What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-27 · 616 added, 522 removed, 1067 unchanged (52% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

2020 December 31,

Current assets:

Cash and cash equivalents $ 902,867 $ 358,818

Accounts receivable, less allowance for doubtful accounts of $14,466 and $15,361, respectively

Accounts receivable, less allowance for credit losses of $18,031 and $14,466, respectively 1,922,096 2,030,813

Contract assets 171,956 177,830

Inventories 53,338 40,446

Prepaid expenses and other 70,679 51,976

2 unchanged sentences

Operating lease right-of-use assets 242,155 245,471

Goodwill 851,783 1,063,911

Identifiable intangible assets, net 582,893 611,444

Other assets 107,646 93,462

Total assets $ 5,063,840 $ 4,830,358

LIABILITIES AND EQUITY

19 unchanged sentences

Retained earnings 2,480,321 2,367,481

Treasury stock, at cost 4,139,421 shares

Treasury stock, at cost 5,815,240 and 4,139,421 shares, respectively ( 366,490 ) ( 253,937 )

Total EMCOR Group, Inc.

1 unchanged sentence

Noncontrolling interests 576 646

Total equity 2,053,244 2,057,780

Total liabilities and equity $ 5,063,840 $ 4,830,358

5 unchanged sentences

(In thousands, except per share data)

2020 2019 2018

Revenues $ 8,797,061 $ 9,174,611 $ 8,130,631

Cost of sales 7,401,679 7,818,743 6,925,178

Gross profit 1,395,382 1,355,868 1,205,453

Selling, general and administrative expenses 903,584 893,453 799,157

Restructuring expenses 2,214 1,523 2,306

Impairment loss on goodwill and identifiable intangible assets

Impairment loss on goodwill, identifiable intangible assets, and

other long-lived assets 232,750 — 907

Operating income 256,834 460,892 403,083

7 unchanged sentences

Net income including noncontrolling interests 132,943 325,140 283,577

Net (income) loss attributable to noncontrolling interests

Net income attributable to noncontrolling interests — — ( 46 )

Net income attributable to EMCOR Group, Inc.

$ 132,943 $ 325,140 $ 283,531

Basic earnings (loss) per common share:

17 unchanged sentences

(In thousands)

2020 2019 2018

Net income including noncontrolling interests $ 132,943 $ 325,140 $ 283,577

2 unchanged sentences

Changes in post retirement plans (1)

( 22,033 ) ( 3,315 ) 7,860

Other comprehensive (loss) income ( 19,945 ) ( 1,626 ) 6,538

Comprehensive income 112,998 323,514 290,115

Comprehensive (income) loss attributable to noncontrolling interests

Comprehensive income attributable to noncontrolling interests — — ( 46 )

Comprehensive income attributable to EMCOR Group, Inc.

$ 112,998 $ 323,514 $ 290,069

_________________

(1) Net of tax benefit (provision) of $ 5.1 million, $ 0.7 million, and $( 2.1 ) million for the years ended December 31, 2020, 2019, and 2018, respectively.

5 unchanged sentences

(In thousands)

2020 2019 2018

Cash flows - operating activities:

3 unchanged sentences

Amortization of identifiable intangible assets 59,950 48,142 42,443

Provision for doubtful accounts

Provision for credit losses 3,269 2,628 2,123

Deferred income taxes ( 36,354 ) 1,701 4,249

1 unchanged sentence

Excess tax benefits from share-based compensation ( 191 ) ( 984 ) ( 1,646 )

Equity loss (income) from unconsolidated entities

Equity (income) loss from unconsolidated entities ( 14 ) 2,990 ( 347 )

Non-cash expense for amortization of debt issuance costs 998 1,186 1,186

Non-cash expense from contingent consideration arrangements 649 1,373 186

Non-cash expense for impairment of goodwill and identifiable intangible assets

Non-cash expense for impairment of goodwill, identifiable intangible assets, and other long- lived assets 232,750 — 907

Non-cash share-based compensation expense 11,151 11,386 11,030

2 unchanged sentences

Changes in operating assets and liabilities, excluding the effect of businesses acquired:

Increase in accounts receivable

Decrease (increase) in inventories

(Increase) decrease in contract assets

Decrease (increase) in accounts receivable 139,377 ( 135,954 ) ( 146,101 )

(Increase) decrease in inventories ( 12,709 ) 4,345 ( 3,915 )

Decrease (increase) in contract assets 7,829 ( 10,111 ) ( 30,935 )

(Decrease) increase in accounts payable ( 9,022 ) ( 33,971 ) 78,554

6 unchanged sentences

Proceeds from sale or disposal of property, plant and equipment 3,463 5,487 1,237

Purchase of property, plant and equipment

Purchases of property, plant and equipment ( 47,969 ) ( 48,432 ) ( 43,479 )

Investments in and advances to unconsolidated entities — ( 2,252 ) ( 3,484 )

4 unchanged sentences

Repayments of revolving credit facility ( 250,000 ) ( 25,000 ) —

Repayments of long-term debt

Proceeds from long-term debt 300,000 — —

Repayments of long-term debt and debt issuance costs ( 286,987 ) ( 15,198 ) ( 15,235 )

Repayments of finance lease liabilities ( 4,470 ) ( 4,571 ) ( 1,501 )

Dividends paid to stockholders ( 17,674 ) ( 17,950 ) ( 18,640 )

Repurchase of common stock

Repurchases of common stock ( 112,553 ) — ( 216,244 )

Taxes paid related to net share settlements of equity awards ( 2,640 ) ( 6,451 ) ( 3,848 )

Issuance of common stock under employee stock purchase plan

Issuances of common stock under employee stock purchase plan 6,557 6,090 5,765

Payments for contingent consideration arrangements ( 4,070 ) ( 5,917 ) ( 3,339 )

2 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 4,046 2,592 ( 3,421 )

(Decrease) increase in cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents, and restricted cash 543,642 ( 6,294 ) ( 103,174 )

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

359,920 366,214 469,388

Cash, cash equivalents, and restricted cash at end of period (1)

$ 903,562 $ 359,920 $ 366,214

Includes $ 1.1 million , $ 2.3 million , $ 2.0 million and $ 2.0 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheet as of December 31, 2019, 2018, 2017 and 2016, respectively.

_________________

(1) Includes $ 0.7 million, $ 1.1 million, $ 2.3 million, and $ 2.0 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2020, 2019, 2018, and 2017, respectively.

The accompanying notes to consolidated financial statements are an integral part of these statements.

5 unchanged sentences

EMCOR Group, Inc.

Accumulated other comprehensive (loss) income (1)

Noncontrolling

stock Capital

surplus Accumulated other comprehensive loss (1)

earnings Treasury

stock Noncontrolling

Balance, December 31, 2017 $ 1,674,117 $ 599 $ 8,005 $ ( 94,200 ) $ 1,796,556 $ ( 37,693 ) $ 850

1 unchanged sentence

Other comprehensive income 6,538 — — 6,538 — — —

Cumulative-effect adjustment (2)

( 854 ) — — — ( 854 ) — —

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

2 unchanged sentences

Common stock dividends ( 18,640 ) — 153 — ( 18,793 ) — —

Repurchase of common stock (2)

Repurchases of common stock ( 216,244 ) — — — — ( 216,244 ) —

Share-based compensation expense 11,030 — 11,030 — — — —

1 unchanged sentence

Net income including noncontrolling interests 325,140 — — — 325,140 — —

Other comprehensive income

Cumulative-effect adjustment (3)

Other comprehensive loss ( 1,626 ) — — ( 1,626 ) — — —

Common stock issued under share-based compensation plans — 3 ( 3 ) — — — —

2 unchanged sentences

Common stock dividends ( 17,950 ) — 149 — ( 18,099 ) — —

Repurchase of common stock (2)

Distributions to noncontrolling interests ( 250 ) — — — — — ( 250 )

Share-based compensation expense 11,386 — 11,386 — — — —

2 unchanged sentences

Other comprehensive loss ( 19,945 ) — — ( 19,945 ) — — —

Cumulative-effect adjustment (3)

( 2,307 ) — — — ( 2,307 ) — —

Common stock issued under share-based compensation plans 2 2 — — — — —

2 unchanged sentences

Common stock dividends ( 17,674 ) — 122 — ( 17,796 ) — —

Repurchases of common stock ( 112,553 ) — — — — ( 112,553 ) —

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

3 unchanged sentences

(1) Represents cumulative foreign currency translation and post retirement liability adjustments of $ 2.9 million and $( 112.1 ) million, respectively, as of December 31, 2020, $ 0.8 million and $( 90.1 ) million, respectively, as of December 31, 2019, and $( 0.9 ) million and $( 86.8 ) million, respectively, as of December 31, 2018.

Beginning June 1, 2017, shares of common stock repurchased are held as treasury stock by the Company.

(2) Represents adjustment to retained earnings upon the adoption of Accounting Standards Codification Topic 606.

(3) Represents adjustment to retained earnings upon the adoption of Accounting Standards Codification Topic 326.

The accompanying notes to consolidated financial statements are an integral part of these statements.

18 unchanged sentences

Actual results could materially differ from those estimates.

Our reportable segments reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services and our United States industrial services segments due to changes in our internal reporting structure.

During the third quarter of 2014, we ceased construction operations in the United Kingdom.

1 unchanged sentence

Revenue Recognition

The Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) on January 1, 2018.

In accordance with ASC 606, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Refer to Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements for additional information.

For the periods presented prior to the adoption of ASC 606, revenues from long-term construction contracts were recognized in accordance with ASC Topic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” Revenues from the performance of services for maintenance, repair and retrofit work were recognized consistent with the performance of the services, generally on a pro-rata basis over the life of the contractual arrangement.

Revenues related to the engineering, manufacturing and repairing of shell and tube heat exchangers were recognized when the product was shipped and all other revenue recognition criteria were met.

Cash and Cash Equivalents

2 unchanged sentences

We have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recognized in the period we deliver goods or provide services to our customers or when our right to consideration is unconditional.

The Company maintains an allowance for credit losses.

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

Estimates of such 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.

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.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest.

The Company maintains an allowance for doubtful accounts.

This allowance is based upon the best estimate of the probable losses in existing accounts receivable.

The Company determines the allowances based upon individual accounts when information indicates the customers may have an inability to meet their financial obligations, as well as historical collection and write-off experience.

These amounts are re-evaluated and adjusted on a regular basis as additional information is received.

Actual write-offs are charged against the allowance when collection efforts have been unsuccessful.

At December 31, 2019 and 2018 , our accounts receivable of $ 2,030.8 million and $ 1,773.6 million , respectively, were recorded net of allowances for doubtful accounts of $ 14.5 million and $ 15.4 million , respectively.

The provision for doubtful accounts during 2019 , 2018 , and 2017 amounted to approximately $ 2.6 million , $ 2.1 million , and $ 7.3 million , respectively.

At December 31, 2020 and 2019, our accounts receivable of $ 1,922.1 million and $ 2,030.8 million, respectively, were recorded net of allowances for credit losses of $ 18.0 million and $ 14.5 million, respectively.

Due to the economic disruption caused by the COVID-19 pandemic, 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 compare unfavorably to our forecasts, we could experience an increase in our credit losses.

The provision for credit losses during 2020, 2019, and 2018 amounted to approximately $ 3.3 million, $ 2.6 million, and $ 2.1 million, respectively.

The change in the allowance for credit losses for the year ended December 31, 2020 was as follows (in thousands):

Balance at December 31, 2019 $ 14,466

Cumulative-effect adjustment 3,150

Provision for credit losses 3,269

Amounts written off against the allowance, net of recoveries ( 2,854 )

Balance at December 31, 2020 $ 18,031

Inventories are stated at the lower of cost or net realizable value.

Cost is determined principally using the average cost method.

At the inception of a contract, we determine whether the arrangement is or contains a lease.

Leases are classified as either operating or finance, based on our evaluation of certain criteria.

With the exception of short-term leases (leases with an initial term of 12 months or less), we record right-of-use assets and corresponding lease liabilities on the balance sheet for all leases with contractual fixed payments.

Lease liabilities are measured at the present value of remaining lease payments, while right-of-use assets are initially set equal to the lease liability, as adjusted for any payments made prior to lease commencement, lease incentives, and any initial direct costs incurred by us.

For operating leases, rent expense is recognized on a straight-line basis over the term of the lease, and right-of-use assets are subsequently re-measured to reflect the effect of uneven lease payments.

For finance leases, right-of-use assets are amortized on a straight-line basis over the lease term.

Expenses for finance leases include the amortization of right-of-use assets, which is recorded as depreciation and amortization expense, and interest expense, which reflects interest accrued on the lease liability.

Refer to Note 17 - Leases of the notes to consolidated financial statements for additional information.

Property, Plant and Equipment

1 unchanged sentence

Depreciation, including amortization of assets under finance leases, is recorded principally using the straight-line method over estimated useful lives of 3 to 10 years for machinery and equipment, 3 to 7 years for vehicles, furniture and fixtures and computer hardware/software, and 25 years for buildings.

Leasehold improvements are amortized over the shorter of the remaining life of the lease term or the expected useful life of the improvement.

