EME-2012.6.30-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
|
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to Commission file number 1-8267
|
|
EMCOR Group, Inc. (Exact Name of Registrant as Specified in Its Charter) |
|
| |
Delaware | 11-2125338 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
| |
301 Merritt Seven Norwalk, Connecticut | 06851-1092 |
(Address of Principal Executive Offices) | (Zip Code) |
(203) 849-7800
(Registrant’s Telephone Number, Including Area Code)
N/A
|
|
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant 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 x No ¨
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.
|
| | | |
Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on July 23, 2012: 66,552,264 shares.
EMCOR Group, Inc.
INDEX
|
| | |
| | Page No. |
| |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| |
Item 2. | | |
Item 4. | | |
Item 6. | | |
PART I. – FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
| | | | | | | |
| June 30, 2012 (Unaudited) | | December 31, 2011 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 434,272 |
| | $ | 511,322 |
|
Accounts receivable, net | 1,194,191 |
| | 1,187,832 |
|
Costs and estimated earnings in excess of billings on uncompleted contracts | 119,819 |
| | 114,836 |
|
Inventories | 46,085 |
| | 44,914 |
|
Prepaid expenses and other | 92,511 |
| | 77,749 |
|
Total current assets | 1,886,878 |
| | 1,936,653 |
|
Investments, notes and other long-term receivables | 4,500 |
| | 5,618 |
|
Property, plant and equipment, net | 113,750 |
| | 101,663 |
|
Goodwill | 567,709 |
| | 566,805 |
|
Identifiable intangible assets, net | 355,950 |
| | 370,373 |
|
Other assets | 31,942 |
| | 32,964 |
|
Total assets | $ | 2,960,729 |
| | $ | 3,014,076 |
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
| | | | | | | |
| June 30, 2012 (Unaudited) | | December 31, 2011 |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Borrowings under revolving credit facility | $ | — |
| | $ | — |
|
Current maturities of long-term debt and capital lease obligations | 1,542 |
| | 1,522 |
|
Accounts payable | 467,777 |
| | 477,801 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts | 380,651 |
| | 441,695 |
|
Accrued payroll and benefits | 183,820 |
| | 204,785 |
|
Other accrued expenses and liabilities | 196,107 |
| | 205,110 |
|
Total current liabilities | 1,229,897 |
| | 1,330,913 |
|
Borrowings under revolving credit facility | 150,000 |
| | 150,000 |
|
Long-term debt and capital lease obligations | 4,313 |
| | 3,335 |
|
Other long-term obligations | 288,107 |
| | 284,697 |
|
Total liabilities | 1,672,317 |
| | 1,768,945 |
|
Equity: | | | |
EMCOR Group, Inc. stockholders' equity: | | | |
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value, 200,000,000 shares authorized, 67,771,623 and 68,125,437 shares issued, respectively | 679 |
| | 681 |
|
Capital surplus | 407,072 |
| | 417,136 |
|
Accumulated other comprehensive loss | (77,644 | ) | | (78,649 | ) |
Retained earnings | 960,557 |
| | 910,042 |
|
Treasury stock, at cost 1,275,713 and 1,681,037 shares, respectively | (12,844 | ) | | (14,476 | ) |
Total EMCOR Group, Inc. stockholders’ equity | 1,277,820 |
| | 1,234,734 |
|
Noncontrolling interests | 10,592 |
| | 10,397 |
|
Total equity | 1,288,412 |
| | 1,245,131 |
|
Total liabilities and equity | $ | 2,960,729 |
| | $ | 3,014,076 |
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Revenues | $ | 1,590,035 |
| | $ | 1,348,013 |
| | $ | 3,128,556 |
| | $ | 2,613,256 |
|
Cost of sales | 1,396,071 |
| | 1,173,357 |
| | 2,753,899 |
| | 2,281,891 |
|
Gross profit | 193,964 |
| | 174,656 |
| | 374,657 |
| | 331,365 |
|
Selling, general and administrative expenses | 137,675 |
| | 124,473 |
| | 272,179 |
| | 238,384 |
|
Restructuring expenses | — |
| | 138 |
| | — |
| | 1,099 |
|
Operating income | 56,289 |
| | 50,045 |
| | 102,478 |
| | 91,882 |
|
Interest expense | (1,878 | ) | | (2,814 | ) | | (3,653 | ) | | (5,550 | ) |
Interest income | 368 |
| | 478 |
| | 784 |
| | 1,031 |
|
Income from continuing operations before income taxes | 54,779 |
| | 47,709 |
| | 99,609 |
| | 87,363 |
|
Income tax provision | 20,799 |
| | 17,889 |
| | 37,821 |
| | 32,985 |
|
Income from continuing operations | 33,980 |
| | 29,820 |
| | 61,788 |
| | 54,378 |
|
(Loss) income from discontinued operation, net of income taxes | — |
| | (498 | ) | | — |
| | 320 |
|
Net income including noncontrolling interests | 33,980 |
| | 29,322 |
| | 61,788 |
| | 54,698 |
|
Less: Net income attributable to noncontrolling interests | (532 | ) | | (513 | ) | | (1,195 | ) | | (1,295 | ) |
Net income attributable to EMCOR Group, Inc. | $ | 33,448 |
| | $ | 28,809 |
| | $ | 60,593 |
| | $ | 53,403 |
|
Basic earnings (loss) per common share: | | | | | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.50 |
| | $ | 0.44 |
| | $ | 0.91 |
| | $ | 0.79 |
|
From discontinued operation | — |
| | (0.01 | ) | | — |
| | 0.01 |
|
Net income attributable to EMCOR Group, Inc. common stockholders | $ | 0.50 |
| | $ | 0.43 |
| | $ | 0.91 |
| | $ | 0.80 |
|
Diluted earnings (loss) per common share: | | | | | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.49 |
| | $ | 0.43 |
| | $ | 0.89 |
| | $ | 0.77 |
|
From discontinued operation | — |
| | (0.01 | ) | | — |
| | 0.01 |
|
Net income attributable to EMCOR Group, Inc. common stockholders | $ | 0.49 |
| | $ | 0.42 |
| | $ | 0.89 |
| | $ | 0.78 |
|
Dividends declared per common share | $ | 0.10 |
| | $ | — |
| | $ | 0.15 |
| | $ | — |
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Net income including noncontrolling interests | $ | 33,980 |
| | $ | 29,322 |
| | $ | 61,788 |
| | $ | 54,698 |
|
Other comprehensive income, net of tax: | | | | | | | |
Foreign currency translation adjustments | (54 | ) | | 266 |
| | (42 | ) | | 1,986 |
|
Post retirement plans, amortization of actuarial loss included in net income (1) | 531 |
| | 335 |
| | 1,047 |
| | 656 |
|
Other comprehensive income | 477 |
| | 601 |
| | 1,005 |
| | 2,642 |
|
Comprehensive income | 34,457 |
| | 29,923 |
| | 62,793 |
| | 57,340 |
|
Less: Comprehensive income attributable to the noncontrolling interest | (532 | ) | | (513 | ) | | (1,195 | ) | | (1,295 | ) |
Comprehensive income attributable to EMCOR Group, Inc. | $ | 33,925 |
| | $ | 29,410 |
| | $ | 61,598 |
| | $ | 56,045 |
|
_________
| |
(1) | Net of tax of $0.2 million and $0.2 million for the three months ended June 30, 2012 and 2011, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2012 and 2011, respectively. |
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
|
| | | | | | | |
| Six months ended June 30, |
| 2012 | | 2011 |
Cash flows from operating activities: | | | |
Net income including noncontrolling interests | $ | 61,788 |
| | $ | 54,698 |
|
Depreciation and amortization | 14,768 |
| | 12,507 |
|
Amortization of identifiable intangible assets | 14,930 |
| | 11,086 |
|
Deferred income taxes | 1,479 |
| | 4,620 |
|
Excess tax benefits from share-based compensation | (5,282 | ) | | (730 | ) |
Equity income from unconsolidated entities | (414 | ) | | (617 | ) |
Other non-cash items | 4,579 |
| | 3,575 |
|
Distributions from unconsolidated entities | 866 |
| | 520 |
|
Changes in operating assets and liabilities, excluding the effect of businesses acquired | (104,307 | ) | | (79,373 | ) |
Net cash (used in) provided by operating activities | (11,593 | ) | | 6,286 |
|
Cash flows from investing activities: | | | |
Payments for acquisitions of businesses, net of cash acquired, and related contingent consideration arrangement | (20,613 | ) | | (301,845 | ) |
Proceeds from sale of property, plant and equipment | 719 |
| | 259 |
|
Purchase of property, plant and equipment | (19,012 | ) | | (10,554 | ) |
Investments in and advances to unconsolidated entities and joint ventures | — |
| | (28 | ) |
Purchase of short-term investments | (17,782 | ) | | — |
|
Maturity of short-term investments | 17,693 |
| | — |
|
Net cash used in investing activities | (38,995 | ) | | (312,168 | ) |
Cash flows from financing activities: | | | |
Repayments of long-term debt and debt issuance costs | (37 | ) | | (11 | ) |
Repayments of capital lease obligations | (1,310 | ) | | (290 | ) |
Dividends paid to stockholders | (6,660 | ) | | — |
|
Repurchase of common stock | (21,189 | ) | | — |
|
Proceeds from exercise of stock options | 1,909 |
| | 856 |
|
Payments to satisfy minimum tax withholding | (733 | ) | | (1,255 | ) |
Issuance of common stock under employee stock purchase plan | 1,263 |
| | 1,135 |
|
Net payments for contingent consideration arrangements | (4,717 | ) | | (1,118 | ) |
Distributions to noncontrolling interests | (1,000 | ) | | (1,300 | ) |
Excess tax benefits from share-based compensation | 5,282 |
| | 730 |
|
Net cash used in financing activities | (27,192 | ) | | (1,253 | ) |
Effect of exchange rate changes on cash and cash equivalents | 730 |
| | 2,845 |
|
Decrease in cash and cash equivalents | (77,050 | ) | | (304,290 | ) |
Cash and cash equivalents at beginning of year | 511,322 |
| | 710,836 |
|
Cash and cash equivalents at end of period | $ | 434,272 |
| | $ | 406,546 |
|
Supplemental cash flow information: | | | |
Cash paid for: | | | |
Interest | $ | 2,545 |
| | $ | 4,338 |
|
Income taxes | $ | 47,071 |
| | $ | 39,541 |
|
Non-cash financing activities: | | | |
Assets acquired under capital lease obligations | $ | 1,021 |
| | $ | 393 |
|
Common stock dividends declared | $ | 3,358 |
| | $ | — |
|
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | EMCOR Group, Inc. Stockholders | | |
| Total | | Common stock | | Capital surplus | | Accumulated other comprehensive (loss) income (1) | | Retained earnings | | Treasury stock | | Noncontrolling interests |
Balance, January 1, 2011 | $ | 1,162,845 |
| | $ | 690 |
| | $ | 427,613 |
| | $ | (42,411 | ) | | $ | 782,576 |
| | $ | (15,525 | ) | | $ | 9,902 |
|
Net income including noncontrolling interests | 54,698 |
| | — |
| | — |
| | — |
| | 53,403 |
| | — |
| | 1,295 |
|
Other comprehensive income | 2,642 |
| | — |
| | — |
| | 2,642 |
| | — |
| | — |
| | — |
|
Treasury stock, at cost (2) | (1,255 | ) | | — |
| | — |
| | — |
| | — |
| | (1,255 | ) | | — |
|
Common stock issued under share-based compensation plans (3) | 2,634 |
| | 2 |
| | 2,570 |
| | — |
| | — |
| | 62 |
| | — |
|
Common stock issued under employee stock purchase plan | 1,135 |
| | — |
| | 1,135 |
| | — |
| | — |
| | — |
| | — |
|
Distributions to noncontrolling interests | (1,300 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,300 | ) |
Share-based compensation expense | 2,505 |
| | — |
| | 2,505 |
| | — |
| | — |
| | — |
| | — |
|
Balance, June 30, 2011 | $ | 1,223,904 |
| | $ | 692 |
| | $ | 433,823 |
| | $ | (39,769 | ) | | $ | 835,979 |
| | $ | (16,718 | ) | | $ | 9,897 |
|
Balance, January 1, 2012 | $ | 1,245,131 |
| | $ | 681 |
| | $ | 417,136 |
| | $ | (78,649 | ) | | $ | 910,042 |
| | $ | (14,476 | ) | | $ | 10,397 |
|
Net income including noncontrolling interests | 61,788 |
| | — |
| | — |
| | — |
| | 60,593 |
| | — |
| | 1,195 |
|
Other comprehensive income | 1,005 |
| | — |
| | — |
| | 1,005 |
| | — |
| | — |
| | — |
|
Common stock issued under share-based compensation plans (3) | 7,650 |
| | 6 |
| | 6,012 |
| | — |
| | — |
| | 1,632 |
| | — |
|
Common stock issued under employee stock purchase plan | 1,263 |
| | — |
| | 1,263 |
| | — |
| | — |
| | — |
| | — |
|
Common stock dividends | (10,018 | ) | | — |
| | 60 |
| | — |
| | (10,078 | ) | | — |
| | — |
|
Repurchase of common stock | (21,189 | ) | | (8 | ) | | (21,181 | ) | | — |
| | — |
| | — |
| | — |
|
Distributions to noncontrolling interests | (1,000 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,000 | ) |
Share-based compensation expense | 3,782 |
| | — |
| | 3,782 |
| | — |
| | — |
| | — |
| | — |
|
Balance, June 30, 2012 | $ | 1,288,412 |
| | $ | 679 |
| | $ | 407,072 |
| | $ | (77,644 | ) | | $ | 960,557 |
| | $ | (12,844 | ) | | $ | 10,592 |
|
| |
(1) | Represents cumulative foreign currency translation adjustments and post retirement liability adjustments. |
| |
