What changed in this filing

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Item 1. Financial Statements

2020-08-03 compared with 2020-04-30 · 467 added, 160 removed, 526 unchanged (54% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

(Unaudited) December 31,

Current assets:

2 unchanged sentences

Contract assets 171,389 177,830

Inventories 40,590 40,446

Prepaid expenses and other 49,268 51,976

2 unchanged sentences

Operating lease right-of-use assets 240,659 245,471

Goodwill 839,772 1,063,911

Identifiable intangible assets, net 576,540 611,444

Other assets 95,919 93,462

Total assets $ 4,590,423 $ 4,830,358

LIABILITIES AND EQUITY

23 unchanged sentences

Noncontrolling interests 576 646

Total equity 1,944,198 2,057,780

Total liabilities and equity $ 4,590,423 $ 4,830,358

4 unchanged sentences

(In thousands, except per share data)(Unaudited)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Revenues $ 2,014,021 $ 2,324,202 $ 4,313,853 $ 4,482,930

Cost of sales 1,698,735 1,977,822 3,665,506 3,827,796

Gross profit 315,286 346,380 648,347 655,134

Selling, general and administrative expenses 205,174 226,248 432,171 432,417

Restructuring expenses — 173 69 448

Operating income

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets 232,750 — 232,750 —

Operating (loss) income ( 122,638 ) 119,959 ( 16,643 ) 222,269

Net periodic pension (cost) income 718 400 1,460 806

Interest expense, net ( 2,110 ) ( 3,231 ) ( 4,598 ) ( 6,054 )

Income before income taxes

Income tax provision

Basic earnings per common share

Diluted earnings per common share

(Loss) income before income taxes ( 124,030 ) 117,128 ( 19,781 ) 217,021

Income tax (benefit) provision ( 40,341 ) 33,156 ( 11,757 ) 60,639

Net (loss) income $ ( 83,689 ) $ 83,972 $ ( 8,024 ) $ 156,382

Basic (loss) earnings per common share $ ( 1.52 ) $ 1.49 $ ( 0.14 ) $ 2.78

Diluted (loss) earnings per common share $ ( 1.52 ) $ 1.49 $ ( 0.14 ) $ 2.77

Dividends declared per common share $ 0.08 $ 0.08 $ 0.16 $ 0.16

2 unchanged sentences

and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)(Unaudited)

Three months ended March 31,

Other comprehensive (loss) income, net of tax:

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Net (loss) income $ ( 83,689 ) $ 83,972 $ ( 8,024 ) $ 156,382

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 4 ( 908 ) ( 2,980 ) ( 297 )

Post retirement plans, amortization of actuarial loss included in net income (1)

Other comprehensive (loss) income

Comprehensive income

Net of tax of $ 0.1 million for each of the three months ended March 31, 2020 and 2019 .

Post retirement plans, amortization of actuarial loss included in net (loss) income (1)

546 528 1,096 1,063

Other comprehensive income (loss) 550 ( 380 ) ( 1,884 ) 766

Comprehensive (loss) income $ ( 83,139 ) $ 83,592 $ ( 9,908 ) $ 157,148

(1) Net of tax of $ 0.1 million for each of the three months ended June 30, 2020 and 2019, and net of tax of $ 0.3 million for each of the six months ended June 30, 2020 and 2019.

See Notes to Consolidated Financial Statements.

3 unchanged sentences

(In thousands)(Unaudited)

Three months ended March 31,

Six months ended June 30,

Cash flows - operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Net (loss) income $ ( 8,024 ) $ 156,382

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 23,220 21,391

Amortization of identifiable intangible assets 29,404 23,169

Provision for (recovery of) credit losses

Provision for credit losses 4,957 851

Deferred income taxes ( 19,942 ) ( 920 )

Excess tax benefits from share-based compensation ( 196 ) ( 593 )

Non-cash expense for impairment of goodwill, identifiable intangible assets, and other long-lived assets 232,750 —

Non-cash share-based compensation expense 5,960 6,225

1 unchanged sentence

Changes in operating assets and liabilities, excluding the effect of businesses acquired 7,550 ( 251,723 )

Net cash used in operating activities

Net cash provided by (used in) operating activities 276,743 ( 42,198 )

Cash flows - investing activities:

3 unchanged sentences

Investments in and advances to unconsolidated entities — ( 794 )

Distributions from unconsolidated entities — 84

Net cash used in investing activities ( 28,321 ) ( 85,830 )

11 unchanged sentences

Distributions to noncontrolling interests ( 70 ) ( 250 )

Net cash provided by (used in) financing activities

Net cash used in financing activities ( 121,301 ) ( 22,243 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 4,701 ) ( 175 )

Decrease in cash, cash equivalents, and restricted cash

Increase (decrease) in cash, cash equivalents, and restricted cash 122,420 ( 150,446 )

Cash, cash equivalents, and restricted cash at beginning of year (1)

359,920 366,214

Cash, cash equivalents, and restricted cash at end of period (2)

$ 482,340 $ 215,768

(1) Includes $ 1.1 million and $ 2.3 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.

Includes $ 1.0 million and $ 2.2 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of March 31, 2020 and 2019, respectively.

(2) Includes $ 0.9 million and $ 2.4 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of June 30, 2020 and 2019, respectively.

See Notes to Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the three months ended June 30, 2019 and 2020

(In thousands)(Unaudited)

EMCOR Group, Inc.

Accumulated other comprehensive loss (1)

Noncontrolling

stock Capital

surplus Accumulated other comprehensive loss (1)

earnings Treasury

stock Noncontrolling

Balance, March 31, 2019 $ 1,811,622 602 22,291 ( 86,516 ) 2,128,326 ( 253,937 ) 856

Net income 83,972 — — — 83,972 — —

Other comprehensive loss ( 380 ) — — ( 380 ) — — —

Common stock issued under share-based compensation plans — 1 ( 1 ) — — — —

Common stock issued under employee stock purchase plan 1,646 — 1,646 — — — —

Common stock dividends ( 4,487 ) — 36 — ( 4,523 ) — —

Distributions to noncontrolling interests ( 210 ) — — — — — ( 210 )

Share-based compensation expense 2,668 — 2,668 — — — —

Balance, June 30, 2019 $ 1,894,831 $ 603 $ 26,640 $ ( 86,896 ) $ 2,207,775 $ ( 253,937 ) $ 646

Balance, March 31, 2020 $ 2,027,594 $ 605 $ 34,745 $ ( 91,722 ) $ 2,436,305 $ ( 352,985 ) $ 646

Net loss ( 83,689 ) — — — ( 83,689 ) — —

Other comprehensive income 550 — — 550 — — —

Tax withholding for common stock issued under share-based compensation plans ( 58 ) — ( 58 ) — — — —

Common stock issued under employee stock purchase plan 1,590 — 1,590 — — — —

Common stock dividends ( 4,388 ) — 29 — ( 4,417 ) — —

Distributions to noncontrolling interests ( 70 ) — — — — — ( 70 )

Share-based compensation expense 2,669 — 2,669 — — — —

Balance, June 30, 2020 $ 1,944,198 $ 605 $ 38,975 $ ( 91,172 ) $ 2,348,199 $ ( 352,985 ) $ 576

(1) Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.

