EMCOR Group Inc (EME) 2008 Q4 法說會逐字稿

At this time I would like to welcome everyone to the EMCOR Group fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Eric Boyriven of FD. Sir, you may begin.

Thank you and good morning, everyone. I'd like to welcome you to the EMCOR Group conference call. We're here to discuss the Company's 2008 fourth quarter results which were reported this morning. I'd now like to turn the call over to Kevin Matz, Executive Vice President- Shared Services, who will introduce management. Kevin, please go ahead.

Thank you, Eric and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the fourth quarter of 2008. For those of you who are accessing the call via the Internet and our website, welcome and we hope you have arrived at the beginning of a slide presentation that will accompany our remarks today. Currently everyone accessing the slides should be on Slide 1, which is the EMCOR title slide. During the call instructions will be given for you to advance to the next slide, so let's do it, please advance to Slide 2.

Slide 2 has the executives who are with me to discuss the quarter and full year results. They are Frank MacInnis, Chairman and Chief Executive Officer, Tony Guzzi, President and Chief Operating Officer, Mark Pompa, our Executive Vice President and Chief Financial Officer, Mava Heffler, our Vice President in Marketing and Communications, and our Executive Vice President and General Counsel, Sheldon Cammaker. For call participants who are not accessing the conference call via the Internet, this presentation including the slides will be archived in the investor relations section of our website under presentations. You can find this at emcorgroup.com.

Before we begin I want to remind you that this discussion may contain certain forward-looking statements. Any such statements are based upon information available to EMCOR's Management perception as of this date and EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements Accordingly, these statements are no guarantee of future performance. Such risks and uncertainties include but are not limited to adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR services, adverse business conditions, increased competition, mix of business and risks associated with foreign operations. Certain other risks and factors associated with EMCOR's business are also discussed in the Company's 2008 Form 10-K and in other reports filed from time-to-time with the Securities and Exchange Commission. With that said, please let me turn the call over to Frank. Frank?

Thank you, Kevin. I certainly hope the rest of our presentation is more uplifting than that. Good morning, everyone and welcome to our 56th regular quarterly conference call for investors, analysts and other friends of EMCOR Group. This is also the 14th annual year end earnings call over which many of our Senior Management team members have presided, a very important aspect of our long-term strategic continuity and the consistency of our operational performance. Today's call is being conducted as usual by telephone and by simultaneous webcast. And I'll be referring from time-to-time to a slide number to identify the relevant slide for webcast participants. Right now we're still on Slide 2.

The focus of today's call will be the EMCOR Group fourth quarter and full year 2008 earnings press release and 2008 Form 10-K that we issued and filed earlier this morning. We'll conduct this call in our customary format, first a presentation and discussion of those operating results and our year end balance sheet and my comments on the major factors that led to our excellent 2008 financial performance. Then we'll discuss the evolution and current status of our contract backlog report and its significance with respect to future revenues and financial results. At that point, Tony Guzzi, our President and Chief Operating Officer, will take over to present and discuss some noteworthy recent contract awards that illustrate the strength and diversity of EMCOR Companies and the continued demand for our services across a wide range of markets. Then I'll be back, I'll be back to discuss our expectations for EMCOR's 2009 operational and financial performance amid challenging recessionary trends that are affecting nearly all companies. Following my guidance discussion there will be an opportunity for call participants to make comments or to ask us questions. And as you can see from Slide 2, a number of EMCOR Senior Officers are here to help me with the answers.

So let's begin. Please go to Slide 3. It's my pleasure to announce that 2008 was the best year in EMCOR's history setting all time records for revenues, operating income, operating margins, net income, diluted earnings per common share and operating cash flows. Revenues in 2008 were $6.79 billion, a 14.5% increase over 2007, our previous highest revenue year. All of our major operating segments, except our UK businesses, reported significant revenue growth. US Electrical and Mechanical Construction and Facility services revenues grew a collective 10.5% year-over-year, Canadian revenues rose 11.1%, and our US Facilities Services segment long our primary strategic growth target grew 45% over 2007 levels due in part to our recent investments in refinery maintenance and mobile services. UK revenues declined 7.5%, due in large part to foreign exchange fluctuations. Overall, revenue growth reflected strong demand for EMCOR services in a wide variety of markets.

Operating income also grew dramatically, rising 51% year-over-year to a record $303 million, reflecting record operating margins of 4.5%. Highlights of operating income growth included a 29% increase in US Electrical, a 60% increase in our Canadian Company, and a remarkable 133% increase in US Facility Services, once again reflecting the excellent performance of some of our recent investments in this sector. Our UK Company also performed well, reporting operating income of more than $13 million compared to a loss of roughly the same amount in the previous year.

