FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 - -------------------------------------------------------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 -------------- 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) 101 Merritt Seven Corporate Park Norwalk, Connecticut 06851-1060 - ---------------------------------------- ------------------------------- (Address of principal executive offices) (Zip Code) (203) 849-7800 - ---------------------------------------- (Registrant's telephone number) 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Number of shares of Common Stock outstanding as of the close of business on April 20, 2001: 10,513,156 shares.
EMCOR GROUP, INC. INDEX PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets - as of March 31, 2001 and December 31, 2000 1 Condensed Consolidated Statements of Operations - three months ended March 31, 2001 and 2000 3 Condensed Consolidated Statements of Cash Flows - three months ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income - three months ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 10 PART II - OTHER INFORMATION Item 1 Legal Proceedings 16 Item 4 Submission of Matters to a Vote of Security Holders 16 Item 6 Exhibits and Reports on Form 8-K 16
PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ================================================================================ March 31, December 31, 2001 2000 (Unaudited) - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 148,670 $ 137,685 Accounts receivable, net 818,047 825,803 Costs and estimated earnings in excess of billings on uncompleted contracts 168,016 158,073 Inventories 6,983 6,909 Prepaid expenses and other 8,998 10,290 ----------------------------- TOTAL CURRENT ASSETS 1,150,714 1,138,760 Investments, notes and other long-term receivables 11,110 10,364 Property, plant and equipment, net 39,009 38,959 Goodwill, net 66,296 67,625 Other assets 5,960 6,156 ----------------------------- TOTAL ASSETS $1,273,089 $1,261,864 ============================= See Notes to Condensed Consolidated Financial Statements. 1
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ March 31, December 31, 2001 2000 (Unaudited) - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt and capital lease obligations $ 667 $ 751 Accounts payable 316,994 365,139 Billings in excess of costs and estimated earnings on uncompleted contracts 352,123 314,929 Accrued payroll and benefits 114,361 103,897 Other accrued expenses and liabilities 67,166 67,671 --------------------------- TOTAL CURRENT LIABILITIES 851,311 852,387 Long-term debt and capital lease obligations 115,839 115,878 Other long-term obligations 63,720 60,096 --------------------------- TOTAL LIABILITIES 1,030,870 1,028,361 --------------------------- 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, 10,459,861 shares issued and outstanding 117 117 Capital surplus 173,282 167,742 Accumulated other comprehensive income (6,387) (3,906) Retained earnings 92,043 86,386 Treasury stock, at cost, 1,131,990 shares (16,836) (16,836) --------------------------- TOTAL STOCKHOLDERS' EQUITY 242,219 233,503 --------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,273,089 $1,261,864 =========================== See Notes to Condensed Consolidated Financial Statements. 2
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) ================================================================================ Three months ended March 31, 2001 2000 - -------------------------------------------------------------------------------- REVENUES $837,555 $741,522 Cost of sales 757,036 668,977 --------------------------------- GROSS PROFIT 80,519 72,545 Selling, general and administrative expenses 69,673 61,998 --------------------------------- OPERATING INCOME 10,846 10,547 Interest expense, net 742 1,744 --------------------------------- Income before income taxes 10,104 8,803 Income tax provision 4,447 3,873 --------------------------------- NET INCOME $ 5,657 $ 4,930 --------------------------------- BASIC EARNINGS PER SHARE $ 0.54 $ 0.47 ================================= DILUTED EARNINGS PER SHARE $ 0.44 $ 0.40 ================================= See Notes to Condensed Consolidated Financial Statements. 3
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> ====================================================================================== Three months ended March 31, 2001 2000 - -------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net income $ 5,657 $ 4,930 Depreciation and amortization 3,015 2,525 Amortization of goodwill 1,321 924 Other non-cash expenses 4,460 4,276 Changes in operating assets and liabilities (77) (15,633) -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 14,376 (2,978) -------- -------- Cash flows from investing activities: Proceeds from sale of assets 1,162 921 Purchase of property, plant and equipment (4,227) (4,038) Net (disbursements) proceeds from other investments (746) 5,933 -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,811) 2,816 -------- -------- Cash flows from financing activities: Net repayments of long-term debt and capital lease obligations (123) (276) Net proceeds from exercise of stock options 543 -- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 420 (276) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,985 (438) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 137,685 58,552 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $148,670 $ 58,114 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 97 $ 129 Income taxes $ 1,623 $ 841 </TABLE> See Notes to Condensed Consolidated Financial Statements. 4
EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ACCUMULATED OTHER COMMON CAPITAL COMPREHENSIVE RETAINED TREASURY COMPREHENSIVE TOTAL STOCK SURPLUS LOSS (1) EARNINGS STOCK INCOME - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Balance, January 1, 2000 $170,249 $117 $ 142,894 $(2,223) $46,297 $(16,836) Net income 4,930 -- -- -- 4,930 -- $ 4,930 Foreign currency translation adjustments (45) -- -- (45) -- -- (45) --------- Comprehensive income -- -- -- -- -- -- $ 4,885 ========= Provision in lieu of income taxes 2,894 -- 2,894 -- -- -- ----------------------------------------------------------------------------------- Balance, March 31, 2000 $178,028 $117 $ 145,788 $(2,268) $51,227 $(16,836) =================================================================================== Balance, January 1, 2001 $233,503 $117 $ 167,742 $(3,906) $86,386 $(16,836) Net income 5,657 -- -- -- 5,657 -- $ 5,657 Foreign currency translation adjustments (2,481) -- -- (2,481) -- -- (2,481) --------- 3,176 Comprehensive income -- -- -- -- -- -- ========= Provision in lieu of income taxes 3,260 -- 3,260 -- -- -- Common stock issued under stock option plans 543 -- 543 -- -- -- Value of Restricted Stock Units (2) 1,737 -- 1,737 -- -- -- ----------------------------------------------------------------------------------- Balance, March 31, 2001 $242,219 $117 $173,282 $(6,387) $92,043 $(16,836) =================================================================================== </TABLE> (1) Represents cumulative foreign currency translation adjustments. (2) Represents the value of Restricted Stock Units for the purchase of common stock and related compensation expense due to an increase in market value of the underlying common stock. See Notes to Condensed Consolidated Financial Statements. 5
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 generally accepted accounting principles have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto included in EMCOR's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of EMCOR, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of a normal recurring nature) necessary to present fairly the financial position of EMCOR and the results of its operations. The results of operations for the three month period ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. Certain reclassifications of prior year amounts have been made to conform to current year presentation. NOTE B INCOME TAXES EMCOR files a consolidated federal income tax return including all U.S. subsidiaries. At March 31, 2001, EMCOR had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $30.0 million, which expire in the years 2009 through 2012. The NOLs are subject to review by the Internal Revenue Service. Future changes in ownership of EMCOR, as defined by Section 382 of the Internal Revenue Code, could limit the amount of EMCOR's NOLs available for use in any one year. In the United Kingdom, EMCOR's wholly owned subsidiary, Drake & Scull, has a trading loss carry-forward of approximately $6.0 million. Trading losses may be carried forward, without a time limit, against future income from the same trade. EMCOR adopted Fresh-Start Accounting in connection with EMCOR's reorganization in December 1994. As a result, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of December 15, 1994 will result in a charge to the tax provision (provision in lieu of income taxes) and to capital surplus. Amounts credited to capital surplus for the three month periods ended March 31, 2001 and 2000 were approximately $3.3 million and $2.9 million, respectively. 6
