UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-2315 EMCOR Group, Inc. ------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 11-2125338 - ------------------------------- -------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number) 301 Merritt Seven Corporate Park Norwalk, Connecticut 06851-1060 - -------------------------------- ---------- (Address of Principal Executive (Zip Code) Offices) (203) 849-7800 ----------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N/A - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No __ Applicable Only To Corporate Issuers Number of shares of Common Stock outstanding as of the close of business on July 15, 2004: 15,141,157 shares.
EMCOR GROUP, INC. INDEX Page No. PART I - Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets - as of June 30, 2004 and December 31, 2003 1 Condensed Consolidated Statements of Operations - three months ended June 30, 2004 and 2003 3 Condensed Consolidated Statements of Operations - six months ended June 30, 2004 and 2003 4 Condensed Consolidated Statements of Cash Flows - six months ended June 30, 2004 and 2003 5 Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income - six months ended June 30, 2004 and 2003 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3 Quantitative and Qualitative Disclosures about Market Risk 23 Item 4 Controls and Procedures 24 PART II - Other Information Item 1 Legal Proceedings 24 Item 4 Submission of Matters to a Vote of Security Holders 25 Item 6 Exhibits and Reports on Form 8-K 26
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) - -------------------------------------------------------------------------------- June 30, December 31, 2004 2003 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 50,219 $ 78,260 Accounts receivable, net 1,066,924 1,009,170 Costs and estimated earnings in excess of billings on uncompleted contracts 235,093 249,393 Inventories 10,030 9,863 Prepaid expenses and other 41,023 42,470 ---------- ---------- Total current assets 1,403,289 1,389,156 Investments, notes and other long-term receivables 28,404 26,452 Property, plant and equipment, net 62,693 66,156 Goodwill 279,500 277,994 Identifiable intangible assets, net 20,504 22,226 Other assets 13,514 13,263 ---------- ---------- Total assets $1,807,904 $1,795,247 ========== ========== See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) - -------------------------------------------------------------------------------- June 30, December 31, 2004 2003 (Unaudited) - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under working capital credit line $ 119,300 $ 139,400 Current maturities of long-term debt and capital lease obligations 314 367 Accounts payable 434,576 451,713 Billings in excess of costs and estimated earnings on uncompleted contracts 408,914 345,207 Accrued payroll and benefits 123,644 131,623 Other accrued expenses and liabilities 94,928 110,147 ---------- ---------- Total current liabilities 1,181,676 1,178,457 Long-term debt and capital lease obligations 577 561 Other long-term obligations 98,875 94,873 ---------- ---------- Total liabilities 1,281,128 1,273,891 ---------- ---------- Stockholders' equity: Preferred stock, $0.10 par value, 1,000,000 shares authorized, zero issued and outstanding -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 16,229,048 and 16,155,844 shares issued, respectively 162 162 Capital surplus 317,168 316,729 Accumulated other comprehensive (loss) income (904) 1,257 Retained earnings 227,083 219,921 Treasury stock, at cost 1,087,891 and 1,123,651 shares, respectively (16,733) (16,713) ---------- ---------- Total stockholders' equity 526,776 521,356 ---------- ---------- Total liabilities and stockholders' equity $1,807,904 $1,795,247 ========== ========== See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)(Unaudited) - -------------------------------------------------------------------------------- Three months ended June 30, 2004 2003 - -------------------------------------------------------------------------------- Revenues $1,193,213 $1,144,378 Cost of sales 1,091,701 1,021,103 ---------- ---------- Gross profit 101,512 123,275 Selling, general and administrative expenses 97,141 106,638 Restructuring expenses 140 - ---------- ---------- Operating income 4,231 16,637 Interest expense, net (1,740) (1,842) ---------- ---------- Income before income taxes 2,491 14,795 Income tax provision 1,046 6,522 ---------- ---------- Net income $ 1,445 $ 8,273 ========== ========== Basic earning per share $ 0.10 $ 0.55 ========== ========== Diluted earnings per share $ 0.09 $ 0.53 ========== ========== See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)(Unaudited) - -------------------------------------------------------------------------------- Six months ended June 30, 2004 2003 - -------------------------------------------------------------------------------- Revenues $2,302,299 $2,205,408 Cost of sales 2,099,624 1,965,364 ---------- ---------- Gross profit 202,675 240,044 Selling, general and administrative expenses 198,142 215,813 Restructuring expenses 5,319 - ---------- ---------- Operating (loss) income (786) 24,231 Interest expense, net (3,418) (3,644) ---------- ---------- (Loss) income before income taxes (4,204) 20,587 Income tax (benefit) provision (11,366) 9,058 ---------- ---------- Net income $ 7,162 $ 11,529 ========== ========== Basic earning per share $ 0.47 $ 0.77 ========== ========== Diluted earnings per share $ 0.46 $ 0.74 ========== ========== See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)(Unaudited) - -------------------------------------------------------------------------------- Six months ended June 30, 2004 2003 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 7,162 $ 11,529 Depreciation and amortization 10,554 10,347 Amortization of identifiable intangibles 1,722 1,751 Other non-cash expenses 1,930 4,153 Changes in operating assets and liabilities, excluding the effect of businesses acquired (19,523) (80,927) --------- --------- Net cash provided by (used in) operating activities 1,845 (53,147) --------- --------- Cash flows from investing activities: Payments for acquisitions of businesses, net of cash acquired, and related earn-out agreements (1,506) (3,478) Proceeds from sale of assets 1,170 732 Purchase of property, plant and equipment (8,114) (9,216) Net disbursements related to other investments (1,952) (4,357) --------- --------- Net cash used in investing activities (10,402) (16,319) --------- --------- Cash flows from financing activities: Proceeds from working capital credit lines 676,950 878,198 Repayments of working capital credit lines (697,050) (823,398) Net repayments for long-term debt (39) (22,139) Net borrowings (repayments) for capital lease obligations 2 235 Net proceeds from exercise of stock options 653 1,219 --------- --------- Net cash (used in) provided by financing activities (19,484) 34,115 --------- --------- Decrease in cash and cash equivalents (28,041) (35,351) Cash and cash equivalents at beginning of year 78,260 93,103 --------- --------- Cash and cash equivalents at end of period $ 50,219 $ 57,752 ========= ========= Supplemental cash flow information: Cash paid for: Interest $ 3,710 $ 3,297 Income taxes $ 3,855 $ 11,597 See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries <TABLE> <CAPTION> CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (In thousands)(Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated other Common Capital comprehensive Retained Treasury Comprehensive Total stock surplus income (loss)(1) earnings stock income - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> Balance, January 1, 2003 $489,870 $161 $312,393 $(5,148) $199,300 $(16,836) Net income 11,529 -- -- -- 11,529 -- $11,529 Foreign currency translation adjustments 5,057 -- -- 5,057 -- -- 5,057 ------- Comprehensive income -- -- -- -- -- -- $16,586 ======= Common stock issued under stock option plans 1,219 -- 1,180 -- -- 39 Value of Restricted Stock Units (2) 1,434 -- 1,434 -- -- -- -------- ---- -------- ------- -------- -------- Balance, June 30, 2003 $509,109 $161 $315,007 $ (91) $210,829 $(16,797) ======== ==== ======== ======= ======== ======== Balance, January 1, 2004 $521,356 $162 $316,729 $ 1,257 $219,921 $(16,713) Net income 7,162 -- -- -- 7,162 -- $ 7,162 Foreign currency translation adjustments (2,161) -- -- (2,161) -- -- (2,161) ------- Comprehensive income -- -- -- -- -- -- $ 5,001 ======= Issuance of treasury stock for restricted stock units (3) -- -- (836) -- -- 836 Treasury stock, at cost (4) (856) -- -- -- -- (856) Common stock issued under stock option plans 607 -- 607 -- -- -- Value of Restricted Stock Units (2) 668 -- 668 -- -- -- -------- ---- -------- ------- -------- -------- Balance, June 30, 2004 $526,776 $162 $317,168 $ (904) $227,083 $(16,733) ======== ==== ======== ======= ======== ======== </TABLE> (1) Represents cumulative foreign currency translation adjustments and minimum pension liability adjustments. (2) Shares of common stock will be issued in respect of restricted stock units granted pursuant to EMCOR's Executive Stock Bonus Plan. This amount represents the value of restricted stock units at the date of grant. (3) Represents common stock transferred at cost from treasury stock upon the vesting of restricted stock units. (4) Represents value of shares of common stock withheld by EMCOR for income tax withholding requirements upon the vesting of restricted stock units. See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A Basis of Presentation The accompanying condensed consolidated financial statements have been prepared by EMCOR Group, Inc. and Subsidiaries ("EMCOR"), without audit, pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto included in EMCOR's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of EMCOR, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of a normal recurring nature) necessary to present fairly the financial position of EMCOR and the results of its operations. The results of operations for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. Certain reclassifications of prior year amounts have been made to conform to current year presentation. NOTE B Earnings Per Share Calculation of Basic and Diluted Earnings per share The following tables summarize EMCOR's calculation of Basic and Diluted Earnings per Share ("EPS") for the three and six month periods ended June 30, 2004 and 2003: Three months ended June 30, 2004 -------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount -------------------------------------- Basic EPS Income available to common stockholders $1,445,000 15,139,887 $0.10 ===== Effect of Dilutive Securities: Options -- 421,095 ---------- ---------- Diluted EPS $1,445,000 15,560,982 $0.09 ========== ========== ===== Six months ended June 30, 2004 -------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount -------------------------------------- Basic EPS Income available to common stockholders $7,162,000 15,098,268 $0.47 ===== Effect of Dilutive Securities: Options -- 447,491 ---------- ---------- Diluted EPS $7,162,000 15,545,759 $0.46 ========== ========== =====
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE B Earnings Per Share - (continued) Three months ended June 30, 2003 -------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount -------------------------------------- Basic EPS Income available to common stockholders $8,273,000 14,988,836 $0.55 ===== Effect of Dilutive Securities: Options -- 517,963 ---------- ---------- Diluted EPS $8,273,000 15,506,799 $0.53 ========== ========== ===== Six months ended June 30, 2003 -------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount -------------------------------------- Basic EPS Income available to common stockholders $11,529,000 14,959,666 $0.77 ===== Effect of Dilutive Securities: Options -- 516,996 ----------- ---------- Diluted EPS $11,529,000 15,476,662 $0.74 =========== ========== ===== There were 852,078 anti-dilutive stock options that were required to be excluded from the calculation of diluted EPS for both the three and six month periods ended June 30, 2004, respectively. There were 219,403 anti-dilutive stock options that were required to be excluded from the calculation of diluted EPS for both the three and six month periods ended June 30, 2003, respectively. NOTE C Valuation of Stock Option Grants EMCOR has stock-based compensation plans and programs. EMCOR applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized in the accompanying Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2004 and 2003 in respect of stock options granted during those periods inasmuch as EMCOR grants stock options at fair market value. Had compensation cost for these options been determined consistent with SFAS 123, "Accounting for Stock-Based Compensation", EMCOR's net income, basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS") would have been reduced from the "as reported amounts" below to the "pro forma amounts" (in thousands, except per share amounts):
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE C Valuation of Stock Option Grants - (continued) <TABLE> <CAPTION> For the three months For the six months ended June 30, ended June 30, -------------------------------------------------------- 2004 2003 2004 2003 -------------------------------------------------------- Net income: <S> <C> <C> <C> <C> As reported $1,445 $8,273 $7,162 $11,529 Less: Total stock-based compensation expense determined under fair value based method, net of related tax effects 290 270 1,010 1,028 ------ ------ ------ ------- Pro forma $1,155 $8,003 $6,152 $10,501 ====== ====== ====== ======= Basic EPS: As reported $ 0.10 $ 0.55 $ 0.47 $ 0.77 Pro forma $ 0.08 $ 0.53 $ 0.41 $ 0.70 Diluted EPS: As reported $ 0.09 $ 0.53 $ 0.46 $ 0.74 Pro forma $ 0.07 $ 0.52 $ 0.40 $ 0.68 Common Stock </TABLE> As of June 30, 2004 and December 31, 2003, 15,141,157 and 15,032,193 shares of EMCOR common stock were outstanding, respectively. NOTE D Segment Information EMCOR has the following reportable segments which provide services associated with the design, integration, installation, startup, operation and maintenance of various systems: (a) United States electrical construction and facilities services (involving systems for generation and distribution of electrical power, lighting systems, low-voltage systems such as fire alarm, security, communications and process control systems and voice and data systems); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems, and plumbing, process and high-purity piping systems); (c) United States facilities services; (d) Canada construction and facilities services; (e) United Kingdom construction and facilities services; and (f) Other international construction and facilities services. The segment "United States facilities services" principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers' facilities (mobile operation and maintenance services, site-based operation and maintenance services, facility planning and consulting services and energy management programs) and, although this segment occasionally performs construction projects, this segment's services are not generally related to customers' construction programs. The Canada, United Kingdom and Other international segments perform electrical construction, mechanical construction and facilities services. "Other international construction and facilities services" represents EMCOR's operations outside of the United States, Canada and the United Kingdom (primarily in South Africa and the Middle East during the periods presented). The following tables present information about industry segments and geographic areas (in thousands):
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE D Segment Information -(continued) <TABLE> <CAPTION> For the three months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Revenues from unrelated entities: <S> <C> <C> United States electrical construction and facilities services $ 299,273 $ 322,035 United States mechanical construction and facilities services 469,025 426,088 United States facilities services 179,041 164,777 ---------- ---------- Total United States operations 947,339 912,900 Canada construction and facilities services 65,441 91,264 United Kingdom construction and facilities services 180,433 140,214 Other international construction and facilities services -- -- ---------- ---------- Total worldwide operations $1,193,213 $1,144,378 ========== ========== </TABLE> <TABLE> <CAPTION> For the three months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Total revenues: <S> <C> <C> United States electrical construction and facilities services $ 302,278 $ 328,176 United States mechanical construction and facilities services 475,059 428,236 United States facilities services 179,080 165,174 Less intersegment revenues (9,078) (8,686) ---------- ---------- Total United States operations 947,339 912,900 Canada construction and facilities services 65,441 91,264 United Kingdom construction and facilities services 180,433 140,214 Other international construction and facilities services -- -- ---------- ---------- Total worldwide operations $1,193,213 $1,144,378 ========== ========== </TABLE> <TABLE> <CAPTION> For the six months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Revenues from unrelated entities: <S> <C> <C> United States electrical construction and facilities services $ 578,148 $ 575,909 United States mechanical construction and facilities services 891,739 842,591 United States facilities services 357,522 333,189 ---------- ---------- Total United States operations 1,827,409 1,751,689 Canada construction and facilities services 141,124 184,326 United Kingdom construction and facilities services 333,766 269,393 Other international construction and facilities services -- -- ---------- ---------- Total worldwide operations $2,302,299 $2,205,408 ========== ========== </TABLE>
<TABLE> <CAPTION> For the six months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Total revenues: <S> <C> <C> United States electrical construction and facilities services $ 584,249 $ 592,075 United States mechanical construction and facilities services 908,410 845,197 United States facilities services 357,916 334,266 Less intersegment revenues (23,166) (19,849) ---------- ---------- Total United States operations 1,827,409 1,751,689 Canada construction and facilities services 141,124 184,326 United Kingdom construction and facilities services 333,766 269,393 Other international construction and facilities services -- -- ---------- ---------- Total worldwide operations $2,302,299 $2,205,408 ========== ========== </TABLE>
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE D Segment Information - (continued) <TABLE> <CAPTION> For the three months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Operating income (loss): <S> <C> <C> United States electrical construction and facilities services $ 8,829 $ 16,156 United States mechanical construction and facilities services 2,891 6,243 United States facilities services 3,988 4,566 ---------- ---------- Total United States operations 15,708 26,965 Canada construction and facilities services (653) 1,145 United Kingdom construction and facilities services (1,269) (2,862) Other international construction and facilities services (60) (272) Corporate administration (9,355) (8,339) Restructuring expenses (140) -- ---------- ---------- Total worldwide operations 4,231 16,637 Other corporate items: Interest expense (1,997) (2,031) Interest income 257 189 ---------- ---------- Income before income taxes $ 2,491 $ 14,795 ========== ========== </TABLE> <TABLE> <CAPTION> For the six months ended June 30, ------------------------------------ 2004 2003 ------------------------------------ Operating income (loss): <S> <C> <C> United States electrical construction and facilities services $ 26,110 $ 29,110 United States mechanical construction and facilities services (4,851) 10,586 United States facilities services 2,362 6,740 ---------- ---------- Total United States operations 23,621 46,436 Canada construction and facilities services (632) 1,766 United Kingdom construction and facilities services (2,594) (7,337) Other international construction and facilities services 218 (115) Corporate administration (16,080) (16,519) Restructuring expenses (5,319) -- ---------- ---------- Total worldwide operations (786) 24,231 Other corporate items: Interest expense (3,844) (4,028) Interest income 426 384 ---------- ---------- (Loss) income before income taxes $ (4,204) $ 20,587 ========== ========== </TABLE> <TABLE> <CAPTION> June 30, Dec. 31, 2004 2003 ------------------------------------ Total assets: <S> <C> <C> United States electrical construction and facilities services $ 360,406 $ 362,306 United States mechanical construction and facilities services 777,737 771,730 United States facilities services 303,463 280,512 ---------- ---------- Total United States operations 1,441,606 1,414,548 Canada construction and facilities services 102,689 98,191 United Kingdom construction and facilities services 193,036 198,397 Other international construction and facilities services 4,893 4,461 Corporate administration 65,680 79,650 ---------- ---------- Total worldwide operations $1,807,904 $1,795,247 ========== ========== </TABLE>
