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-K on 23-Feb-2017All Recent SEC Filings

Show all filings for EMCOR GROUP INC

Form 10-K for EMCOR GROUP INC


23-Feb-2017

Annual Report


ITEM 7. 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 75 operating subsidiaries and joint venture entities. Our offices are located in the United States and the United Kingdom. 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. 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; process instrumentation in the refining, chemical process, food process and mining industries; 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 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 "United States industrial services" segment principally consists of those operations which provide industrial maintenance and services, including those 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.
We completed the acquisition of Ardent Services, L.L.C. and Rabalais Constructors, LLC (collectively, "Ardent") during 2016. This acquisition has been included in our United States electrical construction and facilities services segment. Ardent provides electrical and instrumentation services to the petrochemical and energy infrastructure market in North America, and this acquisition further strengthens our position in electrical construction and services and broadens our capabilities across the industrial and energy sectors, especially in the Gulf Coast, Midwest and Western regions of the United States. Additionally during 2016, we acquired another company for an immaterial amount. This company provides mobile mechanical services within the Southeastern region of the United States, and its results have been included in our United States building services segment.
We acquired three companies in 2015, each for an immaterial amount. Two of the companies acquired primarily provide mechanical construction services, and their results of operations have been included in our United States mechanical construction and facilities services segment. The results of operations for the other company acquired have been included in our United States building services segment and were de minimus.


Table of Contents

2016 versus 2015
Overview
The following table presents selected financial data for the fiscal years ended December 31, 2016 and 2015 (in thousands, except percentages and per share data):

                                                                 2016            2015
Revenues                                                     $ 7,551,524     $ 6,718,726
Revenues increase from prior year                                   12.4 %           4.6 %
Restructuring expenses                                       $     1,438     $       824
Impairment loss on identifiable intangible assets            $     2,428     $         -
Operating income                                             $   308,458     $   287,082
Operating income as a percentage of revenues                         4.1 %           4.3 %
Income from continuing operations                            $   185,295     $   172,567
Net income attributable to EMCOR Group, Inc.                 $   181,935     $   172,286
Diluted earnings per common share from continuing operations $      3.02     $      2.72

The results of our operations for 2016 set new Company records in terms of revenues, operating income, income from continuing operations and diluted earnings per share from continuing operations. Our 2016 results included increased revenues from all of our reportable segments, except for our United Kingdom building services segment. The increase in revenues for 2016 was primarily attributable to: (a) our domestic construction segments, due to increased activity within the majority of the market sectors in which we operate, (b) our United States industrial services segment, as a result of increased demand for specialty services offerings within our field services operations, and (c) our United States building services segment, primarily due to higher volume within our mobile mechanical services operation. In addition, companies acquired in 2016 and 2015, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment and our United States building services segment, generated incremental revenues of $250.8 million for the year ended December 31, 2016.
The increase in operating income was attributable to improved operating performance within all of our reportable segments, except for our United States mechanical 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 electrical construction and facilities services segment, primarily attributable to an increase in gross profit from commercial, transportation and hospitality construction projects, and (c) our United States building services segment, as a result of increased gross profit within our mobile mechanical services operations. In addition, companies acquired in 2016 and 2015 generated incremental operating income of $14.3 million, net of $4.1 million of amortization expense associated with identifiable intangible assets. Our 2016 operating results were negatively impacted by: (a) $27.9 million of aggregate losses incurred on two construction projects reported within our United States mechanical construction and facilities services segment and (b) $19.4 million of losses incurred on a transportation construction project in the Northeastern region of the United States reported within our United States electrical construction and facilities services segment. These three projects were substantially complete at the end of 2016, and we will seek recovery for our losses. Corporate administration operating loss increased as a result of: (a) an increase in employment costs, such as incentive compensation and salaries, (b) $3.8 million of transaction costs associated with the acquisition of Ardent in April 2016, (c) an increase in certain non-income related taxes and (d) an increase in software licensing costs and legal costs.
Our operating margin (operating income as a percentage of revenues) was 4.1% and 4.3% for 2016 and 2015, respectively. The decrease in operating margin was attributable to the cumulative impact of the three construction projects referenced above, which incurred losses of $47.3 million. These three projects resulted in a 0.7% negative impact on the Company's operating margin for 2016.


Table of Contents

Discussion and Analysis of Results of Operations
Revenues
The following table presents our revenues for each of our operating segments and
the approximate percentages that each segment's revenues were of total revenues
for the years ended December 31, 2016 and 2015 (in thousands, except for
percentages):

                                                                 % of                      % of
                                                    2016        Total         2015        Total
Revenues from unrelated entities:
United States electrical construction and
facilities services                             $ 1,704,403        23 %   $ 1,367,142        20 %
United States mechanical construction and
facilities services                               2,661,763        35 %     2,312,763        34 %
United States building services                   1,791,787        24 %     1,739,259        26 %
United States industrial services                 1,067,315        14 %       922,085        14 %
Total United States operations                    7,225,268        96 %     6,341,249        94 %
United Kingdom building services                    326,256         4 %       377,477         6 %
Total worldwide operations                      $ 7,551,524       100 %   $ 6,718,726       100 %