Please go to Slide 4. The result of this excellent Company-wide operational performance was a 48.1% increase in pre-tax income to a record $299 million. And diluted earnings per share from continuing operations of $2.71, 46% more than the $1.86 EPS that we reported in 2007. Our record earnings were also of very high quality as measured by cash generation. Cash flow from operations rose to a record $335 million. As a result of our excellent cash generation and our typical conservative cash management policies, balance sheet cash stood as an all time year end high of $406 million while stockholders equity reached $1.04 billion. We're proud of our 2008 performance which was both strong and balanced Company-wide. All our divisions performed well, but I think that special mention must be given to our US Facilities Service segment whose operating income more than doubled to $102 million, more than a third of our Company total.

For more than a decade, we have been working to build our Facilities Services segment with the strategic goal of creating a balance with the inevitable cyclicality of our Construction operations. Although we'll never be completely finished with the construction of this internal revenue and earnings hedge, we have clearly made major progress towards this worthwhile goal.

As a further indication of the achievement of a broad and diverse earnings base and result in consistent performance, the fourth quarter of 2008 was our 54th consecutive profitable quarter. Thirteen and a half years is a long time, including several business cycles and current events that clearly demonstrated the difficulty that many good companies have experienced in maintaining profitability over such a long period. We believe that this long-term consistency demonstrates what the EMCOR model works and that it will continue to support profitable operations despite severe macroeconomic challenges.

Slide 5 depicts those fourth quarter results, the most profitable fourth quarter in our history. Although revenues declined slightly year-over-year to $1.68 billion, operating income increased more than 17% to $101 million and diluted earnings per share from continuing operations grew 20% compared to the last quarter of 2007 to a record $0.90.

Slide 6 reflects the 2008 full year results whose highlights I reviewed a few minutes ago together with comparisons and variances with 2007. The 14.5% year-over-year revenue increase was roughly masked by an increase in general and administrative expense attributable primarily to acquire businesses together with the incentive compensation plans tied to corporate performance. Costs of sales during 2008 included a $7.9 million charge announced earlier this year in connection with an adverse jury verdict and a $7 million charge in the fourth quarter with respect to the impairment of the value of our investment in a venture. The diluted earnings per share impact of these two charges was about $0.14.

My final comment on Slide 6 is the transformational effect on EMCOR's operating margins that has resulted from strong operating performance and an absence of badness, if you will, across our Company. Together with the impact of our investments in the refinery service and mobile service sectors, 4.46% operating margins represent a more than 100 basis point improvement over the year ago percentage and set a new benchmark for EMCOR's performance capability, as well as some breathing space in the event that the current recession ultimately reduces available operating margins.

Slide 7 reflects the strong and liquid balance sheet that results from excellent operating cash flow, strict debt control and conservative cash management. Year end cash rose more than $150 million to $406 million, while total debt was reduced by $27 million to $200 million, a ratio of 16.1% to total capitalization and well within our comfort zone. Very recently we entered into an interest rate swap with respect to the $197.75 million remaining principal amount of the term loan comprising nearly all of our debt to hedge an interest rate risk until the term loans maturity in late 2010. We believe that our financial strength and liquidity are an important aspect of our appeal to current and future customers, and a significant differentiator in challenging times. Our Construction of Facility Services backlog, calculated with our usual conservatism, declined by $495 million at year end 2008 to a level of $4 billion, compared to $4.5 billion at the 2007 year end.

Our detailed backlog analysis is at Slide 8. Although our backlog portfolio projects is at the second highest year end level in our history, 2008 backlog trends included significant reductions in our hospitality and gaming and commercial markets, partly offset by growth in our transportation, industrial, institutional and water and waste water sectors. This pattern, reduction of capital investment in private sector facilities offset by growth in sectors financed at least in part with public funds is typical of recessionary effects on the Engineering and Construction business. On the negative side, by far our biggest reduction in year-over-year backlog was in the Las Vegas hotel and casino market, where through-- $364 million backlog reduction reflecting our progress on continuing projects, deferral or cancellation of several large jobs and a reduction of new orders constituted $364 million or 74% of our overall backlog reduction.

Backlog outside of Las Vegas declined $131 million or 3.4% year-over-year, relatively stable performance. And we saw annual growth of 25% in our industrial sector, 18% in transportation backlog, 13% in institutional and 21% in water and waste water. Our healthcare backlog fell $47 million or about 7%, primarily due to a very large backlog award in late 2007 and the absence of a similar large award in 2008. However our healthcare portfolio remains large and we are confident about our future prospects in this important sector. Here to tell us about some recent project awards in sectors that we believe will perform well during the current recession is, our President and Chief Operating Officer, Tony Guzzi. Please go to Slide 9. Tony?

