Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
OR
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o |
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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
EMCOR Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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11-2125338 |
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(State or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S. Employer Identification
Number) |
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301 Merritt Seven
Norwalk, Connecticut
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06851-1092 |
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(Address of Principal Executive Offices)
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(Zip Code) |
(203) 849-7800
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Exchange Act). Yes o No þ
Applicable Only To Corporate Issuers
Number
of shares of Common Stock outstanding as of the close of business on October 29, 2010:
66,451,792 shares.
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
641,111 |
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$ |
726,975 |
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Accounts receivable, net |
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1,053,355 |
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1,057,171 |
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Costs and estimated earnings in excess
of billings on uncompleted contracts |
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114,592 |
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90,049 |
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Inventories |
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27,789 |
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34,468 |
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Prepaid expenses and other |
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52,623 |
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68,702 |
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Total current assets |
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1,889,470 |
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1,977,365 |
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Investments, notes and other long-term
receivables |
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5,749 |
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19,287 |
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Property, plant and equipment, net |
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87,478 |
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92,057 |
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Goodwill |
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388,673 |
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593,628 |
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Identifiable intangible assets, net |
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223,995 |
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264,522 |
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Other assets |
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32,139 |
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35,035 |
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Total assets |
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$ |
2,627,504 |
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$ |
2,981,894 |
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See Notes to Condensed Consolidated Financial Statements.
1
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Borrowings under working capital credit line |
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$ |
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$ |
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Current maturities of long-term debt and capital
lease obligations |
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305 |
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45,100 |
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Accounts payable |
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347,158 |
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379,764 |
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Billings in excess of costs and estimated
earnings on uncompleted contracts |
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500,014 |
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526,241 |
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Accrued payroll and benefits |
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169,456 |
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215,967 |
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Other accrued expenses and liabilities |
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141,295 |
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167,533 |
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Total current liabilities |
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1,158,228 |
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1,334,605 |
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Borrowings under working capital credit line |
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150,000 |
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Long-term debt and capital lease obligations |
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53 |
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150,251 |
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Other long-term obligations |
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201,112 |
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270,572 |
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Total liabilities |
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1,509,393 |
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1,755,428 |
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Equity: |
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EMCOR Group, Inc. stockholders equity: |
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Preferred stock, $0.01 par value, 1,000,000 shares
authorized, zero issued and outstanding |
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Common stock, $0.01 par value, 200,000,000 shares
authorized,
68,895,671 and 68,675,223 shares issued, respectively |
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689 |
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687 |
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Capital surplus |
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424,140 |
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416,267 |
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Accumulated other comprehensive loss |
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(43,005 |
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(52,699 |
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Retained earnings |
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742,600 |
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869,267 |
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Treasury stock, at cost 2,455,875 and 2,487,879 shares,
respectively |
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(16,084 |
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(15,451 |
) |
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Total EMCOR Group, Inc. stockholders equity |
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1,108,340 |
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1,218,071 |
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Noncontrolling interests |
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9,771 |
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8,395 |
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Total equity |
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1,118,111 |
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1,226,466 |
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Total liabilities and equity |
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$ |
2,627,504 |
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$ |
2,981,894 |
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See Notes to Condensed Consolidated Financial Statements.
2
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
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Three months ended September 30, |
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2010 |
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2009 |
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Revenues |
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$ |
1,277,277 |
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$ |
1,371,985 |
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Cost of sales |
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1,104,349 |
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1,166,740 |
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Gross profit |
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172,928 |
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205,245 |
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Selling, general and administrative expenses |
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119,450 |
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137,895 |
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Restructuring expenses |
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1,715 |
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90 |
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Impairment loss on goodwill and identifiable intangible assets |
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226,152 |
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Operating (loss) income |
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(174,389 |
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67,260 |
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Interest expense |
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(3,179 |
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(1,947 |
) |
Interest income |
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642 |
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788 |
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Gain on sale of equity investment |
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(Loss) income before income taxes |
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(176,926 |
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66,101 |
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Income tax (benefit) provision |
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(2,362 |
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25,624 |
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Net (loss) income including noncontrolling interests |
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(174,564 |
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40,477 |
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Less: Net income attributable to noncontrolling interests |
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(1,061 |
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(491 |
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Net (loss) income attributable to EMCOR Group, Inc. |
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$ |
(175,625 |
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$ |
39,986 |
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Basic (loss) earnings per common share: |
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Net (loss) income attributable to EMCOR Group, Inc.
common stockholders |
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$ |
(2.64 |
) |
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$ |
0.61 |
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Diluted (loss) earnings per common share: |
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Net (loss) income attributable to EMCOR Group, Inc.
common stockholders |
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$ |
(2.64 |
) |
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$ |
0.59 |
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See Notes to Condensed Consolidated Financial Statements.
3
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
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Nine months ended September 30, |
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2010 |
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2009 |
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Revenues |
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$ |
3,765,138 |
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$ |
4,189,291 |
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Cost of sales |
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3,250,695 |
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3,576,003 |
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Gross profit |
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514,443 |
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613,288 |
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Selling, general and administrative expenses |
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362,972 |
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402,664 |
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Restructuring expenses |
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2,512 |
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4,200 |
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Impairment loss on goodwill and identifiable intangible assets |
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246,081 |
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Operating (loss) income |
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(97,122 |
) |
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206,424 |
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Interest expense |
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(9,355 |
) |
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(5,640 |
) |
Interest income |
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2,054 |
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3,416 |
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Gain on sale of equity investment |
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7,900 |
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(Loss) income before income taxes |
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(96,523 |
) |
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204,200 |
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Income tax provision |
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27,068 |
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81,124 |
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Net (loss) income including noncontrolling interests |
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(123,591 |
) |
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123,076 |
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Less: Net income attributable to noncontrolling interests |
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(3,076 |
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(1,503 |
) |
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Net (loss) income attributable to EMCOR Group, Inc. |
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$ |
(126,667 |
) |
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$ |
121,573 |
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Basic (loss) earnings per common share: |
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Net (loss) income attributable to EMCOR Group, Inc.
common stockholders |
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$ |
(1.91 |
) |
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$ |
1.85 |
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Diluted (loss) earnings per common share: |
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Net (loss) income attributable to EMCOR Group, Inc.
common stockholders |
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$ |
(1.91 |
) |
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$ |
1.81 |
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See Notes to Condensed Consolidated Financial Statements.
4
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
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Nine months ended September 30, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net (loss) income including noncontrolling interests |
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$ |
(123,591 |
) |
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$ |
123,076 |
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Depreciation and amortization |
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19,020 |
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19,751 |
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Amortization of identifiable intangible assets |
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11,484 |
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14,400 |
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Deferred income taxes |
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(7,387 |
) |
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4,769 |
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Gain on sale of equity investments |
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(12,409 |
) |
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Excess tax benefits from share-based compensation |
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(304 |
) |
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(752 |
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Equity income from unconsolidated entities |
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(594 |
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(2,331 |
) |
Non-cash expense for impairment of goodwill and identifiable intangible assets |
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246,081 |
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Other non-cash items |
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7,286 |
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14,027 |
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Supplemental defined benefit plan contribution |
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(25,916 |
) |
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Distributions from unconsolidated entities |
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|
866 |
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|
3,847 |
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Changes in operating assets and liabilities |
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(145,159 |
) |
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|
95,408 |
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Net cash (used in) provided by operating activities |
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(30,623 |
) |
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272,195 |
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Cash flows from investing activities: |
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Payments for acquisitions of businesses, identifiable intangible assets
and
related earn-out agreements |
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(11,465 |
) |
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(15,499 |
) |
Proceeds from sale of equity investments |
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25,570 |
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Proceeds from sale of property, plant and equipment |
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532 |
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|
542 |
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Purchase of property, plant and equipment |
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(13,970 |
) |
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(17,247 |
) |
Investments in and advances to unconsolidated entities and joint ventures |
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(65 |
) |
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(8,000 |
) |
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Net cash provided by (used in) investing activities |
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602 |
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(40,204 |
) |
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Cash flows from financing activities: |
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Proceeds from working capital credit line |
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153,000 |
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Repayments of working capital credit line |
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(3,000 |
) |
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Repayments of long-term debt and debt issuance costs |
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(200,824 |
) |
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(2,291 |
) |
Repayments of capital lease obligations |
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(273 |
) |
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|
(971 |
) |
Proceeds from exercise of stock options |
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|
1,119 |
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|
1,109 |
|
Issuance of common stock under employee stock purchase plan |
|
|
1,750 |
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|
1,580 |
|
Distributions to noncontrolling interests |
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|
(1,700 |
) |
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|
(550 |
) |
Excess tax benefits from share-based compensation |
|
|
304 |
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|
752 |
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Net cash used in financing activities |
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|
(49,624 |
) |
|
|
(371 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
|
|
(6,219 |
) |
|
|
10,742 |
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(Decrease) increase in cash and cash equivalents |
|
|
(85,864 |
) |
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|
242,362 |
|
Cash and cash equivalents at beginning of year |
|
|
726,975 |
|
|
|
405,869 |
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Cash and cash equivalents at end of period |
|
$ |
641,111 |
|
|
$ |
648,231 |
|
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Supplemental cash flow information: |
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Cash paid for: |
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Interest |
|
$ |
6,823 |
|
|
$ |
4,466 |
|
Income taxes |
|
$ |
62,985 |
|
|
$ |
71,099 |
|
Non-cash financing activities: |
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|
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Capital lease obligations terminated |
|
$ |
|
|
|
$ |
674 |
|
Contingent purchase price accrued |
|
$ |
1,479 |
|
|
$ |
1,818 |
|
See Notes to Condensed Consolidated Financial Statements.
5
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE (LOSS) INCOME
(In thousands)(Unaudited)
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EMCOR Group, Inc. Stockholders |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Common |
|
|
Capital |
|
|
comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Noncontrolling |
|
|
|
Total |
|
|
(loss) income |
|
|
stock |
|
|
surplus |
|
|
(loss) income (1) |
|
|
earnings |
|
|
stock |
|
|
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009 |
|
$ |
1,050,769 |
|
|
|
|
|
|
$ |
681 |
|
|
$ |
397,895 |
|
|
$ |
(49,318 |
) |
|
$ |
708,511 |
|
|
$ |
(14,424 |
) |
|
$ |
7,424 |
|
Net income including noncontrolling interests |
|
|
123,076 |
|
|
$ |
123,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,573 |
|
|
|
|
|
|
|
1,503 |
|
Foreign currency translation adjustments |
|
|
4,917 |
|
|
|
4,917 |
|
|
|
|
|
|
|
|
|
|
|
4,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension adjustment, net of tax benefit of
$1.0 million |
|
|
2,385 |
|
|
|
2,385 |
|
|
|
|
|
|
|
|
|
|
|
2,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss on cash flow hedge, net of tax
benefit of $0.5 million |
|
|
(787 |
) |
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
129,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less : Net income attributable to
noncontrolling
interests |
|
|
|
|
|
|
(1,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to EMCOR |
|
|
|
|
|
$ |
128,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost (2) |
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
Common stock issued under share-based
compensation plans (3) |
|
|
2,002 |
|
|
|
|
|
|
|
5 |
|
|
|
1,853 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
Common stock issued under employee stock
purchase plan |
|
|
1,580 |
|
|
|
|
|
|
|
|
|
|
|
1,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests |
|
|
(550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(550 |
) |
Share-based compensation expense |
|
|
4,428 |
|
|
|
|
|
|
|
|
|
|
|
4,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributed by selling shareholders of
acquired business (4) |
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
1,187,803 |
|
|
|
|
|
|
$ |
686 |
|
|
$ |
407,328 |
|
|
$ |
(42,803 |
) |
|
$ |
830,084 |
|
|
$ |
(15,869 |
) |
|
$ |
8,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010 |
|
$ |
1,226,466 |
|
|
|
|
|
|
$ |
687 |
|
|
$ |
416,267 |
|
|
$ |
(52,699 |
) |
|
$ |
869,267 |
|
|
$ |
(15,451 |
) |
|
$ |
8,395 |
|
Net (loss) income including noncontrolling
interests |
|
|
(123,591 |
) |
|
$ |
(123,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,667 |
) |
|
|
|
|
|
|
3,076 |
|
Foreign currency translation adjustments |
|
|
1,877 |
|
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension adjustment, net of tax benefit of
$2.9 million |
|
|
7,268 |
|
|
|
7,268 |
|
|
|
|
|
|
|
|
|
|
|
7,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on cash flow hedge, net of tax
benefit of $0.4 million |
|
|
549 |
|
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
(113,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less : Net income attributable to
noncontrolling
interests |
|
|
|
|
|
|
(3,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to EMCOR |
|
|
|
|
|
$ |
(116,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost (2) |
|
|
(875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(875 |
) |
|
|
|
|
Common stock issued under share-based
compensation plans (3) |
|
|
1,321 |
|
|
|
|
|
|
|
2 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
242 |
|
|
|
|
|
Common stock issued under employee stock
purchase plan |
|
|
1,750 |
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests |
|
|
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700 |
) |
Share-based compensation expense |
|
|
5,046 |
|
|
|
|
|
|
|
|
|
|
|
5,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
$ |
1,118,111 |
|
|
|
|
|
|
$ |
689 |
|
|
$ |
424,140 |
|
|
$ |
(43,005 |
) |
|
$ |
742,600 |
|
|
$ |
(16,084 |
) |
|
$ |
9,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cumulative foreign currency translation adjustments, pension liability
adjustments and deferred gain (loss) on interest rate swap. |
|
(2) |
|
Represents value of shares of common stock withheld by EMCOR for income tax withholding
requirements upon the issuance of shares in respect of restricted stock units. |
|
(3) |
|
Includes the tax benefit associated with share-based compensation for the nine months
September 30, 2010 and 2009 of $0.2 million and $0.9 million, respectively. |
|
(4) |
|
Represents redistributed portion of acquisition-related payments to certain employees of a
company, the outstanding stock of which we acquired. These employees were not shareholders of
that company. Such payments were dependent on continuing employment with us and were recorded
as non-cash compensation expense. |
See Notes to Condensed Consolidated Financial Statements.
6
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 our opinion, the accompanying unaudited condensed consolidated financial statements contain
all adjustments (consisting only of a normal recurring nature) necessary to present fairly our
financial position and the results of our operations. The results of operations for the nine months
ended September 30, 2010 are not necessarily indicative of the results to be expected for the year
ending December 31, 2010.
Our reportable segments reflect certain reclassifications of prior year amounts from our
United States mechanical construction and facilities services segment to our United States
facilities services segment due to changes in our internal reporting structure.
NOTE B New Accounting Pronouncements
On January 1, 2010, we adopted the accounting pronouncement regarding the consolidation of
variable interest entities, which changes the consolidation guidance related to a variable interest
entity (VIE). It also amends the guidance governing the determination of whether or not an
enterprise is the primary beneficiary of a VIE and, if so, is therefore required to consolidate an
entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative
analysis includes, among other things, consideration of who has the power to direct the
activities of the entity that most significantly impact the entitys economic performance and who
has the obligation to absorb the losses or the right to receive the benefits of the VIE that could
potentially be significant to the VIE. This statement also requires periodic reassessments of
whether an enterprise is the primary beneficiary of a VIE. We were previously required to
reconsider whether an enterprise is the primary beneficiary of a VIE only when specific events had
occurred. This pronouncement also requires enhanced disclosures about an enterprises involvement
with a VIE. The adoption of this pronouncement did not have any effect on our consolidated
financial statements.