EMCOR Group, Inc and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE E Retirement Plans Components of Net Periodic Pension Benefit Cost The components of net periodic pension benefit cost for three and six month periods ended June 30, 2004 and 2003 were as follows (in thousands): <TABLE> <CAPTION> For the three months For the six months ended June 30, ended June 30, ---------------------------------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- <S> <C> <C> <C> <C> Service cost $ 1,198 $ 1,061 $ 2,384 $ 2,322 Interest cost 2,025 2,192 4,031 4,424 Expected return on plan assets (1,661) (2,222) (3,306) (4,456) Amortization of prior service cost (2) (2) (4) (4) Amortization of net loss 565 345 1,125 696 -------- -------- ------- -------- Net periodic pension benefit cost $ 2,125 $ 1,374 $ 4,230 $ 2,982 ======== ======== ======= ======== </TABLE> Employer Contributions During 2004, EMCOR's United Kingdom subsidiary contributed $3.3 million to its defined benefit pension plan and anticipates contributing an additional $4.3 million in the remainder of 2004. NOTE F Income Taxes For the three months ended June 30, 2004, the income tax provision was $1.0 million compared to $6.5 million for the three months ended June 30, 2003. For the six months ended June 30, 2004, the income tax benefit was $11.4 million, compared to an income tax provision of $9.1 million for the six months ended June 30, 2003. The income tax benefit in the 2004 six month period included a reversal of $9.6 million in the first quarter of 2004 of income tax reserves no longer required based on a current analysis of probable exposures, plus a $1.8 million tax benefit on $4.2 million of loss before income taxes. The provision (benefit) on income (loss) before income taxes for the three and six months ended June 30, 2004 was recorded at an effective income tax rate of approximately 42% for each period, respectively; and the income before income taxes for the three and six months ended June 30, 2003 was recorded at an effective income tax rate of approximately 44%. The decrease in the effective income tax rate for the current year periods compared to the prior year periods was primarily due to increased income anticipated in certain lower tax rate jurisdictions. NOTE G Legal Proceedings See Part II - Other Information, Item 1 - Legal Proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Highlights Operating Segments EMCOR has the following reportable segments which provide services associated with the design, integration, installation, startup, operation and maintenance of various systems: (a) United States electrical construction and facilities services (involving systems for generation and distribution of electrical power, lighting systems, low-voltage systems such as fire alarm, security, communications and process control systems and voice and data systems); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems, and plumbing, process and high-purity piping systems); (c) United States facilities services; (d) Canada construction and facilities services; (e) United Kingdom construction and facilities services; and (f) Other international construction and facilities services. The segment "United States facilities services" principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers' facilities (mobile operation and maintenance services, site-based operation and maintenance services, facility planning and consulting services and energy management programs) and, although this segment occasionally performs construction projects, this segment's services are not generally related to customers' construction programs. The Canada, United Kingdom and Other international segments perform electrical construction, mechanical construction and facilities services. "Other international construction and facilities services" represents EMCOR's operations outside of the United States, Canada and the United Kingdom (primarily in South Africa and the Middle East during the periods presented). Results of Operations The results presented reflect certain reclassifications of prior period amounts to conform to current year presentation. Revenues The following table presents EMCOR's operating segment revenues from unrelated entities and their respective percentage of total revenues (in thousands, except for percentages): <TABLE> <CAPTION> For the three months ended June 30, ------------------------------------------------------- % of % of 2004 Total 2003 Total ---- ----- ---- ----- Revenues: <S> <C> <C> <C> <C> United States electrical construction and facilities services $ 299,273 25% $ 322,035 28% United States mechanical construction and facilities services 469,025 39% 426,088 37% United States facilities services 179,041 15% 164,777 14% ---------- ---------- Total United States operations 947,339 79% 912,900 80% Canada construction and facilities services 65,441 6% 91,264 8% United Kingdom construction and facilities services 180,433 15% 140,214 12% Other international construction and facilities services -- -- -- -- ---------- ---------- Total worldwide operations $1,193,213 100% $1,144,378 100% ========== ========== </TABLE> <TABLE> <CAPTION> For the six months ended June 30, ------------------------------------------------------- % of % of 2004 Total 2003 Total ---- ----- ---- ----- Revenues: <S> <C> <C> <C> <C> United States electrical construction and facilities services $ 578,148 25% $ 575,909 26% United States mechanical construction and facilities services 891,739 39% 842,591 38% United States facilities services 357,522 16% 333,189 15% ---------- ---------- Total United States operations 1,827,409 80% 1,751,689 79% Canada construction and facilities services 141,124 6% 184,326 8% United Kingdom construction and facilities services 333,766 14% 269,393 12% Other international construction and facilities services -- -- -- -- ---------- ---------- Total worldwide operations $2,302,299 100% $2,205,408 100% ========== ========== </TABLE> As described below in more detail, revenues for the three months ended June 30, 2004 increased 4.3% to $1.19 billion compared to $1.14 billion for the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased 4.4% to $2.30 billion compared to $2.21 billion for the six months ended June 30, 2003. This revenue growth was principally due to increased work on United States transportation infrastructure, financial services, health care and hospitality construction projects and increases in site-based facilities services contracts. The increases in revenues in the three and six month periods in 2004 compared to the same periods in 2003 were partially offset by lower revenues from power generation projects, office and manufacturing construction projects, discretionary small projects, and repair and maintenance work in the United States and lower revenues from certain power generation projects in Canada. Revenues of United States electrical construction and facilities services segment for the three months ended June 30, 2004 decreased $22.8 million compared to the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased $2.2 million compared to the six months ended June 30, 2003. The decrease in revenues for the three months ended June 30, 2004 was primarily due to decreased power generation, office and manufacturing construction projects, partially offset by an increase in transportation infrastructure, financial services and hospitality work. The increase in revenues for the six month period was due to increased transportation infrastructure, financial services and hospitality work, mostly offset by decreased power generation, office and manufacturing construction projects. Revenues of United States mechanical construction and facilities services segment for the three months ended June 30, 2004 increased $42.9 million compared to the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased $49.1 million compared to the six months ended June 30, 2003. The increases in revenues were primarily attributable to increased work on health care, hospitality and financial services construction projects, partially offset by decreased power generation work, office work, discretionary small projects, and repair and maintenance work. United States facilities services revenues, which include those operations that principally provide consulting and maintenance services, increased $14.3 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased $24.3 million compared to the six months ended June 30, 2003. The increase in revenues for the three month period was primarily attributable to increased revenues from site-based facilities services contracts and mobile services, but was partially offset by decreased revenues from discretionary small projects and repair and maintenance work. The increase in revenues for the six month period was primarily attributable to revenues from new site-based facilities services contracts, but was partially offset by decreased revenues from less mobile services work during the first three months of the year and a decrease in discretionary small projects and repair and maintenance work. Revenues of Canada construction and facilities services decreased by $25.8 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 decreased $43.2 million compared to the six months ended June 30, 2003. These decreases were primarily due to the completion of certain long-term power generation projects active in the prior year. However, these decreases were partially offset by $1.9 million and $11.2 million in the three and six month periods, respectively, of increased revenues related to the change in the rate of exchange for Canadian dollars to United States dollars due to the strengthening of the Canadian dollar. United Kingdom construction and facilities services revenues increased $40.2 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 increased $64.4 million compared to the six months ended June 30, 2003. These increases in revenues were principally due to increases in transportation infrastructure work and to increases of $18.9 million and $38.7 million for the three and six months periods, respectively, caused by changes in the rate of exchange for British pounds to United States dollars due to strengthening of the British pound. Other international construction and facilities services activities consist of operations primarily in the Middle East and South Africa. All of the current projects in these markets are being performed by joint ventures, and accordingly, the results of these joint venture operations are accounted for under the equity method of accounting because EMCOR has less than majority ownership. Therefore, revenues attributable to such joint ventures are not reflected as revenues in the consolidated financial statements. EMCOR continues to pursue new business selectively in the Middle East and in Continental Europe; however, the availability of opportunities there has been significantly reduced as a result of local economic factors.
Cost of sales and Gross profit The following table presents EMCOR's cost of sales, gross profit, and gross profit as a percentage of revenues (in thousands, except for percentages): For the three months ended June 30, ----------------------------------- 2004 2003 ---- ---- Cost of sales.............................. $1,091,701 $1,021,103 Gross profit............................... 101,512 123,275 Gross profit, as a percentage of revenues.. 8.5% 10.8% For the six months ended June 30, ----------------------------------- 2004 2003 ---- ---- Cost of sales.............................. $2,099,624 $1,965,364 Gross profit............................... 202,675 240,044 Gross profit, as a percentage of revenues.. 8.8% 10.9% Gross profit (revenues less cost of sales) decreased $21.8 million and $37.4 million for the three and six months ended June 30, 2004 compared to the three and six months ended June 30, 2003, respectively. Gross profit as a percentage of revenues was 8.5% for the three months ended June 30, 2004 compared to 10.8% for the three months ended June 30, 2003. Gross profit as a percentage of revenues was 8.8% for the six months ended June 30, 2004 compared to 10.9% for the six months ended June 30, 2003. The reduced gross profit for the 2004 three and six month periods was primarily attributable to: a) poor contract performance on certain construction work related to greater than originally estimated labor requirements to perform the work and continued reduced labor productivity due to the uncertain construction job market, b) continued decreased availability of generally more profitable discretionary small projects and repair and maintenance work, c) increased competition for, and a related decrease in gross profit margin on, commercial and industrial work in the United States, d) continued public sector construction work which typically has lower gross profit margins than private sector construction work and e) unprofitable performance attributable to labor requirements and other factors with respect to certain power generation projects in the current year. In addition, in the comparable 2003 periods, EMCOR realized operating income on power generation projects completed in 2003 and larger operating losses from the United Kingdom construction and facilities services segment than in the comparable three and six month periods in 2004. Selling, general and administrative expenses The following table presents EMCOR's selling, general and administrative expenses, and selling, general and administrative expenses as a percentage of revenues (in thousands, except for percentages): <TABLE> <CAPTION> For the three months ended June 30, ------------------------------------------- 2004 2003 ---- ---- <S> <C> <C> Selling, general and administrative expenses............................... $ 97,141 $106,638 Selling, general and administrative expenses, as a percentage of revenues.. 8.1% 9.3% </TABLE> <TABLE> <CAPTION> For the six months ended June 30, ------------------------------------------- 2004 2003 ---- ---- <S> <C> <C> Selling, general and administrative expenses............................... $198,142 $215,813 Selling, general and administrative expenses, as a percentage of revenues.. 8.6% 9.8% </TABLE> Selling, general and administrative expenses for the three and six months ended June 30, 2004 decreased $9.5 million and $17.7 million compared to the three and six months ended June 30, 2003, respectively. Selling, general and administrative expenses as a percentage of revenues were 8.1% for the three months ended June 30, 2004, compared to 9.3% for the three months ended June 30, 2003, and 8.6% for the six months ended June 30, 2004, compared to 9.8% for the six months ended June 30, 2003. The decreases in selling, general and administrative expenses both in dollars and as a percentage of revenues compared to the same periods in the prior year was primarily attributable to a) reduced incentive compensation because of less favorable financial performance and b) reductions in personnel.