As described in more detail below, revenues for 2016 were $7.6 billion compared to $6.7 billion for 2015.
Revenues of our United States electrical construction and facilities services segment were $1,704.4 million for the year ended December 31, 2016 compared to revenues of $1,367.1 million for the year ended December 31, 2015. Excluding the acquisition of Ardent, the increase in revenues was primarily attributable to an increase in revenues from commercial, transportation and hospitality construction projects, partially offset by a decrease in revenues from manufacturing and healthcare construction projects. The results for the year ended December 31, 2016 included $158.5 million of revenues generated by Ardent. Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2016 were $2,661.8 million, a $349.0 million increase compared to revenues of $2,312.8 million for the year ended December 31, 2015. The increase in revenues was attributable to an increase in activity within the majority of the market sectors in which we operate. The results for the year ended December 31, 2016 included $45.9 million of incremental revenues generated by companies acquired in 2015.
Revenues of our United States building services segment were $1,791.8 million and $1,739.3 million in 2016 and 2015, respectively. The increase in revenues was primarily attributable to increased revenues from: (a) our mobile mechanical services operations as a result of greater project, service and controls activities and (b) our energy services operations, as a result of an increase in large project activity. The results for the year ended December 31, 2016 included $46.4 million of revenues generated by a company acquired in 2016. These increases were partially offset by a decrease in revenues from our government and commercial site-based services operations as a result of the loss of certain contracts not renewed pursuant to rebid, and in the case of our government site-based services operations, the result of certain scope reductions within their current contract portfolio.
Revenues of our United States industrial services segment for the year ended December 31, 2016 increased by $145.2 million compared to the year ended December 31, 2015. The increase in revenues was primarily due to increased demand for specialty services offerings within our field services operations, including large project activity. 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 the continued curtailment in capital spending by many large integrated oil companies. In addition, revenues for the first half of 2015 were negatively impacted by a nationwide strike by union employees of certain major oil refineries which led to the cancellation of certain turnaround projects. Our United Kingdom building services segment revenues were $326.3 million in 2016 compared to $377.5 million in 2015. This segment's revenues decreased by $41.0 million for the year ended December 31, 2016 related to the effect of unfavorable exchange rates for the British pound versus the United States dollar resulting, in part, from the decision by the United Kingdom to exit the European Union. In addition, the decrease in this segment's revenues was partially attributable to a decrease in small project activity within the institutional market sector.


Table of Contents

Backlog
The following table presents our operating segment backlog from unrelated
entities and their respective percentages of total backlog (in thousands, except
for percentages):
                                                 December 31,     % of     December 31,     % of
                                                     2016        Total         2015        Total
Backlog:
United States electrical construction and
facilities services                             $  1,221,237       31 %   $  1,145,791       30 %
United States mechanical construction and
facilities services                                1,822,921       47 %      1,683,501       45 %
United States building services                      658,955       17 %        762,196       20 %
United States industrial services                     50,279        1 %         54,578        1 %
Total United States operations                     3,753,392       96 %      3,646,066       97 %
United Kingdom building services                     149,530        4 %        125,097        3 %
Total worldwide operations                      $  3,902,922      100 %   $  3,771,163      100 %

Our backlog at December 31, 2016 was $3.90 billion compared to $3.77 billion at December 31, 2015. This increase in backlog was primarily attributable to an increase in backlog from all of our reportable segments, except for our United States building services segment and our United States industrial 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 customers. 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 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 cost of sales, gross profit (revenues less cost of sales), and gross profit margin (gross profit as a percentage of revenues) for the years ended December 31, 2016 and 2015 (in thousands, except for percentages):

                        2016            2015
Cost of sales       $ 6,513,662     $ 5,774,247
Gross profit        $ 1,037,862     $   944,479
Gross profit margin        13.7 %          14.1 %

Our gross profit for the year ended December 31, 2016 was $1,037.9 million, a $93.4 million increase compared to gross profit of $944.5 million for the year ended December 31, 2015. Our gross profit margin was 13.7% and 14.1% for 2016 and 2015, respectively. The increase in gross profit was attributable to increases in gross profit within all of our reportable segments, except for our United Kingdom building services segment. The decrease in gross profit margin was attributable to the cumulative impact of the three construction projects referenced above, which incurred losses of $47.3 million. These three projects resulted in a 0.8% negative impact on the Company's gross profit margin for 2016.