See Notes to Consolidated Financial Statements.

EMCOR Group, Inc.

and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the six months ended June 30, 2019 and 2020

(In thousands)(Unaudited)

EMCOR Group, Inc.

stock Capital

surplus Accumulated other comprehensive loss (1)

earnings Treasury

stock Noncontrolling

Balance, December 31, 2018 $ 1,741,441 $ 601 $ 21,103 $ ( 87,662 ) $ 2,060,440 $ ( 253,937 ) $ 896

Net income 156,382 — — — 156,382 — —

Other comprehensive income 766 — — 766 — — —

5 unchanged sentences

Share-based compensation expense 6,225 — 6,225 — — — —

Balance, March 31, 2019

Balance, June 30, 2019 $ 1,894,831 $ 603 $ 26,640 $ ( 86,896 ) $ 2,207,775 $ ( 253,937 ) $ 646

Balance, December 31, 2019 $ 2,057,780 $ 604 $ 32,274 $ ( 89,288 ) $ 2,367,481 $ ( 253,937 ) $ 646

Net loss ( 8,024 ) — — — ( 8,024 ) — —

Other comprehensive loss ( 1,884 ) — — ( 1,884 ) — — —

Cumulative-effect adjustment (2)

( 2,307 ) — — — ( 2,307 ) — —

Common stock issued under share-based compensation plans 1 1 — — — — —

3 unchanged sentences

Repurchase of common stock ( 99,048 ) — — — — ( 99,048 ) —

Distributions to noncontrolling interests ( 70 ) — — — — — ( 70 )

Share-based compensation expense 5,960 — 5,960 — — — —

Balance, March 31, 2020

Balance, June 30, 2020 $ 1,944,198 $ 605 $ 38,975 $ ( 91,172 ) $ 2,348,199 $ ( 352,985 ) $ 576

(1) Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.

11 unchanged sentences

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly our financial position and the results of our operations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 .

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

NOTE 2 New Accounting Pronouncements

On January 1, 2020, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”), which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable and contract assets.

This pronouncement replaces the previous incurred loss model with an expected credit loss model that requires consideration of a broader range of information when estimating expected credit losses over the lifetime of an asset.

This guidance requires entities to estimate expected credit losses by considering forecasts of future economic conditions in addition to information about past events and current conditions.

The cumulative effect of applying the new guidance was recorded as a reduction to retained earnings in the amount of $ 2.3 million , net of tax.

In accordance with the guidance described above, we maintain an allowance for credit losses, which represents the portion of our financial assets (accounts receivable and contract assets) that we do not expect to collect over the contractual life of such assets.

Credit losses are recorded when we believe a customer, or group of customers, may not be able to meet their financial obligations due to deterioration in financial condition or credit rating.

The cumulative effect of applying the new guidance was recorded as a reduction to retained earnings in the amount of $ 2.3 million, net of deferred taxes of $ 0.9 million.

Our financial position and results of operations for reporting periods beginning on or after January 1, 2020 reflect the guidance issued under this new accounting pronouncement, while prior periods continue to be reported in accordance with previous guidance and historical accounting policy.

A considerable amount of judgment is required in determining expected credit losses.

Credit losses are recorded when we believe a customer, or group of customers, may not be able to meet their financial obligations due to deterioration in financial condition or credit rating.

Relevant factors include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends in credit quality indicators or past events, and forecasts of future economic conditions.

At March 31, 2020 and December 31, 2019 , our allowance for credit losses was $ 20.0 million and $ 14.5 million , respectively.

Our allowance for credit losses increased based on our evaluation of forecasts of future economic conditions and the expected impact on customer collections.

Allowances for credit losses are based on the best facts available and are re-evaluated and adjusted on a regular basis as additional information is received.

Negative macroeconomic trends, including the impact of COVID-19, could result in an increase in our credit losses if we experience delays in the payment of outstanding receivables or if future economic conditions differ from our forecasts.

The change in the allowance for credit losses for the three months ended March 31, 2020 was as follows (in thousands):

In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

At June 30, 2020 and December 31, 2019, our allowance for credit losses was $ 21.0 million and $ 14.5 million, respectively.

Due to the economic disruption caused by COVID-19, our allowance for credit losses increased based on our evaluation of:

(a) specific outstanding balances and (b) forecasts of future economic conditions and the expected impact on customer collections.

Allowances for credit losses are based on the best facts available and are reassessed and adjusted on a regular basis as additional information is received.

Should anticipated collections fail to materialize, or if future economic conditions differ from our forecasts, we could experience an increase in our credit losses.

The change in the allowance for credit losses for the six months ended June 30, 2020 was as follows (in thousands):

Balance at December 31, 2019 $ 14,466

2 unchanged sentences

Amounts written off against the allowance ( 1,597 )

Balance at March 31, 2020

Balance at June 30, 2020 $ 20,976

In December 2019, an accounting pronouncement was issued by the FASB that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to intraperiod tax allocations and the methodology for calculating income taxes in an interim period.

1 unchanged sentence

The pronouncement is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted.

Certain aspects of this standard must be applied retrospectively while other aspects are to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.

The Company intends to adopt this accounting pronouncement on January 1, 2021, and we are currently evaluating the potential impact on our financial position and/or results of operations.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 2 New Accounting Pronouncements - (Continued)

The Company intends to adopt this accounting pronouncement on January 1, 2021, and we are currently evaluating the potential impact on our financial position and/or results of operations.

NOTE 3 Revenue from Contracts with Customers

11 unchanged sentences

(a) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract.

In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract.To the extent the warranty terms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accounted for as a separate performance obligation.

In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract.

To the extent the warranty terms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accounted for as a separate performance obligation.

In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison to warranty terms which are standard in the industry.