In October 2009, an accounting pronouncement was issued to update existing guidance on revenue
recognition for arrangements with multiple deliverables. This guidance eliminates the requirement
that all undelivered elements must have objective and reliable evidence of fair value before a
company can recognize the portion of the consideration attributed to the delivered item. This may
allow some companies to recognize revenue on transactions that involve multiple deliverables
earlier than under current requirements. Additional disclosures discussing the nature of multiple
element arrangements, the types of deliverables under the arrangements, the general timing of their
delivery, and significant factors and estimates used to determine estimated selling prices are
required. This pronouncement is effective prospectively for revenue arrangements entered into or
modified after annual periods beginning on or after June 15, 2010, but early adoption is permitted.
We have not determined the effect, if any, that the adoption of the pronouncement may have on our
financial position and/or results of operations.
7
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE C Acquisitions of Businesses
On February 8, 2010 and March 2, 2009, we acquired two companies, each for an immaterial
amount. These companies provide mobile mechanical services and have been included in our United
States facilities services reporting segment. We believe these acquisitions further our goal of
service and geographical diversification and/or expansion of our facilities services operations.
During the third quarter of 2010, we finalized the purchase price allocation and the valuation
of the identifiable intangible assets of the company acquired in 2010, resulting in an immaterial
adjustment to the value of the related goodwill and identifiable intangible assets. The two
acquired companies referred to in the immediately preceding paragraph were accounted for by the
acquisition method, and the prices paid for them have been allocated to their respective assets and
liabilities, based upon the estimated fair values of their respective assets and liabilities at the
dates of their respective acquisitions.
NOTE D Earnings Per Share
Calculation of Basic and Diluted (Loss) Earnings per Common Share
The following table summarizes our calculation of Basic and Diluted (Loss) Earnings per Common Share
(EPS) for the three and nine months ended September 30, 2010 and 2009 (in thousands, except share
and per share data):
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
three months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. available to common stockholders |
|
$ |
(175,625 |
) |
|
$ |
39,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute basic (loss) earnings per common
share |
|
|
66,400,105 |
|
|
|
65,897,546 |
|
Effect of diluted securities Share-based awards |
|
|
|
|
|
|
1,654,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted (loss) earnings per common share |
|
|
66,400,105 |
|
|
|
67,551,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. available to common stockholders |
|
$ |
(2.64 |
) |
|
$ |
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. available to common stockholders |
|
$ |
(2.64 |
) |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
8
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D Earnings Per Share (continued)
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. common stockholders |
|
$ |
(126,667 |
) |
|
$ |
121,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute basic (loss)
earnings per common share |
|
|
66,344,180 |
|
|
|
65,864,793 |
|
Effect of diluted securities Share-based awards |
|
|
|
|
|
|
1,414,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted (loss) earnings per common share |
|
|
66,344,180 |
|
|
|
67,279,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. common stockholders |
|
$ |
(1.91 |
) |
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share: |
|
|
|
|
|
|
|
|
Net (loss) income attributable to EMCOR Group, Inc. common stockholders |
|
$ |
(1.91 |
) |
|
$ |
1.81 |
|
|
|
|
|
|
|
|
The
effect of 1,605,848 and 1,614,979 of common stock equivalents has been excluded from the
calculation of diluted EPS for the three and nine months ended
September 30, 2010, respectively, due to our net loss position
in these periods. Assuming dilution, there were 471,347 and 311,347
anti-dilutive stock options excluded from the calculation of diluted
EPS for the three and nine months ended September 30, 2010,
respectively.
There were 295,624 and 516,386 anti-dilutive stock options that were excluded from the calculation
of diluted EPS for the three and nine months ended September 30, 2009, respectively.
NOTE E Inventories
Inventories consist of the following amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Raw materials and construction materials |
|
$ |
16,740 |
|
|
$ |
16,735 |
|
Work in process |
|
|
11,049 |
|
|
|
17,733 |
|
|
|
|
|
|
|
|
|
|
$ |
27,789 |
|
|
$ |
34,468 |
|
|
|
|
|
|
|
|
NOTE F Investments, Notes and Other Long-Term Receivables
On January 8, 2010, a venture in which one of our subsidiaries had a 40% interest and which
designs, constructs, owns, operates, leases and maintains facilities to produce chilled water for
sale to customers for use in air conditioning commercial properties was sold to a third party. As
a result of this sale, we received $17.7 million for our 40% interest and recognized a pretax gain
of $4.5 million, which gain is included in our United States facilities services segment and
classified as a component of Cost of sales on the Condensed Consolidated Statements of
Operations.
On June 7, 2010, we sold our equity interest in a Middle East venture, which performed
facilities services, to our partner in the venture. As a result of this sale, we received $7.9
million and recognized a pretax gain in this amount, which is classified as a Gain on sale of
equity investment on the Condensed Consolidated Statements of Operations.
9
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE G Goodwill and Long-Lived Assets
During the third quarter of 2010 and prior to our October 1 annual impairment test, we
concluded that impairment indicators existed within the United States
facilities services segment based upon its year to date results and recent forecasts. As a result
of that conclusion, we performed a step one test as prescribed under
Accounting Standard Codification (ASC) Topic 350, Intangibles
Goodwill and Other for that particular reporting unit which concluded that impairment indicators
existed within that reporting unit due to significant declines in year to date revenues and
operating margins which caused us to revise our expectations for the strength of a near term
recovery in our financial models for businesses within that reporting unit. Specifically, we
reduced our net sales growth rates and operating margins within our discounted cash flow model, as well as our terminal
value growth rates. In addition, we estimated a higher participant risk adjusted weighted average
cost of capital. Therefore, the required second step of the assessment for the reporting
unit was performed in which the implied fair value of that reporting units goodwill was compared
to the book value of that goodwill. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination, that is, the estimated fair
value of the reporting unit is allocated to all of those assets and liabilities of that unit
(including both recognized and unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination and the estimated fair value of the reporting unit was the
purchase price paid. If the carrying amount of the reporting units goodwill is greater than the
implied fair value of that reporting units goodwill, an impairment loss is recognized in the
amount of the excess and is charged to operations. We determined the fair value of the reporting
unit using discounted estimated future cash flows.
As a result of our impairment assessment, we recognized a $210.6 million non-cash goodwill
impairment charge. In addition, at this interim date and prior to our goodwill testing, we also reviewed the carrying value of the
other identifiable intangible assets to determine whether they were also impaired. As a result of
this assessment, we recorded an additional $15.6 million non-cash impairment charge due to a change
in the fair value of various trade names, which are not being amortized, associated with
certain prior year acquisitions for the three months ended September 30, 2010. A deferred tax
benefit of $19.6 million was recognized during the three months ended September 30, 2010 as a
result of the total amount of impairment charges. Additionally, during the second quarter of 2010,
we recorded an additional $19.9 million non-cash impairment charge associated with the fair value
of various trade names. A deferred tax benefit of $8.0 million was recognized during the three
months ended June 30, 2010 as a result of this impairment charge. The goodwill and trade names referred to above are reported within our United States facilities services segment. The impairment
primarily results from both lower forecasted revenues from and operating margins at our United States
facilities services segment, which has been adversely affected by industry conditions, primarily within the
oil and petrochemical markets. We test for the impairment of trade names that are not subject to
amortization by calculating the fair value using the relief from royalty payments methodology,
which involves estimating royalty rates for each trade name and applying these rates to a net
revenue stream, which is discounted to determine fair value. For the year ended December 31, 2009,
no impairment of goodwill was recognized. These impairments did not have any impact on our
compliance with our debt covenants or on our cash flows.
These impairments fall within Level 3 of the fair value hierarchy (see Note J Fair Value
Measurements for further discussion), due to the use of significant unobservable inputs to
determine fair value. The fair value measurements were calculated using unobservable inputs,
primarily using the income approach, specifically the discounted cash flow method. The amount and
timing of future cash flows within our analysis was based on our most recent operations forecasts,
long range strategic plans and other estimates.
10
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE G Goodwill and Long-Lived Assets (continued)
The changes in the carrying amount of goodwill by reportable segments were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
United States |
|
|
|
|
|
|
|
|
|
electrical |
|
|
mechanical |
|
|
|
|
|
|
|
|
|
construction |
|
|
construction |
|
|
United States |
|
|
|
|
|
|
and facilities |
|
|
and facilities |
|
|
facilities |
|
|
|
|
|
|
services segment |
|
|
services segment |
|
|
services segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010 |
|
$ |
3,823 |
|
|
$ |
177,740 |
|
|
$ |
412,065 |
|
|
$ |
593,628 |
|
Acquisitions and purchase
price adjustments |
|
|
|
|
|
|
|
|
|
|
5,647 |
|
|
|
5,647 |
|
Transfers |
|
|
|
|
|
|
(2,565 |
) |
|
|
2,565 |
|
|
|
|
|
Impairments |
|
|
|
|
|
|
|
|
|
|
(210,602 |
) |
|
|
(210,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
3,823 |
|
|
$ |
175,175 |
|
|
$ |
209,675 |
|
|
$ |
388,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Total |
|
|
Amount |
|
|
Amortization |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract backlog |
|
$ |
35,405 |
|
|
$ |
(34,397 |
) |
|
$ |
1,008 |
|
|
$ |
34,505 |
|
|
$ |
(33,294 |
) |
|
$ |
1,211 |
|
Developed technology |
|
|
91,000 |
|
|
|
(13,840 |
) |
|
|
77,160 |
|
|
|
91,000 |
|
|
|
(10,427 |
) |
|
|
80,573 |
|
Customer relationships |
|
|
119,550 |
|
|
|
(29,595 |
) |
|
|
89,955 |
|
|
|
115,655 |
|
|
|
(24,021 |
) |
|
|
91,634 |
|
Non-competition
agreements |
|
|
7,283 |
|
|
|
(6,398 |
) |
|
|
885 |
|
|
|
7,243 |
|
|
|
(5,004 |
) |
|
|
2,239 |
|
Trade names (unamortized) |
|
|
54,987 |
|
|
|
|
|
|
|
54,987 |
|
|
|
88,865 |
|
|
|
|
|
|
|
88,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
308,225 |
|
|
$ |
(84,230 |
) |
|
$ |
223,995 |
|
|
$ |
337,268 |
|
|
$ |
(72,746 |
) |
|
$ |
264,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to identifiable intangible assets was $3.8 million and $11.5 million
for the three and nine months ended September 30, 2010, respectively.
NOTE H Debt
Debt in the accompanying Condensed Consolidated Balance Sheets consisted of the following
amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
2010 Revolving Credit Facility |
|
$ |
150,000 |
|
|
$ |
|
|
Term Loan |
|
|
|
|
|
|
194,750 |
|
Capitalized lease obligations |
|
|
329 |
|
|
|
601 |
|
Other |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,358 |
|
|
|
195,351 |
|
Less: current maturities |
|
|
305 |
|
|
|
45,100 |
|
|
|
|
|
|
|
|
|
|
$ |
150,053 |
|
|
$ |
150,251 |
|
|
|
|
|
|
|
|
11
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE H Debt (continued)
Until February 4, 2010, we had a revolving credit agreement (the Old Revolving Credit
Facility) as amended, which provided for a credit facility of $375.0 million. Effective February
4, 2010, we replaced the Old Revolving Credit Facility that was due to expire October 17, 2010 with
an amended and restated $550.0 million revolving credit facility (the 2010 Revolving Credit
Facility). The 2010 Revolving Credit Facility expires in February 2013. It
permits us to increase our borrowing to $650.0 million if additional lenders are identified and/or
existing lenders are willing to increase their current commitments. We may allocate up to $175.0
million of the borrowing capacity under the 2010 Revolving Credit Facility to letters of credit,
which amount compares to $125.0 million under the Old Revolving Credit Facility. The 2010
Revolving Credit Facility is guaranteed by certain of our direct and indirect subsidiaries and is
secured by substantially all of our assets and most of the assets of most of our subsidiaries. The
2010 Revolving Credit Facility contains various covenants requiring, among other things,
maintenance of certain financial ratios and certain restrictions with respect to payment of
dividends, common stock repurchases, investments, acquisitions, indebtedness and capital
expenditures. A commitment fee is payable on the average daily unused amount of the 2010 Revolving
Credit Facility. The fee is 0.5% of the unused amount, based on certain financial tests.
Borrowings under the 2010 Revolving Credit Facility bear interest at (1) a rate which is the prime
commercial lending rate announced by Bank of Montreal from time to time (3.25% at September 30,
2010) plus 1.75% to 2.25%, based on certain financial tests or (2) United States dollar LIBOR
(0.26% at September 30, 2010) plus 2.75% to 3.25%, based on certain financial tests. The interest
rate in effect at September 30, 2010 was 3.01%. Letter of credit fees issued under this facility
range from 2.75% to 3.25% of the respective face amounts of the letters of credit issued and are
charged based on certain financial tests. We capitalized approximately $6.0 million of debt
issuance costs associated with the 2010 Revolving Credit Facility. This amount is being amortized
over the life of the facility and is included as part of interest expense. In connection with the
termination of the Old Revolving Credit Facility, less than $0.1 million attributable to the
acceleration of expense for debt issuance costs was recorded as part of interest expense. As of
September 30, 2010 and December 31, 2009, we had approximately $77.5 million and $68.9 million of
letters of credit outstanding, respectively. There were no borrowings under the Old Revolving
Credit Facility as of December 31, 2009. We have borrowings of $150.0 million outstanding under
the 2010 Revolving Credit Facility at September 30, 2010, which may remain outstanding at our
discretion until the 2010 Revolving Credit Facility expires. On September 19, 2007, we entered
into an agreement providing for a $300.0 million term loan (Term Loan). The proceeds of the Term
Loan were used to pay a portion of the consideration for an acquisition and costs and expenses
incident thereto. In connection with the closing of the 2010 Revolving Credit Facility, we
proceeded to borrow $150.0 million under this facility and used the proceeds along with cash on
hand to prepay on February 4, 2010 all indebtedness outstanding under the Term Loan. In connection
with this prepayment, $0.6 million attributable to the acceleration of expense for debt issuance
costs associated with the Term Loan was recorded as part of interest expense.
NOTE I Derivative Instrument and Hedging Activity
On January 27, 2009, we entered into an interest rate swap agreement (the Swap Agreement),
which hedges the interest rate risk on our variable rate debt. The Swap Agreement, which has a
notional amount of $192.5 million, is used to manage the variable interest rate of our borrowings
and related overall cost of borrowing. We mitigate the risk of counterparty nonperformance by
choosing as our counterparty a major reputable financial institution with an investment grade
credit rating.
The derivative is recognized as either an asset or liability on our Condensed Consolidated
Balance Sheets with measurement at fair value, and changes in the fair value of the derivative
instrument reported in either net income, included as part of interest expense, or other
comprehensive income depending on the designated use of the derivative
and whether or not it meets the criteria for hedge accounting. The fair value of this instrument
reflects the net amount required to settle the position. The accounting for gains and losses
associated with changes in fair value of the derivative and the related effects on the condensed
consolidated financial statements is subject to their hedge designation and whether they meet
effectiveness standards.