Restructuring expenses Restructuring expenses, primarily relating to employee severance obligations, were $0.1 million and $5.3 million for the three and six months ended June 30, 2004. Approximately $4.5 million of the restructuring obligations were paid as of June 30, 2004. EMCOR anticipates paying approximately $0.3 million of the remaining obligations in fiscal 2004 and $0.5 million, thereafter. There were no restructuring expenses for the three and six months ended June 30, 2003. Operating income The following table presents EMCOR's operating income (loss), and operating income (loss) as a percentage of segment revenues from unrelated entities (in thousands, except for percentages): <TABLE> <CAPTION> For the three months ended June 30, -------------------------------------------------- % of % of Segment Segment 2004 Revenues 2003 Revenues ---- -------- ---- -------- Operating income (loss): <S> <C> <C> <C> <C> United States electrical construction and facilities services $ 8,829 2.9% $16,156 5.0% United States mechanical construction and facilities services 2,891 0.6% 6,243 1.5% United States facilities services 3,988 2.2% 4,566 2.8% ------- ------- Total United States operations 15,708 1.7% 26,965 3.0% Canada construction and facilities services (653) (1.0)% 1,145 1.3% United Kingdom construction and facilities services (1,269) (0.7)% (2,862) (2.0)% Other international construction and facilities services (60) (272) Corporate administration (9,355) (8,339) Restructuring expenses (140) -- ------- ------- Total worldwide operations 4,231 0.4% 16,637 1.5% Other corporate items: Interest expense (1,997) (2,031) Interest income 257 189 ------- ------- Income before income taxes $ 2,491 $14,795 ======= ======= </TABLE> <TABLE> <CAPTION> For the six months ended June 30, ---------------------------------------------------- % of % of Segment Segment 2004 Revenues 2003 Revenues ---- -------- ---- -------- Operating (loss) income: <S> <C> <C> <C> <C> United States electrical construction and facilities services $ 26,110 4.5% $ 29,110 5.1% United States mechanical construction and facilities services (4,851) (0.5)% 10,586 1.3% United States facilities services 2,362 0.7% 6,740 2.0% -------- -------- Total United States operations 23,621 1.3% 46,436 2.7% Canada construction and facilities services (632) (0.4)% 1,766 1.0% United Kingdom construction and facilities services (2,594) (0.8)% (7,337) (2.7)% Other international construction and facilities services 218 (115) Corporate administration (16,080) (16,519) Restructuring expenses (5,319) -- -------- -------- Total worldwide operations (786) (0.0)% 24,231 1.1% Other corporate items: Interest expense (3,844) (4,028) Interest income 426 384 -------- -------- (Loss) income before income taxes $ (4,204) $ 20,587 ======== ======== </TABLE>
As described below in more detail, operating income decreased by $12.4 million and $25.0 million for the three and six months ended June 30, 2004 compared to the three and six month periods ended June 30, 2003. United States electrical construction and facilities services operating income for the three months ended June 30, 2004 decreased $7.3 million compared to the three months ended June 30, 2003. Operating income for the six months ended June 30, 2004 decreased $3.0 million compared to the six months ended June 30, 2003. The decreases were primarily the result of a) decreases in the recovery of estimated costs upon completion of certain projects, b) a continued decline in the number of office and manufacturing projects and c) unprofitable performance on certain power generation projects in the current year. However, the reduction in operating income in the 2004 periods was partially offset by increased gross profit on transportation infrastructure, financial services, and hospitality construction projects. In the comparable 2003 periods, EMCOR realized operating income on power generation projects completed in 2003. Selling, general and administrative expenses decreased in both the three and six month periods primarily due to reductions in personnel. United States mechanical construction and facilities services operating income for the three months ended June 30, 2004 decreased $3.4 million compared to the three months ended June 30, 2003. For the six months ended June 30, 2004, this segment had an operating loss of $4.9 million compared to $10.6 million of operating income for the six months ended June 30, 2003. The operating results for both the three and six month periods were primarily attributable to: a) poor contract performance on certain construction work related to greater labor requirements than originally estimated to perform the work and continued reduced labor productivity due to the uncertain construction job market, b) a continued decreased availability of generally more profitable discretionary small projects and repair and maintenance work and c) decreases in the recovery of estimated costs upon completion of certain projects. Partially offsetting the operating results were decreased selling, general and administrative expenses related to reduced a) incentive compensation due to less favorable financial performance and b) personnel reductions. United States facilities services operating income for the three months ended June 30, 2004 decreased $0.6 million compared to the three months ended June 30, 2003. Operating income for the six months ended June 30, 2004 decreased $4.4 million compared to the six months ended June 30, 2003. For the three months ended June 30, 2004 compared to the three months ended June 30, 2003, there was a decrease in revenues from, and profits earned on, discretionary small projects and repair and maintenance work. For the six months ended June 30, 2004 compared to the same period in 2003, the decrease in operating income was due to the following: a) a decrease in discretionary small projects and repair and maintenance work, b) approximately $2.3 million of losses during the first three months of 2004 on certain construction projects, outside of the normal facilities services operations of this segment, that were contracted for by subsidiaries in this segment prior to their acquisition by EMCOR and c) expenses incurred for site-based facilities services development. The decrease in operating income in the current year periods was offset in part by a reduction in selling, general and administrative expenses related to a) reduced incentive compensation due to less favorable financial performance and b) reductions in personnel. Canada construction and facilities services operating income decreased $1.8 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Operating income decreased $2.4 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The decreased operating income for both the three and six month periods compared to the prior year periods was primarily due to a) the completion of certain long-term power generation projects active in the prior year, b) poor contract performance on certain other construction work related to greater labor requirements than originally estimated to perform the work and c) for the six month period only, an increase in selling, general and administrative expenses related to increased travel expenses and other direct selling expenses. Exchange rates did not have a significant impact on reported operating losses for both the three and six months ended June 30, 2004 compared to the same periods in the prior year. United Kingdom construction and facilities services operating losses for the three months ended June 30, 2004 and 2003 were $1.3 million and $2.9 million, respectively. Operating losses for the six months ended June 30, 2004 and 2003 were $2.6 million and $7.3 million, respectively. These decreases in operating losses were attributable to reductions in selling, general and administrative expenses related to a reorganization of the United Kingdom operations in late 2003 and an improvement in the 2004 gross profit. In the 2003 comparable periods, there had been several unfavorable project close-outs and poor labor performance. Exchange rates did not have a significant impact on reported operating losses for both the three and six months ended June 30, 2004 compared to the same periods in the prior year.
Other international construction and facilities services realized an operating loss of $0.1 million for the three months ended June 30, 2004 and operating income of $0.2 million for the six months ended June 30, 2004, compared to operating losses of $0.3 million and $0.1 million for the three and six months ended June 30, 2003, respectively. EMCOR continues to pursue new business selectively in the Middle East as well as in Continental Europe; however, the availability of opportunities has been significantly reduced as a result of local economic factors. Corporate administration expense increased $1.0 million for the three months ended June 30, 2004, compared to the three months ended June 30, 2003. Corporate administration expense decreased $0.4 million for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. The increase in expense for the three month period was primarily due to increased marketing expenditures partially offset by general cost reductions. Restructuring expenses, primarily relating to employee severance obligations, were $0.1 million and $5.3 for the three and six months ended June 30, 2004. There were no restructuring expenses for the three and six months ended June 30, 2003. Interest expense for the three months ended June 30, 2004 and 2003 was $2.0 million in both periods, and interest expense was $3.8 million and $4.0 million for the six months ended June 30, 2004 and 2003, respectively. Interest income for the three months ended June 30, 2004 and 2003 was $0.3 million and $0.2 million, respectively, and interest income was $0.4 million for both of the six month periods ended June 30, 2004 and 2003, respectively. Changes in the interest rate on borrowings and on cash invested did not have a significant impact on interest expense or income during the three or six months ended June 30, 2004 compared to the 2003 periods. For the three months ended June 30, 2004, the income tax provision was $1.0 million compared to $6.5 million for the three months ended June 30, 2003. For the six months ended June 30, 2004, the income tax benefit was $11.4 million, compared to an income tax provision of $9.1 million for the six months ended June 30, 2003. The income tax benefit in the 2004 six month period included a reversal in the first quarter of 2004 of $9.6 million of income tax reserves no longer required based on the then current analysis of probable exposures, plus a $1.8 million tax benefit on $4.2 million of loss before income taxes. The provision (benefit) on income (loss) before income taxes for the three and six months ended June 30, 2004 was recorded at an effective income tax rate of approximately 42% for each period, respectively, and the income before income taxes for the three and six months ended June 30, 2003 was recorded at an effective income tax rate of approximately 44%. The decrease in the effective income tax rate for the current year periods compared to the prior year periods was primarily due to increased income anticipated in certain lower tax rate jurisdictions. EMCOR's contract backlog at June 30, 2004 was $3.08 billion compared to $3.15 billion of contract backlog at June 30, 2003. The $0.07 billion decrease was primarily due to a $0.2 billion total decrease in the United States electrical construction and facilities services and the Canada construction and facilities services segments' backlog and a $0.02 billion decrease in the United Kingdom construction and facilities services backlog (which decrease was offset by an increase of $0.05 million due to exchange rate changes) . These decreases were partially offset by a $0.16 billion total increase in the United States mechanical construction and facilities services and the United States facilities services segments' backlog. EMCOR's contract backlog was $3.08 billion at June 30, 2004 and $3.03 billion at December 31, 2003. The $0.05 billion increase was primarily due to a $0.16 billion total increase in the United States mechanical construction and facilities services and the United States facilities services segments' backlog, partially offset by decreases in each of EMCOR's other segments' backlog.
