UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2125338
--------------------------------- ---------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
301 Merritt Seven
Norwalk, Connecticut 06851-1092
--------------------------------- ---------------------------------
(Address of Principal Executive) (Zip Code)
Offices
(203) 849-7800
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(Registrant's Telephone Number, Including Area Code)
N/A
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(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 |_| 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
October 27, 2009: 65,929,843 shares.
EMCOR GROUP, INC.
INDEX
Page No.
PART I. - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets -
as of September 30, 2009 and December 31, 2008 1
Condensed Consolidated Statements of Operations -
three months ended September 30, 2009 and 2008 3
Condensed Consolidated Statements of Operations -
nine months ended September 30, 2009 and 2008 4
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 2009 and 2008 5
Condensed Consolidated Statements of
Equity and Comprehensive Income -
nine months ended September 30, 2009 and 2008 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 34
Item 4. Controls and Procedures. 35
PART II. - Other Information.
Item 6. Exhibits. 36
PART I. - FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
--------------------------------------------------------------------------------
September 30, December 31,
2009 2008
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 648,231 $ 405,869
Accounts receivable, net 1,182,851 1,390,973
Costs and estimated earnings in excess
of billings on uncompleted contracts 86,764 105,441
Inventories 39,895 54,601
Prepaid expenses and other 56,555 53,856
---------- ----------
Total current assets 2,014,296 2,010,740
Investments, notes and other long-term
receivables 21,463 14,958
Property, plant and equipment, net 92,813 96,716
Goodwill 587,259 582,714
Identifiable intangible assets, net 282,623 292,128
Other assets 11,675 11,148
---------- ----------
Total assets $3,010,129 $3,008,404
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
--------------------------------------------------------------------------------
September 30, December 31,
2009 2008
(Unaudited)
--------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Borrowings under working capital credit line $ -- $ --
Current maturities of long-term debt and capital
lease obligations 3,332 3,886
Accounts payable 390,504 500,881
Billings in excess of costs and estimated
earnings on uncompleted contracts 613,046 601,834
Accrued payroll and benefits 202,342 221,564
Other accrued expenses and liabilities 180,387 184,990
---------- ----------
Total current liabilities 1,389,611 1,513,155
Long-term debt and capital lease obligations 192,875 196,218
Other long-term obligations 239,840 248,262
---------- ----------
Total liabilities 1,822,326 1,957,635
---------- ----------
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, 68,549,029 and 68,089,280 shares
issued, respectively 686 681
Capital surplus 407,328 397,895
Accumulated other comprehensive loss (42,803) (49,318)
Retained earnings 830,084 708,511
Treasury stock, at cost 2,626,993 and 2,569,184
shares, respectively (15,869) (14,424)
---------- ----------
Total EMCOR Group, Inc. stockholders' equity 1,179,426 1,043,345
Noncontrolling interests 8,377 7,424
---------- ----------
Total equity 1,187,803 1,050,769
---------- ----------
Total liabilities and equity $3,010,129 $3,008,404
========== ==========
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 September 30, 2009 2008
--------------------------------------------------------------------------------
Revenues $1,371,985 $1,720,349
Cost of sales 1,166,740 1,496,003
---------- ----------
Gross profit 205,245 224,346
Selling, general and administrative expenses 137,895 145,708
Restructuring expenses 90 --
---------- ----------
Operating income 67,260 78,638
Interest expense (1,947) (2,535)
Interest income 788 2,373
---------- ----------
Income before income taxes 66,101 78,476
Income tax provision 25,624 28,936
---------- ----------
Net income including noncontrolling interests 40,477 49,540
Less: Net income attributable to noncontrolling
interests (491) (905)
---------- ----------
Net income attributable to EMCOR Group, Inc. $ 39,986 $ 48,635
========== ==========
Basic earnings per common share:
Net income attributable to EMCOR Group, Inc.
common stockholders $ 0.61 $ 0.74
========== ==========
Diluted earnings per common share:
Net income attributable to EMCOR Group, Inc.
common stockholders $ 0.59 $ 0.72
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
--------------------------------------------------------------------------------
Nine months ended September 30, 2009 2008
--------------------------------------------------------------------------------
Revenues $4,189,291 $5,104,724
Cost of sales 3,576,003 4,465,242
---------- ----------
Gross profit 613,288 639,482
Selling, general and administrative expenses 402,664 437,774
Restructuring expenses 4,200 71
---------- ----------
Operating income 206,424 201,637
Interest expense (5,640) (9,160)
Interest income 3,416 7,565
---------- ----------
Income before income taxes 204,200 200,042
Income tax provision 81,124 76,867
---------- ----------
Net income including noncontrolling interests 123,076 123,175
Less: Net income attributable to noncontrolling
interests (1,503) (1,258)
---------- ----------
Net income attributable to EMCOR Group, Inc. $ 121,573 $ 121,917
========== ==========
Basic earnings per common share:
Net income attributable to EMCOR Group, Inc.
common stockholders $ 1.85 $ 1.87
========== ==========
Diluted earnings per common share:
Net income attributable to EMCOR Group, Inc.
common stockholders $ 1.81 $ 1.82
========== ==========
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
-----------------------------------------------------------------------------------------------------
Nine months ended September 30, 2009 2008
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Cash flows from operating activities:
Net income including noncontrolling interests $123,076 $123,175
Depreciation and amortization 19,751 18,704
Amortization of identifiable intangible assets 14,400 17,972
Deferred income taxes 4,769 (15,327)
Excess tax benefits from share-based compensation (752) (1,318)
Equity income from unconsolidated entities (2,331) (1,959)
Other non-cash items 14,027 8,715
Distributions from unconsolidated entities 3,847 3,584
Changes in operating assets and liabilities 95,408 46,157
-------- --------
Net cash provided by operating activities 272,195 199,703
-------- --------
Cash flows from investing activities:
Payments for acquisitions of businesses, identifiable intangible assets
and related earn-out agreements (15,499) (47,847)
Proceeds from sale of property, plant and equipment 542 757
Purchase of property, plant and equipment (17,247) (25,191)
Investment in and advances to unconsolidated entities and joint ventures (8,000) (1,292)
Net proceeds related to other investments -- 8
-------- --------
Net cash used in investing activities (40,204) (73,565)
-------- --------
Cash flows from financing activities:
Proceeds from working capital credit line -- 58,500
Repayments of working capital credit line -- (58,500)
Repayments of long-term debt (2,291) (27,342)
Repayments of capital lease obligations (971) (715)
Proceeds from exercise of stock options 1,109 1,874
Issuance of common stock under employee stock purchase plan 1,580 --
Distributions to noncontrolling interests (550) --
Excess tax benefits from share-based compensation 752 1,318
-------- --------
Net cash used in financing activities (371) (24,865)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 10,742 (12,061)
-------- --------
Increase in cash and cash equivalents 242,362 89,212
Cash and cash equivalents at beginning of year 405,869 251,637
-------- --------
Cash and cash equivalents at end of period $648,231 $340,849
======== ========
Supplemental cash flow information:
Cash paid for:
Interest $ 4,466 $ 7,740
Income taxes $ 71,099 $ 91,542
Non-cash financing activities:
Assets acquired under capital lease obligations $ -- $ 480
Capital lease obligations terminated $ 674 $ --
Contingent purchase price accrued $ 1,818 $ --
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME
(In thousands)(Unaudited)
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EMCOR Group, Inc. Stockholders
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Accumulated
other
Comprehensive Common Capital comprehensive Retained Treasury Noncontrolling
Total income stock surplus (loss) income (1) earnings stock interests
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2008 $ 891,734 $678 $387,288 $(15,102) $526,307 $(14,130) $6,693
Net income including
noncontrolling interests 123,175 $123,175 -- -- -- 121,917 -- 1,258
Foreign currency translation
adjustments (5,407) (5,407) -- -- (5,407) -- -- --
Pension adjustment, net of tax
benefit of $0.5 million 1,214 1,214 -- -- 1,214 -- -- --
--------
Comprehensive income 118,982
Less: Net income attributable
to noncontrolling interests (1,258)
--------
Comprehensive income
attributable to EMCOR $117,724
========
Issuance of treasury stock
for restricted stock units (2) -- -- (108) -- -- 108 --
Treasury stock, at cost (3) (493) -- -- -- -- (493) --
Common stock issued under
stock option plans, net of
tax benefit (4) 4,141 2 4,048 -- -- 91 --
Distributions to noncontrolling
interests (1,200) -- -- -- -- -- (1,200)
Share-based compensation
expense 4,648 -- 4,648 -- -- -- --
---------- ---- -------- -------- -------- -------- ------
Balance, September 30, 2008 $1,017,812 $680 $395,876 $(19,295) $648,224 $(14,424) $6,751
========== ==== ======== ======== ======== ======== ======
Balance, January 1, 2009 $1,050,769 $681 $397,895 $(49,318) $708,511 $(14,424) $7,424
Net income including
noncontrolling interests 123,076 $123,076 -- -- -- 121,573 -- 1,503
Foreign currency translation
adjustments 4,917 4,917 -- -- 4,917 -- -- --
Pension adjustment, net of tax
benefit of $1.0 million 2,385 2,385 -- -- 2,385 -- -- --
Deferred loss on cash flow
hedge, net of tax benefit
of $0.5 million (787) (787) -- -- (787) -- -- --
--------
Comprehensive income 129,591
Less: Net income attributable
to noncontrolling interests (1,503)
--------
Comprehensive income
attributable to EMCOR $128,088
========
Treasury stock, at cost (3) (1,589) -- -- -- -- (1,589) --
Common stock issued under
share-based compensation
plans, net of tax
benefit (4) 2,002 5 1,853 -- -- 144 --
Common stock issued under
employee stock purchase plan 1,580 -- 1,580 -- -- -- --
Distributions to noncontrolling
interests (550) -- -- -- -- -- (550)
Share-based compensation
expense 4,428 -- 4,428 -- -- -- --
Capital contributed by selling
shareholders of acquired
business (5) 1,572 -- 1,572 -- -- -- --
---------- ---- -------- -------- -------- -------- ------
Balance, September 30, 2009 $1,187,803 $686 $407,328 $(42,803) $830,084 $(15,869) $8,377
========== ==== ======== ======== ======== ======== ======
(1) Represents cumulative foreign currency translation adjustments, pension
liability and derivative adjustments.
(2) Represents common stock transferred at cost from treasury stock upon the
issuance of restricted stock units.
(3) Represents value of shares of common stock withheld by EMCOR for income tax
withholding requirements upon the issuance of restricted stock units.
(4) Net of the tax benefit associated with share-based compensation of $0.9
million and $1.8 million for the nine months ended September 30, 2009 and
2008, respectively.
(5) Represents redistributed portion of acquisition-related payments to certain
employees of a company whose outstanding stock we acquired. These employees
were not shareholders of that company. Such payments were dependent on
continuing employment with us and were recorded as non-cash compensation
expense.
See Notes to Condensed Consolidated Financial Statements.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
without audit, pursuant to the interim period reporting requirements of Form
10-Q. Consequently, certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted.
References to the "Company," "EMCOR," "we," "us," "our" and words of similar
import refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the
context indicates otherwise. Readers of this report should refer to the
consolidated financial statements and the notes thereto included in our latest
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
In our opinion, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of a normal recurring
nature) necessary to present fairly our financial position and the results of
our operations. The results of operations for the three and nine month periods
ended September 30, 2009 are not necessarily indicative of the results to be
expected for the year ending December 31, 2009. We have evaluated all subsequent
events through the time of filing this Form 10-Q with the Securities and
Exchange Commission on October 29, 2009, the date the financial statements were
issued.
Certain reclassifications of prior year amounts have been made to conform to
current year presentation.
NOTE B New Accounting Pronouncements
On January 1, 2009, we adopted the accounting pronouncement for business
combinations, which changes the accounting for acquisitions, specifically
eliminating the step acquisition model, changing the recognition of contingent
consideration from being recognized when it is probable to being recognized at
the time of acquisition, disallowing the capitalization of transaction costs and
changing when restructurings related to acquisitions can be recognized. This
pronouncement only affects the accounting for acquisitions that are made after
its adoption.
On January 1, 2009, we adopted the accounting pronouncement for noncontrolling
interests in consolidated financial statements, which requires the recognition
of a noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from our equity. The amount of net income
attributable to the noncontrolling interest is included in consolidated net
income on the face of the income statement. This pronouncement also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest.
On January 1, 2009, we adopted the accounting pronouncement for disclosures
about derivative instruments and hedging activities, which requires entities to
provide enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for, and how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. Although this
pronouncement requires enhanced disclosures, its adoption did not affect our
financial position and results of operations.
On January 1, 2009, we adopted the accounting pronouncement for determination of
the useful life of intangible assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset. The
impact that the adoption of this pronouncement may have on our financial
position and results of operations will depend on the nature and extent of any
intangible assets acquired subsequent to its effective date.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE B New Accounting Pronouncements - (continued)
On January 1, 2009, we adopted the accounting pronouncement for determining
whether instruments granted in share-based payment transactions are
participating securities, which addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share pursuant to the two-class method. The pronouncement requires
companies to treat unvested share-based payment awards that have non-forfeitable
rights to dividends or dividend equivalents as a separate class of securities in
calculating earnings per share. The adoption of this pronouncement did not have
any effect on our results of operations.
