What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 232 added, 161 removed, 307 unchanged (56% of the section changed)

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COVID-19 and Market Update

We continue to monitor the short- and long-term impacts of COVID-19, a global pandemic that has caused a significant slowdown in the global economy and began to impact our operations in late March 2020.

Although the pandemic has not had the level of financial impact on our United States construction segments and our United States and United Kingdom building services segments that we initially expected, it continues to result in various disruptions to our operations.

Such impacts include, but are not limited to, reduced labor efficiency resulting from the adherence to physical distancing and other enhanced safety protocols demanded by the current environment, the curtailment or deferral of maintenance and service projects by some of our customers, and temporary shutdowns of active projects as customers work through COVID-19 related matters.

As a result, we continue to experience delays in certain projects and disruptions to the flow of our work in order to comply with these new safety protocols.

Our United States industrial services segment continues to be the most significantly impacted by the COVID-19 pandemic, as a result of the deterioration in the demand for oil and other refined products.

The prolonged impacts of lower demand and overall market uncertainty has resulted in our customers canceling or deferring projects, reducing capital spending, implementing various cost cutting measures, and closing certain of their facilities.

Such customer actions have resulted in a significant decrease in the demand for our service offerings within this segment.

As a result of the COVID-19 pandemic, we experienced significant disruptions throughout calendar year 2020, which impacted our ability to execute on our remaining performance obligations in many of the markets in which we operate.

The impact of the pandemic, which was greatest during the second quarter of 2020, negatively affected our results of operations during such period.

However, our strong balance sheet and operational flexibility have allowed us to successfully manage through the ongoing impacts of the pandemic while protecting our cash flow and liquidity.

Although the majority of our businesses have largely recovered from the financial impacts of the pandemic, as evidenced by our consolidated performance and the growth in our remaining performance obligations, our United States industrial services segment continues to be negatively impacted by the lingering effects of the pandemic.

While this segment has experienced modest sequential growth since the second half of 2020, the prolonged impacts of lower demand and the overall lagging recovery of the oil and gas market has resulted in customers of this segment canceling or deferring projects, reducing capital spending, implementing various cost cutting measures, and closing certain of their facilities.

Such customer actions continue to impact the demand for our service offerings within this segment.

We continue to monitor the short- and long-term impacts of the pandemic.

While our employees and customers have adapted to a new work environment and there continues to be scientific, societal, and economic progress to address the effects of COVID-19, there remains significant uncertainty about the future impacts of the pandemic, including the potential effects on our operations.

Although we continue to quote new work for customers and are cautiously optimistic about the markets in which we operate, should the broader economy worsen due to an increase in more contagious variants of the virus or surges in the number of cases, it is possible that projects could be delayed or canceled or that we could experience access restrictions to our customers’ facilities, preventing us from performing maintenance and service projects.

The extent to which the COVID-19 pandemic will impact our business and results of operations in future periods will also depend upon a number of other factors.

We continue to be cautiously optimistic about the markets in which we operate and the customers we serve;

however, should there be a slowdown in economic activity due to an increase in more contagious variants of the virus or surges in the number of cases, it is possible that projects could be delayed or canceled or that we could experience access restrictions to our customers’ facilities, preventing us from performing maintenance and service projects.

The extent to which our business and results of operations are impacted in future periods will also depend upon a number of other factors.

These include the duration and extent of the pandemic;

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the extent, duration, and effective execution of ongoing government stabilization and recovery efforts;

the timing, availability, efficacy, adoption, and distribution of vaccines or other preventative treatments;

the efficacy and adoption of vaccines or other preventative treatments;

our customers’ demand for our services;

our ability to continue to effectively operate in this environment;

our ability to continue to safely and effectively operate in this environment;

and the ability of our customers to pay us for services rendered.

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Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.

The following table presents selected financial data for the three months ended March 31, 2021 and 2020 (in thousands, except percentages and per share data):

The following table presents selected financial data for the three months ended June 30, 2021 and 2020 (in thousands, except percentages and per share data):

For the three months ended

Revenues $ 2,437,666 $ 2,014,021

Revenues increase from prior year 0.2 % 6.5 %

Revenues increase (decrease) from prior year 21.0 % (13.3) %

Gross profit $ 376,279 $ 315,286

Gross profit as a percentage of revenues 15.4 % 15.7 %

Operating income $ 117,004 $ 105,995

Operating income as a percentage of revenues 5.1 % 4.6 %

Net income attributable to EMCOR Group, Inc.

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

Operating income (loss) $ 133,358 $ (122,638)

Operating income (loss) as a percentage of revenues 5.5 % (6.1) %

Net income (loss) attributable to EMCOR Group, Inc.

$ 97,350 $ (83,689)

Diluted earnings per common share $ 1.54 $ 1.35

The results for the three months ended March 31, 2021 set new company records for a first quarter in terms of revenues, operating income, operating margin, net income, and diluted earnings per common share.

Revenues of $2.30 billion for the first quarter of 2021 remained relatively consistent with revenues for the first quarter of 2020.

As described in further detail below, revenue growth within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment was largely offset by a revenue decline within our United States industrial services segment.

Operating income for the three months ended March 31, 2021 was $117.0 million, or 5.1% of revenues, compared to operating income of $106.0 million, or 4.6% of revenues, for the three months ended March 31, 2020.

As described in further detail below, the increase in both operating income and operating margin was primarily attributable to improved operating performance within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment.

Such improved performance was partially offset by reduced profitability within our United States industrial services segment, which incurred an operating loss during the current year period, as a result of continued adverse market conditions impacting the oil and gas industry and the demand for the service offerings of that segment.

Diluted earnings (loss) per common share $ 1.78 $ (1.52)

The results for the three months ended June 30, 2021 set new company records for a second quarter in terms of revenues, gross profit, operating income, net income, and diluted earnings per common share.

Revenues of $2.44 billion for the second quarter of 2021 represent an increase of 21.0% from revenues of $2.01 billion for the second quarter of 2020.

As described in further detail below, such increase in revenues was attributable to revenue growth within all of our reportable segments, except for our United States industrial services segment.

The results for the second quarter of 2020 were negatively impacted by the COVID-19 pandemic, which resulted in:

(a) project delays or access restrictions for certain of the construction projects within our United States construction segments, (b) a reduction in the number of call-out service and repair project activities within our United States and United Kingdom building services segments, and (c) a decline in the demand for our service offerings within our United States industrial services segment.

Operating income for the three months ended June 30, 2021 was $133.4 million, or 5.5% of revenues, compared to an operating loss of $122.6 million, or (6.1)% of revenues, for the three months ended June 30, 2020.

The operating loss incurred in the 2020 period resulted from $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during such prior year period, as discussed in further detail in Note 7 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements included in Item 1.

Financial Statements.

Excluding the impact of such impairments, operating income increased by $23.2 million for the second quarter of 2021, as a result of improved operating performance within all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for their service offerings.

Impact of Acquisitions

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The amounts discussed reflect the acquired companies’ operating results in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period.

During the first quarter of 2021, we acquired two companies.

One company, the results of operations of which were de minimis, provides mechanical services within the Southern region of the United States and has been included in our United States mechanical construction and facilities services segment.

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

During the first half of 2021, we acquired three companies, including:

(a) a company, the results of operations of which were de minimis, that provides mechanical services within the Southern region of the United States and has been included in our United States mechanical construction and facilities services segment, (b) a company that provides electrical construction services for a broad array of customers in the Midwestern region of the United States, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (c) a company that provides mobile mechanical services across North Texas, the results of operations of which have been included in our United States building services segment.

During calendar year 2020, we acquired three companies, including:

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

For the three months ended March 31, 2021, companies acquired in 2021 and 2020 generated incremental revenues of approximately $29.1 million and incremental operating income of approximately $0.9 million, inclusive of approximately $2.1 million of amortization expense associated with identifiable intangible assets.

For the three months ended June 30, 2021, companies acquired in 2021 and 2020 generated incremental revenues of approximately $53.8 million and incremental operating income of approximately $2.7 million, inclusive of approximately $3.2 million of amortization expense associated with identifiable intangible assets.

Results of Operations

The following table presents our operating segment revenues from unrelated entities and their respective percentages of total revenues (in thousands, except for percentages):

For the three months ended March 31,

The following tables present our operating segment revenues from unrelated entities and their respective percentages of total revenues (in thousands, except for percentages):

For the three months ended June 30,

Total 2020 % of

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Total operations $ 2,437,666 100 % $ 2,014,021 100 %

As described below in more detail, our revenues of $2.30 billion for the first quarter of 2021 remained relatively consistent with revenues for the first quarter of 2020.

Revenue growth within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment was largely offset by a revenue decline within our United States industrial services segment.

Companies acquired in 2021 and 2020 generated incremental revenues of approximately $29.1 million in 2021.

Revenues of our United States electrical construction and facilities services segment were $456.2 million for the quarter ended March 31, 2021 compared to revenues of $461.8 million for the quarter ended March 31, 2020.

This segment’s results for the three months ended March 31, 2021 included $6.5 million of incremental revenues generated by a company acquired in 2021.

Excluding such acquisition revenues, the decrease in revenues of this segment was primarily attributable to a reduction in project activities within the manufacturing market sector due to the completion or substantial completion of certain projects in the Western region of the United States.

Such revenue declines were partially offset by an increase in revenues from projects within the commercial market sector, inclusive of certain telecommunication construction projects, and increased activities within the institutional market sector.

Our United States mechanical construction and facilities services segment revenues for the three months ended March 31, 2021 were $903.9 million, a $69.8 million increase compared to revenues of $834.1 million for the three months ended March 31, 2020.

The increase in this segment’s revenues was primarily attributable to revenue growth within:

For the six months ended June 30,

Total 2020 % of

United States electrical construction and facilities services $ 945,655 20 % $ 872,191 20 %

United States mechanical construction and facilities services 1,862,611 39 % 1,624,553 38 %

United States building services 1,206,295 26 % 1,006,593 23 %

United States industrial services 470,545 10 % 605,022 14 %

Total United States operations 4,485,106 95 % 4,108,359 95 %

United Kingdom building services 256,609 5 % 205,494 5 %

Total operations $ 4,741,715 100 % $ 4,313,853 100 %

As described below in more detail, our revenues for the second quarter of 2021 increased to $2.44 billion compared to $2.01 billion for the second quarter of 2020, and our revenues for the six months ended June 30, 2021 increased to $4.74 billion compared to $4.31 billion for the six months ended June 30, 2020.

The increase in revenues for both periods was attributable to revenue growth within all of our reportable segments, except for our United States industrial services segment.

Companies acquired in 2021 and 2020 generated incremental revenues of approximately $53.8 million and $82.9 million for the three and six months ended June 30, 2021, respectively.

Revenues of our United States electrical construction and facilities services segment were $489.5 million and $945.7 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $410.4 million and $872.2 million for the three and six months ended June 30, 2020, respectively.

The increase in revenues of this segment, for both periods, was primarily attributable to revenue growth within:

(a) the commercial market sector, as:

(i) we experienced an increase in telecommunication construction project activity and (ii) the results for the three and six months of 2020 were negatively impacted by project delays or access restrictions caused by the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities in response to the COVID-19 pandemic, (b) the institutional market sector given an increase in public works projects in the Western region of the United States, and (c) the healthcare market sector, due to greater project activity in the Northeastern region of the United States.

In addition, the results of this segment for the three and six months ended June 30, 2021 included $8.6 million and $15.1 million, respectively, of incremental revenues generated by a company acquired in 2021.

The increased revenue for the six months ended June 30, 2021 was partially offset by a reduction in revenues within the manufacturing market sector due to the completion or substantial completion of certain projects in the Western region of the United States.

Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2021 were $958.7 million, a $168.2 million increase compared to revenues of $790.4 million for the three months ended June 30, 2020.

Revenues of this segment for the six months ended June 30, 2021 were $1,862.6 million, a $238.1 million increase compared to revenues of $1,624.6 million for the six months ended June 30, 2020.

The increase in this segment’s revenues for both periods was primarily attributable to revenue growth within:

(a) the commercial market sector, driven by:

(i) the continued build-out of our customers’ e-commerce supply chains, which has resulted in increased demand for our fire protection services within several warehousing and distribution facilities, and (ii) continued growth in digital processing, cloud computing, and data storage, which has resulted in an increase in telecommunication construction project opportunities, and (b) the healthcare market sector due to increased mechanical system retrofits and installations as our healthcare customers seek to upgrade their existing facilities or build new facilities.

These increases were partially offset by decreased revenues within the manufacturing market sector, due to the completion or substantial completion of certain large food processing projects, and a reduction in short duration projects, partially as a result of the lingering effects of the COVID-19 pandemic and its impact on such project opportunities.

For the first quarter of 2021, revenues of our United States building services segment were $581.8 million compared to revenues of $527.6 million for the first quarter of 2020.

Excluding acquisition revenues of $22.6 million within this segment’s mobile mechanical services division, this segment’s revenues increased by approximately $31.6 million during the three months ended March 31, 2021.

Such growth in revenues was primarily attributable to our commercial site-based services operations as a result of:

(a) an increase in snow removal activity year-over-year, (b) an increase in project volume as we experienced a resumption in demand for certain of our service offerings, and (c) a net increase in facilities maintenance contract revenues, partially as a result of new contract awards.

Revenues of our United States industrial services segment for the three months ended March 31, 2021 were $235.4 million, a $128.5 million decrease compared to revenues of $363.9 million for the three months ended March 31, 2020.

Revenues of this segment for the quarter ended March 31, 2021 continued to be negatively impacted by adverse market conditions within the oil and gas and related industrial markets, including a severe decline in the demand for oil and other refined products caused by the COVID-19 pandemic.

Such macroeconomic conditions, which began to significantly impact our businesses subsequent to the first quarter of 2020, have led to a decrease in demand for this segment’s service offerings, which has resulted in:

(a) a decrease in maintenance, capital project, and construction activities within our field services operations and (b) a reduction in new build heat exchanger sales and a decrease in maintenance, repair, and hydroblast cleaning services within our shop services operations.

In addition, revenues of this segment for the first quarter of 2021 were negatively impacted by abnormal weather conditions and subsequent power outages within the Gulf Coast region, which resulted in the deferral or delay of previously planned maintenance and turnaround activities with certain of our customers.

Our United Kingdom building services segment revenues were $126.7 million for the three months ended March 31, 2021 compared to revenues of $112.4 million for the three months ended March 31, 2020.

This segment’s revenues for the first quarter of 2021 were positively impacted by $9.5 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.

In addition, the increase in this segment’s revenues was as a result of:

(a) growth in project activities with existing customers, partially as a result of a resumption in demand as customers began to release projects which were previously deferred due to the uncertainty created by the COVID-19 pandemic, and (b) an increase in revenues from maintenance contract awards primarily within the commercial market sector.

(i) the continued build-out of our customers’ e-commerce supply chains, which has resulted in increased demand for our fire protection services within their warehousing and distribution facilities, (ii) continued growth in digital processing, cloud computing, and data storage, which has resulted in an increase in telecommunication construction project opportunities, and (iii) a greater number of mechanical tenant-fit out projects, and (b) the healthcare market sector due to increased mechanical system retrofits and installations as our healthcare customers seek to upgrade their existing facilities or build new facilities.

These increases were partially offset by the completion or substantial completion of certain projects within:

(a) the institutional market sector, which resulted in a reduction of revenues during both the three and six months ended June 30, 2021, and (b) the manufacturing market sector, inclusive of certain large food processing projects, which resulted in a reduction of revenues during the six months ended June 30, 2021.

Similar to our United States electrical construction and facilities services segment, revenues of this segment during the prior year periods were negatively impacted by the effects of the COVID-19 pandemic, which resulted in project delays due to access restrictions and temporary job site shutdowns.

Revenues of our United States building services segment were $624.5 million and $1,206.3 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $479.0 million and $1,006.6 million for the three and six months ended June 30, 2020, respectively.

Excluding acquisition revenues within this segment’s mobile mechanical services division of $45.2 million and $67.8 million for the three and six months ended June 30, 2021, respectively, this segment’s revenue growth for both 2021 periods was primarily attributable to:

(a) a resumption in demand for certain of our service offerings when compared to the prior year, which was negatively impacted by the COVID-19 pandemic given the temporary closure of certain customer facilities, resulting in:

(i) greater project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations and (ii) an increase in project volume within our commercial site-based services operations, (b) a net increase in facilities maintenance contract revenues, partially as a result of new contract awards, and (c) increased customer demand for certain services aimed at improving the indoor air quality within their facilities.

In addition, revenues for the six months ended June 30, 2021 benefited from an increase in snow removal activity year-over-year within our commercial site-based services division.

Revenues of our United States industrial services segment for the three months ended June 30, 2021 were $235.2 million compared to revenues of $241.1 million for the three months ended June 30, 2020.

Revenues for the six months ended June 30, 2021 were $470.5 million compared to revenues of $605.0 million for the six months ended June 30, 2020.

Revenues of this segment continue to be negatively impacted by adverse market conditions within the oil and gas and related industrial markets, including sustained lower demand for oil and other refined products, which has not returned to pre-pandemic levels.

Such macroeconomic conditions, which began to significantly impact our businesses in the second quarter of 2020, have continued into the current year, leading to a decrease in demand for this segment’s service offerings, including:

(a) a decrease in maintenance, capital project, and construction activities within our field services operations and (b) a reduction in new build heat exchanger sales and related services within our shop services operations.

Our United Kingdom building services segment revenues were $129.9 million and $256.6 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $93.1 million and $205.5 million for the three and six months ended June 30, 2020, respectively.

The increase in this segment’s revenues for both the three and six month periods was primarily a result of growth in project activities with existing customers, primarily within the commercial market sector, partially as a result of a resumption in demand as customers began to release projects which were previously deferred due to the uncertainty created by the COVID-19 pandemic.

In addition, this segment’s revenues for the three and six months ended June 30, 2021 were positively impacted by $14.5 million and $24.0 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Cost of sales and Gross profit

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For the three months ended

June 30, For the six months ended

2021 2020 2021 2020

Cost of sales $ 2,061,387 $ 1,698,735 $ 4,024,363 $ 3,665,506

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Gross profit margin 15.4 % 15.7 % 15.1 % 15.0 %

For the first quarter of 2021, our gross profit was $341.1 million, or 14.8% of revenues, an increase of approximately $8.0 million compared to gross profit of $333.1 million, or 14.5% of revenues, for the first quarter of 2020.

The increase in gross profit period over period was a result of an increase in gross profit from all of our reportable segments except our United States electrical construction and facilities services segment, for which gross profit was relatively consistent with the prior year period, and our United States industrial services segment, which experienced a decrease in gross profit when compared to the prior year given the negative macroeconomic conditions previously referenced.

The increase in gross profit margin period over period was predominantly attributable to improved operating performance within our United States mechanical construction and facilities services segment and our United Kingdom building services segment, partially offset by a reduction in gross profit margin within our United States industrial services segment.

Our gross profit for the three months ended June 30, 2021 was $376.3 million, or 15.4% of revenues, compared to gross profit of $315.3 million, or 15.7% of revenues, for the three months ended June 30, 2020.

Gross profit for the six months ended June 30, 2021 was $717.4 million, or 15.1% of revenues, compared to gross profit of $648.3 million, or 15.0% of revenues, for the six months ended June 30, 2020.

The increase in gross profit for both periods was a result of an increase in gross profit from all of our reportable segments except, in the case of the six months ended June 30, 2021, our United States industrial services segment, which experienced a decrease in gross profit when compared to the prior year given the negative macroeconomic conditions previously referenced.

The decrease in gross profit margin for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, was primarily attributable to a reduction in gross profit margin within our United States building services segment given a greater number of fixed price capital projects, which traditionally have lower gross profit margins, within this segment’s mobile mechanical services division, and a less favorable mix of work within this segment’s government services division during the quarter.

Selling, general and administrative expenses

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For the three months ended

June 30, For the six months ended

2021 2020 2021 2020

Selling, general and administrative expenses $ 242,921 $ 205,174 $ 466,990 $ 432,171

SG&A margin 10.0 % 10.2 % 9.8 % 10.0 %

Our selling, general and administrative expenses for the three months ended March 31, 2021 were $224.1 million, or 9.7% of revenues, compared to selling, general and administrative expenses of $227.0 million, or 9.9% of revenues, for the three months ended March 31, 2020.

Selling, general and administrative expenses for the 2021 period included $2.4 million of incremental expenses directly related to companies acquired in 2021 and 2020, including amortization expense attributable to identifiable intangible assets of $0.8 million.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses decreased by $5.4 million.

The decrease in both selling, general and administrative expenses and SG&A margin was primarily attributable to a decrease in:

(a) salary and employee benefit expenses given headcount reductions across our operating companies due to various cost control measures enacted during 2020, which led to the realignment of certain of our back office functions, (b) certain discretionary spending, such as travel and entertainment costs, and (c) the provision for credit losses.

These cost reductions were partially offset by an increase in incentive compensation expense, predominantly within our United States mechanical construction and facilities services segment, due to higher projected annual operating results than those which were anticipated during the same prior year period.

Our selling, general and administrative expenses for the three months ended June 30, 2021 were $242.9 million compared to selling, general and administrative expenses of $205.2 million for the three months ended June 30, 2020.

Selling, general and administrative expenses for the six months ended June 30, 2021 were $467.0 million compared to selling, general and administrative expenses of $432.2 million for the six months ended June 30, 2020.

For the three and six months ended June 30, 2021, selling, general and administrative expenses included $4.4 million and $6.8 million, respectively, of incremental expenses directly related to companies acquired in 2021 and 2020, including amortization expense attributable to identifiable intangible assets of $1.2 million and $2.0 million, respectively.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $33.4 million and $28.0 million for the three and six months ended June 30, 2021, respectively.

The increase in selling, general and administrative expenses for both the three and six month periods was primarily attributable to an increase in:

(a) incentive compensation expense, due to higher projected annual operating results than those which were anticipated during the same prior year period, as our expectations during the second quarter of 2020 were negatively impacted by the uncertainty created by the COVID-19 pandemic, (b) salaries, as a result of:

(i) an increase in headcount to support our organic revenue growth in the current year, and (ii) the favorable impact in the prior year periods of certain short-term cost cutting measures enacted in response to the COVID-19 pandemic, including temporary furloughs and salary reductions, (c) employee benefit costs, driven by greater medical claim activity, and (d) the provision for credit losses, within our United States industrial services segment as discussed in further detail below.

Selling, general and administrative expenses as a percentage of revenues were 10.0% and 10.2% for the three months ended June 30, 2021 and 2020, respectively, compared to 9.8% and 10.0% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in SG&A margin for both the three and six month periods was a result of an increase in revenues without a commensurate increase in certain of our overhead costs, as we were able to leverage our overhead cost structure.

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

During the second quarter of 2020, we identified certain indicators of impairment resulting from the COVID-19 pandemic and its impact on the oil and gas and related industrial markets.

These adverse conditions resulted in lower forecasted revenue and operating margin expectations for those of our businesses that are highly dependent on the strength of such markets, resulting in the recognition of a $232.8 million impairment charge within our United States industrial services segment.

Despite the weaker results of our United States industrial services segment for the quarter and year-to-date periods of 2021, when compared to the same periods of 2020, we did not identify any indicators of impairment in the current year, as the operating performance and near term expectations of this segment are consistent with the forecasts utilized in our most recent impairment test.

However, significant adverse changes to external market conditions or our internal forecasts, if any, could result in the identification of future impairment indicators and potentially 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 charge would be material to our results of operations.

Operating income (loss)

The following table presents our operating income (loss) and operating margin (operating income (loss) as a percentage of segment revenues) (in thousands, except for percentages):

For the three months ended March 31,

The following tables present our operating income (loss) and operating margin (operating income (loss) as a percentage of segment revenues) (in thousands, except for percentages):

For the three months ended June 30,

Revenues 2020 % of

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Corporate administration (25,755) — (23,699) —

Impairment loss on goodwill, identifiable intangible assets,

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

Total operations 133,358 5.5 % (122,638) (6.1) %

Net periodic pension (cost) income 922 718

Interest expense, net (1,316) (2,110)

Income (loss) before income taxes $ 132,964 $ (124,030)

For the six months ended June 30,

Revenues 2020 % of

Operating income (loss):

United States electrical construction and facilities services $ 82,969 8.8 % $ 71,938 8.2 %

United States mechanical construction and facilities services 144,209 7.7 % 112,108 6.9 %

United States building services 59,644 4.9 % 47,876 4.8 %

United States industrial services (2,651) (0.6) % 18,707 3.1 %

Total United States operations 284,171 6.3 % 250,629 6.1 %

United Kingdom building services 16,458 6.4 % 11,115 5.4 %

Corporate administration (50,267) — (45,568) —

Restructuring expenses — — (69) —

Impairment loss on goodwill, identifiable intangible assets,

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

Total operations 250,362 5.3 % (16,643) (0.4) %

Other corporate items:

Net periodic pension (cost) income 1,830 1,460

Interest expense, net (2,679) (4,598)

Income before income taxes $ 116,549 $ 104,249

As described below in more detail, operating income was $117.0 million, or 5.1% of revenues, for the three months ended March 31, 2021, compared to operating income of $106.0 million, or 4.6% of revenues, for the three months ended March 31, 2020.

Operating income and operating margin increased by $11.0 million and 50 basis points, respectively, primarily as a result of improved profitability within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment.

These improvements were partially offset by reduced profitability within our United States industrial services segment, which incurred an operating loss during the first quarter of 2021, given the adverse market conditions previously referenced.

Companies acquired in 2021 and 2020 generated incremental operating income of $0.9 million, inclusive of $2.1 million of amortization expense associated with identifiable intangible assets, for the three months ended March 31, 2021.

Operating income of our United States electrical construction and facilities services segment was $40.3 million for both the three months ended March 31, 2021 and 2020.

Operating margins within this segment for such periods were 8.8% and 8.7%, respectively.

A company acquired during the first quarter of 2021 contributed incremental operating income of $0.4 million, inclusive of $0.4 million of amortization expense associated with identifiable intangible assets.

Increased gross profit from construction projects within the commercial and institutional market sectors was offset by a decline in gross profit from project activities within the manufacturing and transportation market sectors.

The increase in operating margin for the 2021 period was a result of a modest increase in gross profit margin within this segment.

Our United States mechanical construction and facilities services segment’s operating income for the first quarter of 2021 was $65.0 million, or 7.2% of revenues, compared to operating income of $45.2 million, or 5.4% of revenues, for the first quarter of 2020.

Operating income and operating margin of this segment increased by approximately $19.8 million and 180 basis points, respectively.

The increase in both operating income and operating margin was a result of an increase in gross profit and gross profit margin from construction projects within the majority of the market sectors in which we operate.

While these increases were partially driven by the overall increase in revenues of this segment, gross profit margin further benefited from:

(a) a more favorable mix of work than in the prior year period and (b) increased profitability resulting from the favorable progression on certain large food processing projects reported within the manufacturing market sector.

Operating margin of this segment additionally benefited from a decrease in the ratio of selling, general and administrative expenses to revenues, as a result of revenue growth without a commensurate increase in this segment’s overhead cost structure.

Operating income of our United States building services segment for the quarter ended March 31, 2021 was $29.3 million, or 5.0% of revenues, compared to operating income for the quarter ended March 31, 2020 of $21.3 million, or 4.0% of revenues.

The increase in this segment’s operating income for the three months ended March 31, 2021 was primarily due to:

(a) an increase in gross profit from our commercial site-based services division, largely as a result of an increase in snow removal activities from our contracts that are based on a per snow event basis, and (b) our mobile mechanical services division, which experienced:

(i) an increase in gross profit from project, controls, and service repair and maintenance activities, and (ii) a reduction in selling, general and administrative expenses when compared to the prior year due to the benefit of various cost reduction measures enacted subsequent to the first quarter of 2020.

The increase in operating margin for the three months ended March 31, 2021 was primarily attributable to a decrease in the ratio of selling, general and administrative expenses to revenues as a result of the cost reductions referenced above within our mobile mechanical services operations and the absorption of certain overhead costs within our commercial site-based services operations due to the increase in revenue previously referenced.

A company acquired in 2020, which is included within this segment’s mobile mechanical services division, contributed incremental operating income of approximately $0.6 million, inclusive of $1.7 million of amortization expense associated with identifiable intangible assets, during the first quarter of 2021.

Our United States industrial services segment reported an operating loss of $2.4 million for the three months ended March 31, 2021, representing a decrease of approximately $17.9 million compared to operating income of $15.4 million for the three months ended March 31, 2020.

Operating margin of this segment was (1.0)% and 4.2% for the first quarter of 2021 and 2020, respectively.

As previously referenced, this segment’s results continue to be severely impacted by adverse macroeconomic factors impacting the oil and gas industry.

As a result of such conditions, this segment experienced a reduction in gross profit from both our field services and shop services operations due to a decrease in demand for our service offerings.

In addition, the results of this segment for the first quarter of 2021 were negatively impacted by abnormal weather conditions and subsequent power outages within the Gulf Coast region, which resulted in the deferral or delay of previously planned maintenance and turnaround activities with certain of our customers.

The aforementioned decreases in gross profit were partially offset by a reduction in selling, general and administrative expenses period over period, including:

(a) incentive compensation and salaries, (b) the provision for credit losses, and (c) certain discretionary spending, such as travel and entertainment costs.

The decrease in operating margin for the three months ended March 31, 2021 was attributable to a decrease in gross profit margin resulting from the above noted factors, as well as an increase in the ratio of selling, general and administrative expenses to revenues due to a decrease in revenues without a commensurate decrease in certain of this segment’s fixed overhead costs.

Our United Kingdom building services segment’s operating income for the three months ended March 31, 2021 was $9.4 million compared to operating income of $5.8 million for the three months ended March 31, 2020.

The increase in operating income of this segment was primarily a result of incremental gross profit from increased project activities within the commercial market sector, partially offset by an increase in selling, general and administrative expenses.

In addition, this segment’s operating income was positively impacted by $0.8 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Operating margin of this segment was 7.4% and 5.1% for the 2021 and 2020 period, respectively.

The increase in this segment’s operating margin was attributable to gross profit margin expansion as a result of:

(a) successful contract close-outs during the current period and (b) a more favorable mix of work, including projects within the commercial and water and wastewater market sectors.

Despite the increase in selling, general and administrative expenses referenced above, the ratio of this segment’s selling, general and administrative expenses to revenues remained consistent with that of the prior year as the local management team was able to effectively leverage the segment’s overhead cost structure during this period of revenue growth.

Our corporate administration operating loss for the three months ended March 31, 2021 was $24.5 million compared to $21.9 million for the three months ended March 31, 2020.

The increase in corporate administration expenses for the 2021 period was primarily due to:

(a) an increase in computer hardware and software costs, including depreciation, as a result of various information technology and security initiatives currently in process, and (b) an increase in incentive compensation expense due to higher projected annual operating results than those which were anticipated during the same prior year period as our expectations in the prior year were negatively impacted by the uncertainty created by the COVID-19 pandemic.

Net interest expense for the three months ended March 31, 2021 and 2020 was $1.4 million and $2.5 million, respectively.

The decrease in net interest expense for the 2021 period resulted from both lower interest rates and reduced average outstanding borrowings.

For the three months ended March 31, 2021, our income tax provision was $31.6 million compared to $28.6 million for the three months ended March 31, 2020.

Our income tax rate for the three months ended March 31, 2021 was 27.2% compared to an income tax rate for the three months ended March 31, 2020 of 27.4%.

The increase in the 2021 income tax provision was primarily due to increased income before income taxes.

Income (loss) before income taxes $ 249,513 $ (19,781)

As described below in more detail, operating income was $133.4 million, or 5.5% of revenues, for the three months ended June 30, 2021, compared to an operating loss of $122.6 million, or (6.1)% of revenues, for the three months ended June 30, 2020.

Operating income was $250.4 million, or 5.3% of revenues, for the six months ended June 30, 2021, compared to an operating loss of $16.6 million, or (0.4)% of revenues, for the six months ended June 30, 2020.

The operating loss incurred in both 2020 periods resulted from $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during such prior year periods.

Excluding the impact of such impairments on our 2020 results, operating income increased by $23.2 million and $34.3 million for the three and six months ended June 30, 2021, respectively, as a result of improved operating performance within all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for their service offerings.

Companies acquired in 2021 and 2020 generated incremental operating income of $2.7 million and $3.6 million, inclusive of $3.2 million and $5.3 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2021, respectively.

Operating income of our United States electrical construction and facilities services segment for the three months ended June 30, 2021 was $42.7 million, or 8.7% of revenues, compared to operating income of $31.6 million, or 7.7% of revenues, for the three months ended June 30, 2020.

Operating income of this segment for the six months ended June 30, 2021 was $83.0 million, or 8.8% of revenues, compared to operating income of $71.9 million, or 8.2% of revenues, for the six months ended June 30, 2020.

The increase in operating income for both the three and six months ended June 30, 2021 was predominantly a result of increased gross profit from construction projects within the institutional and commercial market sectors, largely as a result of the revenue growth within these market sectors, as referenced above.

These increases were partially offset by a decline in gross profit from the transportation and manufacturing market sectors due to the completion or close-out of certain projects in the prior year.

In addition, a company acquired during the first quarter of 2021 contributed incremental operating income of $0.8 million and $1.2 million, inclusive of $0.6 million and $1.0 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2021, respectively.

The increase in operating margin for both 2021 periods was a result of an increase in gross profit margin due to a favorable revenue mix and improved project execution throughout this segment.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended June 30, 2021 was $79.3 million, or 8.3% of revenues, compared to operating income of $66.9 million, or 8.5% of revenues, for the three months ended June 30, 2020.

The increase in operating income for such period was primarily a result of greater gross profit resulting from the increase in project activities within the commercial market sector, as referenced within the revenue commentary for this segment.

The 20 basis point reduction in this segment’s operating margin for the three months ended June 30, 2021, when compared to the three months ended June 30, 2020, was a result of a decrease in gross profit margin, due to the composition of project work performed during each period, partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues given an increase in revenues without a commensurate increase in certain overhead costs.

Operating income of this segment for the six months ended June 30, 2021 was $144.2 million, or 7.7% of revenues, compared to operating income of $112.1 million, or 6.9% of revenues, for the six months ended June 30, 2020.

The increase in operating

income for the six months ended June 30, 2021 was a result of an increase in gross profit from construction projects within the majority of the market sectors in which we operate.

The improvement in operating margin for such period was attributable to:

(a) an increase in gross profit margin, given increased profitability resulting from the favorable progression on certain large food processing projects reported within the manufacturing market sector, and (b) a decrease in the ratio of selling, general and administrative expenses to revenues, as referenced above.

Operating income of our United States building services segment for the three months ended June 30, 2021 was $30.3 million, or 4.9% of revenues, compared to operating income of $26.6 million, or 5.6% of revenues, for the three months ended June 30, 2020.

Operating income of this segment for the six months ended June 30, 2021 was $59.6 million, or 4.9% of revenues, compared to operating income of $47.9 million, or 4.8% of revenues, for the six months ended June 30, 2020.

The increase in this segment’s operating income for the three and six months ended June 30, 2021 was primarily due to the resumption in demand for certain of our service offerings when compared to the prior year periods, which led to increased gross profit from:

(a) project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, and (b) project volumes within our commercial site-based services operations.

In addition, gross profit for the six months ended June 30, 2021 benefited from greater snow removal activity for our customers with whom we are contracted on a per snow event basis.

The decrease in operating margin for the three months ended June 30, 2021 was primarily attributable to a decrease in gross profit margin given a greater number of fixed price capital projects, which traditionally have lower gross profit margins, within this segment’s mobile mechanical services division, and a less favorable mix of work within this segment’s government services division during the quarter.

Companies acquired in 2021 and 2020, which are included within this segment’s mobile mechanical services division, contributed incremental operating income of approximately $2.0 million and $2.6 million, inclusive of $2.5 million and $4.1 million of amortization expense associated with identifiable intangible assets, during the three and six months ended June 30, 2021, respectively.

Our United States industrial services segment reported an operating loss of $0.2 million, or (0.1)% of revenues, for the three months ended June 30, 2021, compared to operating income of $3.3 million, or 1.4% of revenues, for the three months ended June 30, 2020.

This segment reported an operating loss of $2.7 million, or (0.6)% of revenues, for the six months ended June 30, 2021, compared to operating income of $18.7 million, or 3.1% of revenues, for the six months ended June 30, 2020.

As previously referenced, this segment’s results continue to be severely impacted by adverse macroeconomic factors affecting the oil and gas industry.

Given such conditions, and the ensuing decrease in demand for its service offerings, this segment’s operating results for the six months ended June 30, 2021 reflect a reduction in gross profit and gross profit margin from both our field services and shop services operations when compared to the six months ended June 30, 2020.

Despite these challenges, the results of operations of this segment for the three months ended June 30, 2021 reflect an increase in both gross profit and gross profit margin, driven by our field services operations, which began to experience more normalized profit margins when compared to the second quarter of 2020.

For both the three and six months ended June 30, 2021, this segment experienced an increase in the ratio of selling, general and administrative expenses to revenues, partially as a result of a $4.1 million increase in the provision for credit losses in connection with a specific customer bankruptcy, which negatively impacted the segment’s operating margin for the three and six months ended June 30, 2021 by 180 basis points and 90 basis points, respectively, and offset the improved gross profit performance during the quarter.

In addition to the impact of the aforementioned provision for credit losses, the increase in SG&A margin for both 2021 periods was attributable to a decrease in revenues without a commensurate decrease in this segment’s SG&A expenses given its overhead structure includes a larger percentage of fixed costs when compared to our other reportable segments.

Our United Kingdom building services segment’s operating income for the three months ended June 30, 2021 was $7.0 million compared to operating income of $5.4 million for the three months ended June 30, 2020.

Operating income for the six months ended June 30, 2021 was $16.5 million compared to operating income of $11.1 million for the six months ended June 30, 2020.

The increase in operating income of this segment for both periods was primarily a result of an increase in gross profit from greater project activities within the commercial market sector, partially offset by an increase in selling, general and administrative expenses.

In addition, this segment’s operating income for the three and six months ended June 30, 2021 was positively impacted by $0.8 million and $1.6 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Operating margin of this segment for the three and six months ended June 30, 2021 was 5.4% and 6.4%, respectively, compared to operating margin of 5.7% and 5.4% for the three and six months ended June 30, 2020, respectively.

The decrease in this segment’s operating margin for the three months ended June 30, 2021 was partially a result of an increase in the ratio of selling, general and administrative expenses to revenues in the current year as the prior year period benefited from certain short-term cost cutting initiatives enacted in response to the COVID-19 pandemic.

The increase in this segment’s operating margin for the six months ended June 30, 2021 was attributable to gross profit margin expansion as a result of:

(a) successful contract close-outs during the first quarter of the current year and (b) a more favorable mix of work, including projects within the commercial and water and wastewater market sectors.

Despite the increase in selling, general and administrative expenses referenced above, the ratio of this segment’s selling, general and administrative expenses to revenues for the six months ended June 30, 2021 remained consistent with that of the prior year as the local management team was able to effectively leverage the segment’s overhead cost structure during this period of revenue growth.

Our corporate administration operating loss for the three and six months ended June 30, 2021 was $25.8 million and $50.3 million, respectively, compared to $23.7 million and $45.6 million for the three and six months ended June 30, 2020, respectively.

The increase in corporate administration expenses for the 2021 periods was primarily due to:

(a) an increase in incentive compensation expense due to higher projected annual operating results than those which were anticipated during the same prior year period, partially as our expectations in the prior year were negatively impacted by the uncertainty created by the COVID-19 pandemic, and (b) an increase in computer hardware and software costs, including depreciation, as a result of various information technology and security initiatives currently in process.

These increases were partially offset by a decrease in salary expense given the realignment of certain of our back office functions in 2020.

Net interest expense for the three months ended June 30, 2021 and 2020 was $1.3 million and $2.1 million, respectively.

Net interest expense for the six months ended June 30, 2021 and 2020 was $2.7 million and $4.6 million, respectively.

The decrease in net interest expense for the 2021 periods resulted from both lower interest rates and reduced average outstanding borrowings.

For the three and six months ended June 30, 2021, our income tax provision was $35.6 million and $67.2 million, respectively, compared to an income tax benefit of $40.3 million and $11.8 million for the three and six months ended June 30, 2020, respectively.

Our income tax rate for the three and six months ended June 30, 2021 was 26.8% and 27.0%, respectively, compared to an income tax rate for the three and six months ended June 30, 2020 of (32.5)% and (59.4)%, respectively.

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

Remaining Unsatisfied Performance Obligations

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

March 31, 2021 % of Total December 31, 2020 % of Total March 31, 2020 % of Total

June 30, 2021 % of Total December 31, 2020 % of Total June 30, 2020 % of Total

Remaining performance obligations:

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

Our remaining performance obligations at March 31, 2021 were $4.78 billion compared to $4.59 billion at December 31, 2020 and $4.42 billion at March 31, 2020.

The increase in remaining performance obligations at March 31, 2021 compared to December 31, 2020 was attributable to an increase in remaining performance obligations within all of our reportable segments, except for our United States mechanical construction and facilities services segment, which experienced a marginal decline in remaining performance obligations.

Our remaining performance obligations at June 30, 2021 were $5.11 billion compared to $4.59 billion at December 31, 2020 and June 30, 2020.

The increase in remaining performance obligations at June 30, 2021 was attributable to an increase in remaining performance obligations within all of our reportable segments.

Liquidity and Capital Resources

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In addition, our ability to perform work is critical to meeting our long-term liquidity requirements.

Despite the economic uncertainty described above, we believe that we have sufficient financial resources available to meet our short-term and foreseeable long-term liquidity requirements.

We believe that we have sufficient financial resources available to meet our short-term and foreseeable long-term liquidity requirements.

The following table presents our net cash provided by (used in) operating activities, investing activities and financing activities (in thousands):

For the three months ended

Net cash used in operating activities $ (88,989) $ (78,813)

For the six months ended

Net cash (used in) provided by operating activities $ (6,972) $ 276,743

Net cash used in investing activities $ (70,939) $ (28,321)

Net cash (used in) provided by financing activities $ (23,938) $ 86,119

Decrease in cash, cash equivalents, and restricted cash $ (143,805) $ (11,793)

During the three months ended March 31, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $143.8 million from $903.6 million at December 31, 2020 to $759.8 million at March 31, 2021.

Net cash used in financing activities $ (157,085) $ (121,301)

(Decrease) increase in cash, cash equivalents, and restricted cash $ (233,774) $ 122,420

During the six months ended June 30, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $233.8 million from $903.6 million at December 31, 2020 to $669.8 million at June 30, 2021.

Operating Activities – Operating cash flows generally represent our net income as adjusted for certain non-cash items and changes in assets and liabilities.

Net cash used in operating activities for the three months ended March 31, 2021 was approximately $89.0 million compared to approximately $78.8 million of cash used in operating activities for the three months ended March 31, 2020.

The increase in cash used in operating activities was primarily attributable to the timing of payments from our customers, which resulted in a net reduction in cash receipts, partially offset by a decrease in payments to our vendors and subcontractors as many of our contractual arrangements do not require that we pay our suppliers until payment is received from our customers.

In addition, operating cash flow for the three months ended March 31, 2021 included the payment of nearly $15.0 million in value-added tax by our United Kingdom building services segment, which was deferred from the prior year.

Net cash used in operating activities for the six months ended June 30, 2021 was approximately $7.0 million compared to approximately $276.7 million of cash provided by operating activities for the six months ended June 30, 2020.

The $283.7 million variance in operating cash flows was primarily attributable to:

(a) strong organic revenue growth in the current year, which resulted in an increase in working capital balances, most notably accounts receivable, (b) an increase in federal, state, and local income tax payments of approximately $74.4 million, largely as a result of extended deadlines for making estimated federal tax payments in the prior year, and (c) the payment, by our United Kingdom building services segment during the first quarter of 2021, of nearly $15.0 million in value-added tax, which was deferred from the prior year.

In addition, operating cash flow for the six months ended June 30, 2020 benefited from the deferral of nearly $33.0 million of payroll tax payments given the enactment of the Coronavirus Aid, Relief, and Economic Security Act, which allowed employers to defer payment of the employer’s portion of Social Security taxes throughout the majority of calendar year 2020.

Investing Activities – Investing cash flows consist primarily of payments for the acquisition of businesses, capital expenditures, and proceeds from the sale or disposal of property, plant, and equipment.

Net cash used in investing activities for the three months ended March 31, 2021 increased by approximately $17.3 million compared to the three months ended March 31, 2020 due to an increase in payments for business acquisitions, partially offset by lower capital expenditures.

Net cash used in investing activities for the six months ended June 30, 2021 increased by approximately $42.6 million compared to the six months ended June 30, 2020 due to an increase in payments for business acquisitions, partially offset by lower capital expenditures.

Financing Activities – Financing cash flows consist primarily of the issuance and repayment of short-term and long-term debt, repurchases of common stock, payment of dividends to stockholders, and the issuance of common stock through certain employee equity plans.

Net cash used in financing activities for the three months ended March 31, 2021 was $23.9 million compared to net cash provided by financing activities for the three months ended March 31, 2020 of $86.1 million.

The $110.1 million variance in financing cash flows was primarily due to a decline of $192.5 million in net proceeds from short-term and long-term debt, partially offset by an $86.1 million reduction in funds used for the repurchase of our common stock.

Net cash used in financing activities for the six months ended June 30, 2021 was $157.1 million compared to net cash used in financing activities for the six months ended June 30, 2020 of $121.3 million.

The $35.8 million increase in cash used in financing activities was primarily due to an increase in funds used for the repurchase of our common stock.

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”).

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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 (0.11% at March 31, 2021) plus 1.00% to 1.75%, based on certain financial tests.

(1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (0.10% at June 30, 2021) plus 1.00% to 1.75%, based on certain financial tests.

The base rate is determined by the greater of:

(a) the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at March 31, 2021), (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 March 31, 2021 was 1.11%.

(a) the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at June 30, 2021), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00%, or (d) 0.00%.

The interest rate in effect at June 30, 2021 was 1.10%.

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

The fee was 0.10% of the unused amount as of March 31, 2021.

The fee was 0.10% of the unused amount as of June 30, 2021.

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 March 31, 2021 and December 31, 2020, the balance of the 2020 Term Loan was $270.6 million.

As of March 31, 2021 and December 31, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility;

As of June 30, 2021 and December 31, 2020, the balance of the 2020 Term Loan was $270.6 million.

As of June 30, 2021 and 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.

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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 March 31, 2021 and December 31, 2020.

We were in compliance with all such covenants as of June 30, 2021 and December 31, 2020.

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

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

During the three months ended March 31, 2021, we repurchased approximately 0.1 million shares of our common stock for approximately $12.9 million.

Since the inception of the repurchase program through March 31, 2021, we have repurchased approximately 17.7 million shares of our common stock for approximately $917.0 million.

As of March 31, 2021, there remained authorization for us to repurchase approximately $233.0 million of our shares.

During the six months ended June 30, 2021, we repurchased approximately 1.1 million shares of our common stock for approximately $138.0 million.

Since the inception of the repurchase program through June 30, 2021, we have repurchased approximately 18.7 million shares of our common stock for approximately $1,042.1 million.

As of June 30, 2021, there remained authorization for us to repurchase approximately $107.9 million of our shares.

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

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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.

As of March 31, 2021, 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 28% of our total remaining performance obligations.

As of June 30, 2021, 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 $1.4 billion, which represents approximately 27% 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 March 31, 2021, we satisfied approximately $37.5 million of the collateral requirements of our insurance programs by utilizing Surety Bonds.

As of June 30, 2021, 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.

From time to time, we discuss with our current and other Surety Bond providers the amounts of Surety Bonds that may be available to us based on our financial strength and the absence of any default by us on any Surety Bond issued on our behalf and believe those amounts are currently adequate for our needs.

However, if we experience changes in our bonding relationships or if there are adverse changes in the surety industry, we may (a) seek to satisfy certain customer requests for Surety Bonds by posting other forms of collateral in lieu of Surety Bonds, such as letters of credit, parent company guarantees, or cash, in order to convince customers to forego the requirement for Surety Bonds, (b) increase our activities in our business segments that rarely require Surety Bonds, such as our building and industrial services segments, and/or (c) refrain from bidding for certain projects that require Surety Bonds.

However, if we experience changes in our bonding relationships or if there are adverse changes in the surety industry, we may:

(a) seek to satisfy certain customer requests for Surety Bonds by posting other forms of collateral in lieu of Surety Bonds, such as letters of credit, parent company guarantees, or cash, in order to convince customers to forego the requirement for Surety Bonds, (b) increase our activities in our business segments that rarely require Surety Bonds, such as our building and industrial services segments, and/or (c) refrain from bidding for certain projects that require Surety Bonds.

There can be no assurance that we would be able to effectuate alternatives to providing Surety Bonds to our customers or to obtain, on favorable terms, sufficient additional work that does not require Surety Bonds.

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Certain Insurance Matters

As of March 31, 2021 and December 31, 2020, we utilized approximately $71.2 million of letters of credit obtained under our 2020 Revolving Credit Facility as collateral for insurance obligations.

As of March 31, 2021 and December 31, 2020, we satisfied an additional $37.5 million of these collateral requirements by utilizing Surety Bonds.

As of June 30, 2021 and December 31, 2020, we utilized approximately $71.2 million of letters of credit obtained under our 2020 Revolving Credit Facility as collateral for insurance obligations.

As of June 30, 2021 and December 31, 2020, we satisfied an additional $37.5 million of these collateral requirements by utilizing Surety Bonds.

New Accounting Pronouncements

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

For the three months ended March 31, 2021 and 2020, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three months ended March 31, 2021 and 2020.

For the three and six months ended June 30, 2021 and 2020, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three and six months ended June 30, 2021 and 2020.

The timing of revenue recognition may differ from the timing of invoicing to customers.

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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.

Factors relevant to our assessment 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.

At March 31, 2021 and December 31, 2020, our accounts receivable of $2,037.5 million and $1,922.1 million, respectively, were recorded net of allowances for credit losses of $18.1 million and $18.0 million, respectively.

At June 30, 2021 and December 31, 2020, our accounts receivable of $2,102.7 million and $1,922.1 million, respectively, were recorded net of allowances for credit losses of $22.5 million and $18.0 million, respectively.

The increase in our allowance for credit losses was predominantly attributable to our evaluation of a specific outstanding receivable within our United States industrial services segment.

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 allowances for credit losses.

The provision for credit losses amounted to approximately $0.5 million and $2.6 million for the three months ended March 31, 2021 and 2020, respectively.

The provision for credit losses amounted to approximately $5.5 million and $5.0 million for the six months ended June 30, 2021 and 2020, respectively.

Insurance Liabilities

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Therefore, if our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and will be recorded in the period that the experience becomes known.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $0.7 million at March 31, 2021 compared to December 31, 2020.

If our estimated insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims were to increase by 10%, it would have resulted in $17.3 million of additional expense for the three months ended March 31, 2021.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $3.8 million at June 30, 2021 compared to December 31, 2020, partially as a result of greater potential exposures, including the impact of acquired companies.

If our estimated insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims were to increase by 10%, it would have resulted in $17.6 million of additional expense for the six months ended June 30, 2021.

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 as well as for net operating loss and tax credit carryforwards.

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

At March 31, 2021 and December 31, 2020, we had net deferred income tax liabilities of $32.7 million and $29.4 million, respectively, primarily resulting from differences between the carrying value and income tax bases of certain identifiable intangible assets, goodwill, and depreciable fixed assets.

Included within these net deferred income tax liabilities are $216.8 million and $217.1 million of deferred income tax assets as of March 31, 2021 and December 31, 2020, respectively.

The total valuation allowance on deferred income tax assets, primarily related to state net operating loss carryforwards, was approximately $3.9 million as of both March 31, 2021 and December 31, 2020.

At June 30, 2021 and December 31, 2020, we had net deferred income tax liabilities of $31.5 million and $29.4 million, respectively, primarily resulting from differences between the carrying value and income tax bases of certain identifiable intangible assets, goodwill, and depreciable fixed assets.

Included within these net deferred income tax liabilities are $221.4 million and $217.1 million of deferred income tax assets as of June 30, 2021 and December 31, 2020, respectively.

The total valuation allowance on deferred income tax assets, primarily related to state net operating loss carryforwards, was approximately $3.9 million as of both June 30, 2021 and December 31, 2020.

Based on our taxable income, which has generally exceeded the amount of our net deferred income tax asset balance, as well as current projections of future taxable income, we have determined that it is more likely than not that our net deferred income tax assets will be realized.

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

As of March 31, 2021 and December 31, 2020, we had goodwill of $862.3 million and $851.8 million, respectively, arising out of the acquisition of businesses.

As of June 30, 2021 and December 31, 2020, we had goodwill of $868.8 million and $851.8 million, respectively, arising out of the acquisition of businesses.

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

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

As of March 31, 2021, approximately 16.5% of our goodwill related to our United States electrical construction and facilities services segment, approximately 35.1% related to our United States mechanical construction and facilities services segment, approximately 35.2% related to our United States building services segment, and approximately 13.2% related to our United States industrial services segment.

As of June 30, 2021, approximately 16.4% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.8% related to our United States mechanical construction and facilities services segment, approximately 35.7% related to our United States building services segment, and approximately 13.1% related to our United States industrial services segment.

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

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

We did not identify any impairment indicators during the three and six months ended June 30, 2021 that would necessitate an interim impairment assessment of our goodwill and no impairment of our goodwill was recognized during such periods.

However, 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 and other refined products significantly deteriorated as a result of the pandemic and the corresponding preventative measures taken around the world to mitigate the spread of the virus, including various local, state, and national jurisdictional “shelter-in-place” orders.

Further, other macroeconomic events during such period, including 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 such segment and concluded that a triggering event had occurred which indicated that it was more likely than not that its fair value was less than its carrying amount.

Based on the outcome of our second quarter 2020 interim goodwill impairment test, we concluded that the carrying amount of our United States industrial services segment exceeded its fair value by $225.5 million, resulting in the recognition of a non-cash goodwill impairment charge in that amount, which was included within our results of operations for the three and six months ended June 30, 2020.

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

Additionally, as described below, we subsequently (as of October 1, 2020) performed our annual impairment assessment of all reporting units and determined there was no incremental impairment of goodwill.

As of the date of our most recent impairment test (October 1, 2020), the 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 exceeded their carrying values by approximately $946.5 million, $1,682.2 million, $715.8 million, and $18.9 million, respectively.

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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.

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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 the results of our impairment tests.

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 the results of our impairment tests.

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.

No impairment of our goodwill was recognized during the three months ended March 31, 2021 and 2020.

Identifiable Intangible Assets and Other Long-Lived Assets

As of March 31, 2021 and December 31, 2020, net identifiable intangible assets (primarily consisting of our contract backlog, developed technology/vendor network, customer relationships, and subsidiary trade names) arising out of the acquisition of businesses were $580.6 million and $582.9 million, respectively.

As of June 30, 2021 and December 31, 2020, net identifiable intangible assets (primarily consisting of our contract backlog, developed technology/vendor network, customer relationships, and subsidiary trade names) arising out of the acquisition of businesses were $587.2 million and $582.9 million, respectively.

The determination of related estimated useful lives for identifiable intangible assets and whether those assets are impaired involves significant judgments based upon short- and long-term projections of future performance.

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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.

No impairment of our indefinite-lived trade names was recognized during the three months ended March 31, 2021 and 2020.

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.

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

No impairment of our finite-lived intangible assets or other long-lived assets was recognized during the three months ended March 31, 2021 and 2020.

Given the negative market conditions disclosed above, we 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.

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

We subsequently (as of October 1, 2020) performed our annual impairment assessment of all subsidiary trade names that are not subject to amortization and determined there was no incremental impairment of these assets.

Additionally, we have not identified any impairment indicators during the three and six months ended June 30, 2021 that would necessitate an interim impairment assessment of either our identifiable intangible assets or other long-lived assets, and no impairment of these assets was recognized during such 2021 periods.

Other Considerations

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In addition, estimates of weighted average costs of capital are developed with the assistance of an independent third-party valuation specialist.

These assumptions and estimates may change in future periods, especially in consideration of the uncertainty created by the COVID-19 pandemic and its continued impact on the broader economy and our results of operations, particularly with respect to our United States industrial services segment.

These assumptions and estimates may change in future periods, especially in consideration of the uncertainty created by the COVID-19 pandemic and its potential impact on the broader economy and our results of operations in future periods, particularly with respect to our United States industrial services segment.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis