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 EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-8267
Delaware 11-2125338
------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
301 Merritt Seven
Norwalk, Connecticut 06851-1060
------------------------------- ----------
(Address of Principal Executive (Zip Code)
Offices)
(203) 849-7800
-------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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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 such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Applicable Only To Corporate Issuers Number of shares of Common Stock outstanding as of the close of business on April 24, 2007: 31,889,348 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
as of March 31, 2007 and December 31, 2006 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 2007 and 2006 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2007 and 2006 4
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income -
three months ended March 31, 2007 and 2006 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures about Market Risk 22
Item 4 Controls and Procedures 22
PART II - Other Information
Item 6 Exhibits 23
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PART I. - FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
--------------------------------------------------------------------------------
March 31, December 31,
2007 2006
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 276,569 $ 273,735
Accounts receivable, net 1,187,709 1,184,418
Costs and estimated earnings in excess
of billings on uncompleted contracts 156,322 147,848
Inventories 18,408 18,015
Prepaid expenses and other 39,560 38,397
---------- ----------
Total current assets 1,678,568 1,662,413
Investments, notes and other long-term
receivables 30,741 29,630
Property, plant and equipment, net 53,305 52,780
Goodwill 288,168 288,165
Identifiable intangible assets, net 37,251 38,251
Other assets 17,459 17,784
---------- ----------
Total assets $2,105,492 $2,089,023
========== ==========
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
--------------------------------------------------------------------------------
March 31, December 31,
2007 2006
(audited)
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital credit line $ -- $ --
Current maturities of long-term debt and capital
lease obligations 639 659
Accounts payable 454,797 496,407
Billings in excess of costs and estimated
earnings on uncompleted contracts 471,904 412,069
Accrued payroll and benefits 166,111 177,490
Other accrued expenses and liabilities 114,858 121,723
---------- ----------
Total current liabilities 1,208,309 1,208,348
Long-term debt and capital lease obligations 1,133 1,239
Other long-term obligations 170,746 169,127
---------- ----------
Total liabilities 1,380,188 1,378,714
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, zero issued and outstanding -- --
Common stock, $0.01 par value, 80,000,000 shares
authorized,33,684,416 and 33,648,036 shares
issued, respectively 337 336
Capital surplus 358,242 355,242
Accumulated other comprehensive loss (27,232) (28,189)
Retained earnings 411,491 399,804
Treasury stock, at cost 1,799,568 and 1,820,046
shares,respectively (17,534) (16,884)
---------- ----------
Total stockholders' equity 725,304 710,309
---------- ----------
Total liabilities and stockholders' equity $2,105,492 $2,089,023
========== ==========
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
-------------------------------------------------------------------------------
Three months ended March 31, 2007 2006
-------------------------------------------------------------------------------
Revenues $1,318,347 $1,151,077
Cost of sales 1,186,124 1,036,244
---------- ----------
Gross profit 132,223 114,833
Selling, general and administrative expenses 113,199 102,506
Restructuring expenses 93 --
---------- ----------
Operating income 18,931 12,327
Interest expense (537) (699)
Interest income 3,249 937
Minority interest (1,192) (256)
---------- ----------
Income from continuing operations before income taxes 20,451 12,309
Income tax provision 8,459 4,676
---------- ----------
Income from continuing operations 11,992 7,633
Loss from discontinued operation,
net of income tax effect -- (620)
---------- ----------
Net income $ 11,992 $ 7,013
========== ==========
Net income (loss) per common share - Basic
From continuing operations $ 0.38 $ 0.24
From discontinued operation -- (0.02)
---------- ----------
$ 0.38 $ 0.22
========== ==========
Net income (loss) per common share - Diluted
From continuing operations $ 0.36 $ 0.24
From discontinued operation -- (0.02)
---------- ----------
$ 0.36 $ 0.22
========== ==========
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
-------------------------------------------------------------------------------------------
Three months ended March 31, 2007 2006
-------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 11,992 $ 7,013
Depreciation and amortization 4,848 4,345
Amortization of identifiable intangibles 1,598 775
Minority interest 1,192 256
Deferred income taxes 497 1,907
Loss on sale of discontinued operation,
net of income taxes -- 614
Excess tax benefits from share-based compensation (811) (1,441)
Equity income from unconsolidated entities (1,137) (1,057)
Other non-cash items 388 1,139
Distributions from unconsolidated entities 1,482 4,392
Changes in operating assets and liabilities (11,685) (30,072)
-------- --------
Net cash provided by (used in) operating activities 8,364 (12,129)
-------- --------
Cash flows from investing activities:
Payments for acquisitions of businesses, intangible
asset and related earn-out agreements (601) (115)
Proceeds from sale of discontinued operation -- 1,080
Proceeds from sale of property, plant and equipment 579 191
Purchase of property, plant and equipment (5,676) (6,007)
Investment in and advances to unconsolidated entities
and joint ventures (1,456) (136)
Net proceeds related to other investments -- 322
-------- --------
Net cash used in investing activities (7,154) (4,665)
-------- --------
Cash flows from financing activities:
Proceeds from working capital credit line -- 93,100
Repayments of working capital credit line -- (93,100)
Net repayments for long-term debt (14) (15)
Repayments for capital lease obligations (283) (27)
Proceeds from exercise of stock options 736 2,347
Excess tax benefits from share-based compensation 811 1,441
-------- --------
Net cash provided by financing activities 1,250 3,746
-------- --------
Effect of exchange rate changes on cash and cash equivalents 374 407
-------- --------
Increase (decrease) in cash and cash equivalents 2,834 (12,641)
Cash and cash equivalents at beginning of year 273,735 103,785
-------- --------
Cash and cash equivalents at end of period $276,569 $ 91,144
======== ========
Supplemental cash flow information:
Cash paid for:
Interest $ 541 $ 486
Income taxes $ 11,078 $ 3,854
Non-cash financing activities:
Assets acquired under capital lease obligations $ 171 $ 31
Note receivable from sale of subsidiary $ -- $ 166
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See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
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
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2006 $615,436 $333 $325,232 $ (5,370) $313,170 $(17,929)
Net income 7,013 -- -- -- 7,013 -- $7,013
Foreign currency translation adjustments 79 -- -- 79 -- -- 79
------
Comprehensive income $7,092
======
Issuance of treasury stock
for restricted stock units (2) -- -- (551) -- -- 551
Treasury stock, at cost (3) (1,587) -- -- -- -- (1,587)
Common stock issued under
stock option plans, net (4) 6,288 1 5,771 -- -- 516
Value of issued restricted stock units 1,091 -- 1,091 -- -- --
Share-based compensation expense 696 -- 696 -- -- --
-------- ---- -------- -------- -------- --------
Balance, March 31, 2006 $629,016 $334 $332,239 $ (5,291) $320,183 $(18,449)
======== ==== ======== ======== ======== ========
Balance, January 1, 2007 $710,309 $336 $355,242 $(28,189) $399,804 $(16,884)
Net income 11,992 -- -- -- 11,992 -- $11,992
Foreign currency translation adjustments 488 -- -- 488 -- -- 488
Amortization of unrecognized pension losses,
net of tax benefit of $0.2 million 469 -- -- 469 -- -- 469
-------
Comprehensive income $12,949
=======
Effect of adopting FIN 48 (305) -- -- -- (305) --
Issuance of treasury stock
for restricted stock units (2) -- -- (261) -- -- 261
Treasury stock, at cost (3) (911) -- -- -- -- (911)
Common stock issued under
stock option plans, net (4) 1,955 1 1,954 -- -- --
Share-based compensation expense 1,307 -- 1,307 -- -- --
-------- ---- -------- -------- -------- --------
Balance, March 31, 2007 $725,304 $337 $358,242 $(27,232) $411,491 $(17,534)
======== ==== ======== ======== ======== ========
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(1) Represents cumulative foreign currency translation adjustments and minimum
pension liability adjustments.
(2) Represents common stock transferred at cost from treasury stock upon the
vesting of restricted stock units.
(3) Represents value of shares of common stock withheld by EMCOR for income tax
withholding requirements upon the vesting of restricted stock units.
(4) Includes the tax benefit related to our share-based compensation plans of
$1.2 million and $3.9 million for the three months ended March 31, 2007 and
March 31, 2006, respectively.
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 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. References to the "Company," "EMCOR," "we," "us," "our" and words of similar import refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our 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, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.
The results of operations for the 2006 period presented reflect discontinued operations accounting due to the sale of a subsidiary in January 2006.
Certain reclassifications of prior year amounts have been made to conform to current year presentation.
NOTE B Discontinued Operation
On January 31, 2006, we sold a subsidiary that had been part of our United States mechanical construction and facilities services segment. Results of operations for the three months ended March 31, 2006 presented in our Consolidated Financial Statements reflect discontinued operations accounting. Included in the results of the discontinued operation for the three months ended March 31, 2006 was a loss of $0.6 million (net of income taxes) by reason of the sale of the subsidiary. An aggregate of $1.2 million in cash and notes was received as consideration for this sale. The notes have been paid in full. The components of the results of operations for the discontinued operation are not presented, as they are not material to the consolidated results of operations for the three months ended March 31, 2006.
NOTE C Earnings Per Share
Calculation of Basic and Diluted Earnings per share
The following tables summarize our calculation of Basic and Diluted Earnings per Share ("EPS") for the three month periods ended March 31, 2007 and 2006:
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE C Earnings Per Share - (continued)
Three Months Ended
March 31,
----------------------------
2007 2006
---- ----
Numerator:
Income before discontinued operation $11,992,000 $7,633,000
Loss from discontinued operation -- (620,000)
----------- ----------
Net income available to common stockholders $11,992,000 $7,013,000
=========== ==========
Denominator:
Weighted average shares outstanding used to
compute basic earnings per share 31,912,218 31,314,293
Effect of diluted securities - Share-based awards 1,227,273 960,435
----------- ----------
Shares used to compute diluted earnings per share 33,139,491 32,274,728
=========== ==========
Basic earnings (loss) per share:
Continuing operations $ 0.38 $ 0.24
Discontinued operation -- (0.02)
----------- ----------
Total $ 0.38 $ 0.22
=========== ==========
Diluted earnings (loss) per share:
Continuing operations $ 0.36 $ 0.24
Discontinued operation -- (0.02)
----------- ----------
Total $ 0.36 $ 0.22
=========== ==========
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No anti-dilutive stock options were required to be excluded from the calculation of diluted EPS for the three month periods ended March 31, 2007 and 2006, respectively.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D Common Stock
As of March 31, 2007 and December 31, 2006, 31,884,848 and 31,827,990 shares of our common stock were outstanding, respectively.
For the three months ended March 31, 2007 and 2006, 71,656 and 311,000 shares of common stock were issued upon the exercise of stock options, the satisfaction of required conditions from our share-based compensation plans and the grants of direct stock, respectively.
NOTE E Segment Information
We have the following reportable segments which provide services associated with the design, integration, installation, start-up, operation and maintenance of various systems: (a) United States electrical construction and facilities services (involving systems for electrical power transmission and distribution; central plant heating and cooling; premises electrical and lighting systems; low-voltage systems, such as fire alarm, security and process control; voice and data communication; roadway and transit lighting; and fiber optic lines); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation; fire protection; plumbing, process and high-purity piping; water and wastewater treatment); (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 maintenance and services; site-based operations and maintenance services; facilities management; installation and support for building systems; technical consulting and diagnostic services; small modification and retrofit projects; and program development, management and maintenance for energy systems, which services are not 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 our operations outside of the United States, Canada and the United Kingdom (currently only in the Middle East). The following tables present information about industry segments and geographic areas (in thousands):
For the three months ended March 31,
------------------------------------
2007 2006
---- ----
Revenues from unrelated entities:
United States electrical construction and facilities services $ 314,972 $ 310,219
United States mechanical construction and facilities services 518,764 380,303
United States facilities services 247,888 215,433
---------- ----------
Total United States operations 1,081,624 905,955
Canada construction and facilities services 59,325 82,645
United Kingdom construction and facilities services 177,398 162,477
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,318,347 $1,151,077
========== ==========
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For the three months ended March 31,
------------------------------------
2007 2006
---- ----
Total revenues:
United States electrical construction and facilities services $ 317,200 $ 312,145
United States mechanical construction and facilities services 519,506 383,447
United States facilities services 248,952 216,185
Less intersegment revenues (4,034) (5,822)
---------- ----------
Total United States operations 1,081,624 905,955
Canada construction and facilities services 59,325 82,645
United Kingdom construction and facilities services 177,398 162,477
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,318,347 $1,151,077
========== ==========
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EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE E Segment Information - (continued)
For the three months ended March 31,
------------------------------------
2007 2006
---- ----
Operating income (loss):
United States electrical construction and facilities services $ 10,926 $ 8,375
United States mechanical construction and facilities services 13,352 7,424
United States facilities services 9,212 4,830
-------- --------
Total United States operations 33,490 20,629
Canada construction and facilities services (1,199) 809
United Kingdom construction and facilities services 427 1,687
Other international construction and facilities services (116) 880
Corporate administration (13,578) (11,678)
Restructuring expenses (93) --
-------- --------
Total worldwide operations 18,931 12,327
Other corporate items:
Interest expense (537) (699)
Interest income 3,249 937
Minority interest (1,192) (256)
-------- --------
Income from continuing operations before income taxes $ 20,451 $ 12,309
======== ========
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March 31, December 31,
2007 2006
---------- ------------
Total assets:
United States electrical construction and facilities services $ 342,141 $ 363,656
United States mechanical construction and facilities services 760,577 748,044
United States facilities services 370,895 366,070
---------- ----------
Total United States operations 1,473,613 1,477,770
Canada construction and facilities services 80,727 87,753
United Kingdom construction and facilities services 282,586 255,057
Other international construction and facilities services 521 590
Corporate administration 268,045 267,853
---------- ----------
Total worldwide operations $2,105,492 $2,089,023
========== ==========
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Included in the operating loss of $1.2 million for the Canada construction and facilities services segment for the three months ended March 31, 2007 was a gain on the sale of property of $1.4 million.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE F Retirement Plans
Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible employees (the "UK Plan").
Components of Net Periodic Pension Benefit Cost
The components of net periodic pension benefit cost of the UK Plan for three months ended March 31, 2007 and 2006 were as follows (in thousands):
For the three months
ended March 31,
----------------------
2007 2006
---- ----
Service cost $ 1,618 $ 1,018
Interest cost 3,359 2,493
Expected return on plan assets (3,373) (2,657)
Amortization of prior service cost and actuarial loss -- 18
Amortization of unrecognized loss 670 398
------- -------
Net periodic pension benefit cost $ 2,274 $ 1,270
======= =======
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Employer Contributions
For the three months ended March 31, 2007, our United Kingdom subsidiary contributed $1.6 million to its defined benefit pension plan and anticipates contributing an additional $5.4 million during the remainder of 2007.
NOTE G Income Taxes
For the three months ended March 31, 2007 and 2006, the income tax provision was $8.5 million and $4.7 million, respectively, based on effective income tax rates of 41% and 38%, respectively. The increase in the effective income tax rate was primarily related to the full utilization during 2006 of net operating losses of our United Kingdom construction and facilities services segment. As we had recorded a full valuation allowance related to these net operating losses, the utilization of these net operating losses during the 2006 period resulted in an income tax benefit for that segment.
On January 1, 2007, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", an interpretation of FASB Statement No. 109, "Accounting for Income Taxes" ("FIN 48"). As a result of the adoption of FIN 48 and recognition of the cumulative effect of adoption of a new accounting principle, we recorded a $0.3 million increase in the liability for unrecognized income tax benefits, with an offsetting reduction in retained earnings. As of March 31, 2007, the total liability for unrecognized income tax benefits was $6.3 million, the reversal of which would reduce taxable income when recognized.
We recognized interest and penalties related to uncertain tax positions in the income tax provision. As of March 31, 2007, we had approximately $0.9 million of accrued interest related to uncertain tax positions included in the liability on the Consolidated Balance Sheet, of which less than $0.1 million was recorded during the three months ended March 31, 2007.
It is possible that approximately $0.9 million of income tax liability related to uncertain intercompany transfer pricing items will become a recognized income tax benefit in the next twelve months due to the closing of open tax years.
NOTE G Income Taxes - (continued)
The tax years 2003 to 2006 remain open to examination by United States taxing jurisdictions, and the tax years 2000 to 2006 remain open to examination by foreign taxing jurisdictions.
