EMCOR Group Inc.

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EMCOR Group Inc.

301 Merritt Seven Corporate Park
Sixth Floor Norwalk, Connecticut 06851
U.S.A.
Telephone: (203) 849-7800
Fax: (203) 849-7900
Web site: http://www.emcorgroup.com

Public Company
Incorporated: 1966 as Jamaica Water Supply Company
Employees: 26,000
Sales: $3.968 billion (2002)
Stock Exchanges: New York
Ticker Symbol: EME
NAIC: 235110 Plumbing, Heating, and Air-Conditioning Contractors; 235310 Electrical Contractors; 235950 Building Equipment and Other Machinery Installation Contractors

EMCOR Group Inc. operates as one of the world's leading specialty construction and facilities services firms. The company installs and maintains mechanical, electrical, plumbing, communications, and various other systems for both domestic and international organizations. Through its network of over 70 subsidiaries, EMCOR has been involved in many different construction projects, ranging from certain casinos in Las Vegas, to interstate highways, to London's underground rail system. Formerly known as JWP Inc., the company adopted is current moniker after emerging from bankruptcy in 1995. Over the next eight years, EMCOR recorded 32 consecutive profitable quarters.

Origins

JWP Inc.—EMCOR's predecessor—was launched in 1966 as the Jamaica Water Supply Company and, for much of its early history, was the primary provider of water to Nassau County, Long Island, and Queens, New York. The company thus functioned for many years as a regulated monopoly, with low but stable profits and regulated prices. The company began to branch out in the mid-to late 1960s and henceforth was exposed to the instabilities of the marketplace. As it diversified its product lines, JWP experienced many ups and downs in its bottom line.

Instability in the 1960s and 1970s

The company changed its name often between 1966 and 1986, the year it adopted the name JWP Inc. This 20-year period was marked by extreme instability, and not in name only. From 1966 to around 1970, Jamaica Water Supply expanded by buying up other water companies. For example, in 1966 the firm acquired the entire capital stock of Sea Cliff Water Company. In 1968, they acquired most (80 percent) of Orbit International Inc. of San Juan, Puerto Rico.

With this accumulation through acquisition of other water companies, the firm was ready to make its first significant move out of the water business. Founder Martin Dwyer expressed the frustration with the water business at the time, stating, "Private companies have no place in an urban area." Limited by public regulation, he sought to diversify into specialized construction, utility type operations, telephone systems, and electric lighting. In support of this shift in business focus, the company's most significant move was its 1971 acquisition of the Welsbach Corporation, a Philadelphia-based electrical contracting concern. Welsbach also installed street lighting and traffic control systems. Welsbach was merged into Jamaica Water, and the company took on the name Welsbach in 1974. Welsbach had a profit of $659,000 in 1969, and thus helped push Jamaica's bottom line out of the red. Jamaica's acquisitions throughout the late 1960s also led the firm to take on an increasingly expanding stock of debt, and, with interest rates rising, the company's cash flow was severely threatened. Combined with the severe recession of 1973 and 1974, Jamaica went from a stable water utility company to near bankruptcy in the mid-1970s.

In 1978, Andrew T. Dwyer, the son of founder Martin Dwyer, was put in charge of the ailing company. It took Dwyer and his associates several years to fend off complete collapse. They restructured the cost structure of the company to increase cash flow, and in the process they lessened some of the debt that was dragging down the company's growth prospects. To begin with, Dwyer sold off many of the money-losing ventures, including many of the non-utility holdings. He also began a complete retrenchment of the water utility component of the company, which at the time comprised 50 percent of the company's business, and set his sights on diversification, offering Jamaica's sophisticated and technologically advanced plumbing and piping systems technology for other applications.

Dwyer's stated goal at the time was to transform the company once again, this time using its already developed strengths in developing large computer systems, equipment, and office maintenance as a base. He started development of heating ventilation and air conditioning systems maintenance and other systems involved in operating high rise buildings in New York City. "The technologies needed to merge," Dwyer said, and his company set up building systems whereby one box could control fire, alarm, energy management, and security systems. By the mid-1980s, in New York City, Jamaica maintained everything from electric signs in Times Square to printing presses at the New York Times.

Success in the 1980s

This general strategy continued to yield positive results as the company adapted existing technologies to diverse applications. As Dwyer reflected in November 1991: "We tried to identify those markets where there was a need for sophisticated equipment." The result was phenomenal growth for the company in the 1980s, as the company once again completed a fundamental, and profitable, shift in its focus. Dwyer's first specific target was the fastest growing segment of the economy in the 1980s, the financial services sector. He aimed at providing all the technical services support required to create high tech and efficient trading rooms for Wall Street giants such as Merrill Lynch & Co, Inc., including installation and maintenance of air conditioning, telephones, wiring, cables, and computers. Clients also included Morgan Stanley, Goldman Sachs, and Salomon Brothers. From here, the company branched out further, installing energy management systems for Sears and computer rooms for Hewlett-Packard.

In the wake of these very successful endeavors, Dwyer's company won big contracts with DuPont and also began providing services to hospitals and utilities, including Illinois Bell. One of the largest deals was a six and one half year, $468 million contract to convert New York City's sludge to fertilizer pellets to be marketed nationally. From solid waste management and conversion plants, the company developed and marketed security systems and electrical networks. The company expanded overseas during this time as well.

By now known as JWP Inc., the company grew not only in the rapidly expanding market for technical services and the decentralized management style implemented by Dwyer, but also through smartly managed acquisitions. Dwyer acquired Forest Electric in 1986 and Dynalectric in 1988 to broaden the company's electrical services repertoire. The acquisition of University Industries in 1988 got them into the West Coast mechanical services market. To crack the international market, JWP acquired Drake & Skull Holdings, a British electrical and mechanical services company. Dwyer's JWP gobbled up two dozen companies from 1984 to 1987, generating scale economies out of mergers and getting a jump on the competition in the high tech end of the technical services industry. "We are continually migrating to the higher technology side of the business," Dwyer remarked. "That's where the margins are better, the growth greater, and the competition a lot smarter."

The successes of these acquisitions were phenomenal. In fact, from 1980 until the end of 1991, JWP enjoyed 48 quarters of uninterrupted growth. The company grew from 400 employees working out of five offices in 1980 to over 21,000 employees in 195 offices in 1990. Successful diversification went hand in hand with the company's move away from water sales as its dominant market. The stable water sales, which made up over 50 percent of the company's total revenues in 1980, declined to less than 2 percent in 1990, while total net income grew from a loss of $495,000 in 1980 to $59.3 million profit in 1990. At the start of the 1980s, JWP was a $40 million water utility that had lost money for eight straight years and was on the brink of bankruptcy. By 1990, the company was a $3 billion technical services company. Compound growth from 1985 through 1989 was 179 percent, and JWP became the dominant maintenance firm in New York. Sales from 1981 to 1986, for example, went from $42 million to $379 million, and net income rose from $1.7 million to $13.5 million.

With the company's expansion into high tech applications, JWP was increasingly getting into the business of setting up computer systems. Thus, it was a natural outgrowth of the company to begin selling the computers to its clients. In 1990, this new avenue of growth for JWP meant the purchase of Neeco, Inc., a desktop computer systems sales company which operated out of Canton, Massachusetts. In its most important recent acquisition to date, the firm bought Businessland in early 1991, a move that was considered a natural extension of the firm's experience in selling electrical systems. This deal pushed total revenues from $744.6 million to $944.9 million. From the Businessland acquisition, Dwyer created JWP Businessland Inc., a division of JWP Information Services, which had sales of $1.8 billion worldwide and which operated through its own retail outlets.

Restructuring and Bankruptcy in the Early to Mid-1990s

While the 1980s were a decade of unprecedented growth, the early 1990s saw near bankruptcy and collapse. Contributing to the decline of JWP was a commercial construction slump, price wars, intensified competition in the personal computer component of the business, and the burden of servicing a huge debt accumulated during the boom years of acquisition in the 1980s. JWP's high debt-equity ratio in particular (1.2 to 1) caused great concern. Profits fell to around $40 million for 1990 and 1991 as the company struggled through the recession that plagued those years. By the fourth quarter of 1992, however, losses were as great as $265 million.

Company Perspectives:

Our goal is to help our clients achieve top notch performance in what they do best, by doing what we do best: delivering sophisticated, world class specialty construction and facilities services.

The company's highly leveraged position threatened its very existence, prompting some drastic action to restructure the company's debt. Meanwhile trouble brewed elsewhere. In April 1992, in their water business, complaints about high rates charged for water were lodged against JWP's water subsidiary, Jamaica Water Supply Company, which still served homes in Queens and Nassau County. JWP planned to sell the unit as part of the corporate restructuring and not, they said, in response to the consumer complaint controversy. The company put those plans on hold, however, in 1993.

In October 1992, David Sokel presented to the board evidence of what were alleged to be widespread accounting improprieties, confirming the charges of shareholders, and then resigned as president of the company. More restructuring decisions led to the sale of ten or more businesses, including the sale of four environmental businesses to Wheelabrator Technologies Inc. for about $69 million, in order to raise $250 million as the company focused on its traditionally more lucrative mechanical and electrical services. These moves helped raise needed cash to deal with the heavy debt load, which at one point was said to be as large as $485 million.

As a major debt restructuring move, in July 1993 JWP sold its Information Services subsidiary to an investment group in a deal releasing JWP from about $210 million of the company's more than $300 million in outstanding debt. In 1993, Andrew Dwyer resigned as chairman of the board of JWP, and Edward Kosnik was elected to the post.