(2) | Represents value of shares of common stock withheld by EMCOR for minimum statutory 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 of $6.5 million and $0.8 million for the six months June 30, 2012 and 2011, respectively. |
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 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 similar words 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 six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.
The results of operations for the 2011 period presented reflect discontinued operations accounting due to the disposition of our interest in our Canadian subsidiary in August 2011. In addition, our reportable segments reflect certain reclassifications of prior year amounts from our United States facilities services segment to our United States mechanical construction and facilities services segment due to changes in our internal reporting structure.
NOTE 2 New Accounting Pronouncements
On January 1, 2012, we adopted the accounting pronouncement updating existing guidance on comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of our Condensed Consolidated Statements of Equity and Comprehensive Income, which was our previous presentation. It requires companies to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two statement approach which we have adopted, the first statement presents total net income and its components followed consecutively by a second statement that presents total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The adoption of this pronouncement did not have any effect on our financial condition or results of operations, though it did change our financial statement presentation.
On January 1, 2012, we adopted the accounting pronouncement simplifying how a company is required to test goodwill for impairment. Companies will now have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
NOTE 3 Acquisitions of Businesses
On January 4, 2012, we acquired a company for an immaterial amount. The 2012 acquired company primarily provides mechanical construction services and has been included in our United States mechanical construction and facilities services segment.
On June 30, 2011, we completed the acquisition of USM Services Holdings, Inc. (“USM”) from Transfield Services (Delaware), General Partnership. Under the terms of the transaction, we acquired 100% of USM’s stock for total consideration of $251.0 million and utilized cash on hand to fund the purchase. This acquisition has been accounted for using the acquisition method of accounting. We acquired working capital of $5.0 million and other net liabilities of $20.3 million, and have ascribed $131.9 million to goodwill and $134.4 million to identifiable intangible assets in connection with this acquisition, which has been included in our United States facilities services segment. According to certain provisions of the stock purchase agreement, we are to be indemnified for certain costs. We have completed the final allocation of the purchase price related to the USM acquisition with an insignificant impact.
We acquired two additional companies during 2011, each for an immaterial amount. One of the 2011 acquired companies primarily provides mechanical construction services and has been included in our United States mechanical construction and facilities services reporting segment, and the other primarily provides mobile mechanical services and has been included in our United States facilities services reporting segment.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3 Acquisitions of Businesses - (Continued)
During the first half of 2012, we finalized the purchase price allocation and the valuation of the identifiable intangible assets of another company acquired in 2011. In addition to USM, the other three acquired companies referred to in the preceding paragraphs 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. We believe these acquisitions further expand our service capabilities into new geographical and/or technical areas.
NOTE 4 Disposition of Assets
Results of our Canadian operations for the three and six months ended June 30, 2011 are presented in our Condensed Consolidated Financial Statements as discontinued operations.
In August 2011, we disposed of our entire interest in our Canadian subsidiary, which represented our Canada construction segment, to a group of investors, including members of the former subsidiary’s management team. We received approximately $17.3 million in payment for the shares. In addition, we also received approximately $26.4 million in repayment of indebtedness owed by our Canadian subsidiary to us. Proceeds from the sale of discontinued operation, net of cash sold, totaled approximately $26.6 million. Included in net income from discontinued operation for the year ended December 31, 2011 was a gain on sale of $9.1 million (net of income tax provision of $2.8 million) resulting from the sale of the subsidiary. The gain on sale of discontinued operation included $15.5 million related to amounts previously reported in the foreign translation adjustment component of accumulated other comprehensive income. (Loss) income from discontinued operation included income tax benefits of $0.4 million and $0.7 million for the three and six months ended June 30, 2011, respectively.
The components of the results of discontinued operations for the Canada construction segment are as follows (in thousands):
|
| | | | | | | |
| For the three months ended June 30, 2011 | | For the six months ended June 30, 2011 |
Revenues | $ | 51,914 |
| | $ | 98,902 |
|
(Loss) income from discontinued operation (net of income taxes) | $ | (498 | ) | | $ | 320 |
|
Gain on sale of discontinued operation (net of income taxes) | $ | — |
| | $ | — |
|
Net (loss) income from discontinued operation | $ | (498 | ) | | $ | 320 |
|
Diluted (loss) earnings per share from discontinued operation | $ | (0.01 | ) | | $ | 0.01 |
|
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 5 Earnings Per Share
Calculation of Basic and Diluted Earnings per Common Share
The following tables summarize our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three and six months ended June 30, 2012 and 2011 (in thousands, except share and per share data):
|
| | | | | | | |
| For the three months ended June 30, |
| 2012 | | 2011 |
Numerator: | | | |
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 33,448 |
| | $ | 29,307 |
|
Loss from discontinued operation | — |
| | (498 | ) |
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 33,448 |
| | $ | 28,809 |
|
Denominator: | | | |
Weighted average shares outstanding used to compute basic earnings per common share | 66,749,115 |
| | 66,848,078 |
|
Effect of dilutive securities—Share-based awards | 946,421 |
| | 1,743,692 |
|
Shares used to compute diluted earnings per common share | 67,695,536 |
| | 68,591,770 |
|
Basic earnings (loss) per common share: | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.50 |
| | $ | 0.44 |
|
From discontinued operation | — |
| | (0.01 | ) |
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 0.50 |
| | $ | 0.43 |
|
Diluted earnings (loss) per share: | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.49 |
| | $ | 0.43 |
|
From discontinued operation | — |
| | (0.01 | ) |
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 0.49 |
| | $ | 0.42 |
|
|
| | | | | | | |
| For the six months ended June 30, |
| 2012 | | 2011 |
Numerator: | | | |
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 60,593 |
| | $ | 53,083 |
|
Income from discontinued operation | — |
| | 320 |
|
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 60,593 |
| | $ | 53,403 |
|
Denominator: | | | |
Weighted average shares outstanding used to compute basic earnings per common share | 66,717,873 |
| | 66,828,523 |
|
Effect of dilutive securities—Share-based awards | 1,103,341 |
| | 1,758,141 |
|
Shares used to compute diluted earnings per common share | 67,821,214 |
| | 68,586,664 |
|
Basic earnings per common share: | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.91 |
| | $ | 0.79 |
|
From discontinued operation | — |
| | 0.01 |
|
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 0.91 |
| | $ | 0.80 |
|
Diluted earnings per share: | | | |
From continuing operations attributable to EMCOR Group, Inc. common stockholders | $ | 0.89 |
| | $ | 0.77 |
|
From discontinued operation | — |
| | 0.01 |
|
Net income attributable to EMCOR Group, Inc. available to common stockholders | $ | 0.89 |
| | $ | 0.78 |
|
There were 295,819 and 151,798 anti-dilutive stock options that were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2012, respectively. There were 200,000 and 220,096 anti-dilutive stock options that were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2011, respectively.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 6 Inventories
Inventories consist of the following amounts (in thousands):
|
| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
Raw materials and construction materials | $ | 19,963 |
| | $ | 21,452 |
|
Work in process | 26,122 |
| | 23,462 |
|
| $ | 46,085 |
| | $ | 44,914 |
|
NOTE 7 Debt
Debt in the accompanying Condensed Consolidated Balance Sheets consisted of the following amounts (in thousands):
|
| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
2011 Revolving Credit Facility | $ | 150,000 |
| | $ | 150,000 |
|
Capitalized lease obligations | 5,832 |
| | 4,857 |
|
Other | 23 |
| | — |
|
| 155,855 |
| | 154,857 |
|
Less: current maturities | 1,542 |
| | 1,522 |
|
| $ | 154,313 |
| | $ | 153,335 |
|
Credit Facilities
Until November 21, 2011, we had a revolving credit agreement (the “2010 Revolving Credit Facility”), as amended, which provided for a credit facility of $550.0 million. The 2010 Revolving Credit Facility was effective February 4, 2010 and replaced an earlier revolving credit facility (the “2005 Revolving Credit Facility”) of $375.0 million. Effective November 21, 2011, we replaced the 2010 Revolving Credit Facility that was due to expire February 4, 2013 with an amended and restated $750.0 million revolving credit facility (the “2011 Revolving Credit Facility”). The 2011 Revolving Credit Facility expires on November 21, 2016 and permits us to increase our borrowing to $900.0 million if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $250.0 million of the borrowing capacity under the 2011 Revolving Credit Facility to letters of credit, which amount compares to $175.0 million under the 2010 Revolving Credit Facility and $125.0 million under the 2005 Revolving Credit Facility. The 2011 Revolving Credit Facility is guaranteed by most 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 2011 Revolving Credit Facility contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on 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 2011 Revolving Credit Facility, which ranges from 0.25% to 0.35%, based on certain financial tests. The fee is 0.25% of the unused amount as of June 30, 2012. Borrowings under the 2011 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 June 30, 2012) plus 0.50% to 1.00%, based on certain financial tests or (2) United States dollar LIBOR (0.26% at June 30, 2012) plus 1.50% to 2.00%, based on certain financial tests. The interest rate in effect at June 30, 2012 was 1.76%. Letter of credit fees issued under this facility range from 1.50% to 2.00% of the respective face amounts of the letters of credit issued and are computed based on certain financial tests. We capitalized approximately $4.2 million of debt issuance costs associated with the 2011 Revolving Credit Facility. This amount is being amortized over the life of the facility and is included as part of interest expense. As of June 30, 2012 and December 31, 2011, we had approximately $93.0 million and $83.1 million of letters of credit outstanding, respectively. We have borrowings of $150.0 million outstanding under the 2011 Revolving Credit Facility at June 30, 2012, which may remain outstanding at our discretion until the 2011 Revolving Credit Facility expires.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 8 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.
