Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
EME > SEC Filings for EME > Form 10-Q on 28-Jul-2016All Recent SEC Filings

Show all filings for EMCOR GROUP INC

Form 10-Q for EMCOR GROUP INC


28-Jul-2016

Quarterly Report


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. In addition, we provide a number of building services and industrial services. Our services are provided to a broad range of commercial, industrial, utility and institutional customers through approximately 70 operating subsidiaries and joint venture entities. Our offices are located in the United States and the United Kingdom.
Due to a historical pattern of losses in the construction operations of our United Kingdom segment and our negative assessment of construction market conditions in the United Kingdom for the foreseeable future, we announced during the quarter ended June 30, 2013 our decision to withdraw from the construction market in the United Kingdom. During the third quarter of 2014, we ceased construction operations in the United Kingdom. The results of the construction operations of our United Kingdom segment for all periods are presented in our Condensed Consolidated Financial Statements as discontinued operations. The segment formerly named the United Kingdom construction and building services segment has been renamed the United Kingdom building services segment. Impact of Acquisitions
In order to provide a more meaningful period-over-period discussion of our operating results, we may discuss amounts generated or incurred (revenues, gross profit, selling, general and administrative expenses and operating income) from companies acquired. The amounts discussed reflect the acquired companies' operating results in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period. Overview
The following table presents selected financial data for the three months ended June 30, 2016 and 2015 (in thousands, except percentages and per share data):

                                                                For the three months ended
                                                                         June 30,
                                                                   2016             2015
Revenues                                                     $    1,933,416     $ 1,652,585
Revenues increase from prior year                                      17.0 %           6.4 %
Restructuring expenses                                       $          641     $       433
Operating income                                             $       92,289     $    77,703
Operating income as a percentage of revenues                            4.8 %           4.7 %
Net income attributable to EMCOR Group, Inc.                 $       55,380     $    46,849
Diluted earnings per common share from continuing operations $         0.92     $      0.74

The results of our operations for the 2016 second quarter set new company records in terms of revenues, operating income, net income attributable to EMCOR Group, Inc. and diluted earnings per common share from continuing operations for a second quarter. Revenues increased within all of our reportable segments, except for our United Kingdom building services segment. The increase in revenues was attributable to: (a) our domestic construction segments, due to increased activity within the majority of our market sectors, (b) our United States industrial services segment, due to increased demand for specialty services offerings within our field services operations, and (c) our United States building services segment, due to higher volume within its mobile mechanical services, energy services and site-based commercial services operations. The decrease in revenues from our United Kingdom building services segment was due to the effect of unfavorable exchange rates for the British pound versus the United States dollar.
Operating income increased within all of our reportable segments, except for our United States electrical construction and facilities services segment. Our operating income was favorably impacted by: (a) our United States industrial services segment, as a result of large project activity within our field services operations, (b) our United States mechanical construction and facilities services segment, resulting from: (i) increased revenues due to higher levels of work within nearly all of our market sectors and (ii) the favorable settlement of a claim by us against the former shareholder of a company we had previously acquired, and (c) our United Kingdom building services segment, as a result of improved performance within its commercial market sector. The decrease in operating income within our United States electrical construction and facilities services segment was primarily due to the impact of a $10.5 million loss incurred on a transportation project in the Northeastern United States, as a result of productivity issues attributable to unfavorable job-site conditions for which we will seek recovery. Corporate administration operating loss increased as a result of: (a) $2.8 million of transaction costs associated with the acquisition of Ardent Services, L.L.C. and Rabalais