Liquidity and Capital Resources The following table presents EMCOR's net cash (used in) provided by operating activities, investing activities and financing activities (in thousands): For the six months ended June 30, -------------------------- 2004 2003 ---- ---- Net cash provided by (used in) operating activities... $ 1,845 $(53,147) Net cash used in investing activities................. $(10,402) $(16,319) Net cash (used in) provided by financing activities... $(19,484) $ 34,115 EMCOR's consolidated cash balance decreased by approximately $28.1 million from $78.3 million at December 31, 2003 to $50.2 million at June 30, 2004. For the six months ended June 30, 2003, $55.0 million more cash was used in operating activities than in the first half of 2004 primarily due to the shift toward increased public sector work in 2003, which work typically involves larger projects and significant working capital requirements until initial billing milestones can be reached. In the 2004 period, there was an improvement in EMCOR's net over-billed position (which is the balance sheet accounts billings in excess of costs and estimated earnings on uncompleted contracts less cost and estimated earnings in excess of billings on uncompleted contracts) which contributed to the improvement in cash provided by operating activities. Net cash used in investing activities of $10.4 million in the first half of 2004 decreased $5.9 million compared to $16.3 million in the same period in the prior year primarily due to a $1.1 million reduction in the purchase of property, plant and equipment, $1.9 million cash disbursed in respect of investments and a $2.0 million reduction in earn-out payments as earn-out periods provided for in most acquisition agreements have expired. Net cash used in financing activities of $19.5 million in the first half of 2004 was primarily attributable to net repayments under the working capital credit line, compared to net borrowings under the working capital credit line in 2003. <TABLE> <CAPTION> Payments Due by Period --------------------------------------------------- Less Contractual than 1-3 4-5 After Obligations Total 1 year years years 5 years - --------------------------------------------- ----- ------ ----- ----- ------- <S> <C> <C> <C> <C> <C> Other long-term debt $ 0.6 $ 0.1 $ 0.2 $ 0.2 $ 0.1 Capital lease obligations 0.3 0.2 0.1 -- -- Operating leases 151.2 36.6 52.9 28.3 33.4 Minimum funding requirement for pension plan 7.6 7.6 -- -- -- Open purchase obligations (1) 668.1 500.6 163.5 4.0 -- Other long-term obligations (2) 98.9 -- 98.9 -- -- ------ ------ ------ ----- ----- Total Contractual Obligations $926.7 $545.1 $315.6 $32.5 $33.5 ====== ====== ====== ===== ===== </TABLE> <TABLE> <CAPTION> Amount of Commitment Expiration by Period --------------------------------------------------- Total Less Other Commercial Amounts than 1-3 4-5 After Commitments Committed 1 year years years 5 years - --------------------------------------------- --------- ------ ----- ----- ------- <S> <C> <C> <C> <C> <C> <C> Revolving credit facility (3) $119.3 $ -- $ -- $119.3 $ -- Letters of credit 55.6 -- -- 55.6 -- Guarantees 25.0 -- -- -- 25.0 ------ ------ ------ ------ ----- Total Commercial Obligations $199.9 $ -- $ -- $174.9 $25.0 ====== ====== ====== ====== ===== </TABLE> (1) Represent open purchase orders for material and subcontracting costs related to the Company's construction and service contracts. These purchase orders are not reflected in EMCOR's consolidated balance sheet and should not impact future cash flows as amounts will be recovered through customer billings. (2) Represent primarily insurance related liabilities, classified as other long-term liabilities in EMCOR's consolidated balance sheets. Cash payments for insurance related liabilities may be payable beyond three years, but it is not practical to estimate. (3) EMCOR classifies these borrowings as short-term on its consolidated balance sheet because of EMCOR's intent and ability to repay the amounts on a short-term basis.
EMCOR's revolving credit agreement (the "Revolving Credit Facility") provides for a credit facility of $350.0 million. As of June 30, 2004 and December 31, 2003, EMCOR had approximately $55.6 million and $42.9 million of letters of credit outstanding, respectively, under the Revolving Credit Facility. The amounts borrowed under the Revolving Credit Facility as of June 30, 2004 and December 31, 2003 were $119.3 million and $139.4 million, respectively. A subsidiary of EMCOR has guaranteed indebtedness of a venture in which it has a 40% interest; the other venture partner, Baltimore Gas and Electric, has a 60% interest. The venture designs, constructs, owns, operates, leases and maintains facilities to produce chilled water for sale to customers for use in air conditioning commercial properties. These guarantees are not expected to have a material effect on EMCOR's financial position or results of operations. Each of the venturers is jointly and severally liable, in the event of default, for the venture's $25.0 million borrowing due December 2031. EMCOR is contingently liable to sureties in respect of performance and payment bonds issued by sureties, usually at the request of customers in connection with construction projects, which secure EMCOR payment and performance obligations under contracts for such projects. In addition, at the request of labor unions representing EMCOR employees, bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. EMCOR bonding requirements typically increase as the amount of public sector work increases. As of June 30, 2004, sureties had issued bonds for the account of EMCOR in the aggregate amount of approximately $1.8 billion. The bonds are issued by EMCOR's sureties in return for a premium, which varies depending on the size and type of bond. The largest individual bond is approximately $170.0 million. EMCOR has agreed to indemnify the sureties for any payments made by them in respect of bonds issued on EMCOR's behalf. EMCOR does not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein. The primary source of liquidity for EMCOR has typically been, and is generally expected to continue to be, cash generated by operating activities. EMCOR also maintains the Revolving Credit Facility that may be utilized, among other things, to meet short-term liquidity needs in the event cash generated by operating activities is insufficient, or to enable EMCOR to seize opportunities to participate in joint ventures or to make acquisitions that may require access to cash on short notice or for any other reason. EMCOR may also increase liquidity through an equity offering or other debt instruments. Short-term changes in macroeconomic trends may have an effect, positively or negatively, on liquidity. In addition to managing borrowings, EMCOR's focus on the facilities services market is intended to provide an additional buffer against economic downturns, as the facilities services market is characterized by annual and multi-year contracts that provide a more predictable stream of cash flows than the construction market. Short-term liquidity is also impacted by the type and length of construction contracts in place. During economic downturns in non-residential construction, such as during the period 2001 through June 30, 2004, there are typically fewer discretionary small projects from the private sector, and companies such as EMCOR more aggressively bid large long-term infrastructure and public sector contracts. Performance of long-term public sector contracts typically requires working capital until initial billing milestones are achieved. While EMCOR strives to maintain a net over-billed position with its customers, there can be no assurance that a net over-billed position can be maintained. EMCOR's net over-billings, defined as the balance sheet accounts billings in excess of costs and estimated earnings on uncompleted contracts less cost and estimated earnings in excess of billings on uncompleted contracts, was $173.8 million and $95.8 million as of June 30, 2004 and December 31, 2003, respectively. Long-term liquidity requirements can be expected to be met through cash generated from operating activities, the Revolving Credit Facility, and the sale of various secured or unsecured debt and/or equity interests in the public and private markets. Based upon EMCOR's current credit ratings and financial position, EMCOR can reasonably expect to be able to issue long-term debt instruments and/or equity. Over the long term, EMCOR's primary revenue risk factor continues to be the level of demand for non-residential construction services, which is in turn influenced by macroeconomic trends including interest rates and governmental economic policy. In order to provide protection against demand cycles in private sector construction services, EMCOR has increased its participation, and its backlog of contracts, in the public sector and in the facilities services market. In addition to the primary revenue risk factor, EMCOR's ability to perform work at profitable levels is critical to meeting long-term liquidity requirements.