34 unchanged sentences

Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate.

For the three months ended March 31, 2020 and 2019, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods.

In addition, for the three months ended March 31, 2020 and 2019 , there were no significant reversals of revenue recognized associated with the revision of transaction prices.

For the three and six months ended June 30, 2020 and 2019, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods.

In addition, for the three and six months ended June 30, 2020 and 2019, there were no significant reversals of revenue recognized associated with the revision of transaction prices.

(4) Allocate the transaction price to performance obligations in the contract

30 unchanged sentences

When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

For the three months ended March 31, 2020 and 2019, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three months ended March 31, 2020 and 2019.

For the three and six months ended June 30, 2020 and 2019, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three and six months ended June 30, 2020 and 2019.

EMCOR Group, Inc.

6 unchanged sentences

Refer to Note 15 - Segment Information of the notes to consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment, as well as a more complete description of our business.

The following tables provide further disaggregation of our revenues by categories we use to evaluate our financial performance within each of our reportable segments for the three months ended March 31, 2020 and 2019 (in thousands):

For the three months ended March 31,

The following tables provide further disaggregation of our revenues by categories we use to evaluate our financial performance within each of our reportable segments for the three and six months ended June 30, 2020 and 2019 (in thousands):

For the three months ended June 30,

Total 2019 % of

United States electrical construction and facilities services:

7 unchanged sentences

Short duration projects (1)

30,176 7 % 41,447 7 %

Service work 10,193 2 % 12,003 2 %

446,716 570,021

Less intersegment revenues ( 835 ) ( 619 )

Total segment revenues $ 445,881 $ 569,402

For the three months ended March 31,

For the three months ended June 30,

Total 2019 % of

United States mechanical construction and facilities services:

7 unchanged sentences

Short duration projects (1)

73,955 9 % 81,168 10 %

Service work 88,684 11 % 92,432 11 %

791,411 825,365

Less intersegment revenues ( 970 ) ( 2,279 )

5 unchanged sentences

NOTE 3 Revenue from Contracts with Customers - (Continued)

For the three months ended March 31,

For the three months ended June 30,

Total 2019 % of

United States building services:

1 unchanged sentence

Government site-based services 38,419 8 % 42,787 8 %

Mechanical services

Mobile mechanical services 282,965 60 % 312,822 60 %

Energy services 18,954 4 % 37,168 7 %

Total segment revenues $ 472,416 $ 523,698

For the three months ended March 31,

For the three months ended June 30,

Total 2019 % of

United States industrial services:

3 unchanged sentences

Total United States operations $ 1,920,904 $ 2,211,646

For the three months ended March 31,

For the three months ended June 30,

Total 2019 % of

United Kingdom building services:

Projects & extras

Service work $ 51,139 55 % $ 56,829 50 %

Project work 41,978 45 % 55,727 50 %

Total segment revenues $ 93,117 $ 112,556

Total worldwide operations $ 2,014,021 $ 2,324,202

For the six months ended June 30,

Total 2019 % of

United States electrical construction and facilities services:

Commercial market sector $ 458,126 47 % $ 555,731 51 %

Institutional market sector 75,859 8 % 53,941 5 %

Hospitality market sector 9,981 1 % 9,687 1 %

Manufacturing market sector 204,625 21 % 216,960 20 %

Healthcare market sector 38,342 4 % 39,024 3 %

Transportation market sector 92,146 9 % 109,794 10 %

Water and wastewater market sector 4,236 1 % 10,633 1 %

Short duration projects (1)

62,897 6 % 81,856 7 %

Service work 26,489 3 % 21,265 2 %

972,701 1,098,891

Less intersegment revenues ( 1,591 ) ( 1,419 )

Total segment revenues $ 971,110 $ 1,097,472

(1) Represents those projects which generally are completed within three months or less.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)

For the six months ended June 30,

Total 2019 % of

United States mechanical construction and facilities services:

Commercial market sector $ 578,124 36 % $ 581,310 37 %

Institutional market sector 176,826 11 % 137,957 9 %

Hospitality market sector 16,812 1 % 21,919 1 %

Manufacturing market sector 216,190 13 % 236,654 15 %

Healthcare market sector 168,587 10 % 136,027 9 %

Transportation market sector 34,015 2 % 15,025 1 %

Water and wastewater market sector 86,119 5 % 88,748 6 %

Short duration projects (1)

171,157 11 % 181,104 11 %

Service work 179,577 11 % 181,898 11 %

1,627,407 1,580,642

Less intersegment revenues ( 2,854 ) ( 5,147 )

Total segment revenues $ 1,624,553 $ 1,575,495

(1) Represents those projects which generally are completed within three months or less.

For the six months ended June 30,

Total 2019 % of

United States building services:

Commercial site-based services $ 275,516 28 % $ 286,899 28 %

Government site-based services 81,336 8 % 91,578 9 %

Mobile mechanical services 586,356 59 % 586,988 56 %

Energy services 47,291 5 % 70,312 7 %

Total segment revenues $ 990,499 $ 1,035,777

For the six months ended June 30,

Total 2019 % of

United States industrial services:

Field services $ 447,117 86 % $ 469,619 85 %

Shop services 75,080 14 % 84,486 15 %

Total segment revenues $ 522,197 $ 554,105

Total United States operations $ 4,108,359 $ 4,262,849

For the six months ended June 30,

Total 2019 % of

United Kingdom building services:

Service work $ 106,245 52 % $ 111,463 51 %

Project work 99,249 48 % 108,618 49 %

Total segment revenues $ 205,494 $ 220,081

Total worldwide operations $ 4,313,853 $ 4,482,930

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)

Contract Assets and Contract Liabilities

9 unchanged sentences

Contract assets are generally classified as current within the Consolidated Balance Sheets.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)

Contract liabilities from our long-term construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress.

2 unchanged sentences

The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets.

Net contract liabilities consisted of the following (in thousands):

March 31, 2020

December 31, 2019

Net contract liabilities consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Contract assets, current $ 171,389 $ 177,830

3 unchanged sentences

Net contract liabilities $ ( 485,975 ) $ ( 447,954 )

The $ 50.3 million decrease in net contract liabilities for the three months ended March 31, 2020 was primarily attributable to a decrease in net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the completion or substantial completion of certain large projects which were previously billed in advance pursuant to contract terms.

The $ 38.0 million increase in net contract liabilities for the six months ended June 30, 2020 was primarily attributable to an increase in net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the timing of invoicing to our customers, which included advanced billings on several projects in the earlier stages of completion.