Table of Contents

Selling, general and administrative expenses The following table presents selling, general and administrative expenses and SG&A margin (selling, general and administrative expenses as a percentage of revenues) for the years ended December 31, 2016 and 2015 (in thousands, except for percentages):

                                                                2016           2015
Selling, general and administrative expenses                $  725,538     $  656,573
Selling, general and administrative expenses as a
percentage of revenues                                             9.6 %          9.8 %

Our selling, general and administrative expenses for the year ended December 31, 2016 were $725.5 million, a $69.0 million increase compared to selling, general and administrative expenses of $656.6 million for the year ended December 31, 2015. Selling, general and administrative expenses as a percentage of revenues were 9.6% and 9.8% for 2016 and 2015, respectively. The increase in selling, general and administrative expenses for the year ended December 31, 2016 included $30.3 million of incremental expenses directly related to companies acquired in 2016 and 2015, including amortization expense attributable to identifiable intangible assets of $3.4 million. Additionally, selling, general and administrative expenses included $3.8 million of transaction costs associated with the acquisition of Ardent in April 2016. Excluding the impact of acquisitions, the increase in selling, general and administrative expenses was primarily due to higher employee related costs such as incentive compensation, salaries and commissions. Increased incentive compensation was principally due to higher 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 selling, general and administrative expenses was also due to increases in the provision for doubtful accounts, information technology costs and certain non-income related taxes. The decrease in SG&A margin was partially attributable to an increase in revenues without commensurate increases in our overhead cost structure. Restructuring expenses
Restructuring expenses, primarily relating to severance obligations, were $1.4 million and $0.8 million for 2016 and 2015, respectively. As of December 31, 2016 and 2015, the balance of restructuring related obligations yet to be paid was $0.2 million and $0.1 million, respectively. The majority of obligations outstanding as of December 31, 2015 was paid during 2016. The obligations outstanding as of December 31, 2016 will be paid during the first half of 2017. No material expenses in connection with restructuring from continuing operations are expected to be incurred during 2017.
Impairment loss on goodwill and identifiable intangible assets In conjunction with our 2016 annual impairment test on October 1, we recognized a $2.4 million non-cash impairment charge related to a subsidiary trade name within the United States mechanical construction and facilities services segment. The 2016 impairment resulted from a decrease in the hypothetical royalty rate and lower forecasted revenues from a company within this segment. No impairment of our identifiable intangible assets was recognized for the year ended December 31, 2015. Additionally, no impairment of our goodwill was recognized for the years ended December 31, 2016 and 2015.


Table of Contents

Operating income (loss)
The following table presents by segment our operating income (loss) and each segment's operating income (loss) as a percentage of such segment's revenues from unrelated entities for the years ended December 31, 2016 and 2015 (in thousands, except for percentages):

                                                               % of                        % of
                                                              Segment                     Segment
                                                 2016        Revenues        2015        Revenues
Operating income (loss):
United States electrical construction and
facilities services                           $ 101,761         6.0 %     $  82,225         6.0 %
United States mechanical construction and
facilities services                             133,742         5.0 %       138,688         6.0 %
United States building services                  75,770         4.2 %        70,532         4.1 %
United States industrial services                77,845         7.3 %        56,469         6.1 %
Total United States operations                  389,118         5.4 %       347,914         5.5 %
United Kingdom building services                 11,946         3.7 %        11,634         3.1 %
Corporate administration                        (88,740 )         -         (71,642 )         -
Restructuring expenses                           (1,438 )         -            (824 )         -
Impairment loss on identifiable intangible
assets                                           (2,428 )         -               -           -
Total worldwide operations                      308,458         4.1 %       287,082         4.3 %
Other corporate items:
Interest expense                                (12,627 )                    (8,932 )
Interest income                                     663                         673
Income from continuing operations before
income taxes                                  $ 296,494                   $ 278,823

As described in more detail below, we had operating income of $308.5 million for 2016 compared to operating income of $287.1 million for 2015. Operating margin was 4.1% and 4.3% for 2016 and 2015, respectively. The decrease in operating margin was attributable to the cumulative impact of three construction projects, which incurred losses of $47.3 million. These projects resulted in a 0.7% negative impact on the Company's operating margin for 2016.
Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2016 was $101.8 million compared to operating income of $82.2 million for the year ended December 31, 2015. The increase in operating income was partially attributable to an increase in gross profit from commercial, transportation and hospitality construction contracts. The increase in operating income was also partially attributable to the acquisition of Ardent, which contributed operating income of $8.1 million, net of $2.1 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2016. Operating income was negatively impacted by a transportation construction project in the Northeastern region of the United States, which incurred losses of $19.4 million as a result of productivity issues attributable to unfavorable job-site conditions, for which we will seek recovery. This project resulted in a 1.2% negative impact on the segment's operating margin for the year ended December 31, 2016. This project was substantially complete at the end of 2016.
Our United States mechanical construction and facilities services segment operating income for the year ended December 31, 2016 was $133.7 million, a $4.9 million decrease compared to operating income of $138.7 million for the year ended December 31, 2015. This segment's operating results were negatively impacted by: (a) $18.3 million of losses incurred on a project at a process facility in the Western region of the United States, as a result of a contract dispute with our customer, and (b) $9.6 million of losses incurred throughout 2016 on an institutional construction project in the Southern region of the United States, due to project delays and unfavorable job-site conditions. These projects were substantially complete at the end of 2016, and we will seek recovery for our losses. Additionally, the results for 2015 included revenues of $12.1 million recognized as a result of the settlement of a claim on an institutional project located in the Southeastern region of the United States. The decrease in operating income was partially offset by an increase in gross profit from commercial and hospitality construction projects. Additionally, the . . .

  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.