Thanks, Frank. On Slide 9 we will highlight a number of industrial and healthcare projects this quarter as we continue to see inquiries and demands for our services in those areas across the country and in Canada. As those of you who know us, EMCOR has broad installation and service capabilities, pretty much across all sectors, all markets and all major geographies.

Today we'll start with Canada, and in Comstock-- in our Comstock subsidiary we'll see that they have expertise supporting nuclear power generating facilities. Comstock Canada has a significant ongoing relationship with Bruce Nuclear. And they gained this relationship after the successful removal and replacements of 16 steam generators on units 1 and 2 at Bruce Power Nuclear power generating facility on the shores of Lake Huron, about 200 miles north of Toronto. Since then, they have been involved in continues activities in support of this facility. Comstock's current project is for Bruce's Nuclear generating facility in Tiverton, Ontario. Comstock will provide mechanical and electrical construction and installation services supporting the refurbishment of the facility's four 900 megawatt class CANDU type nuclear reactor units. As part of the valve replacement program, Comstock consists of-- Comstock's work consists of replacement and flushing of low-pressure service water and high-pressure recirculation water piping.

In terms of Comstock's nuclear credentials, and they are broad, to date they have spent over 1 million man hours on the site with an outstanding safety record, by the way. And overall, have completed 5 million man hours in the Canadian nuclear power generating industry. This will be an important credential, not only in Canada but across North America.

Complimenting Canada, we made in our-- our Comstock credentials, we made an acquisition of MOR PPM in November. And what it is, it's an industrial and power plant services provider. It came in November of 2008, and it has been awarded a renewal contract from the Nebraska Public Power District for outage and maintenance support services for fossil and hydro facilities throughout the state of Nebraska. MOR PPM has worked with the power authority since 1998 performing outage and maintenance services for its fossil and nuclear generating plants. MOR PPM scope of services include installation of new equipment, pipe fitting, pipe and valve replacement and structural support and pipe welding. This contract covers the entire state, as the Public Power District is Nebraska's largest electric utility. With a charter territory, including all or part of Nebraska's 91 counties. PPM has fossil, nuclear, industrial maintenance and small task construction capability, and it pretty much does it across the country.

Our Trautman & Shreve Denver-based mechanical subsidiary, a long-term import company is working on an exciting project at the Vestas wind turbine tower manufacturing campus. This 600,000 square foot facility will be Vestas' lead facility. Trautman will be installing 2.4 million pounds of duct work, including eight miles of spiral and two miles of vacuum dust systems. Additionally Trautman will be installing miles and miles of industrial gas and plumbing piping as well as installing 20 rooftop air handling units and they will provide a total HVAC solution for this alternative energy facility.

In Baltimore, our Poole & Kent subsidiary will be responsible for the complete mechanical systems installing and supporting the construction of a new air quality scrubber systems for Brandon Shores Constellations Energies Power Plant. Poole & Kent's scope consists of 80 piping installation packages to include the installation of plant air, control air, oxidation air, make up water, hydro piping and missing-- missed eliminator systems.

Switching to healthcare, our J.C. Higgins subsidiary is providing the HVAC, plumbing and fire protection systems for the new three level expansion for Sturdy Memorial Hospital at Attleboro, Mass. Higgins has worked in very close consultation with hospital management as modifications are required to the central chilled water plant while maintaining services and keeping the hospital functioning. Higgins, as does most import companies, has a leading local market position in healthcare, biotech and medical lab capabilities and construction.

Staying in healthcare, Hyre Electric, which is in Northwest Indiana, is providing the electrical and communications work for a new MRI/CT addition to Saint Mary's Medical Center in Hobart, Indiana. Hyre's scope includes installation of new state of the art MRI and CAT scan or ultrasound imaging equipment with associated upgrades to the existing high voltage and generator switch gear as well as providing electrical systems installation for a new family reception area.

And finally, our Welsbach Electric subsidiary, here in the New York City area, will be removing and refurbishing and re-installing 83,000 new 150 and 150-watt energy efficient state of the art electronic ballast street heads in New York City's four burrows, Staten Island, the Bronx and the City as it continues to be more and more energy efficient and green. And with that I'll kick it back to you, Frank.

Thanks, Tony. We're please and proud of these fresh indications of demand for our services from top-notch customers in the promising nuclear, conventional and renewable power sectors, healthcare and transportation.

Please go to Slide 10. As I look forward to the remainder of 2009 and beyond the business climate is one of profound uncertainty, especially for the second half of this year. If EMCOR was a pure play single market Company I would be very seriously concerned about possible erosion of shareholder value this year. Fortunately, we are the largest and most diverse Company in the specialty Construction and Facility Services sector with the skills, ability, financial strength and customer relationships necessary to compete and perform at the highest level in a multitude of markets. And our long history of profitability, through a number of market cycles, speaks to our ability to adjust to current market conditions.