The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2012 and December 31, 2011 (in thousands):
|
| | | | | | | | | | | | | |
| Assets at Fair Value as of June 30, 2012 |
Asset Category | Level 1 | | Level 2 | | Level 3 | | Total |
Cash and cash equivalents (1) | $ | 434,272 |
| | — |
| | — |
| | $ | 434,272 |
|
Restricted cash (2) | 6,034 |
| | — |
| | — |
| | 6,034 |
|
Short-term investments (2) | 17,274 |
| | — |
| | — |
| | 17,274 |
|
Total | $ | 457,580 |
| | — |
| | — |
| | $ | 457,580 |
|
|
| | | | | | | | | | | | | |
| Assets at Fair Value as of December 31, 2011 |
Asset Category | Level 1 | | Level 2 | | Level 3 | | Total |
Cash and cash equivalents (1) | $ | 511,322 |
| | — |
| | — |
| | $ | 511,322 |
|
Restricted cash (2) | 5,928 |
| | — |
| | — |
| | 5,928 |
|
Short-term investments (2) | 17,096 |
| | — |
| | — |
| | 17,096 |
|
Total | $ | 534,346 |
| | — |
| | — |
| | $ | 534,346 |
|
_________
| |
(1) | Cash and cash equivalents consist primarily of money market funds with original maturity dates of three months or less, which are Level 1 assets. At June 30, 2012 and December 31, 2011, we had $291.0 million and $373.1 million, respectively, in money market funds. |
| |
(2) | Restricted cash and short-term investments with original maturities greater than three months are classified as “Prepaid expenses and other” on our consolidated balance sheets. |
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 2011 Revolving Credit Facility approximates the fair value due to the variable rate on such debt.
NOTE 9 Income Taxes
For the three months ended June 30, 2012 and 2011, our income tax provision from continuing operations was $20.8 million and $17.9 million, respectively, based on effective income tax rates, before discrete items, of 38.2% and 38.6%, respectively. The actual income tax rates on income from continuing operations before income taxes, less amounts attributable to noncontrolling interests, for the three months ended June 30, 2012 and 2011, inclusive of discrete items, were 38.3% and 37.9%, respectively. For the six months ended June 30, 2012 and 2011, our income tax provision from continuing operations was $37.8 million and $33.0 million, respectively, based on effective income tax rates, before discrete items, of 38.3% and 38.6%, respectively. The actual income tax rates on income from continuing operations before income taxes, less amounts attributable to noncontrolling interests, for the six months ended June 30, 2012 and 2011, inclusive of discrete items, were 38.4% and 38.3%, respectively. The increase in the 2012 income tax provisions for both periods was primarily due to increased income before income taxes and a change in the allocation of earnings among various jurisdictions.
As of June 30, 2012 and December 31, 2011, the amount of unrecognized income tax benefits for each period was $5.7 million (of which $3.1 million, if recognized, would favorably affect our effective income tax rate).
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 9 Income Taxes - (Continued)
We recognized interest expense related to unrecognized income tax benefits in the income tax provision. As of June 30, 2012 and December 31, 2011, we had approximately $2.5 million and $2.3 million, respectively, of accrued interest related to unrecognized income tax benefits included as a liability on the Condensed Consolidated Balance Sheets. For each of the three months ended June 30, 2012 and 2011, $0.1 million of interest expense was recognized. For the six months ended June 30, 2012 and 2011, $0.2 million and $0.3 million of interest expense was recognized, respectively.
It is possible that approximately $0.3 million of unrecognized income tax benefits at June 30, 2012, 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 various taxing authorities for the years 2007 through 2011. We are still subject to audit of our federal income tax returns by the Internal Revenue Service for the years 2008 through 2010.
NOTE 10 Common Stock
As of June 30, 2012 and December 31, 2011, 66,495,910 and 66,444,400 shares of our common stock were outstanding, respectively.
During the three months ended June 30, 2012 and 2011, 61,677 and 31,088 shares of common stock, respectively, were issued upon: (a) the satisfaction of required conditions under certain of our share-based compensation plans, (b) the purchase of common stock under our employee stock purchase plan and (c) the exercise of stock options. During the six months ended June 30, 2012 and 2011, 418,640 and 245,211 shares of common stock, respectively, were issued upon: (a) the exercise of stock options, (b) the satisfaction of required conditions under certain of our share-based compensation plans, (c) the purchase of common stock under our employee stock purchase plan and (d) the direct grants of shares of common stock.
On June 29, 2012, our Board of Directors declared a dividend of $0.05 per common share, payable on July 30, 2012, to shareholders of record as of the close of business on July 16, 2012. That dividend will aggregate approximately $3.4 million, which is included in “Other accrued expenses and liabilities”.
On September 26, 2011, our Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. During 2012, we repurchased approximately 0.8 million shares of our common stock for approximately $21.2 million. As of June 30, 2012, there remains authorization for us to repurchase approximately $51.3 million of our shares. The repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended, recommenced or discontinued at any time or from time to time without prior notice. Acquisitions under our repurchase program may be made from time to time as permitted by securities laws and other legal requirements, including provisions in our revolving credit facility placing limitations on such repurchases. The repurchase program has been and will be funded from our operations.
NOTE 11 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.
Components of Net Periodic Pension Cost
The components of net periodic pension cost of the UK Plan for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Interest cost | $ | 3,114 |
| | $ | 3,388 |
| | $ | 6,221 |
| | $ | 6,717 |
|
Expected return on plan assets | (3,264 | ) | | (3,430 | ) | | (6,521 | ) | | (6,800 | ) |
Amortization of unrecognized loss | 609 |
| | 396 |
| | 1,217 |
| | 785 |
|
Net periodic pension cost | $ | 459 |
| | $ | 354 |
| | $ | 917 |
| | $ | 702 |
|
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 11 Retirement Plans - (Continued)
Employer Contributions
For the six months ended June 30, 2012, our United Kingdom subsidiary contributed approximately $2.7 million to its defined benefit pension plan. It anticipates contributing an additional $2.8 million during the remainder of 2012.
NOTE 12 Commitments and Contingencies
In December 2011, we received a letter from a gasket supplier that it had supplied us with gaskets from a Canadian manufacturer that, contrary to our supplier's product specifications and purchase orders, may contain asbestos material. Additionally, the supplier has informed us that one of its customers had found that certain gaskets manufactured by the Canadian company tested positive for asbestos during a routine audit. However, our supplier also informed us that industry experts have advised it no action is necessary to remove or replace any of these gaskets manufactured by the Canadian company that may have been installed by us inasmuch as any asbestos material in the gaskets is fully encapsulated in the gasket binding and enclosed within piping systems. No reasonable estimate of our ultimate liability is possible at this time, and based on our current knowledge, we do not expect that any amounts that we may incur as a consequence of our installation of these gaskets will have a material adverse effect on our financial position, results of operations or liquidity. To the extent we incur any expenditures related to this matter, we intend to seek reimbursement from the supplier.
NOTE 13 Segment Information
We have the following reportable segments: (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; controls and filtration; water and wastewater treatment and central plant heating and cooling; cranes and rigging; millwrighting; and steel fabrication, erection and welding); (c) United States facilities services; and (d) United Kingdom 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. The United Kingdom construction and facilities services segment performs electrical construction, mechanical construction and facilities services. In August 2011, we sold our Canadian subsidiary, which represented our Canada construction segment and which performed electrical construction and mechanical construction.
The following tables present information about industry segments and geographic areas for the three and six months ended June 30, 2012 and 2011 (in thousands):
|
| | | | | | | |
| For the three months ended June 30, |
| 2012 | | 2011 |
Revenues from unrelated entities: | | | |
United States electrical construction and facilities services | $ | 295,846 |
| | $ | 306,521 |
|
United States mechanical construction and facilities services | 602,090 |
| | 472,127 |
|
United States facilities services | 552,260 |
| | 448,483 |
|
Total United States operations | 1,450,196 |
| | 1,227,131 |
|
United Kingdom construction and facilities services | 139,839 |
| | 120,882 |
|
Total worldwide operations | $ | 1,590,035 |
| | $ | 1,348,013 |
|
| | | |
Total revenues: | | | |
United States electrical construction and facilities services | $ | 305,553 |
| | $ | 308,285 |
|
United States mechanical construction and facilities services | 607,323 |
| | 473,898 |
|
United States facilities services | 556,511 |
| | 454,135 |
|
Less intersegment revenues | (19,191 | ) | | (9,187 | ) |
Total United States operations | 1,450,196 |
| | 1,227,131 |
|
United Kingdom construction and facilities services | 139,839 |
| | 120,882 |
|
Total worldwide operations | $ | 1,590,035 |
| | $ | 1,348,013 |
|
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 13 Segment Information - (Continued)
|
| | | | | | | |
| For the six months ended June 30, |
| 2012 | | 2011 |
Revenues from unrelated entities: | | | |
United States electrical construction and facilities services | $ | 586,383 |
| | $ | 575,053 |
|
United States mechanical construction and facilities services | 1,155,023 |
| | 897,332 |
|
United States facilities services | 1,106,420 |
| | 895,112 |
|
Total United States operations | 2,847,826 |
| | 2,367,497 |
|
United Kingdom construction and facilities services | 280,730 |
| | 245,759 |
|
Total worldwide operations | $ | 3,128,556 |
| | $ | 2,613,256 |
|
Total revenues: | | | |
United States electrical construction and facilities services | $ | 600,361 |
| | $ | 578,007 |
|
United States mechanical construction and facilities services | 1,163,619 |
| | 901,641 |
|
United States facilities services | 1,117,534 |
| | 904,435 |
|
Less intersegment revenues | (33,688 | ) | | (16,586 | ) |
Total United States operations | 2,847,826 |
| | 2,367,497 |
|
United Kingdom construction and facilities services | 280,730 |
| | 245,759 |
|
Total worldwide operations | $ | 3,128,556 |
| | $ | 2,613,256 |
|
|
| | | | | | | |
| For the three months ended June 30, |
| 2012 | | 2011 |
Operating income (loss): | | | |
United States electrical construction and facilities services | $ | 22,409 |
| | $ | 26,425 |
|
United States mechanical construction and facilities services | 30,014 |
| | 22,762 |
|
United States facilities services | 15,514 |
| | 14,776 |
|
Total United States operations | 67,937 |
| | 63,963 |
|
United Kingdom construction and facilities services | 3,962 |
| | 3,773 |
|
Corporate administration | (15,610 | ) | | (17,553 | ) |
Restructuring expenses | — |
| | (138 | ) |
Total worldwide operations | 56,289 |
| | 50,045 |
|
Other corporate items: | | | |
Interest expense | (1,878 | ) | | (2,814 | ) |
Interest income | 368 |
| | 478 |
|
Income from continuing operations before income taxes | $ | 54,779 |
| | $ | 47,709 |
|
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 13 Segment Information - (Continued)
|
| | | | | | | |
| For the six months ended June 30, |
| 2012 | | 2011 |
Operating income (loss): | | | |
United States electrical construction and facilities services | $ | 45,975 |
| | $ | 40,846 |
|
United States mechanical construction and facilities services | 51,835 |
| | 46,090 |
|
United States facilities services | 27,945 |
| | 30,055 |
|
Total United States operations | 125,755 |
| | 116,991 |
|
United Kingdom construction and facilities services | 7,444 |
| | 6,393 |
|
Corporate administration | (30,721 | ) | | (30,403 | ) |
Restructuring expenses | — |
| | (1,099 | ) |
Total worldwide operations | 102,478 |
| | 91,882 |
|
Other corporate items: | | | |
Interest expense | (3,653 | ) | | (5,550 | ) |
Interest income | 784 |
| | 1,031 |
|
Income from continuing operations before income taxes | $ | 99,609 |
| | $ | 87,363 |
|
|
| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
Total assets: | | | |
United States electrical construction and facilities services | $ | 286,363 |
| | $ | 277,278 |
|
United States mechanical construction and facilities services | 741,333 |
| | 727,518 |
|
United States facilities services | 1,206,422 |
| | 1,237,123 |
|
Total United States operations | 2,234,118 |
| | 2,241,919 |
|
United Kingdom construction and facilities services | 228,092 |
| | 227,029 |
|
Corporate administration | 498,519 |
| | 545,128 |
|
Total worldwide operations | $ | 2,960,729 |
| | $ | 3,014,076 |
|
|
| |
ITEM 2. | MANAGEMENT’S 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 and the United Kingdom. We provide services to a broad range of commercial, industrial, utility and institutional customers through approximately 70 operating subsidiaries and joint venture entities. Our offices are located in the United States and the United Kingdom.
The results of operations for the 2011 period presented reflect discontinued operations accounting due to the disposition of our interest in our Canadian subsidiary in August 2011. In addition, our reportable segments reflect certain reclassifications of prior year amounts from our United States facilities services segment to our United States mechanical construction and facilities services segment due to changes in our internal reporting structure.
Overview
The following table presents selected financial data for the three months ended June 30, 2012 and 2011 (in thousands, except percentages and per share data):
|
| | | | | | | |
| For the three months ended June 30, |
| 2012 | | 2011 |
Revenues | $ | 1,590,035 |
| | $ | 1,348,013 |
|
Revenues increase from prior year | 18.0 | % | | 12.6 | % |
Operating income | $ | 56,289 |
| | $ | 50,045 |
|
Operating income as a percentage of revenues | 3.5 | % | | 3.7 | % |
Net income attributable to EMCOR Group, Inc. | $ | 33,448 |
| | $ | 28,809 |
|
Diluted earnings per common share from continuing operations | $ | 0.49 |
| | $ | 0.43 |
|
Although overall revenues and operating income showed an increase from 2011 levels, operating margins (operating income as a percentage of revenues) decreased slightly. The increase in revenues for the second quarter of 2012, when compared to the prior year’s second quarter, was primarily attributable to: (a) higher revenues from the majority of our business segments, excluding the effect of acquisitions, and (b) revenues of $115.8 million attributable to companies acquired in 2012 and 2011, which are reported within our United States mechanical construction and facilities services segment and our United States facilities services segment. The increase in operating income, excluding the effect of acquisitions, for the three months ended June 30, 2012, compared to the same period in 2011, was primarily attributable to higher operating income from our United States mechanical construction and facilities services segment, our United States facilities services segment and our United Kingdom construction and facilities services segment, partially offset by lower operating income from our United States electrical construction and facilities services segment. Companies acquired in 2012 and 2011, which are reported within our United States mechanical construction and facilities services segment and our United States facilities services segment contributed $0.6 million to operating income, including $2.3 million of amortization expense associated with identifiable intangible assets for the three months ended June 30, 2012. The decrease in operating margin was primarily a result of lower operating margins within our United States electrical construction and facilities services segment, our United States facilities services segment and our United Kingdom and facilities services segment. This decrease was partially offset by an increase in operating margin from our United States mechanical construction and facilities services segment. During the first six months of 2012, cash was used in operating activities, primarily due to changes in our working capital, including a net decrease in contracts in progress, a reduction in accounts payable and a reduction in accruals for payroll and benefits resulting from the payment of 2011 incentive compensation awards, partially offset by a decrease in accounts receivable.
We completed one acquisition during the first half of 2012 for an immaterial amount. The results of the acquired company, which primarily provides mechanical construction services, have been included in our United States mechanical construction and facilities services segment; the acquired company expands our service capabilities into new geographical and technical areas. The acquisition is not material to our results of operations for the periods presented.
Operating Segments
We have the following reportable segments: (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; controls and filtration; water and wastewater treatment and central plant heating and cooling; cranes and rigging; millwrighting; and steel fabrication, erection and welding); (c) United States facilities services; and (d) United Kingdom 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. The United Kingdom construction and facilities services segment performs electrical construction, mechanical construction and facilities services. In August 2011, we sold our Canadian subsidiary, which represented our Canada construction segment and which performed electrical construction and mechanical construction.
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 June 30, |
| 2012 | | % of Total | | 2011 | | % of Total |
Revenues: | | | | | | | |
United States electrical construction and facilities services | $ | 295,846 |
| | 19 | % | | $ | 306,521 |
| | 23 | % |
United States mechanical construction and facilities services | 602,090 |
| | 38 | % | | 472,127 |
| | 35 | % |
United States facilities services | 552,260 |
| | 35 | % | | 448,483 |
| | 33 | % |
Total United States operations | 1,450,196 |
| | 91 | % | | 1,227,131 |
| | 91 | % |
United Kingdom construction and facilities services | 139,839 |
| | 9 | % | | 120,882 |
| | 9 | % |
Total worldwide operations | $ | 1,590,035 |
| | 100 | % | | $ | 1,348,013 |
| | 100 | % |
|
| | | | | | | | | | | | | |
| For the six months ended June 30, |
| 2012 | | % of Total | | 2011 | | % of Total |
Revenues: | | | | | | | |
United States electrical construction and facilities services | $ | 586,383 |
| | 19 | % | | $ | 575,053 |
| | 22 | % |
United States mechanical construction and facilities services | 1,155,023 |
| | 37 | % | | 897,332 |
| | 34 | % |
United States facilities services | 1,106,420 |
| | 35 | % | | 895,112 |
| | 34 | % |
Total United States operations | 2,847,826 |
| | 91 | % | | 2,367,497 |
| | 91 | % |
United Kingdom construction and facilities services | 280,730 |
| | 9 | % | | 245,759 |
| | 9 | % |
Total worldwide operations | $ | 3,128,556 |
| | 100 | % | | $ | 2,613,256 |
| | 100 | % |
As described below in more detail, our revenues for the three months ended June 30, 2012 increased to $1.6 billion compared to $1.3 billion of revenues for the three months ended June 30, 2011, and our revenues for the six months ended June 30, 2012 increased to $3.1 billion compared to $2.6 billion for the six months ended June 30, 2011. The overall increase in revenues was primarily attributable to: (a) higher revenues from the majority of our business segments, excluding the effect of acquisitions, and (b) revenues of $115.8 million and $248.3 million for the three and six months ended June 30, 2012 and 2011, respectively, attributable to companies acquired in 2012 and 2011, which are reported within our United States mechanical construction and facilities services segment and our United States facilities services segment. Notwithstanding the increase in revenues, we continue to be disciplined in a very competitive marketplace by only accepting work that we believe can be performed at a reasonable margin.
Our backlog at June 30, 2012 was $3.28 billion compared to $3.54 billion of backlog at June 30, 2011, excluding the backlog of our Canadian subsidiary which subsidiary we sold in August 2011. Our backlog was $3.33 billion at December 31, 2011. Backlog increases with awards of new contracts and decreases as we perform work on existing contracts. The decrease in backlog at June 30, 2012, compared to such backlog at June 30, 2011, was primarily attributable to a decrease in backlog, excluding the effect of acquisitions, from our United Kingdom segment and our domestic construction and facilities services segments. This decrease was partially offset by an increase in backlog from our United States facilities services segment and $25.4 million of backlog associated with the acquisition of two companies, one in 2012 and one in 2011, which are included in our United States mechanical construction and facilities services segment and our United States facilities services segment. 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 were $295.8 million and $586.4 million for the three and six months ended June 30, 2012, respectively, compared to revenues of $306.5 million and $575.1 million for the three and months ended June 30, 2011, respectively. The decrease in revenues for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was primarily attributable to lower levels of work from: (a) hospitality construction projects, principally in the Las Vegas market, (b) healthcare, commercial and water and wastewater construction projects and (c) smaller quick turn projects. This decrease was partially offset by an increase in revenues from institutional and industrial construction projects. The increase in revenues for six months ended June 30, 2012 compared to the six months ended June 30, 2011 was primarily attributable to higher levels of work from industrial and institutional construction projects. This increase was partially offset by a decrease in revenues from hospitality construction projects, principally in the Las Vegas market, and from healthcare and commercial construction projects.
Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2012 were $602.1 million, a $130.0 million increase compared to revenues of $472.1 million for the three months ended June 30, 2011. Revenues of this segment for the six months ended June 30, 2012 were $1,155.0 million, a $257.7 million increase compared to revenues of $897.3 million for the six months ended June 30, 2011. The increase in revenues for the three and six months ended June 30, 2012, compared to the three and six months ended June 30, 2011, was primarily attributable to an increase in revenues from commercial and industrial construction projects and revenues of approximately $33.0 million and $75.1 million, respectively, generated by companies acquired in 2012 and 2011, which primarily provide mechanical construction services. These increases were partially offset by a decrease in revenues from healthcare, institutional, hospitality and water and wastewater construction projects.
Revenues of our United States facilities services segment for the three months ended June 30, 2012 increased by $103.8 million compared to the three months ended June 30, 2011, and revenues for the six months ended June 30, 2012 increased by $211.3 million compared to the six months ended June 30, 2011. The increase in revenues for the three and six months ended June 30, 2012 was primarily attributable to: (a) revenues of approximately $82.8 million and $173.2 million, respectively, generated by companies acquired in 2011, which perform facilities maintenance services and mobile mechanical services, (b) revenues from our industrial operations and (c) revenues from our government site-based operations. Additionally, the increase in revenues for the six months ended June 30, 2012 benefited from an increase in revenues from our commercial site-based operations, excluding the effect of an acquisition.
Our United Kingdom construction and facilities services segment revenues were $139.8 million and $280.7 million for the three and six months ended June 30, 2012 compared to revenues of $120.9 million and $245.8 million for the three and six months ended June 30, 2011. The increase in revenues for both periods was attributable to an increase in levels of work from its construction operations, primarily in the institutional market, and from its facilities services operations, principally in the commercial market, partially offset by a decrease of $4.3 million and $7.1 million, respectively, relating to the effect of unfavorable exchange rates for the British pound versus the United States dollar.
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 June 30, | | For the six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Cost of sales | $ | 1,396,071 |
| | $ | 1,173,357 |
| | $ | 2,753,899 |
| | $ | 2,281,891 |
|
Gross profit | $ | 193,964 |
| | $ | 174,656 |
| | $ | 374,657 |
| | $ | 331,365 |
|
Gross profit, as a percentage of revenues | 12.2 | % | | 13.0 | % | | 12.0 | % | | 12.7 | % |
Our gross profit increased by $19.3 million for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. Gross profit increased by $43.3 for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. The increase in gross profit for both periods was primarily attributable: (a) higher revenues from the majority of our business segments and (b) companies acquired in 2012 and 2011 within our United States mechanical construction and facilities
services segment and our United States facilities services segment, which contributed $10.7 million and $23.0 million to gross profit, net of amortization expense of zero and $0.2 million attributable to identifiable intangible assets, for the three and six months ended June 30, 2012, respectively.
Our gross profit margin was 12.2% and 13.0% for the three months ended June 30, 2012 and 2011, respectively. Gross profit margin was 12.0% and 12.7% for the six months ended June 30, 2012 and 2011, respectively. The decrease in gross profit margin for the three and six months ended June 30, 2012 was primarily the result of: (a) lower gross profit margins at our United States mechanical construction and facilities services segment and our United Kingdom segment and (b) lower gross profit margins from our 2011 acquisitions in our United States facilities services segment, when compared to our historical operations, primarily due to a decline in snow removal revenues as a result of the unseasonably warm winter experienced throughout most of the Eastern United States and lower margins. This decrease in gross profit margin for the six months ended June 30, 2012 was partially offset by an increase in gross profit margin from our United States electrical construction and facilities services segment.
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 June 30, | | For the six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Selling, general and administrative expenses | $ | 137,675 |
| | $ | 124,473 |
| | $ | 272,179 |
| | $ | 238,384 |
|
Selling, general and administrative expenses, as a percentage of revenues | 8.7 | % | | 9.2 | % | | 8.7 | % | | 9.1 | % |
Our selling, general and administrative expenses for the three months ended June 30, 2012 increased by $13.2 million to $137.7 million compared to $124.5 million for the three months ended June 30, 2011. Selling, general and administrative expenses for the six months ended June 30, 2012 increased by $33.8 million to $272.2 million compared to $238.4 million for the six months ended June 30, 2011. Selling, general and administrative expenses as a percentage of revenues was 8.7% for each of the three and six months ended June 30, 2012 compared to 9.2% and 9.1% for the three and six months ended June 30, 2011, respectively. This increase in selling, general and administrative expenses for both periods was primarily due to: (a) $10.1 million and $21.3 million of expenses directly related to companies acquired in 2012 and 2011, including amortization expense of $2.3 million and $4.8 million attributable to identifiable intangible assets for the three and six months ended June 30, 2012, respectively, and (b) higher employee related costs, such as salaries, incentive compensation and employee benefits, partially as a result of the addition of staff at several locations to support our increased revenues. The increases in selling, general and administrative expenses for the three and six months ended June 30, 2012 were partially offset by a decrease in professional fees, as we incurred approximately $4.5 million of transaction costs associated with an acquisition made in the second quarter of 2011. The decreases in selling, general and administrative expenses as a percentage of revenues for the three and six months ended June 30, 2012, compared to the same periods in 2011, related to our ability to increase revenues at a greater rate than the increase in overhead costs.
Restructuring expenses
There were no restructuring expenses for the three and six months ended June 30, 2012 compared to $0.1 million and $1.1 million for the three and six months ended June 30, 2011, respectively, which primarily related to employee severance obligations reported in our corporate headquarters. As of June 30, 2012, the balance of our obligations yet to be paid was $0.1 million, the majority of which is expected to be paid after 2012.
Operating income
The following tables present our operating income (loss) and operating income (loss) as a percentage of segment revenues from unrelated entities (in thousands, except for percentages):
|
| | | | | | | | | | | | | |
| For the three months ended June 30, |
| 2012 | | % of Segment Revenues | | 2011 | | % of Segment Revenues |
Operating income (loss): | | | | | | | |
United States electrical construction and facilities services | $ | 22,409 |
| | 7.6 | % | | $ | 26,425 |
| | 8.6 | % |
United States mechanical construction and facilities services | 30,014 |
| | 5.0 | % | | 22,762 |
| | 4.8 | % |
United States facilities services | 15,514 |
| | 2.8 | % | | 14,776 |
| | 3.3 | % |
Total United States operations | 67,937 |
| | 4.7 | % | | 63,963 |
| | 5.2 | % |
United Kingdom construction and facilities services | 3,962 |
| | 2.8 | % | | 3,773 |
| | 3.1 | % |
Corporate administration | (15,610 | ) | | — |
| | (17,553 | ) | | — |
|
Restructuring expenses | — |
| | — |
| | (138 | ) | | — |
|
Total worldwide operations | 56,289 |
| | 3.5 | % | | 50,045 |
| | 3.7 | % |
Other corporate items: | | | | | | | |
Interest expense | (1,878 | ) | | | | (2,814 | ) | | |
Interest income | 368 |
| | | | 478 |
| | |
Income from continuing operations before income taxes | $ | 54,779 |
| | | | $ | 47,709 |
| | |
|
| | | | | | | | | | | | | |
| For the six months ended June 30, |
| 2012 | | % of Segment Revenues | | 2011 | | % of Segment Revenues |
Operating income (loss): | | | | | | | |
United States electrical construction and facilities services | $ | 45,975 |
| | 7.8 | % | | $ | 40,846 |
| | 7.1 | % |
United States mechanical construction and facilities services | 51,835 |
| | 4.5 | % | | 46,090 |
| | 5.1 | % |
United States facilities services | 27,945 |
| | 2.5 | % | | 30,055 |
| | 3.4 | % |
Total United States operations | 125,755 |
| | 4.4 | % | | 116,991 |
| | 4.9 | % |
United Kingdom construction and facilities services | 7,444 |
| | 2.7 | % | | 6,393 |
| | 2.6 | % |
Corporate administration | (30,721 | ) | | — |
| | (30,403 | ) | | — |
|
Restructuring expenses | — |
| | — |
| | (1,099 | ) | | — |
|
Total worldwide operations | 102,478 |
| | 3.3 | % | | 91,882 |
| | 3.5 | % |
Other corporate items: | | | | | | | |
Interest expense | (3,653 | ) | | | | (5,550 | ) | | |
Interest income | 784 |
| | | | 1,031 |
| | |
Income from continuing operations before income taxes | $ | 99,609 |
| | | | $ | 87,363 |
| | |
As described below in more detail, operating income was $56.3 million and $102.5 million for the three and six months ended June 30, 2012, respectively, and $50.0 million and $91.9 million for the three and six months ended June 30, 2011, respectively. Operating margin was 3.5% for the three months ended June 30, 2012 compared to 3.7% for the three months ended June 30, 2011, and operating margin was 3.3% for the six months ended June 30, 2012 compared to 3.5% for the six months ended June 30, 2011.
Operating income of our United States electrical construction and facilities services segment for the three and six months ended June 30, 2012 was $22.4 million and $46.0 million, respectively, compared to operating income of $26.4 million and $40.8 million for the three and six months ended June 30, 2011, respectively. The decrease in operating income for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was primarily attributable to lower gross profit from hospitality construction projects, principally in the Las Vegas market, and smaller quick turn projects. This decrease was partially
offset by an increase in gross profit from institutional, water and wastewater and industrial construction projects. The increase in operating income for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 was primarily the result of an increase in gross profit from water and wastewater construction projects, primarily in the New York market, and from industrial, institutional and transportation construction projects, as well as the favorable resolution of a construction claim on a healthcare project in the first half of 2012. These increases were partially offset by a decrease in gross profit attributable to hospitality construction projects, primarily within the Las Vegas market. Additionally, the first half of 2011 benefited from the favorable resolution of uncertainties on a completed institutional construction project. Selling, general and administrative expenses increased for both periods in 2012 compared to 2011 due to an increase in the provision for doubtful accounts and employment costs. The decrease in operating margin for the three months ended June 30, 2012 was primarily the result of a decrease in gross profit margin and an increase in selling, general and administrative expenses as a percentage of revenues. The increase in operating margin for the six months ended June 30, 2012 was primarily the result of an increase in gross profit margin.
Our United States mechanical construction and facilities services segment operating income for the three months ended June 30, 2012 was $30.0 million, a $7.3 million increase compared to operating income of $22.8 million for the three months ended June 30, 2011. Operating income for the six months ended June 30, 2012 was $51.8 million, a $5.7 million increase compared to operating income of $46.1 million for the six months ended June 30, 2011. The increase in operating income for both periods, excluding the effect of acquisitions, was primarily due to an increase in gross profit from commercial and industrial construction projects, partially offset by lower gross profit from hospitality, healthcare and institutional construction projects. Additionally, companies acquired in 2012 and 2011 generated $1.9 million and $3.6 million, net of amortization expense of zero and $0.3 million attributable to identifiable intangible assets, of operating income for the three and six months ended June 30, 2012, respectively. Selling, general and administrative expenses increased for the three and six months ended June 30, 2012 compared to the same period in 2011, excluding the effect of acquisitions, primarily due to increased employee related costs, such as salaries, employee benefits and incentive compensation, principally as a result of the addition of staff at several locations, partially offset by lower professional fees. The increase in operating margin for the three months ended June 30, 2012 was primarily the result of a decrease in selling, general and administrative expenses as a percentage of revenues, partially offset by a reduction in gross profit margin. The decrease in operating margin for the six months ended June 30, 2012 was primarily the result of a reduction in gross profit margin, partially offset by a decrease in selling, general and administrative expenses as a percentage of revenues.
Operating income of our United States facilities services segment for the three months ended June 30, 2012 increased by $0.7 million compared to operating income for the three months ended June 30, 2011, and operating income for the six months ended June 30, 2012 decreased by $2.1 million compared to operating income for the six months ended June 30, 2011. The increase in operating income for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was primarily attributable to an increase in gross profit from our mobile mechanical and industrial services operations. This increase was partially offset by lower gross profit from our commercial site-based operations, excluding the effect of an acquisition, predominantly due to the timing of start up and transition costs at new clients. The decrease in operating income for the six months ended June 30, 2012 as compared to the same period in 2011 was partially attributable to lower gross profit from our commercial site-based operations, excluding the effect of an acquisition, predominantly as a result of the reason mentioned above and a decline in snow removal revenues. This decrease was partially offset by an increase in gross profit from our mobile mechanical and government site-based operations. Both periods were negatively impacted by an increase in selling, general and administrative expenses, excluding the effect of acquisitions, primarily due to: (a) an increase in employee related costs, such as salaries, employee benefits and incentive compensation, partially as a result of the addition of staff at several locations and (b) other discretionary spending. Additionally, companies acquired in 2011 negatively impacted operating income by $1.3 million and $1.9 million, including $2.3 million and $4.7 million of amortization expense associated with identifiable intangible assets for the three and six months ended June 30, 2012, respectively, primarily due to a decline in snow removal revenues as a result of the unseasonably warm winter experienced throughout most of the Eastern United States, lower business volume and lower gross margins. The decrease in operating margin for both periods was primarily the result of a reduction in gross profit margins.
Our United Kingdom construction and facilities services segment operating income for the three and six months ended June 30, 2012 was $4.0 million and $7.4 million, respectively, compared to operating income of $3.8 million and $6.4 million for the three and six months ended June 30, 2011, respectively. The increase in operating income for both 2012 periods was primarily attributable to an increase in gross profit from its facilities services operations, partially as a result of an increase in small project work in the commercial market. This increase was partially offset by lower gross profit from its construction operations and an increase in selling, general and administrative expenses, partly attributable to a reduction in the provision for doubtful accounts in the 2011 periods due to the favorable settlements of amounts previously determined to be uncollectible and to higher professional and staff development fees in the 2012 periods. The decrease in operating margin for the three months ended June 30, 2012 was primarily the result of a decrease in gross profit margin from its construction business compared to the same period in 2011. The increase in operating margin for the six months ended June 30, 2012 was primarily the result of a decrease in selling, general and administrative expenses as a percentage of revenues.
Our corporate administration expenses for the three months ended June 30, 2012 were $15.6 million compared to $17.6
million for the three months ended June 30, 2011. Our corporate administration expenses for the six months ended June 30, 2012 were $30.7 million compared to $30.4 million for the six months ended June 30 2011. The decrease in expenses for the three months ended June 30, 2012 compared to the same period in 2011 was primarily due to approximately $4.5 million of transaction costs associated with an acquisition made in the second quarter of 2011, partially offset by higher share-based compensation costs.
Interest expense for the three months ended June 30, 2012 and 2011 was $1.9 million and $2.8 million, respectively. Interest expense for the six months ended June 30, 2012 and 2011 was $3.7 million and $5.6 million, respectively. The reduction in interest expense for both periods was primarily due to lower interest rates under a new credit facility entered into in late 2011. Interest income for the three months ended June 30, 2012 was $0.4 million compared to $0.5 million for the three months ended June 30, 2011. Interest income for the six months ended June 30, 2012 was $0.8 million compared to $1.0 million for the six months ended June 30, 2011. The decrease in interest income for both periods was primarily related to lower invested cash balances and lower interest rates on our invested cash balances.
For the three months ended June 30, 2012 and 2011, our income tax provision from continuing operations was $20.8 million and $17.9 million, respectively, based on effective income tax rates, before discrete items, of 38.2% and 38.6%, respectively. The actual income tax rates on income from continuing operations before income taxes, less amounts attributable to noncontrolling interests, for the three months ended June 30, 2012 and 2011, inclusive of discrete items, were 38.3% and 37.9%, respectively. For the six months ended June 30, 2012 and 2011, our income tax provision from continuing operations was $37.8 million and $33.0 million, respectively, based on effective income tax rates, before discrete items, of 38.3% and 38.6%, respectively. The actual income tax rates on income from continuing operations before income taxes, less amounts attributable to noncontrolling interests, for the six months ended June 30, 2012 and 2011, inclusive of discrete items, were 38.4% and 38.3%, respectively. The increase in the 2012 income tax provisions for both periods was primarily due to increased income before income taxes and a change in the allocation of earnings among various jurisdictions.
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 six months ended June 30, |
| 2012 | | 2011 |
Net cash (used in) provided by operating activities | $ | (11,593 | ) | | $ | 6,286 |
|
Net cash used in investing activities | $ | (38,995 | ) | | $ | (312,168 | ) |
Net cash used in financing activities | $ | (27,192 | ) | | $ | (1,253 | ) |
Effect of exchange rate changes on cash and cash equivalents | $ | 730 |
| | $ | 2,845 |
|
Our consolidated cash balance decreased by approximately $77.1 million from $511.3 million at December 31, 2011 to $434.3 million at June 30, 2012. Net cash used in operating activities for the six months ended June 30, 2012 was $11.6 million compared to $6.3 million of net cash provided by operating activities for the six months ended June 30, 2011. The increase in net cash used in operating activities was primarily due to changes in our working capital, including a net decrease in contracts in progress, a reduction in accounts payable and a reduction in accruals for payroll and benefits resulting from the payment of 2011 incentive compensation awards, partially offset by a decrease in accounts receivable. Net cash used in investing activities of $39.0 million for the six months ended June 30, 2012, compared to net cash used in investing activities of $312.2 million for the six months ended June 30, 2011, was primarily due to a $281.7 million decrease in payments for acquisitions of businesses. Net cash used in financing activities for the six months ended June 30, 2012 of $27.2 million, compared to $1.3 million of net cash used in financing activities for the six months ended June 30, 2011, was primarily impacted by the repurchase of common stock and the payment of dividends.