12
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE I Derivative Instrument and Hedging Activity (continued)
The Swap Agreement matures in October 2010. We pay a fixed rate of 2.225% and receive a
floating rate of 30 day LIBOR on the notional amount. A portion of the interest rate swap has been
designated as an effective cash flow hedge, whereby changes in the cash flows from the swap
perfectly offset the changes in the cash flows associated with the floating rate of interest (see
Note H, Debt). The fair value of the interest rate swap at September 30, 2010 was a
net liability of $0.1 million. This liability reflects the interest rate swaps termination value
as the credit value adjustment for counterparty nonperformance is immaterial. We have no
obligation to post any collateral related to this derivative. The fair value of the interest rate
swap is based upon the valuation technique known as the market standard methodology of netting the
discounted future fixed cash flows and the discounted expected variable cash flows. The variable
cash flows are based on an expectation of future interest rates (forward curves) derived from
observable interest rate curves. In addition, we have incorporated a credit valuation adjustment
into our calculation of fair value of the interest rate swap. This adjustment recognizes both our
nonperformance risk and the counterpartys nonperformance risk. The net liability was
included in Other accrued expenses and liabilities on our Condensed Consolidated Balance Sheet.
Accumulated other comprehensive loss at September 30, 2010 included the accumulated loss, net of
income taxes, on the cash flow hedge, of $0.04 million. For the three and nine months ended
September 30, 2010, we recognized $0.02 million and $0.2 million, respectively, of income
associated with the ineffective portion of the interest rate swap as part of interest expense.
We have an agreement with our derivative counterparty that contains a provision that if we
default on certain of our indebtedness, we could also be declared in default on our derivative
obligation.
NOTE J Fair Value Measurements
We use a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy, which gives the highest priority to quoted prices in active
markets, is comprised of the following three levels:
Level 1 Unadjusted quoted market prices in active markets for identical assets and
liabilities.
Level 2 Observable inputs, other than Level 1 inputs. Level 2 inputs would typically include
quoted prices in markets that are not active or financial instruments for which all significant
inputs are observable, either directly or indirectly.
Level 3 Prices or valuations that require inputs that are both significant to the measurement and
unobservable.
We measure the fair value of our derivative instrument on a recurring basis. At September 30,
2010, the $0.1 million fair value of the interest rate swap was determined using Level 2 inputs.
We believe that the carrying values of our financial instruments, which include accounts
receivable and other financing commitments, approximate their fair values due primarily to their
short-term maturities and low risk of counterparty default. The carrying value of our borrowings
under the 2010 Revolving Credit Facility approximates the fair value due to the variable rate on
such debt.
At September 30, 2010 and December 31, 2009, we had certain assets, specifically $239.7
million and $60.6 million, respectively, of goodwill and/or indefinite lived intangible assets, which
were accounted for at fair market value on a non-recurring basis. We have determined that the fair
value measurements of these non-financial assets are Level 3 in the fair value hierarchy.
13
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE K Income Taxes
For the three months ended September 30, 2010 and 2009, our income tax (benefit) provision was $(2.4)
million and $25.6 million, respectively, based on effective income tax rates, before discrete items
and the tax effect of non-cash impairment charges, of 37.3% and 38.1%, respectively. The actual income
tax rates for the three months ended September 30, 2010 and 2009, inclusive of discrete items and
the tax effect of non-cash impairment charges, were (1.3)% and 39.1%, respectively. For the nine months
ended September 30, 2010 and 2009, our income tax provisions were $27.1 million and $81.1 million,
respectively, based on effective income tax rates, before discrete
items and the tax effect of
non-cash impairment charges, of 36.9% and 38.7%, respectively. The actual income tax rates for the nine
months ended September 30, 2010 and 2009, inclusive of discrete
items and the tax effect of
non-cash impairment charges, were 27.2% and 40.0%, respectively. The decrease in the 2010 income tax
provision for both periods was primarily due to reduced income before income taxes and a change in
the allocation of earnings among various jurisdictions. The 2010 effective income tax rates were
impacted by the non-cash impairment charge related to goodwill, as
substantially all of the charges are not separately deductible for tax purposes.
As of September 30, 2010 and December 31, 2009, the amount of unrecognized income tax benefits
for each period was $6.5 million and $7.5 million, respectively (of which $4.4 million and $5.4
million, if recognized, would favorably affect our effective income tax rate).
We recognized interest expense related to unrecognized income tax benefits in the income tax
provision. As of both September 30, 2010 and December 31, 2009, we had approximately $2.2 million
of accrued interest related to unrecognized income tax benefits included as a liability on the
Condensed Consolidated Balance Sheets. For the three months ended September 30, 2010 and 2009,
$0.2 million and $1.8 million of interest expense was reversed, respectively.
For the nine months ended September 30, 2010 and 2009, $0.1
million of interest expense was recognized and $1.5 million of interest expense
was reversed, respectively.
It is possible that approximately $4.6 million of unrecognized income tax benefits at
September 30, 2010, primarily relating to uncertain tax positions attributable to certain
intercompany transactions and compensation related accruals, will become recognized income tax
benefits in the next twelve months due to the expiration of applicable statutes of limitations.
We file income tax returns with the Internal Revenue Service and various state, local and
foreign jurisdictions. The Company is currently under examination by the State of Connecticut for
the years 2004 through 2007. The Internal Revenue Service has completed its audit of our federal
income tax returns for the years 2005 through 2007. We agreed to and paid an assessment proposed
by the Internal Revenue Service pursuant to such audit. We recorded a charge of approximately $2.0
million, inclusive of interest, as a result of this audit in the first quarter of 2009, which is
reflected in the results for the nine months ended September 30, 2009.
NOTE L Common Stock
As of September 30, 2010 and December 31, 2009, 66,439,796 and 66,187,344 shares of our common
stock were outstanding, respectively.
For the three months ended September 30, 2010 and 2009, 82,708 and 42,700 shares of common
stock, respectively, were issued upon the exercise of stock options. For the nine months ended
September 30, 2010 and 2009, 219,049 and 429,767 shares of common stock, respectively, were issued
upon the exercise of stock options, upon the satisfaction of required conditions under certain of
our share-based compensation plans and upon the grants of shares of common stock.
14
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE M Retirement Plans
Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible
employees (the UK Plan); however, no individual joining the company after October 31, 2001 may
participate in the plan. On May 31, 2010, we curtailed the future accrual of benefits for active
employees under this plan. As a result of this curtailment, we recognized a reduction of the
projected benefit obligation and recorded a curtailment gain of $6.4 million, which will be
amortized in the future through net periodic pension cost. This defined benefit pension plan was
replaced by a defined contribution plan. In addition, as a result of the curtailment and the
significant one-time contribution made to the plan discussed below, we have recomputed our 2010 net
periodic pension cost for the remainder of 2010.
The weighted-average assumptions used to determine benefit obligations as of May 31, 2010 and
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
May 31, 2010 |
|
|
December 31, 2009 |
|
Discount rate |
|
|
5.6 |
% |
|
|
5.7 |
% |
Annual rate of return on plan assets |
|
|
6.9 |
% |
|
|
7.1 |
% |
Components of Net Periodic Pension Benefit Cost
The components of net periodic pension benefit cost of the UK Plan for the three and nine
months ended September 30, 2010 and 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
825 |
|
|
$ |
1,445 |
|
|
$ |
2,331 |
|
Interest cost |
|
|
3,290 |
|
|
|
3,138 |
|
|
|
10,044 |
|
|
|
8,859 |
|
Expected return on plan assets |
|
|
(3,145 |
) |
|
|
(2,552 |
) |
|
|
(9,040 |
) |
|
|
(7,205 |
) |
Amortization of unrecognized loss |
|
|
375 |
|
|
|
1,109 |
|
|
|
2,518 |
|
|
|
3,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost |
|
$ |
520 |
|
|
$ |
2,520 |
|
|
$ |
4,967 |
|
|
$ |
7,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions
For the nine months ended September 30, 2010, our United Kingdom subsidiary contributed $31.4
million to its defined benefit pension plan, which included a one-time contribution of $25.9
million. It anticipates contributing an additional $1.4 million during the remainder of 2010.
15
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE N Segment Information
Our reportable segments reflect certain reclassifications of prior year amounts from our
United States mechanical construction and facilities services segment to our United States
facilities services segment due to changes in our internal reporting structure.
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; 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 and central plant heating and cooling); (c) United States facilities services; (d) Canada
construction; (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 (industrial maintenance and services; outage services to
utilities and industrial plants; commercial and government site-based operations and maintenance;
military base operations support services; mobile maintenance and services; facilities management;
installation and support for building systems; technical consulting and diagnostic services; small
modification and retrofit projects; retrofit projects to comply with clean air laws; and program
development, management and maintenance for energy systems), which services are not generally
related to customers construction programs, as well as industrial services operations, which
primarily provide aftermarket maintenance and repair services, replacement parts and fabrication
services for highly engineered shell and tube heat exchangers for refineries and the petrochemical
industry. The Canada construction segment performs electrical construction and mechanical
construction. The United Kingdom and Other international construction and facilities services
segments perform electrical construction, mechanical construction and facilities services. Our
Other international construction and facilities services segment, consisted of our equity
interest in a Middle East venture, which interest we sold on June 7, 2010. The following tables
present information about industry segments and geographic areas for the three and nine months
ended September 30, 2010 and 2009 (in thousands):
16
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE N Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Revenues from unrelated entities: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
301,183 |
|
|
$ |
309,820 |
|
United States mechanical construction and facilities services |
|
|
431,485 |
|
|
|
472,498 |
|
United States facilities services |
|
|
375,011 |
|
|
|
371,553 |
|
|
|
|
|
|
|
|
Total United States operations |
|
|
1,107,679 |
|
|
|
1,153,871 |
|
Canada construction |
|
|
57,194 |
|
|
|
80,986 |
|
United Kingdom construction and facilities services |
|
|
112,404 |
|
|
|
137,128 |
|
Other international construction and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
1,277,277 |
|
|
$ |
1,371,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
304,436 |
|
|
$ |
312,226 |
|
United States mechanical construction and facilities services |
|
|
433,487 |
|
|
|
477,829 |
|
United States facilities services |
|
|
380,991 |
|
|
|
376,283 |
|
Less intersegment revenues |
|
|
(11,235 |
) |
|
|
(12,467 |
) |
|
|
|
|
|
|
|
Total United States operations |
|
|
1,107,679 |
|
|
|
1,153,871 |
|
Canada construction |
|
|
57,194 |
|
|
|
80,986 |
|
United Kingdom construction and facilities services |
|
|
112,404 |
|
|
|
137,128 |
|
Other international construction and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
1,277,277 |
|
|
$ |
1,371,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Revenues from unrelated entities: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
848,136 |
|
|
$ |
956,362 |
|
United States mechanical construction and facilities services |
|
|
1,271,237 |
|
|
|
1,495,711 |
|
United States facilities services |
|
|
1,097,303 |
|
|
|
1,132,391 |
|
|
|
|
|
|
|
|
Total United States operations |
|
|
3,216,676 |
|
|
|
3,584,464 |
|
Canada construction |
|
|
213,920 |
|
|
|
231,203 |
|
United Kingdom construction and facilities services |
|
|
334,542 |
|
|
|
373,624 |
|
Other international construction and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
3,765,138 |
|
|
$ |
4,189,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
854,918 |
|
|
$ |
962,487 |
|
United States mechanical construction and facilities services |
|
|
1,276,407 |
|
|
|
1,509,162 |
|
United States facilities services |
|
|
1,112,683 |
|
|
|
1,144,642 |
|
Less intersegment revenues |
|
|
(27,332 |
) |
|
|
(31,827 |
) |
|
|
|
|
|
|
|
Total United States operations |
|
|
3,216,676 |
|
|
|
3,584,464 |
|
Canada construction |
|
|
213,920 |
|
|
|
231,203 |
|
United Kingdom construction and facilities services |
|
|
334,542 |
|
|
|
373,624 |
|
Other international construction and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
3,765,138 |
|
|
$ |
4,189,291 |
|
|
|
|
|
|
|
|
17
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE N Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Operating (loss) income: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
25,435 |
|
|
$ |
26,266 |
|
United States mechanical construction and facilities services |
|
|
27,845 |
|
|
|
32,022 |
|
United States facilities services |
|
|
13,272 |
|
|
|
15,481 |
|
|
|
|
|
|
|
|
Total United States operations |
|
|
66,552 |
|
|
|
73,769 |
|
Canada construction |
|
|
(4,648 |
) |
|
|
4,537 |
|
United Kingdom construction and facilities services |
|
|
1,753 |
|
|
|
4,000 |
|
Other international construction and facilities services |
|
|
|
|
|
|
(40 |
) |
Corporate administration |
|
|
(10,179 |
) |
|
|
(14,916 |
) |
Restructuring expenses |
|
|
(1,715 |
) |
|
|
(90 |
) |
Impairment loss on goodwill and identifiable intangible assets |
|
|
(226,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
|
(174,389 |
) |
|
|
67,260 |
|
|
|
|
|
|
|
|
|
|
Other corporate items: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,179 |
) |
|
|
(1,947 |
) |
Interest income |
|
|
642 |
|
|
|
788 |
|
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
$ |
(176,926 |
) |
|
$ |
66,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Operating (loss) income: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
51,844 |
|
|
$ |
83,939 |
|
United States mechanical construction and facilities services |
|
|
76,796 |
|
|
|
84,361 |
|
United States facilities services |
|
|
46,993 |
|
|
|
61,618 |
|
|
|
|
|
|
|
|
Total United States operations |
|
|
175,633 |
|
|
|
229,918 |
|
Canada construction |
|
|
2,357 |
|
|
|
13,396 |
|
United Kingdom construction and facilities services |
|
|
11,121 |
|
|
|
9,744 |
|
Other international construction and facilities services |
|
|
(99 |
) |
|
|
(40 |
) |
Corporate administration |
|
|
(37,541 |
) |
|
|
(42,394 |
) |
Restructuring expenses |
|
|
(2,512 |
) |
|
|
(4,200 |
) |
Impairment loss on goodwill and identifiable intangible assets |
|
|
(246,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
|
(97,122 |
) |
|
|
206,424 |
|
|
|
|
|
|
|
|
|
|
Other corporate items: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(9,355 |
) |
|
|
(5,640 |
) |
Interest income |
|
|
2,054 |
|
|
|
3,416 |
|
Gain on sale of equity investment |
|
|
7,900 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
$ |
(96,523 |
) |
|
$ |
204,200 |
|
|
|
|
|
|
|
|
18
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE N Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Total assets: |
|
|
|
|
|
|
|
|
United States electrical construction and facilities services |
|
$ |
302,398 |
|
|
$ |
294,403 |
|
United States mechanical construction and facilities services |
|
|
580,275 |
|
|
|
618,621 |
|
United States facilities services |
|
|
789,468 |
|
|
|
1,017,550 |
|
|
|
|
|
|
|
|
Total United States operations |
|
|
1,672,141 |
|
|
|
1,930,574 |
|
Canada construction |
|
|
107,107 |
|
|
|
114,717 |
|
United Kingdom construction and facilities services |
|
|
185,541 |
|
|
|
224,816 |
|
Other international construction and facilities services |
|
|
|
|
|
|
|
|
Corporate administration |
|
|
662,715 |
|
|
|
711,787 |
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
2,627,504 |
|
|
$ |
2,981,894 |
|
|
|
|
|
|
|
|
NOTE O Subsequent Events
On October 8, 2010, we acquired a company for an immaterial amount.
This company primarily performs government infrastructure contracting services and will be
included in our United States facilities services reporting segment. The purchase price of this
acquisition is subject to finalization based on certain contingencies provided for in the purchase
agreement.
19
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We are one of the largest electrical and mechanical 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 75
operating subsidiaries and joint venture entities. Our offices are located in the United States,
Canada and the United Kingdom. In the Middle East, we previously carried on business through a
venture, which we sold on June 7, 2010.