Slide 10 identifies some of the challenges and opportunities that we believe will affect our performance this year. Firstly, we assume for base case purposes, that recessionary pressures will be a factor all year long with credit constraints gradually easing but nonetheless continuing into 2010. It's worth noting that EMCOR's customer base consists primarily of large, well capitalized companies and institutions. That will be among the first to benefit from positive trends and credit availability. Until then, however, we expect the commercial and the hospitality markets to remain under heavy pressure, especially the casino markets with its highly leveraged projects and reliance on discretionary consumer spending. On the other hand, as I mentioned early and as Tony Guzzi illustrated in his review of recent awards, we are heavily involved in sectors that tend to perform in a stable fashion despite macro economic circumstances and we've demonstrate the backlog growth in those sectors in the last 12 months.

Additionally, it's important to keep in mind that EMCOR derives more than 30% of our revenue from service work on existing facilities. Performing essential services like keeping the lights on and the heating and air conditioning working, and being paid from our customer's operating budgets, not from their discretionary capital expenditures. This is, of course, intentional. We built our service business to its current $2 billion level precisely to help us weather the effects of inevitable cycles in the Construction sector. Combined with a $4 billion backlog portfolio, two-thirds of which is now within the transportation, healthcare, industrial, institutional, and water and waste water markets, we believe that we have a solid foundation for continued profits into 2009. And our strong and liquid balance sheet will enable us to avoid the pressures associated with excessive debt service requirements while giving us the opportunity to consider strategic acquisitions.

Slide 11 is one that you've seen before but that bears repeating in a conversation about our performance in a recession. In addition to a broad range of services to a multitude of markets, our 76 companies have a well deserved reputation for effective contract administration. The result? At year end EMCOR companies were $496 million net over billed, a significant safety factor in our cash flow performance and a major factor in the reduction of claims and disputes with our customers. In past recessions, we've noticed the challenging economic conditions stimulate outsourcing of facility services as our customers concentrate on their core businesses and leave building maintenance and energy efficiency to the experts. We've also earned a reputation for strict cost control, including close management of cash and overhead expenses, which we're already reducing to help us to protect margins.

EMCOR benefits from the fact that more than 74% of our labor units-- excuse me, our labor costs are completely variable based on our strong relationships with the labor unions in the Construction sector. We're very serious about the pursuit of strategic investments from the small to the very large, whatever makes sense for a company that was built for the long-term and is devoted to consistent creation of shareholder value.

Finally, we expect our international operations, which have experienced earnings down turns from time-to-time in the past, to be stable and profitable in 2009. And we're particularly pleased with our Comstock Canada position in that country's well developed nuclear power industry, earning valuable credentials for the coming American nuclear renaissance.

Please go to Slide 12. I've talked to you today about many of the factors that will affect EMCOR's performance this year and into 2010, our backlog strength, market diversity and financial conservatism, our customer's access to credit and willingness to commit capital to new projects or upgrades to their facilities and the possibility of an investment or acquisition in response to market opportunity. There's one more factor that can't be ignored as a potential contributor to EMCOR's growth in 2009 and more likely in 2010, the recently signed America Recovery and Reinvestment Act, providing $787 million, excuse me, billion, isn't it amazing how easily we talk about billions now, in spending and tax cuts too jump start the recession damaged economy.

Although it's impossible to know with certainty the actual value and timing of Stimulus spending in sectors where EMCOR is active, it's nonetheless very clear that we stand to benefit from the acts spending provisions in a number of target sectors, including the following: Transportation $49.3 billion allocated. EMCOR's $810 million existing transportation backlog and our historical project credentials include major and very successful highway and associated light rail projects, major airport improvement and maintenance contracts, and port and cargo handling facilities. Defense and veterans, $7.8 billion allocated. This budget items targets VA Hospitals, DOD construction and modernization projects, all areas in which EMCOR is currently active as part of our $465 million institutional backlog or has valuable experience. Energy, $30.6 billion allocated. Energy both its generation, transmission and efficient consumption is at the core of EMCOR's business. This budget items targets the electrical grid, energy efficiency retro fits and grants and renewable energy project support.

Buildings, $13.4 billion allocated. This item targets GSA Federal buildings, energy efficiency upgrades, facilities on Federal lands, Homeland Security and Courthouse buildings among others. EMCOR is a major market participant in GSA and Federal facility construction, maintenance and energy efficient upgrades. Lastly, water and the environment, $20.1 billion allocated. EMCOR's $286 million water and waste water backlog currently includes construction and upgrading of major water treatment and distribution infrastructure projects.

In the case of many government funded projects, a significant differentiated between contractors is their ability to provide assurity bonds assuring the owner of the completion of the project. EMCOR's access to assurity bonding, long one of the best in the industry, remains completely unimpaired and available to support its participation in Stimulus-related projects, especially large or long-term ones, on an advantageous basis. We don't know where or when the opportunity will arise, but it seems clear that EMCOR's contract opportunities in late 2009 and 2010 will include projects enabled by the Stimulus program. I should stress however that not a single dollar of our base case revenue and profit expectations depend on the receipt of benefits from the recovery and reinvestment act.

So with this much uncertainty and all these moving parts, what do we expect to see in revenue and profit terms in 2009? Please go to Slide 13. Each year our bottom up budget process enables us to ultimately arrive at an earnings number which depends only on the continuation of current business conditions with no material degradation of our market to our customers access to capital, and likewise no significant improvement in our business opportunities. This base case number also excludes the impact of purchase and sale transactions of material size. Typically, we designate this highly confident number at or near the lower end of our estimated earnings range for the year. As shown on Slide 13, for base case earnings estimation purposes, we assume a decline in 2009 revenues from our 2008 revenues of $6.785 billion to a range of $6.0 billion to $6.3 billion, a reduction of 7% to about 11.5%.

We similarly assume a reduction in our operating margins from our record 2008 performance 4.5% to a range of 3.0% to 3.5%, reductions of 25% to 29% respectively. The very conservative result is a base case 2009 estimate of $1.80 per diluted share from continuing operations. We are highly confident in this number, as a reflection of our 2009 earnings capacity with the foregoing assumptions, and believe that those assumption are extremely conservative. Customarily we would then assign, as the upper end of our estimated earnings range, a number that reflected the positive impact of improvements in various relatively predictable business conditions: Interest rates, employment, energy prices and the like, that could raise our earnings above the base case. In the last few years, we've been able to report earnings that have frequently exceeded the upper end of the range as we did again in 2008.

Today I'm unable to designate an earnings number representing the upper end of the range. Today's market contains the usual number of variables, together with two major market factors that are completely outside of our control and impossible to predict. The impact of the Stimulus spending package just discussed and the pace of restoration of normal credit and lending conditions. As previously discussed, each would be positive in terms of EMCOR's opportunity to exceed our base case earnings number. But I cannot adequately quantify our upside potential to arrive at a number that I could defend as a logical result. Accordingly, we'll estimate only our base case results at this time with an assurance that we will return to you with revised estimates, including an earnings range, as soon as the second half of the year becomes predictable and in any case not later than our report for the second quarter.

That's it for now, except to congratulate and thank our thousands of loyal, dedicated and talented EMCOR employees for the efforts that led to record results in 2008 and a 54th consecutive profitable quarter and a strong and liquid Company sailing in stormy seas. Now it's time for your questions and comments, and Kristen is here to tell you how to queue.

(Operator Instructions). Your first question is from the line of Rich Wesolowski with Sidoti & Company.

Good morning, Rich.

Good morning, how's it going?

So fine so far.

I was trying to unearth a 4Q revenue and profit number for the 2007 facilities acquisitions including Ohmstede from the 10-K and I came up with $100 million in 4Q sales and $2 million in operating profit, is that accurate?

That's close enough.

Okay. How much help will you get in '09 from at least a lower backlog amortization expense?

Well we discussed when we closed the Ohmstede transaction fin late '07 that there was going to be a tremendous amount of amortization that was going to burn early on related to the contract backlog. That obviously has happened. However as you know we did close additional transactions in 2008. So we're going to be looking at an annual savings of amortization expense '09 versus '08 anywhere between the low threes to up to $4 million year-over-year.

$3 million to $4 million. Frank can you talk about any even anecdotal differences you see in competition between today and what you would expect for the next year and what you had seen last down turn, given that there is a broad weakness in almost all construction markets, including those that you don't play in?

Sure. First of all, Rich and listeners, we've said it before and we'll say it again. We do not experience meaningful competition from housing contractors who attempt to move over to nonresidential construction or infrastructure construction during downturns in housing. They have different kind of skills, different balance sheets, during different labor relationships, and we don't see them as a factor.

The differentiating process that takes place in a recession tends to benefit companies like EMCOR because of our customer's tendency to gravitate toward companies like EMCOR who are financially strong, capable of providing essentially unlimited assurity bonds, and therefore, a source of certainty insofar as both the timely and the budgetary compliance with contract requirements. So in past recessions, we have seen EMCOR perform well, relative to its smaller competition, and all of our competition is smaller because we're the largest in the business. As I mentioned before, we have also seen significantly less recessionary impact on our Facility Services business than we have on Construction, which has always been more cyclical. And that is in fact the reason why we established our multi-billion dollar Facility Services business in the first place some ten years ago.