Table of Contents

Constructors, LLC (collectively, "Ardent") in April 2016 and (b) an increase in employment costs, such as incentive compensation, partially due to higher projected annual operating results than in the same prior year period. Our operating margin (operating income as a percentage of revenues) for the three months ended June 30, 2016 was 4.8% compared to operating margin of 4.7% for the three months ended June 30, 2015. Operating margin increases within our United States industrial services segment, our United Kingdom building services segment and our United States mechanical construction and facilities services segment were offset by decreases in operating margin within our United States electrical construction and facilities services segment and our United States building services segment.
Companies acquired in 2016, which are reported in our United States electrical construction and facilities services segment and our United States building services segment, generated incremental revenues of $63.4 million and operating income of $4.7 million, net of $1.1 million of amortization expense associated with identifiable intangible assets. Companies acquired in 2015, which are reported in our United States mechanical construction and facilities services segment, generated incremental revenues of $14.0 million and operating income of $0.6 million, net of $0.2 million of amortization expense associated with identifiable intangible assets.
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; controls and filtration; water and wastewater treatment; central plant heating and cooling; cranes and rigging; millwrighting; and steel fabrication, erection and welding);
(c) United States building services; (d) United States industrial services; and
(e) United Kingdom building services. The "United States building services" and "United Kingdom building services" segments principally consist of those operations which provide a portfolio of services needed to support the operation and maintenance of our customers' facilities, including commercial and government site-based operations and maintenance; facility maintenance and services, including reception, security and catering services; outage services to utilities and industrial plants; military base operations support services; mobile maintenance and services; floor care and janitorial services; landscaping, lot sweeping and snow removal; facilities management; vendor management; call center services; installation and support for building systems; program development, management and maintenance for energy systems; technical consulting and diagnostic services; infrastructure and building projects for federal, state and local governmental agencies and bodies; and small modification and retrofit projects, which services are not generally related to customers' construction programs. The segment "United States industrial services" principally consists of those operations which provide industrial maintenance and services, mainly for refineries and petrochemical plants, including on-site repairs, maintenance and service of heat exchangers, towers, vessels and piping; design, manufacturing, repair and hydro blast cleaning of shell and tube heat exchangers and related equipment; refinery turnaround planning and engineering services; specialty welding services; overhaul and maintenance of critical process units in refineries and petrochemical plants; and specialty technical services for refineries and petrochemical plants.


Table of Contents

Results of Operations
Revenues
The following tables present our operating segment revenues from unrelated
entities and their respective percentages of total revenues (in thousands,
except for percentages):
                                                         For the three months ended June 30,
                                                                       % of                     % of
                                                       2016           Total        2015        Total
Revenues:
United States electrical construction and
facilities services                             $      420,632          22 %   $   346,202       21 %
United States mechanical construction and
facilities services                                    629,895          33 %       554,003       34 %
United States building services                        458,797          24 %       435,627       26 %
United States industrial services                      333,508          17 %       225,168       14 %
Total United States operations                       1,842,832          95 %     1,561,000       94 %
United Kingdom building services                        90,584           5 %        91,585        6 %
Total worldwide operations                      $    1,933,416         100 %   $ 1,652,585      100 %


                                                        For the six months ended June 30,
                                                                   % of                     % of
                                                     2016         Total        2015        Total
Revenues:
United States electrical construction and
facilities services                             $     768,921       21 %   $   665,196       21 %
United States mechanical construction and
facilities services                                 1,241,785       34 %     1,065,029       33 %
United States building services                       898,448       24 %       875,119       27 %
United States industrial services                     591,012       16 %       457,893       14 %
Total United States operations                      3,500,166       95 %     3,063,237       94 %
United Kingdom building services                      178,220        5 %       178,535        6 %
Total worldwide operations                      $   3,678,386      100 %   $ 3,241,772      100 %

As described below in more detail, our revenues for the three months ended June 30, 2016 increased to $1.93 billion compared to $1.65 billion for the three months ended June 30, 2015, and our revenues for the six months ended June 30, 2016 increased to $3.68 billion compared to $3.24 billion for the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable to: (a) increased revenues from both of our domestic construction segments and (b) increased demand for our industrial field services within our United States industrial services segment.
Revenues of our United States electrical construction and facilities services segment were $420.6 million and $768.9 million for the three and six months ended June 30, 2016, respectively, compared to revenues of $346.2 million and $665.2 million for the three and six months ended June 30, 2015, respectively. Excluding the acquisition of Ardent, the increase in revenues for both periods was primarily attributable to an increase in revenues from commercial, transportation, manufacturing and hospitality construction projects, partially offset by a decrease in revenues from healthcare and water and wastewater construction projects. The results for the three and six months ended June 30, 2016 included $48.3 million of revenues generated by Ardent.
Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2016 were $629.9 million, a $75.9 million increase compared to revenues of $554.0 million for the three months ended June 30, 2015. Revenues of this segment for the six months ended June 30, 2016 were $1,241.8 million, a $176.8 million increase compared to revenues of $1,065.0 million for the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable to an increase in revenues from manufacturing, water and wastewater, hospitality, transportation and institutional construction projects, partially offset by a decline in revenues from healthcare construction projects. The results for the three and six months ended June 30, 2016 included $14.0 million and $28.4 million, respectively, of revenues generated by companies acquired in 2015.
Revenues of our United States building services segment for the three months ended June 30, 2016 increased by $23.2 million compared to the three months ended June 30, 2015, and revenues for the six months ended June 30, 2016 increased by $23.3 million compared to the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable


Table of Contents

to increased revenues from: (a) our mobile mechanical services operations, inclusive of $15.1 million of revenues generated by a company acquired in the second quarter of 2016, (b) our energy services operations, as a result of several new contract awards, and (c) our commercial site-based services operations, as a result of growth within their current contract portfolio. These increases were partially offset by a decrease in revenues from our government site-based services operations as a result of the loss of certain contracts not renewed pursuant to rebid.
Revenues of our United States industrial services segment for the three months ended June 30, 2016 increased by $108.3 million compared to the three months ended June 30, 2015, and revenues for the six months ended June 30, 2016 increased by $133.1 million compared to the six months ended June 30, 2015. The increase in revenues for both periods was due to increased demand for specialty services offerings within our field services operations, including large project activity. In addition, revenues for the six months ended June 30, 2015 were negatively impacted by a nationwide strike by union employees of certain major oil refineries which led to the loss and deferral of certain turnaround projects. The increase in revenues from our field services operations was partially offset by a decrease in revenues from our shop services operations due to lower demand for new heat exchangers as a result of volatility in crude oil prices that has led to a curtailment in capital spending from most large integrated oil companies.
Our United Kingdom building services segment revenues were $90.6 million for the three months ended June 30, 2016 compared to revenues of $91.6 million for the three months ended June 30, 2015, and revenues were $178.2 million for the six months ended June 30, 2016 compared to revenues of $178.5 million for the six months ended June 30, 2015. This segment's revenues decreased by $6.2 million and $11.3 million for the three and six months ended June 30, 2016, respectively, related to the effect of unfavorable exchange rates for the British pound versus the United States dollar resulting from the decision by the United Kingdom to exit the European Union, partially offset by an increase in contract activity within the commercial and transportation market sectors. Backlog
The following table presents our operating segment backlog from unrelated entities and their respective percentages of total backlog (in thousands, except for percentages):

                                                        % of     December 31,     % of                         % of
                                     June 30, 2016     Total         2015        Total      June 30, 2015     Total
Backlog:
United States electrical
construction and facilities
services                           $     1,096,872       29 %   $  1,145,791       30 %   $     1,130,634       31 %
United States mechanical
construction and facilities
services                                 1,747,593       46 %      1,683,501       45 %         1,522,587       42 %
United States building services            762,463       20 %        762,196       20 %           723,790       20 %
United States industrial services           56,722        1 %         54,578        1 %            84,930        2 %
Total United States operations           3,663,650       96 %      3,646,066       97 %         3,461,941       96 %
United Kingdom building services           145,835        4 %        125,097        3 %           162,527        4 %
Total worldwide operations         $     3,809,485      100 %   $  3,771,163      100 %   $     3,624,468      100 %

Our backlog at June 30, 2016 was $3.81 billion compared to $3.77 billion at December 31, 2015 and $3.62 billion at June 30, 2015. The increase in backlog at June 30, 2016 compared to backlog at December 31, 2015 was primarily attributable to an increase in backlog from all of our reportable segments, except for our United States electrical construction and facilities services segment. Backlog increases with awards of new contracts and decreases as we perform work on existing contracts. Backlog is not a term recognized under United States generally accepted accounting principles; however, it is a common measurement used in our industry. We include a project within our backlog at such time as a contract is awarded and agreement on contract terms has been reached. Backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of services contracts. However, we do not include in backlog contracts for which we are paid on a time and material basis and a fixed amount cannot be determined, and if the remaining term of a 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 provided for in the contract award. Our backlog also includes amounts related to services contracts for which a fixed price contract value is not assigned when a reasonable estimate of total revenues can be made from budgeted amounts agreed to with our customer. Our backlog is comprised of: (a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business and (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider recovery to be probable. Such claim amounts were immaterial for all periods presented. Our backlog does not include anticipated revenues from unconsolidated joint


Table of Contents

ventures or variable interest entities and anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis. We believe our backlog is firm, although many contracts are subject to cancellation at the election of our customers. Historically, cancellations have not had a material adverse effect on us.
Cost of sales and Gross profit
The following table presents our cost of sales, gross profit (revenues less cost of sales) and gross profit margin (gross profit as a percentage of revenues) (in thousands, except for percentages):

                                             For the three months ended         For the six months ended
                                                      June 30,                          June 30,
                                                2016             2015             2016            2015
Cost of sales                             $    1,658,675     $ 1,413,058     $  3,180,537     $ 2,785,316
Gross profit                              $      274,741     $   239,527     $    497,849     $   456,456
Gross profit, as a percentage of revenues           14.2 %          14.5 %           13.5 %          14.1 %

