash requirements
of the Company. The following table reflects
the impact of various borrowing levels on the
pro forma statement of operations:
Pro Forma Reorganized
- ----------------------------------------------------------------------------
Net loss per
share from
continuing
operations
Net Income (loss) before
from continuing extraordinary
operations before item and
Total extraordinary effect cumulative
Borrowing Interest and cumulative effect effect of
Level Expense of accounting change accounting change
----- ------- -------------------- -----------------
$35 million $16,317 ($25,343) ($2.69)
$40 million 17,067 (26,093) (2.77)
$45 million $17,817 ($26,843) ($2.85)
Report of Independent Public Accountants
To the Board of Directors and Stockholders of EMCOR Group, Inc.:
We have audited the accompanying Consolidated Balance Sheets of EMCOR Group,
Inc. and its subsidiaries (a Delaware corporation) (the "Company"), as of
December 31, 1996 and 1995, and the related Consolidated Statements of
Operations, Cash Flows and Stockholders' Equity for the years then ended. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements as of and for the years ended December
31, 1996 and 1995 and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 28, 1997
Report of Independent Public Accountants
To the Board of Directors and Stockholders of EMCOR Group, Inc.:
We have audited the accompanying Consolidated Statements of Operations,
Stockholders' Equity (Deficit) and Cash Flows of EMCOR Group, Inc. (formerly JWP
INC.) and its subsidiaries (the "Company"), for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to report on these financial statements based
on our audits. Our audit also included the financial statement schedule for the
year ended December 31, 1994 listed in the Index at Item 14 (a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to report on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Notes A and U to the consolidated financial statements, the
Company emerged from Chapter 11 of the U.S. Bankruptcy Code on December 15,
1994. Accordingly, the accompanying financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. The Company accounted for the Reorganization as of December 31,
1994 and adopted Fresh-Start Reporting.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the Company's operations and its cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth.
As more fully described in Note R to the consolidated financial statements, the
Company is involved with certain legal proceedings. The Company is presently
unable to predict the outcome of these proceedings, and the impact, if any, that
the ultimate resolution of such matters will have upon the Company and its
consolidated financial statements. No provision for any liability that may
result from the resolution of these uncertainties has been made in the
accompanying consolidated financial statements.
As discussed in Note S to the consolidated financial statements, the Company
changed its method of accounting for post-employment benefits effective January
1, 1994.
DELOITTE & TOUCHE LLP
New York, New York
March 17, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to identification of
directors is incorporated herein by reference to the material to be included
under the caption "Election of Directors" in the Company's definitive proxy
statement for its Annual Meeting of Stockholders, at which Directors are to be
elected, which definitive proxy statement is to be filed not later than 120 days
after the end of the Company's fiscal year ended December 31, 1996.
The information called for by Item 10 with respect to "Executive Officers
of the Registrant" is included in Part I under the caption "Executive Officers
of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 with respect to executive compensation
is incorporated herein by reference to the material to be included in the
Company's definitive proxy statement for its Annual Meeting of Stockholders, at
which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 with respect to certain beneficial
owners and management is incorporated herein by reference to the material under
the captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Company's definitive proxy statement for its
Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days after the end
of the Company's fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 with respect to certain transactions
with management and directors is incorporated herein by reference to the
material under the caption "Certain Relationships and Related Transactions" in
the Company's definitive proxy statement for its Annual Meeting of Stockholders,
at which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1 The following consolidated financial statements of
EMCOR Group, Inc. and subsidiaries are included in
Part II, Item 8:
Financial Statements:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity
(Deficit) - Years Ended December 31, 1996, 1995 and
1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2)The following financial statement schedules are
included in this Form 10-K report:
Schedule II - Valuation And Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown
in the consolidated financial statements or notes
thereto.
(a)(3)The exhibits listed on the Exhibit Index following
the consolidated financial statements hereof are filed
herewith in response to this Item.
Schedule II
EMCOR Group, Inc.
Valuation and Qualifying Accounts
Additions
Balance Charged To
at Costs Other Balance at
Description Beginning and Accounts Deductions End of Year
of Year Expenses (1)
- -------------------------------------------------------------------------------
Allowance for
doubtful accounts
Year Ended December $14,892 $1,258 $2,736 $(74) $18,812
31, 1996
Year Ended December 19,820 2,538 (3,553) (3,913) 14,892
31, 1995
Year Ended December $31,170 $2,909 $(7,695) $(6,564) $19,820
31, 1994
(1) Deductions represent uncollectible balances of accounts receivable written
off, net of recoveries.