The following is a summary of material contractual obligations and other commercial commitments (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 4-5 years | | After 5 years |
Revolving Credit Facility (including interest at 1.76%) (1) | | $ | 161.8 |
| | $ | 2.7 |
| | $ | 5.4 |
| | $ | 153.7 |
| | $ | — |
|
Capital lease obligations | | 5.8 |
| | 1.5 |
| | 3.0 |
| | 1.2 |
| | 0.1 |
|
Operating leases | | 208.0 |
| | 55.8 |
| | 80.1 |
| | 45.7 |
| | 26.4 |
|
Open purchase obligations (2) | | 861.3 |
| | 707.7 |
| | 136.7 |
| | 16.9 |
| | — |
|
Other long-term obligations (3) | | 270.6 |
| | 40.2 |
| | 220.6 |
| | 9.8 |
| | — |
|
Liabilities related to uncertain income tax positions | | 8.2 |
| | 0.3 |
| | 6.4 |
| | 1.5 |
| | — |
|
Total Contractual Obligations | | $ | 1,515.7 |
| | $ | 808.2 |
| | $ | 452.2 |
| | $ | 228.8 |
| | $ | 26.5 |
|
| | | | | | | | | | |
| | | | Amount of Commitment Expiration by Period |
Other Commercial Commitments | | Total Committed | | Less than 1 year | | 1-3 years | | 4-5 years | | After 5 years |
Letters of credit | | $ | 93.0 |
| | $ | 93.0 |
| | $ | — |
| | $ | — |
| | $ | — |
|
_________
| |
(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 2011 Revolving Credit Facility expires in November 2016. As of June 30, 2012, there were borrowings of $150.0 million outstanding under the 2011 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 EMCOR’s Condensed Consolidated Balance Sheets and should not impact future cash flows, as amounts should be recovered through customer billings. |
| |
(3) | Represents primarily insurance related liabilities and liabilities for deferred income taxes, incentive compensation and earn-out arrangements, 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 post retirement 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 November 21, 2011, we had a revolving credit agreement (the “2010 Revolving Credit Facility”), as amended, which provided for a credit facility of $550.0 million. The 2010 Revolving Credit Facility was effective February 4, 2010 and replaced an earlier revolving credit facility (the “2005 Revolving Credit Facility”) of $375.0 million. Effective November 21, 2011, we replaced the 2010 Revolving Credit Facility that was due to expire February 4, 2013 with an amended and restated $750.0 million revolving credit facility (the “2011 Revolving Credit Facility”). The 2011 Revolving Credit Facility expires on November 21, 2016 and permits us to increase our borrowing to $900.0 million if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $250.0 million of the borrowing capacity under the 2011 Revolving Credit Facility to letters of credit, which amount compares to $175.0 million under the 2010 Revolving Credit Facility and $125.0 million under the 2005 Revolving Credit Facility. The 2011 Revolving Credit Facility is guaranteed by most 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 2011 Revolving Credit Facility contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on 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 2011 Revolving Credit Facility, which ranges from 0.25% to 0.35%, based on certain financial tests. The fee is 0.25% of the unused amount as of June 30, 2012. Borrowings under the 2011 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 June 30, 2012) plus 0.50% to 1.00%, based on certain financial tests or (2) United States dollar LIBOR (0.26% at June 30, 2012) plus 1.50% to 2.00%, based on certain financial tests. The interest rate in effect at June 30, 2012 was 1.76%. Letter of credit fees issued under this facility range from 1.50% to 2.00% of the respective face amounts of the letters of credit issued and are computed based on certain financial tests. We capitalized approximately $4.2 million of debt issuance costs associated with the 2011 Revolving Credit Facility. This amount is being amortized over the life of the facility and is included as part of interest expense. As of June 30, 2012 and December 31, 2011, we had approximately $93.0 million and $83.1 million of letters of credit outstanding, respectively. We have borrowings of $150.0 million outstanding under the 2011 Revolving Credit Facility at June 30, 2012, which may remain outstanding at our discretion until the 2011 Revolving Credit Facility expires.
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 June 30, 2012, based on our percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.0 billion. The Surety Bonds are issued by Surety Companies in return for premiums, which vary depending on the size and type of bond.
We continually monitor our available limits of Surety Bonds, which we believe to be adequate, 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, 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 would 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.
From time to time in the ordinary course of business, we guarantee obligations of our subsidiaries under certain contracts. Generally, we are liable under such an arrangement only if our subsidiary fails to perform its obligations under the contract. Historically, we have not incurred any substantial liabilities as a consequence of these guarantees.
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 2011 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. 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 $260.8 million and $326.9 million as of June 30, 2012 and December 31, 2011, respectively.
On September 26, 2011, our Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. During 2012, we repurchased approximately 0.8 million shares of our common stock for approximately $21.2 million. As of June 30, 2012, there remained authorization for us to repurchase approximately $51.3 million of our shares. The repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended, recommenced or discontinued at any time or from time to time without prior notice. Acquisitions under our repurchase program may be made from time to time as permitted by securities laws and other legal requirements, including provisions in our revolving credit facility placing limitations on such repurchases. The repurchase program has been and will be funded from our operations.
On September 26, 2011, we announced our plans to pay a regular quarterly dividend of $0.05 per common share. We have paid quarterly dividends since October 25, 2011, and we will pay a quarterly dividend on July 30, 2012. Prior to October 25, 2011, no cash dividends had been paid on the Company’s common stock. Our revolving credit facility places limitations on the payment of dividends on our common stock. However, we do not believe that the terms of the credit facility currently materially limit our ability to pay a quarterly dividend of $0.05 per share for the foreseeable future. The payment of dividends has been and will be funded from our operations.
Long-term liquidity requirements can be expected to be met initially through cash generated from operating activities and our 2011 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 2011 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 $10.0 million. We do not believe that any such matters will have a materially adverse effect on our financial position, results of operations or liquidity.
Certain Insurance Matters
As of June 30, 2012 and December 31, 2011, we utilized approximately $93.0 million and $82.9 million, respectively, of letters of credit obtained under our 2011 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 2, 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 2 – 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, 2011. We adopted two new accounting pronouncements during the six months ended June 30, 2012 (see Note 2, “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 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. 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.
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. Provisions for the entirety of estimated losses on uncompleted contracts are made in the period in which such losses are determined.
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. At June 30, 2012 and December 31, 2011, our accounts receivable of $1,194.2 million and $1,187.8 million, respectively, included allowances for doubtful accounts of $16.0 million and $16.7 million, respectively. The decrease in our allowance for doubtful accounts was due to the recovery of amounts previously determined to be uncollectible and the write-off of accounts receivable against the allowance for doubtful accounts. 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 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 healthcare 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 liabilities at June 30, 2012 and December 31, 2011 of $30.0 million and $29.0 million, respectively, primarily resulting from differences between the carrying value and income tax basis of certain identifiable intangible assets and depreciable fixed 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 June 30, 2012 and December 31, 2011, the total valuation allowance on gross deferred income tax assets was approximately $3.2 million and $3.4 million, respectively.
Goodwill and Identifiable Intangible Assets
As of June 30, 2012, we had $567.7 million and $356.0 million, respectively, of goodwill and net identifiable intangible assets (primarily consisting of our contract backlog, developed technology/vendor network, customer relationships, non-competition agreements and trade names), primarily arising out of the acquisition of companies. As of December 31, 2011, goodwill and net identifiable intangible assets were $566.8 million and $370.4 million, respectively. The changes to goodwill and net identifiable intangible assets (net of accumulated amortization) since December 31, 2011 were primarily related to the acquisition of a company during the first half of 2012. 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, as well as macroeconomic conditions. ASC Topic 350, “Intangibles—Goodwill 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.
We test for impairment of our goodwill at the reporting unit level. In assessing whether our goodwill is impaired, we first qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount using various factors. If after this assessment we are unable to determine that the fair value of a reporting unit exceeds the carrying amount, we proceed to the two-step process as prescribed by ASC 350. The first step of this test compares the fair value of the reporting unit, determined based upon discounted estimated future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying amount, no further work is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is potentially impaired and step two of the goodwill impairment test would need to be performed to measure the amount of an impairment loss, if any. In the second step, the impairment
is computed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount of the excess is recognized and charged to operations. No impairment of our goodwill was recognized for either of the three or six month periods ended June 30, 2012 and 2011.
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. As a result of the annual impairment review of the fair value of trade names, we recognized a $1.0 million non-cash impairment charge of trade names associated with certain prior acquisitions during 2011. These trade names are reported within our United States facilities services segment. No additional impairment of our trade names was recognized for either of the three or six month periods ended June 30, 2012 and 2011.
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. As a result of the annual impairment review, we recognized a $2.8 million non-cash impairment charge as a result of a change in the fair value of customer relationships associated with certain prior acquisitions reported within our United States facilities services segment during 2011. For either of the three or six month periods ended June 30, 2012 and 2011, no impairment of our other identifiable intangible assets was recognized.
As of June 30, 2012, we had $567.7 million of goodwill on our balance sheet and, of this amount, approximately 64.0% relates to our United States facilities services segment, approximately 35.3% relates to our United States mechanical construction and facilities services segment and approximately 0.7% relates to our United States electrical construction and facilities services segment. As of the date of our latest impairment test, October 1, 2011, the fair value of our United States mechanical construction and facilities services segment and our United States electrical construction and facilities services segment significantly exceeded their carrying values by approximately $346.9 million and $285.6 million, respectively. As a result of a previously recognized impairment within our United States facilities services segment of $210.6 million in 2010, the assets were written down to fair value. Consequently, as of the date of our latest impairment test (October 1, 2011), the fair value of our United States facilities services segment only exceeded the carrying value by $88.3 million. The weighted average cost of capital used in testing goodwill for impairment was 13.6% and 12.3% for our domestic construction and facilities services segments and our United States facilities services segment, respectively. The perpetual growth rate used was 2.7% for our domestic segments.
As disclosed in 2012's Management Discussion and Analysis, due to challenging overall economic conditions and external factors (in particular, weather negatively impacting certain businesses whose results are weather dependent), our United States facilities services segment has not performed to our expectations. As such, future performance of this segment along with a continued evaluation of the conditions of its end user markets will be important to ongoing impairment assessments. Should its actual results suffer a decline or expected future results be revised downward, the risk of goodwill impairment would increase.
Our development of the present value of future cash flow projections used in impairment testing is based upon assumptions and estimates by management from reviews of our operating results, business plans, anticipated growth rates and margins, and weighted average cost of capital, among others. Those assumptions and estimates can change in future periods, and other factors used in assessing fair value are outside the control of management, such as interest rates. There can be no assurance that estimates and assumptions made for purposes of our goodwill and identifiable asset impairment testing will prove to be accurate predictions of the future. If our assumptions regarding future business performance or anticipated growth rates and/or margins are not achieved, or there is a rise in interest rates, we may be required to record goodwill and/or identifiable asset impairment charges in future periods.
Although we have not yet conducted our October 1, 2012 goodwill and other impairment tests, there have been no impairments recognized through the first six months of 2012. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have not used any derivative financial instruments during the six months ended June 30, 2012, 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 2011 Revolving Credit Facility. Borrowings under the 2011 Revolving Credit Facility bear interest at variable rates. As of June 30, 2012, there were borrowings of $150.0 million outstanding under the 2011 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 June 30, 2012) plus 0.50% to 1.00% based on certain financial tests or (2) United States dollar LIBOR (0.26% at June 30, 2012) plus 1.50% to 2.00% based on certain financial tests. The interest rate in effect at June 30, 2012 was 1.76%. Based on the $150.0 million borrowings outstanding on the 2011 Revolving Credit Facility, if overall interest rates were to increase by 25 basis points, interest expense, net of income taxes, would increase by approximately $0.2 million in the next twelve months. Conversely, if overall interest rates were to decrease by 25 basis points, interest expense, net of income taxes, would decrease by approximately $0.2 million in the next twelve months. Letter of credit fees issued under this facility range from 1.50% to 2.00% of the respective face amounts of the letters of credit issued and are charged based on certain financial tests. The 2011 Revolving Credit Facility expires on November 21, 2016. There is no guarantee that we will be able to renew the 2011 Revolving Credit Facility at its expiration.