NOTE C EARNINGS PER SHARE The following tables summarize EMCOR's calculation of Basic and Diluted Earnings per Share ("EPS") for the three month periods ended March 31, 2001 and 2000: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2001 ------------------------------------------ INCOME SHARES PER SHARE (Numerator) (Denominator) AMOUNT --------------- ------------- ----------- <S> <C> <C> <C> Basic EPS Income available to common stockholders $5,657,000 10,448,610 $0.54 =========== EFFECT OF DILUTIVE SECURITIES: Convertible Subordinated Notes, including assumed interest savings, net of tax 975,615 4,206,291 Options -- 391,514 --------------- ------------- DILUTED EPS $6,632,615 15,046,415 $0.44 =============== ============= =========== </TABLE> <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2001 ------------------------------------------ INCOME SHARES PER SHARE (Numerator) (Denominator) AMOUNT --------------- ------------- ----------- <S> <C> <C> <C> Basic EPS Income available to common stockholders $4,930,000 10,427,690 $0.47 EFFECT OF DILUTIVE SECURITIES: ========== Convertible Subordinated Notes, including assumed interest savings, net of tax 1,019,000 4,206,291 Options -- 248,999 --------------- ------------- DILUTED EPS $5,949,000 14,882,980 $0.40 =============== ============= =========== </TABLE> There were no options excluded from the calculation of diluted EPS for the three month period ended March 31, 2001. For the three month period ended March 31, 2000, 31,333 options were excluded from the calculation of Diluted EPS as the inclusion of the options would be antidilutive. NOTE D NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133", and Statement of Financial Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities" ("SFAS 138"), establishes for fiscal quarters of fiscal years beginning after June 15, 2000 accounting and reporting standards requiring derivative instruments, as defined, to be measured in the financial statements at fair value. SFAS 133 also requires that changes in the derivative instruments' fair value be recognized currently in earnings unless certain accounting criteria are met. EMCOR adopted this standard as of January 1, 2001 with no significant effect on the financial condition or results of operations of EMCOR. 7
In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 140"). SFAS 140 is a replacement of Statement of Financial Accounting Standards No. 125. SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. EMCOR has evaluated this standard and has concluded that the provisions of SFAS 140 will not have a significant effect on the financial conditions or results of operations of EMCOR. NOTE E SEGMENT INFORMATION EMCOR has the following reportable segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, Canada construction and facilities services and United Kingdom construction and facilities services. The segment (i) United States other services primarily represents those operations which principally provide consulting and maintenance services; and (ii) Other international construction and facilities services represents EMCOR's operations outside of the United States, Canada, and the United Kingdom, primarily South Africa, the Middle East and Europe, performing electrical construction, mechanical construction and facilities services. The following presents information about industry segments and geographic areas (in thousands): <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED -------------------------- MARCH 31, MARCH 31, 2001 2000 ------------- ------------ <S> <C> <C> Revenues from unrelated entities: United States electrical construction and facilities services $331,830 $279,917 United States mechanical construction and facilities services 295,867 272,654 United States other services 45,466 27,133 ------------ ----------- Total United States operations 673,163 579,704 Canada construction and facilities services 37,885 59,503 United Kingdom construction and facilities services 125,555 101,982 Other international construction and facilities services 952 333 ------------ ----------- Total worldwide operations $837,555 $741,522 ============ =========== Total revenues: United States electrical construction and facilities services $338,888 $281,857 United States mechanical construction and facilities services 302,161 274,544 United States other services 46,433 27,321 Less intersegment revenues (14,319) (4,018) ------------ ----------- Total United States operations 673,163 579,704 Canada construction and facilities services 37,885 59,503 United Kingdom construction and facilities services 125,555 101,982 Other international construction and facilities services 952 333 ------------ ----------- Total worldwide operations $837,555 $741,522 ============ =========== </TABLE> 8
NOTE E SEGMENT INFORMATION - (CONTINUED) <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED -------------------------- MARCH 31, MARCH 31, 2001 2000 ------------ ----------- <S> <C> <C> Operating income: United States electrical construction and facilities services $ 14,648 $ 10,359 United States mechanical construction and facilities services 4,613 7,422 United States other services (1,916) (863) ----------- ---------- Total United States operations 17,345 16,918 Canada construction and facilities services 627 873 United Kingdom construction and facilities services (29) (1,211) Other international construction and facilities services (575) 14 Corporate administration (6,522) (6,047) ----------- ---------- Total worldwide operations 10,846 10,547 Other corporate items: Interest expense (2,219) (2,269) Interest income 1,477 525 ----------- ---------- Income before income taxes $ 10,104 $ 8,803 =========== =========== </TABLE> <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2001 2000 ------------- ------------ <S> <C> <C> Total assets: United States electrical construction and facilities services $ 436,983 $ 422,647 United States mechanical construction and facilities services 466,130 450,684 United States other services 79,658 79,323 ------------- ------------ Total United States operations 982,771 952,654 Canada construction and facilities services 50,427 60,122 United Kingdom construction and facilities services 139,226 136,645 Other international construction and facilities services 12,485 14,181 Corporate administration 88,180 98,262 ------------- ------------ Total worldwide operations $1,273,089 $1,261,864 ============= =========== </TABLE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) HIGHLIGHTS EMCOR Group Inc.'s ("EMCOR") revenues for the three months ended March 31, 2001 and 2000 were $837.6 million and $741.5 million, respectively. Net income for the three months ended March 31, 2001 was $5.7 million compared to net income of $4.9 million for the three months ended March 31, 2000. Diluted Earnings Per Share ("Diluted EPS") were $0.44 per share for the three months ended March 31, 2001 compared to Diluted EPS of $0.40 per share in the year earlier period. OPERATING SEGMENTS EMCOR has the following reportable segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, Canada construction and facilities services and United Kingdom construction and facilities services. The segment (i) United States other services primarily represents those operations which principally provide consulting and maintenance services; and (ii) Other international construction and facilities services represents EMCOR's operations outside of the United States, Canada, and the United Kingdom, primarily South Africa, the Middle East and Europe, performing electrical construction, mechanical construction and facilities services. RESULTS OF OPERATIONS REVENUES The following table presents EMCOR's revenues by operating segment and the percentage of total revenues (in thousands, except for percentages): <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ % OF % OF 2001 TOTAL 2000 TOTAL ---- ----- ---- ----- <S> <C> <C> <C> <C> Revenues: United States electrical construction and facilities services $331,830 40% $279,917 38% United States mechanical construction and facilities services 295,867 35% 272,654 36% United States other services 45,466 5% 27,133 4% ---------- ---------- Total United States operations 673,163 80% 579,704 78% Canada construction and facilities services 37,885 5% 59,503 8% United Kingdom construction and facilities services 125,555 15% 101,982 14% Other international construction and facilities services 952 -- 333 -- ---------- ---------- Total worldwide operations $837,555 100% $741,522 100% ========== ========== </TABLE> EMCOR had a $96.0 million or 13.0% increase in revenues for the three months ended March 31, 2001 compared to the first quarter of 2000. The increase over the prior year period was primarily attributable to revenue growth of $79.3 million, or a 10.7% increase, from EMCOR's operations, excluding a majority-owned joint venture formed in 2000. EMCOR's operations in most markets recorded a growth in revenues, particularly those in its New York City, Boston, Chicago and Denver markets in the United States and in the United Kingdom. The increase was partially offset by a reduced level of activity in Eastern Canada due primarily to an unusually high level of construction services backlog at the beginning of 2000. Revenues of electrical construction and facilities services business units for the three months ended March 31, 2001 were $331.8 million compared to $279.9 million for the three months ended March 31, 2000. The $51.9 million or 18.5% increase in the revenues for the three months ended March 31, 2001 compared to the same period in 2000 was attributable to continuing favorable market conditions across the United States, particularly in 10
the New York City, Chicago and Denver markets, slightly offset by a reduced level of activity in the Ohio and Michigan markets. Revenues of mechanical construction and facilities services business units for the three months ended March 31, 2001 were $295.9 million compared to $272.7 million for the three months ended March 31, 2000. The $23.2 million or 8.5% increase in revenues was primarily attributable to revenue growth from EMCOR's Denver, Boston and Connecticut operations, partially offset by a reduced level of activity in the Las Vegas market and by a decrease in revenue for EMCOR's Poole & Kent subsidiary operations in the North and South Carolina markets. Other United States services revenues of $45.5 million for the three months ended March 31, 2001, which include those operations