On January 1, 2009, we adopted the accounting pronouncement for equity method
investment accounting considerations, which clarifies the accounting for certain
transactions and impairment considerations involving equity method investments.
The adoption of this pronouncement did not have any effect on our consolidated
financial statements.
On January 1, 2009, we adopted the accounting pronouncement for accounting for
assets acquired and liabilities assumed in a business combination that arise
from contingencies, which applies to all assets acquired and all liabilities
assumed in a business combination that arise from contingencies. This
pronouncement states that the acquirer will recognize such an asset or liability
if the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If it cannot be determined during the measurement
period, then the asset or liability should be recognized at the acquisition date
if the following criteria are met: (1) information is available before the
acquisition date and (2) the amount of the asset or liability can be reasonably
estimated. The adoption of this pronouncement did not have any effect on our
consolidated financial statements.
On June 30, 2009, we adopted the accounting pronouncement for interim
disclosures about fair value of financial instruments, which requires fair value
disclosures for financial instruments that are not reflected in the Condensed
Consolidated Balance Sheets at fair value. Prior to this pronouncement, the fair
values of those assets and liabilities were only disclosed annually. With the
issuance of this pronouncement, we are now required to disclose this information
on a quarterly basis. While the adoption of this pronouncement required enhanced
disclosures, it did not have any effect on our consolidated financial
statements.
On June 30, 2009, we adopted the accounting pronouncement for determining fair
value when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly, which
clarifies the methodology to be used to determine the fair value when there is
no active market or where the price inputs being used represent distressed
sales. The adoption of this pronouncement did not have any effect on our
consolidated financial statements.
On June 30, 2009, we adopted the accounting pronouncement for subsequent events,
which establishes the accounting for and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or are
available to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, that is,
whether that date represents the date the financial statements were issued or
were available to be issued. While the adoption of this pronouncement required
enhanced disclosure, it did not have any effect on our consolidated financial
statements.
On July 1, 2009, we adopted the accounting pronouncement for the Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
and the hierarchy of generally accepted accounting principles, which establishes
the ASC as the source of authoritative accounting principles recognized by the
FASB to be applied to nongovernmental entities in the preparation of financial
statements in conformity with generally accepted accounting principles in the
United States. The adoption of this pronouncement did not have any effect on our
consolidated financial statements.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE B New Accounting Pronouncements - (continued)
In December 2008, an accounting pronouncement was issued regarding the
employers' disclosures about postretirement benefit plan assets, which requires
that an employer provide objective disclosures about the plan assets of a
defined benefit pension plan or other postretirement plan, including disclosures
about investment policies and strategies, categories of plan assets, fair value
measurements of plan assets and significant concentrations of risk. This
pronouncement is effective for fiscal years ending after December 15, 2009, and,
as such, we plan to adopt the pronouncement as of December 31, 2009. Although
this pronouncement requires enhanced disclosures, its adoption will not affect
our financial position and results of operations.
In June 2009, an accounting pronouncement was issued regarding the consolidation
of variable interest entities, which changes the consolidation guidance related
to a variable interest entity ("VIE"). It also amends the guidance governing the
determination of whether an enterprise is the primary beneficiary of a VIE and
is, therefore, required to consolidate an entity, by requiring a qualitative
analysis rather than a quantitative analysis. The qualitative analysis will
include, among other things, consideration of who has the power to direct the
activities of the entity that most significantly impact the entity's economic
performance and who has the obligation to absorb the losses or the right to
receive the benefits of the VIE that could potentially be significant to the
VIE. This statement also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. It was previously required to
reconsider whether an enterprise is the primary beneficiary of a VIE only when
specific events had occurred. This pronouncement also requires enhanced
disclosures about an enterprise's involvement with a VIE. This pronouncement is
effective for interim and annual periods beginning after November 15, 2009, and,
as such, we plan to adopt this pronouncement on January 1, 2010. We have not
determined the effect, if any, that the adoption of the pronouncement may have
on our financial position and/or results of operations.
NOTE C Acquisitions of Businesses
On March 2, 2009, we acquired a company for an immaterial amount. This company
provides mobile mechanical services and has been included in our United States
facilities services reporting segment.
During 2008, we acquired five companies, which were not material individually or
in the aggregate, for an aggregate purchase price of $82.7 million. One of the
companies primarily provides industrial services to refineries, another
primarily provides industrial maintenance services, and two others primarily
perform mobile mechanical services. The four foregoing companies' results have
been included in our United States facilities services reporting segment. The
fifth company is a fire protection company that has been included in our United
States mechanical construction and facilities services reporting segment.
Goodwill and identifiable intangible assets attributable to these companies, in
the aggregate, were valued at $15.0 million and $48.8 million, respectively,
representing the excess of the aggregate purchase price over the fair value
amounts assigned to their net tangible assets.
We believe these acquisitions further our goals of service and geographical
diversification and/or expansion of our facilities services operations and fire
protection operations.
The purchase prices of certain of these acquisitions are subject to finalization
based on certain contingencies provided for in the purchase agreements. These
acquisitions were accounted for by the purchase method in 2008 and by the
acquisition method in 2009, and the purchase prices have been allocated to the
assets acquired and liabilities assumed, based upon the estimated fair values of
the respective assets and liabilities at the dates of the respective
acquisitions.
For both the three and nine month periods ended September 30, 2009, we recorded
approximately $1.6 million of non-cash compensation expense related to a
previous acquisition, with an offsetting amount recorded as a capital
contribution from the selling shareholders of the acquired company. This
non-cash expense represents a redistributed portion of acquisition-related
payments made by the former owners of the acquired company to certain employees.
These employees were not shareholders of the acquired company, and such payments
were dependent on continuing employment with us.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE D 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 nine month periods ended September 30,
2009 and 2008 (in thousands, except share and per share data):
For the
three months ended
September 30,
----------------------------
2009 2008
----------- -----------
Numerator:
Net income attributable to EMCOR Group, Inc. common stockholders $ 39,986 $ 48,635
=========== ===========
Denominator:
Weighted average shares outstanding used to compute basic earnings per common share 65,897,546 65,404,404
Effect of diluted securities - Share-based awards 1,654,073 2,021,318
----------- -----------
Shares used to compute diluted earnings per common share 67,551,619 67,425,722
=========== ===========
Basic earnings per common share:
Net income attributable to EMCOR Group, Inc. common stockholders $ 0.61 $ 0.74
=========== ===========
Diluted earnings per share:
Net income attributable to EMCOR Group, Inc. common stockholders $ 0.59 $ 0.72
=========== ===========
For the
nine months ended
September 30,
----------------------------
2009 2008
----------- -----------
Numerator:
Net income attributable to EMCOR Group, Inc. common stockholders $ 121,573 $ 121,917
=========== ===========
Denominator:
Weighted average shares outstanding used to compute basic earnings per common share 65,864,793 65,331,538
Effect of diluted securities - Share-based awards 1,414,302 1,833,342
----------- -----------
Shares used to compute diluted earnings per common share 67,279,095 67,164,880
=========== ===========
Basic earnings per common share:
Net income attributable to EMCOR Group, Inc. common stockholders $ 1.85 $ 1.87
=========== ===========
Diluted earnings per common share:
Net income attributable to EMCOR Group, Inc. common stockholders $ 1.81 $ 1.82
=========== ===========
There were 295,624 and 516,386 anti-dilutive stock options that were excluded
from the calculation of diluted EPS for the three and nine month periods ended
September 30, 2009, respectively. There were 120,000 and 285,624 anti-dilutive
stock options that were excluded from the calculation of diluted EPS for the
three and nine month periods ended September 30, 2008, respectively.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE E Inventories
Inventories consist of the following amounts (in thousands):
September 30, December 31,
2009 2008
------------- ------------
Raw materials and construction materials $ 19,512 $ 22,845
Work in process 20,383 31,756
------------- ------------
$ 39,895 $ 54,601
============= ============
NOTE F Investments, Notes and Other Long-Term Receivables
One of our subsidiaries has a 40% interest in a venture that designs,
constructs, owns, operates, leases and maintains facilities to produce chilled
water for sale to customers for use in air conditioning of commercial
properties. The other venture partner, Baltimore Gas and Electric (a subsidiary
of Constellation Energy), has a 60% interest. During the second quarter of 2009,
the venture, using its own cash and cash from additional capital contributions,
acquired its outstanding bonds in the principal amount of $25.0 million. As a
result of this, we were required to make an additional capital contribution of
$8.0 million to the venture.
NOTE G Long-Term Debt
Long-term debt in the accompanying Condensed Consolidated Balance Sheets
consisted of the following amounts (in thousands):
September 30, December 31,
2009 2008
------------- ------------
Term Loan $ 195,500 $ 197,750
Capitalized lease obligations 707 2,313
Other -- 41
------------- ------------
196,207 200,104
Less: current maturities 3,332 3,886
------------- ------------
$ 192,875 $ 196,218
============= ============
On September 19, 2007, we entered into an agreement providing for a $300.0
million term loan ("Term Loan"). The proceeds were used to pay a portion of the
consideration for the acquisition of FR X Ohmstede Acquisitions Co. ("Ohmstede")
and costs and expenses incident thereto. The Term Loan contains covenants,
representations and warranties and events of default. The Term Loan covenants
require, among other things, maintenance of certain financial ratios and certain
restrictions with respect to payment of dividends, common stock repurchases,
investments, acquisitions, indebtedness and capital expenditures. We are
required to make principal payments on the Term Loan in installments on the last
day of March, June, September and December of each year, which commenced in
March 2008, in the amount of $0.75 million. A final payment comprised of all
remaining principal and interest is due in October 2010. The Term Loan is
secured by substantially all of our assets and most of the assets of our U.S.
subsidiaries. The Term Loan bears interest at (1) the prime commercial lending
rate announced by Bank of Montreal from time to time (3.25% at September 30,
2009) plus 0.0% to 0.5% based on certain financial tests or (2) U.S. dollar
LIBOR (0.25% at September 30, 2009) plus 1.0% to 2.25% based on certain
financial tests. The interest rate in effect at September 30, 2009 was 1.25%
(see Note H, "Derivative Instrument and Hedging Activity"). We capitalized
approximately $4.0 million of debt issuance costs associated with the Term Loan.
This amount is being amortized over the life of the loan and is included as part
of interest expense. Since September 19, 2007, we have made prepayments under
the Term Loan of $99.25 million, and mandatory repayments of $5.25 million, to
reduce the balance to $195.5 million at September 30, 2009.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE H Derivative Instrument and Hedging Activity
On January 27, 2009, we entered into an interest rate swap agreement (the "Swap
Agreement") providing for an interest rate swap which hedges the interest rate
risk on our Term Loan. We do not enter into financial instruments for trading or
speculative purposes. The Swap Agreement is used to manage the variable interest
rate of our Term Loan and related overall cost of borrowing. We mitigate the
risk of counterparty nonperformance by choosing as our counterparty a major
reputable financial institution with an investment grade credit rating.
The derivative is recognized as either an asset or liability on our Condensed
Consolidated Balance Sheets with measurement at fair value, and changes in the
fair value of the derivative instrument reported in either net income or other
comprehensive income depending on the designated use of the derivative and
whether or not it meets the criteria for hedge accounting. The fair value of
this instrument reflects the net amount required to settle the position. The
accounting for gains and losses associated with changes in fair value of the
derivative and the related effects on the condensed consolidated financial
statements is subject to their hedge designation and whether they meet
effectiveness standards.
The Swap Agreement matures in October 2010, and has an amortizing notional
amount that coincides with our Term Loan. We pay a fixed rate of 1.225% and
receive a floating rate of 30 day LIBOR on the notional amount. This interest
rate swap has been designated as an effective cash flow hedge, whereby changes
in the cash flows from the swap perfectly offset the changes in the cash flows
associated with the floating rate of interest on the Term Loan (see Note G,
"Long-Term Debt"). The fair value of the interest rate swap at September 30,
2009 was a net liability of $1.3 million based upon the valuation technique
known as the market standard methodology of netting the discounted future fixed
cash flows and the discounted expected variable cash flows. The variable cash
flows are based on an expectation of future interest rates (forward curves)
derived from observable interest rate curves. In addition, we have incorporated
a credit valuation adjustment into our calculation of fair value of the interest
rate swap. This adjustment recognizes both our nonperformance risk and the
respective counterparty's nonperformance risk. The net liability was included in
"Other long-term obligations" on our Condensed Consolidated Balance Sheet.
Accumulated other comprehensive loss at September 30, 2009 included the
accumulated loss, net of income taxes, on the cash flow hedge, of $0.8 million.
We have an agreement with our derivative counterparty that contains a provision
that if we default on certain of our indebtedness, we could also be declared in
default on our derivative obligation.
As of September 30, 2009, the fair value of our derivative is $1.3 million and
is in a net liability position. We have no obligation to post any collateral
related to this derivative. As the credit value adjustment for counterparty
nonperformance is immaterial, had we breached any of the provisions at September
30, 2009, we would have been required to settle our obligation under the Swap
Agreement at its termination value of $1.4 million.
NOTE I Fair Value Measurements
In accordance with ASC Topic 820, "Fair Value Measurements and Disclosures", 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.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE I Fair Value Measurements - (continued)
We measure the fair value of our derivative instrument on a recurring basis. At
September 30, 2009, the $1.3 million fair value of the interest rate swap was
determined using Level 2 inputs.
We believe that the carrying values of our financial instruments, which include
accounts receivable and other financing commitments, approximate their fair
values due primarily to their short-term maturities and low risk of counterparty
default. The carrying value of our Term Loan approximates the fair value due to
the variable rate on such debt.
NOTE J Income Taxes
For the three months ended September 30, 2009 and 2008, our income tax
provisions were $25.6 million and $28.9 million, respectively, based on
effective income tax rates, before discrete items, of 38.1% and 38.4%,
respectively. For the nine months ended September 30, 2009 and 2008, our income
tax provisions were $81.1 million and $76.9 million, respectively, based on
effective income tax rates, before discrete items, of 38.7% and 39.0%,
respectively.
As of September 30, 2009 and December 31, 2008, the amount of unrecognized
income tax benefits was $8.7 and $9.6 million, respectively (of which $5.7 and
$6.3 million would favorably affect our effective income tax rate, if
recognized). For both the three and nine month periods ended September 30, 2009,
we recognized $0.9 million of previously unrecognized tax benefits (of which
$0.7 million provided a reduction of our effective income tax rate), primarily
relating to uncertain tax positions attributable to certain intercompany
transactions.
We recognized interest expense related to unrecognized income tax positions in
the income tax provision. As of September 30, 2009 and December 31, 2008, we had
approximately $2.2 million and $3.7 million, respectively, of accrued interest
related to unrecognized income tax benefits included as a liability on the
Condensed Consolidated Balance Sheets, of which approximately a net of $1.8
million and a net of $1.5 million was reversed during each of the three and nine
month periods ended September 30, 2009.
It is possible that approximately $1.4 million of unrecognized income tax
benefits at September 30, 2009, 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 states,
local and foreign jurisdictions. With few exceptions, we are no longer subject
to tax audits by any tax authorities for years prior to 2004. The Internal
Revenue Service has completed its audit of our federal income tax returns for
the years 2005 through 2007. We agreed to and paid an assessment proposed by the
Internal Revenue Service pursuant to such audit. We recorded a charge of
approximately $1.9 million, inclusive of interest, for this settlement in the
first quarter of 2009, which is reflected in the results for the nine months
ended September 30, 2009.
NOTE K Common Stock
As of September 30, 2009 and December 31, 2008, 65,922,036 and 65,520,096 shares
of our common stock were outstanding, respectively.
For the three months ended September 30, 2009 and 2008, 42,700 and 109,104
shares of common stock, respectively, were issued upon the exercise of stock
options and upon the satisfaction of required conditions under certain of our
share-based compensation plans. For the nine months ended September 30, 2009 and
2008, 429,767 and 274,716 shares of common stock, respectively, were issued upon
the exercise of stock options, upon the satisfaction of required conditions
under certain of our share-based compensation plans and upon the grants of
shares of common stock.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE K Common Stock - (continued)
On June 18, 2008, our stockholders approved the adoption by our Board of
Directors of an Employee Stock Purchase Plan (the "Stock Purchase Plan"), which
became effective on October 1, 2008. Under the terms of the Stock Purchase Plan,
the maximum number of shares of our common stock that may be purchased is
3,000,000 shares. Generally, our employees and non-union employees of our United
States and Canadian subsidiaries are eligible to participate in the Stock
Purchase Plan. Employees covered by collective bargaining agreements generally
will not be eligible to participate.
NOTE L 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.
Components of Net Periodic Pension Benefit Cost
The components of net periodic pension benefit cost of the UK Plan for three and
nine months ended September 30, 2009 and 2008 were as follows (in thousands):
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2009 2008 2009 2008
-------- -------- -------- --------
Service cost $ 825 $ 1,113 $ 2,331 $ 3,436
Interest cost 3,138 3,647 8,859 11,259
Expected return on plan assets (2,552) (3,653) (7,205) (11,277)
Amortization of prior service cost and actuarial loss -- -- -- --
Amortization of unrecognized loss 1,109 524 3,128 1,618
-------- -------- -------- --------
Net periodic pension benefit cost $ 2,520 $ 1,631 $ 7,113 $ 5,036
======== ======== ======== ========
Employer Contributions
For the nine months ended September 30, 2009, our United Kingdom subsidiary
contributed $6.0 million to its defined benefit pension plan. It anticipates
contributing an additional $2.4 million during the remainder of 2009.
NOTE M Segment Information
We have the following reportable segments which provide services associated with
the design, integration, installation, start-up, operation and maintenance of
various systems: (a) United States electrical construction and facilities
services (involving systems for electrical power transmission and distribution;
premises electrical and lighting systems; low-voltage systems, such as fire
alarm, security and process control; voice and data communication; roadway and
transit lighting; and fiber optic lines); (b) United States mechanical
construction and facilities services (involving systems for heating,
ventilation, air conditioning, refrigeration and clean-room process ventilation;
fire protection; plumbing, process and high-purity piping; water and wastewater
treatment and central plant heating and cooling); (c) United States facilities
services; (d) Canada construction and facilities services; (e) United Kingdom
construction and facilities services; and (f) Other international construction
and facilities services.
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE M Segment Information - (continued)
The segment "United States facilities services" principally consists of those
operations which provide a portfolio of services needed to support the operation
and maintenance of customers' facilities (industrial maintenance and services;
outage services to utilities and industrial plants; commercial and government
site-based operations and maintenance; military base operations support
services; mobile maintenance and services; facilities management; installation
and support for building systems; technical consulting and diagnostic services;
small modification and retrofit projects; retrofit projects to comply with clean
air laws; and program development, management and maintenance for energy
systems), which services are not generally related to customers' construction
programs, as well as industrial services operations, which primarily provide
aftermarket maintenance and repair services, replacement parts and fabrication
services for highly engineered shell and tube heat exchangers for refineries and
the petrochemical industry. The Canada, United Kingdom and Other international
construction and facilities services segments perform electrical construction,
mechanical construction and facilities services. Our "Other international
construction and facilities services" segment, currently operating only in the
Middle East, represents our operations outside of the United States, Canada and
the United Kingdom. The following tables present information about industry
segments and geographic areas for the three and nine months ended September 30,
2009 and 2008 (in thousands):
For the three months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Revenues from unrelated entities:
United States electrical construction and facilities services $ 309,820 $ 446,742
United States mechanical construction and facilities services 491,686 625,599
United States facilities services 352,365 365,153
---------- ----------
Total United States operations 1,153,871 1,437,494
Canada construction and facilities services 80,986 114,861
United Kingdom construction and facilities services 137,128 167,994
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,371,985 $1,720,349
========== ==========
For the three months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Total revenues:
United States electrical construction and facilities services $ 312,226 $ 448,056
United States mechanical construction and facilities services 497,017 630,794
United States facilities services 357,095 366,665
Less intersegment revenues (12,467) (8,021)
---------- ----------
Total United States operations 1,153,871 1,437,494
Canada construction and facilities services 80,986 114,861
United Kingdom construction and facilities services 137,128 167,994
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $1,371,985 $1,720,349
========== ==========
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE M Segment Information - (continued)
For the nine months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Revenues from unrelated entities:
United States electrical construction and facilities services $ 956,362 $1,277,935
United States mechanical construction and facilities services 1,546,294 1,854,498
United States facilities services 1,081,808 1,121,815
---------- ----------
Total United States operations 3,584,464 4,254,248
Canada construction and facilities services 231,203 317,061
United Kingdom construction and facilities services 373,624 533,415
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $4,189,291 $5,104,724
========== ==========
For the nine months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Total revenues:
United States electrical construction and facilities services $ 962,487 $1,282,250
United States mechanical construction and facilities services 1,559,823 1,867,092
United States facilities services 1,093,981 1,127,357
Less intersegment revenues (31,827) (22,451)
---------- ----------
Total United States operations 3,584,464 4,254,248
Canada construction and facilities services 231,203 317,061
United Kingdom construction and facilities services 373,624 533,415
Other international construction and facilities services -- --
---------- ----------
Total worldwide operations $4,189,291 $5,104,724
========== ==========
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE M Segment Information - (continued)
For the three months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Operating income (loss):
United States electrical construction and facilities services $ 26,266 $ 33,657
United States mechanical construction and facilities services 32,340 31,284
United States facilities services 15,163 22,725
---------- ----------
Total United States operations 73,769 87,666
Canada construction and facilities services 4,537 2,587
United Kingdom construction and facilities services 4,000 4,421
Other international construction and facilities services (40) --
Corporate administration (14,916) (16,036)
Restructuring expenses (90) --
---------- ----------
Total worldwide operations 67,260 78,638
Other corporate items:
Interest expense (1,947) (2,535)
Interest income 788 2,373
---------- ----------
Income before income taxes $ 66,101 $ 78,476
========== ==========
For the nine months ended September 30,
----------------------------------------
2009 2008
---------- ----------
Operating income (loss):
United States electrical construction and facilities services $ 83,939 $ 75,742
United States mechanical construction and facilities services 84,760 74,226
United States facilities services 61,219 83,346
---------- ----------
Total United States operations 229,918 233,314
Canada construction and facilities services 13,396 8,202
United Kingdom construction and facilities services 9,744 10,459
Other international construction and facilities services (40) (596)
Corporate administration (42,394) (49,671)
Restructuring expenses (4,200) (71)
---------- ----------
Total worldwide operations 206,424 201,637
Other corporate items:
Interest expense (5,640) (9,160)
Interest income 3,416 7,565
---------- ----------
Income before income taxes $ 204,200 $ 200,042
========== ==========
EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE M Segment Information - (continued)
September 30, December 31,
2009 2008
------------- ------------
Total assets:
United States electrical construction and facilities services $ 303,383 $ 379,945
United States mechanical construction and facilities services 700,614 810,199
United States facilities services 1,047,807 1,088,474
---------- ----------
Total United States operations 2,051,804 2,278,618
Canada construction and facilities services 125,312 128,460
United Kingdom construction and facilities services 234,881 203,764
Other international construction and facilities services -- --
Corporate administration 598,132 397,562
---------- ----------
Total worldwide operations $3,010,129 $3,008,404
========== ==========
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, Canada, and the United Kingdom and in the
world. We provide services to a broad range of commercial, industrial, utility
and institutional customers through approximately 75 operating subsidiaries and
joint venture entities. Our offices are located in the United States, Canada and
the United Kingdom. In the Middle East, we carry on business through a joint
venture.
Overview
The following table presents selected financial data for the three months ended
September 30, 2009 and 2008 (in thousands, except percentages and per share
data):
For the three months ended
September 30,
---------------------------
2009 2008
---------- ----------
Revenues $1,371,985 $1,720,349
Revenues (decrease) increase from prior year (20.2)% 14.6%
Operating income $ 67,260 $ 78,638
Operating income as a percentage of revenues 4.9% 4.6%
Net income attributable to EMCOR Group, Inc. $ 39,986 $ 48,635
Diluted earnings per common share $ 0.59 $ 0.72
The results of our operations for the third quarter of 2009 reflect decreases in
revenues, gross profit, operating income, net income and diluted earnings per
common share compared to the year ago quarter; however, gross profit margin
(gross profit as a percentage of revenues) and operating margin (operating
income as a percentage of revenues) increased compared to the year ago quarter.
The decrease in revenues for the 2009 third quarter, when compared to the prior
year's third quarter, was primarily attributable to: (a) a decline in work
performed on domestic commercial and hospitality construction projects,
generally as a result of the economic slowdown, (b) a decline in revenues
arising from the mobile mechanical services group of our United States
facilities services segment and (c) the unfavorable exchange rate effects of the
weakening British pound and Canadian dollar against the United States dollar.
During the third quarter of 2009, companies we acquired in 2009 and 2008, that
are within our United States facilities services segment, contributed $24.3
million to revenues and $0.6 million to operating income (net of $1.1 million of
amortization expense attributable to identifiable intangible assets included in
cost of sales and selling, general and administrative expenses). The decrease in
operating income was a result of lower operating income from our United States
electrical construction and facilities services and United States facilities
services segments. These decreases were partially offset by improvement in
operating income primarily as a result of: (a) reduced selling, general and
administrative expenses and (b) the turnaround in the performance of one of our
operations within our United States mechanical construction and facilities
services segment, which operation had experienced large operating losses in the
third quarter of 2008. The operating income of our Canada construction and
facilities services segment also improved for the 2009 third quarter compared to
the year ago quarter.
The improvement in operating margin for the 2009 third quarter, when compared to
the prior year's third quarter, was in large part due to the increase in the
gross profit margin in our domestic construction segments, as well as improved
operating performance by our international operations. The increase in the gross
profit margin for the 2009 third quarter, when compared to the prior year's
third quarter, was primarily the result of (a) improved margins within our
United States electrical construction and facilities services segment as a
result of the resolution of uncertainties on projects nearing or at completion,
and improved productivity, (b) the turnaround in the performance of one of our
operations, which had experienced large operating losses in 2008, within our
United States mechanical construction and facilities services segment and (c)
the improved performance of our international operations. These increases were
partially offset by lower gross profit margin in our United States facilities
services segment as a result of lower margins, primarily in its industrial
services operations.
Cash provided by operating activities increased by $72.5 million for the first
nine months of 2009, compared to the first nine months of 2008, primarily due to
changes in our working capital. Cash used for investing activities decreased by
$33.4 million for the first nine months of 2009, compared to the first nine
months of 2008, primarily due to a $32.3 million decrease in payments for
acquisitions of businesses, identifiable intangible assets and payments pursuant
to related earn-out agreements. Cash used in financing activities decreased by
$24.5 million during the first nine months of 2009, compared to the prior year's
first nine months, primarily due to repayment of a portion of our long-term
indebtedness in the first nine months of 2008. Interest expense for the first
nine months of 2009 was $5.6 million, a $3.5 million decrease compared to the
first nine months of 2008. The decrease in interest expense was related to the
reduction in our long-term indebtedness and lower interest rates as compared to
2008. Interest income for the first nine months of 2009 was $3.4 million, a $4.1
million decrease compared to the first nine months of 2008. The decrease in
interest income was primarily related to lower interest rates earned on our
invested cash balances.
We completed one acquisition during the first nine months of 2009 for an
immaterial amount. The acquired company, which provides mobile mechanical
services, has been included in our United States facilities services segment and
expands our service capabilities in a geographical area in which we had been
already operating. The acquisition is not material to our results of operations
for the periods presented.
Operating Segments
We have the following reportable segments which provide services associated with
the design, integration, installation, start-up, operation and maintenance of
various systems: (a) United States electrical construction and facilities
services (involving systems for electrical power transmission and distribution;
premises electrical and lighting systems; low-voltage systems, such as fire
alarm, security and process control; voice and data communication; roadway and
transit lighting; and fiber optic lines); (b) United States mechanical
construction and facilities services (involving systems for heating,
ventilation, air conditioning, refrigeration and clean-room process ventilation;
fire protection; plumbing, process and high-purity piping; water and wastewater
treatment and central plant heating and cooling); (c) United States facilities
services; (d) Canada construction and facilities services; (e) United Kingdom
construction and facilities services; and (f) Other international construction
and facilities services. The segment "United States facilities services"
principally consists of those operations which provide a portfolio of services
needed to support the operation and maintenance of customers' facilities
(industrial maintenance and services; outage services to utilities and
industrial plants; commercial and government site-based operations and
maintenance; military base operations support services; mobile maintenance and
services; facilities management; installation and support for building systems;
technical consulting and diagnostic services; small modification and retrofit
projects; retrofit projects to comply with clean air laws; and program
development, management and maintenance for energy systems), which services are
not generally related to customers' construction programs, as well as industrial
services operations, which primarily provide aftermarket maintenance and repair
services, replacement parts and fabrication services for highly engineered shell
and tube heat exchangers for refineries and the petrochemical industry. The
Canada, United Kingdom and Other international construction and facilities
services segments perform electrical construction, mechanical construction and
facilities services. Our "Other international construction and facilities
services" segment, currently operating only in the Middle East, represents our
operations outside of the United States, Canada and the United Kingdom.
Results of Operations
Revenues
The following tables present our operating segment revenues from unrelated
entities and their respective percentages of total revenues (in thousands,
except for percentages):
For the three months ended September 30,
--------------------------------------------
% of % of
2009 Total 2008 Total
---------- ----- ---------- -----
Revenues:
United States electrical construction and facilities services $ 309,820 23% $ 446,742 26%
United States mechanical construction and facilities services 491,686 36% 625,599 36%
United States facilities services 352,365 26% 365,153 21%
---------- ----------
Total United States operations 1,153,871 84% 1,437,494 84%
Canada construction and facilities services 80,986 6% 114,861 7%
United Kingdom construction and facilities services 137,128 10% 167,994 10%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $1,371,985 100% $1,720,349 100%
========== ==========
For the nine months ended September 30,
--------------------------------------------
% of % of
2009 Total 2008 Total
---------- ----- ---------- -----
Revenues:
United States electrical construction and facilities services $ 956,362 23% $1,277,935 25%
United States mechanical construction and facilities services 1,546,294 37% 1,854,498 36%
United States facilities services 1,081,808 26% 1,121,815 22%
---------- ----------
Total United States operations 3,584,464 86% 4,254,248 83%
Canada construction and facilities services 231,203 6% 317,061 6%
United Kingdom construction and facilities services 373,624 9% 533,415 10%
Other international construction and facilities services -- -- -- --
---------- ----------
Total worldwide operations $4,189,291 100% $5,104,724 100%
========== ==========
As described below in more detail, our revenues for the three months ended
September 30, 2009 decreased to $1.4 billion compared to $1.7 billion of
revenues for the three months ended September 30, 2008, and our revenues for the
nine months ended September 30, 2009 decreased to $4.2 billion compared to $5.1
billion for the nine months ended September 30, 2008. The decrease in revenues
for the three and nine month periods ended September 30, 2009, compared to the
same periods in 2008, extended across all of our business segments and was
primarily attributable to: (a) lower levels of work in our United States
electrical construction and facilities services and mechanical construction and
facilities services segments, most notably on commercial and hospitality
projects, and generally as a result of the economic slowdown, (b) lower revenues
from our Canadian operations as a result of fewer contracts in the automotive,
energy and industrial markets and (c) the unfavorable exchange rate effects of
the weakening British pound and Canadian dollar against the United States
dollar. This decrease was partially offset by revenues for the three and nine
months ended September 30, 2009 of $24.3 million and $89.0 million,
respectively, attributable to companies acquired in 2009 and 2008, which are
reported within our United States facilities services and United States
mechanical construction and facilities services segments.
Our backlog at September 30, 2009 was $3.39 billion compared to $4.42 billion of
backlog at September 30, 2008. Our backlog was $4.00 billion at December 31,
2008. Backlog decreases as we perform work on existing contracts and increases
with awards of new contracts. The decrease in our United States electrical
construction and facilities services and our United States mechanical
construction and facilities services segments' backlog at September 30, 2009,
compared to such backlog at September 30, 2008, was primarily due to a decrease
in awards within the commercial, hospitality and industrial construction
markets, partially offset by an increase in awards in the institutional
construction market. Backlog is not a term recognized under United States
generally accepted accounting principles; however, it is a common measurement
used in our industry. Backlog includes unrecognized revenues to be realized from
uncompleted construction contracts plus unrecognized revenues expected to be
realized over the remaining term of facilities services contracts. However, if
the remaining term of a facilities services contract exceeds 12 months, the
unrecognized revenues attributable to such contract included in backlog are
limited to only the next 12 months of revenues.
Revenues of our United States electrical construction and facilities services
segment for the three months ended September 30, 2009 decreased by $136.9
million compared to revenues for the three months ended September 30, 2008.
Revenues of this segment for the nine months ended September 30, 2009 decreased
by $321.6 million compared to revenues for the nine months ended September 30,
2008. The decrease in revenues for both periods was primarily attributable to
lower levels of work on commercial, industrial and hospitality projects, most
notably in the New York, greater Chicago (including northern Indiana), Las
Vegas, and Washington D.C. markets, as a result of the recession and tight
credit markets. These decreases in revenues for both periods were partially
offset by an increase in revenues from healthcare related projects.
Revenues of our United States mechanical construction and facilities services
segment for the three months ended September 30, 2009 decreased by $133.9
million compared to revenues for the three months ended September 30, 2008.
Revenues of this segment for the nine months ended September 30, 2009 decreased
by $308.2 million compared to revenues for the nine months ended September 30,
2008. The decrease in revenues for both periods was primarily attributable to a
decrease in work on hospitality projects, most notably in the Las Vegas market,
and commercial projects. The decreases in revenues for both periods were
partially offset by an increase in revenues from work performed on industrial
and healthcare projects. Additionally, the decrease in revenues for the nine
months ended September 30, 2009 was partially offset by revenues of $2.2 million
from a company acquired during the first quarter of 2008.
Our United States facilities services revenues decreased by $12.8 million for
the three months ended September 30, 2009 compared to revenues for the three
months ended September 30, 2008, and by $40.0 million for the nine months ended
September 30, 2009 compared to revenues for the nine months ended September 30,
2008. The decreases in revenues for the three and nine months ended September
30, 2009 were primarily attributable to lower revenues from our mobile
mechanical services group as a result of lower revenues from small discretionary
projects, controls work and repair service due to the economic downturn and the
cooler than normal summer in some of our major markets. The decrease in revenues
for the nine months ended September 30, 2009 was also attributable to lower
revenues from our industrial services operations, (i) which benefited in 2008
from a significant turnaround/expansion contract at a refinery and (ii) which
experienced adverse industry conditions that led to lower demand for our shop
and field refinery and petrochemical services. These decreases in revenues for
the three and nine month periods ended September 30, 2009 were partially offset
by: (a) revenues of $24.3 million and $86.8 million, respectively, from
companies acquired in 2009 and 2008, which perform maintenance services for
utility and industrial plants and perform mobile mechanical services and (b)
increases in revenues from our site-based government facilities services
operations.
Revenues of our Canada construction and facilities services segment decreased by
$33.9 million for the three months ended September 30, 2009 compared to revenues
for the three months ended September 30, 2008. Revenues of this segment
decreased by $85.9 million for the nine months ended September 30, 2009 compared
to revenues for the nine months ended September 30, 2008. The decrease in
revenues for both periods was primarily attributable to fewer contracts for
automotive, energy and industrial projects. In addition, $4.4 million and $33.8
million of the decrease in revenues for the three and nine months ended
September 30, 2009, respectively, was a result of the weakening of the Canadian
dollar against the United States dollar. The decreases in revenues were
partially offset by more work on commercial and healthcare related projects.
Our United Kingdom construction and facilities services revenues decreased by
$30.9 million for the three months ended September 30, 2009 compared to revenues
for the three months ended September 30, 2008. Approximately $21.1 million of
this decrease in revenues was a result of the weakening of the British pound
against the United States dollar. Revenues of this segment decreased by $159.8
million for the nine months ended September 30, 2009 compared to revenues for
the nine months ended September 30, 2008. Approximately $97.6 million of this
decrease in revenues was a result of the weakening of the British pound against
the United States dollar. In addition, the decrease in revenues for both periods
was partially attributable to a decrease in revenues relating to rail contracts
as a result of the planned strategy to exit this market and lower revenues from
the United Kingdom's facilities services business.
Other international construction and facilities services activities consist of
operations currently operating only in the Middle East. All of the current
projects in this market are being performed through a joint venture. The results
of the joint venture were accounted for under the equity method.
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 (in thousands, except for percentages):
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Cost of sales $1,166,740 $1,496,003 $3,576,003 $4,465,242
Gross profit $ 205,245 $ 224,346 $ 613,288 $ 639,482
Gross profit, as a percentage of revenues 15.0% 13.0% 14.6% 12.5%
Our gross profit decreased by $19.1 million for the three months ended September
30, 2009 compared to the three months ended September 30, 2008. Gross profit
decreased by $26.2 million for the nine months ended September 30, 2009 compared
to the nine months ended September 30, 2008. The decrease in gross profit for
both periods was primarily attributable to lower gross profit from (a) our
industrial services and mobile mechanical operations within our United States
facilities services segment due to lower levels of work and (b) our
international operations due to the unfavorable exchange rate effects of the
weakening British pound and Canadian dollar against the United States dollar. In
addition, the decrease in gross profit for the third quarter of 2009, compared
to the third quarter of 2008, was primarily attributable to lower volume of work
in our United States electrical construction and facilities services and
mechanical construction and facilities services segments, most notably on
commercial projects. The overall decrease in gross profit for the nine months
ended September 30, 2009 was partially offset by increases in the gross profit
contributed by our United States electrical construction and facilities services
and mechanical construction and facilities services segments and by companies
acquired in 2009 and 2008. In addition, the overall decrease in gross profit for
the three months ended September 30, 2009 was partially offset by increases in
the gross profit contributed by our United States mechanical construction and
facilities services segment. For the three and nine months ended September 30,
2009, companies acquired in 2009 and 2008 contributed $2.2 million and $8.4
million to gross profit, net of amortization expense of $0.7 million and $2.5
million, respectively.
Our gross profit margin was 15.0% and 13.0% for the three months ended September
30, 2009 and 2008, respectively. Our gross profit margin was 14.6% and 12.5% for
the nine months ended September 30, 2009 and 2008, respectively. The increase in
the gross profit margin for the three months ended September 30, 2009 was
primarily the result of (a) improved margins within our United States electrical
construction and facilities services segment as a result of the resolution of
uncertainties on projects at or nearing completion, and improved productivity,
(b) the turnaround in the performance of one of our operations, which had
experienced large operating losses in 2008 within our United States mechanical
construction and facilities services segment and (c) the improved performance of
our international operations. In addition, the increase in the gross profit
margin for the nine months ended September 30, 2009 was partially attributable
to a charge to expense in 2008 of $7.9 million in connection with an adverse
ruling in a construction lawsuit (the "UOSA Action") within our United States
mechanical construction and facilities services segment. (The UOSA Action was
concluded in the third quarter of 2009, and as a consequence, the Company is
liable to the other party to the litigation for approximately $0.7 million.)
