01—Abstract
Summary
Summary of the 10-K filed March 13, 1996. Cited figures are marked; the original filing is the authoritative source.
EMCOR Group, Inc. (formerly JWP Inc.) reported a 1995 net loss of $10.9 milliona, or $1.13 per share, on revenues of $1,588.7 million from continuing operations.
This was a return to near break-even after emerging from Chapter 11 on December 15, 1994. The company is a leading mechanical and electrical construction and facilities management provider in the U.S. and Canada, with a significant UK presence. Operating income improved to $5.9 millionb from an operating loss of $22.2 million in 1994, driven by a $41.3 million SG&A reduction and better margins on post-emergence contracts.
Backlog rose modestly to $1,060.7 millionc. The balance sheet remains highly leveraged and liquidity-constrained. Stockholders' equity was $70.6 million, and most of the company's debt is due within a year: the $62.0 million 7% Series A Senior Secured Notes are classified as current, and the $25.0 million MES and Dyn credit facilities mature June 14, 1996.
The company is actively working to replace or extend these facilities, and it obtained bondholder consents in February 1996 to amend fixed-charge coverage covenants. Operating cash flow was only $10.7 milliond. The company has a $225.0 million NOL carryforward, subject to Section 382 limitations after a further ownership change, and it pays no dividends.
The filing also discloses material legal and regulatory risks. A New York County DA investigation involves Forest Electric, one of EMCOR's largest subsidiaries, and the company's SEC settlement related to 1991-1992 accounting matters. Pending matters include the Computran litigation, a warrants lawsuit, and the condemnation proceedings over the Jamaica Water Supply business, which is being sold.
Proceeds from the water utility sale are critical to repaying the Series A Notes. Investors should weigh the turnaround progress against the near-term refinancing risk and litigation exposure.
02—Key points
Key Highlights
- 1995 revenues of $1,588.7 million, roughly flat versus $1,595.0 million in 1994 excluding businesses held for sale, with the net loss narrowing to $10.9 million ($1.13 per share) from 1994 net income of $302.4 million, which was inflated by a $413.2 million debt discharge gain
- Operating income swung to $5.9 million from a $22.2 million operating loss, aided by a $41.3 million reduction in SG&A expenses from cost-cutting
- Backlog of $1,060.7 million at year-end 1995, up slightly from $1,046.4 million, with U.S. backlog up $43.1 million offset by declines in Canada and the UK
- Stockholders' equity of $70.6 million after fresh-start accounting, with total assets of $710.9 million
- Near-term refinancing risk: $62.0 million of 7% Series A Notes classified as current, plus $25.0 million borrowed under credit facilities that expire June 14, 1996
- Operating cash flow was only $10.7 million, and the company carries $30.8 million in insurance cash collateral deposits because it cannot obtain letters of credit
- Significant legal exposure, including the New York County DA investigation involving subsidiary Forest Electric, the Computran litigation, and a 1995 SEC settlement related to prior accounting restatements
03—Questions
Frequently Asked Questions
Why did EMCOR report a net loss in 1995 after a large net income in 1994?
The 1994 result included a one-time $413.2 million extraordinary gain on debt discharge from the bankruptcy reorganization, plus $91.3 million of reorganization charges. Excluding these items, 1995 is a much better operating result: operating income turned positive at $5.9 million, versus a loss of $22.2 million in 1994. The 1995 net loss of $10.9 million mainly reflects $17.5 million of interest expense.
What is the biggest near-term financial risk for EMCOR investors?
Refinancing risk. The $62.0 million Series A Senior Secured Notes are classified as current liabilities and are expected to be repaid from proceeds of selling the water utility (Jamaica Water Supply) and other non-core subsidiaries. The $25.0 million in MES and Dyn credit facilities also mature June 14, 1996. The company says it is actively seeking to replace or extend these facilities and believes cash flow will be sufficient through at least 1996, but that depends on completing the asset sales and securing new financing.
What is the status of the water utility sale and why does it matter?
EMCOR has signed agreements to sell substantially all of Jamaica Water Supply Company's assets and all of Sea Cliff Water Company's stock. However, a New York condemnation proceeding has been complicated by a court decision that a 1986 state statute was unconstitutional, and the court has agreed to reconsider. The timing and value of the sale are uncertain. Proceeds are needed to prepay the Series A Notes, and the first $15.0 million goes to the bank lenders.
Is EMCOR paying dividends, and are there restrictions?
No. EMCOR has not paid dividends on its common stock during 1994 or 1995 and does not expect to pay any in the foreseeable future. Its working capital facility and Series A Notes prohibit dividends, and its Series C Notes limit dividends to 50% of cumulative consolidated net income since the Effective Date.
What legal issues could materially affect EMCOR?
The most notable issues are: (1) a New York County District Attorney investigation of Herbert Construction, with Forest Electric, one of EMCOR's largest subsidiaries, identified as a target; (2) the Computran lawsuit against Dynalectric alleging fraud and RICO violations, which the company intends to defend vigorously; (3) an appeal over the Warrants of Participation; and (4) the condemnation proceedings affecting the water utility sale. The company states it does not believe a significant liability will result from its ordinary-course matters, but it cannot predict the outcome of the principal matters.
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