which principally provide consulting and maintenance services, increased by $18.3 million compared to the same three months in 2000. The increase in revenues was primarily attributable to building maintenance services. Revenues of Canada construction and facilities services for the three months ended March 31, 2001 were $37.9 million compared to $59.5 million for the three months ended March 31, 2000. The decrease in revenues in the current period was primarily due to an unusually high level of construction services backlog in Eastern Canada at the beginning of 2000 which resulted in revenues greater than typically expected for the first three months of that fiscal year. Generally, Canadian construction activity is lower in the winter months than in the summer and fall due to weather conditions. Revenues of United Kingdom construction and facilities services business units for the three months ended March 31, 2001 were $125.6 million compared to $102.0 million for the three months ended March 31, 2000. The $23.6 million increase in revenues was attributable to continued growth in construction and facilities markets in the United Kingdom, especially in the northern region. Other international construction and facilities services primarily consists of EMCOR's operations in the Middle East, South Africa and Europe. Revenues for the three months ended March 31, 2001 were $1.0 million compared to $0.3 million for the three months ended March 31, 2000. The increase in revenues was due to a new technology division pursuing telecom related work in Europe. The remainder of the work performed in this operating segment is accounted for under the equity method of accounting because EMCOR has less than majority ownership in these joint ventures, and accordingly, no revenue attributable to such joint ventures was recorded. EMCOR continues to pursue new business selectively in these markets; however, the availability of opportunities has been significantly reduced as a result of local economic factors, particularly in the Middle East. COST OF SALES AND GROSS PROFIT The following table presents EMCOR's cost of sales, gross profit, and gross profit as a percentage of revenues (in thousands, except for percentages): <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 2001 2000 ---- ---- <S> <C> <C> Cost of sales ............................... $757,036 $668,977 Gross profit ................................ $ 80,519 $ 72,545 Gross profit, as a percentage of revenues ... 9.6% 9.8% </TABLE> Gross profit (revenues less cost of sales) increased $8.0 million for the three months ended March 31, 2001 to $80.5 million compared to $72.5 million for the three months ended March 31, 2000. As a percentage of revenues, gross profit decreased to 9.6% from 9.8% for the three months ended March 31, 2001 and 2000, respectively. The dollar increase in gross profit was primarily due to the increase in revenues of EMCOR's operations. The decrease in gross profit, as a percentage of revenues, was primarily related to the type and location of construction and facilities service contracts performed in the prior year compared to the current year. 11
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 MARCH 31, ------------------------------------ 2001 2000 ---- ---- <S> <C> <C> Selling, general and administrative expenses ............................. $69,673 $61,998 Selling, general and administrative expenses, as a percentage of revenues 8.3% 8.4% Selling, general and administrative expenses, as a percentage of revenues, excluding amortization of goodwill ................................... 8.2% 8.2% </TABLE> Selling, general and administrative expenses for the three months ended March 31, 2001 increased $7.7 million. Selling, general and administrative expenses as a percentage of revenues were 8.3% for the three months ended March 31, 2001, compared to 8.4 % for the three months ended March 31, 2000. The dollar increase in selling, general and administrative expenses for the three months ended March 31, 2001 compared to the prior year was attributable to the increase in revenues and corresponding increases in variable selling, general and administrative expenses and incremental fixed costs to support the current growth in operations. The decrease in selling, general and administrative expenses as a percentage of revenues was primarily due to the leveraging of fixed costs over increased revenues. OPERATING INCOME The following table presents EMCOR's operating income, and operating income as percentage of segment revenues (in thousands, except for percentages): <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ % OF % OF SEGMENT SEGMENT 2001 REVENUES 2000 REVENUES ---- -------- ---- -------- <S> <C> <C> <C> <C> Operating income (loss): United States electrical construction and facilities services $ 14,648 4.4% $ 10,359 3.7% United States mechanical construction and facilities services 4,613 1.6% 7,422 2.7% United States other services ................................ (1,916) -- (863) -- -------------- ------------- Total United States operations .............................. 17,345 2.6% 16,918 2.9% Canada construction and facilities services ................. 627 1.7% 873 1.5% United Kingdom construction and facilities services ......... (29) -- (1,211) -- Other international construction and facilities services .... (575) -- 14 -- Corporate administration .................................... (6,522) -- (6,047) -- -------------- ------------- Total worldwide operations .................................. 10,846 1.3% 10,547 1.4% Other corporate items: Interest expense ......................................... (2,219) (2,269) Interest income .......................................... 1,477 525 -------------- ------------- Income before income taxes .................................. $ 10,104 $ 8,803 ============== ============= </TABLE> EMCOR had operating income of $10.8 million for the three months ended March 31, 2001 compared with operating income of $10.5 million for the three months ended March 31, 2000. The increase of $0.3 million in operating income for the three months ended March 31, 2001 as compared to the same period in 2000 was due to increased revenues from many of EMCOR's operations partially offset by decreases in operating income related to the type and location of construction and facilities service contracts performed in the prior year compared to the current year. 12
United States electrical construction and facilities services operating income (before deduction of general corporate and other expenses discussed below) for the three months ended March 31, 2001 was $14.6 million or 4.4% of revenues, compared to $10.4 million or 3.7% of revenues for the three months ended March 31, 2000. The $4.3 million increase in operating income for the three months ended March 31, 2001 compared to the same period in 2000 was primarily attributable to the continuing favorable market conditions across the United States particularly in New York City, Chicago and Denver. United States mechanical construction and facilities services operating income for the three months ended March 31, 2001 was $4.6 million or 1.6% of revenues, compared to $7.4 million or 2.7% of revenues for the three months ended March 31, 2000. The $2.8 million decrease in operating income was attributable to decreased gross profits for certain operations compared to the prior year, particularly by EMCOR's Poole & Kent subsidiary operations in the North and South Carolina markets, and a decrease in the level of activities and type of work performed in the Las Vegas market. Other United States services operating losses were $1.9 million and $0.9 million for the three months ended March 31, 2001 and 2000, respectively. These operating losses were primarily attributable to costs associated with the continued development of consulting operations and maintenance services activities. Canada construction and facilities services operating income was $0.6 million compared to $0.9 million for the three months ended March 31, 2001 and 2000, respectively. The decrease in operating income in the current period was primarily due to a decreased level of activities in Eastern Canada. United Kingdom construction and facilities services operating losses for the three months ended March 31, 2001 and 2000 were $0.03 million and $1.2 million, respectively. This improvement is attributable to continued growth in construction and facilities markets in the United Kingdom, especially in the northern region. Other international construction and facilities services operating loss was $0.6 million for the three months ended March 31, 2001 compared to operating income of $0.01 million for three months ended March 31, 2000. EMCOR continues to pursue new business selectively in these markets; however, the availability of opportunities has been significantly reduced as a result of local economic factors, particularly in the Middle East. General corporate expenses for the three months ended March 31, 2001 were $6.5 million compared to $6.0 million for the three months ended March 31, 2000. The increase in general corporate expenses was due to increased variable overhead costs associated with EMCOR's increased revenues, as well as incremental fixed costs to support current growth in operations. Interest expense for the three months ended March 31, 2001 and 2000 was $2.2 million and $2.3 million, respectively. Interest income for the three months ended March 31, 2001 and 2000 was $1.5 million and $0.5 million, respectively. The increase in interest income of $1.0 million for the three months ended March 31, 2001 compared to the same three months in 2000 was attributable to higher cash on hand in the current year compared to the same period in the prior year. The income tax provision increased by $0.6 million to $4.5 million for the three months ended March 31, 2001, versus $3.9 million for the same period in 2000. The increase in provision was primarily due to increased income before taxes. A portion of the liability for income taxes, $3.3 million for 2001 and $2.9 million for 2000, was not payable in cash due to the utilization of NOL's and was recorded as an increase in capital surplus for both years. 13