We see, in times of recession, customers looking to concentrate on their core businesses, and outsourcing to EMCOR and similar experts responsibilities for noncore activities like facility management. So that's been our experience in past recessions. And early anecdotal experience would suggest that Facilities Services seems to be performing in the stable fashion with relatively predictable results for the current year.

We've also noted, during my commentary, the tendency for, for contract backlog to gravitate toward publicly funded either in whole or in part sectors like healthcare, like transportation systems like water and waste water during recessionary times. The difference between EMCOR's position during this recession and the last one is that this we are a whole lot larger, nearly twice as large in many respects, a lot richer, a lot more diverse and a lot better managed than we were during the last recession. And I'm therefore quite optimistic about our performance this time around.

Thanks for that. Lastly, in a discussion of your gross profit in your 10-K here, you added in 4Q a mention of significant losses at a US mechanical company. Can you give us a bit of detail on the existing backlog of this company?

Yes. That was one of our California mechanical construction companies, if memory serves, the losses were about $11 million.

And is this-- are the losses taking on jobs that are close to complete, already complete? Can you give us a little detail there?

As is customary, and indeed required in our business, we recognize the entirety of all losses once they become invisible. That company, just for your information, has been in the downsizing process for the last couple of years and our downsizing process is complete on that company this time which has reverted to its long time historical size after a period of unwarranted growth.

Great. Thank you.

Thank you.

Your next question is from the line of Min Cho with FBR.

Good morning.

Hi, Min.

Frank, just-- I missed some of your commentary about the backlog increases by segment. Do you mind going over that again real quick?

Let me see if I've got them to hand. I know that-- Kevin, do you have them quickly?

Yeah I do have them, although Min you could always call me back, if you want.

Okay, that's fine.

No, I've got it here. 25% in industrial, 18% in transportation, 13% in institutional and 21% in water waste water. Healthcare was off about 7%, but that was due to a particularly large booking in the fourth quarter of 2007. So we didn't expect to be able to replicate healthcare in 2008 and in fact that portfolio still remains large and healthy, if you will.

Right. Also I think you touched, Frank I know you touched on this a little bit in your commentary, but with your-- in terms of your cash and potential acquisitions, can you talk about which sectors, kind of what markets geography that you are looking at acquisitions?

Sure. First of all, it is all but certain that any significant incremental investments or acquisitions that we would make would be in the United States. Number two, they would almost certainly be based in our, in the expansion of our Facilities Services segment with a special emphasis on government services, on fire protection and perhaps in the oil and gas sector, the midstream and downstream aspects thereof.

Okay. Also in terms of your margin expectation for your base case 2009, are those margins coming from what your margins currently look like in the backlog? Or is it anticipation almost the worst case scenario of what margins could look like in your new awards?

This is a highly confident number, Min. So we have really cut these dramatically. We performed at 4.5 % during 2008 and most of the backlog that we carry into 2009 was booked during periods when prices were at or around that level. So you can see the conservatism of NOI percentage estimate in which we dropped from an actual performance level of 4.5% to a range of 3.0% to 3.5% for estimating purposes. Tony, do you have a comment?

Yeah. I think it's also-- we know what's in our backlog and we have good work on our backlog. And we've said it a number of times, we have decent visibility through the first half of the year and why the conservatism around the number as we replace work at the back half of the year and mixed shifts to more public sector work, the margins shift with it.

Got you. And then finally, noticed that your US electrical margin was extremely high this quarter, relative to the last several years. Was there anything that was kind of one-time in nature, or a big increase in mobile service revenue or anything that led to that strong margin?

The mobile service margins would be in our US Facility Services segment, and the margins there were very good and nothing abnormal other than just great execution. I would make the same comment about our electrical margins. There's nothing particularly a one-time of nature. It's just good execution, good execution towards the end of projects and we're benefiting from that.

Great. Thank you.

Min, this is Mark Pompa, with respect to looking back to 2006 as I think you mentioned, we had some project difficulties with our Southern Florida operations. So when you look at the margins back in '06, relative to '07 and '08, that was what was driving that performance.

Okay. Great. Thank you.

Your next question is from the line of John Rogers with D.A. Davidson.

Good morning, John.

Hi, good morning. In this downturn that we're looking at for 2009, and given that you've expanded this Facility Services business, if you-- in the event of a downturn, does this business decline meaningfully the way the rest of the sectors will that are construction-- new construction oriented?

No, John. In fact this is--

Do you expect it to grow, I guess is -- ?