We are also exposed to construction market risk and its potential related impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain on-going discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, we believe we take appropriate action to manage market and other risks, but there is no assurance that we will be able to reasonably identify all risks with respect to collectibility of these assets. See also the previous discussion of Accounts Receivable under the heading, “Application of Critical Accounting Policies” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Amounts invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect at the end of the period. The resulting translation adjustments are recorded as accumulated other comprehensive income (loss), a component of 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 commodities, if they were to occur, would be recoverable. Additionally, our fixed price contracts do not allow us to adjust our prices and, as a result, increases in material or fuel costs could reduce our profitability with respect to projects in progress.
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 President and Chief Executive Officer, Anthony J. Guzzi, 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 Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. – OTHER INFORMATION.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table summarizes repurchases of our common stock made during the quarter ended June 30, 2012 by us:
|
| | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan or Programs |
April 1, 2012 to April 30, 2012 | | 3,600 | | $26.00 | | 3,600 | | $59,190,932 |
| | | | | | | | |
May 1, 2012 to May 31, 2012 | | 192,655 | | $27.53 | | 192,655 | | $53,881,658 |
| | | | | | | | |
June 1, 2012 to June 30, 2012 | | 100,101 | | $25.88 | | 100,101 | | $51,288,254 |
| |
(1) | On September 26, 2011, we announced that our Board of Directors had authorized the Company to repurchase up to $100.0 million of its outstanding common stock. The repurchase program remains in effect. No other shares have been repurchased since the program has been announced other than pursuant to this publicly announced program. Acquisitions under our repurchase program may be made from time to time as permitted by securities laws and other legal requirements. |
ITEM 4. MINE SAFETY DISCLOSURES.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 26, 2012
|
| |
| EMCOR GROUP, INC. |
| (Registrant) |
| |
BY: | /s/ ANTHONY J. GUZZI |
| Anthony J. Guzzi |
| President and Chief Executive Officer (Principal Executive Officer) |
| |
BY: | /s/ MARK A. POMPA |
| Mark A. Pompa |
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
| | | | |
Exhibit No. | | Description | | Incorporated By Reference to or Page Number |
| | | | |
2(a-1) | | Purchase Agreement dated as of February 11, 2002 by and among Comfort Systems USA, Inc. and EMCOR-CSI Holding Co. | | Exhibit 2.1 to EMCOR Group, Inc.’s (“EMCOR”) Report on Form 8-K dated February 14, 2002 |
2(a-2) | | Purchase and Sale Agreement dated as of August 20, 2007 between FR X Ohmstede Holdings LLC and EMCOR Group, Inc. | | Exhibit 2.1 to EMCOR’s Report on Form 8-K (Date of Report August 20, 2007) |
3(a-1) | | Restated Certificate of Incorporation of EMCOR filed December 15, 1994 | | Exhibit 3(a-5) to EMCOR’s Registration Statement on Form 10 as originally filed March 17, 1995 (“Form 10”) |
3(a-2) | | Amendment dated November 28, 1995 to the Restated Certificate of Incorporation of EMCOR | | Exhibit 3(a-2) to EMCOR’s Annual Report on Form 10-K for the year ended December 31, 1995 (“1995 Form 10-K”) |
3(a-3) | | Amendment dated February 12, 1998 to the Restated Certificate of Incorporation of EMCOR | | Exhibit 3(a-3) to EMCOR’s Annual Report on Form 10-K for the year ended December 31, 1997 (“1997 Form 10-K”) |
3(a-4) | | Amendment dated January 27, 2006 to the Restated Certificate of Incorporation of EMCOR | | Exhibit 3(a-4) to EMCOR’s Annual Report on Form 10-K for the year ended December 31, 2005 (“2005 Form 10- K”) |
3(a-5) | | Amendment dated September 18, 2007 to the Restated Certificate of Incorporation of EMCOR | | Exhibit A to EMCOR’s Proxy Statement dated August 17, 2007 for Special Meeting of Stockholders held September 18, 2007 |
3(b) | | Amended and Restated By-Laws | | Exhibit 3(b) to EMCOR’s Annual Report on Form 10-K for the year ended December 31, 1998 (“1998 Form 10-K”) |
4(a) | | Third Amended and Restated Credit Agreement dated as of November 21, 2011 by and among EMCOR Group, Inc. and a subsidiary and Bank of Montreal, as Agent and the lenders listed on the signature pages thereof (the “Credit Agreement”) | | Exhibit 4.1(a) to EMCOR’s Report on Form 8-K (Date of Report November 21, 2011) (“November 2011 Form 8-K”) |
4(b) | | 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 | | Exhibit 4.1(b) to the EMCOR’s Report on Form 8-K (Date of Report February 4, 2010) (“February 2010 Form 8-K”) |
4(c) | | First Supplement to Third Amended and Restated Security Agreement dated as of November 21, 2011 among the Company, certain of its U.S. subsidiaries, and Bank of Montreal, as Agent | | Exhibit 4.1(b) to the November 2011 Form 8-K |
4(d) | | 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 | | Exhibit 4.1(c) to the February 2010 Form 8-K |
4(e) | | First Supplement to Third Amended and Restated Pledge Agreement dated as of November 21, 2011 among the Company, certain of its U.S. subsidiaries, and Bank of Montreal, as Agent | | Exhibit 4.1(c) to the November 2011 Form 8-K |
4(f) | | Second Amended and Restated Guaranty Agreement dated as of February 4, 2010 by certain of EMCOR’s U.S. subsidiaries in favor of Bank of Montreal, as Agent | | Exhibit 4.1(d) to the February 2010 Form 8-K |
4(g) | | Reaffirmation and First Supplement to Second Amended and Restated Guaranty Agreement dated as of November 21, 2011 by certain of the Company’s U.S. subsidiaries in favor of Bank of Montreal, as Agent | | Exhibit 4.1(d) to the November 2011 Form 8-K |
10(a) | | Form of Severance Agreement (“Severance Agreement”) between EMCOR and each of Sheldon I. Cammaker, R. Kevin Matz and Mark A. Pompa | | Exhibit 10.1 to the April 2005 Form 8-K |
|
| | | | |
Exhibit No. | | Description | | Incorporated By Reference to or Page Number |
| | | | |
10(b) | | Form of Amendment to Severance Agreement between EMCOR and each of Sheldon I. Cammaker, R. Kevin Matz and Mark A. Pompa | | Exhibit 10(c) to EMCOR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (“March 2007 Form 10-Q”) |
10(c) | | Letter Agreement dated October 12, 2004 between Anthony Guzzi and EMCOR (the “Guzzi Letter Agreement”) | | Exhibit 10.1 to EMCOR’s Report on Form 8-K (Date of Report October 12, 2004) |
10(d) | | Form of Confidentiality Agreement between Anthony Guzzi and EMCOR | | Exhibit C to the Guzzi Letter Agreement |
10(e) | | Form of Indemnification Agreement between EMCOR and each of its officers and directors | | Exhibit F to the Guzzi Letter Agreement |
10(f-1) | | Severance Agreement (“Guzzi Severance Agreement”) dated October 25, 2004 between Anthony Guzzi and EMCOR | | Exhibit D to the Guzzi Letter Agreement |
10(f-2) | | Amendment to Guzzi Severance Agreement | | Exhibit 10(g-2) to the March 2007 Form 10-Q |
10(g-1) | | Continuity Agreement dated as of June 22, 1998 between Sheldon I. Cammaker and EMCOR (“Cammaker Continuity Agreement”) | | Exhibit 10(c) to the June 1998 Form 10-Q |
10(g-2) | | Amendment dated as of May 4, 1999 to Cammaker Continuity Agreement | | Exhibit 10(i) to the June 1999 Form 10-Q |
10(g-3) | | Amendment dated as of March 1, 2007 to Cammaker Continuity Agreement | | Exhibit 10(m-3) to the March 2007 Form 10-Q |
10(h-1) | | Continuity Agreement dated as of June 22, 1998 between R. Kevin Matz and EMCOR (“Matz Continuity Agreement”) | | Exhibit 10(f) to the June 1998 Form 10-Q |
10(h-2) | | Amendment dated as of May 4, 1999 to Matz Continuity Agreement | | Exhibit 10(m) to the June 1999 Form 10-Q |
10(h-3) | | Amendment dated as of January 1, 2002 to Matz Continuity Agreement | | Exhibit 10(o-3) to EMCOR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (“March 2002 Form 10-Q”) |
10(h-4) | | Amendment dated as of March 1, 2007 to Matz Continuity Agreement | | Exhibit 10(n-4) to the March 2007 Form 10-Q |
10(i-1) | | Continuity Agreement dated as of June 22, 1998 between Mark A. Pompa and EMCOR (“Pompa Continuity Agreement”) | | Exhibit 10(g) to the June 1998 Form 10-Q |
10(i-2) | | Amendment dated as of May 4, 1999 to Pompa Continuity Agreement | | Exhibit 10(n) to the June 1999 Form 10-Q |
10(i-3) | | Amendment dated as of January 1, 2002 to Pompa Continuity Agreement | | Exhibit 10(p-3) to the March 2002 Form 10-Q |
10(i-4) | | Amendment dated as of March 1, 2007 to Pompa Continuity Agreement | | Exhibit 10(o-4) to the March 2007 Form 10-Q |
10(j-1) | | 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(j-2) | | Amendment dated as of March 1, 2007 to Guzzi Continuity Agreement | | Exhibit 10(p-2) to the March 2007 Form 10-Q |
10(k-1) | | Amendment dated as of March 29, 2010 to Severance Agreement with Sheldon I. Cammaker, Anthony J. Guzzi, 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(k-2) | | Amendment to Continuity Agreements and Severance Agreements with Sheldon I. Cammaker, Anthony J. Guzzi, R. Kevin Matz and Mark A. Pompa | | Exhibit 10(q) to EMCOR’s Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Form 10-K”) |