Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	December 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	902,867	$	358,818
Accounts receivable, less allowance for credit losses of $18,031 and $14,466, respectively	1,922,096		2,030,813
Contract assets	171,956		177,830
Inventories	53,338		40,446
Prepaid expenses and other	70,679		51,976
Total current assets	3,120,936		2,659,883
Property, plant and equipment, net	158,427		156,187
Operating lease right-of-use assets	242,155		245,471
Goodwill	851,783		1,063,911
Identifiable intangible assets, net	582,893		611,444
Other assets	107,646		93,462
Total assets	$	5,063,840	$	4,830,358
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and finance lease liabilities	$	16,910	$	18,092
Accounts payable	671,886		665,402
Contract liabilities	722,252		623,642
Accrued payroll and benefits	450,955		382,573
Other accrued expenses and liabilities	247,597		195,757
Operating lease liabilities, current	53,632		53,144
Total current liabilities	2,163,232		1,938,610
Borrowings under revolving credit facility	—		50,000
Long-term debt and finance lease liabilities	259,619		244,139
Operating lease liabilities, long-term	205,362		204,950
Other long-term obligations	382,383		334,879
Total liabilities	3,010,596		2,772,578
Equity:
EMCOR Group, Inc. stockholders’ equity:
Preferred stock, $0.10 par value, 1,000,000 shares authorized, zero issued and outstanding	—		—
Common stock, $0.01 par value, 200,000,000 shares authorized, 60,571,140 and 60,359,252 shares issued, respectively	606		604
Capital surplus	47,464		32,274
Accumulated other comprehensive loss	(109,233)		(89,288)
Retained earnings	2,480,321		2,367,481
Treasury stock, at cost 5,815,240 and 4,139,421 shares, respectively	(366,490)		(253,937)
Total EMCOR Group, Inc. stockholders’ equity	2,052,668		2,057,134
Noncontrolling interests	576		646
Total equity	2,053,244		2,057,780
Total liabilities and equity	$	5,063,840	$	4,830,358

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

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EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Years Ended December 31,

(In thousands, except per share data)


	2020		2019		2018
Revenues	$	8,797,061	$	9,174,611	$	8,130,631
Cost of sales	7,401,679		7,818,743		6,925,178
Gross profit	1,395,382		1,355,868		1,205,453
Selling, general and administrative expenses	903,584		893,453		799,157
Restructuring expenses	2,214		1,523		2,306
Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets	232,750		—		907
Operating income	256,834		460,892		403,083
Net periodic pension (cost) income	2,980		1,553		2,743
Interest expense	(9,009)		(13,821)		(13,544)
Interest income	1,521		2,265		2,746
Income from continuing operations before income taxes	252,326		450,889		395,028
Income tax provision	119,383		125,749		109,106
Income from continuing operations	132,943		325,140		285,922
Loss from discontinued operation, net of income taxes	—		—		(2,345)
Net income including noncontrolling interests	132,943		325,140		283,577
Less: Net income attributable to noncontrolling interests	—		—		(46)
Net income attributable to EMCOR Group, Inc.	$	132,943	$	325,140	$	283,531
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.41	$	5.78	$	4.92
From discontinued operation	—		—		(0.04)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.41	$	5.78	$	4.88
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.40	$	5.75	$	4.89
From discontinued operation	—		—		(0.04)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.40	$	5.75	$	4.85
Dividends declared per common share	$	0.32	$	0.32	$	0.32

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

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EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For The Years Ended December 31,

(In thousands)


	2020		2019		2018
Net income including noncontrolling interests	$	132,943	$	325,140	$	283,577
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	2,088		1,689		(1,322)
Changes in post retirement plans (1)	(22,033)		(3,315)		7,860
Other comprehensive (loss) income	(19,945)		(1,626)		6,538
Comprehensive income	112,998		323,514		290,115
Less: Comprehensive income attributable to noncontrolling interests	—		—		(46)
Comprehensive income attributable to EMCOR Group, Inc.	$	112,998	$	323,514	$	290,069

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

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

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EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31,

(In thousands)


	2020		2019		2018
Cash flows - operating activities:
Net income including noncontrolling interests	$	132,943	$	325,140	$	283,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,721		43,945		38,472
Amortization of identifiable intangible assets	59,950		48,142		42,443
Provision for credit losses	3,269		2,628		2,123
Deferred income taxes	(36,354)		1,701		4,249
Gain on sale or disposal of property, plant and equipment	(122)		(3,981)		(517)
Excess tax benefits from share-based compensation	(191)		(984)		(1,646)
Equity (income) loss from unconsolidated entities	(14)		2,990		(347)
Non-cash expense for amortization of debt issuance costs	998		1,186		1,186
Non-cash expense from contingent consideration arrangements	649		1,373		186
Non-cash expense for impairment of goodwill, identifiable intangible assets, and other long- lived assets	232,750		—		907
Non-cash share-based compensation expense	11,151		11,386		11,030
Non-cash income from changes in unrecognized tax benefits	—		—		(72)
Distributions from unconsolidated entities	—		1,074		3,110
Changes in operating assets and liabilities, excluding the effect of businesses acquired:
Decrease (increase) in accounts receivable	139,377		(135,954)		(146,101)
(Increase) decrease in inventories	(12,709)		4,345		(3,915)
Decrease (increase) in contract assets	7,829		(10,111)		(30,935)
(Decrease) increase in accounts payable	(9,022)		(33,971)		78,554
Increase in contract liabilities	85,142		51,310		20,726
Increase (decrease) in accrued payroll and benefits and other accrued expenses and liabilities	113,835		49,551		(24,715)
Changes in other assets and liabilities, net	30,164		(4,070)		(7,304)
Net cash provided by operating activities	806,366		355,700		271,011
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired	(50,357)		(300,980)		(72,080)
Proceeds from sale or disposal of property, plant and equipment	3,463		5,487		1,237
Purchases of property, plant and equipment	(47,969)		(48,432)		(43,479)
Investments in and advances to unconsolidated entities	—		(2,252)		(3,484)
Distributions from unconsolidated entities	—		838		84
Net cash used in investing activities	(94,863)		(345,339)		(117,722)
Cash flows - financing activities:
Proceeds from revolving credit facility	200,000		50,000		—
Repayments of revolving credit facility	(250,000)		(25,000)		—
Proceeds from long-term debt	300,000		—		—
Repayments of long-term debt and debt issuance costs	(286,987)		(15,198)		(15,235)
Repayments of finance lease liabilities	(4,470)		(4,571)		(1,501)
Dividends paid to stockholders	(17,674)		(17,950)		(18,640)
Repurchases of common stock	(112,553)		—		(216,244)
Taxes paid related to net share settlements of equity awards	(2,640)		(6,451)		(3,848)
Issuances of common stock under employee stock purchase plan	6,557		6,090		5,765
Payments for contingent consideration arrangements	(4,070)		(5,917)		(3,339)
Distributions to noncontrolling interests	(70)		(250)		—
Net cash used in financing activities	(171,907)		(19,247)		(253,042)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	4,046		2,592		(3,421)
Increase (decrease) in cash, cash equivalents, and restricted cash	543,642		(6,294)		(103,174)
Cash, cash equivalents, and restricted cash at beginning of year (1)	359,920		366,214		469,388
Cash, cash equivalents, and restricted cash at end of period (1)	$	903,562	$	359,920	$	366,214

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

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

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EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

For The Years Ended December 31,

(In thousands)


			EMCOR Group, Inc. Stockholders
	Total		Common stock		Capital surplus		Accumulated other comprehensive loss (1)		Retained earnings		Treasury stock		Noncontrolling interests
Balance, December 31, 2017	$	1,674,117	$	599	$	8,005	$	(94,200)	$	1,796,556	$	(37,693)	$	850
Net income including noncontrolling interests	283,577		—		—		—		283,531		—		46
Other comprehensive income	6,538		—		—		6,538		—		—		—
Cumulative-effect adjustment (2)	(854)		—		—		—		(854)		—		—
Common stock issued under share-based compensation plans	—		1		(1)		—		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(3,848)		—		(3,848)		—		—		—		—
Common stock issued under employee stock purchase plan	5,765		1		5,764		—		—		—		—
Common stock dividends	(18,640)		—		153		—		(18,793)		—		—
Repurchases of common stock	(216,244)		—		—		—		—		(216,244)		—
Share-based compensation expense	11,030		—		11,030		—		—		—		—
Balance, December 31, 2018	$	1,741,441	$	601	$	21,103	$	(87,662)	$	2,060,440	$	(253,937)	$	896
Net income including noncontrolling interests	325,140		—		—		—		325,140		—		—
Other comprehensive loss	(1,626)		—		—		(1,626)		—		—		—
Common stock issued under share-based compensation plans	—		3		(3)		—		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(6,451)		—		(6,451)		—		—		—		—
Common stock issued under employee stock purchase plan	6,090		—		6,090		—		—		—		—
Common stock dividends	(17,950)		—		149		—		(18,099)		—		—
Distributions to noncontrolling interests	(250)		—		—		—		—		—		(250)
Share-based compensation expense	11,386		—		11,386		—		—		—		—
Balance, December 31, 2019	$	2,057,780	$	604	$	32,274	$	(89,288)	$	2,367,481	$	(253,937)	$	646
Net income including noncontrolling interests	132,943		—		—		—		132,943		—		—
Other comprehensive loss	(19,945)		—		—		(19,945)		—		—		—
Cumulative-effect adjustment (3)	(2,307)		—		—		—		(2,307)		—		—
Common stock issued under share-based compensation plans	2		2		—		—		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(2,640)		—		(2,640)		—		—		—		—
Common stock issued under employee stock purchase plan	6,557		—		6,557		—		—		—		—
Common stock dividends	(17,674)		—		122		—		(17,796)		—		—
Repurchases of common stock	(112,553)		—		—		—		—		(112,553)		—
Distributions to noncontrolling interests	(70)		—		—		—		—		—		(70)
Share-based compensation expense	11,151		—		11,151		—		—		—		—
Balance, December 31, 2020	$	2,053,244	$	606	$	47,464	$	(109,233)	$	2,480,321	$	(366,490)	$	576

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

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

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

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

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

References to the “Company,” “EMCOR,” “we,” “us,” “our” and similar words refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise.

We are one of the largest electrical and mechanical construction and facilities services firms in the United States. In addition, we provide a number of building services and industrial services. We specialize principally in providing construction services relating to electrical and mechanical systems in all types of facilities and in providing various services relating to the operation, maintenance and management of facilities, including refineries and petrochemical plants.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and joint ventures. Significant intercompany accounts and transactions have been eliminated. All investments over which we exercise significant influence, but do not control (a 20% to 50% ownership interest), are accounted for using the equity method of accounting. For joint ventures that have been accounted for using the consolidation method of accounting, noncontrolling interests represent the allocation of earnings to our joint venture partners who either have a minority-ownership interest in the joint venture or are not at risk for the majority of losses of the joint venture.

The results of operations of companies acquired have been included in the results of operations from the date of the respective acquisition.

Principles of Preparation

The preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

During the third quarter of 2014, we ceased construction operations in the United Kingdom. The results of the construction operations of our United Kingdom segment for all periods are presented as discontinued operations.

Revenue Recognition

Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Refer to Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements for additional information.

Cash and Cash Equivalents

For purposes of the consolidated financial statements, we consider all highly liquid instruments with original maturities of three months or less to be cash equivalents. We maintain a centralized cash management system whereby our excess cash balances are invested in high quality, short-term money market instruments, which are considered cash equivalents. We have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recognized in the period we deliver goods or provide services to our customers or when our right to consideration is unconditional. The Company maintains an allowance for credit losses. A considerable amount of judgment is required when determining expected credit losses. Estimates of such losses are recorded when we believe a customer, or group of customers, may not be able to meet their financial obligations due to deterioration in financial condition or credit rating. Relevant factors include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends in credit quality indicators or past events, and forecasts of future economic conditions. In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2020 and 2019, our accounts receivable of $1,922.1 million and $2,030.8 million, respectively, were recorded net of allowances for credit losses of $18.0 million and $14.5 million, respectively. Due to the economic disruption caused by the COVID-19 pandemic, our allowance for credit losses increased based on our evaluation of: (a) specific outstanding balances and (b) forecasts of future economic conditions and the expected impact on customer collections. Allowances for credit losses are based on the best facts available and are reassessed and adjusted on a regular basis as additional information is received. Should anticipated collections fail to materialize, or if future economic conditions compare unfavorably to our forecasts, we could experience an increase in our credit losses. The provision for credit losses during 2020, 2019, and 2018 amounted to approximately $3.3 million, $2.6 million, and $2.1 million, respectively.

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


Balance at December 31, 2019	$	14,466
Cumulative-effect adjustment	3,150
Provision for credit losses	3,269
Amounts written off against the allowance, net of recoveries	(2,854)
Balance at December 31, 2020	$	18,031

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined principally using the average cost method.