EMCOR GROUP, INC.
EXHIBIT INDEX
Exhibit Description Incorporated By Reference
No To, or Page Number
2(a) Disclosure Statement and Third Exhibit 2(a) to the
Amended Joint Plan of Company's Registration
Reorganization (the "Plan of Statement on Form 10 as
Reorganization") proposed by originally filed March 17,
EMCOR Group, Inc. (formerly JWP 1995 (the "Form 10")
INC.) (the "Company" or "EMCOR")
and its subsidiary SellCo
Corporation ("SellCo"), as
approved for dissemination by the
United States Bankruptcy Court,
Southern District of New York
(the "Bankruptcy Court"), on
August 22, 1994
2(b) Modification to the Plan of Exhibit 2(b) to Form 10
Reorganization dated September
29, 1994
2(c) Second Modification to the Plan Exhibit 2(c) to Form 10
of Reorganization dated September
30, 1994
2(d) Confirmation Order of the Exhibit 2(d) to Form 10
Bankruptcy Court dated September
30, 1994 (the "Confirmation
Order") confirming the Plan of
Reorganization, as amended
2(e) Amendment to the Confirmation Exhibit 2(e) to Form 10
Order dated December 8, 1994
2(f) Post--confirmation modification to Exhibit 2(f) to Form 10
the Plan of Reorganization
entered on December 13, 1994
2(g) Asset Acquisition Agreement dated Exhibit 2(g) to the Company's
February 9, 1996 between The City Annual Report on Form 10-K for
of New York, Jamaica Water Supply the year ended December 31, 1995
Company and EMCOR (the "1995 EMCOR Form 10-K")
2(h) Asset Acquisition Agreement dated Exhibit 2(h) to 1995 Form
February 9, 1996 between Water 10-K
Authority of Western Nassau
County, Jamaica Water Supply
Company and EMCOR
3(a-1) Restated Certificate of Exhibit 3(a-5) to Form 10
Incorporation of EMCOR filed
December 15, 1994
3(a-2) Amendment dated November 28, 1995 Exhibit 3(a-2) to 1995 Form
to the Restated Certificate of 10-K
Incorporation of EMCOR
3(b) By-Laws Exhibit 3(b) to Form 10
4.1 Credit Agreement (the "Credit Exhibit 4 to the Company's
Agreement") dated as of June 19, Report on Form 8-K dated
1996 among EMCOR, certain of its June 25, 1996
subsidiaries and Harris Trust and
Savings Bank, individually and as
agent, and the lenders which are
or become parties thereto
Exhibit Description Incorporated By Reference
No To, or Page Number
4.2 First Amendment dated as of Page
September 27, 1996 to Credit
Agreement*
4.3 Second Amendment dated as of Page
December 24, 1996 to Credit
Agreement*
4.4 Third Amendment dated as of Page
February 28, 1997 to Credit
Agreement*
4.5 Indenture, dated as of December Exhibit 4.3 to Form 10
15, 1994, among EMCOR, MES, as
guarantor, and Fleet National
Bank of Connecticut, as trustee,
in respect of 11% Series C Notes,
Due 2001 ("Series C Indenture")
4.6 First Supplemental Indenture Exhibit 4.4 to 1995 Form 10-K
dated as of January 28, 1995 to
Series C Indenture
4.7 Second Supplemental Indenture Exhibit 4.9 to the Company's
dated as of February 29, 1996 to Registration Statement on
Series C Indenture Form S-8 dated April 25, 1996
4.8 Indenture, dated as of December Exhibit 4.4 to Form 10
15, 1994, between SellCo and
Fleet National Bank of
Connecticut, as trustee, in
respect of SellCo's 12%
Subordinated Contingent Payment
Notes, Due 2004
10(a-1) Employment Agreement dated as of Exhibit 10(e) to the
September 14, 1987 between the Company's Annual Report on
Company and Sheldon I. Cammaker 10-K for the year ended
December 31, 1987 (the "1987
Form 10-K")
10(a-2) Amendment dated March 15, 1988 to Exhibit 10(f) to 1987 Form
Employment Agreement dated as of 10-K
September 14, 1987 between the
Company and Sheldon I. Cammaker
10(b) Employment Agreement dated as of Exhibit 10(t) to the
April 18, 1994 between the Company's Annual Report on
Company and Frank T. MacInnis Form 10-K for the year ended
December 31, 1992
10(c) Employment Agreement dated as of Page
January 1, 1996 between the
Company and Leicle E. Chesser*
10(d) Employment Agreement dated as of Page
January 1, 1996 between the
Company and Jeffrey M. Levy*
10(e) 1994 Management Stock Option Plan Exhibit 10(o) to Form 10
Exhibit Description Incorporated By Reference
No To, or Page Number
10(f) 1995 Non-Employee Directors' Exhibit 10(p) to Form 10
Non-Qualified Stock Option Plan
10(g) Form of Indemnification Agreement Exhibit 10(q) to Form 10
10(h) Reliance Insurance Companies' Exhibit 10(r) to Form 10
Underwriting and Continuing
Indemnity Agreement dated as of
November 22, 1994, among the
Company, Dyn Specialty
Contracting, Inc. ("Dyn"), B&B
Contracting & Supply Company
("B&B"), Dynalectric Company
("Dyn Co."), Dynalectric Company
of Nevada ("Dyn-- Nevada"), Contra
Costa Electric, Inc. ("Contra
Costa"), Kirkwood Electric Co.,
Inc. ("Kirkwood") and Reliance
Surety Company, Reliance
Insurance Company, United Pacific
Insurance Company, Reliance
National Indemnity Company,
Reliance National Insurance
Company of New York and Reliance
Insurance Company of Illinois
10(i) Form of Security Agreement dated Exhibit 10(s) to Form 10
as of November 22, 1994 made by
each of Dyn, B&B, Dyn Co.,
Dyn--Nevada, Contra Costa, and
Kirkwood, in favor of and for the
benefit of Reliance Surety
Company, Reliance Insurance
Company, United Pacific Insurance
Company, Reliance National
Indemnity Company and Reliance
Insurance Company of Illinois
10(j) Pledge Agreement dated November Exhibit 10(t) to Form 10
22, 1994 between the Company and
Reliance Surety Company, Reliance
Insurance Company, United Pacific
Insurance Company, Reliance
National Indemnity Company and
Reliance Insurance Company of
Illinois
10(k) Pledge Agreement dated November Exhibit 10(u) to Form 10
22, 1994 between Dyn and Reliance
Surety Company, Reliance
Insurance Company, United Pacific
Insurance Company Reliance
National Indemnity Company and
Reliance Insurance Company of
Illinois
10(l) Subordination Agreement dated Exhibit 10(v) to Form 10
November 22, 1994 among Dyn, Dyn
Co., B&B, Dyn--Nevada, Contra
Costa and Kirkwood and Reliance
Surety Company, Reliance
Insurance Company, United Pacific
Insurance Company, Reliance
National Indemnity Company and
Reliance Insurance Company of
Illinois
Exhibit Description Incorporated By Reference
No To, or Page Number
11 Computation of Primary Earnings Page
Per Common Share and Common Share
Equivalent for the years ended
December 31, 1996 and 1995*
21 List of Significant Subsidiaries* Page
27 Financial Data Schedule* Page
* Filed Herewith
Pursuant to Item 601(b)(4)(iii) of Regulation S--K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of
long-term debt of the Registrant's subsidiaries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMCOR GROUP, INC.
------------------------------------
(Registrant)
Date: March 3, 1997 By /s/Frank T. MacInnis
------------------------------------
FRANK T. MacINNIS
Chairman of the Board of
Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 3, 1997
/s/Frank T. MacInnis Chairman of the Board of
- -------------------- Director, President and
FRANK T. MacINNIS Chief Executive Officer
/s/Stephen W. Bershad Director
- ---------------------
STEPHEN W. BERSHAD
/s/David A.B. Brown Director
- -------------------
DAVID A.B. BROWN
/s/Thomas D. Cunningham Director
- -----------------------
THOMAS D. CUNNINGHAM
/s/Albert Fried, Jr. Director
- --------------------
ALBERT FRIED, JR.
/s/Malcolm T. Hopkins Director
- ---------------------
MALCOLM T. HOPKINS
/s/Kevin C. Toner Director
- -----------------
KEVIN C. TONER
/s/Leicle E. Chesser Executive Vice President and
- -------------------- Chief Financial Officer
LEICLE E. CHESSER
/s/Mark A. Pompa Vice President and Controller
- ----------------
MARK A. POMPA