Our gross profit increased by $35.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Gross profit increased by $41.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase in gross profit for the three months ended June 30, 2016 was attributable to increases in gross profit within all of our reportable segments, except for our United Kingdom building services segment. The increase in gross profit for the six months ended June 30, 2016 was attributable to increases in gross profit within all of our reportable segments, except for our United States building services segment. The increase in gross profit for both periods was primarily attributable to an increase in revenues. Our gross profit margin was 14.2% and 14.5% for the three months ended June 30, 2016 and 2015, respectively. Gross profit margin was 13.5% and 14.1% for the six months ended June 30, 2016 and 2015, respectively. The decrease in gross profit margin for both periods was partially attributable to a $10.5 million loss incurred on a transportation construction project in the Northeastern United States within our United States electrical construction and facilities services segment, resulting in a 0.5% and a 0.3% negative impact on the Company's gross profit margin for the three and six months ended June 30, 2016, respectively. Selling, general and administrative expenses The following table presents our selling, general and administrative expenses and SG&A margin (selling, general and administrative expenses as a percentage of revenues) (in thousands, except for percentages):

                                                 For the three months ended         For the six months ended
                                                          June 30,                          June 30,
                                                    2016              2015            2016             2015
Selling, general and administrative expenses  $     181,811       $  161,391     $    349,213       $ 322,982
Selling, general and administrative expenses,
as a percentage of revenues                             9.4 %            9.8 %            9.5 %          10.0 %

Our selling, general and administrative expenses for the three months ended June 30, 2016 increased by $20.4 million to $181.8 million compared to $161.4 million for the three months ended June 30, 2015. Selling, general and administrative expenses for the six months ended June 30, 2016 increased by $26.2 million to $349.2 million compared to $323.0 million for the six months ended June 30, 2015. Selling, general and administrative expenses as a percentage of revenues were 9.4% and 9.5% for the three and six months ended June 30, 2016, respectively, compared to 9.8% and 10.0% for the three and six months ended June 30, 2015, respectively. The increase in selling, general and administrative expenses was due to higher employee related costs such as incentive compensation and salaries, as well as certain other costs including legal and professional fees and the provision for doubtful accounts. Increased incentive compensation was principally due to higher projected annual operating results than in the same prior year period, which resulted in increased accruals for certain of our incentive compensation plans. The increase in salaries was attributable to an increase in headcount due to higher revenues than in the same prior year period, as well as cost of living adjustments and merit pay increases. The increase in professional fees for the three and six months ended June 30, 2016 included $2.8 million and $3.8 million, respectively, of transaction costs associated with the acquisition of Ardent in April 2016. Additionally, the increase in selling, general and administrative expenses for the three and six months ended June 30, 2016 included $9.3 million and $10.2 million, respectively, of expenses directly related to companies acquired in 2016 and 2015, including amortization expense attributable to identifiable intangible assets of $1.1 million and $1.3 million, respectively. The decrease in SG&A margin for both periods was partially attributable to an increase in revenues without commensurate increases in our overhead cost structure.


Table of Contents

Restructuring expenses
Restructuring expenses, primarily relating to employee severance obligations, were $0.6 million and $0.7 million for the three and six months ended June 30, 2016, respectively, and $0.4 million for the three and six months ended June 30, 2015. As of June 30, 2016, the balance of these restructuring obligations yet to be paid was $0.3 million, the majority of which is expected to be paid during 2016. No material expenses in connection with restructuring from continuing operations are expected to be incurred during the remainder of 2016. Operating income
The following tables present our operating income (loss) and operating income
(loss) as a percentage of segment revenues from unrelated entities (in thousands, except for percentages):

                                                         For the three months ended June 30,
                                                                    % of                       % of
                                                                   Segment                    Segment
                                                     2016         Revenues        2015       Revenues
Operating income (loss):
United States electrical construction and
facilities services                             $    23,011          5.5 %     $  25,277        7.3 %
United States mechanical construction and
facilities services                                  38,180          6.1 %        32,364        5.8 %
United States building services                      18,291          4.0 %        17,939        4.1 %
United States industrial services                    33,148          9.9 %        17,415        7.7 %
Total United States operations                      112,630          6.1 %        92,995        6.0 %
United Kingdom building services                      3,258          3.6 %         2,834        3.1 %
. . .
  Add EME to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for EME - All Recent SEC Filings
Copyright © 2017 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.