Leases

At the inception of a contract, we determine whether the arrangement is or contains a lease. Leases are classified as either operating or finance, based on our evaluation of certain criteria. With the exception of short-term leases (leases with an initial term of 12 months or less), we record right-of-use assets and corresponding lease liabilities on the balance sheet for all leases with contractual fixed payments. Lease liabilities are measured at the present value of remaining lease payments, while right-of-use assets are initially set equal to the lease liability, as adjusted for any payments made prior to lease commencement, lease incentives, and any initial direct costs incurred by us. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease, and right-of-use assets are subsequently re-measured to reflect the effect of uneven lease payments. For finance leases, right-of-use assets are amortized on a straight-line basis over the lease term. Expenses for finance leases include the amortization of right-of-use assets, which is recorded as depreciation and amortization expense, and interest expense, which reflects interest accrued on the lease liability. Refer to Note 17 - Leases of the notes to consolidated financial statements for additional information.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation, including amortization of assets under finance leases, is recorded principally using the straight-line method over estimated useful lives of 3 to 10 years for machinery and equipment, 3 to 7 years for vehicles, furniture and fixtures and computer hardware/software, and 25 years for buildings. Leasehold improvements are amortized over the shorter of the remaining lease term or the expected useful life of the improvement.

The carrying values of property, plant and equipment are reviewed for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. In performing this review for recoverability, property, plant and equipment is assessed for possible impairment by comparing their carrying values to their undiscounted net pre-tax cash flows expected to result from the use of the asset. Impaired assets are written down to their fair values, generally determined based on their estimated future discounted cash flows.

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

Goodwill and other identifiable intangible assets with indefinite lives, such as trade names, are tested at least annually for impairment (which we test each October 1, absent any earlier identified impairment indicators) and are written down if impaired. Identifiable intangible assets with finite lives are amortized over their useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable. See Note 9 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements for additional information.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Insurance Liabilities

Insurance liabilities for automobile liability, workers’ compensation and general liability claims are determined based on claims filed and an estimate of claims incurred but not yet reported. The liabilities are derived from known facts, historical trends, and industry averages, utilizing the assistance of an independent third-party actuary to determine the best estimate for such obligations. At December 31, 2020 and 2019, the estimated current portion of such undiscounted insurance liabilities of $48.2 million and $48.3 million, respectively, were included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets. The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” at December 31, 2020 and 2019 were $192.8 million and $186.0 million, respectively. The current portion of anticipated insurance recoveries of $14.4 million and $13.8 million at December 31, 2020 and 2019, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $54.3 million and $50.9 million at December 31, 2020 and 2019, respectively, were included in “Other assets” in the accompanying Consolidated Balance Sheets.

Foreign Operations

The financial statements and transactions of our foreign subsidiaries are maintained in their functional currency and translated into U.S. dollars when preparing our consolidated financial statements. Statements of operations, comprehensive income, and cash flows are translated using weighted average monthly exchange rates, while balance sheets are translated at month-end exchange rates. Translation adjustments are recorded as “Accumulated other comprehensive loss,” a separate component of “Equity.”

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the expected future taxable consequences of temporary differences between the financial statement and income tax bases of assets and liabilities as well as for net operating loss and tax credit carryforwards. Deferred income taxes are valued using enacted tax rates expected to be in effect when income taxes are paid or recovered, with the effect of a change in tax laws or rates recognized in the statement of operations in the period in which such change is enacted. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Deferred income taxes are recorded net of a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making such determination, we consider all available evidence, including projections of future taxable income, tax-planning strategies, and recent results of operations.

Tax benefits associated with uncertain tax positions are recognized only if it is more likely than not that the tax position would be sustained on its technical merits. For positions not meeting the “more likely than not” test, no tax benefit is recognized. To the extent interest and penalties may be assessed related to unrecognized tax benefits, we record accruals for such amounts as a component of the income tax provision. We had no unrecognized income tax benefits as of December 31, 2020 and 2019.

Valuation of Share-Based Compensation Plans

We have various types of share-based compensation plans and programs, which are administered by our Board of Directors or its Compensation and Personnel Committee. See Note 14 - Share-Based Compensation Plans of the notes to consolidated financial statements for additional information regarding the share-based compensation plans and programs.

We recognize all share-based payments issued to acquire goods or services in the statement of operations based on the fair value of such payments. Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period. For shares subject to graded vesting, our policy is to apply the straight-line method in recognizing compensation expense. The benefits of tax deductions in excess of recognized compensation expense are recognized in the Consolidated Statements of Operations when the underlying awards vest or are settled.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

New Accounting Pronouncements

On January 1, 2020, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”), which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable and contract assets. This pronouncement replaces the previous incurred loss model with an expected credit loss model that requires consideration of a broader range of information when estimating expected credit losses over the contractual life of an asset. This guidance requires entities to estimate expected credit losses by considering forecasts of future economic conditions in addition to information about past events and current conditions. The cumulative effect of applying the new guidance was recorded as a reduction to retained earnings in the amount of $2.3 million, net of deferred taxes of $0.9 million. Our financial position and results of operations for reporting periods beginning on or after January 1, 2020 reflect the guidance issued under this new accounting pronouncement, while prior periods continue to be reported in accordance with previous guidance and historical accounting policy.

In December 2019, an accounting pronouncement was issued by the FASB which simplifies the accounting for income taxes by eliminating certain exceptions to existing guidance surrounding intraperiod tax allocations and the methodology for calculating income taxes in an interim period. The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The pronouncement is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Certain aspects of this standard must be applied retrospectively while other aspects are to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company intends to adopt this accounting pronouncement on January 1, 2021, and does not anticipate that such adoption will have a material impact on our financial position and/or results of operations.

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by applying the following five step model:

(1) Identify the contract with a customer

A contract with a customer exists when: (a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectability of consideration is probable. Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist. In these situations, the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized. In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

(2) Identify the performance obligations in the contract

At contract inception, the Company assesses the goods or services promised in a contract and identifies, as a separate performance obligation, each distinct promise to transfer goods or services to the customer. The identified performance obligations represent the “unit of account” for purposes of determining revenue recognition. In order to properly identify separate performance obligations, the Company applies judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract.

In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract. To the extent the warranty terms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accounted for as a separate performance obligation. In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison to warranty terms which are standard in the industry.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Our contracts are often modified through change orders to account for changes in the scope and price of the goods or services we are providing. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of our change orders are for goods or services that are not distinct within the context of our original contract, and therefore, are not treated as separate performance obligations.

(3) Determine the transaction price

The transaction price represents the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to our customers. The consideration promised within a contract may include fixed amounts, variable amounts, or both. To the extent the performance obligation includes variable consideration, including contract bonuses and penalties that can either increase or decrease the transaction price, the Company estimates the amount of variable consideration to be included in the transaction price utilizing one of two prescribed methods, depending on which method better predicts the amount of consideration to which the entity will be entitled. Such methods include: (a) the expected value method, whereby the amount of variable consideration to be recognized represents the sum of probability weighted amounts in a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range of possible consideration amounts. When applying these methods, the Company considers all information that is reasonably available, including historical, current, and estimates of future performance. The expected value method is typically utilized in situations where a contract contains a large number of possible outcomes while the most likely amount method is typically utilized in situations where a contract has only two possible outcomes.

Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This threshold is referred to as the variable consideration constraint. In assessing whether to apply the variable consideration constraint, the Company considers if factors exist that could increase the likelihood or the magnitude of a potential reversal of revenue, including, but not limited to, whether: (a) the amount of consideration is highly susceptible to factors outside of the Company’s influence, such as the actions of third parties, (b) the uncertainty surrounding the amount of consideration is not expected to be resolved for a long period of time, (c) the Company’s experience with similar types of contracts is limited or that experience has limited predictive value, (d) the Company has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances, and (e) the contract has a large number and broad range of possible consideration amounts.

Pending change orders represent one of the most common forms of variable consideration included within contract value and typically represent contract modifications for which a change in scope has been authorized or acknowledged by our customer but the final adjustment to contract price is yet to be negotiated. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment of and/or agreement with the modification, as well as historical experience with the customer or similar contractual circumstances. Based upon this assessment, the Company estimates the transaction price, including whether the variable consideration constraint should be applied.

Contract claims are another form of variable consideration which is common within our industry. Claim amounts represent revenue that has been recognized for contract modifications that are not submitted or are in dispute as to both scope and price. In estimating the transaction price for claims, the Company considers all relevant facts available. However, given the uncertainty surrounding claims, including the potential long-term nature of dispute resolution and the broad range of possible consideration amounts, there is an increased likelihood that any additional contract revenue associated with contract claims is constrained. The resolution of claims involves negotiations and, in certain cases, litigation. In the event litigation costs are incurred by us in connection with claims, such litigation costs are expensed as incurred, although we may seek to recover these costs.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For some transactions, the receipt of consideration does not match the timing of the transfer of goods or services to the customer. For such contracts, the Company evaluates whether this timing difference represents a financing arrangement within the contract. Although rare, if a contract is determined to contain a significant financing component, the Company adjusts the promised amount of consideration for the effects of the time value of money when determining the transaction price of such contract. Although our customers may retain a portion of the contract price until completion of the project and final contract settlement, these retainage amounts are not considered a significant financing component as the intent of the withheld amounts is to provide the customer with assurance that we will complete our obligations under the contract rather than to provide financing to the customer. In addition, although we may be entitled to advanced payments from our customers on certain contracts, these advanced payments generally do not represent a significant financing component as the payments are used to meet working capital demands that can be higher in the early stages of a contract, as well as to protect us from our customer failing to meet its obligations under the contract.

Changes in the estimates of transaction prices are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior periods. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. During the year ended December 31, 2020, we recognized revenue of $6.1 million associated with the final settlement of contract value for two projects within our United States electrical construction and facilities services segment that were completed or substantially completed in prior periods. There were no significant amounts of revenue recognized during the year ended December 31, 2019 related to performance obligations satisfied in prior periods. During the year ended December 31, 2018, we recognized revenue of $7.3 million associated with the final settlement of contract value for three projects within our United States mechanical construction and facilities services segment that were completed in prior periods. For each of the years ended December 31, 2020, 2019, and 2018, there were no significant reversals of revenue recognized associated with the revision of transaction prices.

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

For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as market conditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation.

(5) Recognize revenue as performance obligations are satisfied

The Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service is considered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or at a point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.

For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the amount of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations.

For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer. For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping, if certain recognition criteria are met.

For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds, and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. During each of the years ended December 31, 2020 and 2019, there were no changes in total estimated costs that had a significant impact on our operating results. For the year ended December 31, 2018, we recognized losses of $10.0 million related to a change in total estimated costs on a transportation project within our United States electrical construction and facilities services segment, resulting in part from contract scope issues.

Disaggregation of Revenues

Our revenues are principally derived from contracts to provide construction services relating to electrical and mechanical systems, as well as to provide a number of building services and industrial services to our customers. Our contracts are with many different customers in numerous industries. Refer to Note 19 - Segment Information of the notes to the consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment, as well as a more complete description of our business.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


	2020		% of Total		2019		% of Total		2018		% of Total
United States electrical construction and facilities services:
Commercial market sector	$	971,283	49	%	$	1,081,737	49	%	$	839,045	43	%
Institutional market sector	149,363		7	%	125,537		6	%	110,046		6	%
Hospitality market sector	23,797		1	%	16,985		1	%	32,338		2	%
Manufacturing market sector	381,542		19	%	462,953		21	%	388,157		20	%
Healthcare market sector	79,275		4	%	88,752		4	%	126,218		6	%
Transportation market sector	192,656		10	%	210,515		9	%	284,464		14	%
Water and wastewater market sector	6,882		1	%	19,921		1	%	23,337		1	%
Short duration projects (1)	121,061		6	%	158,619		7	%	120,109		6	%
Service work	52,687		3	%	54,955		2	%	34,105		2	%
	1,978,546				2,219,974				1,957,819
Less intersegment revenues	(5,119)				(3,374)				(3,496)
Total segment revenues	$	1,973,427			$	2,216,600			$	1,954,323


	2020		% of Total		2019		% of Total		2018		% of Total
United States mechanical construction and facilities services:
Commercial market sector	$	1,316,013	38	%	$	1,185,129	36	%	$	1,057,542	35	%
Institutional market sector	377,780		11	%	313,409		9	%	289,882		10	%
Hospitality market sector	40,079		1	%	35,385		1	%	93,827		3	%
Manufacturing market sector	430,365		12	%	533,699		16	%	393,637		13	%
Healthcare market sector	349,235		10	%	304,622		9	%	240,818		8	%
Transportation market sector	70,692		2	%	32,686		1	%	19,415		1	%
Water and wastewater market sector	185,996		5	%	202,428		6	%	176,546		6	%
Short duration projects (1)	343,799		10	%	365,721		11	%	318,413		11	%
Service work	378,054		11	%	378,839		11	%	385,671		13	%
	3,492,013				3,351,918				2,975,751
Less intersegment revenues	(6,518)				(11,581)				(12,908)
Total segment revenues	$	3,485,495			$	3,340,337			$	2,962,843