Leasehold improvements are amortized over the shorter of the remaining lease term or the expected useful life of the improvement.

The carrying values of property, plant and equipment are reviewed for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable.

1 unchanged sentence

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

Based on the results of our testing for the years ended December 31, 2019 , 2018 , and 2017 , no impairment of property, plant and equipment was recognized.

Goodwill and Identifiable Intangible Assets

Goodwill and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at least annually for impairment (which we test each October 1, absent any earlier identified impairment indicators) and are written down if impaired.

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

Goodwill and other identifiable intangible assets with indefinite lives, such as trade names, are tested at least annually for impairment (which we test each October 1, absent any earlier identified impairment indicators) and are written down if impaired.

Identifiable intangible assets with finite lives are amortized over their useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable.

See Note 9 - Goodwill and Identifiable Intangible Assets of the notes to consolidated financial statements for additional information.

See Note 9 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements for additional information.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Insurance Liabilities

Insurance liabilities for automobile liability, workers’ compensation and general liability claims are determined actuarially based on claims filed and an estimate of claims incurred but not yet reported.

Insurance liabilities for automobile liability, workers’ compensation and general liability claims are determined based on claims filed and an estimate of claims incurred but not yet reported.

The liabilities are derived from known facts, historical trends, and industry averages, utilizing the assistance of an independent third-party actuary to determine the best estimate for such obligations.

At December 31, 2020 and 2019, the estimated current portion of such undiscounted insurance liabilities of $ 48.2 million and $ 48.3 million, respectively, were included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets.

3 unchanged sentences

The financial statements and transactions of our foreign subsidiaries are maintained in their functional currency and translated into U.S.

dollars in accordance with Accounting Standards Codification Topic 830, “Foreign Currency Matters.” Translation adjustments have been recorded as “Accumulated other comprehensive loss,” a separate component of “Equity.”

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

We account for income taxes in accordance with the provisions of Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”).

ASC 740 requires an asset and liability approach which requires the recognition of deferred income tax assets and deferred income tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Valuation allowances are established when necessary to reduce deferred income tax assets when it is more likely than not that a tax benefit will not be realized.

We account for uncertain tax positions in accordance with the provisions of ASC 740.

We recognize accruals of interest related to unrecognized tax benefits as a component of the income tax provision.

dollars when preparing our consolidated financial statements.

Statements of operations, comprehensive income, and cash flows are translated using weighted average monthly exchange rates, while balance sheets are translated at month-end exchange rates.

Translation adjustments are recorded as “Accumulated other comprehensive loss,” a separate component of “Equity.”

The Company follows the liability method of accounting for income taxes.

Under this method, deferred income tax assets and liabilities are recognized for the expected future taxable consequences of temporary differences between the financial statement and income tax bases of assets and liabilities as well as for net operating loss and tax credit carryforwards.

Deferred income taxes are valued using enacted tax rates expected to be in effect when income taxes are paid or recovered, with the effect of a change in tax laws or rates recognized in the statement of operations in the period in which such change is enacted.

The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

Deferred income taxes are recorded net of a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

In making such determination, we consider all available evidence, including projections of future taxable income, tax-planning strategies, and recent results of operations.

Tax benefits associated with uncertain tax positions are recognized only if it is more likely than not that the tax position would be sustained on its technical merits.

For positions not meeting the “more likely than not” test, no tax benefit is recognized.

To the extent interest and penalties may be assessed related to unrecognized tax benefits, we record accruals for such amounts as a component of the income tax provision.

We had no unrecognized income tax benefits as of December 31, 2020 and 2019.

Valuation of Share-Based Compensation Plans

1 unchanged sentence

See Note 14 - Share-Based Compensation Plans of the notes to consolidated financial statements for additional information regarding the share-based compensation plans and programs.

We account for share-based payments in accordance with the provisions of Accounting Standards Codification Topic 718, “Compensation-Stock Compensation” (“ASC 718”).

ASC 718 requires that all share-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the statement of operations based on their fair values.

We recognize all share-based payments issued to acquire goods or services in the statement of operations based on the fair value of such payments.

Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period.

For shares subject to graded vesting, our policy is to apply the straight-line method in recognizing compensation expense.

ASC 718 requires the benefits of tax deductions in excess of recognized compensation expense to be recognized in the Consolidated Statements of Operations when the underlying awards vest or are settled.

New Accounting Pronouncements

On January 1, 2019, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) to replace existing lease accounting guidance.

This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases.

Expenses associated with leases continue to be recognized in a manner similar to previous accounting guidance.

We adopted this pronouncement utilizing the transition practical expedient added by the FASB, which eliminated the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption.

The adoption of this accounting pronouncement resulted in the recognition of operating lease right-of-use assets and associated lease liabilities on our balance sheet of $ 220.2 million and $ 227.1 million , respectively, as of January 1, 2019.

Additional required disclosures have been included within Note 17 - Leases of the notes to consolidated financial statements.

Such adoption did not have an impact on our liquidity, results of operations or our compliance with the various covenants contained within our 2016 Credit Agreement as described in further detail within Note 10 - Debt of the notes to consolidated financial statements.

On January 1, 2019, we adopted the accounting pronouncement issued by the FASB related to the reporting of certain items in accumulated other comprehensive income (loss) (“AOCI”).

This guidance provides entities the option to reclassify to retained earnings certain tax effects stranded in AOCI as a result of tax reform.

As part of our adoption of this accounting pronouncement, we elected not to reclassify the stranded tax effects related to the retirement plans of our United States subsidiaries as such amounts are immaterial.

Tax effects remaining in AOCI will be released upon liquidation of each individual retirement plan.

In June 2016, an accounting pronouncement was issued by the FASB which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable.

This pronouncement is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

In preparation for adoption, we have substantially completed a process to identify and group financial assets with similar characteristics into collective pools.

We have additionally begun implementing processes and internal controls to identify information, including macroeconomic forecasts and key credit indicators, relevant to estimating expected credit losses.

As a result of the procedures performed to date, we do not anticipate that the adoption of this pronouncement will have a material impact on our financial position and/or results of operations.

The benefits of tax deductions in excess of recognized compensation expense are recognized in the Consolidated Statements of Operations when the underlying awards vest or are settled.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

In December 2019, an accounting pronouncement was issued by the FASB which 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.

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 contractual life 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 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.

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

The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

1 unchanged sentence

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.

The Company intends to adopt this accounting pronouncement on January 1, 2021, and does not anticipate that such adoption will have a material impact on our financial position and/or results of operations.

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS

2 unchanged sentences

A contract with a customer exists when:

(a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectibility of consideration is probable.

Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist.

In these situations, the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized.

In determining if the collectibility of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

(2) Identify the performance obligations in the contract

6 unchanged sentences

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.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

Our contracts are often modified through change orders to account for changes in the scope and price of the goods or services we are providing.

5 unchanged sentences

Such methods include:

(a) the expected value method, whereby the

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

amount of variable consideration to be recognized represents the sum of probability weighted amounts in a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range of possible consideration amounts.

(a) the expected value method, whereby the amount of variable consideration to be recognized represents the sum of probability weighted amounts in a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range of possible consideration amounts.

When applying these methods, the Company considers all information that is reasonably available, including historical, current, and estimates of future performance.

13 unchanged sentences

In the event litigation costs are incurred by us in connection with claims, such litigation costs are expensed as incurred, although we may seek to recover these costs.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

For some transactions, the receipt of consideration does not match the timing of the transfer of goods or services to the customer.

6 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.

During the year ended December 31, 2020, we recognized revenue of $ 6.1 million associated with the final settlement of contract value for two projects within our United States electrical construction and facilities services segment that were completed or substantially completed in prior periods.

There were no significant amounts of revenue recognized during the year ended December 31, 2019 related to performance obligations satisfied in prior periods.

For the year ended December 31, 2018 , we recognized revenue of $ 7.3 million associated with the final settlement of contract value for three projects which were completed in prior periods.

For the years ended December 31, 2019 and 2018 , there were no significant reversals of revenue recognized associated with the revision of transaction prices.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

During the year ended December 31, 2018, we recognized revenue of $ 7.3 million associated with the final settlement of contract value for three projects within our United States mechanical construction and facilities services segment that were completed in prior periods.

For each of the years ended December 31, 2020, 2019, and 2018, 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

11 unchanged sentences

The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced.

12 unchanged sentences

For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

When the current estimate

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

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.

During 2019, there were no changes in total estimated costs that had a significant impact on our operating results.

During 2018, we recognized losses of $ 10.0 million related to a change in total estimated costs on a transportation project within our United States electrical construction and facilities services segment, resulting in part from contract scope issues.

There were no other changes in total estimated costs that resulted in a significant impact to our operating results for the year ended December 31, 2018.

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.

During each of the years ended December 31, 2020 and 2019, there were no changes in total estimated costs that had a significant impact on our operating results.

For the year ended December 31, 2018, we recognized losses of $ 10.0 million related to a change in total estimated costs on a transportation project within our United States electrical construction and facilities services segment, resulting in part from contract scope issues.

Disaggregation of Revenues

2 unchanged sentences

Refer to Note 19 - Segment Information of the notes to the 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.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

The following tables provide further disaggregation of our revenues by categories we use to evaluate our financial performance within each of our reportable segments (in thousands):

Total 2019 % of

Total 2018 % of

United States electrical construction and facilities services:

7 unchanged sentences

Short duration projects (1)

121,061 6 % 158,619 7 % 120,109 6 %

Service work 52,687 3 % 54,955 2 % 34,105 2 %

1,978,546 2,219,974 1,957,819

Less intersegment revenues ( 5,119 ) ( 3,374 ) ( 3,496 )

Total segment revenues $ 1,973,427 $ 2,216,600 $ 1,954,323

Total 2019 % of

Total 2018 % of

United States mechanical construction and facilities services:

7 unchanged sentences

Short duration projects (1)

343,799 10 % 365,721 11 % 318,413 11 %

Service work 378,054 11 % 378,839 11 % 385,671 13 %

3,492,013 3,351,918 2,975,751

Less intersegment revenues ( 6,518 ) ( 11,581 ) ( 12,908 )

1 unchanged sentence

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

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

Total 2019 % of

Total 2018 % of

United States building services:

1 unchanged sentence

Government site-based services 167,990 8 % 176,282 8 % 213,677 11 %

Mechanical services

Mobile mechanical services 1,258,916 60 % 1,238,420 59 % 1,032,082 55 %

Energy services 95,878 4 % 120,825 6 % 110,085 6 %

Total segment revenues $ 2,110,129 $ 2,106,872 $ 1,875,485

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

Total 2019 % of

Total 2018 % of

United States industrial services:

3 unchanged sentences

Total United States operations $ 8,366,498 $ 8,751,352 $ 7,715,760

Total 2019 % of

Total 2018 % of

United Kingdom building services:

Projects & extras

Service work $ 221,373 51 % $ 212,876 50 % $ 216,880 52 %

Project work 209,190 49 % 210,383 50 % 197,991 48 %

Total segment revenues $ 430,563 $ 423,259 $ 414,871

Total worldwide operations

Total operations $ 8,797,061 $ 9,174,611 $ 8,130,631

Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional.

Accounts receivable are recognized net of an allowance for doubtful accounts.

Accounts receivable are recognized net of an allowance for credit losses.

A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

6 unchanged sentences

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

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

As of December 31, 2020 and 2019, contract assets included unbilled revenues for unapproved change orders of approximately $ 15.3 million and $ 33.1 million, respectively.

6 unchanged sentences

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

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

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

7 unchanged sentences

Estimated earnings, thereon 1,640,250 1,349,338

12,367,608 11,234,530

billings to date 12,864,404 11,641,082

The $ 51.8 million increase in net contract liabilities for the year ended December 31, 2019 was primarily attributable to the $ 47.4 million increase in the net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the timing of billings to our customers as amounts invoiced exceeded the revenue recognized on certain large projects in the earlier stages of completion.

Contract assets and contract liabilities increased by approximately $ 8.2 million and $ 29.0 million , respectively, as a result of acquisitions made in 2019 .

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

$ ( 496,796 ) $ ( 406,552 )

The $ 104.6 million increase in net contract liabilities for the year ended December 31, 2020 was primarily attributable to the $ 90.2 million increase in the net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the timing of billings to our customers as amounts invoiced exceeded the revenue recognized on certain large projects.

Contract assets and contract liabilities increased by approximately $ 0.2 million and $ 9.4 million, respectively, as a result of acquisitions made by us in 2020.

There was no significant impairment of contract assets recognized during the periods presented.

Contract Retentions

11 unchanged sentences

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):

2020 % of Total

Remaining performance obligations:

5 unchanged sentences

United Kingdom building services 130,673 3 %

Total worldwide operations

Total operations $ 4,594,620 100 %

Our remaining performance obligations at December 31, 2020 were $ 4.59 billion.

3 unchanged sentences

Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts.

Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts due to the inherent substantial economic penalty that would be incurred by our customers upon cancellation.

Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts as the risk of cancellation is very low due to the inherent substantial economic penalty that our customers would incur upon cancellation or termination.

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

4 unchanged sentences

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

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS - (Continued)

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

one year Greater than one year

Remaining performance obligations:

5 unchanged sentences

United Kingdom building services 97,493 33,180

Total worldwide operations

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total operations $ 3,817,401 $ 777,219

NOTE 4 - ACQUISITIONS OF BUSINESSES

Acquisitions are accounted for utilizing the acquisition method of accounting and the prices paid for them are allocated to their respective assets and liabilities based upon the estimated fair value of such assets and liabilities at the dates of their respective acquisition by us.

During 2020, we acquired three companies for total consideration of $ 50.2 million.

Such companies include:

(a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C.

metro area, and (c) a company that provides mobile mechanical services in the Southern region of the United States.

The results of operations for all three companies have been included within our United States building services segment.

In connection with these acquisitions, we acquired working capital of $ 3.0 million and other net liabilities of $ 3.9 million and have preliminarily ascribed $ 13.0 million to goodwill and $ 38.1 million to identifiable intangible assets.

On November 1, 2019, we completed the acquisition of Batchelor & Kimball, Inc.

(“BKI”), a leading full service provider of mechanical construction and maintenance services.

This acquisition strengthens our position and broadens our capabilities in the Southern and Southeastern regions of the United States, and its results of operations have been included within our United States mechanical construction and facilities services segment.

This acquisition strengthens our position and broadens our capabilities in the Southern and Southeastern regions of the United States, and the results of its operations have been included within our United States mechanical construction and facilities services segment.

Under the terms of the transaction, we acquired 100 % of BKI’s outstanding capital stock for total consideration of approximately $ 220.3 million.

In connection with the acquisition of BKI, we acquired working capital of $ 29.8 million and other net assets of $ 4.9 million and have preliminarily ascribed $ 43.6 million to goodwill and $ 141.7 million to identifiable intangible assets.

In connection with the acquisition of BKI, we acquired working capital of $ 29.8 million and other net assets of $ 4.9 million and have ascribed $ 43.9 million to goodwill and $ 141.7 million to identifiable intangible assets.

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.

2 unchanged sentences

Such companies include:

(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 $ 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.

(a) a company that 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 that 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 $ 25.3 million and other net assets of $ 1.3 million and have ascribed $ 29.2 million to goodwill and $ 29.6 million to identifiable intangible assets.

During 2018, we acquired four companies for total consideration of $ 71.6 million.

2 unchanged sentences

The results of these three companies have been included in our United States building services segment.

The fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north Texas, and its results have been included in our United States electrical construction and facilities services segment.

The fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north Texas, and the results of its operations have been included in our United States electrical construction and facilities services segment.

In connection with these acquisitions, we acquired working capital of $ 8.7 million and have ascribed $ 26.3 million to goodwill and $ 36.6 million to identifiable intangible assets.

During 2017, we acquired three companies for total consideration of $ 111.9 million .

One company provides fire protection and alarm services primarily in the Southern region of the United States.

The second company provides millwright services for manufacturing companies throughout the United States.

Both of their results have been included in our United States mechanical construction and facilities services segment.

The third company provides mobile mechanical services within the Western region of the United States, and its results have been included in our United States building services segment.

In connection with these acquisitions, we acquired working capital of $ 12.3 million and other net assets of $ 2.3 million and have ascribed $ 40.7 million to goodwill and $ 56.6 million to identifiable intangible assets.

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

The purchase price allocations for the businesses acquired in 2019 are preliminary and subject to change during their respective measurement periods.

The purchase price allocations for the businesses acquired in 2018 and 2017 have been finalized during their respective measurement periods with an insignificant impact.

EMCOR Group, Inc.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - ACQUISITIONS OF BUSINESSES - (Continued)

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

The purchase price allocation for one of the businesses acquired in 2020 is preliminary and subject to change during its measurement period.

As we finalize such purchase price allocation, adjustments may be recorded relating to finalization of intangible asset valuations, tax matters, or other items.

Although not expected to be significant, such adjustments may result in changes in the valuation of assets and liabilities acquired.

The purchase price allocations for the other businesses acquired in 2020 and the businesses acquired in 2019 and 2018 have been finalized during their respective measurement periods with an insignificant impact.

NOTE 5 - DISPOSITION OF ASSETS

1 unchanged sentence

The results of the construction operations of our United Kingdom segment for all periods are presented in the Consolidated Financial Statements as discontinued operations.

No income or expense was recognized from discontinued operations for the year ended December 31, 2019.

The results of discontinued operations for the years ended December 31, 2018 and 2017 were as follows (in thousands):

No income or expense was recognized from discontinued operations for the years ended December 31, 2020 and 2019.

The results of discontinued operations for the year ended December 31, 2018 were as follows (in thousands):

Loss from discontinued operation, net of income taxes $ ( 2,345 )

1 unchanged sentence

The loss from discontinued operations in 2018 was primarily due to the settlement of a previously outstanding legal matter.

The loss from discontinued operations in 2017 was primarily due to legal costs incurred, partially offset by revenues recognized upon the settlement of a previously outstanding contract claim.

Included in the Consolidated Balance Sheet at December 31, 2018 were approximately $ 3.7 million of current liabilities associated with the discontinued operation, primarily consisting of contract retentions, contract warranty obligations and other accrued expenses.

No significant liabilities remain as of December 31, 2019 .

NOTE 6 - EARNINGS PER SHARE

The following tables summarize our calculation of Basic and Diluted Earnings (Loss) per Common Share (“EPS”) for the years ended December 31, 2020, 2019, and 2018 (in thousands, except share and per share data):

2020 2019 2018

Income from continuing operations attributable to EMCOR Group, Inc.

23 unchanged sentences

NOTE 7 - INVENTORIES

Inventories as of December 31, 2019 and 2018 consist of the following amounts (in thousands):

Inventories as of December 31, 2020 and 2019 consisted of the following amounts (in thousands):

Raw materials and construction materials $ 42,240 $ 31,365

Work in process 11,098 9,081

Inventories $ 53,338 $ 40,446

NOTE 8 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2019 and 2018 (in thousands):

Property, plant and equipment as of December 31, 2020 and 2019 consisted of the following amounts (in thousands):

Machinery and equipment $ 176,031 $ 166,087

Vehicles 61,624 59,116

Furniture and fixtures 23,724 22,123

3 unchanged sentences

Finance lease right-of-use assets (1)

514,926 485,107

Accumulated depreciation and amortization ( 356,499 ) ( 328,920 )

$ 158,427 $ 156,187

_________________

(1) Finance lease right-of-use assets are recorded net of accumulated amortization.

Prior to the adoption of ASC 842 on January 1, 2019, assets under capital leases were recorded as machinery and equipment or computer hardware/software.

Depreciation and amortization expense related to property, plant and equipment, including finance leases, was $ 46.7 million, $ 43.9 million, and $ 38.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

NOTE 9 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill at December 31, 2019 and 2018 was approximately $ 1,063.9 million and $ 990.9 million , respectively, and reflects the excess of the consideration transferred in a business combination over the fair value of the net assets acquired.

Goodwill attributable to companies acquired in 2019 and 2018 has been valued at $ 72.7 million and $ 26.3 million , respectively.

Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”) requires that all business combinations be accounted for using the acquisition method and that certain identifiable intangible assets acquired in a business combination be recognized as assets apart from goodwill.

Accounting Standards Codification Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”) requires goodwill and other identifiable intangible assets with indefinite useful lives, such as trade names, not be amortized, but instead be tested at least annually for impairment (which we test each October 1, absent any earlier identified impairment indicators), and be written down if impaired.

ASC 350 requires that goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives.

NOTE 9 - 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.

Our goodwill balance at December 31, 2020 and 2019 was $ 851.8 million and $ 1,063.9 million, respectively, with goodwill attributable to companies acquired in 2020 and 2019 valued at $ 13.0 million and $ 73.1 million, respectively.

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 19 - Segment Information of the notes to consolidated financial statements.

As of December 31, 2020, approximately 16.7 % of our goodwill related to our United States electrical construction and facilities services segment, approximately 35.2 % of our goodwill related to our United States mechanical construction and facilities services segment, approximately 35.5 % of our goodwill related to our United States building services segment and approximately 12.6 % of our goodwill related to our United States industrial services segment.

We test for impairment of our goodwill at the reporting unit level.

Our reporting units are consistent with the reportable segments identified in Note 19, “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, a 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 loss 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

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

Our operations were significantly impacted by the COVID-19 pandemic starting with the second quarter of 2020.

During the same period, 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

EMCOR Group, Inc.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS - (Continued)

to operations.

The fair value of each of our reporting units is generally determined using discounted estimated future cash flows;

however, in certain circumstances, consideration is given to a market approach whereby fair value is measured based on a multiple of earnings.

For the years ended December 31, 2019 and 2018, no impairment of our goodwill was recognized.

As part of our annual impairment testing for the year ended December 31, 2017, we recorded a non-cash impairment charge of $ 57.5 million within our United States industrial services segment.

The weighted average cost of capital used in our annual testing for impairment as of October 1, 2019 was 9.5 % , 9.1 % and 10.5 % for our domestic construction segments, our United States building services segment and our United States industrial services segment, respectively.

The perpetual growth rate used for our annual testing was 2.7 % for all of our domestic segments.

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

For example, keeping all other assumptions constant, a 50 basis point increase in the weighted average costs of capital would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment and our United States industrial services segment to decrease by approximately $ 108.8 million , $ 156.7 million , $ 98.0 million and $ 40.3 million , respectively.

NOTE 9 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS - (Continued)

“shelter-in-place” orders.

Further, other macroeconomic events, including the escalation of 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, in the second quarter of 2020, we revised our near-term revenue and operating margin expectations for our United States industrial services segment and 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 goodwill impairment test and 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 reflected the overall level of inherent risk within the business and the rate of return a market participant would expect to earn as of the interim date.

Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated for the events discussed above, 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 interim terminal value calculation was 2.0 %.

Based on the outcome of our interim goodwill impairment test, we concluded that the carrying amount of our United States industrial services segment exceeded its fair value, resulting in the recognition of a non-cash goodwill impairment charge of $ 225.5 million, which is included within our results of operations for the year ended December 31, 2020.

We did not identify impairment indicators related to any other reporting unit that would have required an interim impairment assessment.

As of October 1, 2020, we performed our annual impairment assessment of all reporting units and determined there was no incremental impairment of goodwill.

Consistent with the methodology applied in our interim impairment test, we determined the fair value of each of our reporting units 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.

The weighted average cost of capital used in our annual impairment testing was 10.6 %, 10.4 %, and 11.6 % for our United States construction segments, our United States building services segment, and our United States industrial services segment, respectively.

These weighted average cost of capital estimates were developed with the assistance of an independent third-party valuation specialist and reflect the overall level of inherent risk within the respective reporting unit and the rate of return a market participant would expect to earn.

Our cash flow projections were derived from our most recent internal forecasts of anticipated revenue growth rates and operating margins, 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 used for our annual testing was 2.0 % for all of our reporting units.

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 values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment, and our United States industrial services segment to decrease by approximately $ 63.3 million, $ 115.9 million, $ 69.9 million, and $ 23.2 million, respectively.

In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment, and our United States industrial services segment to decrease by approximately $ 31.0 million, $ 58.9 million, $ 33.5 million, and $ 9.7 million, respectively.

Given the amounts by which the fair value exceeds the carrying value for each of our reporting units other than our United States industrial services segment, the decreases in estimated fair values described above would not have significantly impacted our 2019 impairment test.

In the case of our United States industrial services segment, however, such decreases would cause the estimated fair value to approach its carrying value.

We also test for the impairment of trade names that are not subject to amortization by calculating the fair value 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.

For the years ended December 31, 2019 and 2018, no impairment of our indefinite-lived trade names was recognized.

The annual impairment review of our indefinite-lived trade names for the year ended December 31, 2017 resulted in a $ 0.3 million non-cash impairment charge as a result of a change in the fair value of a subsidiary trade name associated with a prior acquisition reported within our United States building services segment.

In addition, we review for the impairment of other identifiable intangible assets that are being amortized 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.

For the years ended December 31, 2019 and 2017, no impairment of our other identifiable intangible assets was recognized.

For the year ended December 31, 2018, we recorded a $ 0.9 million non-cash impairment charge associated with a finite-lived trade name within our United States industrial services segment.

Our development of the discounted future cash flow projections used in impairment testing is based upon assumptions and estimates by management from a review of our operating results and business plans, as well as forecasts of anticipated growth rates and margins, among other considerations.

In addition, estimates of the weighted average cost of capital for each reporting unit are developed with the assistance of a third-party valuation specialist.

Those assumptions and estimates can change in future periods and other factors used in assessing fair value, such as interest rates, are outside the control of management.

There can be no assurance that estimates and assumptions made for purposes of our goodwill and identifiable intangible asset impairment testing will prove to be accurate predictions of the future.

If our assumptions regarding future business performance including anticipated growth rates and margins are not achieved, or there is a rise in interest rates, we may be required to record goodwill and/or identifiable intangible asset impairment charges in future periods.