EMCOR's backlog was $2.0 billion at March 31, 2001 and $1.8 billion at December 31, 2000. Between December 31, 2000 and March 31, 2001, EMCOR's backlog in Canada and in the United Kingdom remained relatively unchanged, while its backlog in the United States accounted for the majority of the increase. The increase in the United States backlog was due to new projects awarded throughout all domestic segments. EMCOR's backlog at March 31, 2001 was $2.0 billion compared to $1.8 billion at March 31, 2000. The increase was primarily attributable to a United States backlog increase, while backlog in Canada decreased and backlog in the United Kingdom remained relatively unchanged. LIQUIDITY AND CAPITAL RESOURCES The following table presents EMCOR's net cash provided by (used in) operating activities, investing activities and financing activities (in thousands): <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 2001 2000 ---- ---- <S> <C> <C> Net cash provided by (used in) operating activities ... $14,376 $(2,978) Net cash (used in) provided by investing activities .. $(3,811) $ 2,816 Net cash provided by (used in) financing activities ... $ 420 $ (276) </TABLE> EMCOR's consolidated cash balance increased by approximately $11.0 million from $137.7 million at December 31, 2000 to $148.7 million at March 31, 2001. Net cash provided by operating activities for the three months ended March 31, 2001 of $14.4 million was a $17.4 million increase from the net cash used in operating activities of $3.0 million in the same period last year. Net cash used in investing activities of $3.8 million for the three months ended March 31, 2001 increased by $6.6 million compared to the $2.8 million of cash provided by investing activities in the same period last year. The increase in net cash used in investing activities was due to a decrease in EMCOR's investments, notes and other long-term receivables. Net cash provided by financing activities of $0.4 million was an increase of $0.7 million from $0.3 million of net cash used in financing activities for the three months ended March 31, 2000. The increase in net cash provided by financing activities was attributable to proceeds from the exercise of stock options. As of March 31, 2001, EMCOR's total borrowing capacity under its revolving credit facility was $150.0 million. EMCOR had approximately $13.7 million of letters of credit outstanding under the revolving credit facility as of that date. There were no revolving loans outstanding as of March 31, 2001 and December 31, 2000 under the revolving credit facility. EMCOR believes that current cash balances and borrowing capacity available under lines of credit, 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. 14
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES REFORM ACT OF 1995, PARTICULARLY STATEMENTS REGARDING MARKET OPPORTUNITIES, MARKET SHARE GROWTH, COMPETITIVE GROWTH, GROSS PROFIT, AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. THESE FORWARD-LOOKING STATEMENTS INVOLVED RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS, INCLUDING CHANGES IN THE SPECIFIC MARKETS FOR EMCOR'S SERVICES, ADVERSE BUSINESS CONDITIONS, DECREASED OR LACK OF GROWTH IN THE MECHANICAL AND ELECTRICAL CONSTRUCTION AND FACILITIES SERVICES INDUSTRIES, INCREASED COMPETITION, PRICING PRESSURES, RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND OTHER FACTORS. 15
PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The information on legal proceedings is hereby incorporated by reference to Note P of EMCOR's Notes to Consolidated Financial Statements included in EMCOR's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Incorporated by Reference to, Exhibit No Description or Page Number ---------- ----------- ------------------------------ 11 Computation of Basic Note E of the Notes EPS and Diluted EPS to the Condensed Consolidated for the three months Financial Statements. ended March 31, 2001 and 2000 (b) No reports on Form 8-K were filed during the quarter ended March 31, 2001. 16
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. EMCOR GROUP, INC. ------------------------- (Registrant) Date: April 24, 2001 By: /s/ FRANK T. MACINNIS -------------------------- Frank T. MacInnis Chairman of the Board of Directors and Chief Executive Officer Date: April 24, 2001 By: /s/ LEICLE E. CHESSER -------------------------- Leicle E. Chesser Executive Vice President and Chief Financial Officer Date: April 24, 2001 By: /s/ MARK A. POMPA -------------------------- Mark A. Pompa Vice President and Controller