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


	2020		% of Total		2019		% of Total		2018		% of Total
United States building services:
Commercial site-based services	$	587,345	28	%	$	571,345	27	%	$	519,641	28	%
Government site-based services	167,990		8	%	176,282		8	%	213,677		11	%
Mobile mechanical services	1,258,916		60	%	1,238,420		59	%	1,032,082		55	%
Energy services	95,878		4	%	120,825		6	%	110,085		6	%
Total segment revenues	$	2,110,129			$	2,106,872			$	1,875,485

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	2020		% of Total		2019		% of Total		2018		% of Total
United States industrial services:
Field services	$	670,424	84	%	$	922,308	85	%	$	752,458	82	%
Shop services	127,023		16	%	165,235		15	%	170,651		18	%
Total segment revenues	$	797,447			$	1,087,543			$	923,109

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


	2020		% of Total		2019		% of Total		2018		% of Total
United Kingdom building services:
Service work	$	221,373	51	%	$	212,876	50	%	$	216,880	52	%
Project work	209,190		49	%	210,383		50	%	197,991		48	%
Total segment revenues	$	430,563			$	423,259			$	414,871

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

Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for credit losses. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrial services segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded as revenue is recognized in advance of billings. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to scope and/or price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

As of December 31, 2020 and 2019, contract assets included unbilled revenues for unapproved change orders of approximately $15.3 million and $33.1 million, respectively. As of December 31, 2020 and 2019, there were no claim amounts included within contract assets or accounts receivable. There were contractually billed amounts and retention related to contracts with unapproved change orders and claims of approximately $87.9 million and $89.0 million as of December 31, 2020 and 2019, respectively. For contracts in claim status, contractually billed amounts will generally not be paid by the customer to us until final resolution of the related claims.

Contract liabilities from our long-term construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue. The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


	2020		2019
Contract assets, current	$	171,956	$	177,830
Contract assets, non-current	—		—
Contract liabilities, current	(722,252)		(623,642)
Contract liabilities, non-current	(2,283)		(2,142)
Net contract liabilities	$	(552,579)	$	(447,954)

Included within net contract liabilities were $496.8 million and $406.6 million of net contract liabilities on uncompleted construction projects as of December 31, 2020 and 2019, respectively, as follows (in thousands):


	2020		2019
Costs incurred on uncompleted construction contracts	$	10,727,358	$	9,885,192
Estimated earnings, thereon	1,640,250		1,349,338
	12,367,608		11,234,530
Less: billings to date	12,864,404		11,641,082
	$	(496,796)	$	(406,552)

The $104.6 million increase in net contract liabilities for the year ended December 31, 2020 was primarily attributable to the $90.2 million increase in the net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the timing of billings to our customers as amounts invoiced exceeded the revenue recognized on certain large projects. Contract assets and contract liabilities increased by approximately $0.2 million and $9.4 million, respectively, as a result of acquisitions made by us in 2020. There was no significant impairment of contract assets recognized during the periods presented.

Contract Retentions

As of December 31, 2020 and 2019, accounts receivable included $323.9 million and $298.5 million, respectively, of retainage billed under terms of our contracts. These retainage amounts represent amounts which have been contractually invoiced to customers where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions, or completion of the project. We estimate that approximately 89% of this retainage will be collected during 2021.

As of December 31, 2020 and 2019, accounts payable included $59.8 million and $64.7 million, respectively, of retainage withheld under terms of our subcontracts. These retainage amounts represent amounts invoiced to the Company by our subcontractors where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions, or upon completion of the project. We estimate that approximately 90% of this retainage will be paid during 2021.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

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


	2020		% of Total
Remaining performance obligations:
United States electrical construction and facilities services	$	1,087,238	24	%
United States mechanical construction and facilities services	2,673,293		58	%
United States building services	612,179		13	%
United States industrial services	91,237		2	%
Total United States operations	4,463,947		97	%
United Kingdom building services	130,673		3	%
Total operations	$	4,594,620	100	%

Our remaining performance obligations at December 31, 2020 were $4.59 billion. Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts. We include a project within our remaining performance obligations at such time the project is awarded and agreement on contract terms has been reached. Our remaining performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of total transaction price can be made.

Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts. Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts as the risk of cancellation is very low due to the inherent substantial economic penalty that our customers would incur upon cancellation or termination. We believe our reported remaining performance obligations for our construction contracts are firm and contract cancellations have not had a material adverse effect on us.

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

Our remaining performance obligations are comprised of: (a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business, (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts. Such claim and other variable consideration amounts were immaterial for all periods presented.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


	Within one year		Greater than one year
Remaining performance obligations:
United States electrical construction and facilities services	$	946,735	$	140,503
United States mechanical construction and facilities services	2,122,777		550,516
United States building services	559,159		53,020
United States industrial services	91,237		—
Total United States operations	3,719,908		744,039
United Kingdom building services	97,493		33,180
Total operations	$	3,817,401	$	777,219

NOTE 4 - ACQUISITIONS OF BUSINESSES

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

During 2020, we acquired three companies for total consideration of $50.2 million. Such companies include: (a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C. metro area, and (c) a company that provides mobile mechanical services in the Southern region of the United States. The results of operations for all three companies have been included within our United States building services segment. In connection with these acquisitions, we acquired working capital of $3.0 million and other net liabilities of $3.9 million and have preliminarily ascribed $13.0 million to goodwill and $38.1 million to identifiable intangible assets.

On November 1, 2019, we completed the acquisition of Batchelor & Kimball, Inc. (“BKI”), a leading full service provider of mechanical construction and maintenance services. This acquisition strengthens our position and broadens our capabilities in the Southern and Southeastern regions of the United States, and the results of its operations have been included within our United States mechanical construction and facilities services segment. Under the terms of the transaction, we acquired 100% of BKI’s outstanding capital stock for total consideration of approximately $220.3 million. In connection with the acquisition of BKI, we acquired working capital of $29.8 million and other net assets of $4.9 million and have ascribed $43.9 million to goodwill and $141.7 million to identifiable intangible assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the net assets acquired and represents the future economic benefits expected from this strategic acquisition. The weighted average amortization period for the identifiable intangible assets, which consist of a trade name, customer relationships, and contract backlog, is approximately 10.5 years.

In addition to BKI, during 2019, we completed six other acquisitions for total consideration of $85.4 million. Such companies include: (a) a company that provides electrical contracting services in central Iowa, the results of operations of which have been included within our United States electrical construction and facilities services segment, (b) a company that provides mechanical contracting services in south-central and eastern Texas, the results of operations of which have been included within our United States mechanical construction and facilities services segment, and (c) four companies within our United States building services segment which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions. In connection with these acquisitions, we acquired working capital of $25.3 million and other net assets of $1.3 million and have ascribed $29.2 million to goodwill and $29.6 million to identifiable intangible assets.

During 2018, we acquired four companies for total consideration of $71.6 million. Two companies provide mobile mechanical services, one within the Eastern region and the other within the Western region of the United States. The third company is a full service provider of mechanical services within the Southern region of the United States. The results of these three companies have been included in our United States building services segment. The fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north Texas, and the results of its operations have been included in our United States electrical construction and facilities services segment. In connection with these acquisitions, we acquired working capital of $8.7 million and have ascribed $26.3 million to goodwill and $36.6 million to identifiable intangible assets.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - ACQUISITIONS OF BUSINESSES - (Continued)

We expect that all of the goodwill acquired in connection with these acquisitions will be deductible for tax purposes. The purchase price allocation for one of the businesses acquired in 2020 is preliminary and subject to change during its measurement period. As we finalize such purchase price allocation, adjustments may be recorded relating to finalization of intangible asset valuations, tax matters, or other items. Although not expected to be significant, such adjustments may result in changes in the valuation of assets and liabilities acquired. The purchase price allocations for the other businesses acquired in 2020 and the businesses acquired in 2019 and 2018 have been finalized during their respective measurement periods with an insignificant impact.

NOTE 5 - DISPOSITION OF ASSETS

Due to a historical pattern of losses in the construction operations of our United Kingdom segment and our negative assessment of construction market conditions in the United Kingdom, we ceased construction operations in the United Kingdom during the third quarter of 2014. The results of the construction operations of our United Kingdom segment for all periods are presented in the Consolidated Financial Statements as discontinued operations.

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

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


	2018
Revenues	$	—
Loss from discontinued operation, net of income taxes	$	(2,345)
Diluted loss per share from discontinued operation	$	(0.04)

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

NOTE 6 - EARNINGS PER SHARE

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


	2020		2019		2018
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	132,943	$	325,140	$	285,876
Loss from discontinued operation, net of income taxes	—		—		(2,345)
Net income attributable to EMCOR Group, Inc. common stockholders	$	132,943	$	325,140	$	283,531
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	55,196,173		56,208,280		58,112,838
Effect of dilutive securities—Share-based awards	225,098		311,001		330,629
Shares used to compute diluted earnings (loss) per common share	55,421,271		56,519,281		58,443,467
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.41	$	5.78	$	4.92
From discontinued operation	—		—		(0.04)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.41	$	5.78	$	4.88
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.40	$	5.75	$	4.89
From discontinued operation	—		—		(0.04)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.40	$	5.75	$	4.85

The number of outstanding share-based awards excluded from the computation of diluted EPS for the years ended December 31, 2020, 2019, and 2018 because they would be anti-dilutive were 24,450, 4,800, and 550, respectively.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - INVENTORIES

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


	2020		2019
Raw materials and construction materials	$	42,240	$	31,365
Work in process	11,098		9,081
Inventories	$	53,338	$	40,446

NOTE 8 - PROPERTY, PLANT AND EQUIPMENT

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


	2020		2019
Machinery and equipment	$	176,031	$	166,087
Vehicles	61,624		59,116
Furniture and fixtures	23,724		22,123
Computer hardware/software	111,846		104,916
Land, buildings and leasehold improvements	124,309		113,020
Construction in progress	7,754		10,236
Finance lease right-of-use assets (1)	9,638		9,609
	514,926		485,107
Accumulated depreciation and amortization	(356,499)		(328,920)
	$	158,427	$	156,187

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

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

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

Goodwill

In connection with our acquisition of businesses, we have recorded goodwill, which represents the excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets acquired. Our goodwill balance at December 31, 2020 and 2019 was $851.8 million and $1,063.9 million, respectively, with goodwill attributable to companies acquired in 2020 and 2019 valued at $13.0 million and $73.1 million, respectively. Goodwill is not amortized but instead allocated to its respective reporting unit and evaluated for impairment annually, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. We have determined that our reporting units are consistent with the reportable segments identified in Note 19 - Segment Information of the notes to consolidated financial statements. As of December 31, 2020, approximately 16.7% of our goodwill related to our United States electrical construction and facilities services segment, approximately 35.2% of our goodwill related to our United States mechanical construction and facilities services segment, approximately 35.5% of our goodwill related to our United States building services segment and approximately 12.6% of our goodwill related to our United States industrial services segment.

Absent any earlier identified impairment indicators, we perform our annual goodwill impairment assessment on October 1 each fiscal year. Qualitative indicators that may trigger the need for interim quantitative impairment testing include, among others, a deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, an interim impairment test may be triggered by a significant change in business climate, a loss of a significant customer, increased competition, or a sustained decrease in share price. In assessing whether our goodwill is impaired, we compare the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment is recognized. However, if the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is impaired and an impairment loss in the amount of the excess is recognized and charged to operations.

Our operations were significantly impacted by the COVID-19 pandemic starting with the second quarter of 2020. During the same period, the demand for oil significantly deteriorated as a result of the pandemic and the corresponding preventative measures taken around the world to mitigate the spread of the virus, including various local, state, and national jurisdictional

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

“shelter-in-place” orders. Further, other macroeconomic events, including the escalation of geopolitical tensions between the Organization of Petroleum Exporting Countries (OPEC) and Russia, resulted in a significant drop in the price of crude oil. These negative factors created significant volatility and uncertainty in the markets in which our United States industrial services segment operates, resulting in a significant decrease in the demand for our service offerings. Consequently, in the second quarter of 2020, we revised our near-term revenue and operating margin expectations for our United States industrial services segment and concluded that a triggering event had occurred which indicated it was more likely than not that the fair value of our United States industrial services segment was less than its carrying amount.

Accordingly, we performed a quantitative goodwill impairment test and determined the fair value of our United States industrial services segment using an income approach whereby fair value was calculated utilizing discounted estimated future cash flows, assuming a risk-adjusted industry weighted average cost of capital of 12.0%. Such weighted average cost of capital was developed with the assistance of an independent third-party valuation specialist and reflected the overall level of inherent risk within the business and the rate of return a market participant would expect to earn as of the interim date. Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated for the events discussed above, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends, an estimate of long-term growth rates, and assumptions about the future demand for our services. The perpetual growth rate utilized in the interim terminal value calculation was 2.0%.

Based on the outcome of our interim goodwill impairment test, we concluded that the carrying amount of our United States industrial services segment exceeded its fair value, resulting in the recognition of a non-cash goodwill impairment charge of $225.5 million, which is included within our results of operations for the year ended December 31, 2020. We did not identify impairment indicators related to any other reporting unit that would have required an interim impairment assessment.

As of October 1, 2020, we performed our annual impairment assessment of all reporting units and determined there was no incremental impairment of goodwill. Consistent with the methodology applied in our interim impairment test, we determined the fair value of each of our reporting units using an income approach whereby fair value was calculated utilizing discounted estimated future cash flows, assuming a risk-adjusted industry weighted average cost of capital. The weighted average cost of capital used in our annual impairment testing was 10.6%, 10.4%, and 11.6% for our United States construction segments, our United States building services segment, and our United States industrial services segment, respectively. These weighted average cost of capital estimates were developed with the assistance of an independent third-party valuation specialist and reflect the overall level of inherent risk within the respective reporting unit and the rate of return a market participant would expect to earn. Our cash flow projections were derived from our most recent internal forecasts of anticipated revenue growth rates and operating margins, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends, an estimate of long-term growth rates, and assumptions about the future demand for our services. The perpetual growth rate used for our annual testing was 2.0% for all of our reporting units.

Due to the inherent uncertainties involved in making estimates, our assumptions may change in future periods. Estimates and assumptions made for purposes of our goodwill impairment testing may prove to be inaccurate predictions of the future, and other factors used in assessing fair value, such as the weighted average cost of capital, are outside the control of management. Unfavorable changes in certain of these key assumptions may affect future testing results. For example, keeping all other assumptions constant, a 50 basis point increase in the weighted average cost of capital would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment, and our United States industrial services segment to decrease by approximately $63.3 million, $115.9 million, $69.9 million, and $23.2 million, respectively. In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment, and our United States industrial services segment to decrease by approximately $31.0 million, $58.9 million, $33.5 million, and $9.7 million, respectively. Given the amounts by which the fair value exceeds the carrying value for each of our reporting units other than our United States industrial services segment, the decreases in estimated fair values described above would not have significantly impacted 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. Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future goodwill impairment charges. It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such a charge would be material to our results of operations.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


	United States electrical construction and facilities services segment		United States mechanical construction and facilities services segment		United States building services segment		United States industrial services segment		Total
Balance at December 31, 2018	$	133,207	$	256,321	$	274,171	$	327,188	$	990,887
Acquisitions and purchase price adjustments	9,338		48,699		14,987		—		73,024
Intersegment transfers	—		(5,800)		—		5,800		—
Balance at December 31, 2019	142,545		299,220		289,158		332,988		1,063,911
Acquisitions and purchase price adjustments	—		398		12,974		—		13,372
Impairment	—		—		—		(225,500)		(225,500)
Balance at December 31, 2020	$	142,545	$	299,618	$	302,132	$	107,488	$	851,783

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

Identifiable Intangible Assets and Other Long-Lived Assets

Our identifiable intangible assets, arising out of the acquisition of businesses, include contract backlog, developed technology/vendor network, customer relationships, and certain subsidiary trade names, all of which are subject to amortization. In addition, our identifiable intangible assets include certain other subsidiary trade names, which are indefinite-lived and therefore not subject to amortization.

Absent earlier indicators of impairment, we test for impairment of subsidiary trade names that are not subject to amortization on an annual basis (October 1). In performing this test, we calculate the fair value of each trade name using the “relief from royalty payments” methodology. This approach involves two steps: (a) estimating reasonable royalty rates for each trade name and (b) applying these royalty rates to a net revenue stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of each trade name. If the carrying amount of the trade name is greater than the implied fair value of the trade name, an impairment in the amount of the excess is recognized and charged to operations. In addition, we review for impairment of identifiable intangible assets that are being amortized as well as other long-lived assets whenever facts and circumstances indicate that their carrying values may not be fully recoverable. This test compares their carrying values to the undiscounted pre-tax cash flows expected to result from the use of the assets. If the assets are impaired, the assets are written down to their fair values, generally determined based on their discounted estimated future cash flows.

Given the negative market conditions disclosed above, we also evaluated certain of our identifiable intangible assets and other long-lived assets for impairment during the second quarter of 2020. Such assets included those associated with the businesses in our United States industrial services segment and certain businesses within our United States electrical construction and facilities services segment whose results are also highly dependent on the strength of the oil and gas industry. As a result of these assessments, we recorded non-cash impairment charges of $7.3 million, which have been included within our results of operations for the year ended December 31, 2020. Of this amount, $4.8 million related to our United States industrial services segment and was comprised of: (a) a $4.2 million subsidiary trade name impairment and (b) a $0.6 million impairment on certain other long-lived assets. The remaining $2.5 million represented a subsidiary trade name impairment within our United States electrical construction and facilities services segment.

As of October 1, 2020, we performed our annual impairment testing of all subsidiary trade names that are not subject to amortization and determined that there was no incremental impairment of these assets. For the years ended December 31, 2019 and 2018, no impairment of our indefinite-lived trade names was recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, we did not identify any further circumstances indicating that their carrying values may not be fully recoverable and, therefore, no additional impairment testing was required for these assets during the year ended December 31, 2020. For the year ended December 31, 2019, no impairment of our finite-lived intangible assets or other long-lived assets was recognized. We recorded a $0.9 million non-cash impairment charge associated with a finite-lived trade name within our United States industrial services segment during the year ended December 31, 2018.

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


	December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment Charge		Total
Contract backlog	$	72,045	$	(68,766)	$	—	$	3,279
Developed technology/Vendor network	95,661		(64,994)		—		30,667
Customer relationships	670,155		(324,426)		(4,834)		340,895
Trade names (amortized)	31,516		(23,002)		—		8,514
Trade names (unamortized)	258,471		—		(58,933)		199,538
Total	$	1,127,848	$	(481,188)	$	(63,767)	$	582,893


	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment Charge		Total
Contract backlog	$	66,745	$	(61,651)	$	—	$	5,094
Developed technology/Vendor network	95,661		(60,156)		—		35,505
Customer relationships	644,755		(277,601)		(4,834)		362,320
Trade names (amortized)	31,148		(21,830)		—		9,318
Trade names (unamortized)	251,440		—		(52,233)		199,207
Total	$	1,089,749	$	(421,238)	$	(57,067)	$	611,444

Identifiable intangible assets attributable to businesses acquired in 2020 and 2019 have been valued at $38.1 million and $171.3 million, respectively, and consist of contract backlog, customer relationships, and trade names. See Note 4 - Acquisitions of Businesses of the notes to consolidated financial statements for additional information with respect to acquisitions.

Identifiable intangible assets are amortized on a straight-line basis, as it best approximates the pattern in which the economic benefits of such assets are consumed. The weighted average amortization periods for the unamortized balances remaining are, in the aggregate, approximately 7.75 years, which are comprised of the following: 0.75 years for contract backlog, 6.75 years for developed technology/vendor network, 8.00 years for customer relationships and 9.75 years for trade names.

Amortization expense related to identifiable intangible assets with finite lives was $60.0 million, $48.1 million, and $42.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. The following table presents the estimated future amortization expense of identifiable intangible assets in the following years (in thousands):


2021	$	56,502
2022	51,020
2023	50,015
2024	49,664
2025	48,582
Thereafter	127,572
	$	383,355

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - DEBT

Credit Agreement

Until March 2, 2020, we had a credit agreement dated as of August 3, 2016, which provided for a $900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”). On March 2, 2020, we amended and restated the 2016 Credit Agreement to provide for a $1.3 billion revolving credit facility (the “2020 Revolving Credit Facility”) and a $300.0 million term loan (the “2020 Term Loan”) (collectively referred to as the “2020 Credit Agreement”) expiring March 2, 2025. We may increase the 2020 Revolving Credit Facility to $1.9 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $400.0 million of available capacity under the 2020 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries.

At the Company’s election, borrowings under the 2020 Credit Agreement bear interest at either: (1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (0.15% at December 31, 2020) plus 1.00% to 1.75%, based on certain financial tests. The base rate is determined by the greater of (a) the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at December 31, 2020), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00%, or (d) 0.00%. The interest rate in effect at December 31, 2020 was 1.15%. A commitment fee is payable on the average daily unused amount of the 2020 Revolving Credit Facility, which ranges from 0.10% to 0.25%, based on certain financial tests. The fee was 0.10% of the unused amount as of December 31, 2020. Fees for letters of credit issued under the 2020 Revolving Credit Facility range from 0.75% to 1.75% of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed based on certain financial tests.

As of December 31, 2020 and 2019, the balance of the 2020 Term Loan and the 2016 Term Loan was $270.6 million and $254.4 million, respectively. As of December 31, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility; however, we had $71.3 million of letters of credit outstanding, which reduce the available capacity under such facility. As of December 31, 2019, we had $50.0 million in direct borrowings outstanding and $109.0 million of letters of credit outstanding under the 2016 Revolving Credit Facility. We capitalized an additional $3.1 million of debt issuance costs associated with the 2020 Credit Agreement. Debt issuance costs are amortized over the life of the agreement and are included as part of interest expense.

Obligations under the 2020 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2020 Credit Agreement contains various covenants providing for, among other things, the maintenance of certain financial ratios and certain limitations on the payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. We were in compliance with all such covenants as of December 31, 2020 with respect to the 2020 Credit Agreement and, as of December 31, 2019, with respect to the 2016 Credit Agreement.

We are required to make annual principal payments on the 2020 Term Loan. On September 30, 2020, we made a voluntary prepayment of $22.5 million, which was applied against our scheduled payments on a ratable basis. Principal payments of $13.9 million are due on December 31 of each subsequent year. All unpaid principal and interest is due on March 2, 2025.

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


	2020		2019
Revolving credit facility	$	—	$	50,000
Term loan, interest payable at varying amounts through 2025	270,563		254,431
Unamortized debt issuance costs	(4,000)		(1,879)
Finance lease liabilities	9,966		9,679
Total debt	276,529		312,231
Less: current maturities	16,910		18,092
Total long-term debt	$	259,619	$	294,139

Finance Lease Liabilities

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - FAIR VALUE MEASUREMENTS

For disclosure purposes, we utilize a fair value hierarchy to categorize qualifying assets and liabilities into three broad levels based on the priority of the inputs used to determine their fair values. The hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs, is comprised of the following three levels:

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

Level 2 – Observable inputs, other than Level 1 inputs, that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

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

Recurring Fair Value Measurements

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


	Assets at Fair Value as of December 31, 2020
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (1)	$	902,867	$	—	$	—	$	902,867
Restricted cash (2)	695		—		—		695
Deferred compensation plan assets (3)	36,491		—		—		36,491
Total	$	940,053	$	—	$	—	$	940,053


	Assets at Fair Value as of December 31, 2019
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (1)	$	358,818	$	—	$	—	$	358,818
Restricted cash (2)	1,102		—		—		1,102
Deferred compensation plan assets (3)	30,295		—		—		30,295
Total	$	390,215	$	—	$	—	$	390,215

(1)Cash and cash equivalents consist of deposit accounts and money market funds with original maturity dates of three months or less, which are Level 1 assets. At December 31, 2020 and 2019, we had $482.2 million and $164.0 million, respectively, in money market funds.

(2)Restricted cash is classified as “Prepaid expenses and other” in the Consolidated Balance Sheets. Restricted cash primarily represents cash held in account for use on customer contracts.

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

Nonrecurring Fair Value Measurements

We have recorded goodwill and identifiable intangible assets in connection with our business acquisitions. Such assets are measured at fair value at the time of acquisition based on valuation techniques that appropriately represent the methods which would be used by other market participants in determining fair value. Periodically, we engage an independent third-party valuation specialist to assist with the valuation process, including the selection of appropriate methodologies and the development of market-based assumptions.

In addition, goodwill and intangible assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets. As of December 31, 2020, we had goodwill related to our United States industrial services segment of $107.5 million accounted for at fair value on a nonrecurring basis as a result of the non-cash goodwill impairment charge recorded during the year. Refer to Note 9 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements for a description of the valuation techniques and inputs used in the fair value measurement.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - FAIR VALUE MEASUREMENTS - (Continued)

Fair Value of Financial Instruments

We believe that the carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities and low risk of counterparty default. The carrying value of our debt associated with the 2020 Credit Agreement approximates its fair value due to the variable rate on such debt.

NOTE 12 - INCOME TAXES

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


	2020		2019		2018
United States	$	228,181	$	430,253	$	375,408
Foreign	24,145		20,636		19,620
	$	252,326	$	450,889	$	395,028

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


	2020		2019		2018
Current provision:
Federal	$	115,633	$	89,264	$	75,405
State and local	36,182		31,099		28,063
Foreign	3,922		3,685		1,389
	155,737		124,048		104,857
Deferred (benefit) provision	(36,354)		1,701		4,249
	$	119,383	$	125,749	$	109,106

For the year ended December 31, 2020, our income tax provision from continuing operations was $119.4 million compared to $125.7 million for the year ended December 31, 2019 and $109.1 million for the year ended December 31, 2018. The decrease in the income tax provision for 2020, when compared to 2019, was primarily driven by reduced state income taxes, inclusive of a deferred state benefit, resulting from a change in the mix of earnings. The increase in the income tax provision for 2019, when compared to 2018, was largely due to increased income from continuing operations before income taxes.

The income tax rates on income from continuing operations before income taxes for the years ended December 31, 2020, 2019, and 2018, were 47.3%, 27.9%, and 27.6%, respectively. The increase in the 2020 income tax rate, when compared to 2019, was predominantly due to the tax-effect of the $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during the second quarter, the majority of which is non-deductible for tax purposes. The slight increase in the 2019 income tax rate, when compared to 2018, was primarily due to: (a) an increase in our state deferred tax rate, partially as a result of a change in the mix of income during 2019, and (b) the continued impact of the Tax Cuts and Jobs Act, including the application of guidance regarding certain permanent differences and other nondeductible expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES - (Continued)

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


	2020		2019		2018
Federal income taxes at the statutory rate	$	52,989	$	94,687	$	82,946
State and local income taxes, net of federal tax benefits	19,290		24,904		21,827
Permanent differences	5,860		7,149		6,584
Excess tax benefit from share-based compensation	(142)		(733)		(1,227)
Non-deductible impairment charges	40,165		—		—
Foreign income taxes (including UK statutory rate changes)	(140)		(170)		70
Other	1,361		(88)		(1,094)
	$	119,383	$	125,749	$	109,106

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

As of December 31, 2020, we had undistributed foreign earnings from certain foreign subsidiaries of approximately $89.6 million. Based on our evaluation, and given that a significant portion of such earnings were subject to tax in prior periods, or are indefinitely reinvested, we have concluded that any taxes associated with the repatriation of such foreign earnings would be immaterial. As of December 31, 2020, the amount of cash held by these foreign subsidiaries was approximately $100.8 million which, if repatriated, should not result in any federal or state income taxes.

We file a consolidated federal income tax return including all of our U.S. subsidiaries with the Internal Revenue Service. We additionally file income tax returns with various state, local, and foreign tax agencies. Our income tax returns are subject to audit by various taxing authorities and are currently under examination for the years 2014 through 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides for various tax relief and tax incentive measures, which did not have a material impact on our results of operations. Certain provisions of the CARES Act, however, did favorably impact our liquidity throughout 2020 as they allowed for the deferral of the employer’s portion of current year Social Security tax payments until 2021 and 2022.

On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law. This act provides for tax relief, as well as an omnibus appropriations package that extends various expiring tax provisions and allows for a 100% tax deduction for the cost of business meals in 2021 and 2022. The Consolidated Appropriations Act is not expected to have a material impact on the Company's income tax provision.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES - (Continued)

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and income tax bases of assets and liabilities. The deferred income tax assets and deferred income tax liabilities recorded as of December 31, 2020 and 2019 were as follows (in thousands):


	2020		2019
Deferred income tax assets:
Excess of amounts expensed for financial statement purposes over amounts deducted for income tax purposes:
Insurance liabilities	$	47,602	$	47,022
Pension liability	6,789		2,733
Operating lease liabilities	68,652		68,158
Deferred compensation	36,790		32,685
Accrued federal payroll taxes (1)	27,428		—
Other (including liabilities and reserves)	29,816		25,647
Total deferred income tax assets	217,077		176,245
Valuation allowance for deferred tax assets	(3,856)		(3,463)
Net deferred income tax assets	213,221		172,782

Deferred income tax liabilities:
Costs capitalized for financial statement purposes and deducted for income tax purposes:
Goodwill and identifiable intangible assets	(146,821)		(156,604)
Operating lease right-of-use assets	(64,434)		(65,090)
Depreciation of property, plant and equipment	(23,958)		(18,622)
Other	(7,444)		(4,212)
Total deferred income tax liabilities	(242,657)		(244,528)

Net deferred income tax liabilities	$	(29,436)	$	(71,746)

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

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

Valuation allowances are established when necessary to reduce deferred income tax assets when it is more likely than not that a tax benefit will not be realized. As of December 31, 2020 and 2019, the total valuation allowance on deferred income tax assets was approximately $3.9 million and $3.5 million, respectively, related to state and local net operating losses. Realization of our deferred income tax assets is dependent on our generating sufficient taxable income in the jurisdictions in which such deferred tax assets will reverse. Although realization is not assured, based on current projections of future taxable income, we believe it is more likely than not that the deferred income tax assets, net of the valuation allowance discussed above, will be realized. The amount of the deferred income tax assets considered realizable, however, could be reduced if estimates of future income are reduced.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMON STOCK

As of December 31, 2020 and 2019, there were 54,755,900 and 56,219,831 shares of our common stock outstanding, respectively.

We have paid quarterly dividends since October 25, 2011. We paid a regular quarterly dividend of $0.08 per share throughout 2020. In December 2020, our Board of Directors announced its intention to increase the regular quarterly dividend to $0.13 per share commencing with the dividend to be paid in the first quarter of 2021.

In September 2011, our Board of Directors (the “Board”) authorized a share repurchase program allowing us to begin repurchasing shares of our outstanding common stock. Subsequently, the Board has from time to time increased the amount of our common stock that we may repurchase under such program. Since the inception of the repurchase program, the Board has authorized us to repurchase up to $1.15 billion of our outstanding common stock. During the year ended December 31, 2020, we repurchased approximately 1.7 million shares of our common stock for approximately $112.6 million. Since the inception of the repurchase program through December 31, 2020, we have repurchased approximately 17.5 million shares of our common stock for approximately $904.0 million. As of December 31, 2020, there remained authorization for us to repurchase approximately $246.0 million of our shares. The repurchase program has no expiration date, does not obligate the Company to acquire any particular amount of common stock, and may be suspended, recommenced, or discontinued at any time or from time to time without prior notice. We may repurchase our shares from time to time to the extent permitted by securities laws and other legal requirements, including provisions in our 2020 Credit Agreement placing limitations on such repurchases. The repurchase program has been and will be funded from our operations.

NOTE 14 - SHARE-BASED COMPENSATION PLANS

We have an incentive plan under which stock awards, stock units, and other share-based compensation may be granted to officers, non-employee directors and key employees of the Company. During 2020, we amended and restated our incentive plan, eliminating the ability to grant new stock options, until such time, if any, as the plan is subsequently amended to provide for the ability to make such grants. Under the terms of this plan, 3,250,000 shares were authorized, and 1,023,299 shares are available for grant or issuance as of December 31, 2020. Any issuances under this plan are valued at the fair market value of our common stock on the grant date. The vesting schedule of any stock awards or stock units is determined by the Compensation and Personnel Committee of our Board of Directors at the time of the grant. Forfeitures are recognized as they occur.

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


Stock Options				Restricted Stock Units
	Shares	Weighted Average Price			Shares	Weighted Average Price
Balance, December 31, 2017	93,000	$	24.48	Balance, December 31, 2017	508,872	$	54.13
Granted	—	—		Granted	135,259	$	80.37
Expired	—	—		Forfeited	(1,250)	$	71.27
Exercised	(53,000)	$	24.48	Vested	(166,295)	$	48.44
Balance, December 31, 2018	40,000	$	24.48	Balance, December 31, 2018	476,586	$	63.52
Granted	—	—		Granted	169,766	$	64.34
Expired	—	—		Forfeited	(2,545)	$	71.88
Exercised	(20,000)	$	24.48	Vested	(226,229)	$	51.64
Balance, December 31, 2019	20,000	$	24.48	Balance, December 31, 2019	417,578	$	70.24
Granted	—	—		Granted	137,771	$	81.56
Expired	—	—		Forfeited	(984)	$	79.17
Exercised	(20,000)	$	24.48	Vested	(156,447)	$	72.72
Balance, December 31, 2020	—	—		Balance, December 31, 2020	397,918	$	73.16

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We recognized approximately $11.2 million, $11.4 million, and $11.0 million of compensation expense for stock units awarded to non-employee directors and employees pursuant to incentive plans for the years ended December 31, 2020, 2019, and 2018, respectively. We have approximately $8.6 million of compensation expense, net of income taxes, which will be recognized over the remaining vesting periods of up to 3 years. In addition, an aggregate of 63,907 restricted stock units granted to current or former non-employee directors vested as of December 31, 2020, but issuance has been deferred up to 5 years.

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

The total intrinsic value (the amounts by which the stock price exceeded the exercise price on the date of exercise) of options that were exercised during both 2020 and 2019 was approximately $1.2 million, and the total intrinsic value of options that were exercised during 2018 was approximately $2.7 million. There were no options outstanding at December 31, 2020, however, the aggregate intrinsic value of options outstanding and exercisable as of December 31, 2019 and 2018 was approximately $1.2 million and $1.4 million, respectively.

We have an employee stock purchase plan. Under the terms of this plan, the maximum number of shares of our common stock that may be purchased is 3,000,000 shares. Generally, our corporate employees and non-union employees of our United States subsidiaries are eligible to participate in this plan. Employees covered by collective bargaining agreements generally are not eligible to participate in this plan.

NOTE 15 - RETIREMENT PLANS

Defined Benefit Plans

The funded status of our defined benefit plans, which represents the difference between the fair value of plan assets and the projected benefit obligations, is recognized in our balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss). Gains and losses for the differences between actuarial assumptions and actual results, and unrecognized service costs, are recognized through accumulated other comprehensive income (loss). These amounts will be subsequently recognized as net periodic pension cost.

Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible employees (the “UK Plan”); however, no individual joining the company after October 31, 2001 may participate in the UK Plan. On May 31, 2010, we curtailed the future accrual of benefits for active employees under this plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

The change in benefit obligations and assets of the UK Plan for the years ended December 31, 2020 and 2019 consisted of the following components (in thousands):


	2020		2019
Change in pension benefit obligation
Benefit obligation at beginning of year	$	322,766	$	281,776
Interest cost	6,401		7,961
Actuarial loss	50,863		32,866
Benefits paid	(10,029)		(12,059)
Foreign currency exchange rate changes	13,141		12,222
Benefit obligation at end of year	383,142		322,766
Change in pension plan assets
Fair value of plan assets at beginning of year	307,001		264,194
Actual return on plan assets	34,380		38,808
Employer contributions	4,665		4,428
Benefits paid	(10,029)		(12,059)
Foreign currency exchange rate changes	11,394		11,630
Fair value of plan assets at end of year	347,411		307,001
Funded status at end of year	$	(35,731)	$	(15,765)

Amounts not yet reflected in net periodic pension cost and included in accumulated other comprehensive loss were as follows (in thousands):


			2020						2019
Unrecognized losses			$	125,020					$	94,211

The underfunded status of the UK Plan of $35.7 million and $15.8 million at December 31, 2020 and 2019, respectively, is included in “Other long-term obligations” in the accompanying Consolidated Balance Sheets. No plan assets are expected to be returned to us during the year ending December 31, 2021.

The weighted average assumptions used to determine benefit obligations as of December 31, 2020 and 2019 were as follows:


			2020						2019
Discount rate			1.4		%				2.1		%

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


	2020		2019		2018
Discount rate	2.1	%	2.9	%	2.5	%
Annual rate of return on plan assets	4.3	%	4.9	%	5.0	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

The annual rate of return on plan assets has been determined by modeling possible returns using the actuary’s portfolio return calculator and the fair value of plan assets. This models the long term expected returns of the various asset classes held in the portfolio and takes into account the additional benefits of holding a diversified portfolio. For measurement purposes of the liability, the annual rates of inflation of covered pension benefits assumed for 2020 and 2019 were 2.5% and 2.0%, respectively.

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


	2020		2019		2018
Interest cost	$	6,401	$	7,961	$	8,085
Expected return on plan assets	(12,023)		(12,165)		(13,797)
Amortization of unrecognized loss	2,389		2,342		2,630
Net periodic pension cost (income)	$	(3,233)	$	(1,862)	$	(3,082)

Actuarial gains and losses are amortized using a corridor approach whereby cumulative gains and losses in excess of the greater of 10% of the pension benefit obligation or the fair value of plan assets are amortized over the average life expectancy of plan participants. The amortization period for 2020 was 24 years.

The reclassification adjustment, net of income taxes, for the UK Plan from accumulated other comprehensive loss into net periodic pension cost was approximately $1.9 million for the years ended December 31, 2020 and 2019, and approximately $2.1 million for the year ended December 31, 2018. The estimated unrecognized loss for the UK Plan that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next year is approximately $2.9 million, net of income taxes.

UK Plan Assets

The investment policies and strategies for the assets of the UK Plan are established by its trustees (who are independent of the Company) to achieve a reasonable balance between risk, likely return, and administration expense, as well as to maintain funds at a level to meet minimum funding requirements. In order to ensure that an appropriate investment strategy is in place, an analysis of the UK Plan’s assets and liabilities is completed periodically. Target allocation percentages vary over time depending on the perceived risk and return potential of various asset classes and market conditions. The weighted average asset allocations and weighted average target allocations at December 31, 2020 and 2019 were as follows:


Asset Category	Target Asset Allocation		December 31, 2020		December 31, 2019
Debt	65.0	%	63.0	%	70.6	%
Equity	15.0	%	12.7	%	10.5	%
Cash	10.0	%	17.1	%	10.5	%
Real estate	10.0	%	7.2	%	8.4	%
Total	100.0	%	100.0	%	100.0	%

Plan assets of our UK Plan are invested through third-party fund managers in various investments with underlying holdings which consist of: (a) debt securities, which include United Kingdom government debt and United States, United Kingdom, European and emerging market corporate debt, (b) equity securities, which include marketable equity and equity like instruments across developed global equity markets, and (c) real estate assets, which represent trusts which invest directly or indirectly in various properties throughout the United Kingdom.

Assets of the UK Plan are allocated within the fair value hierarchy discussed in Note 11 - Fair Value Measurements, based on the nature of the investment. Level 1 assets represent cash. Level 2 assets consist of corporate debt funds, government bond funds, and equity funds whose underlying investments are valued using observable marketplace inputs. The fair value of the Level 2 assets are generally determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields, and quoted prices.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

Investments valued using net asset value (“NAV”) as a practical expedient are excluded from the fair value hierarchy. These investments include: (a) funds which invest predominantly in senior secured debt instruments, targeting diversity across regions and sectors, as well as funds which invest in diversified credit vehicles that seek higher returns than traditional fixed income, primarily through investments in U.S. corporate debt, global credit, and structured debt, and (b) funds which aim to provide long-term income through investment in UK property assets. These investments are redeemable at NAV on a monthly or quarterly basis and have redemption notice periods of up to 90 days. In addition, certain of these investments are subject to a lockup period of up to 24 months.

The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes the valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables set forth the fair value of assets of the UK Plan as of December 31, 2020 and 2019 (in thousands):


	Assets at Fair Value as of December 31, 2020
Asset Category	Level 1		Level 2		Level 3		Total
Corporate debt funds	$	—	$	65,486	$	—	$	65,486
Government bond funds	—		57,133		—		57,133
Equity funds	—		44,132		—		44,132
Cash	59,246		—		—		59,246
Total plan assets in fair value hierarchy	$	59,246	$	166,751	$	—	225,997
Plan assets measured using NAV as a practical expedient: (1)
Debt funds							96,196
Real estate funds							25,218
Total plan assets at fair value							$	347,411


	Assets at Fair Value as of December 31, 2019
Asset Category	Level 1		Level 2		Level 3		Total
Corporate debt funds	$	—	$	64,314	$	—	$	64,314
Government bond funds	—		49,164		—		49,164
Equity funds	—		32,356		—		32,356
Cash	32,240		—		—		32,240
Total plan assets in fair value hierarchy	$	32,240	$	145,834	$	—	178,074
Plan assets measured using NAV as a practical expedient: (1)
Debt funds							103,188
Real estate funds							25,739
Total plan assets at fair value							$	307,001

(1)Certain investments measured using NAV as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the total fair value of plan assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

Cash Flows:

Contributions

Our United Kingdom subsidiary expects to contribute approximately $5.0 million to the UK Plan in 2021.

Estimated Future Benefit Payments

The following estimated benefit payments are expected to be paid in the following years (in thousands):


	Pension Benefit Payments
2021	$	11,036
2022	$	11,356
2023	$	11,684
2024	$	12,021
2025	$	12,370
Succeeding five years	$	67,423

The following table shows certain information for the UK Plan where the accumulated benefit obligation is in excess of plan assets as of December 31, 2020 and 2019 (in thousands):


	2020		2019
Projected benefit obligation	$	383,142	$	322,766
Accumulated benefit obligation	$	383,142	$	322,766
Fair value of plan assets	$	347,411	$	307,001

We also sponsor three domestic retirement plans in which participation by new individuals is frozen. The benefit obligation associated with these plans as of December 31, 2020 and 2019 was approximately $9.2 million. The estimated fair value of the plan assets as of December 31, 2020 and 2019 was approximately $6.0 million and $5.7 million, respectively. The plan assets are considered Level 1 assets within the fair value hierarchy and are predominantly invested in cash, equities, and equity and bond funds. The liability balances as of December 31, 2020 and 2019 are classified as “Other long-term obligations” in the accompanying Consolidated Balance Sheets. The measurement date for these plans is December 31 of each year. The major assumptions used in the actuarial valuations to determine benefit obligations as of December 31, 2020 and 2019 included discount rates of 2.00% to 2.25% for 2020 and 3.00% to 4.00% for 2019. Also, included was an expected rate of return of 7.00% for both 2020 and 2019. The net periodic pension cost associated with the domestic plans was approximately $0.3 million for each of the years ended December 31, 2020, 2019, and 2018. The reclassification adjustment, net of income taxes, from accumulated other comprehensive loss into net periodic pension cost was approximately $0.3 million for the year ended December 31, 2020, and approximately $0.2 million for each of the years ended December 31, 2019, and 2018. The estimated loss for these plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next year is approximately $0.2 million, net of income taxes. The future estimated benefit payments expected to be paid from the plans for the next ten years is approximately $0.5 million per year.

Multiemployer Plans

We participate in approximately 200 multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). As one of many participating employers in an MEPP, we are potentially liable with the other participating employers for such plan's underfunding either through an increase in our required contributions or, in the case of our withdrawal from the plan, a payment based upon our proportionate share of the plan's unfunded benefits, in each case, as described below. Our contributions to a particular MEPP are established by the applicable CBAs; however, our required contributions may increase based on the funded status of an MEPP and legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact the funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions, and the utilization of extended amortization provisions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but are not limited to: (a) an increase in our contribution rate as a signatory to the applicable CBA, (b) a reallocation of the contributions already being made by participating employers for various benefits to individuals participating in the MEPP, and/or (c) a reduction in the benefits to be paid to future and/or current retirees. In addition, the PPA requires that a 5% surcharge be levied on employer contributions for the first year commencing after the date the employer receives notice that the MEPP is in critical status and a 10% surcharge on each succeeding year until a CBA is in place with terms and conditions consistent with the RP.

We could also be obligated to make payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce our number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closure of a subsidiary assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) would equal our proportionate share of the MEPPs’ unfunded vested benefits. We believe that certain of the MEPPs in which we participate may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger withdrawal liability, as well as the absence of specific information regarding the MEPP’s current financial situation, we are unable to determine (a) the amount and timing of a future withdrawal liability, if any, and (b) whether our participation in these MEPPs could have a material adverse impact on our financial position, results of operations or liquidity. We did not record any withdrawal liability for the years ended December 31, 2020, 2019, and 2018.

The following table lists all domestic MEPPs to which our contributions exceeded $2.0 million in 2020. Additionally, this table also lists all domestic MEPPs to which we contributed in 2020 in excess of $0.5 million for MEPPs in the critical status, “red zone,” and $1.0 million for MEPPs in the endangered status, “orange or yellow zones,” as defined by the PPA (in thousands):


Pension Fund		EIN/Pension Plan Number		PPA Zone Status (1)				FIP/RP Status		Contributions						Contributions greater than 5% of total plan contributions (2)	Expiration date or range of expiration dates of CBA(s)
	2020		2019		2020		2019		2018
National Automatic Sprinkler Industry Pension Fund		52-6054620	001	Red		Red		Implemented		$	17,504	$	15,924	$	14,888	No	March 2021 to June 2023
Plumbers & Pipefitters National Pension Fund		52-6152779	001	Yellow		Yellow		Implemented		14,095		13,821		11,868		No	February 2021 to August 2026
Sheet Metal Workers National Pension Fund		52-6112463	001	Yellow		Yellow		Implemented		11,621		11,713		10,895		No	April 2021 to June 2024
National Electrical Benefit Fund		53-0181657	001	Green		Green		NA		11,573		16,901		10,700		No	February 2021 to September 2024
Pension, Hospitalization & Benefit Plan of the Electrical Industry-Pension Trust Account		13-6123601	001	Green		Green		NA		11,264		10,075		10,469		No	January 2021 to April 2022
Electrical Workers Local No. 26 Pension Trust Fund		52-6117919	001	Green		Green		NA		7,086		8,434		5,485		Yes	May 2021 to October 2023
Sheet Metal Workers Pension Plan of Northern California		51-6115939	001	Red		Red		Implemented		6,605		6,233		5,488		No	June 2021 to June 2026
Central Pension Fund of the IUOE & Participating Employers		36-6052390	001	Green		Green		NA		6,115		6,253		6,384		No	February 2021 to December 2023
Southern California IBEW-NECA Pension Trust Fund		95-6392774	001	Yellow		Yellow		Implemented		5,719		6,277		5,754		No	May 2021 to November 2023
Plumbers Pipefitters & Mechanical Equipment Service Local Union 392 Pension Plan		31-0655223	001	Red		Red		Implemented		5,667		6,412		6,047		Yes	June 2022
San Diego Electrical Pension Plan		95-6101801	001	Green		Green		NA		4,383		3,843		3,008		Yes	May 2021 to May 2022

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - RETIREMENT PLANS - (Continued)
Pension Fund		EIN/Pension Plan Number		PPA Zone Status (1)				FIP/RP Status		Contributions						Contributions greater than 5% of total plan contributions (2)	Expiration date or range of expiration dates of CBA(s)
	2020		2019		2020		2019		2018
Pipefitters Union Local 537 Pension Fund		51-6030859	001	Green		Green		NA		4,275		4,754		6,038		Yes	February 2021 to September 2021
Arizona Pipe Trades Pension Trust Fund		86-6025734	001	Green		Green		NA		4,142		6,071		2,640		Yes	June 2021
Southern California Pipe Trades Retirement Fund		51-6108443	001	Green		Green		NA		4,043		3,274		3,095		No	June 2021 to June 2026
Edison Pension Plan		93-6061681	001	Green		Green		NA		3,864		5,361		3,140		Yes	December 2021
Heating, Piping & Refrigeration Pension Fund		52-1058013	001	Green		Green		NA		3,349		4,185		2,619		No	July 2022
Eighth District Electrical Pension Fund		84-6100393	001	Green		Green		NA		3,242		3,590		3,486		Yes	February 2021 to May 2023
U.A. Local 393 Pension Trust Fund Defined Benefit		94-6359772	002	Green		Green		NA		3,168		3,858		4,298		Yes	June 2021 to July 2021
Electrical Contractors Association of the City of Chicago Local Union 134, IBEW Joint Pension Trust of Chicago Pension Plan 2		51-6030753	002	Green		Green		NA		3,004		3,204		4,308		No	June 2021
U.A. Local 38 Defined Benefit Pension Plan		94-1285319	001	Green		Green		NA		2,874		2,030		1,551		No	June 2021 to June 2023
Sheet Metal Workers Pension Plan of Southern California, Arizona & Nevada		95-6052257	001	Yellow		Yellow		Implemented		2,706		2,423		1,934		No	June 2021 to June 2026
Northern California Pipe Trades Pension Plan		94-3190386	001	Green		Green		NA		2,463		3,077		3,104		No	June 2021
U.A. Plumbers Local 24 Pension Fund		22-6042823	001	Green		Green		NA		2,460		2,460		3,461		Yes	April 2021
NECA-IBEW Pension Trust Fund		51-6029903	001	Green		Green		NA		2,369		2,528		2,650		Yes	May 2021 to December 2021
Northern California Electrical Workers Pension Plan		94-6062674	001	Green		Green		NA		2,263		965		1,075		No	May 2021 to May 2022
Plumbing & Pipe Fitting Local 219 Pension Fund		34-6682376	001	Red		Red		Implemented		1,680		1,937		2,197		Yes	May 2023
Boilermaker-Blacksmith National Pension Trust		48-6168020	001	Yellow		Red		Implemented		1,574		1,681		1,446		No	September 2021 to September 2023
Plumbers & Pipefitters Local Union No. 502 & 633 Pension Fund		61-6078145	001	Yellow		Yellow		Implemented		1,271		1,596		1,167		No	May 2021 to July 2022
I.B.E.W. Local 701 Pension Fund		36-6455509	001	Yellow		Yellow		Implemented		1,197		915		588		No	May 2021 to December 2021
Steamfitters Local Union No. 420 Pension Plan		23-2004424	001	Red		Red		Implemented		553		641		706		No	May 2023
Other Multiemployer Pension Plans										51,953		55,042		49,740			Various
Total Contributions										$	204,082	$	215,478	$	190,229

(1) The zone status represents the most recent available information for the respective MEPP, which may be 2019 or earlier for the 2020 year and 2018 or earlier for the 2019 year. In general, plans with a “green” zone status have a funding ratio of at least 80%, plans with an “orange” or “yellow” zone status have a funding ratio of between 65% and less than 80%, and plans with a “red” zone status are less than 65% funded.

(2) This information was obtained from the respective plan’s Form 5500 (“Forms”) for the most current available filing. These dates may not correspond with our fiscal year contributions. The percentages of contributions are based upon disclosures contained in the plans’ Forms. Those Forms, among other things, disclose the names of individual participating employers whose annual contributions account for more than 5% of the aggregate annual amount contributed by all participating employers for a plan year. Accordingly, if the annual contribution of two or more of our subsidiaries each accounted for less than 5% of such contributions, but in the aggregate accounted for in excess of 5% of such contributions, that greater percentage is not available and accordingly is not disclosed.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - RETIREMENT PLANS - (Continued)

The nature and diversity of our operations may result in volatility in the amount of our contributions to a particular MEPP for any given period. That is because, in any given market, a change in the mix, volume of, or size of our projects could result in a change in our direct labor force and a corresponding change in our contributions to the MEPP(s) dictated by the applicable CBA. Additionally, the amount of contributions to a particular MEPP could also be affected by the terms of the CBA, which could require at a particular time, an increase in the contribution rate and/or surcharges. Acquisitions made by us since 2018 have resulted in incremental contributions to various MEPPs of approximately $5.3 million.

Additionally, we contribute to certain multiemployer plans that provide post retirement benefits such as health and welfare benefits and/or defined contribution/annuity plans, among others. Our contributions to these plans were approximately $156.1 million, $153.5 million, and $135.9 million for the years ended December 31, 2020, 2019, and 2018, respectively. Acquisitions made by use since 2018 have resulted in incremental contributions to other post retirement benefit plans of approximately $15.6 million. The amount of contributions to these plans is also subject for the most part to the factors discussed above in conjunction with the MEPPs.

Defined Contribution Plans

We have defined contribution retirement and savings plans that cover eligible employees in the United States. Contributions to these plans are based on a percentage of the employee’s base compensation. The expenses recognized for employer contributions to these plans were approximately $32.4 million for each of the years ended December 31, 2020 and 2019 and approximately $29.8 million for the year ended December 31, 2018. At our discretion and subject to applicable plan documents, we may make additional supplemental matching contributions to one of our defined contribution retirement and savings plans. The expenses recognized related to additional supplemental matching contributions for the years ended December 31, 2020, 2019, and 2018 were approximately $9.1 million, $6.8 million, and $6.1 million, respectively.

Our United Kingdom subsidiary also has defined contribution retirement plans. The expense recognized related to employer matching contributions for the years ended December 31, 2020, 2019, and 2018 was approximately $7.4 million, $6.1 million, and $4.9 million, respectively.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Contractual Guarantees

We have agreements with our executive officers and certain other key management personnel providing for severance benefits for such employees upon termination of their employment under certain circumstances.

In the ordinary course of business, we, at times, guarantee obligations of our subsidiaries under certain contracts. Generally, we are liable under such an arrangement only if our subsidiary fails to perform its obligations under the contract. Historically, we have not incurred any substantial liabilities as a consequence of these guarantees.

The terms of our construction contracts frequently require that we obtain from surety companies (“Surety Companies”), and provide to our customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. Surety Bonds are issued in return for premiums, which vary depending on the size and type of the bond, and secure our payment and performance obligations under such contracts. We have agreed to indemnify the Surety Companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. 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 December 31, 2020, based on the percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.3 billion, which represents approximately 29% of our total remaining performance obligations. In addition, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for certain of our employees, at the request of labor unions representing such employees, or as collateral for certain insurance obligations. As of December 31, 2020, we satisfied approximately $37.5 million of the collateral requirements of our insurance programs by utilizing Surety Bonds. We are not aware of any losses in connection with Surety Bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - COMMITMENTS AND CONTINGENCIES - (Continued)

We are subject to regulation with respect to the handling of certain materials used in construction, which are classified as hazardous or toxic by federal, state, and local agencies. Our practice is to avoid participation in projects principally involving the remediation or removal of such materials. However, when remediation is required as part of our contract performance, we believe we comply with all applicable regulations governing the discharge of hazardous materials into the environment or otherwise relating to the protection of the environment.

At December 31, 2020, we employed approximately 33,000 people, approximately 59% of whom are represented by various unions pursuant to approximately 400 collective bargaining agreements between our individual subsidiaries and local unions. We believe that our employee relations are generally good. Only two of these collective bargaining agreements are national or regional in scope.

Restructuring expenses, related to employee severance obligations, were $2.2 million, $1.5 million, and $2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, the balance of our restructuring related obligations yet to be paid was $2.7 million. The balance of such obligations as of December 31, 2019 and 2018 was $1.6 million. The majority of obligations outstanding as of December 31, 2019 and 2018 were paid during 2020 and 2019, respectively. The obligations outstanding as of December 31, 2020 will be paid pursuant to our contractual obligations through 2022. No material expenses in connection with restructuring are expected to be incurred during 2021.

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


	United States electrical construction and facilities services segment		United States mechanical construction and facilities services segment		United States building services segment		Corporate administration		Total
Balance at December 31, 2018	$	30	$	—	$	176	$	1,424	$	1,630
Charges	445		—		1,078		—		1,523
Payments	(30)		—		(842)		(723)		(1,595)
Balance at December 31, 2019	445		—		412		701		1,558
Charges	1,072		1,073		69		—		2,214
Payments	(239)		—		(481)		(355)		(1,075)
Balance at December 31, 2020	$	1,278	$	1,073	$	—	$	346	$	2,697

Government Contracts

As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, which such audits may result in fines, penalties and compensatory and treble damages, and possible suspension or debarment from doing business with the government. Based on currently available information, we believe the outcome of ongoing government disputes and investigations will not have a material impact on our financial position, results of operations or liquidity.

Computer System Attack

On February 15, 2020, we became aware of an infiltration and encryption of portions of our information technology network. This attack temporarily disrupted our use of the impacted systems. As part of our investigation into this incident, we engaged outside security experts, who did not identify any exfiltration of customer or employee data or any inappropriate access to our accounting or finance systems. The Company maintains insurance coverage for these types of incidents; such policies, however, may not completely provide coverage for, or completely offset the costs of, this infiltration.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - COMMITMENTS AND CONTINGENCIES - (Continued)

Legal Proceedings

We are involved in several legal proceedings in which damages and claims have been asserted against us. We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves. We do not believe that any such matters will have a material adverse effect on our financial position, results of operations, or liquidity. We record a loss contingency if the potential loss from a proceeding or claim is considered probable and the amount can be reasonably estimated or a range of loss can be determined. We provide disclosure when it is reasonably possible that a loss will be incurred in excess of any recorded provision. Significant judgment is required in these determinations. As additional information becomes available, we reassess prior determinations and may change our estimates. Additional claims may be asserted against us in the future. Litigation is subject to many uncertainties, and the outcome of litigation is not predictable with assurance. It is possible that a litigation matter for which liabilities have not been recorded could be decided unfavorably to us, and that any such unfavorable decision could have a material adverse effect on our financial position, results of operations or liquidity.

NOTE 17 - LEASES

We lease real estate, vehicles and equipment under various arrangements which are classified as either operating or finance leases. A lease exists when a contract or part of a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In determining whether a lease exists, we consider whether a contract provides us with both: (a) the right to obtain substantially all of the economic benefits from the use of the identified asset and (b) the right to direct the use of the identified asset.

Many of our leases include base rental periods coupled with options to renew or terminate the lease, generally at our discretion. Certain leases additionally include options to purchase the leased asset. In evaluating the lease term, we consider whether we are reasonably certain to exercise such options. To the extent a significant economic incentive exists to exercise an option, that option is included within the lease term. However, based on the nature of our lease arrangements, options generally do not provide us with a significant economic incentive and are therefore excluded from the lease term for the majority of our arrangements.

Our leases typically include a combination of fixed and variable payments. Fixed payments are generally included when measuring the right-of-use asset and lease liability. Variable payments, which primarily represent payments based on usage of the underlying asset, are generally excluded from such measurement and expensed as incurred. In addition, certain of our lease arrangements may contain a lease coupled with an arrangement to provide other services, such as maintenance, or may require us to make other payments on behalf of the lessor related to the leased asset, such as payments for taxes or insurance. We account for these non-lease components together with the associated lease component for each of our asset classes.

The measurement of right-of-use assets and lease liabilities requires us to estimate appropriate discount rates. To the extent the rate implicit in the lease is readily determinable, such rate is utilized. However, based on information available at lease commencement for the majority of our leases, the rate implicit in the lease is not known. In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis, over a similar term, an amount equal to the lease payments.

Our lease arrangements generally do not contain significant restrictions or covenants; however, certain of our vehicle and equipment leases include residual value guarantees, whereby we provide a guarantee to the lessor that the value of the underlying asset will be at least a specified amount at the end of the lease. Amounts probable of being owed under these guarantees are included within the measurement of the right-of-use asset and lease liability.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - LEASES - (Continued)

Lease Position

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


	Classification on the Consolidated Balance Sheet	December 31, 2020		December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	242,155	$	245,471
Finance lease assets	Property, plant and equipment, net	9,638		9,609
Total lease assets		$	251,793	$	255,080

Liabilities
Current
Operating	Operating lease liabilities, current	$	53,632	$	53,144
Finance	Current maturities of long-term debt and finance lease liabilities	3,995		4,088
Noncurrent
Operating	Operating lease liabilities, long-term	205,362		204,950
Finance	Long-term debt and finance lease liabilities	5,971		5,591
Total lease liabilities		$	268,960	$	267,773

Lease Costs

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


	2020		2019
Finance lease expense:
Amortization expense	$	4,562	$	4,575
Interest expense	355		427
Operating lease expense	69,208		66,650
Short-term lease expense	139,706		149,528
Variable lease expense	5,441		4,924
Total lease expense	$	219,272	$	226,104

Rent expense for operating leases and other rental items, including short-term equipment rentals, for the year ended December 31, 2018 was approximately $191.8 million. For each of the years ended December 31, 2020, 2019, and 2018, sublease rental income was approximately $0.5 million.

Lease Term and Discount Rate

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


	December 31, 2020		December 31, 2019
Weighted-average remaining lease term:
Operating leases	6.6 years		6.7 years
Finance leases	3.1 years		2.9 years
Weighted-average discount rate:
Operating leases	3.59	%	4.04	%
Finance leases	3.24	%	4.16	%

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - LEASES - (Continued)

Other Information

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


	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	65,016	$	65,757
Operating cash flows used for finance leases	$	355	$	427
Financing cash flows used for finance leases	$	4,470	$	4,571
Right-of-use assets obtained in exchange for new operating lease liabilities	$	55,895	$	84,089
Right-of-use assets obtained in exchange for new finance lease liabilities	$	4,558	$	5,311

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

Maturity of Lease Liabilities

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


	Operating Leases		Finance Leases
2021	$	61,743	$	4,234
2022	50,452		2,902
2023	43,240		1,652
2024	33,185		1,289
2025	25,648		265
Thereafter	76,904		69
Total minimum lease payments	291,172		10,411
Less: Amount of lease payments representing interest	(32,178)		(445)
Present value of future minimum lease payments	$	258,994	$	9,966

Current portion of lease liabilities	$	53,632	$	3,995
Noncurrent portion of lease liabilities	205,362		5,971
Present value of future minimum lease payments	$	258,994	$	9,966

NOTE 18 - ADDITIONAL CASH FLOW INFORMATION

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


	2020		2019		2018
Cash paid during the year for:
Interest	$	8,289	$	12,683	$	12,435
Income taxes	$	145,386	$	126,169	$	123,651

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION

We have the following reportable segments: (a) United States electrical construction and facilities services (involving systems for electrical power transmission and distribution; premises electrical and lighting systems; process instrumentation in the refining, chemical processing, food processing, and mining industries; low-voltage systems, such as fire alarm, security, and process control; voice and data communication, including fiber-optic and low-voltage cabling, distributed antenna systems, and audiovisual systems; roadway and transit lighting and signaling; and fiber optic lines); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration, and clean-room process ventilation; fire protection; plumbing, process, and high-purity piping; controls and filtration; water and wastewater treatment; central plant heating and cooling; cranes and rigging; millwrighting; and steel fabrication, erection and welding); (c) United States building services; (d) United States industrial services; and (e) United Kingdom building services. The “United States building services” and “United Kingdom building services” segments principally consist of those operations which provide a portfolio of services needed to support the operation and maintenance of customers’ facilities, including commercial and government site-based operations and maintenance; facility management, maintenance, and services; outage services to utilities and industrial plants; military base operations support services; mobile mechanical maintenance and services, including maintenance and service of mechanical, electrical, plumbing, and building automation systems; indoor air quality improvement services; floor care and janitorial services; landscaping, lot sweeping, and snow removal; other building services, including reception, security, and catering services; vendor management; call center services; installation and support for building systems; program development, management and maintenance for energy systems; technical consulting and diagnostic services; infrastructure and building projects for federal, state and local governmental agencies and bodies; and small modification and retrofit projects, which services are not generally related to customers’ construction programs. The “United States industrial services” segment principally consists of those operations which provide industrial maintenance and services for refineries, petrochemical plants, and other customers within the oil and gas industry. Services of this segment include refinery turnaround planning and engineering; specialty welding; overhaul and maintenance of critical process units; specialty technical services; on-site repairs, maintenance and service of heat exchangers, towers, vessels, and piping; and design, manufacturing, repair, and hydro blast cleaning of shell and tube heat exchangers and related equipment.

The following tables present financial information for each of our reportable segments for the years ended December 31, 2020, 2019, and 2018 (in thousands):


	2020		2019		2018
Revenues from unrelated entities:
United States electrical construction and facilities services	$	1,973,427	$	2,216,600	$	1,954,323
United States mechanical construction and facilities services	3,485,495		3,340,337		2,962,843
United States building services	2,110,129		2,106,872		1,875,485
United States industrial services	797,447		1,087,543		923,109
Total United States operations	8,366,498		8,751,352		7,715,760
United Kingdom building services	430,563		423,259		414,871
Total operations	$	8,797,061	$	9,174,611	$	8,130,631

Total revenues:
United States electrical construction and facilities services	$	1,979,899	$	2,220,582	$	1,959,978
United States mechanical construction and facilities services	3,502,131		3,370,960		2,998,918
United States building services	2,189,236		2,182,390		1,942,663
United States industrial services	812,844		1,111,264		930,724
Less intersegment revenues	(117,612)		(133,844)		(116,523)
Total United States operations	8,366,498		8,751,352		7,715,760
United Kingdom building services	430,563		423,259		414,871
Total operations	$	8,797,061	$	9,174,611	$	8,130,631

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION - (Continued)


	2020		2019		2018
Operating income (loss):
United States electrical construction and facilities services	$	166,501	$	161,684	$	139,430
United States mechanical construction and facilities services	292,536		225,040		219,853
United States building services	113,431		114,754		93,827
United States industrial services	(2,788)		44,340		27,671
Total United States operations	569,680		545,818		480,781
United Kingdom building services	20,660		18,323		15,930
Corporate administration	(98,542)		(101,726)		(90,415)
Restructuring expenses	(2,214)		(1,523)		(2,306)
Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets	(232,750)		—		(907)
Total operations	256,834		460,892		403,083
Other corporate items:
Net periodic pension (cost) income	2,980		1,553		2,743
Interest expense	(9,009)		(13,821)		(13,544)
Interest income	1,521		2,265		2,746
Income from continuing operations before income taxes	$	252,326	$	450,889	$	395,028



Capital expenditures:
United States electrical construction and facilities services	$	9,569	$	5,876	$	5,993
United States mechanical construction and facilities services	11,239		7,890		7,504
United States building services	10,366		14,291		10,414
United States industrial services	8,706		15,802		18,386
Total United States operations	39,880		43,859		42,297
United Kingdom building services	3,693		3,598		870
Corporate administration	4,396		975		312
Total operations	$	47,969	$	48,432	$	43,479

Depreciation and amortization of property, plant and equipment:
United States electrical construction and facilities services	$	7,463	$	7,550	$	6,221
United States mechanical construction and facilities services	10,683		8,764		7,803
United States building services	12,284		12,728		10,324
United States industrial services	11,676		11,154		9,943
Total United States operations	42,106		40,196		34,291
United Kingdom building services	3,046		2,942		3,447
Corporate administration	1,569		807		734
Total operations	$	46,721	$	43,945	$	38,472

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION - (Continued)


	2020		2019		2018
Contract assets:
United States electrical construction and facilities services	$	33,640	$	50,813	$	38,412
United States mechanical construction and facilities services	68,058		61,225		49,302
United States building services	31,046		30,428		33,304
United States industrial services	8,657		9,820		14,117
Total United States operations	141,401		152,286		135,135
United Kingdom building services	30,555		25,544		23,108
Total operations	$	171,956	$	177,830	$	158,243

Contract liabilities:
United States electrical construction and facilities services	$	184,775	$	173,967	$	163,951
United States mechanical construction and facilities services	386,180		317,083		280,846
United States building services	105,421		97,588		79,281
United States industrial services	16,027		12,404		12,307
Total United States operations	692,403		601,042		536,385
United Kingdom building services	29,849		22,600		15,905
Total operations	$	722,252	$	623,642	$	552,290


Long-lived assets:
United States electrical construction and facilities services	$	211,432	$	215,780	$	201,333
United States mechanical construction and facilities services	512,243		530,561		334,628
United States building services	492,290		458,915		436,887
United States industrial services	360,765		615,233		630,340
Total United States operations	1,576,730		1,820,489		1,603,188
United Kingdom building services	12,017		9,622		9,264
Corporate administration	4,356		1,431		1,072
Total operations	$	1,593,103	$	1,831,542	$	1,613,524



Total assets:
United States electrical construction and facilities services	$	736,395	$	834,802	$	702,112
United States mechanical construction and facilities services	1,542,531		1,536,325		1,081,005
United States building services	1,032,326		996,664		846,221
United States industrial services	494,178		829,793		864,446
Total United States operations	3,805,430		4,197,584		3,493,784
United Kingdom building services	227,894		181,147		146,379
Corporate administration	1,030,516		451,627		448,644
Total operations	$	5,063,840	$	4,830,358	$	4,088,807

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - SELECTED UNAUDITED QUARTERLY INFORMATION

(In thousands, except per share data)

Quarterly and year-to-date computations of per share amounts are made independently; therefore, the sum of per share amounts for the quarters may not equal per share amounts for the year.


	March 31		June 30		Sept. 30		Dec. 31
2020 Quarterly Results
Revenues	$	2,299,832	$	2,014,021	$	2,201,714	$	2,281,494
Gross profit	$	333,061	$	315,286	$	363,184	$	383,851
Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets	$	—	$	232,750	$	—	$	—
Net income attributable to EMCOR Group, Inc.	$	75,665	$	(83,689)	$	61,186	$	79,781
Basic EPS from continuing operations	$	1.35	$	(1.52)	$	1.11	$	1.45
Diluted EPS from continuing operations	$	1.35	$	(1.52)	$	1.11	$	1.45


	March 31		June 30		Sept. 30		Dec. 31
2019 Quarterly Results
Revenues	$	2,158,728	$	2,324,202	$	2,287,741	$	2,403,940
Gross profit	$	308,754	$	346,380	$	335,987	$	364,747
Net income attributable to EMCOR Group, Inc.	$	72,410	$	83,972	$	81,834	$	86,924
Basic EPS from continuing operations	$	1.29	$	1.49	$	1.46	$	1.54
Diluted EPS from continuing operations	$	1.28	$	1.49	$	1.45	$	1.54

NOTE 21 - SUBSEQUENT EVENTS

Subsequent to December 31, 2020, we acquired two companies, each for an immaterial amount. One company provides mechanical services within the Southern region of the United States, and the results of its operations will be included in our United States mechanical construction and facilities services segment. The other company provides electrical construction and maintenance services for a broad array of customers in the Midwestern region of the United States, and the results of its operations will be included in our United States electrical construction and facilities services segment. The acquisition of these businesses will be accounted for by the acquisition method, and the amounts paid will be allocated to their respective assets and liabilities, based upon the estimated fair value of such assets and liabilities at the respective date of acquisition by us.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of EMCOR Group, Inc. and subsidiaries:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of EMCOR Group, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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						Revenue Recognition from Long-term Construction Contracts
Description of the Matter						As described in Note 3 to the consolidated financial statements, the Company generally recognizes revenue from long-term construction contracts over time using a cost-to-cost input method in which the extent of progress is measured based on the ratio of costs incurred to date to the total estimated costs at completion. In addition, the revenue recognition process requires the Company to determine the transaction price that represents the amount of consideration to which the Company expects to be entitled. A significant portion of the Company’s revenues for the year ended December 31, 2020 were derived from long-term construction contracts. The determination of revenue recognized from long-term construction contracts commonly requires the Company to estimate variable consideration that arises from pending change orders, contract claims, contract bonuses, and penalties, as well as to prepare estimates of the costs to complete contracts. Factors inherent in the estimation processes include, among others, historical experience with customers, the potential long-term nature of dispute resolutions, actions of third parties as well as the Company’s experience with similar types of contracts. Due to uncertainties attributed to such factors, auditing revenue recognized from long-term construction contracts involved especially challenging, subjective, and complex judgments.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls related to revenue recognition from long-term construction contracts. For example, we tested controls over the Company’s determination and review of estimates of variable consideration, costs to complete, and the completeness and accuracy of data utilized in conjunction with such estimation processes. To test the amount of revenue recognized from long-term construction contracts in the current period, we selected a sample of contracts and performed procedures to test the project revenue and cost forecasts. For example, we obtained and inspected the related contract agreements, amendments, and change orders to test the existence of customer arrangements and understand the scope and pricing of the related projects; performed inquiries of management and project personnel regarding facts and circumstances relevant to the accounting for such contracts; tested key components of the estimated costs to complete, including materials, labor, and subcontractors costs; agreed actual costs incurred to supporting documentation; and recalculated revenues recognized based on the project's percentage of completion and management's estimate of transaction price. In addition, we performed certain retrospective review procedures to assess management’s historical ability to accurately estimate the transaction price and costs to complete contracts as well as to identify any significant or unusual changes in project revenue and cost forecasts during the period.

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						Valuation of Goodwill and Indefinite-Lived Intangible Assets
Description of the Matter						At December 31, 2020, the Company’s goodwill and indefinite-lived trade name intangible assets were approximately $851.8 million and $199.5 million, respectively. As discussed in Note 9 to the consolidated financial statements, goodwill and trade names with indefinite lives are tested for impairment at least annually and during any interim period(s) in which impairment indicators are identified. During 2020, the Company recorded a goodwill impairment charge of $225.5 million related to its Industrial Services reporting unit and impairment charges of $6.7 million related to certain of its indefinite-lived trade name intangible assets. Auditing management’s interim and annual impairment tests was especially complex and subjective due to the significant estimation required in determining the fair value of the reporting units for goodwill and the fair value of trade name intangible assets. In particular, the fair value estimates for goodwill were sensitive to significant assumptions inherent in the Company’s discounted estimated future cash flows such as the weighted average cost of capital, revenue growth rates, and operating margins. The fair value estimates for trade name intangible assets were sensitive to significant assumptions inherent in the Company’s discounted estimated future cash flows such as the royalty rate, discount rate, and revenue growth rates. The fair value estimates for goodwill and trade name intangible assets are affected by expectations about future market or economic conditions, including the effects of the COVID-19 pandemic and other macroeconomic events relevant to certain markets in which the Company operates.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s impairment review processes for goodwill and trade name intangible assets. For example, we tested management’s review controls over the valuation models and significant assumptions described above, including those developed by the Company's third-party valuation specialists. To test the estimated fair value of the Company’s reporting units and trade name intangible assets, with the support of a valuation specialist, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions and completeness and accuracy of the underlying data used by the Company in its analyses. For example, we compared the significant assumptions used by management to the historical financial results of the Company’s reporting units and to current industry and economic trends. We assessed the historical accuracy of management’s estimates by comparing past projections to actual performance and performed sensitivity analyses of significant assumptions to evaluate the changes in fair value that would result from changes in the assumptions. In addition, we reviewed the reconciliation of the aggregate fair value of the Company’s reporting units to the market capitalization of the Company.


/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 2002.


Stamford, Connecticut
February 25, 2021

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of EMCOR Group, Inc. and subsidiaries:

Opinion on Internal Control Over Financial Reporting

We have audited EMCOR Group, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, EMCOR Group, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ ERNST & YOUNG LLP

Stamford, Connecticut
February 25, 2021

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