Expansion continued, notably on the international front; international operations generated about $1 billion in revenue in 1992. Coupled with the debt restructuring, long-term growth prospects brightened. In 1991, JWP acquired Comstock Canada, the largest Canadian electrical and mechanical services firm, with 12 offices in Canada and $200 million in sales. Furthermore, the Businessland project did business in Canada, the United Kingdom, Germany, and France, selling its interactive personal computer system integrated to complement its international facilities management. JWP also expected growth in new markets in transportation projects, pharmaceutical, and biotechnology facilities. The most promising general source of demand for JWP's services lay in the fact that, in general, businesses found it increasingly cheaper to outsource the kind of services that JWP provided.

Despite its demonstrated resiliency, JWP announced in October 1993 that it would file for Chapter 11 bankruptcy protection, after nearly a year of negotiating a financial restructuring with its creditors. Under the proposed debt restructuring and capitalization plan, JWP's creditors, a group of 50 bankers, insurance companies, and equity funds, exchanged $484 million of the company's debt for $180 million of new debt and 100 percent control of JWP's equity. The new debt was to be paid from the proceeds of asset sales.

Renewed Success in the Mid-1990s and Beyond

By early 1995, JWP had emerged from bankruptcy under the leadership of newly elected chairman, president, and CEO Frank T. MacInnis. The company changed its name to EMCOR Group Inc. to signal its focus on key business segments related to its electrical and mechanical construction services. (EMCOR is a fusion of the words electrical, mechanical, and core.) Company headquarters were moved from Rye Brook, New York, to Norwalk, Connecticut. In 1996, the firm sold its Jamaica Water Supply unit, leaving behind the company that had originally provided the backbone for the business in the 1960s.

EMCOR indeed turned over a new leaf with its reorganization and immediately began to reap the benefits of its new, leaner, business structure. Over the next several years, the company secured its position as a world leader in its market segments by diversifying its customer base in both the public and private sectors as well as taking a conservative, long-term approach to business decisions. From 1995 to 2003, the company recorded 32 consecutive quarters of profits, a remarkable feat for any company, especially one emerging from bankruptcy protection. According to a 2003 Fairfield County Business Journal article, much of the company's success could be attributed to MacInnis, who "saved it from going bust, and transformed it from an underdog to the number-two player in the industry—shifting the company's primary business from water utility to electrical and mechanical construction and facilities management."

EMCOR bolstered its holdings in 2002 with the purchase of 19 companies from Comfort Systems USA, which gave it a foothold in the midwestern U.S. construction and services industry. A second purchase followed in December when the firm added Virginia-based Consolidated Engineering Services Inc. to its arsenal. The deal secured EMCOR's position as the leading facilities management concern in the United States. By now, the company's turnaround from the mid-1990s and its overall success had garnered industry attention. In 2003 alone, EMCOR was named one of "America's Most Admired Companies" by Fortune magazine, ranked 37 on Barron's "Top 500 Best Performing Companies" list, and awarded the Frost & Sullivan Competitive Strategy Award for its expansion efforts in the facilities management services market.

Key Dates:

1966:: Jamaica Water Supply Company is launched to provide water to Nassau County, Long Island, and Queens, New York.
1971:: Welsbach Corp., a Philadelphia-based electrical contracting concern, is acquired.
1978:: Andrew T. Dwyer begins to restructure the financially ailing company.
1986:: The firm adopts the name JWP Inc.
1991:: Businessland is added to the company's arsenal.
1993:: The company launches a major restructuring effort and files for Chapter 11 bankruptcy protection.
1995:: The firm is reorganized as EMCOR Group Inc.
2002:: EMCOR acquires 19 companies from Comfort Systems USA and purchases Consolidated Engineering Services Inc.

The soft economy that continued into 2003, however, threatened to challenge the company's financial achievements. Nevertheless, MacInnis and his management team remained confident that EMCOR was on a path for success for years to come. Through its "growth through diversity" strategy—which focused on broadening company services, branching out into new geographical areas, and moving into new markets sectors—EMCOR appeared to be well positioned for future growth.

Principal Subsidiaries

Aircond Corporation; BALCO; Betlem Service Corporation; Building Technology Engineers Inc.; Combustioneer Corporation; Commonwealth Air Conditioning & Heating Inc.; Consolidating Engineering Services Inc.; Duffy Mechanical Corp.; Dynalectric Companies; EMCOR Energy & Technologies Inc.; EMCOR Facilities Services Inc.; F & G Mechanical Corporation; Forest Electric Corporation; Gotham Air Conditioning Service Inc.; Heritage Mechanical Services Inc.; J.C. Higgins Corporation; Labov Mechanical Inc.; Mandell Mechanical Corporation; Meadowlands Fire Protection Corporation; New England Mechanical Services Inc.; North Jersey Mechanical Contractors Inc.; Penguin Air Conditioning Corporation; Poole & Kent Northern Operations; Poole & Kent Southern Operations; R.S. Harritan & Company Inc.; Trimech Corporation; Tucker Mechanical; Welsbach Electric Corporation; Comstock Canada Ltd.; EMCOR Drake & Scull Group Inc. (U.K.).