Well this is clearly our design. It seems like a long time ago now, but I remember meeting with you and other analysts during good times and saying that EMCOR is of the view that we're now one day closer to the next recession, whenever it might be. Well, here we are. But EMCOR entered into this recession prepared. And in one particularly important way, and that is the balance between our Facility Service prospects and our more cyclical Construction prospects. The Facility Services was always intended to be a hedge against the cyclicality of Construction. And in fact our experience in the two previous recessions that I presided over is that Facility Service revenues are actually stimulated by recessionary circumstances as our customers, in response to their challenges, outsource nonessential or noncore activities like facility administration to experts like EMCOR, so that they can down size their personnel base and concentrate on their core businesses. We certainly do not expect anything like the downward pressure on Facility Services that some parts of the Construction sector are experiencing and growth is entirely possible in these circumstances, as it has been in the last two recessions.

And then secondly, I would assume in this kind of an environment, any sort of an acquisition that you'd be looking at would be substantially accretive immediately, given the valuation level. Is that fair?

Yes. That has always been our intention. Any transaction that I can think of that EMCOR has ever participated in has been immediately accretive and we would certainly expect acquisitions, especially with the kind of bargains that I see emerging in this market to be immediately and potentially significantly accretive as well.

And is it your sense that there's more willing sellers out there?

Getting that way by the minute, John.

Okay. And lastly-- and this may be in the case, or I apologize, organic growth in the quarter?

In the quarter, Mark, do you have that?

Organic revenue growth in the quarter-- well actually is was an organic decrease of about 8.5%. Revenues was quarter-over-quarter are down 4.9%.

Oh, sorry. Right.

Yeah and then for the year, organic growth was 6% of the total 14.5% increase in revenues.

Okay. Thank you very much.

You're welcome.

Thanks, John.

Your next question is from the line of Jeff Beach with Stifel Nicolaus.

Yes, good morning.

Good morning, Jeff.

Looking back at the last recession, I was looking at my models, you were particularly hard hit in US Mechanical but it happened in 2003 and 2004 after the nonres construction market was into an upturn. Can you describe that market then and if there's changes, what's different now?

The US Mechanical and Electrical, for that matter, sectors were extremely hard hit by the previous recession. My recollection is that our revenues were down something like 37%, or excuse me, the sector revenues were down by that percentage during that period. That was an extremely severe and sharp recession. This one definitely doesn't feel like that one to me. However, specifically, with respect to Mechanical Construction and Facility Services, we had a couple of very significant specific losses associated with that period in the Mechanical operation and in fact, directly as a result of that, we not only reorganized the management of our Mechanical Services division, bringing it under the control of the talented individuals who have previously been managing Electrical, but you may recall I changed to Senior Management sortly after that as well with respect to the operational control of the Company.

Tony made a very good point during his commentary this morning as did I, that the-- our current operations have been characterized by the absence of the badness the shock losses that led to or perhaps exacerbated the downward trend of our earnings during the last recession. It's worth pointing out while I'm at it, that unlike a number of our competitors who either declined really dramatically into losses or even disappeared, that EMCOR remained profitable through the last recession albeit at significantly reduced levels. This time around we're in much better shape in all respects, and therefore I expect us to do much better.

When you go to that Mechanical discussion, Jeff, this is Tony, Frank highlighted it, what specifically happened is we had three subsidiaries that tried to grow in a bad market. And you could say well we should have been on top of it. I think that's one of the reasons I'm here is because we took some really tough work, that really we've been working our way out of over a three or four year period since. We feel good about the backlog position across both our Mechanical and Electrical businesses today. A lot of credit goes to the folks that are running those businesses. We've changed out a number of subsidiary managers both on the operational side, the CEOs and the CFOs of some of the problemed companies. We've seen the benefits of that. And finally when you look at the drag that that had on us as we came out in '05 and '06, we're clearly trying to prevent that from happening again with the mix of work that we're taking today.

Jeff there's one other comment that I'd like to make and it's not precisely in answer to your question, but it bares on both your question and John Rogers' previous comment. We made two significant acquisitions in 2002. Right on the-- right at the beginning of the recession that ensued thereafter. Now they didn't help us much during the recession but we bought them at recession affected multiples that were so cheap that they enabled us to hold on to those companies and they are now among the best performers in our Company and contributing materially to EMCOR's record performance. So I see the same kind of bargains arising now and the opportunity to buy good companies at low multiples that will enable us not only to get through this recession well but to perform even better and create even more shareholder value on the far end.

All right and just as a follow-up, if we see deteriorating conditions through this entire year, with maybe a recovery beginning sometime next year, and you have your typical mixed shift going from high margin Commercial and other work into lower margin institutional work, is it likely that we're going to see lower margins in 2010?

Boy, I wish I had the answer. I think not. And here's why I think not. I think that thinking back to the five segments of our Construction market that I talked about as likely recipients of benefits from the Stimulus package, the total value of those five segment allocations is $100 billion. Let's just pause for a second to think how much money that is. What that is is 15% of the total value of nonresidential construction put in place in the entire country all of last year. It's a huge number. And the likelihood of EMCOR, even if you wanted to do some basic math and say okay, so there was $700 billion of nonresidential construction put in place and EMCORs a $7 billion Company, so our market share is 1%. Let's even take that as a mathematical basis. That means if my math is correct, and it sometimes is, that our market share of $100 billion is $1 billion. Now don't quote me on that, but it seems to me very likely that in 2010, if not before, there is likely to be significant impact on our sector and on our Company with respect to an upturn in pricing and in profit opportunities.

And typically Frank on transportation and water and waste water, the margin characteristics aren't as bad as some of the institutional work and other work than when you think of public sector.

Yes, that's true.

Because we have a much more design, assist design built relationship in those jobs.

All right thanks.

You bet.

(Operator Instructions) Your next question is from the line of Tahira Afzal with KeyBanc.

Good morning, gentlemen.

Good morning, T.

I just wanted to get some clarification on the maintenance side of the business. It seems like what you're saying is that even if maintenance slows down, which you don't think it will, but you still think that outsourcing will continue to drive it. Is that the correct way to look at it?

Well outsourcing decisions large and small drive most of our Facility Services business, I would say. The customer is typically making a choice between retaining a specialized maintenance personnel in-house, or outsourcing the service to a trusted service provider either on a long-term contractual basis or on a call out basis or a scheduled service basis or something of the kind. And what we see during recessionary times is more customers with in-house maintenance personnel outsourcing that function,and laying off those personnel as part of the typical economization process that takes place when companies concentrate on their core businesses during recessions.

And have you started seeing any of that yet? Or is this something you expect?

It's too soon. But I-- let me say that it would be typical of the recessionary process for us to see that.

Okay. And then if I look at your base case assumption of $1.80, what would you have assumed in regards to the maintenance side? Are you assuming the business is flattish? Are you assuming the margins are flattish? I would love any color you can provide and I know it's a bit difficult.

I think flattish is a great way to describe both revenues and margins in that area. I think that these circumstances are so difficult to quantify, particularly on a full year basis, that in being as helpful as we can be to the market, we can only say that we expect our profits to be at least the third best in our history, which is saying quite a lot in connection with what everybody believes as they (inaudible) in severe recession. And that our Construction revenues and margins are likely in current circumstances to be more negatively affected than our Facility Services business.

And then I've got one last question. And that is again just following up on (inaudible) question earlier on. If I looked back to the last cycle, and Tony elaborated on this, you go out and do a lot of public sector work. And when you saw the opportunity for the market picking up, you switched back, but there was an interim hiccup because you held up on your business, and so there was this one element as you switched from one to the other. And that impacted your business, if I remember correctly. Depending on whenever the market comes back, what are you trying to do differently this time in terms of switching back?

Well, first of all, we've entered this recession with much more backlog and much more money then-- and much more diversification than in the past, including a dramatically larger Facility Services business, which we believe to-- will perform in stable fashion. Secondly , a current-- a previously unmentioned but nonetheless important number in our last recession performance, was unstable performance in our international operations, which contributed losses at the worst possible time. And I expect and believe that this time around that in 2009, both our UK and our Canadian businesses will perform stable-- in stable and profitable fashion, and that takes one big potential problem off of our plate.

As I mentioned, a few minutes ago, I think that the recovery of this-- of our markets, will pertain in large part to the improved access by our customers to credit availability that enables them to make discretionary capital expenditure investments. Until then, many of our revenues will be funded from our customers's operating budget or from their maintenance CapEx budgets, and we won't see as much discretionary capital spending until our customers get braver in response to the restoration of predictable lending and credit circumstances. And I think that will be a gradual process, T.

So we'll see the Stimulus package impacting our business and our sector in late '09 and into '10. So that'll beef up prevailing prices on both sides of the-- that is on the public and on the private sector side of the Construction business. Gradually, our customers will regain courage as they regain access to the credit markets. So we'll just see the profits improving in the private sector during that process, and we'll be exercising our usual selectivity in choosing those profits. I just can't help repeating what we said all along, and that is that EMCOR, if we wished, could have $6 billion or $8 billion in backlog. We choose to have $4 billion because that's what's available at the kind of pricing levels that we will

Thank you very much.

Thank you, T.

There are no further questions at this time. I'd like to turn the call back to Management for any closing remarks.

Thank you all for your interest and support in EMCOR. Watch this space for interesting developments and we'll see you in the quarter. Thanks a lot.