The acquisition completed in the first quarter of 2020 did not have a significant impact on our contract assets and contract liabilities.

There was no significant impairment of contract assets recognized during either period presented.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentages of total remaining performance obligations (in thousands, except for percentages):

March 31, 2020

June 30, 2020 % of Total

Remaining performance obligations:

6 unchanged sentences

Total worldwide operations $ 4,590,975 100 %

Our remaining performance obligations at March 31, 2020 were $ 4.42 billion .

Our remaining performance obligations at June 30, 2020 were $ 4.59 billion.

Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts.

5 unchanged sentences

However, to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty, the remaining contract term, and therefore, the amount of unrecognized revenues included within remaining performance obligations, is limited to the notice period required for the termination.

Our remaining performance obligations are 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, (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 the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts.

Such claim and other variable consideration amounts were immaterial for all periods presented.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 3 Revenue from Contracts with Customers - (Continued)

Our remaining performance obligations are comprised of:

Such claim and other variable consideration amounts were immaterial for all periods presented.

Refer to the table below for additional information regarding our remaining performance obligations, including an estimate of when we expect to recognize such remaining performance obligations as revenue (in thousands):

Within one year

Greater than one year

Within one year Greater than one year

Remaining performance obligations:

7 unchanged sentences

We believe our reported remaining performance obligations are firm and contract cancellations have not historically had a material adverse effect on us.

However, the extent to which the COVID-19 pandemic may impact our remaining performance obligations is highly uncertain and will be affected by a number of factors that are difficult to predict.

These include the duration and extent of the outbreak;

the duration and extent of imposed or recommended containment and mitigation measures;

the impact of the pandemic on economic activity, including on construction projects and our customers’ demand for our goods and services;

any further closures of our customers’ offices and facilities;

and any additional project delays or shutdowns.

However, the extent to which the COVID-19 pandemic may impact our remaining performance obligations remains highly uncertain and will be affected by a number of factors that are difficult to predict.

These include the duration and extent of the pandemic;

the duration and extent of imposed or recommended quarantines, containment and other mitigation measures, and whether there is a significant resumption of shelter-in-place orders;

the near-term impact of the pandemic on broader economic activity, including on construction projects and the oil and gas and related industrial markets;

our customers’ demand for our services;

and any prolonged delays or shutdowns of active projects or closures of our and our customers’ offices and facilities.

NOTE 4 Acquisitions of Businesses

8 unchanged sentences

Goodwill is calculated as the excess of the consideration transferred over the fair value of the net assets acquired and represents the future economic benefits expected from this strategic acquisition.

The weighted average amortization period for the identifiable intangible assets, which consist of a trade name, customer relationships, and contract backlog, is approximately 10.5 years.

The weighted average amortization period for the identifiable intangible assets acquired, which consist of a trade name, customer relationships, and contract backlog, is approximately 10.5 years.

In addition to BKI, during 2019, we completed six other acquisitions for total consideration of $ 85.4 million.

1 unchanged sentence

(a) a company which provides electrical contracting services in central Iowa, the results of operations of which have been included within our United States electrical construction and facilities services segment, (b) a company which provides mechanical contracting services in south-central and eastern Texas, the results of operations of which have been included within our United States mechanical construction and facilities services segment, and (c) four companies within our United States building services segment which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.

In connection with these acquisitions, we acquired working capital of

In connection with these acquisitions, we acquired working capital of $ 25.3 million and other net assets of $ 1.3 million and have preliminarily ascribed $ 29.2 million to goodwill and $ 29.6 million to identifiable intangible assets.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 4 Acquisitions of Businesses - (Continued)

$ 25.3 million and other net assets of $ 1.3 million and have preliminarily ascribed $ 29.1 million to goodwill and $ 29.6 million to identifiable intangible assets.

We expect that all of the goodwill acquired in connection with these acquisitions will be deductible for tax purposes.

4 unchanged sentences

NOTE 5 Earnings Per Share

Calculation of Basic and Diluted Earnings per Common Share

The following tables summarize our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three months ended March 31, 2020 and 2019 (in thousands, except share and per share data):

For the three months ended March 31,

Net income available to common stockholders

Weighted average shares outstanding used to compute basic earnings per common share

Calculation of Basic and Diluted (Loss) Earnings per Common Share

The following tables summarize our calculation of Basic and Diluted (Loss) Earnings per Common Share (“EPS”) for the three and six months ended June 30, 2020 and 2019 (in thousands, except share and per share data):

For the three months ended

Net (loss) income available to common stockholders $ ( 83,689 ) $ 83,972

Weighted average shares outstanding used to compute basic (loss) earnings per common share 54,937,038 56,181,864

Effect of dilutive securities—Share-based awards — 317,650

Shares used to compute diluted earnings per common share

Basic earnings per common share

Diluted earnings per common share

The number of outstanding share-based awards that were excluded from the computation of diluted EPS for the three months ended March 31, 2020 and 2019 because they would be anti-dilutive were 95,084 and 2,150 , respectively.

Shares used to compute diluted (loss) earnings per common share 54,937,038 56,499,514

Basic (loss) earnings per common share $ ( 1.52 ) $ 1.49

Diluted (loss) earnings per common share $ ( 1.52 ) $ 1.49

For the six months ended

Net (loss) income available to common stockholders $ ( 8,024 ) $ 156,382

Weighted average shares outstanding used to compute basic (loss) earnings per common share 55,467,799 56,175,219

Effect of dilutive securities—Share-based awards — 286,758

Shares used to compute diluted (loss) earnings per common share 55,467,799 56,461,977

Basic (loss) earnings per common share $ ( 0.14 ) $ 2.78

Diluted (loss) earnings per common share $ ( 0.14 ) $ 2.77

The effect of 197,470 and 200,538 share-based awards has been excluded from the calculation of diluted EPS for the three and six months ended June 30, 2020, respectively, due to the net loss recognized for each period.

Assuming dilution, the number of outstanding share-based awards excluded from the computation of diluted EPS for both the three and six months ended June 30, 2020 because they would be anti-dilutive were 94,355 .

The number of outstanding share-based awards that were excluded from the computation of diluted EPS for the six months ended June 30, 2019 because they would be anti-dilutive were 25,061 .There were no anti-dilutive share based awards for the three months ended June 30, 2019.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6 Inventories

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts (in thousands):

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of June 30, 2020 and December 31, 2019 (in thousands):

2020 December 31,

Raw materials and construction materials $ 28,576 $ 31,365

Work in process 12,014 9,081

Inventories $ 40,590 $ 40,446

NOTE 7 Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets

In connection with our acquisition of businesses, we have recorded goodwill, which represents the excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets acquired.