NOTE H New Accounting Pronouncements
On January 1, 2007, we adopted FIN 48. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Refer to Note G Income Taxes for information related to the effect of adoption of FIN 48.
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" ("Statement 157"). Statement 157 provides guidance for using fair value to measure assets and liabilities. The statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The statement does not expand the use of fair value in any new circumstances. Statement 157 is effective for our financial statements beginning with the first quarter of 2008. Early adoption is permitted. We have not determined the effect, if any, the adoption of Statement 157 will have on our financial position and results of operations.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("Statement 159"). Statement 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Statement 159 is effective for our financial statements beginning with the first quarter of 2008. We have not determined the effect, if any, the adoption of Statement 159 will have on our financial position and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We are one of the largest mechanical and electrical construction and facilities services firms in the United States, Canada, the United Kingdom and in the world. We provide services to a broad range of commercial, industrial, utility and institutional customers through approximately 70 principal operating subsidiaries and joint venture entities. Our offices are located in the United States, Canada and the United Kingdom. In the United Arab Emirates, we carry on business through two joint ventures.
Overview
The following table presents selected financial data for the three months ended
March 31, 2007 and 2006 (in millions, except percentages and earnings per
share):
For the three months
ended March 31,
--------------------
2007 2006
---- ----
Revenues $1,318.3 $1,151.1
Revenues increase from prior year 14.5% 6.2%
Operating income $ 18.9 $ 12.3
Operating income as a percentage of revenues 1.4% 1.1%
Net income $ 12.0 $ 7.0
Diluted earnings per share $ 0.36 $ 0.22
Cash flows provided by (used in) operating activities $ 8.4 $ (12.1)
|
EMCOR benefited from a strong United States non-residential construction market in the first quarter of 2007, which continued from 2006. We reported our best ever revenues, net income and diluted earnings per share for the first quarter of a fiscal year. Revenues, net income and diluted earnings per share in the first quarter of 2007 rose, compared to the first quarter of 2006, principally due to increased availability in the United States of commercial, hospitality and high-tech construction projects, the addition of revenues and operating income from a United States mechanical construction company acquired in October 2006 and increased awards of United States site-based commercial and government facilities services contracts. In addition, demand for mobile services in our United States facilities services segment remained strong during the first quarter of 2007.
Gross profit as a percentage of revenues was 10.0% for the first quarter of 2007 and 2006 and reflected the continuing trend in our construction project and service contract base toward higher margin work that is typically associated with the types of projects referred to in the immediately preceding paragraph. Selling, general and administrative expenses increased $10.7 million for the first quarter of 2007 compared to the prior year's first quarter primarily due to the addition of a United States mechanical construction company acquired in October 2006 and an increase in salaries and benefits. The increased selling, general and administrative expenses were partially offset by a reduction in staff and facilities, particularly associated with our United States facilities services segment (following restructuring activities during 2006), and our ability to increase revenues without having to substantially increase overhead costs. As a result, selling, general and administrative expenses as a percentage of revenues decreased to 8.6% for the first quarter of 2007 from 8.9 % for the first quarter of 2006.
Cash flows provided by operating activities were $8.4 million for the first quarter of 2007 compared to cash flows used in operating activities of $12.1 million for the first quarter of 2006. This increase was primarily a result of an increase in net over-billings related to improved billing and collection practices, including advance billings on construction projects and service contracts to the extent contractually permitted. Our reported net interest income for the first quarter of 2007 was $2.7 million, a $2.5 million improvement over the first quarter of 2006 net interest income of $0.2 million. This increase in interest income was primarily due to more cash available to invest in the current year. As of March 31, 2007, we had cash and cash equivalents of $276.6 million, an increase of $185.5 million, compared to $91.1 million as of March 31, 2006.
In January 2006, we sold a subsidiary that had been part of our United States mechanical construction and facilities services segment. Consequently, results of operations for the first quarter of 2006 reflect a loss from discontinued operation of $0.6 million (net of income taxes) by reason of the sale of that subsidiary.
Operating Segments
We have the following reportable segments which provide services associated with the design, integration, installation, start-up, operation and maintenance of various systems: (a) United States electrical construction and facilities services (involving systems for electrical power transmission and distribution; central plant heating and cooling; premises electrical and lighting systems; low-voltage systems, such as fire alarm, security and process control; voice and data communication; roadway and transit lighting; and fiber optic lines); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation; fire protection; plumbing, process and high-purity piping; water and wastewater treatment); (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 maintenance and services; site-based operations and maintenance services; facilities management; installation and support for building systems; technical consulting and diagnostic services; small modification and retrofit projects; and project development, management and maintenance for energy systems), which services are not generally related to customers' construction programs. The Canada, United Kingdom and Other international segments perform electrical construction, mechanical construction and facilities services. "Other international construction and facilities services" represents our operations outside of the United States, Canada and the United Kingdom (currently only in the Middle East) performing electrical construction, mechanical construction and facilities services.
Results of Operations
The results presented reflect certain reclassifications of prior period amounts to conform to current year presentation.
Revenues
The following table presents our operating segment revenues from unrelated entities and their respective percentages of total revenues (in thousands, except for percentages):
For the three months ended March 31,
------------------------------------
% of % of
2007 Total 2006 Total
---- ----- ---- -----
Revenues:
United States electrical construction and facilities services $ 314,972 24% $ 310,219 27%
United States mechanical construction and facilities services 518,764 39% 380,303 33%
United States facilities services 247,888 19% 215,433 19%
---------- ----------
Total United States operations 1,081,624 82% 905,955 79%
Canada construction and facilities services 59,325 5% 82,645 7%
United Kingdom construction and facilities services 177,398 13% 162,477 14%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $1,318,347 100% $1,151,077 100%
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As described below in more detail, our revenues for the three months ended March 31, 2007 increased to $1.32 billion compared to $1.15 billion for the three months ended March 31, 2006. The increase in revenues was principally due to increased availability in the United States of commercial, hospitality and high-tech construction projects, the addition of a United States mechanical construction company acquired in October 2006 and increased awards of United States site-based commercial and government facilities services contracts as a result of our pursuit of opportunities in these sectors. Revenues from our Canada construction and facilities services segment decreased primarily due to a reduction in oil and gas industry construction contracts during the first quarter of 2007 compared to the first quarter of 2006.
Our backlog at March 31, 2007 was $3.84 billion compared to $2.82 billion of backlog at March 31, 2006. Our backlog was $3.50 billion at December 31, 2006. These increases in backlog at March 31, 2007 compared to backlog at the end of last year's first quarter and December 31, 2006 were primarily due to increased availability of commercial, hospitality and high-tech construction projects and site-based facilities services commercial and government work. Backlog is not a term recognized under United States generally accepted accounting principles; however, it is a common measurement used in our industry. Backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of facilities services contracts. However, if the remaining term of a facilities services contract exceeds 12 months, the unrecognized revenues attributable to such contract included in backlog are limited to only 12 months of revenues.
Revenues of our United States electrical construction and facilities services segment for the three months ended March 31, 2007 increased $4.8 million compared to the three months ended March 31, 2006. The revenues increase was generally due to increased availability of commercial projects and the strong commercial construction market.
Revenues of our United States mechanical construction and facilities services segment for the three months ended March 31, 2007 increased $138.5 million compared to the three months ended March 31, 2006. The revenues increase was primarily attributable to increased availability in the United States of commercial, hospitality and high-tech construction projects and the addition of $36.7 million of revenues from a United States mechanical construction company acquired in October 2006.
Our United States facilities services revenues increased $32.5 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This increase in revenues was primarily attributable to increased awards of United States site-based commercial and government facilities services contracts as a result of our pursuit of opportunities in these sectors and increased small project and other services performed by our mobile services group in this segment.
Revenues of our Canada construction and facilities services segment decreased by $23.3 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This decrease was primarily due to a reduction in oil and gas industry construction contracts and generally less availability of industrial outage and other projects during the first quarter of 2007.
United Kingdom construction and facilities services revenues increased $14.9 million for the three months ended March 31, 2007, compared to the three months ended March 31, 2006, principally due to an $18.3 million increase relating to the rate of exchange for British pounds to United States dollars as a result of the strengthening of the British pound.
Other international construction and facilities services activities consist of operations in the Middle East. All of the current projects in this market are being performed by joint ventures. The results of these joint venture operations were accounted for under the equity method.
Cost of sales and Gross profit
The following table presents our cost of sales, gross profit, and gross profit as a percentage of revenues (in thousands, except for percentages):
For the three months ended March 31,
------------------------------------
2007 2006
---- ----
Cost of sales $1,186,124 $1,036,244
Gross profit 132,223 114,833
Gross profit, as a percentage of revenues 10.0% 10.0%
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Our gross profit (revenues less cost of sales) increased $17.4 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. Gross profit as a percentage of revenues was 10.0% for both of the three months ended March 31, 2007 and 2006. The increase in gross profit for the 2007 first quarter compared to the 2006 first quarter was primarily attributable to increased United States commercial, hospitality and high-tech construction projects, the addition of a United States mechanical construction company acquired in October 2006, increased awards of United States site-based commercial and government facilities services contracts and increased small project and other services by the mobile services group within this segment. Gross profit as a percentage of revenues was 10.0% in each quarter and reflected the continuing trend in our construction project and service contract base toward higher margin work that is typically associated with the types of projects referred to in this paragraph and fewer lower margin and higher risk projects.
Selling, general and administrative expenses
The following table presents our selling, general and administrative expenses, and selling, general and administrative expenses as a percentage of revenues (in thousands, except for percentages):
For the three months ended March 31,
------------------------------------
2007 2006
---- ----
Selling, general and administrative expenses $113,199 $102,506
Selling, general and administrative expenses,
as a percentage of revenues 8.6% 8.9%
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Our selling, general and administrative expenses for the three months ended March 31, 2007 increased $10.7 million to $113.2 million compared to $102.5 million for the three months ended March 31, 2006. Selling, general and administrative expenses as a percentage of revenues were 8.6% for the three months ended March 31, 2007, compared to 8.9% for the three months ended March 31, 2006. For the three month period ended March 31, 2007, compared to the three months ended March 31, 2006, selling, general and administrative expenses increased primarily as a result of the addition of a United States mechanical construction company acquired in October 2006, an increase in salaries and benefits, partially offset by a reduction in staff and facilities, particularly associated with our United States facilities services segment (following restructuring activities during 2006), and our ability to increase revenues without having to substantially increase overhead costs.
Restructuring expenses
Restructuring expenses, primarily related to employee severance obligations, were $0.09 million for the first quarter of 2007. As of March 31, 2007, we had no unpaid severance obligations. There were no restructuring expenses in the first quarter of 2006.
Operating income
The following table presents our operating income (loss), and operating income
(loss) as a percentage of segment revenues from unrelated entities (in
thousands, except for percentages):
For the three months ended March 31,
-------------------------------------------------
% of % of
Segment Segment
2007 Revenues 2006 Revenues
-------------------------------------------------
Operating income (loss):
United States electrical construction and facilities services $ 10,926 3.5% $ 8,375 2.7%
United States mechanical construction and facilities services 13,352 2.6% 7,424 2.0%
United States facilities services 9,212 3.7% 4,830 2.2%
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Total United States operations 33,490 3.1% 20,629 2.3%
Canada construction and facilities services (1,199) (2.0)% 809 1.0%
United Kingdom construction and facilities services 427 0.2% 1,687 1.0%
Other international construction and facilities services (116) -- 880 --
Corporate administration (13,578) -- (11,678) --
Restructuring expenses (93) -- -- --
-------- --------
Total worldwide operations 18,931 1.4% 12,327 1.1%
Other corporate items:
Interest expense (537) (699)
Interest income 3,249 937
Minority interest (1,192) (256)
-------- --------
Income from continuing operations before income taxes $ 20,451 $ 12,309
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As described below in more detail, operating income increased by $6.6 million for the first quarter of 2007 to $18.9 million compared to operating income of $12.3 million for the first quarter of 2006.
United States electrical construction and facilities services operating income of $10.9 million for the first quarter of 2007 increased $2.6 million compared to operating income of $8.4 million for the first quarter of 2006. The increase in operating income was primarily the result of increased revenues from the strong commercial construction market and completion of certain high-tech projects during the current quarter. Selling, general and administrative expenses were flat compared to the prior year first quarter principally due to our continued focus on overhead cost control that resulted in cost reductions at certain subsidiaries, which offset increases in staff salaries.
United States mechanical construction and facilities services operating income for the first quarter of 2007 was $13.4 million, a $5.9 million improvement compared to operating income of $7.4 million for the first quarter of 2006. This improvement was primarily due to increased hospitality, commercial and high-tech construction projects and the addition of a United States mechanical construction company acquired in October 2006. The increase in selling, general and administrative expenses was primarily related to the October 2006 acquisition and cost increases to support the increased revenues for the current quarter compared to the prior year first quarter.
United States facilities services operating income for the first quarter of 2007 was $9.2 million compared to operating income of $4.8 million for the first quarter of 2006. The increase in operating income was primarily due to improved performance on certain site-based contracts, increased revenues from site-based commercial and government facilities services contracts, increased income from small projects and other services by our mobile services group in this segment and the reduction in staff and facilities during 2006 (which reductions did not occur primarily until the third and fourth quarters of 2006).
Our Canada construction and facilities services operating loss was $1.2 million for the first quarter of 2007, compared to an operating income of $0.8 million for the first quarter of 2006. Included in the operating loss for the first quarter of 2007 was a $1.4 million gain on sale of property. The operating loss for the first quarter of 2007 was primarily related to reduced revenues attributable to a reduction in oil and gas industry construction contracts and a generally lower availability of industrial outage and other projects during the 2007 first quarter.
Our United Kingdom construction and facilities services operating income for the first quarter of 2007 was $0.4 million compared to operating income of $1.7 million for the first quarter of 2006. The reduction in operating income was primarily attributable to lower gross profit generated on rail projects and an increase in pension costs associated with the United Kingdom defined benefit pension plan, partially offset by improved operating income from construction projects and facilities services work.
Other international construction and facilities services operating loss was $0.1 million for the first quarter of 2007 compared to operating income of $0.9 million for the first quarter of 2006.
Corporate administration expense for the first quarter of 2007 was $13.6 million compared to $11.7 million for the first quarter of 2006. This increase in expenses was primarily due to $1.2 million of increased compensation awards based on achievement of earnings. Additionally, compensation and related staffing expenses increased by $0.7 million to support current and projected business growth.
Interest expense for the first quarter of 2007 and 2006 was $0.5 million and $0.7 million, respectively. The decrease in interest expense was primarily due to the absence of borrowings during the first quarter of 2007 compared to modest borrowings during the first quarter of 2006. Interest income for the first quarter of 2007 was $3.2 million compared to $0.9 million for the first quarter of 2006 and was primarily related to more cash available to invest in the current year period.
For the first quarter of 2007 and 2006, the income tax provision was $8.5 million and $4.7 million, respectively, based on effective income tax rates of 41% and 38%, respectively. The increase in the effective income tax rate primarily relates to the full utilization during 2006 of net operating losses for our United Kingdom construction and facilities services segment. As we had recorded a full valuation allowance related to these net operating losses, the utilization of these net operating losses during the 2006 period resulted in an income tax benefit in that segment.
Liquidity and Capital Resources
The following table presents our net cash provided by (used in) operating activities, investing activities and financing activities (in thousands):
For the three months
ended March 31,
--------------------
2007 2006
---- ----
Net cash provided by (used in) operating activities $ 8,364 $(12,129)
Net cash used in investing activities $ (7,154) $ (4,665)
Net cash provided by financing activities $ 1,250 $ 3,746
Effect of exchange rate changes on cash and cash equivalents $ 374 $ 407
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Our consolidated cash balance increased by approximately $2.8 million from $273.7 million at December 31, 2006 to $276.6 million at March 31, 2007. The increase in net cash provided by operating activities for the three months ended March 31, 2007 compared to the three months ended March 31, 2006 was primarily due to an increase in working capital as a result of an increase in net over-billings related to improved billing and collection practices, including advance billings on construction projects and service contracts. Net cash used in investing activities of $7.2 million in the first quarter of 2007 increased $2.5 million compared to $4.7 million used in the first quarter of 2006 and was primarily due to a $1.3 million increase in investment in and advances to unconsolidated entities and joint ventures and the absence of $1.1 million in proceeds from the sale of a discontinued operation recognized in the first quarter 2006. Net cash provided by financing activities of $1.3 million in the first quarter of 2007 decreased $2.5 million compared to $3.7 million in the first quarter of 2006 and was primarily attributable to a decrease in the net proceeds from the exercise of stock options of $1.6 million.
Payments Due by Period
------------------------------------------------------------
Less
Contractual than 1-3 4-5 After
Obligations Total 1 year years years 5 years
---------------------------------- ----- ------ ----- ----- -------
Other long-term debt $ 0.3 $ 0.1 $ 0.2 $ -- $ --
Capital lease obligations 1.5 0.5 0.8 0.2 --
Operating leases 176.5 44.0 65.9 38.1 28.5
Open purchase obligations (1) 814.7 652.2 156.0 6.5 --
Other long-term obligations (2) 179.1 30.4 117.2 14.0 17.5
-------- ------ ------ ----- -----
Total Contractual Obligations $1,172.1 $727.2 $340.1 $58.8 $46.0
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Amount of Commitment Expiration by Period
------------------------------------------------------------
Less
Other Commercial Total than 1-3 4-5 After
Commitments Committed 1 year years years 5 years
---------------------------------- --------- ------ ----- ----- -------
Revolving Credit Facility (3) $ -- $ -- $ -- $ -- $ --
Letters of credit 57.0 -- 57.0 -- --
Guarantees 25.0 -- -- -- 25.0
----- ----- ----- ----- -----
Total Commercial Obligations $82.0 $ -- $57.0 $ -- $25.0
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(1) Represents open purchase orders for material and subcontracting costs
related to construction and service contracts. These purchase orders are
not reflected in EMCOR's consolidated balance sheets and should not impact
future cash flows, as amounts will be recovered through customer billings.
(2) Represents primarily insurance related liabilities and a pension plan
liability, classified as other long-term liabilities and liabilities for
unrecognized income tax benefits, classified as current liabilities in the
consolidated balance sheets. Cash payments for insurance related
liabilities may be payable beyond three years, but it is not practical to
estimate.
(3) We classify these borrowings as short-term on our consolidated balance
sheets because of our intent and ability to repay the amounts on a
short-term basis. As of March 31, 2007, there were no borrowings
outstanding.
Our revolving credit agreement (the "Revolving Credit Facility") provides for a credit facility of $375.0 million. As of March 31, 2007 and December 31, 2006, we had approximately $57.0 million and $55.6 million of letters of credit outstanding, respectively, under the Revolving Credit Facility. There were no borrowings under the Revolving Credit Facility as of March 31, 2007 and December 31, 2006.
Our Canadian subsidiary, Comstock Canada Ltd., has a credit agreement with a bank providing for an overdraft facility of up to Cdn. $0.5 million. The facility is secured by a standby letter of credit and provides for interest at the bank's prime rate, which was 6.0% at March 31, 2007. There were no borrowings outstanding under this credit agreement at March 31, 2007 or 2006.
One of our subsidiaries has guaranteed $25.0 million of borrowings of a venture in which we have 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 our financial position or results of operations. We and Baltimore Gas and Electric are jointly and severally liable, in the event of default, for the venture's $25.0 million in borrowings.
The terms of our construction contracts frequently require that we obtain from surety companies ("Surety Companies") and provide to our customers payment and performance bonds ("Surety Bonds") as a condition to the award of such contracts. The Surety Bonds secure our payment and performance obligations under such contracts, and we have agreed to indemnify the Surety Companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private sector contracts, and accordingly, our bonding requirements typically increase as the amount of public sector work increases. As of March 31, 2007, based on our percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, had there been defaults on all our existing contractual obligations, would have been approximately $1.3 billion. The Surety Bonds are issued by Surety Companies in return for premiums, which vary depending on the size and type of bond.
In recent years, there has been a reduction in the aggregate surety bond issuance capacity of Surety Companies due to industry consolidations and other factors. Consequently, the availability of Surety Bonds has become more limited and the terms upon which Surety Bonds are available have become more restrictive. If we experience changes in our bonding relationships or if there are further changes in the surety industry, we may seek to satisfy certain customer requests for Surety Bonds by posting other forms of collateral in lieu of Surety Bonds such as letters of credit or guarantees by EMCOR Group, Inc., by seeking to convince customers to forego the requirement for Surety Bonds, by increasing our activities in business segments that rarely require Surety Bonds such as the facilities services segment and/or by refraining from bidding for certain projects that require Surety Bonds. There can be no assurance that we will be able to effectuate alternatives to providing Surety Bonds to our customers or to obtain, on favorable terms, sufficient additional work that does not require Surety Bonds to replace projects requiring Surety Bonds that we may decline to pursue. Accordingly, if we were to experience a reduction in the availability of Surety Bonds, we could experience a material adverse effect on our financial position, results of operations and/or cash flow.
We do not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.
Our primary source of liquidity has been, and is expected to continue to be, cash generated by operating activities. We also maintain 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, to enable us to seize opportunities to participate in joint ventures or to make acquisitions that may require access to cash. We may also increase liquidity through an equity offering or issuance of other debt instruments. Short-term changes in macroeconomic trends may have an effect, positively or negatively, on liquidity. In addition to managing borrowings, our focus on the facilities services market is intended to provide an additional buffer against economic downturns inasmuch as the facilities services business is characterized by annual and multi-year contracts that provide a more predictable stream of cash flow than the construction business. Short-term liquidity is also impacted by the type and length of construction contracts in place. During economic downturns, such as the downturn that the engineering and construction industry experienced from 2001 through 2004, there were typically fewer small discretionary projects from the private sector, and companies like us aggressively bid larger long-term infrastructure and public sector contracts. Performance of long duration contracts typically requires working capital until initial billing milestones are achieved. While we strive to maintain a net over-billed position with our customers, there can be no assurance that a net over-billed position can be maintained. Our 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", were $315.6 million and $264.2 million as of March 31, 2007 and December 31, 2006, 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 our current credit ratings and financial position, we can reasonably expect to be able to issue long-term debt instruments and/or equity. Over the long term, our primary revenue risk factor continues to be the level of demand for non-residential construction services, which is in turn influenced by macroeconomic trends including interest rates and governmental economic policy. In addition to the primary revenue risk factor, our ability to perform work at profitable levels is critical to meeting long-term liquidity requirements.
We believe 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, we are a party to lawsuits and other proceedings in which other parties seek to recover from us amounts ranging from a few thousand dollars to over $75.0 million. If we were required to pay damages in one or more such proceedings, such payments could have a material adverse effect on our financial position, results of operations and/or cash flows.
Certain Insurance Matters
As of March 31, 2007 and December 31, 2006, we utilized approximately $55.1 million and $51.6 million, respectively, of letters of credit obtained under our revolving credit facility as collateral for our insurance obligations.
New Accounting Pronouncements
On January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", an interpretation of FASB Statement No. 109, "Accounting for Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the adoption of FIN 48 and recognition of the cumulative effect of adoption of a new accounting principle, we recorded a $0.3 million increase in the liability for unrecognized income tax benefits, with an offsetting reduction in retained earnings. As of March 31, 2007, the total liability for unrecognized income tax benefits was $6.3 million, the reversal of which would reduce taxable income when recognized. We recognized interest and penalties related to uncertain tax positions in the income tax provision. As of March 31, 2007, we had approximately $0.9 million of accrued interest related to uncertain tax positions included in the liability on the Consolidated Balance Sheet, of which less than $0.1 million was recorded during the three months ended March 31, 2007. It is possible that approximately $0.9 million of income tax liability related to uncertain intercompany transfer pricing items will become a recognized income tax benefit in the next twelve months due to the closing of open tax years. The tax years 2003 to 2006 remain open to examination by United States taxing jurisdictions, and the tax years 2000 to 2006 remain open to examination by foreign taxing jurisdictions.
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" ("Statement 157"). Statement 157 provides guidance for using fair value to measure assets and liabilities. The statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The statement does not expand the use of fair value in any new circumstances. Statement 157 is effective for our financial statements beginning with the first quarter of 2008. Early adoption is permitted. We have not determined the effect, if any, the adoption of Statement 157 will have on our financial position and results of operations.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("Statement 159"). Statement 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Statement 159 is effective for our financial statements beginning with the first quarter of 2008. We have not determined the effect, if any, the adoption of Statement 159 will have on our financial position and results of operations.
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. Our 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 the annual report on Form 10-K for
the year ended December 31, 2006. There was no initial adoption of any
accounting policies during the three months ended March 31, 2007, except for the
adoption of FIN 48. We believe that some of the more critical judgment areas in
the application of accounting policies that affect our 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
We believe our most critical accounting policy is revenue recognition from
long-term construction contracts for which we use 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 our 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 our 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 fully perform such
contract. 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
our 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 we seek 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. Such amounts are recorded at estimated net realizable
value and take into account factors that may affect the ability to bill unbilled
revenues and collect amounts after billing. Due to uncertainties inherent in
estimates employed in applying percentage-of-completion accounting, estimates
may be revised as project work progresses. Application of
percentage-of-completion accounting requires that the impact of revised
estimates be reported prospectively in the consolidated financial statements. In
addition to revenue recognition for long-term construction contracts, we
recognize revenues from service contracts as such contracts are performed in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition, revised
and updated" ("SAB 104"). There are two basic types of services contracts: (a)
fixed price services contracts which are signed in advance for maintenance,
repair and retrofit work over periods typically ranging from one to three years
(pursuant to which our employees may be at a customer's site full time) and (b)
services contracts which may or may not be signed in advance for similar
maintenance, repair and retrofit work on an as needed basis (frequently referred
to as time and material work). Fixed price facilities services contracts are
generally performed 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
We are required to estimate the collectibility of accounts receivable. A considerable amount of judgment is required in assessing the likelihood of realization of receivables. Relevant assessment factors include the creditworthiness of the customer, our prior collection history with the customer and related aging of the past due balances. The provision for bad debts during the three months ended March 31, 2007 was $0.3 million, a $0.4 million increase over the three months ended March 31, 2006. At March 31, 2007 and December 31, 2006, accounts receivable of $1,187.7 million and $1,184.4 million, respectively, included allowances of $24.2 million and $25.0 million, respectively. Specific accounts receivable are evaluated when we believe a customer may not be able to meet its financial obligations due to deterioration of its financial condition or its credit ratings. The allowance requirements are based on the best facts available and are re-evaluated and adjusted on a regular basis and as additional information is received.
Insurance Liabilities
We have loss payment deductibles for certain workers' compensation, auto liability, general liability and property claims, have self-insured retentions for certain other casualty claims and are self-insured for employee-related health care claims. Losses are recorded based upon estimates of our liability for claims incurred and for claims incurred but not reported. The liabilities are derived from known facts, historical trends and industry averages utilizing the assistance of an actuary to determine the best estimate of these obligations. We believe the liabilities recognized on our balance sheets 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 will be recorded in the period that the experience becomes known.
Income Taxes
We have net deferred tax assets primarily resulting from deductible temporary differences of $26.9 million and $28.2 million at March 31, 2007 and December 31, 2006, respectively, which will reduce our taxable income in future periods. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. As of March 31, 2007 and December 31, 2006, the total valuation allowance on gross deferred tax assets was approximately $14.0 million and $12.9 million, respectively.
Goodwill and Intangible Assets
As of March 31, 2007, we had goodwill and net identifiable intangible assets (primarily the market value of our backlog, customer relationships, non-competition agreements and trademarks and trade names) of $288.2 million and $37.3 million, respectively, primarily arising out of the acquisition of 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. FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement 142") requires goodwill and other intangible assets that have indefinite useful lives not be amortized, but instead be tested at least annually for impairment (which we test each October 1), and be written down if impaired, rather than amortized as previous standards required. Furthermore, Statement 142 requires that identifiable intangible assets with finite lives be amortized over their useful lives. Changes in strategy and/or market conditions may result in adjustments to recorded intangible asset balances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have not used any material derivative financial instruments during the three months ended March 31, 2007 and 2006, including trading or speculation on changes in interest rates, or commodity prices of materials used in our business.
We are exposed to market risk for changes in interest rates for borrowings under the Revolving Credit Facility. Borrowings under that facility bear interest at variable rates, and the fair value of borrowings are not affected by changes in market interest rates. As of March 31, 2007, there were no borrowings outstanding under the facility. Had there been borrowings, they would bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Nesbitt from time to time (8.25% at March 31, 2007) plus 0.0% to 0.5% based on certain financial tests or (2) United States dollar LIBOR (5.32% at March 31, 2007) plus 1.0% to 2.25% based on certain financial tests. The interest rates in effect at March 31, 2007 were 8.25% and 6.32% for the prime commercial lending rate and the United States dollar LIBOR, respectively. Letter of credit fees issued under this facility range from 1.0% to 2.25% of the respective face amounts of the letters of credit issued and are charged based on the type of letter of credit issued and certain financial tests. The Revolving Credit Facility expires in October 2010. There is no guarantee that we will be able to renew the facility at its expiration.
We are also exposed to construction 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 our customers' ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain on-going discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, we believe we take appropriate action to manage market and other risks, but there is no assurance that we 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Amounts invested in our 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 our condensed consolidated balance sheets. We believe 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, we are exposed to market risk of fluctuations in certain commodity prices of materials such as copper and steel utilized in both our construction and facilities services operations. We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our fleet of over 6,000 vehicles. While we believe we can increase our prices to adjust for some price increases in commodities, there can be no assurance that continued price increases of commodities, if they were to occur, would be recoverable.
ITEM 4. CONTROLS AND PROCEDURES.
Based on an evaluation of our disclosure controls and procedures (as required by Rule 13a-15(b) of the Securities Exchange Act of 1934), our Chairman of the Board of Directors and Chief Executive Officer, Frank T. MacInnis, and our Chief Financial Officer, Mark A. Pompa, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchanges Act of 1934) are effective as of the end of the period covered by this report.
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. - OTHER INFORMATION.
ITEM 6. EXHIBITS.
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
2(a) Purchase Agreement dated as of February 11, 2002 by Exhibit 2.1 to EMCOR's Report on Form
and among Comfort Systems USA, Inc. and EMCOR-CSI 8-K dated February 14, 2002
Holding Co.
3(a-1) Restated Certificate of Incorporation of EMCOR filed Exhibit 3(a-5) to Form 10
December 15, 1994
3(a-2) Amendment dated November 28, 1995 to the Restated Exhibit 3(a-2) to EMCOR's Annual Report
Certificate of Incorporation of EMCOR on Form 10-K for the year ended December
31, 1995 ("1995 Form 10-K")
3(a-3) Amendment dated February 12, 1998 to the Restated Exhibit 3(a-3) to EMCOR's Annual Report
Certificate of Incorporation on Form 10-K for the year ended December
31, 1997 ("1997 Form 10-K")
3(a-4) Amendment dated January 27, 2006 to the Restated Exhibit 3(a-4) to EMCOR's Annual Report
Certificate of Incorporation on Form 10-K for the year ended December
31, 2005 ("2005 Form 10-K")
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 ("1998 Form 10-K")
4(a) U.S. $375,000,000 Credit Agreement dated October 14, Exhibit 4 to EMCOR's Report on Form 8-K
2005 by and among EMCOR Group, Inc. and certain of its (Date of Report October 17, 2005)
subsidiaries and Harris N.A. individually and as Agent
for the Lenders which are or became parties thereto
(the "Credit Agreement")
4(b) Assignment and Acceptance dated October 14, 2005 Exhibit 4(b) to 2005 Form 10-K
between Harris Nesbitt Financing, Inc. ("HNF") as
assignor, and Bank of Montreal, as assignee of 100%
interest of HNF in the Credit Agreement to Bank of
Montreal
4(c) Commitment Amount Increase Request dated November 21, Exhibit 4(c) to 2005 Form 10-K
2005 between EMCOR and the Northern Trust Company
effective November 29, 2005 pursuant to Section 1.10
of the Credit Agreement
4(d) Commitment Amount Increase Request dated November 21, Exhibit 4(d) to 2005 Form 10-K
2005 between EMCOR and Bank of Montreal effective
November 29, 2005 pursuant to Section 1.10 of the
Credit Agreement
4(e) Commitment Amount Increase Request dated November 21, Exhibit 4(e) to 2005 Form 10-K
2005 between EMCOR and National City Bank of Indiana
effective November 29, 2005 pursuant to Section 1.10
of the Credit Agreement
4(f) Assignment and Acceptance dated November 29, 2005 Exhibit 4(f) to 2005 Form 10-K
between Bank of Montreal, as assignor, and Fifth Third
Bank, as assignee, of 30% interest of Bank of Montreal
in the Credit Agreement to Fifth Third Bank
4(g) Assignment and Acceptance dated November 29, 2005 Exhibit 4(g) to 2005 Form 10-K
between Bank of Montreal, as assignor, and Northern
Trust Company, as assignee, of 20% interest of Bank of
Montreal in the Credit Agreement to Bank of Montreal
|
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
10(a) Severance Agreement between EMCOR and Frank T. MacInnis Exhibit 10.2 to EMCOR's Report on
Form 8-K (Date of Report April 25,
2005) ("April 2005 Form 8-K")
10(b) Form of Severance Agreement ("Severance Agreement") Exhibit 10.1 to the April 2005 Form
between EMCOR and each of Sheldon I. Cammaker, R. 8-K
Kevin Matz and Mark A. Pompa
10(c) Form of Amendment to Severance Agreement between EMCOR Page ___
and each of Frank T. MacInnis, Sheldon I. Cammaker,
Mark A. Pompa and R. Kevin Matz
10(d) Letter Agreement dated October 12, 2004 between Exhibit 10.1 to EMCOR's Report on
Anthony Guzzi and EMCOR (the "Guzzi Letter Form 8-K (Date of Report October 12,
Agreement") 2004)
10(e) Form of Confidentiality Agreement Exhibit C to Guzzi Letter Agreement
10(f) Form of Indemnification Agreement between EMCOR and Exhibit F to Guzzi Letter Agreement
each of its officers and directors
10(g-1) Severance Agreement ("Guzzi Severancy Agreement") Exhibit D to the Guzzi Letter
dated October 25, 2005 between Anthony Guzzi and EMCOR Agreement
10(g-2) Amendment to Guzzi Severance Agreement Page ___
10(h-1) 1994 Management Stock Option Plan ("1994 Option Plan") Exhibit 10(o) to Form 10
10(h-2) Amendment to Section 12 of the 1994 Option Plan Exhibit (g-2) to EMCOR's Annual
Report on Form 10-K for the year
ended December 31, 2001 ("2001 Form 10-K")
10(h-3) Amendment to Section 13 of the 1994 Option Plan Exhibit (g-3) to 2001 Form 10-K
10(i-1) 1995 Non-Employee Directors' Non-Qualified Stock Exhibit 10(p) to 2001 Form 10-K
Option Plan ("1995 Option Plan")
10(i-2) Amendment to Section 10 of the 1995 Option Plan Exhibit (h-2) to 2001 Form 10-K
10(j-1) 1997 Non-Employee Directors' Non-Qualified Stock Exhibit 10(k) to EMCOR's Annual Report on
Option Plan ("1997 Option Plan") Form 10-K for the year ended December 31,
1999 ("1999 Form 10-K")
10(j-2) Amendment to Section 9 of the 1997 Option Plan Exhibit 10(i-2) to 2001 Form 10-K
10(k) 1997 Stock Plan for Directors Exhibit 10(l) to 1999 Form 10-K
10(l-1) Continuity Agreement dated as of June 22, 1998 Exhibit 10(a) to EMCOR's Quarterly
between Frank T. MacInnis and EMCOR ("MacInnis Report on Form 10-Q for the quarter
Continuity Agreement") ended June 30, 1998 ("June 1998 Form
10-Q")
10(l-2) Amendment dated as of May 4, 1999 to MacInnis Exhibit 10(h) for the quarter ended
Continuity Agreement June 30, 1999 (June 1999 Form 10-Q)
10(l-3) Amendment dated as of March 1, 2007 to MacInnis Page ___
Continuity Agreement
|
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- ------------------------------------------------------- ------------------------------------------
10(m-1) Continuity Agreement dated as of June 22, 1998 between Exhibit 10(c) to the June 1998 Form 10-Q
Sheldon I. Cammaker and EMCOR ("Cammaker Continuity
Agreement")
10(m-2) Amendment dated as of May 4, 1999 to Cammaker Exhibit 10(i) to the June 1999 Form 10-Q
Continuity Agreement
10(m-3) Amendment dated as of March 1, 2007 to Cammaker Page ___
Continuity Agreement
10(n-1) Continuity Agreement dated as of June 22, 1998 between Exhibit 10(f) to the June 1998 Form 10-Q
R. Kevin Matz and EMCOR ("Matz Continuity Agreement")
10(n-2) Amendment dated as of May 4, 1999 to Matz Continuity Exhibit 10(m) to the June 1999 Form 10-Q
Agreement
10(n-3) Amendment dated as of January 1, 2002 to Matz Exhibit 10(o-3) to Form 10-Q for the
Continuity Agreement quarter ended March 31, 2002 ("March
2002 10-Q")
10(n-4) Amendment dated as of March 1, 2007 to Matz Continuity Page ___
Agreement
10(o-1) Continuity Agreement dated as of June 22, 1998 between Exhibit 10(g) to the June 1998 Form 10-Q
Mark A. Pompa and EMCOR ("Pompa Continuity Agreement")
10(o-2) Amendment dated as of May 4, 1999 to Pompa Continuity Exhibit 10(n) to the June 1999 Form 10-Q
Agreement
10(o-3) Amendment dated as of January 1, 2002 to Pompa Exhibit 10(p-3) to the March 2002 10-Q
Continuity Agreement
10(o-4) Amendment dated as of March 1, 2007 to Pompa Page ___
Continuity Agreement
10(p-1) Change of Control Agreement dated as of October 25, Exhibit E to Guzzi Letter Agreement
2004 between Anthony Guzzi ("Guzzi") and
EMCOR ("Guzzi Continuity Agreement")
10(p-2) Amendment dated as of March 1, 2007 to Guzzi Page ___
Continuity Agreement
10(q) Release and Settlement Agreement dated December 22, Exhibit 10(q) to 1999 Form 10-K
1999 between Thomas D. Cunningham and EMCOR
10(r) Separation Agreement and Mutual release dated April 3, Exhibit 10.1 to EMCOR's Report on Form
2006 between Leicle E. Chesser and EMCOR 8-K (Date of Report April 4, 2006)
10(s-1) Executive Stock Bonus Plan, as amended (the "Stock Exhibit 4.1 to EMCOR's Registration
Bonus Plan") Statement on Form S-8 (No.333-112940)
filed with the Securities and Exchange
Commission on February 18, 2004
(the "2004 Form S-8")
10(s-2) Amendment to Executive Stock Bonus Plan Page ___
|
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
------------ ------------------------------------------------------- -----------------------------------------
10(s-3) Form of Certificate Representing Restrictive Stock Exhibit 10.1 to EMCOR's Report on
Units ("RSU's") issued under the Stock Bonus Plan Form 8-K (Date of Report March 4,
Manditorily Awarded 2005) ("March 4, 2005 Form 8-K")
10(s-4) Form of Certificate Representing RSU's issued under Exhibit 10.2 to March 4, 2005 Form
the Stock Bonus Plan Voluntarily Awarded 8-K
10(t) Incentive Plan for Senior Executive Officers of EMCOR Exhibit 10.3 to March 4, 2005 Form
Group, Inc. ("Incentive Plan for Senior Executives") 8-K
10(u) First Amendment to Incentive Plan for Senior Exhibit 10(t) to 2005 Form 10-K
Executives
10(v) EMCOR Group, Inc. Long-Term Incentive Plan Exhibit 10 to Form 8-K (Date of
Report December 15, 2005)
10(w-l) 2003 Non-Employee Directors' Stock Option Exhibit A to EMCOR's proxy statement
("2003 Proxy Statement") Plan for
its annual meeting held June 12, 2003
10(w-2) First Amendment to 2003 Non-Employee Directors' Stock Exhibit 10(u-2) to EMCOR's Annual
Option Plan Report on Form 10-K for the year
ended December 31, 2006 ("2006 Form
10-K")
10(x-1) 2003 Management Stock Incentive Plan Exhibit B to EMCOR's 2003 Proxy
Statement
10(x-2) Amendments to 2003 Management Stock Incentive Plan Exhibit 10(t-2) to EMCOR's Annual
Report on Form 10-K for the year
ended December 31, 2003 ("2003 Form
10-K")
10(x-3) Second Amendment to 2003 Management Stock Incentive Exhibit 10(u-3) to 2006 Form 10-K
Plan
10(y) Form of Stock Option Agreement evidencing grant of Exhibit 10.1 to Form 8-K (Date of
stock options under the 2003 Management Stock Report January 5, 2005)
Incentive Plan
10(z) Key Executive Incentive Bonus Plan Exhibit B to EMCOR's Proxy Statement
for its annual meeting held June 16,
2005 ("2005 Proxy Statement")
10(a)(a) 2005 Management Stock Incentive Plan Exhibit C to EMCOR's 2003 Proxy
Statement
10(a)(a-1) First Amendment to 2005 Management Stock Incentive Exhibit 10(z) to 2006 Form 10-K
10(b)(b) 2005 Stock Plan for Directors Exhibit C to 2005 Proxy Statement
10(b)(b-1) First Amendment to 2005 Stock Plan for Directors Exhibit 10(a)(a-2) to 2006 Form 10-K
10(c)(c) Option Agreement between EMCOR and Frank T. MacInnis Exhibit 4.4 to 2004 Form S-8
dated May 5, 1999
10(d)(d) Form of EMCOR Option Agreement for Messrs. Frank T. Exhibit 4.5 to 2004 Form S-8
MacInnis, Jeffrey M. Levy, Sheldon I. Cammaker,
Leicle E. Chesser, R. Kevin Matz and Mark A. Pompa
(collectively the "Executive Officers") for options
granted January 4, 1999, January 3, 2000 and January
2, 2001
|
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
------------ ------------------------------------------------------- --------------------------------------
10(e)(e) Form of EMCOR Option Agreement for Executive Officers Exhibit 4.6 to 2004 Form S-8
granted December 14, 2001
10(f)(f) Form of EMCOR Option Agreement for Executive Officers Exhibit 4.7 to 2004 Form S-8
granted January 2, 2002, January 2, 2003 and January
2, 2004
10(g)(g) Form of EMCOR Option Agreement for Directors granted Exhibit 4.8 to 2004 Form S-8
June 19, 2002, October 25, 2002 and February 27, 2003
10(h)(h) Form of EMCOR Option Agreement for Executive Officers Exhibit 10(g)(g) to 2005 Form 10-K
and Guzzi dated January 3, 2005
10(i)(i) Release and Settlement Agreement dated February 25, Exhibit 10(a)(a) to EMCOR's Annual
2004 between Jeffrey M. Levy and EMCOR Report on Form 10-K for the year
ended December 31, 2004 ("2004 Form
10-K")
10(j)(j) Form of letter agreement between EMCOR and each Exhibit 10(b)(b) to 2004 Form 10-K
Executive Officer with respect to acceleration of
options granted January 2, 2003 and January 2, 2004
11 Computation of Basic EPS and Diluted EPS for the Note C of the Notes to the Condensed
three months ended March 31, 2007 and 2006 Consolidated Financial Statements
31.1 Certification Pursuant to Section 302 of the Page ___
Sarbanes-Oxley Act of 2002 by the Chairman of the
Board of Directors and Chief Executive Officer *
31.2 Certification Pursuant to Section 302 of the Page ___
Sarbanes-Oxley Act of 2002 by the Executive Vice
President and Chief Financial Officer *
32.1 Certification Pursuant to Section 906 of the Page ___
Sarbanes-Oxley Act of 2002 by the Chairman of the
Board of Directors and Chief Executive Officer **
32.2 Certification Pursuant to Section 906 of the Page ___
Sarbanes-Oxley Act of 2002 by the Executive Vice
President and Chief Financial Officer **
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By: /s/FRANK T. MACINNIS
----------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
By: /s/MARK A. POMPA
----------------------------------
Mark A. Pompa
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
Exhibit 31.1
CERTIFICATION
I, Frank T. MacInnis, Chairman of the Board of Directors 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), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 26, 2007
/s/FRANK T. MACINNIS
----------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
|
Exhibit 31.2
CERTIFICATION
I, Mark A. Pompa, 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), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 26, 2007
/s/MARK A. POMPA
-------------------------------
Mark A. Pompa
Executive Vice President and
Chief Financial Officer
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2007 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 Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 26, 2007 /s/FRANK T. MACINNIS
------------------------------
Frank T. MacInnis
Chief Executive Officer
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the
"Company") on Form 10-Q for the period ended March 31, 2007 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Mark A.
Pompa, 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 Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 26, 2007 /s/MARK A. POMPA
-----------------------------------
Mark A. Pompa
Chief Financial Officer
|
Exhibit 10(c)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and ___________________ (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of April 25, 2005, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
Exhibit 10(g-2)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and Anthony J. Guzzi (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of October 25, 2004, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 21 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Frank T. MacInnis
---------------------
/s/Anthony J. Guzzi
---------------------
Anthony J. Guzzi
|
Exhibit 10(l-3)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and Frank T. MacInnis (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of June 22, 1998, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement") in connection with a change of control of the Company; and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Sheldon I. Cammaker
-----------------------
/s/Frank T. MacInnis
-----------------------
Frank T. MacInnis
|
Exhibit 10(m-3)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and Sheldon I. Cammaker (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of March 1, 1999, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement"); in connection with a change of control of the Company; and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Frank T. MacInnis
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/s/Sheldon I. Cammaker
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Sheldon I. Cammaker
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Exhibit 10(n-4)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and R. Kevin Matz (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of June 22, 1998, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement") in connection with a change of control of the Company; and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Frank T. MacInnis
----------------------
/s/R. Kevin Matz
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R. Kevin Matz
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Exhibit 10(o-4)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by
and between EMCOR Group, Inc., a Delaware corporation (the "Company") and Mark
A. Pompa (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of June 22, 1998, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement") in connection with a change of control of the Company; and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Frank T. MacInnis
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/s/Mark A. Pompa
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Mark A. Pompa
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Exhibit 10(p-2)
This Amendment (this "Amendment"), dated as of March 1, 2007, is made by and between EMCOR Group, Inc., a Delaware corporation (the "Company") and Anthony J. Guzzi (the "Executive").
WHEREAS, the Company and the Executive entered into an Agreement dated as of October 25, 2004, providing for the payment to, and award of, certain severance benefits by the Company to the Executive under certain circumstances (the "Agreement") in connection with a change of control of the Company; and
WHEREAS, the Company and the Executive desire to amend the Agreement to modify the timing of the payment of such severance benefits under certain circumstances.
NOW THEREFORE, in consideration of the mutual promises and agreements of the parties as set forth below, the parties agree as follows.
1. The Agreement is amended effective as of the date hereof to add a new
Section 16 that shall read in its entirety as follows:
"Notwithstanding any provision of this Agreement to the contrary, if the commencement of the payments hereunder is on account of the employee's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the commencement of payments hereunder shall be deferred until the first payroll date which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
2. Except as amended hereby the Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and agreed to as of the day and year last written below.
EMCOR GROUP, INC.
By: /s/Frank T. MacInnis
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/s/Anthony J. Guzzi
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Anthony J. Guzzi
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Exhibit 10(s-2)
AMENDMENT
TO THE
EMCOR GROUP, INC. EXECUTIVE STOCK BONUS PLAN
This Amendment to the EMCOR Group, Inc. Executive Stock Bonus Plan (the "Plan") is made as of March 1, 2007.
WHEREAS, pursuant to Section 7 of the Plan, the Plan may be amended by the Board of Directors of EMCOR Group, Inc. (the "Company"); and
WHEREAS, on the date hereof, the Board of Directors of the Company unanimously voted pursuant to a motion duly made and seconded to amend the Plan.
NOW THEREFORE, the Plan is hereby amended so that a new Section 8.14 of the Plan is added to in its entirety as follows:
"8.14 Deferral of Stock Issuance. Notwithstanding any provision of the Executive Stock Bonus Plan to the contrary, if the issuance of shares of the Company's Common Stock in respect of restricted stock units granted hereunder is on account of the participant's separation from service with the Company, and if necessary to avoid accelerated taxation or tax penalties under Section 409A of the Internal Revenue Code of 1986, as amended, the issuance of such shares hereunder shall be deferred until the first business day which is more than six months following such separation from service; and the first such payment shall include all payments which would have been made during the period of such deferral through the date of such payment."
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date first written above.
EMCOR GROUP, INC.
By /s/R. Kevin Matz
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R. Kevin Matz
Senior Vice President - Shared Services
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