01—Abstract
Summary
Summary of the 10-K filed March 3, 1997. Cited figures are marked; the original filing is the authoritative source.
EMCOR Group, Inc. (formerly JWP Inc.) reported a return to modest profitability for fiscal 1996, with net income of $9.4 milliona, or $0.95 per share, compared with a net loss of $10.9 million, or $1.13 per share, in 1995.
Revenues rose about 5.1% to $1,669.3 millionb, driven by Western U.S. growth, though this was largely offset by weakness in the Northeast, Midwest, and U.K. Operating income improved to $17.1 million from $5.9 million, helped by cost controls and better job performance. However, the 1996 result was flattered by a $12.5 million pre-tax gain ($8.1 million after tax) from the sale of the Jamaica Water Supply business, and was partly held back by a $4.3 million arbitration settlement at Pace Mechanical.
The balance sheet strengthened, with stockholders' equity rising to $83.9 million and total assets shrinking to $614.7 millionc as the company retired its 7% Series A Notes using water-business sale proceeds. Liquidity appears adequate, supported by a $100 million revolving credit facility (of which $72.5 million is currently available) that expires in June 1999, and $50.7 million of cash. Backlog was roughly flat at $1,043.7 million versus $1,060.7 million a year earlier.
The company's net operating loss carryforwards of about $200 milliond could be valuable, but changes in ownership could limit their use. Investors should weigh several risks: thin margins (gross profit about 9.6% of revenue, net margin under 1%), a heavy reliance on competitive bidding, a leveraged capital structure with 11% Series C Notes due 2001, the absence of dividends for the foreseeable future, and an ongoing New York investigation involving subsidiary Forest Electric, together with the Computran litigation. The company's stock trades on Nasdaq under the symbol EMCG.
02—Key points
Key Highlights
- Revenue grew 5.1% to $1,669.3 million in 1996, led by Western U.S. operations, offset by declines in the Northeast, Midwest, and U.K.
- Net income of $9.4 million ($0.95 per share) compared with a net loss of $10.9 million in 1995, though the result included a $12.5 million one-time gain on the sale of water supply assets.
- Operating income rose to $17.1 million from $5.9 million, reflecting cost control and improved job performance, partly offset by a $4.3 million arbitration settlement.
- Year-end backlog of $1,043.7 million was broadly stable versus $1,060.7 million in 1995; U.S. backlog grew $56.7 million while Canada and the U.K. declined.
- Stockholders' equity increased to $83.9 million; total assets fell to $614.7 million after the Series A Notes (about $66.5 million) were repaid from water business sale proceeds.
- Liquidity is supported by a $100 million revolving credit facility with Harris Trust (expiring June 1999), $50.7 million of cash, and roughly $200 million of U.S. NOLs.
- No dividends are paid or expected, and the company is subject to ongoing legal matters, including the Computran lawsuit and a New York County investigation involving subsidiary Forest Electric.
03—Questions
Frequently Asked Questions
Is EMCOR profitable, and how did 1996 compare with 1995?
Yes, narrowly. EMCOR reported 1996 net income of $9.4 million, or $0.95 per share, versus a net loss of $10.9 million, or $1.13 per share, in 1995. About $8.1 million of after-tax gain from the sale of water supply assets contributed to the swing, so core operating profitability, while improved, remained modest.
What drove revenue and operating performance in 1996?
Revenue increased about 5.1% to $1,669.3 million. Growth in Western U.S. operations was largely offset by weaker Northeastern U.S. results (weather and competition), reduced Midwestern activity, and softness in the U.K. commercial market. Operating income rose to $17.1 million, supported by better gross profit from cost controls, though SG&A rose to $143.7 million including a $4.3 million arbitration charge.
How is the company financed, and is its debt manageable?
EMCOR relies on a $100 million revolving credit facility (about $72.5 million currently available, with $14.2 million of loans and $29.1 million of letters of credit outstanding) and the 11% Series C Notes, carried at about $66 million, due December 2001. Long-term debt totaled about $73 million at year-end. Management believes operating cash flow and credit availability will cover obligations through at least 1997, though the company's leverage and thin margins leave limited room for error.
What are the main risks for investors?
Key risks include: low margins and competitive bidding for most revenue; reliance on large fixed-price contracts with potential cost overruns and claims (about $73 million in claims and related amounts were recorded); exposure to the weak U.K. and Canadian commercial markets; ongoing litigation (Computran) and a New York criminal investigation touching subsidiary Forest Electric; and the possibility that an ownership change could limit NOL use. The company also pays no dividends and restricts payouts under its debt agreements.
Does the company pay dividends, and where does the stock trade?
EMCOR paid no dividends in 1995 or 1996 and does not expect to pay them in the foreseeable future. Its credit facility prohibits dividends before January 1, 1998, and the Series C Notes limit payments to 50% of cumulative net income. The common stock trades on the Nasdaq National Market under the symbol EMCG, with 9,514,636 shares outstanding as of February 24, 1997.
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