EMCOR believes that current cash balances and borrowing capacity available under the Revolving Credit Facility or other forms of financing available through debt or equity offerings, combined with cash expected to be generated from operations, will be sufficient to provide short-term and foreseeable long-term liquidity and meet expected capital expenditure requirements. However, EMCOR is a party to lawsuits and other proceedings in which other parties seek to recover from it amounts ranging from a few thousand dollars to over $70.0 million. If EMCOR was required to pay damages in one or more such proceedings, such payments could have a material adverse effect on its financial position, results of operations and/or cash flows. Certain Insurance Matters As of June 30, 2004 and December 31, 2003, EMCOR was utilizing approximately $45.1 million and $37.7 million, respectively, of letters of credit obtained under its revolving credit facility as collateral for its insurance obligations. Application of Critical Accounting Policies The condensed consolidated financial statements are based on the application of significant accounting policies, which require management to make significant estimates and assumptions. EMCOR's significant accounting policies are described in Note B - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in Item 8 of its annual report on Form 10-K for the year ended December 31, 2003. There was no initial adoption of any accounting policies during the three and six months ended June 30, 2004. EMCOR believes that some of the more critical judgment areas in the application of accounting policies that affect its financial condition and results of operations are estimates and judgments pertaining to (a) revenue recognition from (i) long-term construction contracts for which the percentage of completion method of accounting is used and (ii) services contracts, (b) collectibility or valuation of accounts receivable, (c) insurance liabilities, (d) income taxes and (e) intangible assets. Revenue Recognition for Long-term Construction Contracts and Services Contracts EMCOR believes its most critical accounting policy is revenue recognition from long-term construction contracts for which EMCOR uses the percentage-of-completion method of accounting. Percentage-of-completion accounting is the prescribed method of accounting for long-term contracts in accordance with accounting principles generally accepted in the United States, Statement of Position No 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," and, accordingly, the method used for revenue recognition within EMCOR's industry. Percentage-of-completion for each contract is measured principally by the ratio of costs incurred to date to perform each contract to the estimated total costs to perform such contract at completion. Certain of EMCOR's electrical contracting business units measure percentage-of-completion by the percentage of labor costs incurred to date to perform each contract to the estimated total labor costs to perform such contract at completion. Provisions for the entirety of estimated losses on uncompleted contracts are made in the period in which such losses are determined. Application of percentage-of-completion accounting results in the recognition of costs and estimated earnings in excess of billings on uncompleted contracts in EMCOR's consolidated balance sheets. Costs and estimated earnings in excess of billings on uncompleted contracts reflected in the consolidated balance sheets arise when revenues have been recognized but the amounts cannot be billed under the terms of contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Costs and estimated earnings in excess of billings on uncompleted contracts also include amounts in dispute EMCOR seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value and take into account factors that may affect the ability to bill and collect amounts billed. Due to uncertainties inherent in estimates employed in applying percentage-of-completion accounting, estimates may be revised as project work progresses. Application of percentage-of-completion accounting requires that the impact of revised estimates be reported prospectively in the consolidated financial statements.
In addition to revenue recognition for long-term construction contracts, EMCOR recognizes revenues from service contracts as such contracts are performed in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition, revised and updated" ("SAB 104"). There are two basic types of services contracts: (1) fixed price services contracts which are signed in advance for maintenance, repair and retrofit work over periods typically ranging from one to three years (for which there may be EMCOR employees on a customer's site full time) and (2) services contracts which may or may not be signed in advance for similar maintenance, repair and retrofit work on an as needed basis (frequently referred to as time and material work). Fixed price services contracts are generally performed evenly over the contract period, and, accordingly, revenue is recognized on a pro-rata basis over the life of the contract. Revenues derived from other services contracts are recognized when the services are performed in accordance with SAB 104. Expenses related to all services contracts are recognized as incurred. Accounts Receivable EMCOR is required to estimate the collectibility of accounts receivable. A considerable amount of judgment is required in assessing the realization of receivables, which assessment factors include the creditworthiness of the customer, EMCOR's prior collection history with the customer and related aging of the past due balances. The provisions for bad debts during the six months ended June 30, 2004 and 2003 were $1.0 and $3.5 million, respectively. At June 30, 2004 and December 31, 2003, accounts receivable of $1,066.9 million and $1,009.2 million, respectively, included allowances of $37.8 million and $43.7 million, respectively. Specific accounts receivable are evaluated when EMCOR believes a customer may not be able to meet its financial obligations due to deterioration of its financial condition or credit ratings or its bankruptcy. The allowance requirements are based on the best facts available and are re-evaluated as additional information is received. Insurance Liabilities EMCOR has deductibles for certain workers' compensation, auto liability, general liability and property claims, has self-insured retentions for certain other casualty claims, and is self-insured for employee-related health care claims. Losses are recorded based upon estimates of the liability for claims incurred and estimates of claims incurred but not reported. The estimates of liabilities are derived from known facts, historical trends and industry averages utilizing the assistance of an actuary to determine the best estimate of these obligations. EMCOR believes its liabilities for these obligations are adequate. However, such obligations are difficult to assess and estimate due to numerous factors, including severity of injury, determination of liability in proportion to other parties, timely reporting of occurrences and effectiveness of safety and risk management programs. Therefore, if actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period that the experience becomes known. Income Taxes EMCOR has net deferred tax assets primarily resulting from deductible temporary differences, which will reduce taxable income in future periods. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. As of June 30, 2004 and December 31, 2003, the total valuation allowance on net deferred tax assets was approximately $2.0 million. Intangible Assets As of June 30, 2004, EMCOR had goodwill and net identifiable intangible assets (primarily the market value of its acquired backlog, customer relationships and trademarks and tradenames) of $279.5 million and $20.5 million, respectively, in connection with the acquisition of certain companies. The determination of related estimated useful lives for identifiable intangible assets and whether those assets are impaired involves significant judgments based upon short and long-term projections of future performance. These forecasts reflect assumptions regarding the ability to successfully integrate acquired companies. Statement of Financial Accounting Standards No. 142,"Goodwill and Other Intangible Assets" ("SFAS 142") requires goodwill to be tested for impairment, on at least an annual basis, and be written down when impaired, rather than amortized as previous standards required. Furthermore, SFAS 142 requires identifiable intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") requires a review for impairment of the market value ascribed to identifiable intangible assets with indefinite lives. Trademarks and tradenames have indefinite lives and are not amortized. Changes in strategy and/or market conditions may result in adjustments to recorded intangible asset balances. As of June 30, 2004, no indicators of impairment of EMCOR's goodwill or identifiable intangible assets existed in accordance with the provisions of SFAS 142 or SFAS 144.
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. All forward-looking statements included in this Quarterly Report are based upon information available to EMCOR, and management's perception thereof, as of the date of this Quarterly Report. EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements include statements regarding market share growth, gross profit, project mix, projects with varying profit margins, and selling, general and administrative expenses. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. Such risk and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR's services, adverse business conditions, increased competition, unfavorable labor productivity, mix of business, and risks associated with foreign operations. Certain of the risks and factors associated with EMCOR's business are also discussed in EMCOR's 2003 Form 10-K, its Form 10-Q for the three months ended March 31, 2004 and in other reports filed by it from time to time with the Securities and Exchange Commission. Readers should take the aforementioned risks and factors into account in evaluating any forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EMCOR has not used derivative financial instruments for any purpose during the three and six months ended June 30, 2004 and 2003, including trading or speculation on changes in interest rates, or commodity prices of materials used in its business. EMCOR is exposed to market risk for changes in interest rates for borrowings under its Revolving Credit Facility. Borrowings under that facility bear interest at variable rates, and the fair value of this borrowing is not significantly affected by changes in market interest rates. As of June 30, 2004, there was $119.3 million of borrowings outstanding under the facility, and these borrowings bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Nesbitt from time to time (4.25% at June 30, 2004) plus 0% to 1.0% based on certain financial tests or (2) United States dollar LIBOR (at June 30, 2004 the rate was 1.33%) plus 1.5% to 2.5% based on certain financial tests. The interest rates in effect at June 30, 2004 were 4.75% and 3.33% for the prime commercial lending rate and the United States dollar LIBOR, respectively. Letter of credit fees issued under this facility range from 0.75% to 2.5% of the respective face amounts of the letters of credit issued based on the type of letter of credit issued and certain financial tests. Based on the $119.3 million of borrowings, if overall interest rates were to increase by 1.0%, the net of tax interest expense would increase approximately $0.7 million in the next twelve months. Conversely, if overall interest rates were to decrease by 1.0%, interest expense would decrease by approximately $0.7 million in the next twelve months. The Revolving Credit Facility expires in September 2007. There is no guarantee that EMCOR will be able to renew the facility at its expiration. EMCOR is also exposed to market risk and its potential related impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if customers' ability to pay these obligations is negatively impacted by economic conditions. EMCOR continually monitors the creditworthiness of its customers and maintains on-going discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, EMCOR believes it takes appropriate action to manage market and other risks, but there is no assurance that it will be able to reasonably identify all risks with respect to collectibility of these assets. See also the previous discussion of Accounts Receivable under the heading, "Application of Critical Accounting Policies" in the Management's Discussion and Analysis of Results of Operations and Financial Condition. Amounts invested in EMCOR's foreign operations are translated into U.S. dollars at the exchange rates in effect at the end of the period. The resulting translation adjustments are recorded as accumulated other comprehensive income (loss), a component of stockholders' equity, in the condensed consolidated balance sheets. EMCOR believes the exposure to the effects that fluctuating foreign currencies may have on the consolidated results of operations is limited because the foreign operations primarily invoice customers and collect obligations in their respective local currencies. Additionally, expenses associated with these transactions are generally contracted and paid for in their same local currencies. In addition, EMCOR is exposed to market risk of fluctuations in certain commodity prices of materials such as copper and steel utilized in both its construction and facilities services operations. EMCOR believes it can be successful in recovery of commodity price escalations.