Overview
The following table presents selected financial data for the three months ended September 30,
2010 and 2009 (in thousands, except percentages and per share data):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Revenues |
|
$ |
1,277,277 |
|
|
$ |
1,371,985 |
|
Revenues decrease from prior year |
|
|
(6.9 |
)% |
|
|
(20.2 |
)% |
Impairment
loss on goodwill and identifiable intangible assets |
|
$ |
226,152 |
|
|
$ |
|
|
Operating (loss) income |
|
$ |
(174,389 |
) |
|
$ |
67,260 |
|
Operating (loss) income as a percentage of revenues |
|
|
(13.7 |
)% |
|
|
4.9 |
% |
Net (loss) income attributable to EMCOR Group, Inc. |
|
$ |
(175,625 |
) |
|
$ |
39,986 |
|
Diluted (loss) earnings per common share |
|
$ |
(2.64 |
) |
|
$ |
0.59 |
|
The results of our operations for the third quarter of 2010 reflect the continued uncertainty
in the economy, in particular the private nonresidential building and refinery markets. Due to
this continued uncertainty during our normal forecast cycle and based upon the results of our
operations, we have tempered our expectations in our financial models regarding the strength of a near
term recovery in our United States facilities services segment resulting in the recording of a
non-cash impairment charge of $226.2 million. This non-cash impairment charge was comprised of
$210.6 million for goodwill and $15.6 million for certain of our trade names. In addition, we also
experienced overall lower revenues and operating results compared to the year ago quarter. The
decrease in revenues for the 2010 third quarter, when compared to the prior years third quarter,
was primarily attributable to: (a) a decline in work performed on domestic industrial, commercial
and hospitality construction projects, generally as a result of the economic slowdown, and our
decision to only accept work that we believe can be performed at reasonable margins, (b) a decline
in revenues from our international operations and (c) a decline in organic revenues arising from
our United States facilities services segment due to the economic slowdown. During the third
quarter of 2010, a company we acquired earlier this year, which is reported in our United States
facilities services segment, contributed $12.9 million to revenues and $0.4 million to operating
income (net of $0.2 million of amortization expense attributable to identifiable intangible assets
included in cost of sales and selling, general and administrative expenses). The decrease in
operating income and operating margin (operating income as a percentage of revenues) was primarily
a result of: (a) the non-cash impairment charge discussed above, (b) an operating loss from a
significant project write-down at our Canadian operations and (c) lower operating income of our
United States mechanical construction and facilities services segment. This decrease in operating
income was partially offset by reduced selling, general and administrative expenses primarily as
result of lower incentive compensation accruals. During the first nine months of 2010, cash was used in
operating activities (as compared to the first nine months of 2009 during which cash was provided
by operating activities) primarily due to lower operating results and changes in our working
capital, including a reduction in accruals for payroll and benefits resulting from the payment of
incentive compensation and a one-time contribution of $25.9 million to the United Kingdom defined
benefit pension plan.
We completed one acquisition during the first nine months of 2010 for an immaterial amount.
The results of the acquired company, which provides mobile mechanical services, have been included
in our United States facilities services segment; the acquired company expands our service
capabilities into a new geographical area. The acquisition is not material to our results of
operations for the periods presented.
20
Operating Segments
Our reportable segments reflect certain reclassifications of prior year amounts from our
United States mechanical construction and facilities services segment to our United States
facilities services segment due to changes in our internal reporting structure.
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; 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 and central plant heating and cooling); (c) United States facilities services; (d) Canada
construction; (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 (industrial maintenance and services; outage services to
utilities and industrial plants; commercial and government site-based operations and maintenance;
military base operations support services; mobile maintenance and services; facilities management;
installation and support for building systems; technical consulting and diagnostic services; small
modification and retrofit projects; retrofit projects to comply with clean air laws; and program
development, management and maintenance for energy systems), which services are not generally
related to customers construction programs, as well as industrial services operations, which
primarily provide aftermarket maintenance and repair services, replacement parts and fabrication
services for highly engineered shell and tube heat exchangers for refineries and the petrochemical
industry. The Canada construction segment performs electrical construction and mechanical
construction. The United Kingdom and Other international construction and facilities services
segments perform electrical construction, mechanical construction and facilities services. Our
Other international construction and facilities services segment consisted of our equity interest
in a Middle East venture, which interest we sold on June 7, 2010.
Results of Operations
Revenues
The following tables present our operating segment revenues from unrelated entities and their
respective percentages of total revenues (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total |
|
|
2009 |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States electrical
construction and facilities
services |
|
$ |
301,183 |
|
|
|
24 |
% |
|
$ |
309,820 |
|
|
|
23 |
% |
United States mechanical
construction and facilities
services |
|
|
431,485 |
|
|
|
34 |
% |
|
|
472,498 |
|
|
|
34 |
% |
United States facilities services |
|
|
375,011 |
|
|
|
29 |
% |
|
|
371,553 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States operations |
|
|
1,107,679 |
|
|
|
87 |
% |
|
|
1,153,871 |
|
|
|
84 |
% |
Canada construction |
|
|
57,194 |
|
|
|
4 |
% |
|
|
80,986 |
|
|
|
6 |
% |
United Kingdom construction and
facilities services |
|
|
112,404 |
|
|
|
9 |
% |
|
|
137,128 |
|
|
|
10 |
% |
Other international construction
and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
1,277,277 |
|
|
|
100 |
% |
|
$ |
1,371,985 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total |
|
|
2009 |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States electrical
construction and facilities
services |
|
$ |
848,136 |
|
|
|
23 |
% |
|
$ |
956,362 |
|
|
|
23 |
% |
United States mechanical
construction and facilities
services |
|
|
1,271,237 |
|
|
|
34 |
% |
|
|
1,495,711 |
|
|
|
36 |
% |
United States facilities services |
|
|
1,097,303 |
|
|
|
29 |
% |
|
|
1,132,391 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States operations |
|
|
3,216,676 |
|
|
|
85 |
% |
|
|
3,584,464 |
|
|
|
86 |
% |
Canada construction |
|
|
213,920 |
|
|
|
6 |
% |
|
|
231,203 |
|
|
|
6 |
% |
United Kingdom construction and
facilities services |
|
|
334,542 |
|
|
|
9 |
% |
|
|
373,624 |
|
|
|
9 |
% |
Other international construction
and facilities services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
$ |
3,765,138 |
|
|
|
100 |
% |
|
$ |
4,189,291 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described below in more detail, our revenues for the three months ended September 30, 2010
decreased to $1.3 billion compared to $1.4 billion of revenues for the three months ended September
30, 2009, and our revenues for the nine months ended September 30, 2010 decreased to $3.8 billion
compared to $4.2 billion for the nine months ended September 30, 2009. This decrease in revenues
for both periods, excluding the effect of acquisitions, extended across all of our business
segments and was primarily attributable to: (a) lower levels of work in both our United States
electrical construction and facilities services segment and our United States mechanical
construction and facilities services segment, most notably with respect to industrial, commercial
and hospitality construction projects, (b) lower revenues from our international operations and (c)
lower revenues of our United States facilities services segment, particularly within our industrial
services business. This decrease in revenues was partially offset by revenues for the three and
nine months ended September 30, 2010 of $12.9 million and $32.7 million, respectively, attributable
to companies acquired in 2010 and 2009, which are reported in our United States facilities services
segment.
Our backlog at September 30, 2010 was $3.14 billion compared to $3.39 billion of backlog at
September 30, 2009. Our backlog was $3.15 billion at December 31, 2009. Backlog decreases as we
perform work on existing contracts and increases with awards of new contracts. The decreases in
our United States electrical construction and facilities services segment backlog and our United
States mechanical construction and facilities services segment backlog at September 30, 2010,
compared to such backlog at September 30, 2009, were primarily due to a decline in awards in the
commercial, healthcare, water/wastewater, industrial, hospitality, transportation and institutional
construction markets. The decreases were partially offset by increases in backlog at our United States facilities services segment and our international segments.
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 the next 12 months
of revenues.
Revenues of our United States electrical construction and facilities services segment for the
three months ended September 30, 2010 decreased by $8.6 million compared to revenues for the three
months ended September 30, 2009. Revenues of this segment for the nine months ended September 30,
2010 decreased by $108.2 million compared to the nine months ended September 30, 2009. The
decrease in revenues for both periods was primarily attributable to lower levels of work on
industrial construction projects, most notably in the Northern California and Pacific Northwest
markets, and on commercial and transportation construction projects. Additionally, the decrease in
revenues for the nine months ended September 30, 2010, compared to the nine months ended September
30, 2009, was partially attributable to a decline in work on hospitality construction projects,
principally in the Las Vegas market. These decreases are a result of the current economic
environment and our decision to only accept work that we believe can be performed at reasonable
margins. The decrease in revenues for both periods was partially offset by an increase in revenues
from water/wastewater, healthcare and institutional construction projects.
22
Revenues of our United States mechanical construction and facilities services segment for the
three months ended September 30, 2010 were $431.5 million, a $41.0 million decrease compared to
revenues of $472.5 million for the three months ended September 30, 2009. Revenues of this segment
for the nine months ended September 30, 2010 were $1,271.2 million, a $224.5 million decrease
compared to revenues of $1,495.7 million for the nine months ended September 30, 2009. The
decrease in revenues for both periods was primarily attributable to reduced work on industrial,
commercial, hospitality, water/wastewater and healthcare construction projects as a result of the
current economic environment and our decision to only accept work that we believe can be performed
at reasonable margins. In addition, the decrease in revenues for the three months ended September
30, 2010, compared to the three months ended September 30, 2009, was partially attributable to a
decrease in revenues from institutional construction projects. However, the decrease in revenues
for the nine months ended September 30, 2010, compared to the same period in 2009, was partially
offset by an increase in revenues from work performed on institutional construction projects.
Our United States facilities services segment revenues were $375.0 million and $1,097.3
million for the three and nine months ended September 30, 2010, respectively, compared to revenues
of $371.6 million and $1,132.4 million for the three and nine months ended September 30, 2009,
respectively. The increase in revenues for the three months ended September 30, 2010, compared to
the three months ended September 30, 2009, was primarily attributable to revenues of $12.9 million
from a company acquired in 2010, which performs mobile mechanical services, and from an increase in
revenues at our site-based government facilities services business, partially offset by a decrease
in revenues from our industrial services business and the organic operations within our mobile
mechanical services. The decrease in revenues for the nine months ended September 30, 2010,
compared to the nine months ended September 30, 2009, was primarily attributable to a decline in
revenues from: (a) our industrial services business which has been adversely affected by a lower
demand for our refinery and petrochemical services as a result of capital project curtailments and deferred maintenance and (b) the organic operations within our mobile
mechanical services business, primarily as a result of fewer discretionary projects attributable to
economic conditions. This decrease in revenues for the nine months ended September 30, 2010 was
partially offset by revenues of $32.7 million from companies acquired in 2010 and 2009, which
perform mobile mechanical services, and from an increase in revenues at our site-based government
facilities services business.
Our Canada construction segment revenues were $57.2 million for the three months ended
September 30, 2010 compared to revenues of $81.0 million for the three months ended September 30,
2009. Revenues were $213.9 million for the nine months ended September 30, 2010 compared to
revenues of $231.2 million for the nine months ended September 30, 2009. The decrease in revenues
of $23.8 million and $17.3 million for the three and nine months ended September 30, 2010,
respectively, was attributable to a decrease in revenues from energy and commercial
construction projects due to the continued effect of the economic slowdown. These decreases were
partially offset by the effect of favorable exchange rates for the Canadian dollar versus the
United States dollar. The decrease in revenues for the three months ended September 30, 2010
was also attributable to a decrease in revenues from industrial
construction projects, while the decrease in revenues for the nine
months ended September 30, 2010 was partially offset by an increase
in revenues from industrial construction projects.
Our United Kingdom construction and facilities services segment revenues for the three months
ended September 30, 2010 decreased by $24.7 million compared to revenues for the three months ended
September 30, 2009. This segments revenues for the nine months ended September 30, 2010 decreased
by $39.1 million compared to revenues for the nine months ended September 30, 2009. The decline in
revenues for both periods was attributable to a decrease in revenues from institutional
construction projects, partially offset by an increase in revenues from commercial construction
projects. In addition, the decline in revenues for the three months ended September 30, 2010 was
attributable to a decline in revenues from the facilities services business. The decrease in
revenues for the three and nine months ended September 30, 2010 was also attributable to decreases
of $6.5 million and $2.5 million, respectively, relating to the effect of unfavorable exchange
rates for the British pound versus the United States dollar.
Other international construction and facilities services activities consisted of a venture in
the Middle East. The results of the venture were accounted for under the equity method. On June 7,
2010, we sold our equity interest in a Middle East venture to our partner in the venture. As a
result of this sale, we received $7.9 million and recognized a pretax gain in this amount, which is
classified as a Gain on sale of equity investment on the Condensed Consolidated Statements of
Operations.
23
Cost of sales and Gross profit
The following tables present our cost of sales, gross profit (revenues less cost of sales) and
gross profit margin (gross profit as a percentage of revenues) (in thousands, except for
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost of sales |
|
$ |
1,104,349 |
|
|
$ |
1,166,740 |
|
|
$ |
3,250,695 |
|
|
$ |
3,576,003 |
|
Gross profit |
|
$ |
172,928 |
|
|
$ |
205,245 |
|
|
$ |
514,443 |
|
|
$ |
613,288 |
|
Gross profit, as a
percentage of
revenues |
|
|
13.5 |
% |
|
|
15.0 |
% |
|
|
13.7 |
% |
|
|
14.6 |
% |
Our gross profit decreased by $32.3 million for the three months ended September 30, 2010
compared to the three months ended September 30, 2009. Gross profit decreased by $98.8 million for
the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The
decrease in gross profit for both periods was primarily attributable to reduced organic volume across all
of our business segments and lower margins at our Canada construction segment, United States
electrical construction and facilities services segment and our industrial services business within
our United States facilities services segment. The decrease in gross profit for the three and nine
months ended September 30, 2010 was also attributable to a decrease of $0.6 million relating to the
effect of unfavorable exchange rates for the British pound versus the United States dollar. The
overall decrease in gross profit for the three and nine months ended September 30, 2010 was
partially offset by: (a) the favorable resolution of uncertainties on certain construction projects
at or nearing completion in the United States mechanical construction and facilities services segment, (b) improved gross
profit from our commercial and government site-based operations within our United States facilities
services segment, (c) companies acquired in 2010 and 2009 within our United States facilities
services segment, which contributed $1.3 million and $4.2 million to gross profit, net of
amortization expense of $0.1 million and $0.4 million, respectively, and (d) an increase of $0.2
million and $3.0 million, respectively, relating to the effect of favorable exchange rates for the
Canadian dollar versus the United States dollar. In addition, the
decrease in gross profit for the three months ended
September 30, 2010 was partially offset by the favorable
resolution of uncertainties on certain construction projects at or
nearing completion in the United States electrical construction and
facilities services segment, while the decrease in gross profit for the
nine months ended September 30, 2010 was partially offset by: (a) an increase in gross profit
contributed by our energy services business within our United States facilities services segment,
primarily as a result of the recognition of a pretax gain of $4.5 million from the sale of our
interest in a venture, which gain is classified as a component of Cost of sales on the Condensed
Consolidated Statements of Operations and (b) gross profit attributable to the termination of a
contract within our United Kingdom construction and facilities services segment.