In the case of our United States industrial services segment, however, such decreases would cause the estimated fair value of such reporting unit to approximate its carrying value.

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.

For the years ended December 31, 2019 and 2018, no impairment of our goodwill was recognized.

EMCOR Group, Inc.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS - (Continued)

NOTE 9 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS - (Continued)

The changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2020 and 2019 were as follows (in thousands):

1 unchanged sentence

and facilities

services segment

United States

services segment United States

and facilities

services segment

United States

services segment

United States

industrial services segment

Balance at December 31, 2017

Acquisitions, sales and purchase price adjustments

services segment United States

industrial services segment Total

Balance at December 31, 2018 $ 133,207 $ 256,321 $ 274,171 $ 327,188 $ 990,887

Acquisitions, sales and purchase price adjustments

Acquisitions and purchase price adjustments 9,338 48,699 14,987 — 73,024

Intersegment transfers — ( 5,800 ) — 5,800 —

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

Acquisitions and purchase price adjustments — 398 12,974 — 13,372

Impairment — — — ( 225,500 ) ( 225,500 )

Balance at December 31, 2020 $ 142,545 $ 299,618 $ 302,132 $ 107,488 $ 851,783

The aggregate goodwill balance as of December 31, 2018 included $ 268.1 million of accumulated impairment charges, which were comprised of $ 139.5 million within the United States building services segment and $ 128.6 million within the United States industrial services segment.

Identifiable intangible assets as of December 31, 2019 and 2018 consist of the following (in thousands):

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 indefinite-lived and therefore 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.

Given the negative market conditions disclosed above, we also evaluated certain of our identifiable intangible assets and other long-lived assets for impairment during the second quarter of 2020.

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, we recorded non-cash impairment charges of $ 7.3 million, which have been included within our results of operations for the year ended December 31, 2020.

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.

As of October 1, 2020, we performed our annual impairment testing of all subsidiary trade names that are not subject to amortization and determined that there was no incremental impairment of these assets.

For the years ended December 31, 2019 and 2018, no impairment of our indefinite-lived trade names was recognized.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS - (Continued)

With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, we did not identify any further circumstances indicating that their carrying values may not be fully recoverable and, therefore, no additional impairment testing was required for these assets during the year ended December 31, 2020.

For the year ended December 31, 2019, no impairment of our finite-lived intangible assets or other long-lived assets was recognized.

We recorded a $ 0.9 million non-cash impairment charge associated with a finite-lived trade name within our United States industrial services segment during the year ended December 31, 2018.

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

December 31, 2020

Amount Accumulated

Amortization Accumulated

Contract backlog $ 72,045 $ ( 68,766 ) $ — $ 3,279

3 unchanged sentences

Trade names (unamortized) 258,471 — ( 58,933 ) 199,538

Total $ 1,127,848 $ ( 481,188 ) $ ( 63,767 ) $ 582,893

December 31, 2019

Amount Accumulated

Amortization Accumulated

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

3 unchanged sentences

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

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

Identifiable intangible assets attributable to businesses acquired in 2020 and 2019 have been valued at $ 38.1 million and $ 171.3 million, respectively, and consist of contract backlog, customer relationships, and trade names.

See Note 4 - Acquisitions of Businesses of the notes to consolidated financial statements for additional information with respect to acquisitions.

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

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

The weighted average amortization periods for the unamortized balances remaining are, in the aggregate, approximately 7.75 years, which are comprised of the following:

0.75 years for contract backlog, 6.75 years for developed technology/vendor network, 8.00 years for customer relationships and 9.75 years for trade names.

Amortization expense related to identifiable intangible assets with finite lives was $ 60.0 million, $ 48.1 million, and $ 42.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The following table presents the estimated future amortization expense of identifiable intangible assets in the following years (in thousands):

2021 $ 56,502

Thereafter 127,572

EMCOR Group, Inc.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS - (Continued)

Amortization expense related to identifiable intangible assets with finite lives was $ 48.1 million , $ 42.4 million , and $ 48.6 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

The following table presents the estimated future amortization expense of identifiable intangible assets in the following years (in thousands):

NOTE 10 - DEBT

Credit Agreement

We have a credit agreement dated as of August 3, 2016 , which provides for a $ 900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $ 400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”) expiring August 3, 2021 .

Until March 2, 2020, we had a credit agreement dated as of August 3, 2016 , which provided for a $ 900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $ 400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”).

On March 2, 2020, we amended and restated the 2016 Credit Agreement to provide for a $ 1.3 billion revolving credit facility (the “2020 Revolving Credit Facility”) and a $ 300.0 million term loan (the “2020 Term Loan”) (collectively referred to as the “2020 Credit Agreement”) expiring March 2, 2025 .

We may increase the 2020 Revolving Credit Facility to $ 1.9 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments.

We may allocate up to $ 400.0 million of available capacity under the 2020 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries.

Obligations under the 2016 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets.

The 2016 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 December 31, 2019 and 2018.

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 ( 0.15 % at December 31, 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 December 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 rate in effect at December 31, 2020 was 1.15 %.

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 December 31, 2020.

Borrowings under the 2016 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 ( 1.80 % at December 31, 2019 ) 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 ( 4.75 % at December 31, 2019 ), (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 December 31, 2019 was 2.80 % .

Fees for letters of credit issued under the 2016 Revolving Credit Facility range from 1.00 % to 1.75 % of the respective face amounts of outstanding letters of credit and are computed based on certain financial tests.

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.

As of December 31, 2020 and 2019, the balance of the 2020 Term Loan and the 2016 Term Loan was $ 270.6 million and $ 254.4 million, respectively.

As of December 31, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility;

however, we had $ 71.3 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.

We capitalized an additional $ 3.1 million of debt issuance costs associated with the 2020 Credit Agreement.

Debt issuance costs are amortized over the life of the agreement and are included as part of interest expense.

The 2016 Term Loan previously required us to make principal payments of $ 5.0 million on the last day of March, June, September and December of each year, which commenced with the calendar quarter ended December 31, 2016.

On December 30, 2016, we made a payment of $ 100.0 million , of which $ 5.0 million represented our required quarterly payment and $ 95.0 million represented a prepayment of outstanding principal.

Such prepayment was applied against the remaining mandatory quarterly payments on a ratable basis.

As a result, commencing with the calendar quarter ended March 31, 2017, our required quarterly payment has been reduced to $ 3.8 million .

All unpaid principal and interest is due on August 3, 2021.

As of December 31, 2019 and 2018 , the balance of the 2016 Term Loan was $ 254.4 million and $ 269.6 million , respectively.

As of December 31, 2019 and 2018 , we had approximately $ 109.0 million of letters of credit outstanding.

There were $ 50.0 million and $ 25.0 million in borrowings outstanding under the 2016 Revolving Credit Facility as of December 31, 2019 and December 31, 2018 , respectively.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - DEBT - (Continued)

Long-term debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2019 and 2018 (in thousands):

Obligations under the 2020 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets.

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

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

We are required to make annual principal payments on the 2020 Term Loan.

On September 30, 2020, we made a voluntary prepayment of $ 22.5 million, which was applied against our scheduled payments on a ratable basis.

Principal payments of $ 13.9 million are due on December 31 of each subsequent year.

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

Long-term debt as of December 31, 2020 and 2019 consisted of the following amounts (in thousands):

Revolving credit facility $ — $ 50,000

2 unchanged sentences

Finance lease liabilities 9,966 9,679

Total debt 276,529 312,231

current maturities 16,910 18,092

2 unchanged sentences

See Note 17 - Leases of the notes to consolidated financial statements for additional information.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - 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.

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

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 December 31, 2020 and 2019 (in thousands):

Assets at Fair Value as of December 31, 2020

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Cash and cash equivalents (1)

$ 902,867 $ — $ — $ 902,867

Restricted cash (2)

Deferred compensation plan assets (3)

36,491 — — 36,491

Total $ 940,053 $ — $ — $ 940,053

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.

3 unchanged sentences

(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.

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.

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

As of December 31, 2020, we had goodwill related to our United States industrial services segment of $107.5 million accounted for at fair value on a nonrecurring basis as a result of the non-cash goodwill impairment charge recorded during the year.

Refer to Note 9 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements for a description of the valuation techniques and inputs used in the fair value measurement.

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

EMCOR Group, Inc.

2 unchanged sentences

NOTE 11 - FAIR VALUE MEASUREMENTS - (Continued)

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.

1 unchanged sentence

NOTE 12 - INCOME TAXES

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“the Tax Act”).

The Tax Act made broad and complex changes to the U.S.

tax code, including, among other things, reducing the U.S.

federal corporate tax rate from 35 % to 21 % , eliminating certain deductions including the domestic manufacturing deduction, providing additional limitations on deductions for executive compensation, imposing a mandatory one-time transition tax on accumulated earnings from certain foreign subsidiaries, and creating new taxes on certain foreign sourced earnings.

The Tax Act also extended the option to claim accelerated depreciation deductions by allowing companies to fully deduct qualified property in the year such property is placed in service.

In 2018, we finalized our accounting for the income tax effects of the Tax Act, for which we had previously recorded provisional amounts in our 2017 consolidated financial statements in accordance with Staff Accounting Bulletin No.

During the year ended December 31, 2017, our net federal and state deferred tax liability balances were reduced by approximately $ 39.3 million , which was recorded as a reduction of income tax expense in the Company’s Consolidated Statements of Operations, as U.S.

generally accepted accounting principles required a re-measurement of our deferred tax assets and liabilities as of the date of enactment.

We continue to monitor for potential future changes in certain state and local tax regulations resulting from the Tax Act which may have an impact on our consolidated income tax provision in future periods.

For the years ended December 31, 2020, 2019, and 2018, our income tax provision was calculated based on income from continuing operations before income taxes as follows (in thousands):

2020 2019 2018

United States $ 228,181 $ 430,253 $ 375,408

The income tax provision in the accompanying Consolidated Statements of Operations for the years ended December 31, 2019 , 2018 , and 2017 consisted of the following (in thousands):

Foreign 24,145 20,636 19,620

$ 252,326 $ 450,889 $ 395,028

The income tax provision for the years ended December 31, 2020, 2019, and 2018 consisted of the following (in thousands):

2020 2019 2018

Current provision:

Federal $ 115,633 $ 89,264 $ 75,405

State and local 36,182 31,099 28,063

Deferred provision (benefit)

Our 2019 income tax provision from continuing operations was $ 125.7 million compared to $ 109.1 million for 2018 and $ 90.7 million for 2017 .

The increase in the income tax provision for each year was primarily driven by increased income from continuing operations before income taxes.

The actual income tax rates on income from continuing operations before income taxes, less amounts attributable to noncontrolling interests, for the years ended December 31, 2019 , 2018 , and 2017 , were 27.9 % , 27.6 % , and 28.5 % , respectively.

The increase in the 2019 actual income tax rate compared to 2018 was predominantly due to:

(a) an increase in our state deferred tax rate, partially as a result of a change in the mix of income, and (b) the continued application of the Tax Act, including the application of guidance regarding certain permanent differences and other nondeductible expenses.

The decrease in the 2018 actual income tax rate

Foreign 3,922 3,685 1,389

155,737 124,048 104,857

Deferred (benefit) provision ( 36,354 ) 1,701 4,249

$ 119,383 $ 125,749 $ 109,106

For the year ended December 31, 2020, our income tax provision from continuing operations was $ 119.4 million compared to $ 125.7 million for the year ended December 31, 2019 and $ 109.1 million for the year ended December 31, 2018.

The decrease in the income tax provision for 2020, when compared to 2019, was primarily driven by reduced state income taxes, inclusive of a deferred state benefit, resulting from a change in the mix of earnings.

The increase in the income tax provision for 2019, when compared to 2018, was largely due to increased income from continuing operations before income taxes.

The income tax rates on income from continuing operations before income taxes for the years ended December 31, 2020, 2019, and 2018, were 47.3 %, 27.9 %, and 27.6 %, respectively.

The increase in the 2020 income tax rate, when compared to 2019, was predominantly due to 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 second quarter, the majority of which is non-deductible for tax purposes.

The slight increase in the 2019 income tax rate, when compared to 2018, was primarily due to:

(a) an increase in our state deferred tax rate, partially as a result of a change in the mix of income during 2019, and (b) the continued impact of the Tax Cuts and Jobs Act, including the application of guidance regarding certain permanent differences and other nondeductible expenses.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 12 - INCOME TAXES - (Continued)

compared to 2017 was due to the net impact of the Tax Act, including the reduction of the U.S.

federal corporate tax rate from 35% to 21% in 2018, partially offset by the reduction in income tax expense associated with the re-measurement of our net deferred tax liability balance in 2017.