ITEM 4. CONTROLS AND PROCEDURES EMCOR's management evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of EMCOR's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that EMCOR's disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in EMCOR's internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, EMCOR's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For information regarding legal proceedings, see EMCOR's Annual Report on Form 10-K for the year ended December 31, 2003 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of stockholders of EMCOR was held on June 10, 2004. (b) The Board of Directors of EMCOR consists of seven individuals each of whom was nominated at the annual meeting for re-election as a director of EMCOR for the ensuing year. Each director was re-elected. (c) Set forth below are the names of each director elected at the annual meeting, the number of shares voted for his election and the number of votes withheld from his election. There were no broker non-votes. Name Votes For Votes Withheld Stephen W. Bershad 13,784,607 606,148 David A. B. Brown 14,031,359 359,396 Larry J. Bump 13,784,107 606,648 Albert Fried, Jr. 13,910,750 480,005 Richard F. Hamm, Jr. 14,044,413 346,342 Frank T. MacInnis 14,047,038 343,717 Michael T. Yonker 13,911,225 479,530 At the annual meeting, the stockholders also voted upon a proposal to ratify the appointment by the Audit Committee of the Board of Directors of Ernst & Young, LLP, independent auditors, as EMCOR's independent auditors for 2004; 14,226,846 shares voted in favor of ratification, 154,807 shares voted against ratification and 9,102 shares abstained from voting thereon. There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K <TABLE> <CAPTION> (a) Exhibits Incorporated by Reference to, Exhibit No. Description or Page Number - ----------- ---------------------------------------------- ----------------------------- <S> <C> <C> 3(a-1) Restated Certificate of Incorporation of Exhibit 3(a-1) to Form 10 EMCOR filed December 15, 1994 3(a-2) Amendment dated November 28, 1995 to the Exhibit 3(a-2) to EMCOR's Restated Certificate of Incorporation of Annual Report on Form 10-K for EMCOR the year ended December 31, 1995 3(a-3) Amendment dated February 12, 1998 to the Exhibit 3(a-3) to EMCOR's Restated Certificate of Incorporation Annu Report on Form 10-K for the year ended December 31, 1997 3(b) Amended and Restated By-Laws Exhibit 3(b) to EMCOR's Annual Report on Form 10-K for the year ended December 31, 1998 4.1(a) U.S. $275,000,000 Credit Agreement by and Exhibit 4.1(a) to EMCOR's Report among EMCOR Group, Inc. and certain of its On Form 8-K dated October 4, 2002 Subsidiaries and Harris Trust and Savings Bank individually and as Agent and the Lenders which are or become parties thereto dated as of September 26, 2002 (the "Credit Agreement") 4.1(b) Amendment and Waiver letter dated Exhibit 4.1(b) to EMCOR's Annual December 10, 2002 to the Credit Agreement Report on Form 10-K for the year ended December 31, 2002 4.1(c) First Amendment to Credit Agreement dated Exhibit 4.1(c) to EMCOR's Quarterly as of June 2003 Report on Form 10-Q for the quarter ended June 30, 2003 (the "June 2003 Form 10-Q") 4.1(d) Second Amendment to Credit Agreement Exhibit 4.1(d) to June 2003 Form dated as of June 2003 10-Q 4.1(e) Commitment Amount Increase Request Exhibit 4.1(e) to June 2003 Form dated June 26, 2003 among Harris, National 10-Q City Bank and EMCOR 4.1(f) Commitment Amount Increase Request Exhibit 4.1(f) to June 2003 Form dated June 26, 2003 among Harris, Webster 10-Q Bank and EMCOR 4.1(g) Commitment Amount Increase Request Exhibit 4.1(g) to June 2003 Form dated June 26, 2003 among Harris, Union 10-Q Bank of California, N.A. and EMCOR 4.1(h) Commitment Amount Increase Request Exhibit 4.1(h) to June 2003 Form dated June 26, 2003 among Harris, Sovereign 10-Q Bank and EMCOR 4.1(i) Commitment Amount Increase Request Exhibit 4.1(i) to June 2003 Form dated July 9, 2003 among Harris, Bank 10-Q Hapoalim B.M. and EMCOR </TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (continued) <TABLE> <CAPTION> Incorporated by Reference to, Exhibit No. Description or Page Number - ------------------ ---------------------------------------------- ------------------------------------- <S> <C> <C> 4.1(j) Commitment Amount Increase Request Exhibit 4.1(j) to June 2003 Form dated July 9, 2003 among Harris, The 10-Q Governor and Company of Bank of Scotland and EMCOR 4.1(k) Commitment Amount Increase Request Exhibit 4.1(k) to June 2003 Form dated July 9, 2003 among Harris, U.S. Bank, 10-Q National Association and EMCOR 11 Computation of Basic Note B of the Notes EPS and Diluted EPS to the Condensed Consolidated for the three and six months Financial Statements ended June 30, 2004 and 2003 31.1 Additional Exhibit - Page Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Executive Officer 31.2 Additional Exhibit - Page Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Financial Officer 32.1 Additional Exhibit - Page Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 by the Chief Executive Officer 32.2 Additional Exhibit - Page Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 by the Chief Financial Officer </TABLE> (b) Reports of Form 8-K (1) Current report on Form 8-K, dated April 29, 2004 - Press release dated April 29, 2004 with respect to the results of operations for EMCOR's fiscal 2004 first quarter ended March 31, 2004.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 22, 2004 EMCOR GROUP, INC. ------------------------------------- (Registrant) /s/FRANK T. MACINNIS ------------------------------------- Frank T. MacInnis Chairman of the Board of Directors, Chief Executive Officer and President /s/LEICLE E. CHESSER ------------------------------------- Leicle E. Chesser Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/MARK A. POMPA ------------------------------------- Mark A. Pompa Senior Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer)
CERTIFICATION I, Frank T. MacInnis, Chairman of the Board and Chief Executive Officer of EMCOR Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 22, 2004 /s/FRANK T. MACINNIS ------------------------------------- Frank T. MacInnis Chairman of the Board of Directors, Chief Executive Officer and President
CERTIFICATION I, Leicle E. Chesser, Executive Vice President and Chief Financial Officer of EMCOR Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 22, 2004 /s/LEICLE E. CHESSER ------------------------------------ Leicle E. Chesser Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of EMCOR Group, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank T. MacInnis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: July 22, 2004 /s/ FRANK T. MACINNIS ----------------------------------- Frank T. MacInnis Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of EMCOR Group, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leicle E. Chesser, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: July 22, 2004 /s/ LEICLE E. CHESSER ----------------------------------- Leicle E. Chesser Chief Financial Officer