Our gross profit margin was 13.5% and 15.0% for the three months ended September 30, 2010 and
2009, respectively. Gross profit margin was 13.7% and 14.6% for the nine months ended September
30, 2010 and 2009, respectively. The decrease in gross profit margin for the three and nine months
ended September 30, 2010 was primarily the result of (a) lower gross profit margins at our Canadian
operations, (b) lower gross profit margins at our United States electrical construction and
facilities services segment as a result of lower margins on new work performed, (c) lower gross
profit margins at our industrial services business within our United States facilities services
segment and (d) an increase in institutional work which generally has lower margins than private
sector work. In addition, the first nine months of 2009 were more positively affected by the
favorable resolution of uncertainties on certain construction projects at or nearing completion in
our United States electrical construction and facilities services segment compared to the same
period in 2010. The decrease in gross profit margin for the nine months ended September 30, 2010
was partially offset by higher gross profit margins at our United States mechanical construction
and facilities services segment, primarily as a result of the favorable resolution of uncertainties
on certain industrial and hospitality construction projects at or nearing completion.
24
Selling, general and administrative expenses
The following tables present 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 |
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Selling, general and administrative expenses |
|
$ |
119,450 |
|
|
$ |
137,895 |
|
|
$ |
362,972 |
|
|
$ |
402,664 |
|
Selling, general and administrative
expenses, as a percentage of revenues |
|
|
9.4 |
% |
|
|
10.1 |
% |
|
|
9.6 |
% |
|
|
9.6 |
% |
Our selling, general and administrative expenses for the three months ended September 30, 2010
decreased by $18.4 million to $119.5 million compared to $137.9 million for the three months ended
September 30, 2009 period. Selling, general and administrative expenses for the nine months ended
September 30, 2010 decreased by $39.7 million to $363.0 million compared to $402.7 million for the
nine months ended September 30, 2009. Selling, general and administrative expenses as a percentage
of revenues were 9.4% and 9.6% for the three and nine months ended September 30, 2010, compared to
10.1% and 9.6% for the three and nine months ended September 30, 2009, respectively. This decrease
in selling, general and administrative expenses for both periods was primarily due to: (a) reduced
employee costs, such as salaries, commissions and incentive compensation accruals, primarily as a
result of the downsizing of staff at numerous locations in 2009, and lower forecasted operating
results compared to the same periods in 2009 and (b) a reduction in our provision for doubtful
accounts. The decreases for both periods were partially offset by a $0.3 million and $2.3 million
increase due to the effect of exchange rates for the Canadian dollar versus the United States
dollar, respectively. In addition, the decreases in selling, general and administrative expenses
for the three and nine months ended September 30, 2010 were partially offset by $0.9 million and
$2.7 million of expenses directly related to companies acquired in 2010 and 2009, including
amortization expense of $0.1 million and $0.2 million, respectively. Selling, general and
administrative expenses as a percentage of revenues decreased for the three months ended September
30, 2010 compared to the same period in 2009, primarily due to lower selling, general and administrative expenses.
Restructuring expenses
Restructuring expenses were $1.7 million and $2.5 million, respectively, for both the three
and nine months ended September 30, 2010, which primarily related to employee severance obligations
reported in our Canadian operations and our United States electrical construction and facilities
services segment, compared to $0.1 million and $4.2 million for the three and nine months ended
September 30, 2009, respectively, which primarily related to employee severance obligations
reported in our international operations, our United States mechanical construction and facilities
services segment and our United States facilities services segment. As of September 30, 2010, the
balance of our severance obligations yet to be paid was $1.0 million, the majority of which is
expected to be paid in 2010, with the remainder to be paid in 2011.
Impairment loss on goodwill and identifiable intangible assets
During the third quarter of 2010 and prior to our October 1 annual impairment test, we
concluded that impairment indicators existed within the United States
facilities services segment based upon the year to date results and recent forecasts. As a result
of that conclusion, we performed the applicable tests as prescribed by the accounting literature
and recognized a $226.2 million non-cash impairment charge. Of this amount, $210.6 million relates
to goodwill and $15.6 million relates to trade names. The impairment primarily results from both
lower forecasted revenues from and operating margins at our United States facilities services segment, which
has been adversely affected by industry conditions, primarily within the oil and petrochemical markets. Additionally, during the second quarter of 2010,
we recorded an additional $19.9 million non-cash impairment
charge related to trade names, resulting in a $246.1 million non-cash impairment charge for the nine months ended September 30, 2010.
These
impairments did not have any impact on our compliance with our debt covenants or on our cash flows.
25
Operating (loss) income
The following tables present our operating (loss) income and operating (loss) income as a
percentage of segment revenues from unrelated entities (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Segment |
|
|
|
2010 |
|
|
Revenues |
|
|
2009 |
|
|
Revenues |
|
Operating (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States electrical
construction and facilities
services |
|
$ |
25,435 |
|
|
|
8.4 |
% |
|
$ |
26,266 |
|
|
|
8.5 |
% |
United States mechanical
construction and facilities
services |
|
|
27,845 |
|
|
|
6.5 |
% |
|
|
32,022 |
|
|
|
6.8 |
% |
United States facilities services |
|
|
13,272 |
|
|
|
3.5 |
% |
|
|
15,481 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States operations |
|
|
66,552 |
|
|
|
6.0 |
% |
|
|
73,769 |
|
|
|
6.4 |
% |
Canada construction |
|
|
(4,648 |
) |
|
|
(8.1 |
)% |
|
|
4,537 |
|
|
|
5.6 |
% |
United Kingdom construction and
facilities services |
|
|
1,753 |
|
|
|
1.6 |
% |
|
|
4,000 |
|
|
|
2.9 |
% |
Other international construction
and facilities services |
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
Corporate administration |
|
|
(10,179 |
) |
|
|
|
|
|
|
(14,916 |
) |
|
|
|
|
Restructuring expenses |
|
|
(1,715 |
) |
|
|
|
|
|
|
(90 |
) |
|
|
|
|
Impairment loss on goodwill and
identifiable intangible assets |
|
|
(226,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
|
(174,389 |
) |
|
|
(13.7 |
)% |
|
|
67,260 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other corporate items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,179 |
) |
|
|
|
|
|
|
(1,947 |
) |
|
|
|
|
Interest income |
|
|
642 |
|
|
|
|
|
|
|
788 |
|
|
|
|
|
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
$ |
(176,926 |
) |
|
|
|
|
|
$ |
66,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Segment |
|
|
|
2010 |
|
|
Revenues |
|
|
2009 |
|
|
Revenues |
|
Operating (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States electrical
construction and facilities
services |
|
$ |
51,844 |
|
|
|
6.1 |
% |
|
$ |
83,939 |
|
|
|
8.8 |
% |
United States mechanical
construction and facilities
services |
|
|
76,796 |
|
|
|
6.0 |
% |
|
|
84,361 |
|
|
|
5.6 |
% |
United States facilities services |
|
|
46,993 |
|
|
|
4.3 |
% |
|
|
61,618 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States operations |
|
|
175,633 |
|
|
|
5.5 |
% |
|
|
229,918 |
|
|
|
6.4 |
% |
Canada construction |
|
|
2,357 |
|
|
|
1.1 |
% |
|
|
13,396 |
|
|
|
5.8 |
% |
United Kingdom construction and
facilities services |
|
|
11,121 |
|
|
|
3.3 |
% |
|
|
9,744 |
|
|
|
2.6 |
% |
Other international construction
and facilities services |
|
|
(99 |
) |
|
|
|
|
|
|
(40 |
) |
|
|
|
|
Corporate administration |
|
|
(37,541 |
) |
|
|
|
|
|
|
(42,394 |
) |
|
|
|
|
Restructuring expenses |
|
|
(2,512 |
) |
|
|
|
|
|
|
(4,200 |
) |
|
|
|
|
Impairment loss on goodwill and
identifiable intangible assets |
|
|
(246,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total worldwide operations |
|
|
(97,122 |
) |
|
|
(2.6 |
)% |
|
|
206,424 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other corporate items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(9,355 |
) |
|
|
|
|
|
|
(5,640 |
) |
|
|
|
|
Interest income |
|
|
2,054 |
|
|
|
|
|
|
|
3,416 |
|
|
|
|
|
Gain on sale of equity investment |
|
|
7,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
$ |
(96,523 |
) |
|
|
|
|
|
$ |
204,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
As described below in more detail, we experienced an operating loss of $174.4 million for the
three months ended September 30, 2010 compared to operating income of $67.3 million for the three
months ended September 30, 2009. Our operating loss was $97.1 million for the nine months ended
September 30, 2010 compared to operating income of $206.4 million for the nine months ended
September 30, 2009. Operating margin was (13.7)% for the three months ended September 30, 2010
compared to 4.9% for the three months ended September 30, 2009, and was (2.6)% for the nine months
ended September 30, 2010 compared to 4.9% for the nine months ended September 30, 2009. The
degradation in operating margin for both periods was in large part due to: (a) non-cash impairment
charges related to the write-down of goodwill and certain of our trade names associated with
certain prior year acquisitions reported within our United States facilities services segment and
(b) lower margins at our Canada construction segment. Additionally, the degradation in the
operating margin for the nine months ended September 30, 2010 was due to our United States
electrical construction and facilities services segment.
Our United States electrical construction and facilities services segment operating income for
the three months ended September 30, 2010 decreased by $0.8 million compared to operating income
for the three months ended September 30, 2009, and operating income for the nine months ended
September 30, 2010 decreased by $32.1 million compared to operating income for the nine months
ended September 30, 2009. The decreases in operating income for both periods were primarily the
result of lower gross profit from commercial and industrial construction projects, as a result of
the current economic slowdown and our selectivity in bidding on contracts. The decrease in
operating income for the nine months ended September 30, 2010 was partially offset by an increase
in the gross profit from healthcare construction projects. In addition, the results for the three
months ended September 30, 2010 and the nine months ended
September 30, 2009 included the favorable resolution of uncertainties on certain
construction projects at or nearing completion. Selling, general and administrative expenses also decreased for the three and nine
months ended September 30, 2010, compared to the same periods in 2009, principally due to reduced
employee costs, such as salaries, incentive compensation and employee benefits, primarily as a
result of the downsizing of staff at numerous locations and lower forecasted operating results
compared to the same period in 2009. The decrease in operating margin for the three and nine months
ended September 30, 2010 was primarily the result of a reduction in gross profit margin and an
increase in the ratio of selling, general and administrative expenses to revenues.
Our United States mechanical construction and facilities services segment operating income for
the three months ended September 30, 2010 was $27.8 million, a $4.2 million decrease compared to
operating income of $32.0 million for the three months ended September 30, 2009. Operating income
for the nine months ended September 30, 2010 was $76.8 million, a $7.6 million decrease compared to
operating income of $84.4 million for the nine months ended September 30, 2009. Operating income
decreased during the three and nine months ended September 30, 2010, compared to the same periods
in 2009, primarily due to lower gross profit from industrial, commercial, water/wastewater and
healthcare construction projects, as a result of the current economic slowdown and our selectivity
in bidding on contracts. In addition, the decrease in operating income was also attributable to
lower gross profit from institutional construction projects for the three months ended September
30, 2010, compared to the same period in 2009, and from hospitality construction projects for the
nine months ended September 30, 2010, compared to the same period in 2009. Operating income for the
three and nine months ended September 30, 2010 benefited from the favorable resolution of uncertainties on
certain construction projects at or nearing completion. The decrease in operating
income for the nine months ended September 30, 2010, compared to the same period in 2009, was
partially offset by an increase in the gross profit from institutional construction projects.
Selling, general and administrative expenses also decreased for the three and nine months ended
September 30, 2010, compared to the same periods in 2009, principally due to reduced employee
costs, such as salaries and incentive compensation, primarily as a result of the downsizing of
staff at numerous locations in 2009 and lower forecasted operating results compared to the same
period in 2009, and a reduction in the provision for doubtful accounts. The decrease in operating
margin for the three months ended September 30, 2010 was primarily the result of a reduction in
gross profit margin. The increase in operating margin for the nine months ended September 30, 2010
was primarily the result of increased gross profit margin.
27
Our United States facilities services segment operating income for the three months ended
September 30, 2010, excluding the non-cash impairments, was $13.3 million compared to operating
income of $15.5 million for the three months ended September 30, 2009. This segments operating
income for the nine months ended September 30, 2010 was $47.0 million compared to operating income
of $61.6 million for the nine months ended September 30, 2009. The decrease in operating income
for both periods was primarily due to lower operating income from: (a) our industrial services
business which has been adversely affected by a lower demand for our refinery and petrochemical
services as a result of capital project curtailments and deferred maintenance and lower gross
profit margins and (b) our organic mobile mechanical services business as a result of fewer
discretionary projects due to the continued effects of the economic slowdown and lower gross profit
margins, primarily as a result of lower margins on recently acquired projects. The decrease in
operating income for the three months ended September 30, 2010 was also due to project write-downs
at our organic mobile mechanical services business. The decrease in operating income during the
three and nine months ended September 30, 2010 was partially offset by operating income from
companies acquired in 2010 and 2009, which perform mobile mechanical services and contributed $0.4
million and $1.5 million of operating income, net of amortization expense of $0.2 million and $0.6
million, respectively, and improved results from our commercial and government site-based
operations. In addition, these decreases were partially offset by an increase in operating income
for the nine months ended September 30, 2010, compared to the same period in 2009, from our energy
services business, primarily as a result of the recognition of a pretax gain of $4.5 million from
the sale of our interest in a venture, which gain is classified as a component of Cost of sales
on the Condensed Consolidated Statements of Operations. Selling, general and administrative
expenses for the three months ended September 30, 2010, when compared to the same period in 2009,
were relatively flat. Selling, general and administrative expenses decreased for the nine months
ended September 30, 2010, compared to the same period in 2009, due to reduced employee costs, such
as salaries, commissions and incentive compensation accruals, primarily as a result of the
downsizing of staff at numerous locations in 2009 and a reduction in our provision for doubtful
accounts. These decreases were partially offset by $0.9 million and $2.7 million of selling,
general and administrative expenses associated with companies acquired in 2010 and 2009 for the
three and nine months ended September 30, 2010, including amortization expense of $0.1 million and
$0.2 million, respectively. The decrease in operating margin for the three and nine months ended
September 30, 2010 was primarily the result of a reduction in gross profit margin.
Our Canada construction segment operating loss was $4.6 million for the three months ended
September 30, 2010 compared to operating income of $4.5 million for the three months ended
September 30, 2009. Operating income was $2.4 million for the nine months ended September 30, 2010
compared to operating income of $13.4 million for the nine months ended September 30, 2009. This
decrease in operating income for both periods was primarily attributable to: (a) a significant
project write-down on a construction project and (b) a decrease in gross profit from
energy and industrial construction projects. The decrease in operating income for both periods was
partially offset by an increase in gross profit from healthcare construction projects and an
increase of $0.8 million for the nine months ended September 30, 2010 relating to the effect of
favorable exchange rates for the Canadian dollar versus the United States dollar.
The decrease in operating margin for both periods ended September 30, 2010 was primarily the result of a reduction
in gross profit margin and an increase in the ratio of selling, general and administrative expense
to revenues.