Goodwill is not amortized but instead allocated to its respective reporting unit and evaluated for impairment annually, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired.

We have determined that our reporting units are consistent with the reportable segments identified in Note 15 - Segment Information of the notes to consolidated financial statements.

Absent any earlier identified impairment indicators, we perform our annual goodwill impairment assessment on October 1 each fiscal year.

Qualitative indicators that may trigger the need for interim quantitative impairment testing include, among others, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit.

Additionally, an interim impairment test may be triggered by a significant change in business climate, a loss of a significant customer, increased competition, or a sustained decrease in share price.

In assessing whether our goodwill is impaired, we compare the fair value of the reporting unit to its carrying amount, including goodwill.

If the fair value exceeds the carrying amount, no impairment is recognized.

However, if the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is impaired and an impairment loss in the amount of the excess is recognized and charged to operations.

During the second quarter of 2020, our operations were negatively impacted by the COVID-19 pandemic.

In addition, the demand for oil significantly deteriorated as a result of the pandemic and the corresponding preventative measures taken around the world to mitigate the spread of the virus, including various local, state, and national jurisdictional “shelter-in-place” orders.

Further, other macroeconomic events, such as geopolitical tensions between the Organization of Petroleum Exporting Countries (OPEC) and Russia, resulted in a significant drop in the price of crude oil.

These negative factors created significant volatility and uncertainty in the markets in which our United States industrial services segment operates, resulting in a significant decrease in the demand for our service offerings.

Consequently, we revised our near-term revenue and operating margin expectations for our United States industrial services segment.

As a result of such developments, we concluded that a triggering event had occurred which indicated it was more likely than not that the fair value of our United States industrial services segment was less than its carrying amount.

Accordingly, we performed a quantitative impairment test and determined that the carrying amount of our United States industrial services segment exceeded its fair value, which resulted in the recognition of a non-cash goodwill impairment charge during the quarter ended June 30, 2020 of $ 225.5 million.

We determined the fair value of our United States industrial services segment using an income approach whereby fair value was calculated utilizing discounted estimated future cash flows, assuming a risk-adjusted industry weighted average cost of capital of 12.0 %.

Such weighted average cost of capital was developed with the assistance of an independent third-party valuation specialist and reflects the overall level of inherent risk within the business and the rate of return a market participant would expect to earn.

Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated for recent events, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends, an estimate of long-term growth rates, and assumptions about the future demand for our services.

The perpetual growth rate utilized in the terminal value calculation was 2.0 %.

EMCOR Group, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts (in thousands):

NOTE 7 Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets - (Continued)

Due to the inherent uncertainties involved in making estimates, our assumptions may change in future periods.

Estimates and assumptions made for purposes of our goodwill impairment testing may prove to be inaccurate predictions of the future, and other factors used in assessing fair value, such as the weighted average cost of capital, are outside the control of management.

Unfavorable changes in certain of these key assumptions may affect future testing results.

For example, keeping all other assumptions constant, a 50 basis point increase in the weighted average cost of capital would cause the estimated fair value of our United States industrial services segment to decrease by approximately $ 22.9 million.

In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair value of our United States industrial services segment to decrease by approximately $ 9.0 million.

Upon completion of our interim goodwill impairment assessment and the recognition of the aforementioned impairment charge, the carrying value of our United States industrial services segment equals its fair value whereas our other reporting units still maintain headroom that is substantially in excess of their carrying values.

Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future goodwill impairment charges.

It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such a charge would be material to our results of operations.

The changes in the carrying amount of goodwill by reportable segments were as follows during the six months ended June 30, 2020 (in thousands):

United States

and facilities

services segment United States

and facilities

services segment United States

industrial services segment Total

Balance at December 31, 2019 $ 142,545 $ 299,220 $ 289,158 $ 332,988 $ 1,063,911

Acquisitions and purchase price adjustments — 419 942 — 1,361

Impairments — — — ( 225,500 ) ( 225,500 )

Balance at June 30, 2020 $ 142,545 $ 299,639 $ 290,100 $ 107,488 $ 839,772

Identifiable Intangible Assets and Other Long-Lived Assets

Our identifiable intangible assets, arising out of the acquisition of businesses, include contract backlog, developed technology/vendor network, customer relationships, and certain subsidiary trade names, all of which are subject to amortization.

In addition, our identifiable intangible assets include certain other subsidiary trade names, which are not subject to amortization.

Absent earlier indicators of impairment, we test for impairment of subsidiary trade names that are not subject to amortization on an annual basis (October 1).

In performing this test, we calculate the fair value of each trade name using the “relief from royalty payments” methodology.

This approach involves two steps:

(a) estimating reasonable royalty rates for each trade name and (b) applying these royalty rates to a net revenue stream and discounting the resulting cash flows to determine fair value.

This fair value is then compared with the carrying value of each trade name.

If the carrying amount of the trade name is greater than the implied fair value of the trade name, an impairment in the amount of the excess is recognized and charged to operations.

In addition, we review for impairment of identifiable intangible assets that are being amortized as well as other long-lived assets whenever facts and circumstances indicate that their carrying values may not be fully recoverable.

This test compares their carrying values to the undiscounted pre-tax cash flows expected to result from the use of the assets.

If the assets are impaired, the assets are written down to their fair values, generally determined based on their discounted estimated future cash flows.

In connection with the negative market conditions disclosed above, we also evaluated certain of our identifiable intangible assets and other long-lived assets for impairment.

Such assets included those associated with the businesses in our United States industrial services segment and certain businesses within our United States electrical construction and facilities services segment whose results are also highly dependent on the strength of the oil and gas industry.

As a result of these assessments, during the quarter ended June 30, 2020, we recorded non-cash impairment charges of $ 7.3 million.

Of this amount, $ 4.8 million related to our United States industrial services segment and was comprised of:

(a) a $ 4.2 million subsidiary trade name impairment and (b) a $ 0.6 million impairment on certain other long-lived assets.