Items accounting for the differences between income taxes computed at the federal statutory rate and the income tax provision for the years ended December 31, 2020, 2019, and 2018 were as follows (in thousands):

2020 2019 2018

Federal income taxes at the statutory rate $ 52,989 $ 94,687 $ 82,946

State and local income taxes, net of federal tax benefits 19,290 24,904 21,827

State tax reserves

Permanent differences 5,860 7,149 6,584

Domestic manufacturing deduction

Excess tax benefit from share-based compensation ( 142 ) ( 733 ) ( 1,227 )

Goodwill impairment

Non-deductible impairment charges 40,165 — —

Foreign income taxes (including UK statutory rate changes) ( 140 ) ( 170 ) 70

Impact of federal rate change on net deferred tax liabilities

Federal tax reserves

Our income tax provision for the year ended December 31, 2019 and 2018 included $ 0.1 million and $ 0.6 million , respectively, for the minimum tax on global intangible low-taxed income for certain earnings of our foreign subsidiaries, as required under the Tax Act.

The Company has elected to recognize such tax as an expense in the period incurred.

Other 1,361 ( 88 ) ( 1,094 )

$ 119,383 $ 125,749 $ 109,106

The minimum tax on global intangible low-taxed income for certain earnings of our foreign subsidiaries was approximately $ 0.1 million for each of the years ended December 31, 2020 and 2019 and approximately $ 0.6 million for the year ended December 31, 2018.

The Company recognizes such tax as an expense in the period incurred.

As of December 31, 2020, we had undistributed foreign earnings from certain foreign subsidiaries of approximately $ 89.6 million.

1 unchanged sentence

As of December 31, 2020, the amount of cash held by these foreign subsidiaries was approximately $ 100.8 million which, if repatriated, should not result in any federal or state income taxes.

Tax benefits associated with uncertain tax positions are recognized only if it is “more likely than not” that the tax position would be sustained on its technical merits.

For positions not meeting the “more likely than not” test, no tax benefit is recognized.

As of December 31, 2019 and 2018, we had no unrecognized income tax benefits.

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

1 unchanged sentence

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 2019.

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 did not have a material impact on our results of operations.

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

On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law.

This act provides for tax relief, as well as an omnibus appropriations package that extends various expiring tax provisions and allows for a 100% tax deduction for the cost of business meals in 2021 and 2022.

The Consolidated Appropriations Act is not expected to have a material impact on the Company's income tax provision.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 12 - INCOME TAXES - (Continued)

Deferred income tax assets and liabilities are recognized in the Consolidated Balance Sheets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

The deferred income tax assets and deferred income tax liabilities recorded for the years ended December 31, 2019 and 2018 were as follows (in thousands):

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and income tax bases of assets and liabilities.

The deferred income tax assets and deferred income tax liabilities recorded as of December 31, 2020 and 2019 were as follows (in thousands):

Deferred income tax assets:

4 unchanged sentences

Deferred compensation 36,790 32,685

Accrued federal payroll taxes (1)

Other (including liabilities and reserves) 29,816 25,647

7 unchanged sentences

Depreciation of property, plant and equipment ( 23,958 ) ( 18,622 )

Other ( 7,444 ) ( 4,212 )

Total deferred income tax liabilities ( 242,657 ) ( 244,528 )

1 unchanged sentence

_________________

As discussed in Note 2 - Summary of Significant Accounting Policies of the notes to consolidated financial statements, on January 1, 2019, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”), which required lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases.

(1) Represents employer Social Security tax payments deferred under the CARES Act.

The components of the net deferred income tax liabilities in the accompanying Consolidated Balance Sheets are included in “Other assets” in the amount of $ 7.4 million and $ 3.4 million and “Other long-term obligations” in the amount of $ 36.8 million and $ 75.2 million, at December 31, 2020 and 2019, respectively.

1 unchanged sentence

As of December 31, 2020 and 2019, the total valuation allowance on deferred income tax assets was approximately $ 3.9 million and $ 3.5 million, respectively, related to state and local net operating losses.

Although realization is not assured, we believe it is more likely than not that the deferred income tax assets, net of the valuation allowance discussed above, will be realized.

The amount of the deferred income tax assets considered realizable, however, could be reduced if estimates of future income are reduced.

At December 31, 2019, there are no longer any trading losses available for United Kingdom income tax purposes.

At December 31, 2018, we had trading losses for United Kingdom income tax purposes of approximately $ 4.2 million , which were utilized in 2019 and are subject to review by the United Kingdom taxing authority.

Realization of our deferred income tax assets is dependent on our generating sufficient taxable income in the jurisdictions in which such deferred tax assets will reverse.

We believe that our deferred income tax assets will be realized through projected future income.

Although realization is not assured, based on current projections of future taxable income, we believe it is more likely than not that the deferred income tax assets, net of the valuation allowance discussed above, will be realized.

The amount of the deferred income tax assets considered realizable, however, could be reduced if estimates of future income are reduced.

EMCOR Group, Inc.

4 unchanged sentences

We have paid quarterly dividends since October 25, 2011.

We currently pay a regular quarterly dividend of $ 0.08 per share.

On September 26, 2011, our Board of Directors (the “Board”) authorized us to repurchase up to $ 100.0 million of our outstanding common stock.

Subsequently, the Board has from time to time increased the amount of our common stock that we may repurchase.

Since the inception of the repurchase program, the Board has authorized us to repurchase up to $ 950.0 million of our outstanding common stock.

No shares of our common stock were repurchased during the year ended December 31, 2019.

We paid a regular quarterly dividend of $ 0.08 per share throughout 2020.

In December 2020, our Board of Directors announced its intention to increase the regular quarterly dividend to $ 0.13 per share commencing with the dividend to be paid in the first quarter of 2021.

In September 2011, our Board of Directors (the “Board”) authorized a share repurchase program allowing us to begin repurchasing shares of our outstanding common stock.

Subsequently, the Board has from time to time increased the amount of our common stock that we may repurchase under such program.

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 year ended December 31, 2020, we repurchased approximately 1.7 million shares of our common stock for approximately $ 112.6 million.

Since the inception of the repurchase program through December 31, 2020, we have repurchased approximately 17.5 million shares of our common stock for approximately $ 904.0 million.

As of December 31, 2020, there remained authorization for us to repurchase approximately $ 246.0 million of our shares.

The repurchase program has no expiration date and 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.

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.

We may repurchase our shares from time to time to the extent permitted by securities laws and other legal requirements, including provisions in our 2020 Credit Agreement placing limitations on such repurchases.

1 unchanged sentence

NOTE 14 - SHARE-BASED COMPENSATION PLANS

We have an incentive plan under which stock options, stock awards, stock units and other share-based compensation may be granted to officers, non-employee directors and key employees of the Company.

We have an incentive plan under which stock awards, stock units, and other share-based compensation may be granted to officers, non-employee directors and key employees of the Company.

During 2020, we amended and restated our incentive plan, eliminating the ability to grant new stock options, until such time, if any, as the plan is subsequently amended to provide for the ability to make such grants.

Under the terms of this plan, 3,250,000 shares were authorized, and 1,023,299 shares are available for grant or issuance as of December 31, 2020.

Any issuances under this plan are valued at the fair market value of the common stock on the grant date.

The vesting and expiration of any stock option grants and the vesting schedule of any stock awards or stock units are determined by the Compensation and Personnel Committee of our Board of Directors at the time of the grant.

Any issuances under this plan are valued at the fair market value of our common stock on the grant date.

The vesting schedule of any stock awards or stock units is determined by the Compensation and Personnel Committee of our Board of Directors at the time of the grant.

Forfeitures are recognized as they occur.

The following table summarizes activity regarding our stock options and awards of shares and stock units since December 31, 2017:

Stock Options

Restricted Stock Units

Balance, December 31, 2016

Balance, December 31, 2017

Balance, December 31, 2018

Balance, December 31, 2019

We recognized approximately $ 11.4 million , $ 11.0 million , and $ 9.9 million of compensation expense for stock units awarded to non-employee directors and employees pursuant to incentive plans for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

We have approximately $ 8.7 million of compensation expense, net of income taxes, which will be recognized over the remaining vesting periods of up to approximately 3 years .

In addition, an aggregate of 72,310 restricted stock units granted to non-employee directors vested as of December 31, 2019, but issuance has been deferred up to 5 years .

All outstanding stock options were fully vested;

therefore, no compensation expense was recognized with respect to stock options for the years ended December 31, 2019, 2018, and 2017.

Stock Options Restricted Stock Units

Shares Weighted

Price Shares Weighted

Balance, December 31, 2017 93,000 $ 24.48 Balance, December 31, 2017 508,872 $ 54.13

Granted — — Granted 135,259 $ 80.37

Expired — — Forfeited ( 1,250 ) $ 71.27

Exercised ( 53,000 ) $ 24.48 Vested ( 166,295 ) $ 48.44

Balance, December 31, 2018 40,000 $ 24.48 Balance, December 31, 2018 476,586 $ 63.52

Granted — — Granted 169,766 $ 64.34

Expired — — Forfeited ( 2,545 ) $ 71.88

Exercised ( 20,000 ) $ 24.48 Vested ( 226,229 ) $ 51.64

Balance, December 31, 2019 20,000 $ 24.48 Balance, December 31, 2019 417,578 $ 70.24

Granted — — Granted 137,771 $ 81.56

Expired — — Forfeited ( 984 ) $ 79.17

Exercised ( 20,000 ) $ 24.48 Vested ( 156,447 ) $ 72.72

Balance, December 31, 2020 — — Balance, December 31, 2020 397,918 $ 73.16

EMCOR Group, Inc.

2 unchanged sentences

NOTE 14 - SHARE-BASED COMPENSATION PLANS - (Continued)

We recognized approximately $ 11.2 million, $ 11.4 million, and $ 11.0 million of compensation expense for stock units awarded to non-employee directors and employees pursuant to incentive plans for the years ended December 31, 2020, 2019, and 2018, respectively.

We have approximately $ 8.6 million of compensation expense, net of income taxes, which will be recognized over the remaining vesting periods of up to 3 years.

In addition, an aggregate of 63,907 restricted stock units granted to current or former non-employee directors vested as of December 31, 2020, but issuance has been deferred up to 5 years.

The income tax benefit derived in 2020, 2019, and 2018 as a result of stock option exercises and other share-based compensation was approximately $ 1.9 million, $ 2.6 million, and $ 3.6 million, respectively, of which approximately $ 0.2 million, $ 1.0 million, and $ 1.6 million, respectively, represented excess tax benefits.

The total intrinsic value of options (the amounts by which the stock price exceeded the exercise price of the option on the date of exercise) that were exercised during 2019 , 2018 , and 2017 was approximately $ 1.2 million , $ 2.7 million , and $ 2.3 million , respectively.

At December 31, 2019 , 2018 , and 2017 , 20,000 options, 40,000 options and 93,000 options were outstanding and exercisable, respectively.

The weighted average exercise price for all such options was $ 24.48 .

The total aggregate intrinsic value of options outstanding and exercisable as of December 31, 2019 , 2018 , and 2017 were approximately $ 1.2 million , $ 1.4 million , and $ 5.3 million , respectively.

The following table summarizes information about our outstanding stock options as of December 31, 2019 :

Stock Options Outstanding and Exercisable

Exercise Prices

Weighted Average

Remaining Life

Weighted Average

Exercise Price

The total intrinsic value (the amounts by which the stock price exceeded the exercise price on the date of exercise) of options that were exercised during both 2020 and 2019 was approximately $ 1.2 million, and the total intrinsic value of options that were exercised during 2018 was approximately $ 2.7 million.

There were no options outstanding at December 31, 2020, however, the aggregate intrinsic value of options outstanding and exercisable as of December 31, 2019 and 2018 was approximately $ 1.2 million and $ 1.4 million, respectively.

We have an employee stock purchase plan.

4 unchanged sentences

Defined Benefit Plans

The funded status of our defined benefit plans, which represents the difference between the fair value of plan assets and the projected benefit obligations, is recognized in our balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss).

Gains and losses for the differences between actuarial assumptions and actual results, and unrecognized service costs, are recognized through accumulated other comprehensive income (loss).

These amounts will be subsequently recognized as net periodic pension cost.

Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible employees (the “UK Plan”);

1 unchanged sentence

On May 31, 2010, we curtailed the future accrual of benefits for active employees under this plan.

We account for the UK Plan and other defined benefit plans in accordance with Accounting Standards Codification Topic 715, “Compensation-Retirement Benefits” (“ASC 715”).

ASC 715 requires that (a) the funded status, which is measured as the difference between the fair value of plan assets and the projected benefit obligations, be recorded in our balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss) and (b) gains and losses for the differences between actuarial assumptions and actual results, and unrecognized service costs, be recognized through accumulated other comprehensive income (loss).

These amounts will be subsequently recognized as net periodic pension cost.

EMCOR Group, Inc.

6 unchanged sentences

Interest cost 6,401 7,961

Actuarial loss (gain)

Actuarial loss 50,863 32,866

Benefits paid ( 10,029 ) ( 12,059 )

16 unchanged sentences

The weighted average assumptions used to determine net periodic pension cost for the years ended December 31, 2020, 2019, and 2018 were as follows:

2020 2019 2018

Discount rate 2.1 % 2.9 % 2.5 %

Annual rate of return on plan assets 4.3 % 4.9 % 5.0 %

The annual rate of return on plan assets has been determined by modeling possible returns using the actuary’s portfolio return calculator and the fair value of plan assets.

This models the long term expected returns of the various asset classes held in the portfolio and takes into account the additional benefits of holding a diversified portfolio.

For measurement purposes of the liability, the annual rates of inflation of covered pension benefits assumed for 2019 and 2018 were 2.0 % and 2.1 % , respectively.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 15 - RETIREMENT PLANS - (Continued)

The annual rate of return on plan assets has been determined by modeling possible returns using the actuary’s portfolio return calculator and the fair value of plan assets.

This models the long term expected returns of the various asset classes held in the portfolio and takes into account the additional benefits of holding a diversified portfolio.

For measurement purposes of the liability, the annual rates of inflation of covered pension benefits assumed for 2020 and 2019 were 2.5 % and 2.0 %, respectively.

The components of net periodic pension cost (income) of the UK Plan for the years ended December 31, 2020, 2019, and 2018 were as follows (in thousands):

2020 2019 2018

Interest cost $ 6,401 $ 7,961 $ 8,085

4 unchanged sentences

The amortization period for 2020 was 24 years.

The reclassification adjustment, net of income taxes, for the UK Plan from accumulated other comprehensive loss into net periodic pension cost for the years ended December 31, 2019, 2018, and 2017 was approximately $ 1.9 million , $ 2.1 million , and $ 2.3 million , respectively.

The reclassification adjustment, net of income taxes, for the UK Plan from accumulated other comprehensive loss into net periodic pension cost was approximately $ 1.9 million for the years ended December 31, 2020 and 2019, and approximately $ 2.1 million for the year ended December 31, 2018.

The estimated unrecognized loss for the UK Plan that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next year is approximately $ 2.9 million, net of income taxes.

4 unchanged sentences

The weighted average asset allocations and weighted average target allocations at December 31, 2020 and 2019 were as follows:

Asset Category

Asset Category Target

Allocation December 31,

2020 December 31,

Debt 65.0 % 63.0 % 70.6 %

Equity 15.0 % 12.7 % 10.5 %

Cash 10.0 % 17.1 % 10.5 %

Real estate 10.0 % 7.2 % 8.4 %

Total 100.0 % 100.0 % 100.0 %

Plan assets of our UK Plan are invested through third-party fund managers in various investments with underlying holdings which consist of:

18 unchanged sentences

Assets at Fair Value as of December 31, 2020

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Corporate debt funds $ — $ 65,486 $ — $ 65,486

Government bond funds — 57,133 — 57,133

Equity funds — 44,132 — 44,132

Cash 59,246 — — 59,246

Total plan assets in fair value hierarchy $ 59,246 $ 166,751 $ — 225,997

Plan assets measured using NAV as a practical expedient:

Debt funds 96,196

Real estate funds 25,218

1 unchanged sentence

Assets at Fair Value as of December 31, 2019

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Corporate debt funds $ — $ 64,314 $ — $ 64,314

Government bond funds — 49,164 — 49,164

Equity funds — 32,356 — 32,356

Cash 32,240 — — 32,240

Total plan assets in fair value hierarchy $ 32,240 $ 145,834 $ — 178,074

Plan assets measured using NAV as a practical expedient:

Debt funds 103,188

Real estate funds 25,739

12 unchanged sentences

Benefit Payments

2021 $ 11,036

2022 $ 11,356

2023 $ 11,684

2024 $ 12,021

2025 $ 12,370

Succeeding five years $ 67,423

4 unchanged sentences

We also sponsor three domestic retirement plans in which participation by new individuals is frozen.

The benefit obligation associated with these plans as of December 31, 2019 and 2018 was approximately $ 9.2 million and $ 8.5 million , respectively.

The benefit obligation associated with these plans as of December 31, 2020 and 2019 was approximately $ 9.2 million.

The estimated fair value of the plan assets as of December 31, 2020 and 2019 was approximately $ 6.0 million and $ 5.7 million, respectively.

5 unchanged sentences

The net periodic pension cost associated with the domestic plans was approximately $0.3 million for each of the years ended December 31, 2020, 2019, and 2018.

The reclassification adjustment, net of income taxes, from accumulated other comprehensive loss into net periodic pension cost was approximately $0.2 million for each of the years ended December 31, 2019 , 2018 , and 2017 .

The reclassification adjustment, net of income taxes, from accumulated other comprehensive loss into net periodic pension cost was approximately $ 0.3 million for the year ended December 31, 2020, and approximately $ 0.2 million for each of the years ended December 31, 2019, and 2018.

The estimated loss for these plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next year is approximately $ 0.2 million, net of income taxes.

21 unchanged sentences

Additionally, this table also lists all domestic MEPPs to which we contributed in 2020 in excess of $ 0.5 million for MEPPs in the critical status, “red zone,” and $ 1.0 million for MEPPs in the endangered status, “orange or yellow zones,” as defined by the PPA (in thousands):

EIN/Pension Plan Number

PPA Zone Status (1)

Contributions

Pension Fund EIN/Pension Plan Number PPA Zone Status (1)

Status Contributions

Contributions greater than 5% of total plan contributions (2)

date or range of expiration dates of CBA(s)

National Electrical Benefit Fund

January 2020 to

November 2022

National Automatic Sprinkler Industry Pension Fund

Plumbers & Pipefitters National Pension Fund

February 2020 to

Sheet Metal Workers National Pension Fund

April 2020 to

Pension, Hospitalization & Benefit Plan of the Electrical Industry-Pension Trust Account

April 2020 to April 2022

2020 2019 2020 2019 2018

National Automatic Sprinkler Industry Pension Fund 52-6054620 001 Red Red Implemented $ 17,504 $ 15,924 $ 14,888 No March 2021 to

Plumbers & Pipefitters National Pension Fund 52-6152779 001 Yellow Yellow Implemented 14,095 13,821 11,868 No February 2021 to

Sheet Metal Workers National Pension Fund 52-6112463 001 Yellow Yellow Implemented 11,621 11,713 10,895 No April 2021 to

National Electrical Benefit Fund 53-0181657 001 Green Green NA 11,573 16,901 10,700 No February 2021 to

September 2024

Pension, Hospitalization & Benefit Plan of the Electrical Industry-Pension Trust Account 13-6123601 001 Green Green NA 11,264 10,075 10,469 No January 2021 to April 2022

Electrical Workers Local No.

26 Pension Trust Fund

January 2020 to July 2021

Plumbers Pipefitters & Mechanical Equipment Service Local Union 392 Pension Plan

Southern California IBEW-NECA Pension Trust Fund

November 2022

Central Pension Fund of the IUOE & Participating Employers

February 2020 to

December 2023

Sheet Metal Workers Pension Plan of Northern California

June 2020 to June 2026

Arizona Pipe Trades Pension Trust Fund

Edison Pension Plan

26 Pension Trust Fund 52-6117919 001 Green Green NA 7,086 8,434 5,485 Yes May 2021 to October 2023

Sheet Metal Workers Pension Plan of Northern California 51-6115939 001 Red Red Implemented 6,605 6,233 5,488 No June 2021 to June 2026

Central Pension Fund of the IUOE & Participating Employers 36-6052390 001 Green Green NA 6,115 6,253 6,384 No February 2021 to

December 2023

Pipefitters Union Local 537 Pension Fund

September 2020 to August 2021

Southern California IBEW-NECA Pension Trust Fund 95-6392774 001 Yellow Yellow Implemented 5,719 6,277 5,754 No May 2021 to

November 2023

Plumbers Pipefitters & Mechanical Equipment Service Local Union 392 Pension Plan 31-0655223 001 Red Red Implemented 5,667 6,412 6,047 Yes June 2022

San Diego Electrical Pension Plan 95-6101801 001 Green Green NA 4,383 3,843 3,008 Yes May 2021 to May 2022

EMCOR Group, Inc.

2 unchanged sentences

NOTE 15 - RETIREMENT PLANS - (Continued)

EIN/Pension Plan Number

PPA Zone Status (1)

Contributions

Contributions greater than 5% of total plan contributions (2)

Pension Fund EIN/Pension Plan Number PPA Zone Status (1)

Status Contributions Contributions greater than 5% of total plan contributions (2)

date or range of expiration dates of CBA(s)

Heating, Piping & Refrigeration Pension Fund

June 2020 to July 2021

Local 393 Pension Trust Fund Defined Benefit

June 2020 to June 2021

San Diego Electrical Pension Plan

May 2020 to May 2022

Eighth District Electrical Pension Fund

May 2020 to May 2022

Southern California Pipe Trades Retirement Fund

Electrical Contractors Association and Local Union 134, IBEW Joint Pension Trust of Chicago Pension Plan 2

Northern California Pipe Trades Pension Plan

June 2020 to June 2021

NECA-IBEW Pension Trust Fund

May 2020 to December 2020

Plumbers Local 24 Pension Fund

Sheet Metal Workers Pension Plan of Southern California, Arizona & Nevada

June 2020 to June 2024

Connecticut Plumbers & Pipefitters Pension Fund

Local 38 Defined Benefit Pension Plan

June 2020 to June 2023

Plumbing & Pipe Fitting Local 219 Pension Fund

Boilermaker-Blacksmith National Pension Trust

September 2020 to

2020 2019 2020 2019 2018

Pipefitters Union Local 537 Pension Fund 51-6030859 001 Green Green NA 4,275 4,754 6,038 Yes February 2021 to September 2021

Arizona Pipe Trades Pension Trust Fund 86-6025734 001 Green Green NA 4,142 6,071 2,640 Yes June 2021

Southern California Pipe Trades Retirement Fund 51-6108443 001 Green Green NA 4,043 3,274 3,095 No June 2021 to June 2026

Edison Pension Plan 93-6061681 001 Green Green NA 3,864 5,361 3,140 Yes December 2021

Heating, Piping & Refrigeration Pension Fund 52-1058013 001 Green Green NA 3,349 4,185 2,619 No July 2022

Eighth District Electrical Pension Fund 84-6100393 001 Green Green NA 3,242 3,590 3,486 Yes February 2021 to May 2023

Local 393 Pension Trust Fund Defined Benefit 94-6359772 002 Green Green NA 3,168 3,858 4,298 Yes June 2021 to July 2021

Electrical Contractors Association of the City of Chicago Local Union 134, IBEW Joint Pension Trust of Chicago Pension Plan 2 51-6030753 002 Green Green NA 3,004 3,204 4,308 No June 2021

Local 38 Defined Benefit Pension Plan 94-1285319 001 Green Green NA 2,874 2,030 1,551 No June 2021 to June 2023

Sheet Metal Workers Pension Plan of Southern California, Arizona & Nevada 95-6052257 001 Yellow Yellow Implemented 2,706 2,423 1,934 No June 2021 to June 2026

Northern California Pipe Trades Pension Plan 94-3190386 001 Green Green NA 2,463 3,077 3,104 No June 2021

Plumbers Local 24 Pension Fund 22-6042823 001 Green Green NA 2,460 2,460 3,461 Yes April 2021

NECA-IBEW Pension Trust Fund 51-6029903 001 Green Green NA 2,369 2,528 2,650 Yes May 2021 to December 2021

Northern California Electrical Workers Pension Plan 94-6062674 001 Green Green NA 2,263 965 1,075 No May 2021 to May 2022

Plumbing & Pipe Fitting Local 219 Pension Fund 34-6682376 001 Red Red Implemented 1,680 1,937 2,197 Yes May 2023

Boilermaker-Blacksmith National Pension Trust 48-6168020 001 Yellow Red Implemented 1,574 1,681 1,446 No September 2021 to

September 2023

Plumbers & Pipefitters Local Union No.

502 & 633 Pension Fund

May 2020 to July 2022

Plumbers & Pipefitters Local 162 Pension Fund

May 2020 to May 2022

502 & 633 Pension Fund 61-6078145 001 Yellow Yellow Implemented 1,271 1,596 1,167 No May 2021 to July 2022

Local 701 Pension Fund 36-6455509 001 Yellow Yellow Implemented 1,197 915 588 No May 2021 to December 2021

Steamfitters Local Union No.

420 Pension Plan

Other Multiemployer Pension Plans

420 Pension Plan 23-2004424 001 Red Red Implemented 553 641 706 No May 2023

Other Multiemployer Pension Plans 51,953 55,042 49,740 Various

Total Contributions $ 204,082 $ 215,478 $ 190,229

1 unchanged sentence

(1) The zone status represents the most recent available information for the respective MEPP, which may be 2019 or earlier for the 2020 year and 2018 or earlier for the 2019 year.

In general, plans with a “green” zone status have a funding ratio of at least 80%, plans with an “orange” or “yellow” zone status have a funding ratio of between 65% and less than 80%, and plans with a “red” zone status are less than 65% funded.

(2) This information was obtained from the respective plan’s Form 5500 (“Forms”) for the most current available filing.

These dates may not correspond with our fiscal year contributions.

The above noted percentages of contributions are based upon disclosures contained in the plans’ Forms.

The percentages of contributions are based upon disclosures contained in the plans’ Forms.

Those Forms, among other things, disclose the names of individual participating employers whose annual contributions account for more than 5% of the aggregate annual amount contributed by all participating employers for a plan year.

7 unchanged sentences

Additionally, the amount of contributions to a particular MEPP could also be affected by the terms of the CBA, which could require at a particular time, an increase in the contribution rate and/or surcharges.

Our contributions to various MEPPs increased by approximately $ 4.8 million as a result of acquisitions made by us since 2017.

We also participated in an MEPP that is located within the United Kingdom for which we have contributed less than $ 0.1 million for each of the years ended December 31, 2019 , 2018 , and 2017 .

The information that we have obtained relating to this plan is not as readily available and/or as comparable as the information that has been ascertained in the United States.

Based upon the most recently available information, the plan is 100% funded.

This plan closed to future contributions and participants during 2019.

Acquisitions made by us since 2018 have resulted in incremental contributions to various MEPPs of approximately $ 5.3 million.

Additionally, we contribute to certain multiemployer plans that provide post retirement benefits such as health and welfare benefits and/or defined contribution/annuity plans, among others.

Our contributions to these plans were approximately $ 156.1 million, $ 153.5 million, and $ 135.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Our contributions to other post retirement benefit plans increased by approximately $ 11.0 million as a result of acquisitions made by us since 2017.

Acquisitions made by use since 2018 have resulted in incremental contributions to other post retirement benefit plans of approximately $ 15.6 million.

The amount of contributions to these plans is also subject for the most part to the factors discussed above in conjunction with the MEPPs.

2 unchanged sentences

Contributions to these plans are based on a percentage of the employee’s base compensation.

The expenses recognized for the years ended December 31, 2019 , 2018 , and 2017 for these plans were approximately $ 32.4 million , $ 29.8 million , and $ 28.1 million , respectively.

The expenses recognized for employer contributions to these plans were approximately $ 32.4 million for each of the years ended December 31, 2020 and 2019 and approximately $ 29.8 million for the year ended December 31, 2018.

At our discretion and subject to applicable plan documents, we may make additional supplemental matching contributions to one of our defined contribution retirement and savings plans.

1 unchanged sentence

Our United Kingdom subsidiary also has defined contribution retirement plans.

The expense recognized for the years ended December 31, 2019 , 2018 , and 2017 was approximately $ 6.1 million , $ 4.9 million , and $ 3.9 million , respectively.

The expense recognized related to employer matching contributions for the years ended December 31, 2020, 2019, and 2018 was approximately $ 7.4 million, $ 6.1 million, and $ 4.9 million, respectively.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

8 unchanged sentences

Public sector contracts require Surety Bonds more frequently than private sector contracts and, accordingly, our bonding requirements typically increase as the amount of our public sector work increases.

In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees.

As of December 31, 2019 , based on the percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $ 1.2 billion .

We are not aware of any losses in connection with Surety Bonds, which have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

We are subject to regulation with respect to the handling of certain materials used in construction, which are classified as hazardous or toxic by federal, state, and local agencies.

Our practice is to avoid participation in projects principally involving the remediation or removal of such materials.

However, when remediation is required as part of our contract performance, we believe

As of December 31, 2020, based on the percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $ 1.3 billion, which represents approximately 29 % of our total remaining performance obligations.

In addition, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for certain of our employees, at the request of labor unions representing such employees, or as collateral for certain insurance obligations.

As of December 31, 2020, we satisfied approximately $ 37.5 million of the collateral requirements of our insurance programs by utilizing Surety Bonds.

We are not aware of any losses in connection with Surety Bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

EMCOR Group, Inc.

2 unchanged sentences

NOTE 16 - COMMITMENTS AND CONTINGENCIES - (Continued)

we comply with all applicable regulations governing the discharge of hazardous materials into the environment or otherwise relating to the protection of the environment.

We are subject to regulation with respect to the handling of certain materials used in construction, which are classified as hazardous or toxic by federal, state, and local agencies.

Our practice is to avoid participation in projects principally involving the remediation or removal of such materials.

However, when remediation is required as part of our contract performance, we believe we comply with all applicable regulations governing the discharge of hazardous materials into the environment or otherwise relating to the protection of the environment.

At December 31, 2020, we employed approximately 33,000 people, approximately 59 % of whom are represented by various unions pursuant to approximately 400 collective bargaining agreements between our individual subsidiaries and local unions.

1 unchanged sentence

Only two of these collective bargaining agreements are national or regional in scope.

Restructuring expenses, primarily related to employee severance obligations, were $ 1.5 million , $ 2.3 million , and $ 1.6 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

As of December 31, 2019 , 2018 , and 2017 , the balance of our restructuring related obligations yet to be paid was $ 1.6 million , $ 1.6 million , and $ 0.5 million , respectively.

Restructuring expenses, related to employee severance obligations, were $ 2.2 million, $ 1.5 million, and $ 2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, the balance of our restructuring related obligations yet to be paid was $ 2.7 million.

The balance of such obligations as of December 31, 2019 and 2018 was $ 1.6 million.

The majority of obligations outstanding as of December 31, 2019 and 2018 were paid during 2020 and 2019, respectively.

The obligations outstanding as of December 31, 2019 will be paid pursuant to our contractual obligations throughout 2020 and 2021.

No material expenses in connection with restructuring from continuing operations are expected to be incurred during 2020.

The obligations outstanding as of December 31, 2020 will be paid pursuant to our contractual obligations through 2022.

No material expenses in connection with restructuring are expected to be incurred during 2021.

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

1 unchanged sentence

and facilities

services segment

United States

services segment

Corporate administration

services segment United States

and facilities

services segment United States

services segment Corporate administration Total

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

Charges 445 — 1,078 — 1,523

Payments ( 30 ) — ( 842 ) ( 723 ) ( 1,595 )

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

Charges 1,072 1,073 69 — 2,214

Payments ( 239 ) — ( 481 ) ( 355 ) ( 1,075 )

Balance at December 31, 2020 $ 1,278 $ 1,073 $ — $ 346 $ 2,697

1 unchanged sentence

As a government contractor, we are subject to U.S.

government audits and investigations relating to our operations, fines, penalties and compensatory and treble damages, and possible suspension or debarment from doing business with the government.

government audits and investigations relating to our operations, which such audits may result in fines, penalties and compensatory and treble damages, and possible suspension or debarment from doing business with the government.

Based on currently available information, we believe the outcome of ongoing government disputes and investigations will not have a material impact on our financial position, results of operations or liquidity.

Legal Matters

Computer System Attack

On February 15, 2020, we became aware of an infiltration and encryption of portions of our information technology network.

This attack temporarily disrupted our use of the impacted 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;

such policies, however, may not completely provide coverage for, or completely offset the costs of, this infiltration.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - COMMITMENTS AND CONTINGENCIES - (Continued)

Legal Proceedings

We are involved in several legal proceedings in which damages and claims have been asserted against us.

We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves.

Other potential claims may exist that have not yet been asserted against us.

We do not believe that any such matters will have a material adverse effect on our financial position, results of operations, or liquidity.

We record a loss contingency if the potential loss from a proceeding or claim is considered probable and the amount can be reasonably estimated or a range of loss can be determined.

We provide disclosure when it is reasonably possible that a loss will be incurred in excess of any recorded provision.

Significant judgment is required in these determinations.

As additional information becomes available, we reassess prior determinations and may change our estimates.

Additional claims may be asserted against us in the future.

Litigation is subject to many uncertainties, and the outcome of litigation is not predictable with assurance.

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

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.

NOTE 17 - LEASES

On January 1, 2019, we adopted Accounting Standards Codification Topic 842, “Leases” (“ASC 842”).

This pronouncement requires lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases.

We adopted this pronouncement utilizing the transition practical expedient which eliminates the requirement that the new lease standard be applied to comparative periods presented in the year of adoption.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - LEASES (Continued)

As part of our adoption, we elected to utilize the package of practical expedients permitted under the new standard, which allowed us to not reassess:

(a) whether an existing contract is or contains a lease, (b) the classification for existing leases, and (c) initial direct costs.

Further, as permitted by the standard, we made an accounting policy election not to record right-of-use assets or lease liabilities for leases with an initial term of 12 months or less.

Instead, consistent with previous accounting guidance, we will recognize payments for such leases in the statement of operations on a straight-line basis over the lease term.

We lease real estate, vehicles and equipment under various arrangements which are classified as either operating or finance leases.

11 unchanged sentences

In addition, certain of our lease arrangements may contain a lease coupled with an arrangement to provide other services, such as maintenance, or may require us to make other payments on behalf of the lessor related to the leased asset, such as payments for taxes or insurance.

As permitted by ASC 842, we have elected to account for these non-lease components together with the associated lease component.

This election has been made for each of our asset classes.

We account for these non-lease components together with the associated lease component for each of our asset classes.

The measurement of right-of-use assets and lease liabilities requires us to estimate appropriate discount rates.

1 unchanged sentence

However, based on information available at lease commencement for the majority of our leases, the rate implicit in the lease is not known.

In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis over a similar term.

In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis, over a similar term, an amount equal to the lease payments.

Our lease arrangements generally do not contain significant restrictions or covenants;

1 unchanged sentence

Amounts probable of being owed under these guarantees are included within the measurement of the right-of-use asset and lease liability.

Lease Position as of December 31, 2019

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of December 31, 2019 (in thousands):

Classification on the Consolidated Balance Sheet

Operating lease assets

Operating lease right-of-use assets

Finance lease assets

Property, plant and equipment, net

Total lease assets

Operating lease liabilities, current

Current maturities of long-term debt and finance lease liabilities

Operating lease liabilities, long-term

Long-term debt and finance lease liabilities

Total lease liabilities

EMCOR Group, Inc.

2 unchanged sentences

NOTE 17 - LEASES - (Continued)

The following table presents information related to lease expense for the year ended December 31, 2019 (in thousands):

Lease Position

The following table presents the lease-related assets and liabilities as of December 31, 2020 and 2019 (in thousands):

Classification on the Consolidated Balance Sheet December 31,

2020 December 31,

Operating lease assets Operating lease right-of-use assets $ 242,155 $ 245,471

Finance lease assets Property, plant and equipment, net 9,638 9,609

Total lease assets $ 251,793 $ 255,080

Operating Operating lease liabilities, current $ 53,632 $ 53,144

Finance Current maturities of long-term debt and finance lease liabilities 3,995 4,088

Operating Operating lease liabilities, long-term 205,362 204,950

Finance Long-term debt and finance lease liabilities 5,971 5,591

Total lease liabilities $ 268,960 $ 267,773

The following table presents information related to lease expense for the years ended December 31, 2020 and 2019 (in thousands):

Finance lease expense:

5 unchanged sentences

Total lease expense $ 219,272 $ 226,104

Rent expense for operating leases and other rental items, including short-term equipment rentals, for the years ended December 31, 2018 and 2017 was approximately $ 191.8 million and $ 166.5 million , respectively.

For the years ended December 31, 2019 , 2018 , and 2017 , sublease rental income was approximately $ 0.5 million , $ 0.6 million , and $ 0.6 million , respectively.

Rent expense for operating leases and other rental items, including short-term equipment rentals, for the year ended December 31, 2018 was approximately $ 191.8 million.

For each of the years ended December 31, 2020, 2019, and 2018, sublease rental income was approximately $ 0.5 million.

Lease Term and Discount Rate

The following table presents certain information related to lease terms and discount rates for leases as of December 31, 2019 :

The following table presents certain information related to lease terms and discount rates for leases as of December 31, 2020 and 2019:

2020 December 31,

Weighted-average remaining lease term:

Operating leases

Finance leases

Weighed-average discount rate:

Operating leases 6.6 years 6.7 years

Finance leases 3.1 years 2.9 years

Weighted-average discount rate:

Operating leases 3.59 % 4.04 %

Finance leases 3.24 % 4.16 %

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - LEASES - (Continued)

Other Information

The following table presents supplemental cash flow information related to leases for the year ended December 31, 2019 (in thousands):

The following table presents supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities $ 4,558 $ 5,311

For the years ended December 31, 2018 and 2017 (prior to the adoption of ASC 842), assets acquired under capital leases amounted to approximately $ 1.1 million and $ 1.3 million , respectively.

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - LEASES (Continued)

For the year ended December 31, 2018, assets acquired under capital leases amounted to approximately $ 1.1 million.

Maturity of Lease Liabilities

The following table reconciles future minimum lease payments on an undiscounted cash flow basis to the lease liabilities reported in the Consolidated Balance Sheet as of December 31, 2020 (in thousands):

Operating Leases

Finance Leases

Operating Leases Finance Leases

2021 $ 61,743 $ 4,234

2022 50,452 2,902

2023 43,240 1,652

2024 33,185 1,289

2025 25,648 265

Thereafter 76,904 69

Total minimum lease payments 291,172 10,411

5 unchanged sentences

NOTE 18 - ADDITIONAL CASH FLOW INFORMATION

The following presents information about cash paid for interest and income taxes for the years ended December 31, 2019 , 2018 , and 2017 (in thousands):

The following table presents information about cash paid for interest and income taxes for the years ended December 31, 2020, 2019, and 2018 (in thousands):

2020 2019 2018

Cash paid during the year for:

Interest $ 8,289 $ 12,683 $ 12,435

Income taxes $ 145,386 $ 126,169 $ 123,651

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION

We have the following reportable segments:

3 unchanged sentences

low-voltage systems, such as fire alarm, security, and process control;

voice and data communication;

roadway and transit lighting;

voice and data communication, including fiber-optic and low-voltage cabling, distributed antenna systems, and audiovisual systems;

roadway and transit lighting and signaling;

and fiber optic lines);

3 unchanged sentences

controls and filtration;

water and wastewater treatment and central plant heating and cooling;

water and wastewater treatment;

central plant heating and cooling;

cranes and rigging;

5 unchanged sentences

The “United States building services” and “United Kingdom building services” segments principally consist of those operations which provide a portfolio of services needed to support the operation and maintenance of customers’ facilities, including commercial and government site-based operations and maintenance;

facility maintenance and services, including reception, security and catering services;

facility management, maintenance, and services;

outage services to utilities and industrial plants;

military base operations support services;

mobile mechanical maintenance and services;

mobile mechanical maintenance and services, including maintenance and service of mechanical, electrical, plumbing, and building automation systems;

indoor air quality improvement services;

floor care and janitorial services;

landscaping, lot sweeping, and snow removal;

facilities management;

other building services, including reception, security, and catering services;

vendor management;

3 unchanged sentences

technical consulting and diagnostic services;

infrastructure and building projects for federal, state and local governmental agencies

EMCOR Group, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION - (Continued)

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.

5 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 construction, maintenance, 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 years ended December 31, 2019 , 2018 , and 2017 (in thousands):

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 years ended December 31, 2020, 2019, and 2018 (in thousands):

2020 2019 2018

Revenues from unrelated entities:

5 unchanged sentences

United Kingdom building services 430,563 423,259 414,871

Total worldwide operations

Total operations $ 8,797,061 $ 9,174,611 $ 8,130,631

Total revenues:

6 unchanged sentences

United Kingdom building services 430,563 423,259 414,871

Total worldwide operations

Total operations $ 8,797,061 $ 9,174,611 $ 8,130,631

EMCOR Group, Inc.

2 unchanged sentences

NOTE 19 - SEGMENT INFORMATION - (Continued)

2020 2019 2018

Operating income (loss):

7 unchanged sentences

Restructuring expenses ( 2,214 ) ( 1,523 ) ( 2,306 )

Impairment loss on goodwill and identifiable intangible assets

Total worldwide operations

Impairment loss on goodwill, identifiable intangible assets,

and other long-lived assets ( 232,750 ) — ( 907 )

Total operations 256,834 460,892 403,083

Other corporate items:

11 unchanged sentences

Corporate administration 4,396 975 312

Total worldwide operations

Total operations $ 47,969 $ 48,432 $ 43,479

Depreciation and amortization of property, plant and equipment:

6 unchanged sentences

Corporate administration 1,569 807 734

Total worldwide operations

Total operations $ 46,721 $ 43,945 $ 38,472

EMCOR Group, Inc.

2 unchanged sentences

NOTE 19 - SEGMENT INFORMATION - (Continued)

2020 2019 2018

Contract assets:

5 unchanged sentences

United Kingdom building services 30,555 25,544 23,108

Total worldwide operations

Total operations $ 171,956 $ 177,830 $ 158,243

Contract liabilities:

5 unchanged sentences

United Kingdom building services 29,849 22,600 15,905

Total worldwide operations

Total operations $ 722,252 $ 623,642 $ 552,290

Long-lived assets:

6 unchanged sentences

Corporate administration 4,356 1,431 1,072

Total worldwide operations

Total operations $ 1,593,103 $ 1,831,542 $ 1,613,524

Total assets:

6 unchanged sentences

Corporate administration 1,030,516 451,627 448,644

Total worldwide operations

During 2018, we recognized losses of $ 10.0 million on a transportation project within our United States electrical construction and facilities services segment, resulting in part from contract scope issues.

During 2017, we recognized $ 18.1 million of gross profit associated with the recovery of certain contract costs previously disputed on a project completed in 2016 within our United States industrial services segment.

Total operations $ 5,063,840 $ 4,830,358 $ 4,088,807

EMCOR Group, Inc.

5 unchanged sentences

therefore, the sum of per share amounts for the quarters may not equal per share amounts for the year.

The results of the construction operations of our United Kingdom segment for all periods are presented as discontinued operations.

March 31 June 30 Sept.

2020 Quarterly Results

Revenues $ 2,299,832 $ 2,014,021 $ 2,201,714 $ 2,281,494

Gross profit $ 333,061 $ 315,286 $ 363,184 $ 383,851

Impairment loss on goodwill, identifiable intangible assets,

and other long-lived assets $ — $ 232,750 $ — $ —

Net income attributable to EMCOR Group, Inc.

$ 75,665 $ ( 83,689 ) $ 61,186 $ 79,781

Basic EPS from continuing operations $ 1.35 $ ( 1.52 ) $ 1.11 $ 1.45

Basic EPS from discontinued operation

Diluted EPS from continuing operations $ 1.35 $ ( 1.52 ) $ 1.11 $ 1.45

Diluted EPS from discontinued operation

March 31 June 30 Sept.

2019 Quarterly Results

Impairment loss on identifiable intangible assets

Revenues $ 2,158,728 $ 2,324,202 $ 2,287,741 $ 2,403,940

Gross profit $ 308,754 $ 346,380 $ 335,987 $ 364,747

Net income attributable to EMCOR Group, Inc.

$ 72,410 $ 83,972 $ 81,834 $ 86,924

Basic EPS from continuing operations $ 1.29 $ 1.49 $ 1.46 $ 1.54

Basic EPS from discontinued operation

Diluted EPS from continuing operations $ 1.28 $ 1.49 $ 1.45 $ 1.54

Diluted EPS from discontinued operation

NOTE 21 - SUBSEQUENT EVENTS

In January 2020, we acquired a company for an immaterial amount.

This company provides mobile mechanical services within the Northeastern region of the United States, and its results will be included in our United States building services segment.

The acquisition of this business will be accounted for by the acquisition method, and the amount paid will be allocated to its respective assets and liabilities, based upon the estimated fair value of such assets and liabilities at the date of acquisition by us.

On February 15, 2020, we became aware of an infiltration and encryption of portions of our information technology network.

This attack disrupted our operations that utilize the impacted portions of the network.

We continue to assess the magnitude of the consequences and we are actively seeking to mitigate the effects.

As of the date of this filing, we continue our efforts to restore the portions of such systems that remain impacted.

We are unable to predict when the entire network will be functional.

We are additionally unable to estimate precisely the total costs which will result from the attack and the remediation efforts.

We maintain insurance coverage for these types of incidents, however, such policies may not completely provide coverage for, or offset the costs of, this infiltration.

Subsequent to December 31, 2020, we acquired two companies, each for an immaterial amount.

One company provides mechanical services within the Southern region of the United States, and the results of its operations will be included in our United States mechanical construction and facilities services segment.

The other company provides electrical construction and maintenance services for a broad array of customers in the Midwestern region of the United States, and the results of its operations will be included in our United States electrical construction and facilities services segment.

The acquisition of these businesses will be accounted for by the acquisition method, and the amounts paid will be allocated to their respective assets and liabilities, based upon the estimated fair value of such assets and liabilities at the respective date of acquisition by us.

Report of Independent Registered Public Accounting Firm

23 unchanged sentences

Revenue Recognition from Long-term Construction Contracts

Description of the Matter

As described in Note 3 to the consolidated financial statements, the Company generally recognizes revenue from long-term construction contracts over time using a cost-to-cost input method in which the extent of progress is measured based on the ratio of costs incurred to date to the total estimated costs at completion.

Description of the Matter As described in Note 3 to the consolidated financial statements, the Company generally recognizes revenue from long-term construction contracts over time using a cost-to-cost input method in which the extent of progress is measured based on the ratio of costs incurred to date to the total estimated costs at completion.

In addition, the revenue recognition process requires the Company to determine the transaction price that represents the amount of consideration to which the Company expects to be entitled.

2 unchanged sentences

Factors inherent in the estimation processes include, among others, historical experience with customers, the potential long-term nature of dispute resolutions, actions of third parties as well as the Company’s experience with similar types of contracts.

Due to uncertainties attributed to such factors, auditing revenue recognized from long-term construction contracts involved challenging, subjective, and complex judgments.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls related to revenue recognition from long-term construction contracts.

Due to uncertainties attributed to such factors, auditing revenue recognized from long-term construction contracts involved especially challenging, subjective, and complex judgments.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls related to revenue recognition from long-term construction contracts.

For example, we tested controls over the Company’s determination and review of estimates of variable consideration, costs to complete, and the completeness and accuracy of data utilized in conjunction with such estimation processes.

7 unchanged sentences

Valuation of Goodwill and Indefinite-Lived Intangible Assets

Description of the Matter

At December 31, 2019, the Company’s goodwill and indefinite lived trade name intangible assets were approximately $1,063.9 million and $199.2 million, respectively.

As discussed in Note 9 to the consolidated financial statements, goodwill and trade names with indefinite lives are tested for impairment at least annually.

Auditing management’s annual impairment tests was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting units for goodwill and the fair value of trade name intangible assets.

Description of the Matter At December 31, 2020, the Company’s goodwill and indefinite-lived trade name intangible assets were approximately $851.8 million and $199.5 million, respectively.

As discussed in Note 9 to the consolidated financial statements, goodwill and trade names with indefinite lives are tested for impairment at least annually and during any interim period(s) in which impairment indicators are identified.

During 2020, the Company recorded a goodwill impairment charge of $225.5 million related to its Industrial Services reporting unit and impairment charges of $6.7 million related to certain of its indefinite-lived trade name intangible assets.

Auditing management’s interim and annual impairment tests was especially complex and subjective due to the significant estimation required in determining the fair value of the reporting units for goodwill and the fair value of trade name intangible assets.

In particular, the fair value estimates for goodwill were sensitive to significant assumptions inherent in the Company’s discounted estimated future cash flows such as the weighted average cost of capital, revenue growth rates, and operating margins.

The fair value estimates for trade name intangible assets were sensitive to significant assumptions inherent in the Company’s discounted estimated future cash flows such as the royalty rate, discount rate, and revenue growth rates.

The fair value estimates for goodwill and trade name intangible assets are affected by expectations about future market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s impairment review processes for goodwill and trade name intangible assets.

For example, we tested controls over management’s review of the valuation models and significant assumptions described above, including those developed by the Company's third-party valuation specialists.

The fair value estimates for goodwill and trade name intangible assets are affected by expectations about future market or economic conditions, including the effects of the COVID-19 pandemic and other macroeconomic events relevant to certain markets in which the Company operates.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s impairment review processes for goodwill and trade name intangible assets.

For example, we tested management’s review controls over the valuation models and significant assumptions described above, including those developed by the Company's third-party valuation specialists.

To test the estimated fair value of the Company’s reporting units and trade name intangible assets, with the support of a valuation specialist, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions and completeness and accuracy of the underlying data used by the Company in its analyses.

2 unchanged sentences

In addition, we reviewed the reconciliation of the aggregate fair value of the Company’s reporting units to the market capitalization of the Company.

Valuation of Intangible Assets from the Acquisition of Batchelor & Kimball, Inc.

Description of the Matter

As further described in Note 4 to the consolidated financial statements, during the year ended December 31, 2019, the Company completed the acquisition of Batchelor & Kimball, Inc.

(“BKI”) for total consideration of approximately $220.0 million.

The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities.

Auditing the Company’s accounting for its acquisition of BKI required complex auditor judgment due to the significant estimation uncertainty inherent in determining the fair value of identified intangible assets for acquired customer relationships and trade names.

The significant estimation uncertainty was primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, as well as the sensitivity of the respective fair values to the underlying significant assumptions.

The significant assumptions used to estimate the fair value of the acquired intangible assets included discount rates, customer attrition rate, revenue growth rates, operating margins, and royalty rate.

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the valuation of intangible assets from the BKI acquisition.

For example, we tested controls over management’s review of the valuation models and the significant assumptions described above.

To test the estimated fair value of the acquired customer relationships asset and trade name asset, we performed audit procedures that included, among others, assessing the appropriateness of the valuation methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company.

For example, we compared the revenue growth rates, operating margins, and customer attrition rate to historical results of the acquired business and compared the royalty rate to current industry licensing agreements.

We further performed sensitivity analyses to evaluate the changes in the fair value of the acquired intangible assets that would result from changes in the significant assumptions.

In addition, we involved internal valuation specialists to assist in our evaluation of the valuation methodologies and certain significant assumptions used by the Company.

/s/ E RNST & Y OUNG LLP

7 unchanged sentences

We have audited EMCOR Group, Inc.

and subsidiaries’ control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, EMCOR Group, Inc.

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Batchelor & Kimball, Inc.

("BKI"), which is included in the 2019 consolidated financial statements of the Company and constituted 1.9% of total assets as of December 31, 2019 and 0.4% of total revenues for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of BKI.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 25, 2021 expressed an unqualified opinion thereon.

21 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-K

Item 8. Financial Statements and Supplementary Data