Our United Kingdom construction and facilities services segment operating income for the three
months ended September 30, 2010 decreased by $2.2 million compared to operating income for the
three months ended September 30, 2009. The decrease in operating income for the three months ended
September 30, 2010, compared to the same period in 2009, was primarily attributable to project
write-downs within the construction business, partially offset by a decrease in the net periodic pension costs and other selling, general
and administrative expenses. Operating income for the nine months ended September 30, 2010
increased by $1.4 million compared to operating income for the nine months ended September 30,
2009. This increase in operating income for the nine months ended September 30, 2010, compared to
the same period in 2009, was primarily attributable to the gross profit associated with the
termination of a contract and a decrease in selling, general and administrative expenses, partially
offset by a decrease of $0.5 million relating to the effect of unfavorable exchange rates for the
British pound versus the United States dollar. The decrease in operating margin for the three months ended September 30, 2010 was primarily the result of a reduction in gross profit margin.
The increase in operating margin for the nine
months ended September 30, 2010 was primarily the result of increased gross profit margin.
The Other international construction and facilities services segment had an operating loss for
the nine months ended September 30, 2010 of $0.1 million. This segment had an operating loss of
$0.04 million for the three and nine months ended September 30, 2009, respectively. On June 7,
2010, we sold our equity interest in a Middle East venture to our partner in the venture. As a
result of the sale, we received $7.9 million and recognized a pretax gain in this amount, which is
classified as a Gain on sale of equity investments on the Condensed Consolidated Statements of
Operations.
28
Our corporate administration expenses for the three months ended September 30, 2010 were $10.2
million compared to $14.9 million for the three months ended September 30, 2009. Our corporate
administration expenses for the nine months ended September 30, 2010 were $37.5 million compared to
$42.4 million for the nine months ended September 30, 2009. This decrease in expenses for both
periods was primarily attributable to a decrease in incentive compensation accruals,
marketing and advertising expenses and professional fees. The decrease for the nine months
ended September 30, 2010, compared to the same period in 2009, was partially offset by an increase
in share-based compensation expense associated with grants of options and shares to non-employee
directors.
Interest expense for the three months ended September 30, 2010 and 2009 was $3.2 million and
$1.9 million, respectively. Interest expense for the nine months ended September 30, 2010 and
2009 was $9.4 million and $5.6 million, respectively. The increase in interest expense for both
periods was due to the higher cost of borrowing under our new revolving credit facility. In
addition, the increase in interest expense for the nine months ended September 30, 2010 was
attributable to the acceleration of expense for debt issuance costs associated with the termination
of a term loan and a revolving credit facility. Interest income for the three months ended
September 30, 2010 was $0.6 million compared to $0.8 million for the three months ended September
30, 2009. Interest income for the nine months ended September 30, 2010 was $2.1 million compared
to $3.4 million for the nine months ended September 30, 2009. The decrease in interest income for
both periods was primarily related to lower interest rates on our invested cash balances.
For the three months ended September 30, 2010 and 2009, our income tax (benefit) provision was $(2.4)
million and $25.6 million, respectively, based on effective income tax rates, before discrete items
and the tax effect of non-cash impairment charges, of 37.3% and 38.1%, respectively. The actual income
tax rates for the three months ended September 30, 2010 and 2009, inclusive of discrete items and
the tax effect of non-cash impairment charges, were (1.3)% and 39.1%, respectively. For the nine months
ended September 30, 2010 and 2009, our income tax provisions were $27.1 million and $81.1 million,
respectively, based on effective income tax rates, before discrete items and the tax effect of
non-cash impairment charges, of 36.9% and 38.7%, respectively. The actual income tax rates for the nine
months ended September 30, 2010 and 2009, inclusive of discrete items and the tax effect of
non-cash impairment charges, were 27.2% and 40.0%, respectively. The decrease in the 2010 income tax
provision for both periods was primarily due to reduced income before income taxes and a change in
the allocation of earnings among various jurisdictions. The 2010 effective income tax rates were
impacted by the non-cash impairment charge related to goodwill, as
substantially all of the charges are not separately deductible for tax purposes.
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 nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Net cash (used in) provided by operating activities |
|
$ |
(30,623 |
) |
|
$ |
272,195 |
|
Net cash provided by (used in) investing activities |
|
$ |
602 |
|
|
$ |
(40,204 |
) |
Net cash used in financing activities |
|
$ |
(49,624 |
) |
|
$ |
(371 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
$ |
(6,219 |
) |
|
$ |
10,742 |
|
Our consolidated cash balance decreased by approximately $85.9 million from $727.0 million at
December 31, 2009 to $641.1 million at September 30, 2010. Net cash used in operating activities
for the nine months ended September 30, 2010 of $30.6 million, compared to $272.2 million in net
cash provided by operating activities for the nine months ended September 30, 2009, was primarily
due to lower operating results, a reduction in accruals for payroll and benefits resulting from of
the payment of incentive compensation and changes in our working capital, including a one-time
contribution of $25.9 million to the United Kingdom defined benefit pension plan. Net cash provided
by investing activities of $0.6 million for the nine months ended September 30, 2010, compared to
$40.2 million used in the nine months ended September 30, 2009, was primarily due to $25.6 million
of proceeds from the sale of equity investments, a $7.9 million decrease in investments in and
advances to unconsolidated entities and joint ventures, a $3.3 million decrease in amounts paid for
the purchase of property, plant and equipment, and a $6.0 million decrease in payments pursuant to
earn-out agreements, offset by a $2.0 million increase in payments for acquisitions of businesses.
Net cash used in financing activities for the nine months ended September 30, 2010 of $49.6
million, compared to $0.4 million used for the nine months ended September 30, 2009, was primarily
attributable to repayment of our term loan and debt issuance costs, partially offset by borrowings under our new credit
facility. The non-cash impairment charges did not have any impact on our compliance with our debt covenants or on our cash flows.
29
The following is a summary of material contractual obligations and other commercial
commitments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
than |
|
|
1-3 |
|
|
4-5 |
|
|
After |
|
Obligations |
|
Total |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
(including interest at 3.01%)
(1) |
|
$ |
160.6 |
|
|
$ |
4.5 |
|
|
$ |
156.1 |
|
|
$ |
|
|
|
$ |
|
|
Capital lease obligations |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
184.7 |
|
|
|
51.2 |
|
|
|
68.3 |
|
|
|
38.9 |
|
|
|
26.3 |
|
Open purchase obligations (2) |
|
|
648.7 |
|
|
|
480.3 |
|
|
|
154.2 |
|
|
|
14.2 |
|
|
|
|
|
Other long-term obligations (3) |
|
|
201.6 |
|
|
|
27.6 |
|
|
|
162.9 |
|
|
|
11.1 |
|
|
|
|
|
Liabilities related to
uncertain income tax positions |
|
|
8.7 |
|
|
|
6.6 |
|
|
|
1.1 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
1,204.6 |
|
|
$ |
570.4 |
|
|
$ |
542.7 |
|
|
$ |
64.7 |
|
|
$ |
26.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration by Period |
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
|
Other Commercial |
|
Total |
|
|
than |
|
|
1-3 |
|
|
4-5 |
|
|
After |
|
Commitments |
|
Committed |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
77.7 |
|
|
$ |
1.4 |
|
|
$ |
76.3 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We classify these borrowings as long-term on our Condensed Consolidated Balance Sheets
because of our intent to repay the amounts on a long-term basis. These amounts are
outstanding at our discretion and are not payable until the 2010 Revolving Credit Facility
expires in February 2013. As of September 30, 2010, there were borrowings of $150.0 million
outstanding under the 2010 Revolving Credit Facility. |
|
(2) |
|
Represents open purchase orders for material and subcontracting costs related to construction
and service contracts. These purchase orders are not reflected in EMCORs Condensed
Consolidated Balance Sheets and should not impact future cash flows, as amounts are expected
to be recovered through customer billings. |
|
(3) |
|
Represents primarily insurance related liabilities and liabilities for deferred income taxes
and incentive compensation, classified as other long-term liabilities in the Condensed
Consolidated Balance Sheets. Cash payments for insurance related liabilities may be payable
beyond three years, but it is not practical to estimate these payments. We provide funding to
our defined benefit pension plans based on at least the minimum funding required by applicable regulations.
In determining the minimum required funding, we utilize current actuarial assumptions and
exchange rates to forecast estimates of amounts that may be payable for up to five years in
the future. In our judgment, minimum funding estimates beyond a five year time horizon cannot
be reliably estimated, and therefore, have not been included in the table. |
Until February 4, 2010, we had a revolving credit agreement (the Old Revolving Credit
Facility) as amended, which provided for a credit facility of $375.0 million. Effective February
4, 2010, we replaced the Old Revolving Credit Facility that was due to expire October 17, 2010 with
an amended and restated $550.0 million revolving credit facility (the 2010 Revolving Credit
Facility). The 2010 Revolving Credit Facility expires in February 2013. It permits us to
increase our borrowing to $650.0 million if additional lenders are identified and/or existing
lenders are willing to increase their current commitments. We may allocate up to $175.0 million of
the borrowing capacity under the 2010 Revolving Credit Facility to letters of credit, which amount
compares to $125.0 million under the Old Revolving Credit Facility. The 2010 Revolving Credit
Facility is guaranteed by certain of our direct and indirect subsidiaries and is secured by
substantially all of our assets and most of the assets of most of our subsidiaries. The 2010
Revolving Credit Facility contains various covenants requiring, among other things, maintenance of
certain financial ratios and certain restrictions with respect to payment of dividends, common
stock repurchases, investments, acquisitions, indebtedness and capital expenditures. A commitment
fee is payable on the average daily unused amount of the 2010 Revolving Credit Facility. The fee
is 0.5% of the unused amount, based on certain financial tests. Borrowings under the 2010
Revolving Credit Facility bear interest at (1) a rate which is the prime commercial lending rate
announced by Bank of Montreal from time to time (3.25% at September 30, 2010) plus 1.75% to 2.25%,
based on certain financial tests or (2) United States dollar LIBOR (0.26% at September 30, 2010)
plus 2.75% to 3.25%, based on certain financial tests. The interest rate in effect at September
30, 2010 was 3.01%. Letter of credit fees issued under this facility range from 2.75% to 3.25% of
the respective face amounts of the letters of credit issued and are charged based on certain
financial tests. In connection with the termination of the Old Revolving Credit Facility, less
than $0.1 million attributable to the acceleration of expense for debt issuance costs was recorded
as part of interest expense. As of September 30, 2010 and December 31, 2009, we had approximately
$77.5 million and $68.9 million of letters of credit outstanding, respectively. There were no
borrowings under the Old Revolving Credit Facility as of December 31, 2009. We have borrowings of
$150.0 million outstanding under the 2010 Revolving Credit Facility at September 30, 2010, which
may remain outstanding at our discretion until the 2010 Revolving Credit Facility expires. On
September 19, 2007, we entered into an agreement providing for a $300.0 million term loan (Term
Loan). The proceeds of the Term Loan were used to pay a portion of the consideration for an
acquisition and costs and expenses incident thereto. In connection with the closing of the 2010
Revolving Credit Facility, we proceeded to borrow $150.0 million under this facility and used the
proceeds along with cash on hand to prepay on February 4, 2010 all indebtedness outstanding under
the Term Loan. In connection with this prepayment, $0.6 million attributable to the acceleration
of expense for debt issuance costs associated with the Term Loan was recorded as part of interest
expense.
30
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 September 30, 2010, based on our percentage-of-completion of our projects covered
by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our existing
contractual obligations, was approximately $1.2 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 the economy and the regulatory environment. Consequently, the availability
of Surety Bonds has become more limited and the terms upon which Surety Bonds are available have
become more restrictive. We continually monitor our available limits of Surety Bonds and discuss
with our current and other Surety Bond providers the amount of Surety Bonds that may be available
to us based on our financial strength and the absence of any default by us on any Surety Bond
issued on our behalf. However, 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 decide not 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 flows.
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 our 2010 Revolving Credit Facility that may be utilized,
among other things, to meet short-term liquidity needs in the event cash generated by operating
activities is insufficient or to enable us to seize opportunities to participate in joint ventures
or to make acquisitions that may require access to cash on short notice or for any other reason.
However, negative macroeconomic trends may have an adverse effect 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 a part of our 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 past economic downturns, 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 greater amounts of working capital. 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 Costs and estimated earnings in
excess of billings on uncompleted contracts, were $385.4 million and $436.2 million as of
September 30, 2010 and December 31, 2009, respectively.
31
Long-term liquidity requirements can be expected to be met initially through cash generated
from operating activities and our 2010 Revolving Credit Facility. Based upon our current credit
ratings and financial position, we can reasonably expect to be able to incur long-term debt to fund
acquisitions. Over the long term, our primary revenue risk factor continues to be the level of
demand for non-residential construction services, which is influenced by macroeconomic trends
including interest rates and governmental economic policy. In addition, our ability to perform work
is critical to meeting long-term liquidity requirements.
We believe that our current cash balances and our borrowing capacity available under the 2010
Revolving Credit Facility or other forms of financing available to us through borrowings, combined
with cash expected to be generated from operations, will be sufficient to provide our short-term
and foreseeable long-term liquidity and meet our 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 $60.0 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 September 30, 2010 and December 31, 2009, we utilized approximately $77.5 million and
$66.5 million, respectively, of letters of credit obtained under our 2010 Revolving Credit Facility
as collateral for our insurance obligations.
New Accounting Pronouncements
We review new accounting standards to determine the expected financial impact, if any, that
the adoption of such standards will have. As of the filing of this Quarterly Report on Form 10-Q,
there were no new accounting standards that were projected to have a material impact on our
consolidated financial position, results of operations or liquidity. Refer to Part I, Item 1,
Financial Statements Notes to Condensed Consolidated Financial Statements Note B, New
Accounting Pronouncements, for further information regarding new accounting standards.
Application of Critical Accounting Policies
Our 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, 2009. We adopted one new accounting pronouncement
during the nine months ended September 30, 2010 (see Note B, New Accounting Pronouncements, for
further information). 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 the impact
of changes in the 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) goodwill and identifiable 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 Standard Codification (ASC) Topic 605-35, Revenue Recognition Construction-Type and Production-Type
Contracts, and, accordingly, is the method used for revenue recognition within our industry.
Percentage-of-completion is measured principally by the percentage of costs incurred to date for
each contract to the estimated total costs for such contract at completion. Certain of our
electrical contracting business units and our Canadian subsidiary measure percentage-of-completion
by the percentage of labor costs incurred to date for each contract to the estimated total labor
costs for 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 Condensed Consolidated Balance Sheets. Costs and estimated earnings in
excess of billings on uncompleted contracts reflected in the Condensed 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.
32
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 (claims and
unapproved change orders). Such amounts are recorded at estimated net realizable value and take
into account factors that may affect our ability to bill unbilled revenues and collect amounts
after billing. The profit associated with claim amounts is not recognized until the claim has been
settled and payment has been received. 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 condensed consolidated financial statements. In addition to revenue
recognition for long-term construction contracts, we recognize revenues from the performance of
facilities services for maintenance, repair and retrofit work consistent with the performance of
services, which are generally on a pro-rata basis over the life of the contractual arrangement.
Expenses related to all services arrangements are recognized as incurred. Revenues related to the
engineering, manufacturing and repairing of shell and tube heat exchangers are recognized when the
product is shipped and all other revenue recognition criteria have been met. Costs related to this
work are included in inventory until the product is shipped. These costs include all direct
material, labor and subcontracting costs and indirect costs related to performance such as
supplies, tools and repairs.
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 doubtful accounts during
the nine months ended September 30, 2010 decreased $5.9 million compared to the nine months ended
September 30, 2009. At September 30, 2010 and December 31, 2009, our accounts receivable of
$1,053.4 million and $1,057.2 million, respectively, included allowances for doubtful accounts of
$28.6 million and $36.2 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 for doubtful accounts 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, automobile 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 for the majority 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 our 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 had net deferred income tax assets at September 30, 2010 of $0.1 million and net deferred
income tax liabilities of $6.8 million at December 31, 2009, primarily resulting from differences
between the carrying value and income tax basis of certain depreciable fixed assets and
identifiable intangible assets, which will impact 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 income
tax asset will not be realized. As of September 30, 2010 and December 31, 2009, the total valuation
allowance on gross deferred income tax assets was approximately $1.0 million and $4.0 million,
respectively.
33
Goodwill and Identifiable Intangible Assets
As of September 30, 2010, we had $388.7 million and $224.0 million, respectively, of goodwill
and net identifiable intangible assets (primarily consisting of our contract backlog, developed
technology, customer relationships, non-competition agreements and trade names), primarily arising
out of the acquisition of companies. As of December 31, 2009, goodwill and net identifiable
intangible assets were $593.6 million and $264.5 million, respectively. The changes to goodwill
and net identifiable intangible assets (net of accumulated amortization) since December 31, 2009
were related to: (a) a non-cash impairment charge related to goodwill and trade names associated
with certain prior year acquisitions, (b) the acquisition of a company during the first quarter of
2010 and (c) earn-outs paid and accrued related to previous acquisitions. 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. ASC Topic 350, IntangiblesGoodwill and Other (ASC 350) requires goodwill
and other identifiable intangible assets with indefinite useful lives not be amortized, but instead
must be tested at least annually for impairment (which we test each October 1, absent any
impairment indicators), and be written down if impaired. ASC 350 requires that goodwill be
allocated to its respective reporting unit and that identifiable intangible assets with finite
lives be amortized over their useful lives.
During the third quarter of 2010 and prior to our October 1 annual impairment test, we
concluded that impairment indicators existed within the United States
facilities services segment based upon the year to date results and recent forecasts. As a result
of that conclusion, we performed a step one test as prescribed under ASC 350 for that particular reporting unit which concluded
that impairment indicators
existed within that reporting unit due to significant declines in year to date revenues and
operating margins which caused us to revise our expectations for the strength of a near term
recovery in our financial models for businesses within that reporting unit. Specifically, we
reduced our net sales growth rates and operating margins within our discounted cash flow model, as well as our terminal
value growth rates. In addition, we estimated a higher participant risk adjusted weighted average
cost of capital. Therefore, the required second step of the assessment for the reporting
unit was performed in which the implied fair value of that reporting units goodwill was compared
to the book value of that goodwill. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination, that is, the estimated fair
value of the reporting unit is allocated to all of those assets and liabilities of that unit
(including both recognized and unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination and the estimated fair value of the reporting unit was the
purchase price paid. If the carrying amount of the reporting units goodwill is greater than the
implied fair value of that reporting units goodwill, an impairment loss is recognized in the
amount of the excess and is charged to operations. We determined the fair value of the reporting
unit using discounted estimated future cash flows. The weighted average cost of capital used in
testing for impairment was 12.5% with a perpetual growth rate of 2.8%. As a result of our
impairment assessment, we recognized a $210.6 million non-cash goodwill impairment charge for the
three and nine months ended September 30, 2010. No impairment of our goodwill was recognized for
the year ended December 31, 2009.
We also test for the impairment of trade names that are not subject to amortization by
calculating the fair value using the relief from royalty payments methodology. This approach
involves two steps: (a) estimating reasonable royalty rates for each trade name and (b) applying
these royalty rates to a net revenue stream and discounting the resulting cash flows to determine
fair value. This fair value is then compared with the carrying value of each trade name. If the
carrying amount of the trade name is greater than the implied fair value of the trade name, an
impairment in the amount of the excess is recognized and charged to operations. The annual
impairment review of our trade names for the year ended December 31, 2009 resulted in a $11.5
million non-cash impairment charge as a result of a change in the fair value of trade names
associated with certain prior year acquisitions reported in our United States facilities services
segment and our United States mechanical construction and facilities services segment. As a result
of the continued assessment of the fair value of trade names previously impaired and the interim
impairment testing performed during the third quarter of 2010, we recorded an additional $15.6
million non-cash impairment charge of trade names associated with certain prior year acquisitions
for the three months ended September 30, 2010. Additionally, during the second quarter of 2010, we
recorded an additional $19.9 million non-cash impairment charge associated with the fair value of
various trade names. These trade names are reported within our United States facilities services
segment. The current year impairment primarily results from both lower forecasted revenues from and operating margins at
our United States facilities services segment, which has been adversely affected by industry
conditions, primarily within the oil and petrochemical markets.
34
In addition, we review for the impairment of other identifiable intangible assets that are
being amortized whenever facts and circumstances indicate that their carrying values may not be
fully recoverable. This test compares their carrying values to the undiscounted pre-tax cash flows
expected to result from the use of the assets. If the assets are impaired, the assets are written
down to their fair values, generally determined based on their future discounted cash flows. The
annual impairment review of our other identifiable intangible assets for the year ended December
31, 2009 resulted in a $2.0 million non-cash impairment charge as a result of a change in the fair
value of customer relationships associated with certain prior year acquisitions reported in our
United States mechanical construction and facilities services segment. For the nine months ended
September 30, 2010, no impairment of our other identifiable intangible assets was recognized.
As of September 30, 2010, we had $388.7 million of goodwill on our balance sheet and, of this
amount, approximately 53.9% relates to our United States facilities services segment, approximately
45.1% relates to our United States mechanical construction and facilities services segment and
approximately 1.0% relates to our United States electrical construction and facilities services
segment. No events have occurred that would more likely than not reduce the fair value of our
United States electrical construction and facilities services and United States mechanical
construction and facilities services reporting segments below their carrying amount. As such, no
indicators of impairment exist in these reporting units.
Our development of the present value of future cash flow projections used in impairment
testing is based upon assumptions and estimates by management derived from a review of our
operating results, business plans, anticipated growth rates and margins and weighted average cost
of capital, among others. Much of the information used in assessing
fair value is outside the
control of management, and these assumptions and estimates can change in future periods. There can
be no assurances that our estimates and assumptions made for purposes of our goodwill and
identifiable intangible asset impairment testing will prove to be accurate predictions of the
future. If our assumptions regarding business plans or anticipated growth rates and/or margins are
not achieved, we may be required to record further goodwill and/or identifiable intangible asset
impairment charges in future periods.
During the nine months ended September 30, 2010, we recognized a $246.1 million non-cash impairment charge
as discussed above. Of this amount, $210.6 million relates to goodwill and $35.5 million relates to trade names. It is not possible at this time to
determine if any such future impairment charge would result or, if it does, whether such a charge
would be material.
35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have not used any derivative financial instruments, except as discussed below, during the
nine months ended September 30, 2010, including trading or speculating on changes in commodity
prices of materials used in our business.
We are exposed to market risk for changes in interest rates for borrowings under the 2010
Revolving Credit Facility and interest rate swap. Borrowings under the 2010 Revolving Credit
Facility bear interest at variable rates. As of September 30, 2010, there were borrowings of
$150.0 million outstanding under the 2010 Revolving Credit Facility. This instrument bears
interest at (1) a rate which is the prime commercial lending rate announced by Bank of Montreal
from time to time (3.25% at September 30, 2010) plus 1.75% to 2.25% based on certain financial
tests or (2) United States dollar LIBOR (0.26% at September 30, 2010) plus 2.75% to 3.25% based on
certain financial tests. The interest rate in effect at September 30, 2010 was 3.01%. Based on
the $150.0 million borrowings outstanding on the 2010 Revolving Credit Facility, if overall
interest rates were to increase by 50 basis points, the net of tax interest expense would increase
by approximately $0.5 million in the next twelve months. Conversely, if overall interest rates
were to decrease by 50 basis points, interest expense, net of income taxes, would decrease by
approximately $0.5 million in the next twelve months. Letter of credit fees issued under this
facility range from 2.75% to 3.25% of the respective face amounts of the letters of credit issued
and are charged based on certain financial tests. The 2010 Revolving Credit Facility expires in
February 2013. There is no guarantee that we will be able to renew the 2010 Revolving Credit
Facility at its expiration.
As of September 30, 2010, the fair value of our interest rate swap was a net liability of $0.1
million. Under the terms of the interest rate swap, we pay the counterparty a fixed rate of
interest of 2.225% and receive a variable rate of interest from the same counterparty.
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. Managements 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 equity, in our Condensed Consolidated
Balance Sheets. We believe the exposure to the effects that fluctuating foreign currencies may have
on our 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, which are used as components of supplies or materials 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 8,000 vehicles.
While we believe we can increase our prices to adjust for some price increases in commodities,
there can be no assurance that price increases of all commodities, if they were to occur, would be
recoverable.
36
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 Executive Vice President and 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 Companys 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 September 30, 2010 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION.
ITEM 5. OTHER INFORMATION.
A subsidiary of the Company occasionally performs maintenance work at mines covered by the
Federal Mine Safety and Health Act of 1977 (MSHA). On August 9, 2010, the subsidiary received
three citations claiming the occurrence of violations of mandatory health or safety standards that
could significantly and substantially contribute to the cause and effect of a coal or other mine
safety or health hazard under MSHA. All of such citations were related to an accident at a
customers mine that resulted in the death of one employee of such subsidiary during normal
maintenance activities conducted by the subsidiary at the customers mine. All of the alleged
violations were timely abated. No civil penalties have yet been proposed for assessment.
ITEM 6. EXHIBITS.
For the list of exhibits, see the Exhibit Index immediately following the signature page
hereof, which Exhibit Index is incorporated herein by reference.
37
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.
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Date: November 2, 2010 |
EMCOR GROUP, INC.
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(Registrant) |
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By: |
/s/ FRANK T. MacINNIS
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Frank T. MacInnis |
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Chairman of the Board of
Directors and
Chief Executive Officer
(Principal Executive Officer) |
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By: |
/s/ MARK A. POMPA
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Mark A. Pompa |
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Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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38
EXHIBIT INDEX
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Exhibit |
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Incorporated By Reference to or |
No. |
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Description |
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Page Number |
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2(a-1)
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Purchase Agreement dated as of February 11, 2002 by and
among Comfort Systems USA, Inc. and EMCOR-CSI Holding Co.
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Exhibit 2.1 to EMCOR Group, Inc.s (EMCOR) Report on Form
8-K dated February 14, 2002 |
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2(a-2)
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Purchase and Sale Agreement dated as of August 20, 2007
between FR X Ohmstede Holdings LLC and EMCOR Group, Inc.
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Exhibit 2.1 to EMCORs Report on Form 8-K (Date of Report
August 20, 2007) |
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3(a-1)
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Restated Certificate of Incorporation of EMCOR filed
December 15, 1994
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Exhibit 3(a-5) to EMCORs Registration Statement on Form 10
as originally filed March 17, 1995 (Form 10) |
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3(a-2)
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Amendment dated November 28, 1995 to the Restated
Certificate of Incorporation of EMCOR
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Exhibit 3(a-2) to EMCORs Annual Report on Form 10-K for the
year ended December 31, 1995 (1995 Form 10-K) |
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3(a-3)
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Amendment dated February 12, 1998 to the Restated
Certificate of Incorporation of EMCOR
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Exhibit 3(a-3) to EMCORs Annual Report on Form 10-K for the
year ended December 31, 1997 (1997 Form 10-K) |
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3(a-4)
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Amendment dated January 27, 2006 to the Restated
Certificate of Incorporation of EMCOR
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Exhibit 3(a-4) to EMCORs Annual Report on Form 10-K for the
year ended December 31, 2005 (2005 Form 10-K) |
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3(a-5)
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Amendment dated September 18, 2007 to the Restated
Certificate of Incorporation of EMCOR
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Exhibit A to EMCORs Proxy Statement dated August 17, 2007
for Special Meeting of Stockholders held September 18, 2007 |
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3(b)
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Amended and Restated By-Laws
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Exhibit 3(b) to EMCORs Annual Report on Form 10-K for the
year ended December 31, 1998 (1998 Form 10-K) |
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4(a)
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Second Amended and Restated Credit Agreement dated as of
February 4, 2010 by and among EMCOR Group, Inc. and
certain of its subsidiaries and Bank of Montreal,
individually and as Agent and the Lenders which are or
become parties thereto (the Credit Agreement)
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Exhibit 4.1(a) to EMCORs Report on Form 8-K (Date of Report
February 4, 2010) (February 2010 Form 8-K) |
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4(b)
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Third Amended and Restated Security Agreement dated as of
February 4, 2010 among EMCOR, certain of its U.S.
subsidiaries, and Bank of Montreal, as Agent
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Exhibit 4.1(b) to the February 2010 Form 8-K |
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4(c)
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Third Amended and Restated Pledge Agreement dated as of
February 4, 2010 among EMCOR, certain of its U.S.
subsidiaries, and Bank of Montreal, as Agent
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Exhibit 4.1(c) to the February 2010 Form 8-K |
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4(d)
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Second Amended and Restated Guaranty Agreement dated as
of February 4, 2010 by certain of EMCORs U.S.
subsidiaries in favor of Bank of Montreal, as Agent
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Exhibit 4.1(d) to the February 2010 Form 8-K |
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10(a)
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Severance Agreement between EMCOR and Frank T. MacInnis
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Exhibit 10.2 to EMCORs Report on Form 8-K (Date of Report
April 25, 2005) (April 2005 Form 8-K) |
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10(b)
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Form of Severance Agreement (Severance Agreement)
between EMCOR and each of Sheldon I. Cammaker, R. Kevin
Matz and Mark A. Pompa
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Exhibit 10.1 to the April 2005 Form 8-K |
39
EXHIBIT INDEX
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Exhibit |
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Incorporated By Reference to or |
No. |
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Description |
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Page Number |
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10(c)
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Form of Amendment to Severance Agreement between EMCOR
and each of Frank T. MacInnis, Sheldon I. Cammaker, R.