The remaining $ 2.5 million represented a subsidiary trade name impairment within our United States electrical construction and facilities services segment.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets - (Continued)

Identifiable intangible assets consist of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020

Amount Accumulated

Amortization Accumulated

Contract backlog $ 66,945 $ ( 65,145 ) $ — $ 1,800

Developed technology/Vendor network 95,661 ( 62,575 ) — 33,086

Customer relationships 645,555 ( 300,590 ) ( 4,834 ) 340,131

Trade names (amortized) 31,348 ( 22,332 ) — 9,016

Trade names (unamortized) 251,440 — ( 58,933 ) 192,507

Total $ 1,090,949 $ ( 450,642 ) $ ( 63,767 ) 576,540

December 31, 2019

Amount Accumulated

Amortization Accumulated

Contract backlog $ 66,745 $ ( 61,651 ) $ — $ 5,094

Developed technology/Vendor network 95,661 ( 60,156 ) — 35,505

Customer relationships 644,755 ( 277,601 ) ( 4,834 ) 362,320

Trade names (amortized) 31,148 ( 21,830 ) — 9,318

Trade names (unamortized) 251,440 — ( 52,233 ) 199,207

Total $ 1,089,749 $ ( 421,238 ) $ ( 57,067 ) $ 611,444

Identifiable intangible assets are amortized on a straight-line basis, as it best approximates the pattern in which the economic benefits of those assets are consumed.

Amortization expense related to identifiable intangible assets with finite lives was $ 14.7 million and $ 11.6 million for the three months ended June 30, 2020 and 2019, respectively, and $ 29.4 million and $ 23.2 million for the six months ended June 30, 2020 and 2019, respectively.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of June 30, 2020 and December 31, 2019 (in thousands):

2020 December 31,

Revolving credit facility $ — $ 50,000

Term loan 300,000 254,431

Unamortized debt issuance costs ( 4,480 ) ( 1,879 )

Finance lease obligations 8,840 9,679

Total debt 304,360 312,231

current maturities 10,234 18,092

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The 2020 Credit Agreement contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on payment of dividends, common stock repurchases, investments, acquisitions, indebtedness, and capital expenditures.

We were in compliance with all such covenants as of March 31, 2020 with respect to the 2020 Credit Agreement and, as of December 31, 2019 , with respect to the 2016 Credit Agreement.

We were in compliance with all such covenants as of June 30, 2020 with respect to the 2020 Credit Agreement and, as of December 31, 2019, with respect to the 2016 Credit Agreement.

A commitment fee is payable on the average daily unused amount of the 2020 Revolving Credit Facility, which ranges from 0.10 % to 0.25 %, based on certain financial tests.

The fee was 0.10 % of the unused amount as of March 31, 2020 .

Borrowings under the 2020 Credit Agreement bear interest at (1) a base rate plus a margin of 0.00 % to 0.75 % , based on certain financial tests, or (2) United States dollar LIBOR ( 0.87 % and 0.99 % at March 31, 2020 for our 2020 Revolving Credit Facility and our 2020 Term Loan, respectively) plus 1.00 % to 1.75 % , based on certain financial tests.

The base rate is determined by the greater of (a) the prime commercial lending rate announced by Bank of Montreal from time to time ( 3.25 % at March 31, 2020 ), (b) the federal funds effective rate, plus ½ of 1.00% , (c) the daily one month LIBOR rate, plus 1.00 % , or (d) 0.00 % .

The interest rates in effect at March 31, 2020 were 1.87 % and 1.99 % for our 2020 Revolving Credit Facility and our 2020 Term Loan, respectively.

The fee was 0.10 % of the unused amount as of June 30, 2020.

At the Company’s election, borrowings under the 2020 Credit Agreement bear interest at either:

(1) a base rate plus a margin of 0.00 % to 0.75 %, based on certain financial tests, or (2) United States dollar LIBOR ( 0.18 % at June 30, 2020) plus 1.00 % to 1.75 %, based on certain financial tests.

The base rate is determined by the greater of (a) the prime commercial lending rate announced by Bank of Montreal from time to time ( 3.25 % at June 30, 2020), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00 %, or (d) 0.00 %.

The interest rate in effect at June 30, 2020 was 1.18 %.

Fees for letters of credit issued under the 2020 Revolving Credit Facility range from 0.75 % to 1.75 % of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed based on certain financial tests.

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All unpaid principal and interest is due on March 2, 2025.

As of March 31, 2020 and December 31, 2019 , the balance of the 2020 Term Loan and the 2016 Term Loan was $ 300.0 million and $ 254.4 million , respectively.

As of March 31, 2020 and December 31, 2019 , we had approximately $ 79.0 million and $ 109.0 million of letters of credit outstanding, respectively.

There were $ 200.0 million in borrowings outstanding under the 2020 Revolving Credit Facility as of March 31, 2020, and there were $ 50.0 million in borrowings outstanding under the 2016 Revolving Credit Facility as of December 31, 2019 .

NOTE 8 Fair Value Measurements

We use a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy, which gives the highest priority to quoted prices in active markets, is comprised of the following three levels:

Level 1 – Unadjusted quoted market prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs, other than Level 1 inputs.

Level 2 inputs would typically include quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

As of June 30, 2020 and December 31, 2019, the balance of the 2020 Term Loan and the 2016 Term Loan was $ 300.0 million and $ 254.4 million, respectively.

As of June 30, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility, however, we had $ 79.0 million of letters of credit outstanding which reduce the available capacity under such facility.

As of December 31, 2019, we had $ 50.0 million in direct borrowings outstanding and $ 109.0 million of letters of credit outstanding under the 2016 Revolving Credit Facility.

EMCOR Group, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

NOTE 8 Fair Value Measurements - (Continued)

Level 3 – Prices or valuations that require inputs that are both significant to the measurement and unobservable.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):

Assets at Fair Value as of March 31, 2020

Asset Category

NOTE 9 Fair Value Measurements

For disclosure purposes, we utilize a fair value hierarchy to categorize qualifying assets and liabilities into three broad levels based on the priority of the inputs used to determine their fair values.

The hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs, is comprised of the following three levels:

Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs, other than Level 1 inputs, that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets and liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring Fair Value Measurements

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

Assets at Fair Value as of June 30, 2020

Asset Category Level 1 Level 2 Level 3 Total

Cash and cash equivalents (1)

$ 481,391 $ — $ — $ 481,391

Restricted cash (2)

Deferred compensation plan assets (3)

31,428 — — 31,428

Total $ 513,768 $ — $ — $ 513,768

Assets at Fair Value as of December 31, 2019

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Cash and cash equivalents (1)

$ 358,818 $ — $ — $ 358,818

Restricted cash (2)

1,102 — — 1,102

Deferred compensation plan assets (3)

30,295 — — 30,295

Total $ 390,215 $ — $ — $ 390,215

(1) Cash and cash equivalents consist of deposit accounts and money market funds with original maturity dates of three months or less, which are Level 1 assets.

At March 31, 2020 and December 31, 2019 , we had $ 120.0 million and $ 164.0 million , respectively, in money market funds.

At June 30, 2020 and December 31, 2019, we had $ 193.3 million and $ 164.0 million, respectively, in money market funds.

(2) Restricted cash is classified as “Prepaid expenses and other” in the Consolidated Balance Sheets.

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(3) Deferred compensation plan assets are classified as “Other assets” in the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

We have recorded goodwill and identifiable intangible assets in connection with our business acquisitions.

Such assets are measured at fair value at the time of acquisition based on valuation techniques that appropriately represent the methods which would be used by other market participants in determining fair value.

In addition, goodwill and intangible assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets.

Periodically, we engage an independent third-party valuation specialist to assist with the valuation process, including the selection of appropriate methodologies and the development of market-based assumptions.

The inputs used for these fair value measurements represent Level 3 inputs.

Fair Value of Financial Instruments

We believe that the carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities and low risk of counterparty default.

The carrying value of our debt associated with the 2020 Credit Agreement approximates its fair value due to the variable rate on such debt.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10 Income Taxes

For the three months ended March 31, 2020 and 2019 , our income tax provision was $ 28.6 million and $ 27.5 million , respectively, based on an effective income tax rate, before discrete items, of 27.6 % and 28.0 % , respectively.

The actual income tax rate for the three months ended March 31, 2020 and 2019 , inclusive of discrete items, was 27.4 % and 27.5 % , respectively.

The actual income tax rates differed from the statutory tax rate due to state and local income taxes and other permanent book to tax differences.

The increase in the 2020 income tax provision was primarily due to increased income before income taxes.

As of March 31, 2020 and December 31, 2019 , we had no unrecognized income tax benefits.

The following table presents our income tax (benefit) provision and our effective income tax rate for the three and six months ended June 30, 2020 and 2019 (in thousands, except percentages):

For the three months ended

June 30, For the six months ended

2020 2019 2020 2019

Income tax (benefit) provision ( 40,341 ) 33,156 ( 11,757 ) 60,639

Effective income tax rate ( 32.5 ) % 28.3 % ( 59.4 ) % 27.9 %

Our income tax benefit for the three and six months ended June 30, 2020 was impacted by the tax-effect of the $ 232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during the quarter, the majority of which were non-deductible for tax purposes.

The difference between the U.S.

statutory tax rate of 21 % and our effective income tax rates for the three and six months ended June 30, 2020 was primarily related to:

(a) the impact of the non-deductible impairment charges previously referenced, (b) state and local income taxes, and (c) other permanent book to tax differences.

As of June 30, 2020 and December 31, 2019, we had no unrecognized income tax benefits.

We file a consolidated federal income tax return including all of our U.S.

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We additionally file income tax returns with various state, local, and foreign tax agencies.

The Company is currently under examination by various taxing authorities for the years 2014 through 2018.

Our income tax returns are subject to audit by various taxing authorities and are currently under examination for the years 2014 through 2018.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

The CARES Act provides for various tax relief and tax incentive measures, which are not expected to have a material impact on our results of operations or liquidity.

The CARES Act provides for various tax relief and tax incentive measures, which are not expected to have a material impact on our results of operations.

Certain provisions of the CARES Act, however, will favorably impact our liquidity throughout 2020 as they allow for the deferral of the employer’s portion of current year Social Security tax payments until 2021 and 2022.

NOTE 11 Common Stock

As of March 31, 2020 and December 31, 2019 , there were 54,837,771 and 56,219,831 shares of our common stock outstanding, respectively.

During the three months ended March 31, 2020 and 2019 , we issued 101,695 and 100,947 shares of common stock, respectively.

As of June 30, 2020 and December 31, 2019, there were 54,897,926 and 56,219,831 shares of our common stock outstanding, respectively.

During the three months ended June 30, 2020 and 2019, we issued 60,155 and 44,514 shares of common stock, respectively.

During the six months ended June 30, 2020 and 2019, we issued 161,850 and 145,461 shares of common stock, respectively.

These shares were issued primarily upon:

(a) the satisfaction of required conditions under certain of our share-based

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10 Common Stock - (Continued)

compensation plans, (b) the purchase of common stock pursuant to our employee stock purchase plan, and (c) the exercise of stock options.

(a) the satisfaction of required conditions under certain of our share-based compensation plans, (b) the purchase of common stock pursuant to our employee stock purchase plan, and (c) the exercise of stock options.

We have paid quarterly dividends since October 25, 2011.

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Since the inception of the repurchase program, the Board has authorized us to repurchase up to $ 1.15 billion of our outstanding common stock.

During the first quarter of 2020, we repurchased approximately 1.5 million shares of our common stock for approximately $ 99.0 million .

Since the inception of the repurchase program through March 31, 2020 , we have repurchased approximately 17.4 million shares of our common stock for approximately $ 890.5 million .

As of March 31, 2020 , there remained authorization for us to repurchase approximately $ 259.5 million of our shares.

During the first half of 2020, we repurchased approximately 1.5 million shares of our common stock for approximately $ 99.0 million.

Since the inception of the repurchase program through June 30, 2020, we have repurchased approximately 17.4 million shares of our common stock for approximately $ 890.5 million.

As of June 30, 2020, there remained authorization for us to repurchase approximately $ 259.5 million of our shares.

The repurchase program has no expiration date, does not obligate the Company to acquire any particular amount of common stock, and may be suspended, recommenced, or discontinued at any time or from time to time without prior notice.

1 unchanged sentence

The repurchase program has been and will be funded from our operations.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 Retirement Plans

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Components of Net Periodic Pension Cost

The components of net periodic pension cost (income) of the UK Plan for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

For the three months ended March 31,

The components of net periodic pension cost (income) of the UK Plan for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

For the three months ended

June 30, For the six months ended

2020 2019 2020 2019

Interest cost $ 1,556 $ 2,004 $ 3,152 $ 4,043

2 unchanged sentences

Net periodic pension cost (income) $ ( 785 ) $ ( 470 ) $ ( 1,591 ) $ ( 947 )

The net periodic pension cost associated with the domestic plans was approximately $0.1 million for each of the three months ended March 31, 2020 and 2019 .

