Back to GetFilings.com
_____________________________________________________________________________
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, 1995 COMMISSION FILE NUMBER 0-2315
EMCOR GROUP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2125338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
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 be 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 29, 1996 was approximately
$101,301,000.
Number of shares of Common Stock outstanding as of the close of
business on February 29, 1996: 9,424,706 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 14, 1996, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1995.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
General..................................................... 1
The Business................................................ 1
Businesses Held for Sale.................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data....................................... 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 13
Item 8. Financial Statements and Supplementary Data................... 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant............ 58
Item 11. Executive Compensation........................................ 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 58
Item 13. Certain Relationships and Related Transactions................ 58
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................................... 59
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 management
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 to customers, at the
customer's facilities, which services are commonly referred to as facilities
management. Mechanical and electrical construction and facilities management
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"). Under the Plan of Reorganization, pre-petition creditors of the
Company (other than holders of subordinated debt) received, in addition to
certain notes of EMCOR and SellCo, substantially all of the newly issued common
stock of EMCOR (the "New Common Stock"). Pre-petition holders of the Company's
subordinated debt, preferred stock, common stock and warrants of participation
received warrants to purchase New Common Stock of EMCOR in exchange for their
debt and equity interests.
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 management 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's consolidated 1995 revenues of $1,588.7 million were
derived exclusively from mechanical and electrical construction and facilities
management services inasmuch as the results of operations for the year ended
December 31, 1995 exclude the operating results of businesses held for sale,
many of which were engaged in other business. The Company had total revenues of
approximately $1,595.0 million, exclusive of $169.0 million attributable to
businesses held for sale or sold, in 1994 as compared to approximately $1,840.1
million, exclusive of $354.6 million attributable to business held for sale or
sold, in 1993.
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 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 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.
1
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 at 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 management 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 wide 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 facilities management business has expanded as customers seek to "outsource"
services not specifically related to the core services or products its customers
offer for sale. In addition, with the increase in privatization of government
functions, particularly in the United Kingdom, private enterprise has been
afforded the opportunity to operate, maintain, and often modernize and expand
government facilities.
Backlog. The Company had a backlog as of December 31, 1995 of approximately
$1,060.7 million, exclusive of businesses sold or held for sale, compared with a
backlog of approximately $1,046.4 million, exclusive of businesses sold or held
for sale, as of December 31, 1994.
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
2
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 management 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 Q to the consolidated financial statements.
Businesses Held for Sale
EMCOR is in the process of selling those of its subsidiaries generally not
involved in mechanical and electrical construction and facilities management
services. Its principal business held for sale is its water supply business
conducted through its subsidiaries Jamaica Water Supply Company ("JWS") and Sea
Cliff Water Company ("Sea Cliff").
The Company owns all of the common stock of JWS and all the capital stock of
Sea Cliff (sometimes referred to herein collectively as the "Water Companies").
The Water Companies are regulated public utilities that own and operate water
supply systems on Long Island, New York. JWS is the largest investor-owned
water utility in New York State, supplying water to a densely populated
residential area of approximately 40 square miles in the Borough of Queens in
The City of New York and in southwestern Nassau County, an area with an
aggregate population of approximately 650,000. Sea Cliff supplies water to a
four square mile area on the north shore of western Nassau County with a
population of approximately 20,000. The business of the Water Companies
consists of the purification, distribution and sale of water for residential and
commercial purposes including water used for fire sprinkler systems service and
public protection fire service.
The Company has entered into agreements to sell substantially all of the assets
of JWS and has entered into an agreement to sell all of the capital stock of Sea
Cliff.
3
ITEM 2.PROPERTIES
The operations of the Company are conducted primarily in leased properties. The
following table lists the major facilities:
Approximate Lease Expiration
Square Feet Date, Unless Owned
----------- ------------------
CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park 15,725 4/8/00
Norwalk, Connecticut
OPERATING FACILITIES
1200 North Sickles Road 29,000 Owned
Tempe, Arizona
3208 Landco Drive 49,875 4/30/96
Bakersfield, California
4462 Corporate Center Drive 41,400 12/31/00
Los Alamitos, California
4464 Alvarado Canyon Road 53,800 10/31/00
San Diego, California
9505 Chesapeake Drive 44,000 1/30/01
San Diego, California
345 Sheridan Boulevard 63,000 Owned
Lakewood, Colorado
5697 New Peachtree Road 27,200 11/30/98
Atlanta, Georgia
2100 South York Road 77,700 1/09/00
Oak Brook, Illinois
2655 Garfield Road 34,600 7/08/96
Highland, Indiana
3555 W. Oquendo Road 100,000 11/30/98
Las Vegas, Nevada
111-01 14th Avenue 77,000 2/28/06
College Point, New York
30 N. MacQuesten Parkway 25,300 11/30/98
Mount Vernon, New York
111 West 19th Street 27,200 5/31/98
New York, New York
4
Approximate Lease Expiration
Square Feet Date, Unless 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 6/30/96
515 Norwood Road
Houston, Texas 29,700 Month to Month
Canary Wharf
One Canada Square
London, U.K 27,800 12/31/96
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 49,000 7/31/96
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 L 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.
5
ITEM 3. LEGAL PROCEEDINGS
NEW YORK COUNTY DISTRICT ATTORNEY INVESTIGATIONS
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 $7.0 million
in kickbacks from subcontractors through a scheme in which he allegedly inflated
subcontracts on Herbert's construction contracts. At a press conference
following the indictment, the District Attorney announced that the investigation
is continuing, and he expects 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.
DYNALECTRIC LITIGATION
The Dynalectric Company, a subsidiary of the Company, ("Dynalectric") 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; no
trial date is scheduled.
LITIGATION REGARDING WARRANTS OF PARTICIPATION
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against EMCOR's subsidiary Jamaica Water Securities
Corp. ("JWSC") by filing a complaint in the Supreme Court of the State of New
York, Westchester County, bearing the caption, Harold F. Scattergood, Jr., et
------------------------------
al, v. Jamaica Water Securities Corp. (Index No. 15992/94). On October 17, 1994,
- -------------------------------------
an amended complaint was served adding additional plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to the Company's
obligations on the Warrants by reason of its 1977 acquisition of the Company's
96% stock interest in Jamaica Water Supply Company ("JWS"). The plaintiffs also
claimed that certain events constituted a disposition of the assets of JWS which
triggered the Warrants, obligating JWSC to issue shares of its own stock to
plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994
expiration date of the Warrants should be extended for some indefinite period of
time.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiffs' action holding that the assets of
JWS had not been "disposed of" under the express terms of the Warrants prior to
their stated expiration on December 31, 1994. The court also held that it
lacked the power to rewrite the "clear and unambiguous provisions" of the
Warrant Agreement to extend the December 31, 1994 deadline. The plaintiffs have
appealed the court's decision.
6
CONDEMNATION PROCEEDING
In September 1986, the State of New York enacted a law that requires The City
of New York (the "City") to acquire by condemnation all of the property of JWS
"constituting or relating to [its] water distribution system located in the City
of New York" only in the event of a decision by a Supreme Court of the State
of New York that the amount of compensation to be paid JWS for that system
"shall be determined solely by the income capitalization method of valuation,
based on the actual net income as allowed [to JWS] by the [New York State]
public service commission". In addition, the law provides that if any court
determines "that a method of compensation other than the income capitalization
method be utilized, or if the proposed award is more than the [JWS] rate base of
the [condemned] assets as utilized by the public service commission in setting
rates", the City may withdraw the condemnation proceeding without prejudice or
costs.
In April 1988, the City instituted a proceeding in the Supreme Court of the
State of New York, Queens County, pursuant to the 1986 statute. Subsequent to
the trial, the Court requested that the parties address the constitutionality of
the statute. After a joint post-hearing submission from JWS and the City
contending that the statute was constitutional, the court, by decision dated
June 21, 1993, dismissed the City's petition and held, inter alia, that "insofar
as the legislature has directed this Court to make . . . a decision on
valuation only prior to any taking through General City Law 20(2), that statute
is unconstitutional", because such a decision would be advisory. Aware that a
constitutional challenge to a nearly identical condemnation statute involving
Saratoga County was pending in the appellate courts, neither JWS nor the City
served a notice of entry of the dismissal order that would commence the period
within which an appeal could be taken.
On February 24, 1994, the New York Court of Appeals held the nearly-identical
Saratoga County related statute to be constitutional. On April 6, 1994, a
conference was held with the court pursuant to the City's request to reconsider
its JWS decision in light of the Court of Appeals February 24, 1994 decision. At
the April 6, 1994 conference, the court stated it would, as requested by the
City, reconsider its June 21, 1993 decision. The court further stated that in
the event it decided to withdraw its June 21, 1993 decision that it would then
take the proceedings under further consideration.
EMCOR cannot predict when or if the court will conduct further proceedings
under the statute, what the decision of the court might be if it decides to
value the JWS property, or the effect of the pending litigation on the ability
to sell or the timing of the sale of JWS.
However, as discussed above under Business - "Businesses Held for Sale", JWS
and the City have entered into an agreement pursuant to which the City, by
condemnation, would acquire JWS's New York City water distribution system. In
addition, as discussed under Business - "Businesses Held for Sale", JWS and the
Water Authority of Western Nassau County (the "Authority") have entered into an
agreement (the "Nassau Agreement") pursuant to which the Authority, by
condemnation, would acquire that portion of JWS' water distribution system which
is located in Nassau County. Pursuant to the Nassau Agreement, the Authority
has commenced a condemnation proceeding in the Supreme Court of the State of
New York, Nassau County.
In addition, the Company is involved in other legal proceedings and claims
which have arisen in the ordinary course of business.
7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On November 17, 1995 the Registrant held an annual meeting of stockholders.
(b) At the annual meeting all of the seven directors of the Company stood for
re-election, and each of them was re-elected for the ensuing year. Each of
Messrs. Stephen W. Bershad, David A.B. Brown, Thomas D. Cunningham, Albert
Fried, Jr., Malcolm T. Hopkins, and Kevin C. Toner received 7,520,122 votes, and
Mr. Frank T. MacInnis received 7,519,580 votes. The only votes withheld were
the 542 which did not vote for Mr. MacInnis. There were no broker non-votes.
(c) (i) At the annual meeting the stockholders also voted upon and approved the
adoption of an amendment to the Company's Restated Certificate of Incorporation
which amended Article Fourth thereof now (i) to authorize the Company to issue,
in addition to its authorized shares of New Common Stock, 1,000,000 shares of
Preferred Stock, in such series and with such designations, powers, preferences,
and rights as may be fixed from time to time by the Board of Directors of the
Company for each series and (ii) to delete (x) certain provisions specifying the
voting, dividend and liquidation rights of holders of Common Stock, the
substance of which are provided for in the General Corporation Law of the State
of Delaware and are, accordingly, not required to be included in the Company's
Restated Certificate of Incorporation, (y) certain provisions regarding a
prohibition on the issuance of non-voting equity securities which were required
to be included therein by Section 1123(a)(b) of the Bankruptcy Code in order for
the Company's Plan of Reorganization to be confirmed by the Bankruptcy Court,
but which management believes are no longer applicable to the Company following
its emergence from Chapter 11, and (z) certain provisions which were necessary
to extinguish and cancel the outstanding shares of pre-petition common stock and
preferred stock in accordance with the Plan of Reorganization, but which are no
longer required to be included in the Restated Certificate of Incorporation.
5,520,000 shares were voted in favor of adoption of the proposed amendment to
the Restated Certificate of Incorporation, 982,550 shares were voted against
adoption of the proposed amendment, and 264,130 shares abstained from voting
thereon; there were 753,422 broker non-votes.
(ii) In addition, the stockholders voted upon a proposal to approve the
Company's 1994 Management Stock Option Plan (the "1994 Plan") which provides for
the granting of incentive stock options and non-qualified stock options to key
employees of the Company and its subsidiaries. 6,080,022 shares were voted in
favor of approval of 1994 Plan, 436,973 shares were voted against approval of
the 1994 Plan, and 261,132 shares abstained from voting thereon; there were
741,995 broker non-votes.
(iii) The stockholders also voted upon a proposal to approve the Company's 1995
Non-Employee Directors' Non-Qualified Stock Option Plan (the "1995 Plan") which
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, in
consideration of the services of such directors to the Company. 6,243,590
shares were voted in favor of approval of the 1995 Plan, 273,805 shares were
voted against approval of the 1995 Plan, and 260,732 shares abstained from
voting thereon; there were 741,995 broker non-votes.
(iv) The stockholders also voted upon a proposal to ratify the appointment by
the Audit Committee of the Board of Directors of Arthur Andersen LLP,
independent public accountants, as the Company's independent auditors for 1995.
7,516,321 shares were voted in favor of ratification, no shares were voted
against ratification, and 3,801 shares abstained from voting thereon; there were
no broker non-votes.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
Frank T. MacInnis, Age 49; Chairman of the Board, President and Chief Executive
Officer of the Company since April 18, 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 under the water drilling for pipelines and
communications cable.
Sheldon I. Cammaker, Age 56; Executive Vice President and General Counsel of
the Company for more than the past five years.
Leicle E. Chesser, Age 49; 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 43; 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. From December 1984 to December 1990 Mr. Levy was Vice
President of Stone & Webster Engineering Corporation which is engaged in the
design and construction of power, industrial and petrochemical facilities.
Joseph A. Gallo, Age 44; Senior Vice President of the Company since April 1993,
a Vice President of the Company from November 1991 to April 1993, and Treasurer
of the Company for more than the past five years.
Mark A. Pompa, Age 31; 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.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's New Common Stock has been traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "EMCG" since December 28, 1995.
From December 15, 1994, the Effective Date of the Company's Plan of
Reorganization, through December 27, 1995 the New 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 New 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 retail mark-up, mark-down or
commissions and may not represent actual transactions. For the period
commencing December 28, 1995, when the New Common Stock began trading on the
Nasdaq Stock Market, through December 31, 1995, the following table sets forth
high and low sales prices for the New Common Stock.
High Low
----- -----
1995
----
First Quarter (commencing January 6, 1995) 5 1/2 4
Second Quarter 7 3/4 4 1/2
Third Quarter 9 6 3/4
Fourth Quarter (through December 27, 1995) 9 3/8 7
December 28, 1995 through December 31, 1995 9 5/8 9 3/8
HOLDERS
The number of holders of record of New Common Stock as of February 29, 1996
was 88 and the number of beneficial Stockholders was approximately 600 at that
same date.
DIVIDENDS
The Company did not pay dividends on its pre-petition common stock during 1994
or on its New Common Stock during 1994 or 1995, and it does not anticipate that
it will pay any dividends on the New Common Stock in the foreseeable future.
The Company's working capital credit facility and its Series A Notes prohibit
the payment of dividends on the New Common Stock; the Company's Series C Notes
provide that dividends are limited to 50% of consolidated net income (as
defined) for the period from the Effective Date to the most recently ended
fiscal quarter.
10
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 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
------------ ---------- ---------- ---------- ----------
Revenues $1,588,744 $1,763,961 $2,194,735 $2,404,577 $2,318,112
Gross profit 143,147 156,372 151,177 243,854 344,551
Reorganization items -- 91,318 -- -- --
(Loss) income
from continuing operations
including reorganization
items (10,853) (118,934) (113,991) (363,515) 4,712
Income (loss) from
discontinued operations -- 10,216 (9,087) (253,230) 24,263
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 (loss) income $ (10,853) $ 302,431 $ (123,078) $ (612,430) $ 28,975
========== ========== ========== ========== ==========
Supplemental net
(loss) income per share (b): -
continuing operations $(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 (loss)income per
share $(1.13) $32.09
========== ==========
11
BALANCE SHEET DATA (d)
Reorganized Company Predecessor Company
As of December 31, As of December 31,
1995 1994 1993 1992 1991
---------- -------- ---------- ---------- ----------
Stockholders' equity
(deficit)(c) $ 70,610 $ 81,130 $(302,262) $ (175,979) $ 456,136
Total assets 710,945 707,498 806,442 907,584 2,233,827
Net assets held for sale 61,969 55,401
Notes payable 14,665 4,803 172 6,452 110,600
Borrowings under working
capital credit lines 25,000 40,000 -- -- --
7% Senior Secured Notes 61,969 55,401 -- -- --
Long-term debt, including
current maturities 68,831 61,290 4,465 6,040 463,071
Debt in default -- -- 501,007 501,007 --
Capital lease obligations 1,284 2,029 2,561 3,935 26,995
Redeemable preferred
stock $ -- $ -- $ -- $ -- $5,242
(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 will only accrue to the benefit of holders of the notes issued by
the Company's subsidiary SellCo Corporation after payment in full of the
Company's Series A Notes and certain other obligations (See Note G and H to
the consolidated financial statements). Income statement data has been
reclassified for all periods presented prior to 1995 to reflect the
Company's information services and water supply businesses as discontinued
operations (See Note M 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.
12
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 subsidiary SellCo
Corporation ("SellCo"). Under the Plan of Reorganization, pre-petition
creditors of the Company (other than holders of subordinated debt) received
certain notes of EMCOR and SellCo and substantially all of the newly issued
shares of common stock of EMCOR (the "New Common Stock"). The pre-petition
holders of the Company's subordinated debt, common and preferred stock and
warrants of participation received warrants to purchase New Common Stock in
exchange for their debt and equity interests.
The Company's results of operations and financial condition as of and for the
year ended December 31, 1995 reflect the adoption of 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 is included in the Consolidated Balance Sheets as of
December 31, 1995 and 1994 in Other Assets as "Miscellaneous" and is being
amortized over 15 years.
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 will not be 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 will only accrue to the benefit of the holders of the notes issued by
the Company's subsidiary SellCo after payment in full of the Company's Series A
Notes and certain other obligations (See Note G and H to the consolidated
financial statements) and the operating results substantially offset interest
accrued on the Company's Series A Notes which interest has been 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, 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 and
$27.9 million for the years ended December 31, 1995 and
13
1994, respectively. The 1995 loss includes $14.8 million of net interest expense
associated with borrowings outstanding during 1995 under the Company's New
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 in the
installation of industrial boilers. The 1994 loss reflects, among other things:
a gain of $1.9 million for 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 new 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 selling, general and
administrative ("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 in absolute dollars ($3.7 million) and as percentage of revenue
attributable to successful completion and close out of lower margin pre-
emergence contracts 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 bankruptcy 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 MANAGEMENT
SERVICES
Revenues of the mechanical and electrical construction and facilities
management 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 million of operating loss 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 plans to retain 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, 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 management services companies. The decrease in SG&A expenses was
attributable to cost cutting and downsizing.
At December 31, 1995, the mechanical and electrical construction and facilities
management 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
14
Canadian backlog is principally attributable to the downsizing of the Canadian
operations, while the United Kingdom decline is 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 is
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 December 31, 1995 since the
operation of these businesses will only accrue to the benefit of the holders of
notes issued by SellCo after payment in full of the Company's Series A Notes and
certain other obligations (See Note G and H 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.
Agreements for the sale of substantially all the assets of the Company's
principal water supply subsidiary, Jamaica Water Supply Company ("JWS"), have
been executed and an agreement for the sale of all of the capital stock of Sea
Cliff Water Company ("Sea Cliff"), the Company's other water supply subsidiary,
has also been executed.
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Revenues for the years ended December 31, 1994 and 1993 were $1,764.0 million
and $2,194.7 million, respectively. Net income for the year ended December 31,
1994 was $302.4 million or $32.09 per share compared to a net loss of $123.1
million for the year ended 1993. 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 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 Reporting as prescribed by SOP 90-7.
Income from discontinued operations was $10.2 million for the year ended
December 31, 1994 compared to a loss of $9.1 million for the year ended December
31, 1993. The loss from discontinued operations for the year ended December 31,
1993 reflects a charge of $8.1 million related to an adjustment in the carrying
value of liabilities as a result of the bankruptcy filing under Chapter 7 of the
U.S. Bankruptcy Code by the Company's subsidiary that formerly carried on the
Company's U.S. information services business. The loss from discontinued
operations in 1993 also includes a charge of $7.4 million to write down the net
assets of the Company's water supply business to estimated net realizable value,
as determined with the assistance of the Company's financial advisors, in
connection with the Company's reinstatement of its plan of disposition in early
1994.
Loss from continuing operations before reorganization items, income taxes,
extraordinary items and cumulative effect of accounting change was $27.9 million
for the year ended December 31, 1994. The loss includes: a gain of $1.9 million
for the settlement of a construction claim; a net gain of $1.2 million on the
sale of certain businesses; 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 new 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
were primarily attributable to adverse weather conditions, inadequate
estimating of job costs and labor problems. The loss from continuing operations
before income taxes for the year ended December 31, 1993 was $114.7 million
which includes $50.2 million of interest expense primarily for interest at
default rates on debt in default.
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
15
included in the Consolidated Statement of Operations for the year ended December
31, 1994. The Company incurred an operating loss of $22.2 million for the year
ended December 31, 1994 compared with an operating loss of $65.5 million for the
year ended December 31, 1993. The operating loss for 1993 includes a $38.5
million provision for estimated losses on uncompleted construction contracts and
approximately $12.0 million of legal, consulting and other professional fees
arising from shareholder litigation and debt restructuring efforts. Professional
fees associated with the bankruptcy proceedings are classified as Reorganization
Charges in the 1994 Consolidated Statement of Operations.
MECHANICAL AND ELECTRICAL CONSTRUCTION SERVICES AND FACILITIES MANAGEMENT
SERVICES
Revenues of the mechanical and electrical construction and facilities
management services business units for the year ended December 31, 1994
decreased by 19.6% to $1,764.0 million from $2,194.7 million for the year ended
December 31, 1993. Operating losses of this business (before deduction of
general corporate and other expenses discussed below) for the years ended
December 31, 1994 and 1993 were $6.4 million and $39.1 million, respectively. In
connection with the Company's restructuring plan, certain mechanical and
electrical construction services business units have been sold or identified for
sale. The operating results of these units are included in the operating results
discussed herein. Revenues of the mechanical and electrical construction
services units sold or held for sale for the years ended December 31, 1994 and
1993 were $169.0 million and $354.6 million, respectively. Such units incurred
an operating loss of $13.7 million for the year ended December 31, 1994 compared
to an operating loss of $13.8 million for 1993.
The decrease in revenues for the year ended December 31, 1994 was partially
attributable to the disposition of certain businesses held for sale and the
downsizing of certain other businesses. Revenues for the year ended December 31,
1994 relating to businesses which the Company plans to retain decreased by
approximately 13% when compared to 1993. This decrease resulted primarily from
those business units operating in the Western and Midwestern United States and
in Eastern Canada. In 1994 these units experienced difficulties in obtaining new
construction contracts because of, among other things, continued poor market
conditions and the inability of the Company's subsidiary Dynalectric Specialty
Contractors, Inc. ("Dyn") and its subsidiaries to obtain surety bonds to secure
new work because their surety bonding company ceased to engage, as of January 1,
1994, in the business of issuing surety bonds. Another surety bonding company
began providing them with bonds in November 1994.
The operating results for the years ended December 31, 1994 and 1993 reflect,
among other things, the continued negative impact of the recession in the
construction industry and oversupply in the commercial real estate market which
caused intense competition for new commercial work. As a result of the reduction
of work in the commercial real estate market, many of the Company's
mechanical and electrical construction services business units pursued and
secured work in the institutional and public works markets, typically for
federal, state and municipal government agencies. This work was often
characterized by lower margins and different contract practices than in the
commercial real estate market. In addition, the continued recession in the
construction industry resulted in lower margins on all available work than had
been the case in previous years. Certain of these business units had limited
experience in institutional and public works projects, and, as a result,
incurred losses, particularly on certain large, long-term projects. Operating
margins in 1994 and 1993 were also adversely affected by the continuing
recessions in the United Kingdom and Canada.
SG&A expenses, excluding general corporate and other expenses, for the years
ended December 31, 1994 and 1993 were $162.8 million and $190.3 million,
respectively. The amount of SG&A expenses for 1994 was lower than 1993 SG&A
expenses as a result of the implementation of the Company's downsizing plans and
the disposition of certain businesses.
At December 31, 1994, the mechanical and electrical construction and facilities
management services business backlog was approximately $1,145.3 million compared
to approximately $1,045.4 million at December 31, 1993. Such backlog included
$1,046.4 million at December 31, 1994 and $946.8 million at December 31, 1993
relating to companies which the Company intended to retain. The Company's
backlog in the United States declined by $60.9 million between December 31, 1993
and December 31, 1994, whereas its backlog in the United Kingdom and Canada
increased by $145.7 million and $22.5 million, respectively, during that same
period. The Company's United Kingdom and Canadian subsidiaries received major
long-term contracts during the second and third quarters of 1994. During the
year ended December 31, 1994, the Company experienced a reduction in backlog in
the Western region of the United States. The decline of backlog in the United
States was attributable to the downsizing of the Company's operations, the
Company's weakened financial condition which adversely affected its ability to
obtain new surety bonds and contracts and the inability of Dyn and Dyn
subsidiaries to obtain surety
16
bonds during most of 1994. In addition, during 1994 the Company's surety bonding
companies reviewed and continue to review requests for surety bonds on a case-
by-case basis.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the years ended December 31, 1994 and 1993 were
$28.3 million, inclusive of legal and other professional fees of $12.5 million
incurred in connection with the Company's reorganization in 1994, and $26.4
million, inclusive of $12.0 million related to legal, consulting and other
professional fees arising from shareholder litigation, the debt restructuring
and the restatement of the Company's 1991 and 1990 financial statements,
respectively. The higher amount of general corporate expenses, exclusive of
legal, consulting and other professional fees, in 1994 is attributable to debt
issuance costs related to the Company's debtor-in-possession credit facility
during its Chapter 11 proceeding and new working capital credit facility,
severance paid to terminated employees and an increase in insurance costs. Net
interest expense for the year ended December 31, 1994 was $2.5 million compared
to $50.2 million in the year earlier period. The Company ceased accruing
interest related to debt in default on December 21, 1993, the date on which an
involuntary bankruptcy petition was filed against the Company.
DISCONTINUED OPERATIONS
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not to
proceed with the sale due to the then pending rate related proceedings and
litigation. In December 1993, JWS entered into an agreement that became
effective on February 2, 1994, upon approval by the New York State Public
Service Commission, with respect to rate related proceedings and litigation
thereby eliminating significant uncertainties relating to the Company's water
supply business. Accordingly, the Company reinstated its plan of divestiture in
the first quarter of 1994 and retained investment bankers to assist in the sale
of its water supply business. Agreements for the sale of substantially all the
assets of JWS have been executed and an agreement for the sale of all of the
capital stock of Sea Cliff has also been executed. The consolidated financial
statements reflect the water supply business as a discontinued operation for all
periods presented prior to 1995.
In 1993 the Company sold substantially all of its information services
businesses.
Revenues and income from discontinued operations, excluding the $20.4 million
loss from the sale of its information services businesses during 1993, for the
years ended December 31, 1994 and 1993 were as follows (in thousands):
1994 1993
(UNAUDITED)
----------------------
Revenues:
Water Supply $64,993 $ 66,755
Information Services -- 876,700
------- --------
$64,993 $943,455
======= ========
Net Income:
Water Supply $10,216 $ 11,427
Information Services -- (164)
------- --------
$10,216 $ 11,263
======= ========
The water supply business operating results are impacted by seasonal factors.
Its revenues are generally higher in the second and third quarters which
reflects the warmer weather conditions in the Northeast United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance increased by $0.5 million from $52.5
million at December 31, 1994 to $53.0 million at December 31, 1995. The
December 31, 1995 cash balance includes $5.8 million in foreign bank accounts
and $25.0 million borrowed under the New Credit Agreements referred to below as
compared to $3.0 million and $40.0 million, respectively, at December 31, 1994.
The bank accounts of the Company's foreign subsidiaries and Dyn and Dyn
subsidiaries are only available to support their respective operations.
17
The positive cash flow provided by operations of approximately $10.7 million in
1995 was principally due to management of accounts receivable collections and of
payments of vendors.
Pursuant to the Plan of Reorganization, the Company and its wholly-owned
subsidiary SellCo issued, or reserved for issuance, four series of notes (the
"New Notes") and 9,424,083 shares of stock of the Company's New Common Stock
(constituting 100% of outstanding 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). It is contemplated that, subject
to the rights of the lenders under the Company's New Credit Agreements,
discussed below, to receive the first $15.0 million of proceeds of the sale of
stock or assets of the Company's water supply subsidiaries, JWS and Sea Cliff
(collectively, the "Water Companies"), the balance of the Series A Notes will be
prepaid with the net cash proceeds (as defined) derived from the sale of
subsidiaries of SellCo ("Net Sales Proceeds"), including the Water Companies,
and five other non-core subsidiaries pledged as collateral for the Series A
Notes (the "Other Non-Core Subsidiaries') and that the SellCo Notes, a series of
the New Notes, will only be paid from and to the extent of any remaining Net
Sales Proceeds 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 on maturity.
On December 14, 1994, the Company and certain of its subsidiaries entered into
two credit agreements (the "New 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 New Credit
Agreements, is among the Company, its subsidiary, MES Holdings Corporation
("MES"), substantially all of the U.S. subsidiaries of MES, as guarantors, and
the lenders and provides the Company and MES with loans in an aggregate amount
of up to $35.0 million. The Dyn Credit Agreement, the other New Credit Agreement
is among the Company, Dyn, Dyn's subsidiaries, as guarantors, and the lenders
and provides Dyn with loans in an aggregate amount of up to $10 million. All the
loans bear interest on the principal amount thereof at the rate of 15% per annum
and mature on June 14, 1996.
The loans under the MES Credit Agreement are guaranteed by most of the U.S.
subsidiaries of MES and are secured by, among other things, substantially all of
the assets of the Company, MES and most of its U.S. subsidiaries, including
their respective accounts receivable, inventories, general intangibles and
equipment and the capital stock of the U.S. MES subsidiaries (as defined) (but
not the stock of MES, Dyn, SellCo, SellCo's subsidiaries or the five Other Non-
Core Companies) 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 rights to such proceeds of the lenders under the Dyn Credit Agreement. The
Dyn loans are guaranteed by the Dyn subsidiaries and are secured by
substantially all of the assets of Dyn and the Dyn subsidiaries, including their
respective accounts receivable, inventories, general intangibles and equipment
and the capital stock of Dyn and the Dyn 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 rights to such proceeds of the lenders
under the MES Credit Agreement. The Dyn loans are also secured by the collateral
securing the MES loans, subject to the rights to such collateral of the lenders
under the MES Credit Agreement.
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 is
being used for the general working capital of MES, the MES subsidiaries and the
Company. The proceeds of the Dyn loans were used to pay fees and expenses in
connection with the Dyn Credit Agreement and is being used for the general
working capital of Dyn and the Dyn subsidiaries.
Each of the New Credit Agreements, which expire on June 14, 1996, contain
various affirmative and negative covenants. The negative covenants limit the
ability of the Company, MES, Dyn and their respective subsidiaries' to take
certain actions without the lenders' approval. Such actions include, among other
things: (i) merger or consolidation, (ii) incurrence of indebtedness, (iii)
placing of liens upon their property, (iv) making of
18
loans, investments or guarantees and (v) transfer of assets. The negative
covenants require MES, Dyn and their subsidiaries to maintain their backlogs and
work-in-progress at not less than specified levels and to prevent their losses
from operations from exceeding specified amounts in any month. The MES Credit
Agreement also requires the Company, MES and its subsidiaries, and Dyn and its
subsidiaries to maintain certain financial coverage ratios. Borrowings
outstanding as of December 31, 1995 under the MES Credit Agreement and Dyn
Credit Agreement were $25.0 million and $0, respectively.
In June 1995, the Company's Canadian subsidiary, Comstock Canada Limited
("Comstock Canada"), entered into a credit agreement providing for an overdraft
facility of up to Canadian $2.0 million. The facility is secured by certain
assets of Comstock Canada and deposit instruments of a Canadian subsidiary of
the Company. The facility provides for interest at the bank's prime rate (7.5%
at December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31,
1995, Comstock Canada had no borrowings outstanding under this credit facility.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million).
The credit facility consists of the following components with the individual
credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million
(approximately U.S. $14.0 million); a facility for the issuance of guarantees,
bond and indemnities of up to Brit. Pound7.3 million (approximately U.S. $11.3
million); and other credit facilities of up to Brit. Pound 0.8 million
(approximately U.S. $1.3 million). The facility is secured by substantially all
of the assets of the Company's principal United Kingdom subsidiaries. The
overdraft facility provides for interest at the bank's base rate, as defined
(6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of
borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound
5.0 million. This credit facility, as amended, expires June 30, 1996.
As of December 31, 1995, the Company's United Kingdom subsidiaries had utilized
approximately $23.0 million of the credit facilities as follows: approximately
$13.4 million of borrowings under the overdraft line, approximately $8.3 million
for the issuance of guarantees and approximately $1.3 million under other credit
facilities.
The Company is actively seeking to replace or extend its existing credit
facilities that expire in 1996.
On November 4, 1994, JWS and Sea Cliff entered into a credit agreement
providing for a credit facility to JWS of $17.9 million and for a credit
facility to Sea Cliff of $2.1 million at an interest rate based upon either
prime rate, LIBOR plus 5/8% or bid rate, as those terms are defined in the
credit agreement. These borrowings are reflected as current liabilities in the
condensed consolidated balance sheet relating to discontinued operations (the
water supply business) and other businesses held for sale which is presented in
Note N to the consolidated financial statements. This credit agreement was
extended from November 4, 1995 to May 3, 1996. During the period from November
4, 1995 to May 3, 1996, the Company's borrowings are limited to $12.0 million
for JWS. JWS' obligations under the credit agreement become due and payable on
the earlier of (a) May 3, 1996, (b) the tenth business day following any
disposition by JWS outside the ordinary course of business of assets with an
aggregate value in excess of $5,000,000. Sea Cliff's obligations under the
credit agreement become due and payable on the earlier of (a) May 3, 1996 or (b)
the tenth business day following any disposition by JWS outside the ordinary
course of business of assets with an aggregate fair market value in excess of
$5,000,000, (c) a distribution by JWS to its stockholders of the proceeds of
such disposition, or (d) a disposition by Sea Cliff outside the ordinary course
of business of assets with an aggregate fair market value in excess of $50,000.
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 the Company's proposed 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) will reduce the ratio required to
be maintained by the Company and certain of its subsidiaries
19
under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined,
contained in each of the Indentures and (ii) will exclude from the Ratio
calculation certain non-cash interest payments which are payable by the issuance
of additional Series A Notes and Series C Notes.
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 flow from operations combined with the
available funds under the MES and Dyn Credit Agreements and any successor credit
facility, will provide sufficient liquidity to meet the Company's operating,
capital and scheduled debt service requirements through at least 1996. Factors
supporting this belief include the terms of the New Notes, including the
interest and amortization payment terms, and the contemplated prepayment of
certain of the New Notes from the proceeds of sales of subsidiaries held for
sale.
CERTAIN INSURANCE MATTERS
Since October 1992, neither the Company nor its indirect wholly-owned captive
insurance subsidiary has been able to obtain additional letters of credit to
secure their insurance obligations, and, as a result they have been required to
make cash collateral deposits to an unrelated insurance company. The deposits
totaled $30.8 million and $37.6 million as of December 31, 1995 and 1994,
respectively, and are classified as a long-term asset in the accompanying
Consolidated Balance Sheets under the caption "Insurance cash collateral" in
Other Assets. The Company expects to continue to be required to post cash
collateral or letters of credit for insurance claims.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REORGANIZED COMPANY
DECEMBER 31,
-----------------------
1995 1994
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,007 $ 52,505
Accounts receivable, less allowance for
doubtful accounts of $14,892 and
$19,820, respectively 435,974 438,958
Costs and estimated earnings in excess
of billings on uncompleted contracts 65,551 52,347
Inventories 8,031 6,910
Prepaid expenses and other 8,365 8,115
Net assets held for sale 61,969 55,401
-------- --------
Total current assets 632,897 614,236
INVESTMENTS, NOTES AND OTHER
LONG-TERM RECEIVABLES 4,684 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 27,137 33,670
OTHER ASSETS:
Insurance cash collateral 30,812 37,577
Funds held in escrow 8,271 8,649
Miscellaneous 7,144 7,244
-------- --------
46,227 53,470
-------- --------
TOTAL ASSETS $710,945 $707,498
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
21
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REORGANIZED COMPANY
DECEMBER 31,
-----------------------
1995 1994
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 14,665 $ 4,803
Borrowings under working capital credit 25,000 40,000
lines
Current maturities of long-term debt
and capital lease obligations 1,875 2,089
7% Senior Secured Notes (Series A) 61,969 55,401
Accounts payable 224,002 219,564
Billings in excess of costs and
estimated earnings on
uncompleted contracts 113,590 115,567
Accrued payroll and benefits 38,928 38,914
Other accrued expenses and liabilities 45,445 45,660
-------- --------
Total current liabilities 525,474 521,998
LONG-TERM DEBT 68,240 61,230
OTHER LONG-TERM OBLIGATIONS 46,621 43,140
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 and 9,424,083
authorized, 9,424,706 shares issued
and outstanding, respectively 94 94
Warrants 2,179 2,179
Capital surplus 78,863 78,857
Cumulative translation adjustment 327 --
Accumulated deficit (10,853) --
-------- --------
Total stockholders' equity 70,610 81,130
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $710,945 $707,498
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
22
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REORGANIZED PREDECESSOR COMPANY
COMPANY
1995 1994 1993
----------- ---------- ----------
REVENUES $1,588,744 $1,763,961 $2,194,735
COSTS AND EXPENSES:
Cost of sales 1,445,597 1,607,589 2,043,558
Selling, general and administrative 137,254 178,575 216,709
---------- ---------- ----------
1,582,851 1,786,164 2,260,267
---------- ---------- ----------
OPERATING INCOME (LOSS) 5,893 (22,203) (65,532)
Interest expense (17,453) (3,867) (51,075)
Interest income 2,633 1,391 888
Net (loss) gain on businesses sold or (926) 1,183 1,028
held for sale
Loss on investment -- (4,452) --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS, INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (9,853) (27,948) (114,691)
---------- ---------- ----------
REORGANIZATION ITEMS:
Professional fees -- (12,535) --
Fresh-start adjustments -- (78,783) --
---------- ---------- ----------
-- (91,318) --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
INCLUDING
REORGANIZATION ITEMS, BEFORE INCOME
TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (9,853) (119,266) (114,691)
INCOME TAX PROVISION (BENEFIT) 1,000 (332) (700)
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
INCLUDING REORGANIZATION
ITEMS, BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (10,853) (118,934) (113,991)
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Income from operations, net of
income taxes -- 10,216 11,263
Loss from disposal of businesses, net
of income taxes -- -- (20,350)
---------- ---------- ----------
Income (loss) from discontinued
operations -- 10,216 (9,087)
EXTRAORDINARY ITEM - GAIN ON DEBT
DISCHARGE -- 413,249 --
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR:
Post-employment benefits -- (2,100) --
---------- ---------- ----------
NET (LOSS) INCOME $ (10,853) $ 302,431 $ (123,078)
========== ========== ==========
SUPPLEMENTAL (LOSS) INCOME PER COMMON
SHARE
AND COMMON SHARE EQUIVALENT(1):
Continuing operations before
extraordinary item $(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 (Loss) Income $(1.13) $ 32.09 *
========== ========== ==========
(1) Historical per share data have not been presented prior to December 31,
1994 as it is not meaningful since the Company has been recapitalized and
adopted Fresh-Start Reporting as of December 31, 1994.
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
23
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
REORGANIZED
COMPANY PREDECESSOR COMPANY
1995 1994 1993
----------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(10,853) $ 302,431 $(123,078)
Adjustments to reconcile net (loss)
income to net cash
provided by (used in) operating
activities:
Depreciation and amortization 8,912 15,724 35,246
Net loss (gain) from businesses sold or
held for sale 926 (1,183) (1,028)
Provision for losses on accounts and -- -- 13,663
other receivables
Write-down of investment -- 4,452 --
Stock compensation 6 -- 727
Deferred income taxes -- -- 4,138
Loss from disposal of discontinued
operations -- -- 20,350
Cumulative effect of change in accounting for
post-employment benefits -- 2,100 --
Non-cash interest expense 7,690 -- --
Other, net 465 -- 2,411
-------- --------- ---------
7,146 323,524 (47,571)
Change in Operating Assets and
Liabilities Excluding
Effect of Businesses Disposed of and
Acquired:
Decrease in accounts receivable, net 2,635 9,172 41,286
(Increase) decrease in inventories and
contracts in progress (16,320) (6,879) 35,292
Increase (decrease) in accounts payable
and other accrued expenses and liabilities 5,312 22,703 (73,563)
Changes in other assets and
liabilities, net 11,928 (20,703) 17
Charges due to reorganization
activities:
Reorganization charges - professional fees -- 12,535 --
Reorganization charges - fresh-start adjustments -- 78,783 --
Gain on discharge of debt -- (413,249) --
-------- --------- ---------
Net Cash Provided by (Used in) Operations $ 10,701 $ 5,886 $ (44,539)
-------- --------- ---------
(continued)
24
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)(CONTINUED)
REORGANIZED
COMPANY PREDECESSOR COMPANY
1995 1994 1993
----------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital credit
lines $ -- $ 40,000 $ --
Payments of working capital credit lines (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 180 -- 710
Payments of long-term debt and capital
lease obligations (1,379) (1,430) (6,027)
Repayment of Series B Notes and partial
Series A Note repayment -- (16,054) --
Redemption of preferred stock of
subsidiary company -- -- (500)
Proceeds from notes payable 21,266 4,646 7,900
Payments of notes payable (11,404) (172) (27,169)
Debt issuance costs -- (900) --
-------- -------- --------
Net Cash (Used in) Provided by
Financing Activities (6,337) 10,150 (25,086)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses and 650 13,620 43,400
other assets
Purchase of property, plant and (4,512) (4,164) (17,329)
equipment
Net disbursements for other investments -- (2,442) --
Change in cash balances of businesses
held for sale or sold -- (10,079) (3,748)
-------- -------- --------
Net Cash (Used in) Provided by
Investing Activities (3,862) (3,065) 22,323
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 502 12,971 (47,302)
Cash and Cash Equivalents at Beginning
of Year 52,505 39,534 86,836
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 53,007 $ 52,505 $ 39,534
======== ======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
25
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
Retained
New Old Old Old Warrants Cumulative Earnings Stockholders'
Common Preferred Common of New Capital Translation (Accumulated Equity
Stock Stock Stock Participation Warrants Surplus Adjustments Deficit) (Deficit)
------ --------- ------ -------------- -------- ------- ----------- ------------ -------------
BALANCE,
JANUARY
1, 1993 $ -- $ 21,250 $ 4,075 $ 576 $ -- $ 203,505 $ (3,930) $(401,455) $(175,979)
Deferred
compensation -- -- 9 -- -- 718 -- -- 727
Foreign currency
translation
adjustment -- -- -- -- -- -- (2,138) -- (2,138)
Preferred stock
dividends -- -- -- -- -- -- -- (1,806) (1,806)
Other, net -- -- (12) -- -- 24 -- -- 12
Net loss -- -- -- -- -- -- -- (123,078) (123,078)
---- -------- ------- ----- ------ --------- ------- --------- ---------
BALANCE,
DECEMBER
31, 1993 -- 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
==== ======== ======= ===== ====== ========= ======= ========= =========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
26
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 dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, pre-petition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the newly issued shares of common stock of EMCOR ("New Common Stock"). The pre-
petition holders of the Company's subordinated debt, common and preferred stock
and warrants of participation received warrants ("New Warrants") to purchase New
Common Stock of EMCOR in exchange for their debt and equity interests.
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 to the Company during its Chapter 11
proceeding, the following securities: (i) 9,424,083 shares of New 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
and 1993 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 a result, during 1994, the
liabilities compromised in the bankruptcy proceeding were classified to "Pre-
consent date bankruptcy claims subject to compromise". 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 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 will only accrue to the benefit of the holders of the notes issued by
the Company's subsidiary SellCo after payment in full of the Company's Series A
Notes and certain other obligations (See Note G and H) and the operating results
substantially offset interest accrued on the Company's Series A Notes which
interest has
27
been recognized within the caption "Net assets held for sale" in the
Consolidated Balance Sheet as of December 31, 1995.
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 T.
As indicated in Notes M and N, during its bankruptcy proceeding the Company
developed and implemented a business restructuring plan which includes the sale
of its water supply business and other non--core businesses. The net assets of
businesses to be sold have been classified in the Consolidated Balance Sheets as
of December 31, 1995 and 1994 as "Net assets held for sale" ("NAHFS"). In 1993,
the Company sold substantially all of its information services businesses.
Operating results for all periods presented prior to 1995 reflect the Company's
information services and water supply businesses as discontinued operations.
NOTE B NATURE OF OPERATIONS
EMCOR is a multinational corporation involved in mechanical and electrical
construction and facilities management 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
management 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 to customers, at the customer's facilities, which services are
commonly referred to as facilities management. Mechanical and electrical
construction and facilities management 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 has implemented the recommended accounting for entities emerging
from Chapter 11 reorganization set forth in SOP 90--7 (See Note A).
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 1995
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 effect 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 on 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 and accrued
to date for each contract to the estimated labor costs for such contract, while
others are on the cost to cost method. Revenues on facilities management
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
28
uncertainties inherent in the estimation process, it is reasonably possible that
completion costs, including those arising from contract penalty provision and
final contract settlements, will be revised in the near-term. Such revision 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, 1995 and 1994 are as follows (in thousands):
REORGANIZED COMPANY
1995 1994
---------- ----------
Costs incurred on uncompleted contracts $2,528,864 $2,853,799
Estimated earnings 175,490 195,508
---------- ----------
2,704,354 3,049,307
Less billings to date 2,752,393 3,112,527
---------- ----------
$ (48,039) $ (63,220)
========== ==========
Such amounts are included in the accompanying Consolidated Balance Sheets at
December 31, 1995 and 1994 under the following captions (in thousands):
REORGANIZED COMPANY
1995 1994
---------- ----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 65,551 $ 52,347
Billings in excess of costs and
estimated earnings on uncompleted
contracts (113,590) (115,567)
---------- ----------
$ (48,039) $ (63,220)
========== ==========
Included in accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts are pending change orders and claims in the
process of negotiation which aggregate approximately $47.4 million and $69.0
million at December 31, 1995 and 1994, respectively. Also included in accounts
receivable are billed
29
receivables and retainage of approximately $25.8 million at December 31, 1995
related to contracts involving claims. Such amounts generally 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, 1995 and 1994
include $64.8 million and $67.2 million, respectively, of retainage billed under
terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1995 will be collected during 1996.
RESTRICTED CASH
In connection with the credit agreement of the Company's Canadian subsidiary,
Comstock Canada Limited ("Comstock Canada"), approximately $1.4 million of cash
and cash equivalents, included in the accompanying Consolidated Balance Sheet as
of December 31, 1995 is security against draw downs on this credit facility. The
Company is precluded from withdrawing portions of this amount if there are
borrowings outstanding under the credit facility. Comstock Canada has no
borrowings under this facility at December 31, 1995 and accordingly, the
restricted amount has been classified as a current asset.
As further described in Note G, under the Company's various revolving credit
agreements, restrictions are placed on the transfer of assets, including cash
and cash equivalents, between the Company and its foreign subsidiaries, as well
as a certain domestic subsidiary.
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,
1995, cash and cash equivalents, current long-term 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 as of December 31, 1995 and 1994 consists of (in
thousands):
REORGANIZED
COMPANY
1995 1994
------- -------
Machinery and equipment $19,398 $18,069
Furniture and fixtures 3,802 3,334
Land, buildings and leasehold
improvements 12,516 12,267
------- -------
35,716 33,670
Accumulated depreciation and
amortization (8,579) --
------- -------
$27,137 $33,670
======= =======
30
INVENTORIES
Inventories, which consist primarily of construction materials, are stated at
the lower of cost or market. Cost is determined by principally using average
costs.
NET ASSETS HELD FOR SALE
NAHFS are stated at the lower of cost or estimated net realizable value and
carried as current assets on the basis of their actual or expected disposition
dates.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
totaling $5.0 million as of the Effective Date is being amortized on a
straight--line basis over 15 years. This amount is classified as Other Assets
under the caption "Miscellaneous" in the accompanying Consolidated Balance
Sheets.
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. Translation
adjustments have been accumulated as a separate component of stockholders'
equity.
SUPPLEMENTAL NET (LOSS) INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Per share data has not been presented for periods prior to the Effective Date
as it is not meaningful since the Company has been recapitalized and adopted
Fresh Start Reporting as of December 31, 1994. Supplemental net (loss) income
per common share and common equivalent share data have been calculated based on
the assumed issuance of the New Common Stock (9,424,083 shares) as of January 1,
1994 and the weighted average number of shares outstanding as of December 31,
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 liabilities and assets 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.
31
NOTE D DEBTOR-IN-POSSESSION FINANCING
In February 1994, the Company and most of its subsidiaries entered into an
agreement with Belmont to provide for a debtor-in-possession credit facility to
the Company (the "DIP Loan"). The agreement made available to the Company a
credit facility of $35.0 million at an interest rate of 12% per annum during the
Chapter 11 proceeding. Among other things, the agreement also provided that
Belmont was to receive, as additional interest, a percentage of the securities
to be issued under the Plan of Reorganization. The DIP Loan was secured by a
first lien on substantially all of the assets of the Company and most of its
subsidiaries. As of the Effective Date, the Company had drawn down $30.0 million
under the DIP Loan.
The Company received waivers of certain covenants under the DIP Loan dated
April 27, 1994, May 6, 1994, August 2, 1994 and November 4, 1994. Pursuant to
those waivers the Company was permitted by Belmont to draw on the line of
credit.
The DIP Loan was repaid on the Effective Date from borrowings under the MES
Credit Agreement (as that term is hereafter defined)(See Note G).
NOTE E REORGANIZATION ITEMS
For the year ended December 31, 1994, the Company recorded $12.5 million of
reorganization charges 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 V) which reflect the net charge to
state assets and liabilities at fair value.
NOTE F EXTRAORDINARY ITEM -- DISCHARGE OF DEBT
The Plan of Reorganization resulted in the discharge of pre--consent date
liabilities totaling approximately $623.0 million. The value of securities
distributed was $413.2 million, less allowed claims, and, accordingly, the
resulting gain was recorded as an extraordinary item in 1994.
NOTE G CURRENT DEBT
MES CREDIT AGREEMENT
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 are guaranteed by certain
direct or indirect subsidiaries of MES (the "MES Subsidiaries") and are 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 Company's two water supply companies (the "Water
Companies") to the extent of the first $15.0 million of such proceeds, subject
to the rights to such proceeds of the Lenders under the Dyn Credit Agreement (as
that term is hereafter defined). The MES Loans bear interest on the principal
amount thereof at the rate of 15% per annum and mature on June 14, 1996.
DYN CREDIT AGREEMENT
On December 14, 1994, the Company, Dyn Specialty Contracting, Inc. ("Dyn"), a
wholly--owned subsidiary of the Company, and Dyn's subsidiaries 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 are guaranteed by the Dyn subsidiaries and are 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 rights to such proceeds
of the Lenders under the MES Credit Agreement. The Dyn Loans bear interest on
the principal amount thereof at the rate of 15% per annum, and mature on June
14, 1996.
32
Borrowings under the MES and Dyn Credit Agreements (collectively, the "New
Credit Agreements"), $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
Sheets. Albert Fried, Jr., a director of the Company, is Managing Partner of
Albert Fried & Company, which agreed to loan up to $7.0 million as one of the
lenders under the New 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 New
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 New 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 New Credit Agreements.
Each of the New Credit Agreements, contains various affirmative and negative
covenants. The negative covenants limit the ability of the Company, MES, Dyn
and their respective subsidiaries to take certain actions without the lenders'
approval. Such actions include, among other things; (i) merger or
consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon
their property, (iv) making of loans, investments or guarantees and (v) transfer
of assets. The negative covenants require MES, Dyn and their subsidiaries to
maintain their backlogs and work-in-progress at not less than specified levels
and to prevent their losses from operations from exceeding specified amounts in
any month. The MES Credit Agreement also requires the Company, MES and its
subsidiaries, and Dyn and its subsidiaries to maintain certain financial
coverage ratios.
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. A maximum of $7.2 million of Series A
Notes are available as of December 31, 1995 for issuance. The Series A Notes are
guaranteed by MES and SellCo. The terms of the Series A Notes require that the
net proceeds realized from the sale of the stock or assets of the Company's
subsidiaries be applied to the prepayment of the Series A Notes (subject to the
rights of the lenders under the MES and Dyn Credit Agreements to receive
proceeds from the sale of the stock or assets of the Company's mechanical and
electrical subsidiaries and the first $15.0 million of proceeds of the sale of
stock or assets of the Water Companies). The recorded amount includes the
estimated amount of Series A Notes to be issued upon resolution of the disputed
and unliquidated pre-petition general unsecured 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 and unsecured claims. Approximately $4.7 million of the issued
Series A Notes were redeemed prior to December 31, 1995. The Series A Notes have
been recorded at a discount to the face amount to yield an estimated effective
interest rate of 12%. The Series A Notes have been classified as a current
liability based on the expected disposition of assets held for sale. Interest on
the Series A Notes is payable semiannually by issuance of additional Series A
Notes until maturity. The outstanding balance of the Series A Notes included in
the Consolidated Balance Sheet as of December 31, 1995 is $62.0 million.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series A Notes consented to the Company's proposed amendments to the
Series A Indenture under which the Series A Notes were issued. The amendments
(i) will reduce 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 the Indenture and (ii) will exclude from
the Ratio calculation certain non-cash interest payments which are payable by
the issuance of additional Series A Notes.
FOREIGN BORROWINGS
In June 1995, Comstock Canada entered into a credit agreement providing for an
overdraft facility of up to Canadian $2.0 million. The facility is secured by
certain assets of Comstock Canada and deposit instruments of a Canadian
subsidiary of the Company. The facility provides for interest at the bank's
prime rate (7.5% at
33
December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31,
1995, Comstock Canada had no borrowings outstanding under this credit facility.
Comstock Canada is negotiating the terms of an extension of the credit facility;
however, there can be no assurance the credit facility will be extended or, if
so, its terms.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million).
The credit facility consists of the following components with the individual
credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million
(approximately U.S. $14.0 million); a facility for the issuance of guarantees,
bond and indemnities of up to Brit. Pound 7.3 million (approximately U.S. $11.3
million); and other credit facilities of up to Brit. Pound 0.8 million
(approximately U.S. $1.3 million). The facility is secured by substantially all
of the assets of the Company's principal United Kingdom subsidiaries. The
overdraft facility provides for interest at the bank's base rate, as defined
(6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of
borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound
5.0 million. This credit facility, as amended, expires June 30, 1996.
As of December 31, 1995, the Company's United Kingdom subsidiaries had
utilized approximately $23.0 million of the credit facilities as follows:
approximately $13.4 million of borrowings under the overdraft line,
approximately $8.3 million for the issuance of guarantees and approximately $1.3
million under other credit facilities.
The Company is actively seeking to replace or extend its existing credit
facilities that expire in 1996.
NOTE H LONG-TERM DEBT
Long-Term Debt in the accompanying Consolidated Balance Sheets consists of the
following amounts at December 31, 1995 and 1994(in thousands):
REORGANIZED COMPANY
1995 1994
------- --------
Series C Notes, original face value
of $62,827 at 11.0%,
discounted to a 14% effective rate,
due 2001 $61,494 $53,450
Supplemental SellCo Note, original face
value of $5,464 at 8.0%,
discounted to a 14.0% effective rate,
due 2004 4,112 4,112
Capitalized Lease Obligations at
weighted average interest rates
from 7.25% to 11.0%, payable in
varying amounts through 2004 1,284 2,029
Other, at weighted average interest
rates of approximately 10.75%, payable
in varying amounts through 2012 3,225 3,728
------- --------
70,115 63,319
Less current maturities (1,875) (2,089)
------- --------
$68,240 $61,230
======= ========
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 is payable semiannually by the issuance of additional Series C
Notes for eighteen months from the Effective Date and thereafter is payable
quarterly in cash. The Series C Notes are unsecured senior indebtedness of the
Company but subordinate to (i) the Series A Notes and (ii) up to $100 million of
working capital indebtedness of the Company or MES, and are guaranteed by MES
subject to payment in full of the Series A Notes. The Series C Notes have been
recorded at a discount to their face amount to yield an estimated effective
interest rate of 14%.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series C Notes consented to the Company's proposed amendments to the
Series C Indenture under which the Series C Notes were issued. The amendments
(i) will reduce the ratio required to be maintained by the Company and certain
of its
34
subsidiaries under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as
defined, contained in the Indenture and (ii) will exclude from the Ratio
calculation certain non-cash interest payments which are payable by the issuance
of additional Series C Notes.
SUPPLEMENTAL SELLCO NOTE
Pursuant to the Plan of Reorganization, EMCOR issued to SellCo its 8%
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 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.
SERIES B NOTES
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued
approximately $11.9 million principal amount of Series B Notes. The entire $11.9
million principal amount was immediately redeemed on that date at the face
amount in accordance with the terms of the Series B Notes from the proceeds
realized from the sale and liquidation of certain subsidiaries.
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. Subject to the prior payment in
full of the Series A Notes and establishment of a cash reserve for the payment
of capital gains taxes arising from the sale of subsidiaries of SellCo and the
rights of the lenders under the New Credit Agreements with respect to the first
$15.0 million of such proceeds from the sale of the Water Companies, the SellCo
Notes are mandatorily prepayable to the extent of net sales proceeds (as
defined) from the sale of stock or assets of SellCo subsidiaries. Since the
SellCo Notes will only be satisfied to the extent that assets of SellCo and its
subsidiaries generate sufficient cash in excess of what is required to redeem
the Series A Notes and to prepay a portion of indebtedness under the MES and Dyn
Credit Agreements, the SellCo Notes have been netted in the caption "Net assets
held for sale" in the accompanying Consolidated Balance Sheets at December 31,
1994. 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. At
this time, the Company cannot determine the amount of net sale proceeds, as
defined, if any, from the sale of SellCo's subsidiaries that will be available
to redeem SellCo Notes.
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, 1995 and
1994, respectively, long--term debt, excluding current maturities, totaling $1.9
million and $2.2 million was owed by certain of the Company's subsidiaries. The
aggregate amount of long--term debt maturing during the next five years is $0.3
million in 1996, $0.2 million in 1997 and 1998, $0.3 million in 1999 and $1.2
million thereafter.
35
NOTE I INCOME TAXES
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At December 31, 1995, the Company had a net operating loss carry--
forward ("NOL") for U.S. income tax purposes expiring in years 2007 through 2010
which approximates $225.0 million. In addition, the Company has a U.S. capital
loss carryover of approximately $15.0 million expiring in years 1998 and 1999.
However, a subsequent ownership change within two years from the Effective Date
would reduce to zero the future NOL benefits under Internal Revenue Code Section
382(1)(5).
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 date of emergence from Chapter 11 will result in a charge to
the tax provision (provision in lieu of income taxes) and are used first to
reduce the reorganization value in excess of amounts allocable to identifiable
assets and then is applied to capital surplus.
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, 1995 and 1994 of $97.2 million and $114.5
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 for the
years ended December 31, 1995, 1994 and 1993 consist of (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -------------------
1995 1994 1993
------ ------ -------
Current:
Federal $ -- $ -- $(4,138)
State and local 925 1,000 1,000
Foreign 75 -- (1,700)
------ ------ -------
1,000 1,000 (4,838)
------ ------ -------
Deferred:
Federal -- -- 4,138
State and Local -- (1,332) --
------ ------ -------
-- (1,332) 4,138
------ ------ -------
$1,000 $ (332) $ (700)
====== ====== =======
36
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1995, 1994
and 1993 are as follows (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ---------------------
1995 1994 1993
------- ------- --------
Federal income taxes at the
statutory rate $(3,449) $(9,782) $(40,142)
State and local income taxes,
net of federal tax 650 650 650
Valuation allowance against
deferred tax asset 3,799 8,800 38,792
------- ------- --------
$ 1,000 $ (332) $ (700)
======= ======= ========
Factors accounting for the variation from U.S. statutory income tax rates
relating to discontinued operations for the years ended December 31, 1994 and
1993, are as follows (in thousands):
PREDECESSOR COMPANY
-------------------
1994 1993
------- -------
Federal income taxes at the
statutory rate $ 3,576 $(3,180)
Valuation allowance against
deferred tax asset (3,576) 3,180
------- -------
$ -- $ --
======= =======
The components of the net deferred income tax liability for the years ended
December 31, 1995 and 1994 are as follows (1995 and 1994 net deferred income tax
liability related to NAHFS have been netted against such caption) (in
thousands):
REORGANIZED
COMPANY COMPANY
----------- -----------
1995 1994
-------- ---------
Deferred tax assets:
Net operating loss carry-forward $ 91,987 $ 95,231
Excess of amounts expensed for
financial statement
purposes over amounts deducted for 42,593 46,522
income tax purposes
Other 2,899 2,899
-------- ---------
Total deferred tax asset 137,479 144,652
-------- ---------
Deferred tax liabilities:
Costs capitalized for financial
statement purposes
and deducted for income tax purposes 40,233 28,790
Foreign deferred tax liability -- 1,403
-------- ---------
Total deferred tax liability 40,233 30,193
-------- ---------
Net deferred tax asset before valuation
allowance 97,246 114,459
Valuation allowance for net deferred
tax asset (97,246) (114,459)
-------- ---------
Net deferred income tax liability $ -- $ --
======== =========
37
Loss before income taxes from continuing operations for the years ended
December 31, 1995, 1994 and 1993 consists of the following (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ----------------------
1995 1994 1993
-------- -------- ---------
United States $(10,063) $(10,897) $(106,672)
Foreign 210 (17,051) (8,019)
-------- -------- ---------
$ (9,853) $(27,948) $(114,691)
======== ======== =========
Income (loss) before income taxes from discontinued operations for the years
ended December 31, 1994 and 1993, consists of the following (in thousands):
PREDECESSOR COMPANY
--------------------
1994 1993
------- -------
United States $10,216 $(6,270)
Foreign -- (2,817)
------- -------
$10,216 $(9,087)
======= =======
The above amounts applicable to discontinued operations in 1993 include a loss
from disposal of businesses of $20.4 million.
NOTE J CAPITAL STOCK AND WARRANTS
AUTHORIZED CAPITAL STOCK
As of December 31, 1995, the Company's Restated Certificate of Incorporation,
as amended, provides that the total number of all classes of stock which the
Company shall have authority to issue is 13,700,000 shares of New Common Stock,
par value $.01 per share, and 1,000,000 shares of Preferred Stock (the "New
Preferred Stock"), par value $.10 per share, issuable in series. As of February
29, 1996, 9,424,706 shares of New Common Stock had been issued and were
outstanding. As of February 29, 1996, there were no issued or outstanding shares
of Preferred Stock.
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 New Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000. 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 New Common Stock
on the date of grant; provided, however, that the exercise price for the initial
grant of options with respect to 500,000 shares was required under the Plan of
Reorganization to be equal to the average market price of New Common Stock over
the 20 day trading period immediately preceding the date of issuance of the
option; and provided, further, that if the average market price of New Common
Stock for the applicable period could not be determined, the exercise price was
to be determined by an investment advisor selected by the Compensation
Committee. Notwithstanding the foregoing, the exercise price of any such option
38
which is an incentive stock option could not be less than the fair market value
of the New Common Stock on the date of grant of the option.
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.
APPROVAL OF 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 New Common Stock at an
exercise price of $5.125 per share and each non-employee director on November
17, 1995 was granted an option to purchase 3,000 shares of New Common Stock at
an exercise price of $9.375 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 New 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.
The aggregate number of shares of New Common Stock that may be issued pursuant
to options under the 1995 Plan may not exceed 200,000.
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the New 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. Any amendment 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 New 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.
Stock Options Average Price
------------- -------------
Balance, December 15, 1994 -- $ --
Activity -- --
Balance, December 31, 1994 -- --
Options granted 748,000 5.13
-------
Balance, December 31, 1995 748,000 $5.13
======= -----
At December 31, 1995, no options were exercisable.
39
WARRANTS
1,450,000 shares of New Common Stock were reserved for issuance upon exercise
of New Warrants (described below) issued pursuant to the Plan of Reorganization
as described below.
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 New Common Stock, namely, 600,000 Series X
Warrants and 600,000 Series Y Warrants (which together with the Series Z
Warrants described below are referred to herein as the "New 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 New Common Stock, which Series Z
Warrants have an exercise price of $50 per share and must be exercised within
two years of their issuance.
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.
As of December 31, 1995, the number of X Warrants, Y Warrants and Z Warrants
(collectively, the "New Warrants") issued and outstanding were 605,012, 605,012
and 169,459, respectively.
NOTE K 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 for the years ended
December 31, 1995, 1994 and 1993 consists of the following components (in
thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -------------------
1995 1994 1993
------- ------- -------
Service costs--benefits earned $ 1,726 $ 1,725 $ 1,479
Interest on projected benefit 2,166 2,772 2,478
obligations
Actual return on plan assets (4,214) 2,554 (7,955)
Net amortization and deferral 1,866 (6,296) 5,129
------- ------- -------
Net pension expense $ 1,544 $ 755 $ 1,131
======= ======= =======
40
The benefit obligations and funded status of the plan at December 31, 1995 and
1994 are as follows (in thousands):
1995 1994
------- -------
Accumulated benefit obligations:
Vested $25,000 $29,824
Non-Vested -- --
Impact of future salary increases 4,100 4,769
------- -------
Projected benefit obligations 29,100 34,593
Plan assets at market value 29,300 33,997
------- -------
Excess (deficiency) of plan assets over
projected benefit obligations 200 (596)
Unrecognized prior service cost 509 867
Unrecognized net (gain) loss from past
experience different from that assumed
and effect of changes in assumptions (578) 795
Unrecognized net (asset) from initial
application of SFAS No. 87 (437) (759)
------- -------
(Accrued) prepaid pension $ (306) $ 307
======= =======
The assumptions used as of December 31, 1995, 1994 and 1993 in determining the
pension cost and liability shown above were as follows:
1995 1994 1993
-------------------
Discount rate 8.5% 9.0% 9.0%
Rate of salary progressions 6.5% 7.0% 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
management services business units. Such contributions approximated $35.1
million, $41.4 million and $45.5 million for the years ended December 31, 1995,
1994 and 1993, respectively.
The Company has defined contribution retirement plans that cover its U.S. non--
union eligible employees. Contributions to these plans are based on a percentage
of the employee's base compensation. The expense recognized for the years ended
December 31, 1995, 1994 and 1993, relating to continuing operations for the
defined contribution plans was $2.1 million, $6.9 million and $3.5 million,
respectively.
41
NOTE L 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 relating to continuing operations at
December 31, 1995 are as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES SUB-LEASES
------- --------- ----------
Year 1 $ 521 $10,704 $ 2,373
Year 2 150 9,294 1,549
Year 3 101 6,679 1,186
Year 4 98 4,881 1,048
Year 5 98 3,502 1,019
Thereafter 316 10,099 5,562
------ ------- -------
Total minimum lease payments 1,284 $45,159 $12,737
======= =======
Amounts representing interest 269
------
Present value of net minimum lease
payments $1,015
======
Rent expense relating to continuing operations for the years ended December 31,
1995, 1994 and 1993 was $17.5 million, $20.2 million and $21.5 million,
respectively. Rent expense for the years ended December 31, 1995, 1994 and 1993
includes sub-lease rentals of $1.7 million, $1.4 million and $0.8 million,
respectively. Rent expense relating to discontinued operations for the years
ended December 31, 1994 and 1993 was $2.8 million and $7.5 million,
respectively.
The Company has employment agreements with certain of its executive officers
and management personnel. These agreements generally continue until terminated
by the executive or the Company and provide for salary continuation for a
specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights after a change
in control, as defined, of the Company occurs.
NOTE M DISCONTINUED OPERATIONS
In March 1993, the Company's Board of Directors approved the disposition of the
Company's U.S. information services business. The Board of Directors had
previously decided to sell the Company's overseas information services
businesses. Accordingly, operating results of the information services
businesses have been classified as discontinued operations. In August 1993, the
Company sold substantially all of the assets of the principal subsidiary
carrying on its U.S. information services ("IS Subsidiary") business at which
time no material gain or loss was realized. Subsequent to the sale, the Company
recorded a loss of $8.1 million in the third quarter of 1993 for uncertainties
remaining at the time of sale including the elimination of non-cash charges,
recognition of additional liabilities of the subsidiary and the disposition of
certain of its lease obligations. Such amount is included in Loss from disposal
of businesses, net of income taxes in the accompanying Consolidated Statements
of Operations. Under the terms of the sales agreement, the purchaser assumed the
debt and other liabilities relating to the ongoing operations of the business.
The IS Subsidiary received warrants to buy up to 10% of the purchaser's common
stock for a nominal amount. The Company assigned no value to these warrants.
In October 1993, the IS Subsidiary filed a voluntary petition under Chapter 7
of the U.S. Bankruptcy Code. Additionally, in 1993 the Company recorded a loss
of $1.5 million to further write-down the net assets of the IS Subsidiary to
its estimated net realizable value based upon current market conditions and sold
substantially all of the assets of its foreign information services businesses.
The sale of its foreign information services businesses resulted in a loss of
$3.3 million in 1993. Such amounts are included under the caption Loss from
42
disposal of businesses, net of income taxes in the accompanying Consolidated
Statements of Operations. As of December 31, 1993, all of the information
services businesses had been sold.
Revenues of the information services businesses in 1993 were $876.7 million.
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993 the Company's Board of Directors decided not to
proceed with the sale due to uncertainties created by the then pending rate
related proceedings and litigation. In December 1993, JWS entered into an
agreement with respect to the rate related proceedings and litigation which was
approved by the New York State Public Service Commission on February 2, 1994.
Accordingly, in the first quarter of 1994 the Company reinstated its plan of
disposition and a $7.4 million loss was recorded in 1993 to write-down the net
assets of the water supply business to estimated net realizable value, as
determined with the assistance of the Company's financial advisors. The
financial statements for all periods presented prior to 1995 reflect the water
supply business as discontinued operations.
The assets of the water supply business consist primarily of utility plant and
equipment which are located in Nassau and Queens Counties in the State of New
York. The net assets of the water supply business are classified in the
accompanying Consolidated Balance Sheets under the caption Net assets held for
sale.
Agreements for the sale of substantially all the assets of JWS have been
executed and an agreement for the sale of all the capital stock of Sea Cliff has
also been executed.
Revenues of the water supply business were $65.0 million and $66.8 million for
the years ended December 31, 1994 and 1993, respectively. Operating income of
the water supply business was $14.3 million and $15.4 million for the years
ended December 31, 1994 and 1993, respectively.
Combined operating results of discontinued operations including both the
information services and water supply business for the years ended December 31,
1994 and 1993 (in thousands):
PREDECESSOR COMPANY
-------------------
1994 1993
------- --------
Revenues $64,993 $943,455
Costs and expenses 50,725 917,872
------- --------
Operating income 14,268 25,583
Interest expense (4,052) (14,320)
------- --------
Income before taxes 10,216 11,263
Provision for income taxes -- --
------- --------
Income from
discontinued operations $10,216 $ 11,263
======= ========
As discussed above, in August 1993, the Company sold substantially all of its
information services businesses. The operating results of discontinued
operations in 1994 consists only of the water supply business.
NOTE N 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.
43
Revenues and operating losses of businesses sold and other net assets held for
sale for the years ended December 31, 1994 and 1993 are as follows (in
thousands):
PREDECESSOR COMPANY
-----------------------
DECEMBER 31,
1994 1993
-------- --------
Revenues $168,939 $257,910
Operating (loss) $(13,651) $(11,802)
A condensed combined balance sheet relating to discontinued operations (the
water supply business) and other net assets held for sale at December 31, 1995
is as follows (in thousands):
Cash $ 5,082
Accounts receivable, net 26,107
Costs and estimated
earnings in excess of billings 9,207
Inventories 1,158
Other current assets 1,451
--------
43,005
Property, plant and
equipment, net 156,236
Other assets 9,092
--------
$208,333
========
Current maturities of
long-term debt and capital
lease obligations $ 12,613
Accounts payable 18,261
Billings in excess of costs and
estimated earnings 5,856
Other accrued expenses 36,796
--------
73,526
Long-term debt 42,789
Other long-term liabilities 30,049
Net assets held for sale 61,969
--------
$208,333
========
NOTE O 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, 1995 and 1994 using a 4% discount
rate. The estimated current portion of the insurance liability was $4.9 million
and $1.5 million at December 31, 1995 and 1994, 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 $32.2 million and $29.9 million at December 31, 1995 and 1994, respectively.
Such amounts are included in Other Long-Term Obligations. The undiscounted
liability was approximately $42.3 million and $35.9 million at December 31, 1995
and 1994, respectively.
Since October 1992, in order to secure these insurance obligations, the Company
and its indirect wholly-owned captive insurance subsidiary has made cash
collateral deposits to an unrelated insurance company. These deposits totaled
$30.8 million and $37.6 million as of December 31, 1995 and 1994, respectively,
and are classified as a long-term asset in the accompanying Consolidated
Balance Sheets under the caption Insurance cash collateral in Other Assets.
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
agencies at Federal, State and local levels. 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.
44
NOTE P ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------ -------------------
DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------ -------
Cash paid (refunded) during the year for:
Interest $6,797 $7,250 $26,126
Income taxes 886 720 (2,177)
Significant non--cash financing
and investment transactions are as
follows:
Notes receivable and other assets
received from sale of assets -- -- 10,875
Fixed assets acquired under
capital lease obligations $ -- $ -- $ 46
NOTE Q SEGMENT INFORMATION
The following presents information about continuing operations by geographic
areas for the years ended December 31, 1995, 1994 and 1993 (in thousands):
NET (LOSS)
GAIN ON
OPERATING BUSINESSES NET ASSETS
INCOME SOLD OR HELD IDENTIFIABLE HELD FOR
REVENUES (LOSS) FOR SALE ASSETS SALE
---------- --------- ------------ ------------ ----------
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
========== ======== ====== ======== =======
1993
United States $1,692,470 $(57,906) $ 747 $572,468 $83,615
United Kingdom 293,507 (2,494) 511 102,784 --
Canada 180,633 (3,223) -- 38,066 --
Other 28,125 (1,909) (230) 9,509 --
---------- -------- ------ -------- -------
$2,194,735 $(65,532) $1,028 $722,827 $83,615
========== ======== ====== ======== =======
Other includes European locations outside the United Kingdom as well as the Far
East and Middle East.
45
NOTE R SELECTED UNAUDITED QUARTERLY INFORMATION (IN THOUSANDS, EXCEPT PER
SHARE DATA)
1995 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- ------
[S] [C] [C] [C] [C]
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
======== ======== ======== ========
1994 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
Revenues $435,554 $433,541 $444,355 $450,511
Gross profit 42,297 42,825 35,998 35,252
Reorganization items (3,600) (3,300) (3,200) (81,218)
Loss from continuing
operations including
reorganization items,
before extraordinary
item, cumulative effect
of accounting change (7,418) (6,289) (15,589) (89,638)
Income from discontinued
operations 1,144 2,683 5,559 830
Extraordinary item -- gain
on debt discharge -- -- -- 413,249
Cumulative effect of
change in method of
accounting for
post-employment benefits (2,100) -- -- --
-------- -------- -------- --------
Net (loss) income $ (8,374) $ (3,606) $(10,030) $324,441
======== ======== ======== ========
Supplemental (loss) income
per share:
Continuing operations $ (0.79) $ (0.67) $ (1.65) $ (9.51)
Discontinued operations 0.12 0.28 0.59 0.09
Extraordinary item -- gain
on debt discharge -- -- -- 43.85
Cumulative effect of
change in method of
accounting for post-
employment benefits (0.22) -- -- --
-------- -------- -------- --------
Net (loss) income per share $ (0.89) $ (0.39) $ (1.06) $ 34.43
======== ======== ======== ========
The loss from continuing operations, including reorganization items in the
fourth quarter of 1994, reflects $2.4 million of reorganization charges for
various legal and professional fees associated with the Chapter 11 proceeding.
In addition a charge of approximately $78.8 million was recorded to state assets
and liabilities at fair value in accordance with the principles of Fresh--Start
Accounting as required by SOP 90--7.
All per share data has been restated to reflect the assumed issuance of New
Common Stock as of January 1, 1994.
NOTE S LEGAL PROCEEDINGS
In September 1995, the Company reached a comprehensive settlement with the SEC
relating to the matters underlying its previously announced accounting
adjustments and write-offs for the fiscal year ended December 31, 1992, and the
restatement of its net income for the fiscal year ended December 31, 1991. The
settlement is the culmination of an investigation the SEC commenced in 1992.
46
The SEC allegations were contained in a Complaint filed September 21, 1995 in
the United States District Court for the Southern District of New York, against
the Company and four individuals, none of whom is currently employed by the
Company, who served as officers and/or directors of JWP INC. and/or certain of
its subsidiaries at various times in 1991 and 1992. Without admitting or
denying any of those allegations, the Company entered into a formal Consent to
the entry of a Final Judgment of Permanent Injunction, which was filed
simultaneously with the Complaint. The Company consented to the entry of an
order permanently enjoining the Company from, among other things, committing
violations of various antifraud provisions of the federal securities laws, and
failing to make and keep books and records which accurately reflect the
Company's transactions and disposition of assets. The SEC's Complaint did not
seek, nor does the Consent require, payment of any monetary penalties by the
Company.
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 Direct 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 press conference
following the indictment, the District Attorney announced that the investigation
is continuing, and he expects further indictments in the investigation. Forest
performs electrical contracting services primarily in the New York City
commercial market and is one of the largest of the Company's subsidiaries.
The Dynalectric Company ("Dynalectric") 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, no trial date is
scheduled.
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against a subsidiary of the Company Jamaica Water
Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the
State of New York, Westchester County, bearing the caption, Harold F.
---------
Scattergood Jr., et al. v. Jamaica Water Securities Corp. (Index No. 15992/94).
- ---------------------------------------------------------
On October 17, 1994, an amended complaint was served adding additional
plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to the Company's
obligations on the Warrants by reason of its 1977 acquisition of the Company's
96% stock interest in JWS. The plaintiffs also claimed that certain events
constituted a disposition of the assets of JWS which triggered the Warrants,
obligating JWSC to issue shares of its own stock to plaintiffs. In the
alternative, plaintiffs claimed that the December 31, 1994 expiration date of
the Warrants should be extended for some indefinite period of time.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiffs' action holding that the assets of
JWS had not been "disposed of" under the express terms of the Warrants prior to
their stated expiration on December 31, 1994. The court also held that it
lacked the power to rewrite the "clear and unambiguous provisions" of the
Warrants Agreement to extend the December 31, 1994 deadline. The plaintiffs
have appealed the court's decision.
47
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 itself in 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 T 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.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, Accounting For Post--retirement Benefits
Other Than Pensions ("SFAS 106"). The actuarial present value of the accumulated
post--retirement benefit obligations under SFAS 106 approximated $7.0 million as
of December 31, 1993. Such amount relates to the Company's water supply business
which is included in "Net assets held for sale" in the accompanying Consolidated
Balance Sheets and Discontinued Operations in the accompanying Consolidated
Statements of Operations.
NOTE U OTHER
During the third and fourth quarters of 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 V 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, including its old common
stock of $4.1 million, old Series A Preferred Stock of $20.9 million, and old
warrants of participation of $0.6 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.
48
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 SHEET & FRESH-START BALANCE SHEET
DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31,
1994 OF STOCK (a) (f) 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
business 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)
49
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION
-------------------------------------------------------------------
DEBT
PRE-FRESH-START DISCHARGE FRESH-START
BALANCE SHEET & FRESH-START BALANCE SHEET
DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31,
1994 OF STOCK (a) (f) 1994
--------------- ------------ ----------- -------------
CURRENT LIABILITIES:
Notes payable $ 4,803 $ -- $ -- $ 4,803
Borrowings under working
capital credit line 40,000 -- -- 40,000
Current maturities of long
term debt and 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
adjustment (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.
50
(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
==== ======= ======= ========
51
(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 New Warrants and
9,424,083 shares of New 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.
52
NOTE W 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 OTHER
SOLD OR HELD PRO FORMA PRO FORMA
HISTORICAL FOR 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)
========== ========= ======= ==========
53
(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 $ 7,745
based upon the pro forma discounted carrying
value and assuming a discount rate of 14%
To record interest expense on 8% SellCo 596
Supplemental Note (as that term is hereafter
defined) based upon the pro forma discounted
carrying value and assuming a discount rate of
14%
To record interest expense on new working 4,500
capital credit facilities assuming an average of
$30.0 million outstanding at 15%(f)
To reverse interest on debtor-in-possession (2,030)
credit facility
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
is contingent upon the cash requirements of the
Company. The following table reflects the impact
of various borrowing levels on the proforma
statement of operations:
PRO FORMA REORGANIZED
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE FROM
CONTINUING OPERATIONS
TOTAL NET INCOME (LOSS) FROM CONTINUING BEFORE EXTRAORDINARY
BORROWING INTEREST OPERATIONS BEFORE EXTRAORDINARY ITEM ITEM AND CUMULATIVE
LEVEL EXPENSE AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE EFFECT OF 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)
54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.
We have audited the accompanying Consolidated Balance Sheet of EMCOR Group,
Inc. and its subsidiaries (the "Company") as of December 31, 1995, and the
related Consolidated Statements of Operations, Cash Flows and Stockholders'
Equity (Deficit) for the year 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 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.
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, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as as whole. The schedule of Valuation and Qualifying Accounts
is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 11, 1996
55
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. (formerly JWP INC.) and its subsidiaries (the "Company") as of December 31,
1994 and 1993, and the related Consolidated Statements of Operations,
Stockholders' Equity (Deficit) and Cash Flows for the years then ended. Our
audit also included the financial statement schedule for the year ended December
31, 1994 and 1993 listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibity of the
Company's management. Our responsibility is to report on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated July 8, 1994, we did not express an opinion on the 1993
consolidated financial statements due to the material uncertainties related to
the Company's ability to continue as a going concern because the Company had
experienced significant losses from operations for each of the years ended
December 31, 1993 and 1992, had negative working capital and a deficit in
stockholders' equity and because of the possible material effects of
uncertainties related to the net realizable value of assets of discontinued
operations, claims filed against the Company, and the possible consequences of
the bankruptcy proceedings. As discussed in Note A to the consolidated
financial statements, during December 1994 the Company emerged from Chapter 11
of the Federal Bankruptcy Code. The emergence from bankruptcy resulted in a
significant reduction in debt, the obtaining of a new credit agreement and the
valuing of the Company at its new reorganization value resulted in positive
stockholders' equity versus a pre-emergence deficit of $324.0 million.
Accordingly, our present opinion on the 1993 consolidated financial statements,
as expressed herein, is different from our prior report on the 1993 consolidated
financial statements.
As discussed in Notes A and V 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. As a result, the December 31, 1994
consolidated balance sheet is not comparable to prior periods since it presents
the consolidated financial position of the reorganized entity.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1993 and the results of its operations and its cash flows for the years then
ended 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 therein.
As more fully described in Note S 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 T 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
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 19, 1995 the Audit Committee of the Board of Directors of the
Company appointed Arthur Andersen LLP as independent accountants for its fiscal
year ending December 31, 1995 to replace Deloitte & Touche LLP effective with
such appointment.
Deloitte & Touche LLP's report, dated March 17, 1995, on the financial
statements of the Company for its two most recent fiscal years ended December
31, 1994 did not contain an adverse opinion, disclaimer of opinion, or
qualification as to uncertainty, audit scope, or accounting principles.
However, in its report dated July 8, 1994 on the financial statements of the
Company for its fiscal year ended December 31, 1993, Deloitte & Touche LLP did
not express an opinion on the Company's 1993 consolidated financial statements
due to then material uncertainties related to the Company's ability to continue
as a going concern because the Company had experienced significant losses from
operations for each of the years ended December 31, 1993 and 1992 and then had
negative working capital and a deficit in stockholders' equity and because of
the then possible material effects of uncertainties related to the net
realizable value of assets of discontinued operations, claims filed against the
Company, and the possible consequences of the Company's Chapter 11 proceeding.
The Company's emergence from bankruptcy on December 15, 1994 resulted in a
significant reduction in the Company's indebtedness, its obtaining of a new
credit agreement and the valuing of the Company at a new reorganization value
resulting in positive stockholders' equity permitting Deloitte & Touche LLP in
its report dated March 17, 1995 to express an opinion on the 1993 consolidated
financial statements as well as the 1994 consolidated financial statements.
During the Company's two most recent fiscal years ended December 31, 1994 and
the interim period from January 1, 1995 to September 22, 1995, the date on which
the Company filed its Report on Form 8-K announcing the appointment of Arthur
Andersen LLP, there were no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which caused that firm to make reference to the
subject matter of such disagreements in connection with its reports.
During the Company's two most recent fiscal years ended December 31, 1994 and
the interim period from January 1, 1995 to September 22, 1995, the date on which
the Company filed its Report on Form 8-K announcing the appointment of Arthur
Andersen LLP, there were no reportable events of the type described in
paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulations S-K under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended.
57
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICES 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 of the end of
the Company's fiscal year ended December 31, 1995.
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, 1995.
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, 1995.
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, 1995.
58
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:
Report of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations - Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity
(Deficit) - Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(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.
(b) Reports on Form 8-K filed during the last quarter of 1995:
Form 8-K dated November 13, 1995 reporting the financial statements
of Dyn Specialty Contracting, Inc. and its subsidiaries.
59
SCHEDULE II
EMCOR GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged To
Beginning of Costs and Other Balance End
Description Year Expenses Accounts Deductions (1) of Year
----------- ------------ --------- ---------- -------------- -----------
Allowance for doubtful accounts
Year Ended December 31, 1995 $19,820 $ 2,538 $(3,553) $ (3,913) $14,892
Year Ended December 31, 1994 $31,170 $ 2,909 $(7,695) $ (6,564) $19,820
Year Ended December 31, 1993 $42,630 $13,663 $ (892) $(24,231) $31,170
(1) Deductions represent uncollectible balances of accounts receivable written
off, net of recoveries.
60
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 13, 1996 By 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 13, 1996.
/s/Frank T. MacInnis* Chairman of the Board of
- ------------------------ Directors, 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/Leicle E. Chesser Executive Vice President and
- ------------------------ Chief Financial Officer
LEICLE E. CHESSER
/s/Mark A. Pompa Vice President and Controller
- ------------------------
MARK A. POMPA
* Constituting a majority of the members of the Board of Directors of EMCOR
Group, Inc.
EMCOR GROUP, INC.
EXHIBIT INDEX
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
2(a) Disclosure Statement and Exhibit 2(a) to the
Third Amended Joint Plan Company's
of Reorganization (the Registration
"Plan of Reorganization") Statement on Form
proposed by EMCOR Group, 10 as originally
Inc. (formerly JWP INC.) filed March 17,
(the "Company" or "EMCOR") 1995 (the "Form 10")
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 Exhibit 2(b) to
of Reorganization dated Form 10
September 29, 1994
2(c) Second Modification to the Exhibit 2(c) to
Plan of Reorganization Form 10
dated September 30, 1994
2(d) Confirmation Order of the Exhibit 2(d) to
Bankruptcy Court dated Form 10
September 30, 1994 (the
"Confirmation Order")
confirming the Plan of
Reorganization, as amended
2(e) Amendment to the Exhibit 2(e) to
Confirmation Order dated Form 10
December 8, 1994
2(f) Post--confirmation Exhibit 2(f) to
modification to the Plan Form 10
of Reorganization entered
on December 13, 1994
2(g) Asset Acquisition Page
Agreement dated as of
February 9, 1996 between
The City of New York,
Jamaica Water Supply
Company and EMCOR*
2(h) Asset Acquisition Page
Agreement dated as of
February 9, 1996 between
Water Authority of
Western Nassau County,
Jamaica Water Supply
Company and EMCOR*
3(a-1) Restated Certificate of Exhibit 3(a-5)
Incorporation of EMCOR
3(a-2) Amendment dated November Page
28, 1995 to Restated
Certificate of Incorpora-
tion of EMCOR*
3(b) By-Laws Exhibit 3(b) to
Form 10
4.1 Form of Credit Agreement Exhibit 4.14 to the
dated as of February Company's Annual
14, 1994 among EMCOR Report on Form 10-K
certain of its subsidiaries for fiscal year
and Belmont Capital ended December 31,
Partners II, L.P. 1992
* Filed Herewith
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
4.2 Indenture, dated as of Exhibit 4.2 to Form
December 15, 1994, among 10
EMCOR, its subsidiary
MES Holdings Corporation
("MES") and SellCo, as
guarantors, and IBJ
Schroder Bank & Trust
Company, as trustee, in
respect of EMCOR's 7%
Senior Secured Notes,
Series A, Due 1977
4.3 Indenture, dated as of Exhibit 4.3 to Form
December 15, 1994, 10
among EMCOR, MES, as
guarantor, and Shawmut
Bank Connecticut, National
Association, as trustee,
in respect of 11% Series C
Notes, Due 2001 ("Series C
Indenture")
4.4 First Supplemental Page
Indenture dated as of
January 28, 1995 to Series
C Indenture*
4.5 Indenture, dated as of Exhibit 4.4 to Form
December 15, 1994, between 10
SellCo and Shawmut Bank
Connecticut, National
Association, as trustee,
in respect of SellCo's 12%
Subordinated Contingent
Payment Notes, Due 2004
10(a--1) First Mortgage Indenture Exhibit B-1 to JWS'
("Mortgage") dated Registration
December 1, 1936 of a Statement on Form
subsidiary of EMCOR S-1, No. 2-3995
Jamaica Water Supply
Company ("JWS"), a
subsidiary of the Company
10(a--2) Supplemental Indenture to Exhibit 1 to JWS'
First Mortgage dated Annual Report on
December 1, 1953 of JWS Form 10-K for
fiscal year ended
December 31, 1953
10(a--3) Supplemental Indenture to Exhibit 1 to JWS
First Mortgage dated May Current Report on
1, 1962 of JWS Form 8-K for
10(a--4) Supplemental Indenture to Exhibit 4.21 to
First Mortgage dated May JWS' Registration
1, 1970 to JWS Statement on Form
S-1, No. 2-62590
10(a--5) Supplemental Indenture to Exhibit 4.22 to
First Mortgage dated Form S--1,
February 15, 1975 of JWS Registration
Statement No.
2--62590
10(a--6) Supplemental Indenture to Exhibit 4.23 to
Mortgage dated as of JWS' Registration
January 1, 1978 Statement on Form
S-1, Registration
Statement No.
2-62590
10(a--7) Supplemental Indenture to Exhibit 10(a--7) to
Mortgage dated as of April JWS' Registration
1, 1981 of JWS Statement on Form
S--1 Registration
Statement No.
2--86988
10(a--8) Supplemental Indenture to Exhibit 10(a--8)
Mortgage dated as of to JWS'
August 1, 1983 of JWS Registration
Statement on Form
S-1 Registration
Statement No.
2-86988
* Filed Herewith
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
10(a--9) Supplemental Indenture to Exhibit 10(a-9) to
Mortgage dated as of the Company's
December 1, 1984 Annual Report on
10--K for fiscal
year ended December
31, 1985
10(b-1) Employment Agreement dated Exhibit 10(e) to
as of September 14, 1987 the Company's
between the Registrant and Annual Report on
Sheldon I. Cammaker 10--K for fiscal
year ended December
31, 1992
10(b-2) Amendment dated March 15, Exhibit 10(f) to
1988 to Employment the Company's
Agreement dated as of Annual Report on
September 14, 1987 between 10--K for fiscal
Registrant and Sheldon I. year ended December
Cammaker 31, 1992
10(c) Employment Agreement dated Exhibit 10(t) to
as of April 8, 1994 the Company's
between Registrant and Annual Report on
Frank T. MacInnis 10--K for fiscal
year ended December
31, 1992
10(d) 1994 Management Stock Exhibit 10(o) to
Option Plan Form 10
10(e) 1995 Non-Employee Exhibit 10(p) to
Directors' Non-Qualified Form 10
Stock Option Plan
10(f) Form of Indemnification Exhibit 10(q) to
Agreement Form 10
10(g) Reliance Insurance Exhibit 10(r) to
Companies' Underwriting Form 10
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(h) Form of Security Agreement Exhibit 10(s) to
dated as of November 22, Form 10
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(i) Pledge Agreement dated Exhibit 10(t) to
November 22, 1994 between Form 10
the Company and Reliance
Surety Company, Reliance
Insurance Company, United
Pacific Insurance Company,
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
10(j) Pledge Agreement dated Exhibit 10(u) to
November 22, 1994 between Form 10
Dyn and Reliance Surety
Company, Reliance
Insurance Company, United
Pacific Insurance Company
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
10(k) Subordination Agreement Exhibit 10(v) to
dated November 22, 1994 Form 10
among Dyn, Dyn Co., B&B,
Dyn--Nevada, Contra Costa
and Kirkwood and Reliance
Surety Company, Reliance
Insurance Company, United
Pacific Insurance Company,
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
10(l) Credit Agreement dated Exhibit 10(w) to
December 14, 1994 among Form 10
the Company, MES, certain
direct and indirect
subsidiaries of MES and
Belmont Capital Partners
II, L.P. and other lenders
(collectively, the
"Lenders")
10(m) Guarantor Security Exhibit 10(x) to
Agreement dated December Form 10
14, 1994 by and among
certain direct and
indirect subsidiaries of
MES, the Lenders and
CoreStates Bank, N.A., as
agent for the Lenders (the
"Agent")
10(n) Pledge and Security Exhibit 10(y) to
Agreement dated December Form 10
14, 1994 by and among the
Company, MES, the Lenders
and the Agent
10(o) Credit Agreement dated Exhibit 10(z) to
December 14, 1994 among Form 10
the Company, Dyn, certain
direct subsidiaries of Dyn
and the Lenders
10(p) Guarantor Security Exhibit 10(aa) to
Agreement dated December Form 10
14, 1994 by and among
certain direct
subsidiaries of Dyn, the
Lenders and the Agent
10(q) Pledge and Security Exhibit 10(bb) to
Agreement dated December Form 10
14, 1994 by and among the
Company, Dyn, the Lenders
and the Agent
11 Computation of Primary Page
Earnings Per Common Share
and Common Share
Equivalent for the years
ended December 31, 1995
and 1994*
21 List of 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.