These increases in both periods were partially offset by lower gross profit
margin in our United States facilities services segment as a result of lower
margins in our industrial services operations.
Selling, general and administrative expenses
The following tables present our selling, general and administrative expenses
and selling, general and administrative expenses as a percentage of revenues (in
thousands, except for percentages):
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Selling, general and administrative expenses $ 137,895 $ 145,708 $ 402,664 $ 437,774
Selling, general and administrative expenses,
as a percentage of revenues 10.1% 8.5% 9.6% 8.6%
Our selling, general and administrative expenses for the three months ended
September 30, 2009 decreased by $7.8 million to $137.9 million compared to
$145.7 million for the three months ended September 30, 2008, and decreased by
$35.1 million to $402.7 million for the nine months ended September 30, 2009
compared to $437.8 million for the comparable 2008 period. Selling, general and
administrative expenses as a percentage of revenues were 10.1% and 9.6% for the
three and nine months ended September 30, 2009, compared to 8.5% and 8.6% for
the three and nine months ended September 30, 2008, respectively. The decrease
in selling, general and administrative expenses for the three and nine months
ended September 30, 2009, compared to the three and nine months ended September
30, 2008, was primarily due to: (a) lower incentive compensation accruals as a
result of reduced forecasted earnings and lower staff levels in 2009 compared to
2008, (b) lower employee costs, such as salaries and employee benefits, as a
result of downsizing of staff at numerous locations, (c) lower discretionary
spending and (d) a $1.9 million and $10.1 million decrease as a result of
changes in the rates of exchange of British pounds and Canadian dollars for
United States dollars due to the weakening of the British pound and Canadian
dollar, respectively. These decreases in selling, general and administrative
expenses were partially offset by (a) $1.6 million and $6.4 million of expenses
for the three and nine months ended September 30, 2009, respectively, directly
related to companies acquired in 2009 and 2008, including amortization expense
of $0.4 million and $1.4 million, respectively, and (b) a $2.9 million increase
in our provision for doubtful accounts for the nine months ended September 30,
2009. In addition, selling, general and administrative expenses for the three
months ended September 30, 2009 as compared to the same 2008 period, were
unfavorably affected by changes in our phantom stock units, whose value is tied
to the value of our common stock; for the nine months ended September 30, 2009,
as compared to the same period in 2008, selling, general and administrative
expenses were favorably impacted by the changes in the valuation of our phantom
stock units. Certain of the phantom stock units referred to above were settled
in cash during the first quarters of 2009 and 2008.
Restructuring expenses
Restructuring expenses, primarily related to employee severance obligations,
were $0.09 million and $4.2 million for the three and nine months ended
September 30, 2009, respectively. Restructuring expenses were zero and $0.07
million for the three and nine months ended September 30, 2008. Restructuring
expenses for 2009 were primarily related to our international operations, our
United States mechanical construction and facilities services segment and our
United States facilities services segment. As of September 30, 2009, the balance
of our severance obligations yet to be paid was $0.8 million, and such amount is
expected to be paid in 2009.
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 September 30,
-----------------------------------------
% of % of
Segment Segment
2009 Revenues 2008 Revenues
-------- -------- -------- --------
Operating income (loss):
United States electrical construction and facilities services $ 26,266 8.5% $ 33,657 7.5%
United States mechanical construction and facilities services 32,340 6.6% 31,284 5.0%
United States facilities services 15,163 4.3% 22,725 6.2%
-------- --------
Total United States operations 73,769 6.4% 87,666 6.1%
Canada construction and facilities services 4,537 5.6% 2,587 2.3%
United Kingdom construction and facilities services 4,000 2.9% 4,421 2.6%
Other international construction and facilities services (40) -- -- --
Corporate administration (14,916) -- (16,036) --
Restructuring expenses (90) -- -- --
-------- --------
Total worldwide operations 67,260 4.9% 78,638 4.6%
Other corporate items:
Interest expense (1,947) (2,535)
Interest income 788 2,373
-------- --------
Income before income taxes $ 66,101 $ 78,476
======== ========
For the nine months ended September 30,
-----------------------------------------
% of % of
Segment Segment
2009 Revenues 2008 Revenues
-------- -------- -------- --------
Operating income (loss):
United States electrical construction and facilities services $ 83,939 8.8% $ 75,742 5.9%
United States mechanical construction and facilities services 84,760 5.5% 74,226 4.0%
United States facilities services 61,219 5.7% 83,346 7.4%
-------- --------
Total United States operations 229,918 6.4% 233,314 5.5%
Canada construction and facilities services 13,396 5.8% 8,202 2.6%
United Kingdom construction and facilities services 9,744 2.6% 10,459 2.0%
Other international construction and facilities services (40) -- (596) --
Corporate administration (42,394) -- (49,671) --
Restructuring expenses (4,200) -- (71) --
-------- --------
Total worldwide operations 206,424 4.9% 201,637 4.0%
Other corporate items:
Interest expense (5,640) (9,160)
Interest income 3,416 7,565
-------- --------
Income before income taxes $204,200 $200,042
======== ========
As described below in more detail, operating income decreased by $11.4 million
for the three months ended September 30, 2009 to $67.3 million compared to
operating income of $78.6 million for the three months ended September 30, 2008.
Operating income increased by $4.8 million for the nine months ended September
30, 2009 to $206.4 million compared to $201.6 million for the nine months ended
September 30, 2008. Operating income as a percentage of revenues ("operating
margin") increased to 4.9% for the three months ended September 30, 2009
compared to 4.6% for the three months ended September 30, 2008, and increased to
4.9% for the nine months ended September 30, 2009 compared to 4.0% for the nine
months ended September 30, 2008. The improvement in operating margin was in
large part due to the increase in the gross profit margin from our domestic
construction segments, as well as improved operating performance by our
international operations.
Our United States electrical construction and facilities services operating
income of $26.3 million for the three months ended September 30, 2009 decreased
by $7.4 million compared to operating income of $33.7 million for the three
months ended September 30, 2008. The decrease in operating income for the three
months ended September 30, 2009, compared to the same period in 2008, was
primarily the result of lower gross profit from commercial construction
projects. Operating income of $83.9 million for the nine months ended September
30, 2009 increased by $8.2 million compared to operating income of $75.7 million
for the nine months ended September 30, 2008. The increase in operating income
for the nine months ended September 30, 2009, compared to the same period in
2008, was primarily the result of increased gross profit from industrial
projects, including the resolution of uncertainties on projects at or near
completion, and improved productivity, and from healthcare and transportation
projects, partially offset by lower gross profit from commercial, hospitality
and institutional projects. Selling, general and administrative expenses also
decreased for the three and nine months ended September 30, 2009, compared to
the same periods in 2008, principally due to lower employee costs, such as
salaries, bonuses and employee benefits, primarily as a result of downsizing of
staff at numerous locations and lower discretionary spending. The increase in
the operating margin for both the three and nine month periods ended September
30, 2009 is primarily the result of increased gross profit margin.
Our United States mechanical construction and facilities services operating
income for the three months ended September 30, 2009 was $32.3 million, a $1.1
million increase compared to operating income of $31.3 million for the three
months ended September 30, 2008. Operating income for the nine months ended
September 30, 2009 was $84.8 million, a $10.5 million improvement compared to
operating income of $74.2 million for the nine months ended September 30, 2008.
Operating income increased during the three and nine months ended September 30,
2009, compared to the same periods in 2008, primarily due to increased gross
profits from industrial, healthcare and institutional projects and the
turnaround in the performance of one of our operations, which had experienced
large operating losses in 2008. These increases were partially offset by notably
lower operating income at our Las Vegas subsidiary and attributable to
commercial construction projects as a result of the current economic slowdown.
In addition, the increase in operating income for the nine months ended
September 30, 2009, compared to the same period in 2008, was partially
attributable to a charge to expense in 2008 of $7.9 million in connection with
the UOSA Action. Selling, general and administrative expenses were lower
primarily due to lower employee costs, such as salaries, employee benefits,
and/or bonuses primarily as a result of downsizing of staff at numerous
locations and lower discretionary spending. The increase in the operating margin
for both the three and nine month periods ended September 30, 2009 is primarily
the result of increased gross profit margin.
Our United States facilities services operating income for the three months
ended September 30, 2009 was $15.2 million compared to operating income of $22.7
million for the three months ended September 30, 2008. Operating income for the
nine months ended September 30, 2009 was $61.2 million compared to operating
income of $83.3 million for the nine months ended September 30, 2008. The
decreases in operating income during the three and nine months ended September
30, 2009, compared to the same periods in 2008, were primarily due to lower
operating income from (a) our industrial services operations, which benefited in
2008 from a significant turnaround/expansion contract at a refinery and (b) our
mobile mechanical services as a result of lower small discretionary projects,
controls work and repair services due to the economic downturn and the cooler
than normal summer in some of our major markets. The decrease in operating
income during the nine months ended September 30, 2009, compared to the same
period in 2008, was also due to lower operating income from our industrial
services operations, which experienced adverse industry conditions that led to
lower demand and margins for our shop and field refinery and petrochemical
services. The decreases in operating income during the three and nine months
ended September 30, 2009 were partially offset by operating income from
companies acquired in 2009 and 2008, which contributed $0.6 million and $2.1
million of operating income, net of amortization expense of $1.1 million and
$3.9 million, respectively, and which perform maintenance services at utility
and industrial plants and perform mobile mechanical services. In addition, the
decrease for the nine months ended September 30, 2009, as compared to the same
period in 2008, was partially offset by an increase in operating income from our
site-based government facilities services operations. Selling, general and
administrative expenses decreased by $1.5 million in the three months ended
September 30, 2009, when compared to the same period in 2008, due to lower
incentive compensation accruals. This decrease was partially offset by $1.6
million of selling, general and administrative expenses associated with
companies acquired in 2009 and 2008, including amortization expense of $0.4
million. Selling, general and administrative expenses decreased by $4.7 million
in the first nine months of 2009 when compared to the same period in 2008
excluding the increase of $6.2 million of selling, general and administrative
expenses associated with the companies acquired in 2009 and 2008, including
amortization expense of $1.3 million, and due to lower incentive compensation
accruals.
Our Canada construction and facilities services operating income was $4.5
million for the three months ended September 30, 2009, compared to operating
income of $2.6 million for the three months ended September 30, 2008. This
segment's operating income was $13.4 million for the nine months ended September
30, 2009 compared to operating income of $8.2 million for the nine months ended
September 30, 2008. The operating income improvement for the three and nine
months ended September 30, 2009, compared to the same periods in 2008, was
primarily due to improved results from energy, industrial and commercial
construction contracts and reduced selling, general and administrative expenses
as a result of a reduction in employees and lower discretionary spending.
Operating income for the three and nine months ended September 30, 2009 was
adversely impacted by (a) reduced operating income from automotive and
healthcare projects and (b) $0.2 million and $1.9 million for the three and nine
months ended September 30, 2009, respectively, relating to the rate of exchange
of Canadian dollars for United States dollars as a result of the weakening of
the Canadian dollar. In addition, the results for the nine months ended
September 30, 2009, as compared to the same period in 2008, were adversely
impacted by $2.7 million in restructuring expenses recorded by our Canadian
operations.
Our United Kingdom construction and facilities services operating income for the
three months ended September 30, 2009 was $4.0 million compared to operating
income of $4.4 million for the three months ended September 30, 2008. This
segment's operating income was $9.7 million for the nine months ended September
30, 2009 compared to operating income of $10.5 million for the nine months ended
September 30, 2008. The decrease in operating income was primarily attributable
to decreases of $0.6 million and $2.5 million for the three and nine months
ended September 30, 2009, respectively, relating to the rate of exchange of
British pounds for United States dollars as a result of the weakening of the
British pound and lower operating income from the facilities services group in
the United Kingdom. These decreases were partially offset by an increase in
operating income at the United Kingdom's construction business and as a result
of the wind down of the rail division for the three and nine months ended
September 30, 2009 as compared to the same periods in 2008.
The Other international construction and facilities services segment had an
operating loss of $0.04 million and was breakeven for the three month periods
ended September 30, 2009 and 2008, respectively. This segment had an operating
loss of $0.04 million for the nine months ended September 30, 2009 compared to
an operating loss of $0.6 million for the nine months ended September 30, 2008.
Our corporate administration expenses for the three months ended September 30,
2009 were $14.9 million compared to $16.0 million for the three months ended
September 30, 2008. Our corporate administrative expenses for the nine months
ended September 30, 2009 were $42.4 million compared to $49.7 million for the
nine months ended September 30, 2008. These decreases in expenses were primarily
attributable to (a) lower incentive compensation accruals, (b) lower marketing
and advertising expenses and (c) lower discretionary spending. In addition,
corporate administration costs for the three months ended September 30, 2009, as
compared to the same period in 2008, were unfavorably affected by changes in our
phantom stock units, whose value is tied to the value of our common stock; for
the nine months ended September 30, 2009, as compared to the same period in
2008, corporate administration costs were favorably impacted by the changes in
the valuation of our phantom stock units. Certain of the phantom stock units
referred to above were settled in cash during the first quarters of 2009 and
2008.
Interest expense for the three months ended September 30, 2009 and 2008 was $1.9
million and $2.5 million, respectively. Interest expense for the nine months
ended September 30, 2009 and 2008 was $5.6 million and $9.2 million,
respectively. The decrease in interest expense was related to the reduction in
long-term indebtedness and lower interest rates as compared to 2008. Interest
income for the three months ended September 30, 2009 was $0.8 million compared
to $2.4 million for the three months ended September 30, 2008. Interest income
for the nine months ended September 30, 2009 was $3.4 million compared to $7.6
million for the nine months ended September 30, 2008. The decrease in interest
income was primarily related to lower interest rates earned on our invested cash
balances.
For the three months ended September 30, 2009 and 2008, our income tax provision
was $25.6 million and $28.9 million, respectively, based on effective income tax
rates, before discrete items, of 38.1% and 38.4%, respectively. For the nine
months ended September 30, 2009 and 2008, our income tax provision was $81.1
million and $76.9 million, respectively, based on effective income tax rates,
before discrete items, of 38.7% and 39.0%, respectively.
Liquidity and Capital Resources
The following table presents our net cash provided by (used in) operating
activities, investing activities and financing activities (in thousands):
For the nine months ended
September 30,
------------------------------
2009 2008
---------- ----------
Net cash provided by operating activities $ 272,195 $ 199,703
Net cash used in investing activities $ (40,204) $ (73,565)
Net cash used in financing activities $ (371) $ (24,865)
Effect of exchange rate changes on cash and cash equivalents $ 10,742 $ (12,061)
Our consolidated cash balance increased by approximately $242.4 million from
$405.9 million at December 31, 2008 to $648.2 million at September 30, 2009. The
$272.2 million in net cash provided by operating activities for the nine months
ended September 30, 2009, which increased $72.5 million when compared to $199.7
million in net cash provided by operating activities for the nine months ended
September 30, 2008, was primarily due to changes in our working capital. Net
cash used in investing activities of $40.2 million for the nine months ended
September 30, 2009 decreased $33.4 million compared to $73.6 million used in the
nine months ended September 30, 2008 and was primarily due to a $32.3 million
decrease in payments for acquisitions of businesses, identifiable intangible
assets and payments pursuant to related earn-out agreements and a $7.9 million
decrease in amounts paid for the purchase of property, plant and equipment,
partially offset by a $6.7 million increase in investment in and advances to
unconsolidated entities and joint ventures. Net cash used in financing
activities for the nine months ended September 30, 2009 decreased $24.5 million
compared to the nine months ended September 30, 2008 and was primarily
attributable to repayment of a portion of our long-term indebtedness in the
first nine months of 2008.
The following is a summary of material contractual obligations and other
commercial commitments (in millions):
Payments Due by Period
-----------------------------------------
Less
Contractual than 1-3 4-5 After
Obligations Total 1 year years years 5 years
----------------------------------------------------- -------- ------ ------ ------ -------
Term Loan (including interest at 2.225%) $ 200.1 $ 7.4 $192.7 $ -- $ --
Capital lease obligations 0.7 0.3 0.3 0.1 --
Operating leases 202.2 53.0 76.0 39.4 33.8
Open purchase obligations (1) 724.8 521.9 187.9 15.0 --
Other long-term obligations (2) 226.4 28.4 181.2 16.8 --
Liabilities related to uncertain income tax positions 10.9 1.8 9.1 -- --
-------- ------ ------ ------ -------
Total Contractual Obligations $1,365.1 $612.8 $647.2 $ 71.3 $ 33.8
======== ====== ====== ====== =======
Amount of Commitment Expiration by Period
-----------------------------------------
Less
Other Commercial Total than 1-3 4-5 After
Commitments Committed 1 year years years 5 years
----------------------------------------------------- --------- ------ ------ ------ -------
Revolving Credit Facility (3) $ -- $ -- $ -- $ -- $ --
Letters of credit 65.2 7.6 57.6 -- --
-------- ------ ------ ------ -------
Total Commercial Obligations $ 65.2 $ 7.6 $ 57.6 $ -- $ --
======== ====== ====== ====== =======
(1) 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 are expected to be recovered
through customer billings.
(2) Represents primarily insurance related liabilities and liabilities for
deferred income taxes, 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 pension plans based on
at least the minimum funding required by applicable regulations. In
determining the minimum required funding, we utilize current actuarial
assumptions and exchange rates to forecast estimates of amounts that may be
payable for up to five years in the future. In our judgment, minimum
funding estimates beyond a five year time horizon cannot be reliably
estimated, and, therefore, have not been included in the table.
(3) We classify these borrowings as short-term on our Condensed Consolidated
Balance Sheets because of our intent and ability to repay the amounts on a
short-term basis. As of September 30, 2009, there were no borrowings
outstanding under the Revolving Credit Facility.
Our revolving credit agreement (the "Revolving Credit Facility") provides for a
revolving credit facility of $375.0 million. As of September 30, 2009 and
December 31, 2008, we had approximately $65.2 million and $53.7 million of
letters of credit outstanding, respectively, under the Revolving Credit
Facility. There were no borrowings under the Revolving Credit Facility as of
September 30, 2009 and December 31, 2008.
On September 19, 2007, we entered into an agreement providing for a $300.0
million Term Loan. The proceeds were used to pay a portion of the consideration
for the acquisition of FR X Ohmstede Acquisitions Co. ("Ohmstede") and costs and
expenses incident thereto. The Term Loan contains covenants, representations and
warranties and events of default. The Term Loan covenants require, among other
things, maintenance of certain financial ratios and certain restrictions with
respect to payment of dividends, common stock repurchases, investments,
acquisitions, indebtedness and capital expenditures. We are required to make
principal payments on the Term Loan in installments on the last day of March,
June, September and December of each year, which commenced in March 2008, in the
amount of $0.75 million. A final payment comprised of all remaining principal
and interest is due in October 2010. The Term Loan is secured by substantially
all of our assets and most of the assets of our U.S. subsidiaries. The Term Loan
bears interest at (1) the prime commercial lending rate announced by Bank of
Montreal from time to time (3.25% at September 30, 2009) plus 0.0% to 0.5% based
on certain financial tests or (2) U.S. dollar LIBOR (0.25% at September 30,
2009) plus 1.0% to 2.25% based on certain financial tests. The interest rate in
effect at September 30, 2009 was 1.25% (see Note H, "Derivative Instrument and
Hedging Activity"). Since September 19, 2007, we have made prepayments under the
Term Loan of $99.25 million, and mandatory repayments of $5.25 million, to
reduce the balance to $195.5 million at September 30, 2009.
The terms of our construction contracts frequently require that we obtain from
surety companies ("Surety Companies") and provide to our customers payment and
performance bonds ("Surety Bonds") as a condition to the award of such
contracts. The Surety Bonds secure our payment and performance obligations under
such contracts, and we have agreed to indemnify the Surety Companies for
amounts, if any, paid by them in respect of Surety Bonds issued on our behalf.
In addition, at the request of labor unions representing certain of our
employees, Surety Bonds are sometimes provided to secure obligations for wages
and benefits payable to or for such employees. Public sector contracts require
Surety Bonds more frequently than private sector contracts, and accordingly, our
bonding requirements typically increase as the amount of public sector work
increases. As of September 30, 2009, based on our percentage-of-completion of
our projects covered by Surety Bonds, our aggregate estimated exposure, had
there been defaults on all our existing contractual obligations, would have been
approximately $1.3 billion. The Surety Bonds are issued by Surety Companies in
return for premiums, which vary depending on the size and type of bond.
In recent years, there has been a reduction in the aggregate surety bond
issuance capacity of Surety Companies due to industry consolidations and
significant losses of Surety Companies as a result of providing Surety Bonds to
construction companies, as well as companies in other industries. Consequently,
the availability of Surety Bonds has become more limited and the terms upon
which Surety Bonds are available have become more restrictive. We continually
monitor our available limits of Surety Bonds and discuss with our current and
other Surety Bond providers the amount of Surety Bonds that may be available to
us based on our financial strength and the absence of any default by us on any
Surety Bond we have previously obtained. However, if we experience changes in
our bonding relationships or if there are further changes in the surety
industry, we may seek to satisfy certain customer requests for Surety Bonds by
posting other forms of collateral in lieu of Surety Bonds such as letters of
credit or guarantees by EMCOR Group, Inc., by seeking to convince customers to
forego the requirement for Surety Bonds, by increasing our activities in
business segments that rarely require Surety Bonds such as the facilities
services segment, and/or by refraining from bidding for certain projects that
require Surety Bonds. There can be no assurance that we will be able to
effectuate alternatives to providing Surety Bonds to our customers or to obtain,
on favorable terms, sufficient additional work that does not require Surety
Bonds to replace projects requiring Surety Bonds that we may decline 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 flow.
We do not have any other material financial guarantees or off-balance sheet
arrangements other than those disclosed above.
Our primary source of liquidity has been, and is expected to continue to be,
cash generated by operating activities. We also maintain our Revolving Credit
Facility that may be utilized, among other things, to meet short-term liquidity
needs in the event cash generated by operating activities is insufficient or to
enable us to seize opportunities to participate in joint ventures or to make
acquisitions that may require access to cash on short notice or for any other
reason. However, negative macroeconomic trends may have an adverse effect on
liquidity. In addition to managing borrowings, our focus on the facilities
services market is intended to provide an additional buffer against economic
downturns inasmuch as a part of our facilities services business is
characterized by annual and multi-year contracts that provide a more predictable
stream of cash flow than the construction business. Short-term liquidity is also
impacted by the type and length of construction contracts in place. During past
economic downturns, there were typically fewer small discretionary projects from
the private sector, and companies like us aggressively bid larger long-term
infrastructure and public sector contracts. Performance of long duration
contracts typically requires working capital until initial billing milestones
are achieved. 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 "cost and estimated earnings in excess of billings on uncompleted
contracts", were $526.3 million and $496.4 million as of September 30, 2009 and
December 31, 2008, respectively.
Long-term liquidity requirements can be expected to be met through cash
generated from operating activities and our 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 current cash balances and borrowing capacity available under the
Revolving Credit Facility or other forms of financing available 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 $61.0 million. If we were
required to pay damages in one or more such proceedings, such payments could
have a material adverse effect on our financial position, results of operations
and/or cash flows.
Certain Insurance Matters
As of September 30, 2009 and December 31, 2008, we utilized approximately $62.8
million and $52.2 million, respectively, of letters of credit obtained under our
Revolving Credit Facility as collateral for our insurance obligations.
New Accounting Pronouncements
We review new accounting standards to determine the expected financial impact,
if any, that the adoption of such standards will have. As of the filing of this
Quarterly Report on Form 10-Q, there were no new accounting standards that were
projected to have a material impact on our consolidated financial position,
results of operations or liquidity. Refer to Part I, Item 1, "Financial
Statements - Notes to Condensed Consolidated Financial Statements - Note B, New
Accounting Pronouncements," for further information regarding new accounting
standards.
Application of Critical Accounting Policies
Our condensed consolidated financial statements are based on the application of
significant accounting policies, which require management to make significant
estimates and assumptions. Our significant accounting policies are described in
Note B - Summary of Significant Accounting Policies of the notes to consolidated
financial statements included in Item 8 of the annual report on Form 10-K for
the year ended December 31, 2008. We adopted various new accounting
pronouncements during the nine months ended September 30, 2009 (see Note B, "New
Accounting Pronouncements," for further information). We believe that some of
the more critical judgment areas in the application of accounting policies that
affect our financial condition and results of operations are the impact of
changes in the estimates and judgments pertaining to: (a) revenue recognition
from (i) long-term construction contracts for which the percentage-of-completion
method of accounting is used and (ii) services contracts; (b) collectibility or
valuation of accounts receivable; (c) insurance liabilities; (d) income taxes;
and (e) goodwill and identifiable intangible assets.
Revenue Recognition for Long-term Construction Contracts and Services Contracts
We believe our most critical accounting policy is revenue recognition from
long-term construction contracts for which we use the percentage-of-completion
method of accounting. Percentage-of-completion accounting is the prescribed
method of accounting for long-term contracts in accordance with 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.
Provisions for the entirety of estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Application of
percentage-of-completion accounting results in the recognition of costs and
estimated earnings in excess of billings on uncompleted contracts in our
Condensed Consolidated Balance Sheets. Costs and estimated earnings in excess of
billings on uncompleted contracts reflected in the Condensed Consolidated
Balance Sheets arise when revenues have been recognized but the amounts cannot
be billed under the terms of contracts. Such amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of a contract.
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. Due to uncertainties inherent in estimates
employed in applying percentage-of-completion accounting, estimates may be
revised as project work progresses. Application of percentage-of-completion
accounting requires that the impact of revised estimates be reported
prospectively in the condensed consolidated financial statements. In addition to
revenue recognition for long-term construction contracts, we recognize revenues
from the performance of facilities services for maintenance, repair and retrofit
work consistent with the performance of services, which are generally on a
pro-rata basis over the life of the contractual arrangement. Expenses related to
all services arrangements are recognized as incurred. Revenues related to the
engineering, manufacturing and repairing of shell and tube heat exchangers are
recognized when the product is shipped and all other revenue recognition
criteria have been met. Costs related to this work are included in inventory
until the product is shipped. These costs include all direct material, labor and
subcontracting costs and indirect costs related to performance such as supplies,
tools and repairs.
Accounts Receivable
We are required to estimate the collectibility of accounts receivable. A
considerable amount of judgment is required in assessing the likelihood of
realization of receivables. Relevant assessment factors include the
creditworthiness of the customer, our prior collection history with the customer
and related aging of the past due balances. The provision for doubtful accounts
during the nine months ended September 30, 2009 increased $2.9 million compared
to the nine months ended September 30, 2008. At September 30, 2009 and December
31, 2008, our accounts receivable of $1,182.9 million and $1,391.0 million,
respectively, included allowances for doubtful accounts of $37.2 million and
$34.8 million, respectively. Specific accounts receivable are evaluated when we
believe a customer may not be able to meet its financial obligations due to
deterioration of its financial condition or its credit ratings. The allowance
requirements are based on the best facts available and are re-evaluated and
adjusted on a regular basis and as additional information is received.
Insurance Liabilities
We have loss payment deductibles for certain workers' compensation, auto
liability, general liability and property claims, have self-insured retentions
for certain other casualty claims and are self-insured for employee-related
health care claims. Losses are recorded based upon estimates of our liability
for claims incurred and for claims incurred but not reported. The liabilities
are derived from known facts, historical trends and industry averages utilizing
the assistance of an actuary to determine the best estimate for the majority of
these obligations. We believe the liabilities recognized on our balance sheets
for these obligations are adequate. However, such obligations are difficult to
assess and estimate due to numerous factors, including severity of injury,
determination of liability in proportion to other parties, timely reporting of
occurrences and effectiveness of safety and risk management programs. Therefore,
if our actual experience differs from the assumptions and estimates used for
recording the liabilities, adjustments may be required and will be recorded in
the period that the experience becomes known.
Income Taxes
We have net deferred income tax liabilities primarily resulting from differences
between the carrying value and income tax basis of certain depreciable and
identifiable intangible assets, partially offset by non-deductible temporary
differences of $18.7 million and $13.2 million at September 30, 2009 and
December 31, 2008, respectively, which will impact our taxable income in future
periods. A valuation allowance is required when it is more likely than not that
all or a portion of a deferred income tax asset will not be realized. As of
September 30, 2009 and December 31, 2008, the total valuation allowance on gross
deferred income tax assets was approximately $5.3 million and $5.2 million,
respectively.
Goodwill and Identifiable Intangible Assets
As of September 30, 2009, we had $587.3 million and $282.6 million,
respectively, of goodwill and net identifiable intangible assets (primarily
based on the market values of our contract backlog, developed technology,
customer relationships, non-competition agreements and trade names), primarily
arising out of the acquisition of companies. As of December 31, 2008, goodwill
and net identifiable intangible assets were $582.7 million and $292.1 million,
respectively. The changes to goodwill and net identifiable intangible assets
(net of accumulated amortization) since December 31, 2008 were related to the
acquisition of a company during the first nine months of 2009 and purchase price
adjustments. In addition, goodwill increased due to earn-outs paid and accrued
related to previous acquisitions. During 2009, the purchase price accounting for
our November 2008 acquisition was finalized. As a result, identifiable
intangible assets ascribed to its goodwill, contract backlog, customer
relationships, trade name and to a non-competition agreement were adjusted with
an insignificant impact. 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 goodwill at the reporting unit level utilizing 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 must be recognized for the excess and charged to operations.
Our development of the present value of future cash flow projections is based
upon assumptions and estimates from a review of our operating results, business
plans, anticipated growth rates and weighted average cost of capital. Many of
the factors used in assessing fair value are outside the control of management,
and these assumptions and estimates can change in future periods. Changes in
assumptions or estimates could materially affect the determination of the fair
value of a reporting unit, and therefore, could affect the amount of a potential
impairment.
As of September 30, 2009, we had $587.3 million of goodwill on our balance sheet
and, of this amount, approximately 69.8% relates to our United States facilities
services segment, approximately 29.6% relates to our United States mechanical
construction and facilities services segment and approximately 0.6% relates to
our United States electrical construction and facilities services segment.
Although we have not yet conducted our October 1, 2009 goodwill impairment test,
there have been no impairments recognized through the first nine months of 2009.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have not used any derivative financial instruments, except as discussed
below, during the nine months ended September 30, 2009, including trading or
speculating on changes in interest rates or commodity prices of materials used
in our business.
We are exposed to market risk for changes in interest rates for borrowings under
the Revolving Credit Facility. Borrowings under the Revolving Credit Facility
bear interest at variable rates. As of September 30, 2009, there were no
borrowings outstanding under the Revolving Credit Facility. This instrument
bears interest at (1) a rate which is the prime commercial lending rate
announced by Bank of Montreal from time to time (3.25% at September 30, 2009)
plus 0.0% to 0.5% based on certain financial tests or (2) United States dollar
LIBOR (0.25% at September 30, 2009) plus 1.0% to 2.25% based on certain
financial tests. The interest rates in effect at September 30, 2009 were 3.25%
and 1.25% for the prime commercial lending rate and the United States dollar
LIBOR, respectively. Letter of credit fees issued under the Revolving Credit
Facility range from 1.0% to 2.25% of the respective face amounts of the letters
of credit issued and are charged based on the type of letter of credit issued
and certain financial tests. The Revolving Credit Facility expires in October
2010. There is no guarantee that we will be able to renew the Revolving Credit
Facility at its expiration.
We had $195.5 million and $197.75 million of borrowings outstanding as of
September 30, 2009 and December 31, 2008, respectively, on our Term Loan bearing
interest at the same variable rates as the Revolving Credit Facility discussed
in the preceding paragraph. The carrying value of our Term Loan approximates the
fair value due to the variable rate on such debt. In order to hedge our interest
rate risk on the Term Loan, we entered into an interest rate swap on January 27,
2009 to be effective January 30, 2009 so as to pay a fixed rate of interest and
receive a floating rate of interest of 30 day LIBOR on the amortizing notional
amount of the swap ($195.5 million as of September 30, 2009). This swap fixes
the interest rate on the Term Loan at 1.225%, plus 1.0% to 2.25% based on
certain financial tests. The fair value of the interest rate swap at September
30, 2009 was a net liability of $1.3 million based upon the valuation technique
known as the market standard methodology of netting the discounted future fixed
cash flows and the discounted expected variable cash flows. The variable cash
flows are based on an expectation of future interest rates (forward curves)
derived from observable interest rate curves. In addition, we have incorporated
a credit valuation adjustment into our fair value of the interest rate swap.
This adjustment factors in both our nonperformance risk and the respective
counterparty's nonperformance risk. As an indication of the interest rate swap's
sensitivity to changes in interest rates based upon an immediate 50 basis point
increase in the appropriate interest rate at September 30, 2009, the termination
fair value of the interest rate swap, without consideration of nonperformance
risk, would increase by approximately $0.9 million to a net liability of $0.4
million. Conversely, a 50 basis point decrease in that rate would decrease the
fair value of the interest rate swap, without consideration of nonperformance
risk, to a net liability of $2.3 million.
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 the
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 8,600 vehicles. While we
believe we can increase our prices to adjust for some price increases in
commodities, there can be no assurance that continued price increases of
commodities, if they were to occur, would be recoverable.
ITEM 4. CONTROLS AND PROCEDURES.
Based on an evaluation of our disclosure controls and procedures (as required by
Rule 13a-15(b) of the Securities Exchange Act of 1934), our Chairman of the
Board of Directors and Chief Executive Officer, Frank T. MacInnis, and our
Executive Vice President and Chief Financial Officer, Mark A. Pompa, have
concluded that our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchanges Act of 1934) are effective as of the end
of the period covered by this report.
There have not been any changes in the 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 September 30,
2009 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. - OTHER INFORMATION.
ITEM 6. EXHIBITS.
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
2(a-1) Purchase Agreement dated as of February 11, 2002 by and Exhibit 2.1 to EMCOR Group, Inc.'s
among Comfort Systems USA, Inc. and EMCOR-CSI ("EMCOR") Report on Form 8-K dated
Holding Co. February 14, 2002
2(a-2) Purchase and Sale Agreement dated as of August 20, 2007 Exhibit 2.1 to EMCOR's Report on Form 8-K
between FR X Ohmstede Holdings LLC and EMCOR (Date of Report August 20, 2007)
Group, Inc.
3(a-1) Restated Certificate of Incorporation of EMCOR filed Exhibit 3(a-5) to EMCOR's Registration
December 15, 1994 Statement on Form 10 as originally filed
March 17, 1995 ("Form 10")
3(a-2) Amendment dated November 28, 1995 to the Restated Exhibit 3(a-2) to EMCOR's Annual Report on
Certificate of Incorporation of EMCOR 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 Exhibit 3(a-3) to EMCOR's Annual Report on
Certificate of Incorporation of EMCOR 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 Exhibit 3(a-4) to EMCOR's Annual Report on
Certificate of Incorporation of EMCOR 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 Exhibit A to EMCOR's Proxy Statement dated
Certificate of Incorporation of EMCOR 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) U.S. $375,000,000 (originally U.S. $350,000,000)Credit Exhibit 4.1 to EMCOR's Report on Form 8-K
Agreement dated October 14, 2005 by and among (Date of Report October 17, 2005)
EMCOR Group, Inc. and certain of its subsidiaries and
Harris N.A. individually and as Agent for the Lenders
which are or became parties thereto (the "Credit
Agreement")
4(b) Assignment and Acceptance dated October 14, 2005 Exhibit 4(b) to 2005 Form 10-K
between Harris Nesbitt Financing, Inc. ("HNF") as
assignor, and Bank of Montreal, as assignee of 100%
interest of HNF in the Credit Agreement to Bank of
Montreal
4(c) Commitment Amount Increase Request dated November 21, Exhibit 4(c) to 2005 Form 10-K
2005 between EMCOR and the Northern Trust Company
effective November 29, 2005 pursuant to Section 1.10
of the Credit Agreement
4(d) Commitment Amount Increase Request dated November 21, Exhibit 4(d) to 2005 Form 10-K
2005 between EMCOR and Bank of Montreal effective
November 29, 2005 pursuant to Section 1.10 of the
Credit Agreement
4(e) Commitment Amount Increase Request dated November 21, Exhibit 4(e) to 2005 Form 10-K
2005 between EMCOR and National City Bank of Indiana
effective November 29, 2005 pursuant to Section 1.10
of the Credit Agreement
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
4(f) Assignment and Acceptance dated November 29, 2005 Exhibit 4(f) to 2005 Form 10-K
between Bank of Montreal, as assignor, and Fifth Third
Bank, as assignee, of 30% interest of Bank of Montreal
in the Credit Agreement to Fifth Third Bank
4(g) Assignment and Acceptance dated November 29, 2005 Exhibit 4(g) to 2005 Form 10-K
between Bank of Montreal, as assignor, and Northern
Trust Company, as assignee, of 20% interest of Bank of
Montreal in the Credit Agreement to Northern Trust
Company
4(h) Term Loan Agreement dated as of September 19, 2007 Exhibit 4.1(a) to EMCOR's Form 8-K (Date
among EMCOR, Bank of Montreal, as Administrative Agent, of Report September 19, 2007)
and the several financial institutions listed on the
signature pages thereof
4(i) Second Amended and Restated Security Agreement dated Exhibit 4.1(b) to EMCOR's Form 8-K (Date
as of September 19, 2007 among EMCOR, certain of its of Report September 19, 2007)
U.S. subsidiaries, and Harris N.A., as Agent
4(j) Second Amended and Restated Pledge Agreement dated as Exhibit 4.1(c) to EMCOR's Form 8-K (Date
of September 19, 2007 among EMCOR, certain of its U.S. of Report September 19, 2007)
subsidiaries, and Harris N.A., as Agent
4(k) Guaranty Agreement by certain of EMCOR's U.S. Exhibit 4.1(d) to EMCOR's Form 8-K (Date of
subsidiaries in favor of Harris N.A., as Agent Report September 19, 2007)
4(l) First Amendment dated as of September 19, 2007 to Exhibit 4.1(e) to EMCOR's Form 8-K
Amended and Restated Credit Agreement effective (Date of Report September 19, 2007)
October 14, 2005 among EMCOR, Harris N.A., as Agent,
and certain other lenders party thereto
10(a) Severance Agreement between EMCOR and Frank T. Exhibit 10.2 to EMCOR's Report on Form
MacInnis 8-K (Date of Report April 25, 2005)
("April 2005 Form 8-K")
10(b) Form of Severance Agreement ("Severance Agreement") Exhibit 10.1 to the April 2005 Form 8-K
between EMCOR and each of Sheldon I. Cammaker, R.
Kevin Matz and Mark A. Pompa
10(c) Form of Amendment to Severance Agreement between Exhibit 10(c) to EMCOR's Quarterly Report
EMCOR and each of Frank T. MacInnis, Sheldon I. on Form 10-Q for the quarter ended March
Cammaker, R. Kevin Matz and Mark A. Pompa 31, 2007 ("March 2007 Form 10-Q")
10(d) Letter Agreement dated October 12, 2004 between Exhibit 10.1 to EMCOR's Report on Form
Anthony Guzzi and EMCOR (the "Guzzi Letter 8-K (Date of Report October 12, 2004)
Agreement")
10(e) Form of Confidentiality Agreement between Anthony Exhibit C to the Guzzi Letter Agreement
Guzzi and EMCOR
10(f) Form of Indemnification Agreement between EMCOR and Exhibit F to the Guzzi Letter Agreement
each of its officers and directors
10(g-1) Severance Agreement ("Guzzi Severance Agreement") Exhibit D to the Guzzi Letter Agreement
dated October 25, 2004 between Anthony Guzzi
and EMCOR
10(g-2) Amendment to Guzzi Severance Agreement Exhibit 10(g-2) to the March 2007 Form
10-Q
10(h-1) 1994 Management Stock Option Plan ("1994 Option Exhibit 10(o) to Form 10
Plan")
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
10(h-2) Amendment to Section 12 of the 1994 Option Plan Exhibit (g-2) to EMCOR's Annual Report on
Form 10-K for the year ended December 31,
2000 ("2000 Form 10-K")
10(h-3) Amendment to Section 13 of the 1994 Option Plan Exhibit (g-3) to 2000 Form 10-K
10(i-1) 1995 Non-Employee Directors' Non-Qualified Stock Exhibit 10(p) to Form 10
Option Plan ("1995 Option Plan")
10(i-2) Amendment to Section 10 of the 1995 Option Plan Exhibit (h-2) to 2000 Form 10-K
10(j-1) 1997 Non-Employee Directors' Non-Qualified Stock Exhibit 10(k) to EMCOR's Annual Report on
Option Plan ("1997 Option Plan") Form 10-K for the year ended December 31,
1999 ("1999 Form 10-K")
10(j-2) Amendment to Section 9 of the 1997 Option Plan Exhibit 10(i-2) to 2000 Form 10-K
10(k) 1997 Stock Plan for Directors Exhibit 10(l) to 1999 Form 10-K
10(l-1) Continuity Agreement dated as of June 22, 1998 Exhibit 10(a) to EMCOR's Quarterly Report
between Frank T. MacInnis and EMCOR ("MacInnis on Form 10-Q for the quarter ended June
Continuity Agreement") 30, 1998 ("June 1998 Form 10-Q")
10(l-2) Amendment dated as of May 4, 1999 to MacInnis Exhibit 10(h) to EMCOR's Quarterly
Continuity Agreement Report on Form 10-Q for the quarter
ended June 30, 1999 ("June 1999 Form
10-Q")
10(l-3) Amendment dated as of March 1, 2007 to MacInnis Exhibit 10(l-3) to the March 2007 Form 10-Q
Continuity Agreement
10(m-1) Continuity Agreement dated as of June 22, 1998 Exhibit 10(c) to the June 1998 Form 10-Q
between Sheldon I. Cammaker and EMCOR ("Cammaker
Continuity Agreement")
10(m-2) Amendment dated as of May 4, 1999 to Cammaker Exhibit 10(i) to the June 1999 Form 10-Q
Continuity Agreement
10(m-3) Amendment dated as of March 1, 2007 to Cammaker Exhibit 10(m-3) to the March 2007 Form
Continuity Agreement 10-Q
10(n-1) Continuity Agreement dated as of June 22, 1998 Exhibit 10(f) to the June 1998 Form 10-Q
between R. Kevin Matz and EMCOR ("Matz Continuity
Agreement")
10(n-2) Amendment dated as of May 4, 1999 to Matz Continuity Exhibit 10(m) to the June 1999 Form 10-Q
Agreement
10(n-3) Amendment dated as of January 1, 2002 to Matz Exhibit 10(o-3) to EMCOR's Quarterly Report
Continuity Agreement on Form 10-Q for the quarter ended March
31, 2002 ("March 2002 Form 10-Q")
10(n-4) Amendment dated as of March 1, 2007 to Matz Continuity Exhibit 10(n-4) to the March 2007 Form
Agreement 10-Q
10(o-1) Continuity Agreement dated as of June 22, 1998 between Exhibit 10(g) to the June 1998 Form 10-Q
Mark A. Pompa and EMCOR ("Pompa Continuity Agreement")
10(o-2) Amendment dated as of May 4, 1999 to Pompa Continuity Exhibit 10(n) to the June 1999 Form 10-Q
Agreement
10(o-3) Amendment dated as of January 1, 2002 to Pompa Exhibit 10(p-3) to the March 2002 Form
Continuity Agreement 10-Q
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
10(o-4) Amendment dated as of March 1, 2007 to Pompa Continuity Exhibit 10(o-4) to the March 2007 Form 10-Q
Agreement
10(p-1) Change of Control Agreement dated as of October 25, Exhibit E to the Guzzi Letter Agreement
2004 between Anthony Guzzi ("Guzzi") and EMCOR
("Guzzi Continuity Agreement")
10(p-2) Amendment dated as of March 1, 2007 to Guzzi Exhibit 10(p-2) to the March 2007 Form
Continuity Agreement 10-Q
10(q) Amendment to Continuity Agreements and Severance Exhibit 10(q) to EMCOR's Annual Report
Agreements with Sheldon I. Cammaker, Anthony J. Guzzi, on Form 10-K for the year ended
Frank T. MacInnis, R. Kevin Matz and Mark A. Pompa December 31, 2008 ("2008 Form 10-K")
10(r-1) Incentive Plan for Senior Executive Officers of EMCOR Exhibit 10.3 to March 4, 2005 Form 8-K
Group, Inc. ("Incentive Plan for Senior Executives")
10(r-2) First Amendment to Incentive Plan for Senior Executives Exhibit 10(t) to 2005 Form 10-K
10(r-3) Amendment made February 27, 2008 to Incentive Plan for Exhibit 10(r-3) to 2008 Form 10-K
Senior Executive Officers
10(r-4) Amendment made December 22, 2008 to Incentive Plan for Exhibit 10(r-4) to 2008 Form 10-K
Senior Executive Officers
10(r-5) Suspension of Incentive Plan for Senior Executive Exhibit 10(r-5) to 2008 Form 10-K
Officers
10(s-1) EMCOR Group, Inc. Long-Term Incentive Plan ("LTIP") Exhibit 10 to Form 8-K (Date of Report
December 15, 2005)
10(s-2) First Amendment to LTIP and updated Schedule A to LTIP Exhibit 10(s-2) to 2008 Form 10-K
10(s-3) Form of Certificate Representing Stock Units issued Exhibit 10(t-2) to EMCOR's Annual
under LTIP Report on Form 10-K for the year ended
December 31, 2007 ("2007 Form 10-K")
10(t-1) 2003 Non-Employee Directors' Stock Option Plan Exhibit A to EMCOR's Proxy Statement
for its Annual Meeting held on June 12,
2003 ("2003 Proxy Statement")
10(t-2) First Amendment to 2003 Non-Employee Directors' Plan Exhibit 10(u-2) to EMCOR's Annual
Report on Form 10-K for the year ended
December 31, 2006 ("2006 Form 10-K")
10(u-1) 2003 Management Stock Incentive Plan Exhibit B to EMCOR's 2003 Proxy
Statement
10(u-2) Amendments to 2003 Management Stock Incentive Plan Exhibit 10(t-2) to EMCOR's Annual
Report on Form 10-K for the year ended
December 31, 2003 ("2003 Form 10-K")
10(u-3) Second Amendment to 2003 Management Stock Incentive Exhibit 10(v-3) to 2006 Form 10-K
Plan
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
10(v) Form of Stock Option Agreement evidencing grant of Exhibit 10.1 to Form 8-K (Date of
stock options under the 2003 Management Stock Report January 5, 2005)
Incentive Plan
10(w) Key Executive Incentive Bonus Plan Exhibit B to EMCOR's Proxy Statement
for its Annual Meeting held June 16,
2005 ("2005 Proxy Statement")
10(x) 2005 Management Stock Incentive Plan Exhibit B to EMCOR's 2005 Proxy
Statement
10(y) First Amendment to 2005 Management Stock Incentive Exhibit 10(z) to 2006 Form 10-K
Plan
10(z-1) 2005 Stock Plan for Directors Exhibit C to 2005 Proxy Statement
10(z-2) First Amendment to 2005 Stock Plan for Directors Exhibit 10(a)(a-2) to 2006 Form 10-K
10(a)(a) Option Agreement between EMCOR and Frank T. MacInnis Exhibit 4.4 to 2004 Form S-8
dated May 5, 1999
10(b)(b) Form of EMCOR Option Agreement for Messrs. Frank T. Exhibit 4.5 to 2004 Form S-8
MacInnis, Sheldon I. Cammaker, R. Kevin Matz and Mark
A. Pompa (collectively the "Executive Officers") for
options granted January 4, 1999, January 3, 2000 and
January 2, 2001
10(c)(c) Form of EMCOR Option Agreement for Executive Officers Exhibit 4.6 to 2004 Form S-8
granted December 1, 2001
10(d)(d) Form of EMCOR Option Agreement for Executive Officers Exhibit 4.7 to 2004 Form S-8
granted January 2, 2002, January 2, 2003 and January
2, 2004
10(e)(e) Form of EMCOR Option Agreement for Directors granted Exhibit 4.8 to 2004 Form S-8
June 19, 2002, October 25, 2002 and February 27, 2003
10(f)(f) Form of EMCOR Option Agreement for Executive Officers Exhibit 10(g)(g) to 2005 Form 10-K
and Guzzi dated January 3, 2005
10(g)(g-1) 2007 Incentive Plan Exhibit B to EMCOR's Proxy Statement
for its Annual Meeting held June 20,
2007
10(g)(g-2) Option Agreement dated December 13, 2007 under 2007 Exhibit 10(h)(h-2) to 2007 Form 10-K
Incentive Plan between Jerry E. Ryan and EMCOR
10(g)(g-3) Option Agreement dated December 15, 2008 under 2007 Exhibit 10.1 to Form 8-K (Date of
Incentive Plan between David Laidley and EMCOR Report December 15, 2008)
10(g)(g-4) Form of Option Agreement under 2007 Incentive Plan Exhibit 10(h)(h-3) to 2007 Form 10-K
between EMCOR and each non-employee director electing
to receive options as part of annual retainer
10(h)(h) Form of letter agreement between EMCOR and each Exhibit 10(b)(b) to 2004 Form 10-K
Executive Officer with respect to acceleration of
options granted January 2, 2003 and January 2, 2004
10(i)(i) EMCOR Group, Inc. Employee Stock Purchase Plan Exhibit C to EMCOR's Proxy Statement
for its Annual Meeting held June 18,
2008
ITEM 6. EXHIBITS. - (continued)
Exhibit Incorporated By Reference to or
No. Description Page Number
----------- -------------------------------------------------------- -------------------------------------------
10(j)(j-1) Certificate dated March 24, 2008 evidencing Phantom Exhibit 10(j)(j-1) to EMCOR's Quarterly
Stock Unit Award to Frank T. MacInnis Report on Form 10-Q for the quarter ended
March 31, 2008 ("March 2008 Form 10-Q")
10(j)(j-2) Certificate dated March 24, 2008 evidencing Phantom Exhibit 10(j)(j-2) to the March 2008 Form
Stock Unit Award to Anthony J. Guzzi 10-Q
10(k)(k) Certificate dated March 24, 2008 evidencing Stock Exhibit 10(k)(k) to the March 2008 Form
Unit Award to Frank T. MacInnis 10-Q
10(l)(l) Restricted Stock Award Agreement dated January 2, Exhibit 10(k)(k) to 2008 Form 10-K
2009 between Richard F. Hamm, Jr. and EMCOR
11 Computation of Basic EPS and Diluted EPS for the Note D of the Notes to the Condensed
three and nine months ended September 30, 2009 and Consolidated Financial Statements
2008
31.1 Certification Pursuant to Section 302 of the Page ___
Sarbanes-Oxley Act of 2002 by Frank T. MacInnis, the
Chairman of the Board of Directors and Chief
Executive Officer *
31.2 Certification Pursuant to Section 302 of the Page ___
Sarbanes-Oxley Act of 2002 by Mark A. Pompa, the
Executive Vice President and Chief Financial Officer *
32.1 Certification Pursuant to Section 906 of the Page ___
Sarbanes-Oxley Act of 2002 by the Chairman of the
Board of Directors and Chief Executive Officer **
32.2 Certification Pursuant to Section 906 of the Page ___
Sarbanes-Oxley Act of 2002 by the Executive Vice
President and Chief Financial Officer **
---------------
* Filed Herewith
** Furnished Herewith
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: October 29, 2009 EMCOR GROUP, INC.
----------------------------------------------
(Registrant)
By: /s/FRANK T. MACINNIS
----------------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors 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 31.1
CERTIFICATION
I, Frank T. MacInnis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 29, 2009 /s/FRANK T. MACINNIS
------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Mark A. Pompa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EMCOR Group,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: October 29, 2009 /s/MARK A. POMPA
------------------------------------
Mark A. Pompa
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2009 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Frank T. MacInnis, Chairman of the Board of Directors and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: October 29, 2009 /s/FRANK T. MACINNIS
------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors and
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EMCOR Group, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2009 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Mark A. Pompa, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: October 29, 2009 /s/MARK A. POMPA
------------------------------------
Mark A. Pompa
Executive Vice President and
Chief Financial Office