The net periodic pension cost associated with the domestic plans was approximately $0.1 million for each of the three and six months ended June 30, 2020 and 2019.

Employer Contributions

For the three months ended March 31, 2020 , our United Kingdom subsidiary contributed approximately $ 1.0 million to the UK Plan and anticipates contributing an additional $ 3.5 million during the remainder of 2020.

No contributions were made to the domestic plans for the three months ended March 31, 2020 .

For the six months ended June 30, 2020, our United Kingdom subsidiary contributed approximately $ 2.1 million to the UK Plan and anticipates contributing an additional $ 2.4 million during the remainder of 2020.

Contributions to the domestic plans were approximately $ 0.1 million for the six months ended June 30, 2020.

NOTE 13 Commitments and Contingencies

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This attack temporarily disrupted our use of the impacted systems.

As part of our investigation into this incident, we have engaged outside security experts.

Although our investigation is still ongoing, the procedures performed to date have not identified any

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 Commitments and Contingencies - (Continued)

exfiltration of customer or employee data or any inappropriate access to our accounting or finance systems.

As part of our investigation into this incident, we engaged outside security experts, who did not identify any exfiltration of customer or employee data or any inappropriate access to our accounting or finance systems.

The Company maintains insurance coverage for these types of incidents;

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It is possible that a litigation matter for which liabilities have not been recorded could be decided unfavorably to us, and that any such unfavorable decision could have a material adverse effect on our financial position, results of operations or liquidity.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13 Commitments and Contingencies - (Continued)

Restructuring expenses

Restructuring expenses, relating to employee severance obligations, were $ 0.1 million and $ 0.3 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020 , the balance of restructuring obligations yet to be paid was $ 1.1 million .

Such remaining amounts will be paid pursuant to our contractual obligations throughout 2020 and 2021.

Based on current plans in place, no material expenses in connection with restructuring are expected to be incurred during the remainder of 2020.

The changes in restructuring activity by reportable segment during the three months ended March 31, 2020 and 2019 were as follows (in thousands):

The table below summarizes restructuring activity by reportable segment during the six months ended June 30, 2020 and 2019 (in thousands):

United States

and facilities

services segment

United States building services segment

Corporate administration

services segment United States building services segment Corporate administration Total

Balance at December 31, 2018 $ 30 $ 176 $ 1,424 $ 1,630

Balance at March 31, 2019

Charges — 448 — 448

Payments ( 30 ) ( 584 ) ( 723 ) ( 1,337 )

Balance at June 30, 2019 $ — $ 40 $ 701 $ 741

Balance at December 31, 2019 $ 445 $ 412 $ 701 $ 1,558

Balance at March 31, 2020

Charges — 69 — 69

Payments ( 139 ) ( 481 ) ( 355 ) ( 975 )

Balance at June 30, 2020 $ 306 $ — $ 346 $ 652

As of June 30, 2020, the balance of restructuring obligations yet to be paid was approximately $ 0.7 million.

Such remaining amounts will be paid pursuant to our contractual obligations throughout 2020 and 2021.

Based on current plans in place, no material expenses in connection with restructuring are expected to be incurred during the remainder of 2020.

NOTE 14 Additional Cash Flow Information

The following presents additional cash flow information for the three months ended March 31, 2020 and 2019 (in thousands):

For the three months ended

The following table presents additional cash flow information for the six months ended June 30, 2020 and 2019 (in thousands):

For the six months ended

Cash paid for:

Interest $ 4,885 $ 6,432

Income taxes $ 10,953 $ 65,799

Right-of-use assets obtained in exchange for new operating lease liabilities $ 25,267 $ 43,431

Right-of-use assets obtained in exchange for new finance lease liabilities $ 1,496 $ 5,753

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 15 Segment Information

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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.

and small modification and retrofit projects, which

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 15 Segment Information - (Continued)

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 for refineries, petrochemical plants, and other customers within the oil and gas industry.

4 unchanged sentences

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;

and other support services for customers within the upstream and midstream sectors.

The following tables present information about industry segments and geographic areas for the three months ended March 31, 2020 and 2019 (in thousands):

For the three months ended March 31,

and design, manufacturing, repair, and hydro blast cleaning of shell and tube heat exchangers and related equipment.

The following tables present financial information for each of our reportable segments for the three and six months ended June 30, 2020 and 2019 (in thousands):

For the three months ended

Revenues from unrelated entities:

19 unchanged sentences

NOTE 15 Segment Information - (Continued)

For the three months ended March 31,

For the six months ended

Revenues from unrelated entities:

United States electrical construction and facilities services $ 971,110 $ 1,097,472

United States mechanical construction and facilities services 1,624,553 1,575,495

United States building services 990,499 1,035,777

United States industrial services 522,197 554,105

Total United States operations 4,108,359 4,262,849

United Kingdom building services 205,494 220,081

Total worldwide operations $ 4,313,853 $ 4,482,930

Total revenues:

United States electrical construction and facilities services $ 973,157 $ 1,099,059

United States mechanical construction and facilities services 1,631,844 1,587,716

United States building services 1,025,927 1,072,507

United States industrial services 530,098 562,252

Less intersegment revenues ( 52,667 ) ( 58,685 )

Total United States operations 4,108,359 4,262,849

United Kingdom building services 205,494 220,081

Total worldwide operations $ 4,313,853 $ 4,482,930

For the three months ended

Operating income (loss):

7 unchanged sentences

Restructuring expenses — ( 173 )

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets ( 232,750 ) —

Total worldwide operations ( 122,638 ) 119,959

2 unchanged sentences

Interest expense, net ( 2,110 ) ( 3,231 )

Income before income taxes

(Loss) income before income taxes $ ( 124,030 ) $ 117,128

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 15 Segment Information - (Continued)

For the six months ended

Operating income (loss):

United States electrical construction and facilities services $ 76,087 $ 86,750

United States mechanical construction and facilities services 112,108 94,939

United States building services 47,216 55,484

United States industrial services 15,218 25,648

Total United States operations 250,629 262,821

United Kingdom building services 11,115 9,617

Corporate administration ( 45,568 ) ( 49,721 )

Restructuring expenses ( 69 ) ( 448 )

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets ( 232,750 ) —

Total worldwide operations ( 16,643 ) 222,269

Other corporate items:

Net periodic pension (cost) income 1,460 806

Interest expense, net ( 4,598 ) ( 6,054 )

(Loss) income before income taxes $ ( 19,781 ) $ 217,021

2020 December 31,

Total assets:

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements