01—Abstract
Summary
Summary of the 10-K filed February 23, 2000. Cited figures are marked; the original filing is the authoritative source.
EMCOR Group, Inc. (EME) closed fiscal 1999 with record scale: revenues rose 30.9% to $2.89 billiona (from $2.21 billion), driven by $476.1 million of revenue from companies acquired in 1998-1999 plus $207.5 million of organic growth.
EMCOR describes itself as the largest mechanical and electrical construction and facilities services firm in the United States and Canada, with operations in the UK and several international markets. Mix has shifted toward facilities services and renovation work, which together represent about 54%b of revenues and tend to be less cyclical than new construction. Profitability improved meaningfully.
Operating income climbed to $58.1 millionc (2.0% of revenues) from $37.2 million, and income before extraordinary items rose to $27.8 million, or $2.21 diluted EPS, versus $1.46 in 1998. Gross margin edged up to 10.2%, while SG&A held at 8.2% of revenue. Backlog grew 33% to $1.77 billion, providing visibility into 2000.
Balance sheet strengthened: stockholders' equity increased to $170.2 milliond, total assets reached $1.06 billion, and the company ended the year with $58.6 million in cash, though working capital needs rose sharply with receivables and billings. Key risks for investors include a sizable accounts receivable build ($713.6 million, with $128.7 million retainage), a pending ERISA class action tied to former JWP stock holdings, the Forest Electric/Herbert investigation, and the company's dependence on competitively bid, bonded projects. EMCOR pays no dividends, and its $115 million 5.75% convertible notes carry a $27.34 conversion price, well above the early-2000 share count and trading range.
02—Key points
Key Highlights
- Revenues grew 30.9% to $2.89 billion in 1999, with $476.1 million from acquisitions and $207.5 million from organic growth
- Operating income rose 56% to $58.1 million; diluted EPS increased to $2.21 from $1.46 in 1998
- Backlog reached $1.77 billion at December 31, 1999, up from $1.33 billion, including $316.0 million acquired with 1999 deals
- Facilities services and renovation/retrofit work made up roughly 54% of 1999 revenues, supporting less cyclical earnings
- Stockholders' equity increased to $170.2 million, and cash stood at $58.6 million at year-end
- Accounts receivable rose to $713.6 million, a key working-capital consideration, with $128.7 million of retainage
- No dividends paid; a pending ERISA class action and the Forest Electric investigation are disclosed legal risks
03—Questions
Frequently Asked Questions
How much of EMCOR's 1999 growth came from acquisitions versus its existing business?
Of the $682.5 million revenue increase, $476.1 million came from companies acquired in 1998 and 1999, and $207.5 million (about 9.4%) came from growth in the balance of existing operations. Backlog from 1999 acquisitions alone contributed $316.0 million.
Is EMCOR's profitability improving or just growing in size?
Both. Operating margin rose to 2.0% from 1.7%, and gross margin improved slightly to 10.2% from 10.1%. Net income before extraordinary items grew 63% to $27.8 million, though SG&A rose in dollar terms as the company expanded its facilities services platform.
What are the main risks to EMCOR's financial results?
Key risks include working-capital intensity (receivables and unbilled contract balances grew substantially), reliance on competitively bid and bonded projects, exposure to UK and Canadian operations, a class-action ERISA suit relating to JWP stock held in employee plans, and the unresolved investigation involving subsidiary Forest Electric. Management says it will vigorously defend these matters but cannot predict outcomes.
Does EMCOR pay dividends, and how is its debt structured?
EMCOR does not pay dividends and does not expect to in the foreseeable future; its credit facility also restricts them. Debt is modest relative to assets: $115.0 million of 5.75% convertible subordinated notes due 2005 (convertible at $27.34 per share), plus a $150 million secured revolving credit facility that had no borrowings outstanding at year-end 1999.
What does the backlog increase signal for 2000?
Backlog grew about 33% to $1.77 billion, with the largest increases in U.S. mechanical and electrical operations and Canada. Because backlog includes facilities services revenue expected over the next 12 months, it suggests continued revenue growth in 2000, although the filing does not provide a forecast and notes that results may differ materially from forward-looking statements.
04—Continue