Kevin Matz and Mark A. Pompa
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Exhibit 10(c) to EMCORs Quarterly Report on Form 10-Q for
the quarter ended March 31, 2007 (March 2007 Form 10-Q) |
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10(d)
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Letter Agreement dated October 12, 2004 between Anthony
Guzzi and EMCOR (the Guzzi Letter Agreement)
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Exhibit 10.1 to EMCORs Report on Form 8-K (Date of Report
October 12, 2004) |
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10(e)
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Form of Confidentiality Agreement between Anthony Guzzi
and EMCOR
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Exhibit C to the Guzzi Letter Agreement |
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10(f)
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Form of Indemnification Agreement between EMCOR and each
of its officers and directors
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Exhibit F to the Guzzi Letter Agreement |
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10(g-1)
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Severance Agreement (Guzzi Severance Agreement) dated
October 25, 2004 between Anthony Guzzi and EMCOR
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Exhibit D to the Guzzi Letter Agreement |
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10(g-2)
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Amendment to Guzzi Severance Agreement
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Exhibit 10(g-2) to the March 2007 Form 10-Q |
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10(h-1)
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1994 Management Stock Option Plan (1994 Option Plan)
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Exhibit 10(o) to Form 10 |
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10(h-2)
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Amendment to Section 12 of the 1994 Option Plan
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Exhibit (g-2) to EMCORs Annual Report on Form 10-K for the
year ended December 31, 2000 (2000 Form 10-K) |
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10(h-3)
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Amendment to Section 13 of the 1994 Option Plan
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Exhibit (g-3) to 2000 Form 10-K |
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10(i-1)
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1995 Non-Employee Directors Non-Qualified Stock Option
Plan (1995 Option Plan)
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Exhibit 10(p) to Form 10 |
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10(i-2)
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Amendment to Section 10 of the 1995 Option Plan
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Exhibit (h-2) to 2000 Form 10-K |
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10(j-1)
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1997 Non-Employee Directors Non-Qualified Stock Option
Plan (1997 Option Plan)
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Exhibit 10(k) to 1998 Form 10-K |
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10(j-2)
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Amendment to Section 9 of the 1997 Option Plan
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Exhibit 10(i-2) to 2000 Form 10-K |
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10(l-1)
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Continuity Agreement dated as of June 22, 1998 between
Frank T. MacInnis and EMCOR (MacInnis Continuity
Agreement)
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Exhibit 10(a) to EMCORs Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (June 1998 Form 10-Q) |
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10(l-2)
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Amendment dated as of May 4, 1999 to MacInnis Continuity
Agreement
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Exhibit 10(h) to EMCORs Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 (June 1999 Form 10-Q) |
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10(l-3)
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Amendment dated as of March 1, 2007 to MacInnis
Continuity Agreement
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Exhibit 10(l-3) to the March 2007 Form 10-Q |
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10(m-1)
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Continuity Agreement dated as of June 22, 1998 between
Sheldon I. Cammaker and EMCOR (Cammaker Continuity
Agreement)
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Exhibit 10(c) to the June 1998 Form 10-Q |
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10(m-2)
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Amendment dated as of May 4, 1999 to Cammaker Continuity
Agreement
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Exhibit 10(i) to the June 1999 Form 10-Q |
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10(m-3)
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Amendment dated as of March 1, 2007 to Cammaker
Continuity Agreement
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Exhibit 10(m-3) to the March 2007 Form 10-Q |
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10(n-1)
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Continuity Agreement dated as of June 22, 1998 between R.
Kevin Matz and EMCOR (Matz Continuity Agreement)
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Exhibit 10(f) to the June 1998 Form 10-Q |
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10(n-2)
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Amendment dated as of May 4, 1999 to Matz Continuity
Agreement
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Exhibit 10(m) to the June 1999 Form 10-Q |
40
EXHIBIT INDEX
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Exhibit |
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Incorporated By Reference to or |
No. |
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Description |
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Page Number |
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10(n-3)
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Amendment dated as of January 1, 2002 to Matz Continuity
Agreement
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Exhibit 10(o-3) to EMCORs Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 (March 2002 Form 10-Q) |
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10(n-4)
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Amendment dated as of March 1, 2007 to Matz Continuity
Agreement
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Exhibit 10(n-4) to the March 2007 Form 10-Q |
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10(o-1)
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Continuity Agreement dated as of June 22, 1998 between
Mark A. Pompa and EMCOR (Pompa Continuity Agreement)
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Exhibit 10(g) to the June 1998 Form 10-Q |
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10(o-2)
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Amendment dated as of May 4, 1999 to Pompa Continuity
Agreement
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Exhibit 10(n) to the June 1999 Form 10-Q |
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10(o-3)
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Amendment dated as of January 1, 2002 to Pompa Continuity
Agreement
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Exhibit 10(p-3) to the March 2002 Form 10-Q |
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10(o-4)
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Amendment dated as of March 1, 2007 to Pompa Continuity
Agreement
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Exhibit 10(o-4) to the March 2007 Form 10-Q |
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10(p-1)
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|
Change of Control Agreement dated as of October 25, 2004
between Anthony Guzzi (Guzzi) and EMCOR (Guzzi
Continuity Agreement)
|
|
Exhibit E to the Guzzi Letter Agreement |
|
|
|
|
|
10(p-2)
|
|
Amendment dated as of March 1, 2007 to Guzzi Continuity
Agreement
|
|
Exhibit 10(p-2) to the March 2007 Form 10-Q |
|
|
|
|
|
10(q-1)
|
|
Amendment dated as of March 29, 2010 to Severance
Agreement with Sheldon I. Cammaker, Anthony J. Guzzi,
Frank T. MacInnis, R. Kevin Matz and Mark A. Pompa
|
|
Exhibit 10.1 to Form 8-K (Date of Report March 29, 2010) (March 2010 Form 8-K) |
|
|
|
|
|
10(q-2)
|
|
Amendment to Continuity Agreements and Severance
Agreements with Sheldon I. Cammaker, Anthony J. Guzzi,
Frank T. MacInnis, R. Kevin Matz and Mark A. Pompa
|
|
Exhibit 10(q) to EMCORs Annual Report on Form 10-K for the year ended December
31, 2008 (2008 Form 10-K) |
|
|
|
|
|
10(r)
|
|
Letter Agreement dated May 25, 2010 between EMCOR and
Frank T. MacInnis
|
|
Exhibit 10.1 to EMCORs Report on Form 8-K (Date of Report May 25, 2010) |
|
|
|
|
|
10(s-1)
|
|
Incentive Plan for Senior Executive Officers of EMCOR
Group, Inc. (Incentive Plan for Senior Executives)
|
|
Exhibit 10.3 to Form 8-K (Date of Report March 4, 2005) |
|
|
|
|
|
10(s-2)
|
|
First Amendment to Incentive Plan for Senior Executives
|
|
Exhibit 10(t) to 2005 Form 10-K |
|
|
|
|
|
10(s-3)
|
|
Amendment made February 27, 2008 to Incentive Plan for
Senior Executive Officers
|
|
Exhibit 10(r-3) to 2008 Form 10-K |
|
|
|
|
|
10(s-4)
|
|
Amendment made December 22, 2008 to Incentive Plan for
Senior Executive Officers
|
|
Exhibit 10(r-4) to 2008 Form 10-K |
|
|
|
|
|
10(s-5)
|
|
Amendment made December 15, 2009 to Incentive Plan for
Senior Executive Officers
|
|
Exhibit 10(r-5) to EMCORs Annual Report on Form 10-K for the year ended December
31, 2009 (2009 Form 10-K) |
|
|
|
|
|
10(s-6)
|
|
Suspension of Incentive Plan for Senior Executive Officers
|
|
Exhibit 10(r-5) to 2008 Form 10-K |
|
|
|
|
|
10(t-1)
|
|
EMCOR Group, Inc. Long-Term Incentive Plan (LTIP)
|
|
Exhibit 10 to Form 8-K (Date of Report December 15, 2005) |
|
|
|
|
|
10(t-2)
|
|
First Amendment to LTIP and updated Schedule A to LTIP
|
|
Exhibit 10(s-2) to 2008 Form 10-K |
|
|
|
|
|
10(t-3)
|
|
Second Amendment to LTIP
|
|
Exhibit 10.2 to March 2010 Form 8-K |
41
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
Incorporated By Reference to or |
No. |
|
Description |
|
Page Number |
|
|
|
|
|
10(t-4)
|
|
Form of Certificate Representing Stock Units issued under
LTIP
|
|
Exhibit 10(t-2) to EMCORs Annual Report on Form 10-K for the year ended December
31, 2007 (2007 Form 10-K) |
|
|
|
|
|
10(u-1)
|
|
2003 Non-Employee Directors Stock Option Plan
|
|
Exhibit A to EMCORs Proxy Statement for its Annual Meeting held on June 12, 2003
(2003 Proxy Statement) |
|
|
|
|
|
10(u-2)
|
|
First Amendment to 2003 Non-Employee Directors Plan
|
|
Exhibit 10(u-2) to EMCORs Annual Report on Form 10-K for the year ended December
31, 2006 (2006 Form 10-K) |
|
|
|
|
|
10(v-1)
|
|
2003 Management Stock Incentive Plan
|
|
Exhibit B to EMCORs 2003 Proxy Statement |
|
|
|
|
|
10(v-2)
|
|
Amendments to 2003 Management Stock Incentive Plan
|
|
Exhibit 10(t-2) to EMCORs Annual Report on Form 10-K for the year ended December
31, 2003 (2003 Form 10-K) |
|
|
|
|
|
10(v-3)
|
|
Second Amendment to 2003 Management Stock Incentive Plan
|
|
Exhibit 10(v-3) to 2006 Form 10-K |
|
|
|
|
|
10(w)
|
|
Form of Stock Option Agreement evidencing grant of stock
options under the 2003 Management Stock Incentive Plan
|
|
Exhibit 10.1 to Form 8-K (Date of
Report January 3, 2005) |
|
|
|
|
|
10(x)
|
|
Key Executive Incentive Bonus Plan
|
|
Exhibit B to EMCORs Proxy
Statement for its Annual Meeting
held June 18, 2008 (2008 Proxy
Statement) |
|
|
|
|
|
10(y)
|
|
2005 Management Stock Incentive Plan
|
|
Exhibit B to EMCORs Proxy
Statement for its Annual Meeting
held June 16, 2005 (2005 Proxy
Statement) |
|
|
|
|
|
10(z)
|
|
First Amendment to 2005 Management Stock Incentive Plan
|
|
Exhibit 10(z) to 2006 Form 10-K |
|
|
|
|
|
10(a)(a-1)
|
|
2005 Stock Plan for Directors
|
|
Exhibit C to 2005 Proxy Statement |
|
|
|
|
|
10(a)(a-2)
|
|
First Amendment to 2005 Stock Plan for Directors
|
|
Exhibit 10(a)(a-2) to 2006 Form 10-K |
|
|
|
|
|
10(a)(a-3)
|
|
Consents on December 15, 2009 to Transfer Stock Options
by Non-Employee Directors
|
|
Exhibit 10(z) to 2009 Form 10-K |
|
|
|
|
|
10(b)(b)
|
|
Option Agreement between EMCOR and Frank T. MacInnis
dated May 5, 1999
|
|
Exhibit 4.4 to 2004 Form S-8 (Date
of Report February 18, 2004) (2004
Form S-8) |
|
|
|
|
|
10(c)(c)
|
|
Form of EMCOR Option Agreement for Messrs. Frank T.
MacInnis, Sheldon I. Cammaker, R. Kevin Matz and Mark A.
Pompa (collectively the Executive Officers) for options
granted January 4, 1999, January 3, 2000 and January 2,
2001
|
|
Exhibit 4.5 to 2004 Form S-8 |
|
|
|
|
|
10(d)(d)
|
|
Form of EMCOR Option Agreement for Executive Officers
granted December 1, 2001
|
|
Exhibit 4.6 to 2004 Form S-8 |
|
|
|
|
|
10(e)(e)
|
|
Form of EMCOR Option Agreement for Executive Officers
granted January 2, 2002, January 2, 2003 and January 2,
2004
|
|
Exhibit 4.7 to 2004 Form S-8 |
|
|
|
|
|
10(f)(f)
|
|
Form of EMCOR Option Agreement for Directors granted June
19, 2002, October 25, 2002 and February 27, 2003
|
|
Exhibit 4.8 to 2004 Form S-8 |
42
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
Incorporated By Reference to or |
No. |
|
Description |
|
Page Number |
|
|
|
|
|
10(g)(g)
|
|
Option Agreement dated October 25, 2004 between Guzzi and
EMCOR
|
|
Exhibit A to Guzzi Letter |
|
|
|
|
|
10(h)(h-1)
|
|
2007 Incentive Plan
|
|
Exhibit B to EMCORs Proxy
Statement for its Annual Meeting
held June 20, 2007 |
|
|
|
|
|
10(h)(h-2)
|
|
Option Agreement dated December 13, 2007 under 2007
Incentive Plan between Jerry E. Ryan and EMCOR
|
|
Exhibit 10(h)(h-2) to 2007 Form 10-K |
|
|
|
|
|
10(h)(h-3)
|
|
Option Agreement dated December 15, 2008 under 2007
Incentive Plan between David Laidley and EMCOR
|
|
Exhibit 10.1 to Form 8-K (Date of
Report December 15, 2008) |
|
|
|
|
|
10(h)(h-4)
|
|
Form of Option Agreement under 2007 Incentive Plan
between EMCOR and each non-employee director electing to
receive options as part of annual retainer
|
|
Exhibit 10(h)(h-3) to 2007 Form 10-K |
|
|
|
|
|
10(i)(i-1)
|
|
2010 Incentive Plan
|
|
Exhibit B to EMCORs Proxy
Statement for its Annual Meeting
held on June 11, 2010 |
|
|
|
|
|
10(i)(i-2)
|
|
Form of Option Agreement under 2010 Incentive Plan
between EMCOR and each non-employee director with respect
to grant of options upon re-election at June 11, 2010
Annual Meeting of Stockholders
|
|
Exhibit 10(i)(i-2) to EMCORs
Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010 |
|
|
|
|
|
10(j)(j)
|
|
Form of letter agreement between EMCOR and each Executive
Officer with respect to acceleration of options granted
January 2, 2003 and January 2, 2004
|
|
Exhibit 10(b)(b) to 2004 Form 10-K |
|
|
|
|
|
10(k)(k)
|
|
EMCOR Group, Inc. Employee Stock Purchase Plan
|
|
Exhibit C to EMCORs Proxy
Statement for its Annual Meeting
held June 18, 2008 |
|
|
|
|
|
10(l)(l)
|
|
Certificate dated March 24, 2008 evidencing Phantom Stock
Unit Award to Frank T. MacInnis
|
|
Exhibit 10(j)(j-1) to EMCORs
Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008
(March 2008 Form 10-Q) |
|
|
|
|
|
10(l)(l-2)
|
|
Certificate dated March 24, 2008 evidencing Phantom Stock
Unit Award to Anthony J. Guzzi
|
|
Exhibit 10(j)(j-2) to the March
2008 Form 10-Q |
|
|
|
|
|
10(m)(m)
|
|
Certificate dated March 24, 2008 evidencing Stock Unit
Award to Frank T. MacInnis
|
|
Exhibit 10(k)(k) to the March 2008
Form 10-Q |
|
|
|
|
|
10(n)(n)
|
|
Form of Restricted Stock Award Agreement dated January 4,
2010 between EMCOR and each of Albert Fried, Jr., Richard
F. Hamm, Jr., David H. Laidley, Jerry E. Ryan and Michael
T. Yonker
|
|
Exhibit 10(l)(l) to 2009 Form 10-K |
|
|
|
|
|
11
|
|
Computation of Basic EPS and Diluted EPS for the three
and nine months ended September 30, 2010 and 2009
|
|
Note D of the Notes to the
Condensed Consolidated Financial
Statements |
|
|
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 by Frank T. MacInnis, the Chairman of
the Board of Directors and Chief Executive Officer *
|
|
Page
_____
|
|
|
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 by Mark A. Pompa, the Executive Vice
President and Chief Financial Officer *
|
|
Page
_____
|
43
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
Incorporated By Reference to or |
No. |
|
Description |
|
Page Number |
|
|
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chairman of the Board
of Directors and Chief Executive Officer **
|
|
Page
_____
|
|
|
|
|
|
32.2
|
|
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Executive Vice
President and Chief Financial Officer **
|
|
Page
_____
|
|
|
|
|
|
101
|
|
The following materials from EMCOR Group, Inc.s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010, formatted in XBRL (Extensible
Business Reporting Language): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed
Consolidated Statements of Operations, (iii) the
Condensed Consolidated Statements of Cash Flows, (iv) the
Condensed Consolidated Statements of Equity and
Comprehensive Income and (v) the Notes to Condensed
Consolidated Financial Statements, tagged as blocks of
text.***
|
|
Page _____
|
|
|
|
* |
|
Filed Herewith |
|
** |
|
Furnished Herewith |
|
*** |
|
Submitted Electronically Herewith |
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be
deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be part of any registration statement or other document
filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by
specific reference in such filing.
44