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, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	789,750					$	456,439
Accounts receivable, less allowance for credit losses of $22,502 and $22,382, respectively			3,203,490						2,567,371
Contract assets			269,885						273,176
Inventories			110,774						85,641
Prepaid expenses and other			73,072						79,346
Total current assets			4,446,971						3,461,973
Property, plant, and equipment, net			179,378						157,819
Operating lease right-of-use assets			310,498						268,063
Goodwill			956,549						919,151
Identifiable intangible assets, net			586,032						593,975
Other assets			130,293						123,626
Total assets			$	6,609,721					$	5,524,607
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and finance lease liabilities			$	2,465					$	15,567
Accounts payable			935,967						849,284
Contract liabilities			1,595,109						1,098,263
Accrued payroll and benefits			596,936						465,000
Other accrued expenses and liabilities			312,642						258,190
Operating lease liabilities, current			75,236						67,218
Total current liabilities			3,518,355						2,753,522
Long-term debt and finance lease liabilities			2,838						231,625
Operating lease liabilities, long-term			259,430						220,764
Other long-term obligations			358,283						344,405
Total liabilities			4,138,906						3,550,316
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, 61,094,042 and 60,947,947 shares issued, respectively			611						609
Capital surplus			91,813						74,795
Accumulated other comprehensive loss			(85,704)						(93,451)
Retained earnings			3,814,439						3,214,281
Treasury stock, at cost 14,046,777 and 13,281,222 shares, respectively			(1,351,381)						(1,222,645)
Total EMCOR Group, Inc. stockholders’ equity			2,469,778						1,973,589
Noncontrolling interests			1,037						702
Total equity			2,470,815						1,974,291
Total liabilities and equity			$	6,609,721					$	5,524,607

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)

			2023						2022						2021
Revenues			$	12,582,873					$	11,076,120					$	9,903,580
Cost of sales			10,493,534						9,472,526						8,401,843
Gross profit			2,089,339						1,603,594						1,501,737
Selling, general and administrative expenses			1,211,233						1,038,717						970,937
Impairment loss on long-lived assets			2,350						—						—
Operating income			875,756						564,877						530,800
Net periodic pension (cost) income			(1,119)						4,311						3,625
Interest expense			(17,199)						(13,199)						(6,071)
Interest income			15,415						2,761						949
Income before income taxes			872,853						558,750						529,303
Income tax provision			239,524						152,628						145,602
Net income including noncontrolling interests			633,329						406,122						383,701
Net income attributable to noncontrolling interests			335						—						169
Net income attributable to EMCOR Group, Inc.			$	632,994					$	406,122					$	383,532
Basic earnings per common share			$	13.37					$	8.13					$	7.09
Diluted earnings per common share			$	13.31					$	8.10					$	7.06
Dividends declared per common share			$	0.69					$	0.54					$	0.52

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)

			2023						2022						2021
Net income including noncontrolling interests			$	633,329					$	406,122					$	383,701
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			6,417						(10,786)						(360)
Changes in post retirement plans (1)			1,330						897						26,031
Other comprehensive income (loss)			7,747						(9,889)						25,671
Comprehensive income			641,076						396,233						409,372
Comprehensive income attributable to noncontrolling interests			335						—						169
Comprehensive income attributable to EMCOR Group, Inc.			$	640,741					$	396,233					$	409,203

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(1) Net of tax provision of $0.5 million, $0.3 million, and $8.7 million for the years ended December 31, 2023, 2022, and 2021, 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)

			2023						2022						2021
Cash flows - operating activities:
Net income including noncontrolling interests			$	633,329					$	406,122					$	383,701
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			51,822						47,296						48,347
Amortization of identifiable intangible assets			67,143						61,315						64,089
Provision for credit losses			7,859						5,166						8,041
Deferred income taxes			(16,651)						10,483						9,517
Gain on sale or disposal of property, plant, and equipment			(2,057)						(6,393)						(782)
Excess tax benefits from share-based compensation			(1,719)						(1,654)						(828)
Equity (income) loss from unconsolidated entities			(1,660)						(391)						1,170
Non-cash expense for amortization of debt issuance costs			960						960						960
Non-cash expense from contingent consideration arrangements			2,287						1,610						1,810
Non-cash expense for impairment of long-lived assets			2,350						—						—
Non-cash share-based compensation expense			13,739						12,125						11,107
Distributions from unconsolidated entities			400						400						44
Changes in operating assets and liabilities, excluding the effect of businesses acquired:
Increase in accounts receivable			(626,494)						(340,091)						(246,856)
Increase in inventories			(23,442)						(31,541)						(116)
Decrease (increase) in contract assets			5,733						(44,725)						(50,648)
Increase in accounts payable			82,192						111,488						54,849
Increase in contract liabilities			489,728						299,897						44,713
Increase (decrease) in accrued payroll and benefits and other accrued expenses and liabilities			189,268						(30,025)						46,573
Changes in other assets and liabilities, net			24,868						(4,109)						(56,874)
Net cash provided by operating activities			899,655						497,933						318,817
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired			(96,491)						(98,656)						(118,239)
Proceeds from sale or disposal of property, plant, and equipment			13,604						7,145						2,754
Purchases of property, plant, and equipment			(78,404)						(49,289)						(36,192)
Investments in and advances to unconsolidated entities			—						—						(1,595)
Distributions from unconsolidated entities			—						—						196
Net cash used in investing activities			(161,291)						(140,800)						(153,076)
Cash flows - financing activities:
Proceeds from revolving credit facility			200,000						270,000						—
Repayments of revolving credit facility			(200,000)						(270,000)						—
Repayments of long-term debt and debt issuance costs			(246,171)						(13,875)						(13,875)
Repayments of finance lease liabilities			(2,776)						(3,551)						(4,189)
Dividends paid to stockholders			(32,684)						(27,187)						(28,163)
Repurchases of common stock			(127,713)						(660,609)						(195,546)
Taxes paid related to net share settlements of equity awards			(6,060)						(7,539)						(4,210)
Issuances of common stock under employee stock purchase plan			9,189						8,177						7,328
Payments for contingent consideration arrangements			(5,839)						(5,534)						(6,758)
Distributions to noncontrolling interests			—						—						(43)
Net cash used in financing activities			(412,054)						(710,118)						(245,456)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			6,372						(12,515)						(1,279)
Increase (decrease) in cash, cash equivalents, and restricted cash			332,682						(365,500)						(80,994)
Cash, cash equivalents, and restricted cash at beginning of year (1)			457,068						822,568						903,562
Cash, cash equivalents, and restricted cash at end of period (1)			$	789,750					$	457,068					$	822,568

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(1)Includes $0.6 million, $1.2 million, and $0.7 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2022, 2021, and 2020, 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, 2020			$	2,053,244					$	606					$	47,464					$	(109,233)					$	2,480,321					$	(366,490)					$	576
Net income including noncontrolling interests			383,701						—						—						—						383,532						—						169
Other comprehensive income			25,671						—						—						25,671						—						—						—
Common stock issued under share-based compensation plans			—						1						(1)						—						—						—						—
Tax withholding for common stock issued under share-based compensation plans			(4,210)						—						(4,210)						—						—						—						—
Common stock issued under employee stock purchase plan			7,328						—						7,328						—						—						—						—
Common stock dividends			(28,163)						—						186						—						(28,349)						—						—
Repurchases of common stock			(195,546)						—						—						—						—						(195,546)						—
Distributions to noncontrolling interests			(43)						—						—						—						—						—						(43)
Share-based compensation expense			11,107						—						11,107						—						—						—						—
Balance, December 31, 2021			$	2,253,089					$	607					$	61,874					$	(83,562)					$	2,835,504					$	(562,036)					$	702
Net income including noncontrolling interests			406,122						—						—						—						406,122						—						—
Other comprehensive loss			(9,889)						—						—						(9,889)						—						—						—
Common stock issued under share-based compensation plans			2						2						—						—						—						—						—
Tax withholding for common stock issued under share-based compensation plans			(7,539)						—						(7,539)						—						—						—						—
Common stock issued under employee stock purchase plan			8,177						—						8,177						—						—						—						—
Common stock dividends			(27,187)						—						158						—						(27,345)						—						—
Repurchases of common stock			(660,609)						—						—						—						—						(660,609)						—
Share-based compensation expense			12,125						—						12,125						—						—						—						—
Balance, December 31, 2022			$	1,974,291					$	609					$	74,795					$	(93,451)					$	3,214,281					$	(1,222,645)					$	702
Net income including noncontrolling interests			633,329						—						—						—						632,994						—						335
Other comprehensive income			7,747						—						—						7,747						—						—						—
Common stock issued under share-based compensation plans			—						2						(2)						—						—						—						—
Tax withholding for common stock issued under share-based compensation plans			(6,060)						—						(6,060)						—						—						—						—
Common stock issued under employee stock purchase plan			9,189						—						9,189						—						—						—						—
Common stock dividends			(32,684)						—						152						—						(32,836)						—						—
Repurchases of common stock			(128,736)						—						—						—						—						(128,736)						—
Share-based compensation expense			13,739						—						13,739						—						—						—						—
Balance, December 31, 2023			$	2,470,815					$	611					$	91,813					$	(85,704)					$	3,814,439					$	(1,351,381)					$	1,037

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(1)Represents cumulative foreign currency translation and post retirement liability adjustments of $(1.8) million and $(83.9) million, respectively, as of December 31, 2023, $(8.3) million and $(85.2) million, respectively, as of December 31, 2022, and $2.5 million and $(86.1) million, respectively, as of December 31, 2021.

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 specialty contractors in the United States and a leading provider of electrical and mechanical construction and facilities services, building services, and industrial services. Our services are provided to a broad range of commercial, technology, manufacturing, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries, which 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 those facilities.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the subsidiaries and joint ventures it controls. All intercompany accounts and transactions have been eliminated. Investments over which we exercise significant influence, but do not control, 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 the primary beneficiary 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.

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment due to changes in our internal reporting structure aimed at realigning our service offerings.

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 and services to our customers or when our right to consideration is unconditional. The Company maintains an allowance for credit losses to reduce outstanding receivables to their net realizable value. 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. Factors relevant to our assessment include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends in credit quality indicators or past events, and forecasts of future economic conditions. In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

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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, 2023 and 2022, our accounts receivable of $3,203.5 million and $2,567.4 million, respectively, were recorded net of allowances for credit losses of $22.5 million and $22.4 million, respectively. 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 2023, 2022, and 2021 amounted to approximately $7.9 million, $5.2 million, and $8.0 million, respectively.

The change in the allowance for credit losses for the year ended December 31, 2023 was as follows (in thousands):

Balance at December 31, 2022			$	22,382
Provision for credit losses			7,859
Amounts written off against the allowance, net of recoveries			(7,739)
Balance at December 31, 2023			$	22,502

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined principally using the average cost method. Refer to Note 6 - Inventories of the notes to consolidated financial statements for additional information.

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 Consolidated Balance Sheets 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 shorter of the lease term or the useful life of the underlying asset. 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.

Short-term leases are not recorded on the Consolidated Balance Sheets but are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used on construction projects. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a period greater than 12 months.

Refer to Note 16 - 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 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 the 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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Goodwill and indefinite-lived intangible assets, such as trade names, are evaluated at least annually for impairment (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, along with certain other long-lived assets, are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable. See Note 8 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements for additional information.

Insurance Liabilities

We have loss payment deductibles for certain workers’ compensation, automobile liability, general liability, and property claims, have self-insured retentions for certain other casualty claims, and are self-insured for employee-related healthcare claims. In addition, we maintain a wholly-owned captive insurance subsidiary to manage certain of our insurance liabilities. Losses are recorded based upon estimates of our liability for claims incurred and for claims incurred but not 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 the majority of these obligations. As of December 31, 2023 and 2022, the estimated current portion of such undiscounted insurance liabilities, included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets, were $51.0 million and $54.8 million, respectively. The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” as of December 31, 2023 and 2022 were $229.8 million and $221.7 million, respectively. The current portion of anticipated insurance recoveries of $11.9 million and $16.0 million as of December 31, 2023 and 2022, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $48.8 million and $59.0 million as of December 31, 2023 and 2022, 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 tax consequences of temporary differences between the financial statement and income tax bases of assets and liabilities as well as for net operating loss and tax credit carryforwards. 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 periods 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, 2023 and 2022.

Valuation of Share-Based Compensation

Our share-based compensation plans and programs are administered by our Board of Directors or its Compensation and Personnel Committee. See Note 13 - Share-Based Compensation Plans of the notes to consolidated financial statements for additional information regarding these share-based compensation plans and programs.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

We recognize expense for all share-based payments issued to acquire goods or services based on the fair value of such payments. Compensation expense related to share-based awards is generally recognized on a straight-line basis over the requisite service period, which is the vesting period. 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.

New Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) has issued an Accounting Standards Update (“ASU”), which provides temporary optional expedients and exceptions to existing U.S. GAAP. This guidance is aimed at easing the financial reporting burdens related to reference rate reform, including the market transition from the London interbank offered rate (“LIBOR”), or other interbank offered rates, to alternative reference rates. Such accounting pronouncement, as amended, allows entities to account for and present certain contract modifications, which occur before December 31, 2024 and result from the transition to an alternative reference rate, as an event that does not require remeasurement at the modification date or reassessment of a previous accounting determination. In order to utilize such guidance, an entity must first conclude that the modified terms directly replace or have the potential to replace an eligible reference rate due to reference rate reform, and that any contemporaneous changes to other terms that change, or have the potential to change, the amount or timing of contractual cash flows are related to the replacement of a reference rate. During the second quarter of 2023, we amended our then existing credit agreement to change the reference rate from LIBOR to an interest rate based on the secured overnight financing rate, as administered by the Federal Reserve Bank of New York (“SOFR”). As such amendment was within the scope of the aforementioned guidance, we adopted this accounting pronouncement and utilized the optional expedients referenced above. We are not exposed to any other material contracts that reference LIBOR. The adoption of this accounting pronouncement did not have a material impact on our financial position and/or results of operations.

In November 2023, the FASB issued an ASU, which expands the required disclosure for reportable segments. This guidance requires entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all segment disclosures which are currently required annually. This ASU additionally requires entities to disclose the title and position of the individual or the name of the group or committee identified as its chief operating decision-maker. Such guidance, which is required to be applied retrospectively, is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact to our segment disclosures.

In December 2023, the FASB issued an ASU intended to enhance the transparency and decision-usefulness of income tax disclosures. Such guidance requires entities to provide additional information within their income tax rate reconciliation, including further disclosure of federal, state, and foreign income taxes and to provide more details about these reconciling items if a quantitative threshold is met. This guidance additionally requires expanded disclosure of income taxes paid, including amounts paid for federal, state, and foreign taxes. This ASU, which is required to be applied prospectively, is effective for fiscal years beginning after December 15, 2024, although early adoption and retrospective application is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact on our income tax disclosures, including the processes and controls around the collection of this information.

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 we expect 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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

(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.

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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

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.

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.

(4) Allocate the transaction price to the 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.

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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the number 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.

Changes in Estimates

Due to uncertainties inherent in the estimation process, as well as the significant judgment involved in determining variable consideration, it is possible that estimates of costs to complete a performance obligation, and/or our estimates of transaction prices, 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, or changes in the estimate of transaction prices, 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 indicates 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.

Based on an evaluation of individual projects that had revisions to total estimated costs, or anticipated contract value, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted during the years ended December 31, 2023, 2022, and 2021, as summarized in the following table (in thousands):

			2023						2022						2021
United States electrical construction and facilities services			$	12,535					$	33,463					$	4,627
United States mechanical construction and facilities services			10,864						13,679						2,264
United States building services			5,658						1,261						—
Total impact			$	29,057					$	48,403					$	6,891

During the year ended December 31, 2023, we recognized revenue of approximately $16.5 million on individual projects that were substantially complete in prior periods but had revisions to total estimated cost or anticipated contract value, which resulted in an increase to profitability in excess of $1.0 million. Of this amount, approximately $3.4 million was reported within our United States electrical construction and facilities services segment and approximately $13.1 million was reported within our United States mechanical construction and facilities services segment. There were no significant amounts of revenue recognized during the years ended December 31, 2022 or 2021 related to performance obligations satisfied in prior periods.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

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.

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, except for percentages). Refer to Note 18 - Segment Information of the notes to consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment.

Due to continued growth in certain of our end markets, during 2023, we have expanded the market sectors included in the disclosure for each of our United States construction segments, as shown below. All prior period disclosures have been adjusted to additionally reflect these changes.

			2023						% of Total						2022						% of Total						2021						% of Total
United States electrical construction and facilities services:
Network and communications market sector			$	934,455					34		%				$	801,052					33		%				$	621,139					30		%
Commercial market sector			402,886						14		%				414,539						17		%				398,996						20		%
Manufacturing and industrial market sector			394,804						14		%				301,606						12		%				230,894						11		%
Healthcare market sector			242,931						9		%				178,348						7		%				107,442						5		%
High-tech manufacturing market sector			140,471						5		%				88,544						4		%				35,196						2		%
Institutional market sector			147,375						5		%				154,077						6		%				178,729						9		%
Transportation market sector			167,976						6		%				166,563						7		%				196,313						10		%
Water and wastewater market sector			21,234						1		%				21,251						1		%				14,962						1		%
Hospitality and entertainment market sector			81,815						3		%				33,818						1		%				23,257						1		%
Short duration projects (1)			186,722						7		%				211,797						9		%				185,277						9		%
Service work			65,338						2		%				65,709						3		%				40,963						2		%
			2,786,007												2,437,304												2,033,168
Less intersegment revenues			(2,284)												(4,190)												(3,275)
Total segment revenues			$	2,783,723											$	2,433,114											$	2,029,893

			2023						% of Total						2022						% of Total						2021						% of Total
United States mechanical construction and facilities services:
Network and communications market sector			$	410,397					8		%				$	295,261					7		%				$	279,953					7		%
Commercial market sector			1,115,993						22		%				1,079,872						25		%				1,042,751						27		%
Manufacturing and industrial market sector			698,993						14		%				632,332						15		%				579,176						15		%
Healthcare market sector			489,485						10		%				479,937						11		%				487,111						12		%
High-tech manufacturing market sector			845,251						16		%				320,597						7		%				173,302						4		%
Institutional market sector			316,255						6		%				331,727						8		%				263,285						7		%
Transportation market sector			42,789						1		%				57,026						1		%				84,503						2		%
Water and wastewater market sector			286,912						6		%				261,501						6		%				213,314						5		%
Hospitality and entertainment market sector			52,919						1		%				44,615						1		%				66,059						2		%
Short duration projects (1)			324,056						6		%				333,066						8		%				292,795						8		%
Service work			500,853						10		%				467,156						11		%				446,786						11		%
			5,083,903												4,303,090												3,929,035
Less intersegment revenues			(9,100)												(10,882)												(6,835)
Total segment revenues			$	5,074,803											$	4,292,208											$	3,922,200

---

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

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

			2023						% of Total						2022						% of Total						2021						% of Total
United States building services:
Mechanical services			$	2,042,244					65		%				$	1,748,455					64		%				$	1,590,506					65		%
Commercial site-based services			865,232						28		%				810,210						29		%				680,351						28		%
Government site-based services			212,658						7		%				196,288						7		%				184,272						7		%
Total segment revenues			$	3,120,134											$	2,754,953											$	2,455,129

			2023						% of Total						2022						% of Total						2021						% of Total
United States industrial services:
Field services			$	991,466					85		%				$	972,894					87		%				$	853,143					86		%
Shop services			176,324						15		%				145,873						13		%				133,264						14		%
Total segment revenues			$	1,167,790											$	1,118,767											$	986,407
Total United States operations			$	12,146,450											$	10,599,042											$	9,393,629

			2023						% of Total						2022						% of Total						2021						% of Total
United Kingdom building services:
Service work			$	210,414					48		%				$	221,123					46		%				$	261,889					51		%
Project work			226,009						52		%				255,955						54		%				248,062						49		%
Total segment revenues			$	436,423											$	477,078											$	509,951
Total operations			$	12,582,873											$	11,076,120											$	9,903,580

Contract Assets and Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts are not yet billable 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, 2023 and 2022, contract assets included unbilled revenues for unapproved change orders of approximately $29.8 million and $36.0 million, respectively. Contract assets as of December 31, 2023 and 2022 additionally included $6.7 million and $3.8 million, respectively, associated with claims. There were $15.4 million of claims included within accounts receivable as of December 31, 2023. There were no claims included within accounts receivable as of December 31, 2022.

There were contractually billed amounts and retention related to contracts with unapproved change orders and claims of approximately $157.7 million and $131.4 million as of December 31, 2023 and 2022, 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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)

Contract liabilities from our 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.

Net contract liabilities in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2023 and 2022 (in thousands):

			December 31, 2023						December 31, 2022
Contract assets, current			$	269,885					$	273,176
Contract assets, non-current			—						—
Contract liabilities, current			(1,595,109)						(1,098,263)
Contract liabilities, non-current			(1,812)						(2,273)
Net contract liabilities			$	(1,327,036)					$	(827,360)

Included within net contract liabilities were $1,261.1 million and $763.2 million of net contract liabilities on uncompleted construction projects as of December 31, 2023 and 2022, respectively, as follows (in thousands):

			December 31, 2023						December 31, 2022
Costs incurred on uncompleted construction contracts			$	15,100,829					$	13,231,612
Estimated earnings, thereon			2,381,049						2,025,929
			17,481,878						15,257,541
Less: billings to date			18,742,934						16,020,704
			$	(1,261,056)					$	(763,163)

Contract assets and contract liabilities increased by approximately $2.0 million and $3.8 million, respectively, as a result of acquisitions made by us in 2023. Excluding the impact of acquisitions, net contract liabilities increased by approximately $497.9 million for the year ended December 31, 2023, predominantly due to an increase in net contract liabilities on our uncompleted construction projects, partially as a result of the timing of invoicing to our customers, which included customer deposits and advanced billings on several large projects in the earlier stages of completion, resulting in amounts invoiced exceeding the revenue recognized for such projects. There was no significant impairment of contract assets recognized during the periods presented.

Contract Retentions

As of December 31, 2023 and 2022, accounts receivable included $555.9 million and $456.9 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 completion of the project. We estimate that approximately 88% of the retainage outstanding as of December 31, 2023 will be collected during 2024.

As of December 31, 2023 and 2022, accounts payable included $93.6 million and $82.4 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 completion of their scope of work. We estimate that approximately 90% of the retainage outstanding as of December 31, 2023 will be paid during 2024.

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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 as of December 31, 2023 (in thousands, except for percentages):

			December 31, 2023						% of Total
Remaining performance obligations:
United States electrical construction and facilities services			$	2,387,844					27		%
United States mechanical construction and facilities services			4,940,519						56		%
United States building services			1,264,818						14		%
United States industrial services			113,291						1		%
Total United States operations			8,706,472						98		%
United Kingdom building services			140,949						2		%
Total operations			$	8,847,421					100		%

Our remaining performance obligations at December 31, 2023 were $8.85 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 the 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			$	1,978,179					$	409,665
United States mechanical construction and facilities services			4,314,365						626,154
United States building services			1,157,845						106,973
United States industrial services			113,291						—
Total United States operations			7,563,680						1,142,792
United Kingdom building services			94,711						46,238
Total operations			$	7,658,391					$	1,189,030

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 2023, we acquired eight companies for total consideration of $99.6 million. Such acquisitions include: (a) a national energy efficiency specialty services firm, the results of operations of which have been included in our United States building services segment, and (b) seven companies, the results of operations of which were de minimis, consisting of: (i) three companies that have been included within our United States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services in the Midwestern region of the United States, and two of which add capabilities to our national fire protection services, and (ii) four mechanical services companies in the Western and Midwestern regions of the United States that have been included within our United States building services segment and enhance our presence in geographies where we have existing operations. In connection with these acquisitions, we acquired working capital of $9.1 million and other net liabilities of $6.1 million, including certain deferred tax liabilities, and have preliminarily ascribed $37.4 million to goodwill and $59.2 million to identifiable intangible assets. We expect that $29.6 million of the goodwill and identifiable intangible assets acquired in connection with these 2023 acquisitions will be deductible for tax purposes.

During 2022, we acquired six companies for total consideration of $100.8 million. Such acquisitions include: (a) a company that provides electrical construction services in the Greater Boston area, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (b) five companies that enhance our presence in geographies where we have existing operations, the results of operations of which were de minimis, consisting of: (i) two companies that provide fire protection services in the Northeastern and Southern regions of the United States, respectively, and that have been included within our United States mechanical construction and facilities services segment, (ii) two companies that specialize in either building automation and controls or mechanical services in the Southwestern and Southern regions of the United States, respectively, and that have been included within our United States building services segment, and (iii) a company that provides electrical construction services in the Midwestern region of the United States and that has been included within our United States electrical construction and facilities services segment. In connection with these acquisitions, we acquired working capital of $7.1 million and other net liabilities of $1.1 million, and have ascribed $28.9 million to goodwill and $65.9 million to identifiable intangible assets. We expect that all of the goodwill and identifiable intangible assets acquired in connection with these 2022 acquisitions will be deductible for tax purposes.

During 2021, we acquired eight companies for total consideration of $131.2 million. Such acquisitions include: (a) two companies, the results of operations of which have been included within our United States mechanical construction and facilities services segment, consisting of: (i) a company that provides mechanical services within the Southern region of the United States and (ii) a company that provides fire protection services in the Midwestern region of the United States, (b) two companies that provide electrical construction services for a broad array of customers in the Midwestern region of the United States, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (c) four companies, the results of operations of which have been included within our United States building services segment, consisting of: (i) a company that provides mechanical services across North Texas and (ii) three companies that enhance our presence in geographies where we have existing operations and provide either mechanical services or building

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - ACQUISITIONS OF BUSINESSES (Continued)

automation and controls solutions. In connection with these acquisitions, we acquired working capital of $22.9 million and other net liabilities of $0.6 million, including certain deferred tax liabilities, and have ascribed $38.3 million to goodwill and $70.6 million to identifiable intangible assets. We expect that $90.5 million of the goodwill and identifiable intangible assets acquired in connection with these 2021 acquisitions will be deductible for tax purposes.

The purchase price allocation for one of the businesses acquired in 2023 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 2023 as well as the businesses acquired in 2022 and 2021 have been finalized during their respective measurement periods with an insignificant impact.

NOTE 5 - EARNINGS PER SHARE

The following table summarizes our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the years ended December 31, 2023, 2022, and 2021 (in thousands, except share and per share data):

			2023						2022						2021
Numerator:
Net income attributable to EMCOR Group, Inc.			$	632,994					$	406,122					$	383,532
Denominator:
Weighted average shares outstanding used to compute basic earnings per common share			47,358,467						49,931,940						54,068,982
Effect of dilutive securities—Share-based awards			205,791						204,322						278,552
Shares used to compute diluted earnings per common share			47,564,258						50,136,262						54,347,534
Basic earnings per common share			$	13.37					$	8.13					$	7.09
Diluted earnings per common share			$	13.31					$	8.10					$	7.06

The number of outstanding share-based awards excluded from the computation of diluted EPS for the years ended December 31, 2023, 2022, and 2021 because they would be anti-dilutive were 8,700, 4,926, and 9,250, respectively.

NOTE 6 - INVENTORIES

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2023 and 2022 (in thousands):

			December 31, 2023						December 31, 2022
Raw materials and construction materials			$	94,447					$	74,014
Work in process			16,327						11,627
Inventories			$	110,774					$	85,641

The increase in inventories as of December 31, 2023, compared to December 31, 2022, was a result of: (a) advanced purchases of materials and equipment for use on specific construction projects, in an effort to mitigate the impact of increased lead times, which have resulted from supply chain disruptions, (b) an increase in raw materials on hand to support our fabrication facilities given the growth in demand for our fire protection services, and (c) higher levels of work in process inventory within our United States industrial services segment given greater new build heat exchanger orders.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2023 and 2022 (in thousands):

			December 31, 2023						December 31, 2022
Machinery and equipment			$	224,456					$	206,249
Vehicles			76,489						68,858
Furniture and fixtures			27,415						25,253
Computer hardware/software			102,682						109,166
Land, buildings, and leasehold improvements			142,114						130,358
Construction in progress			13,514						6,060
Finance lease right-of-use assets (1)			4,932						6,117
			591,602						552,061
Accumulated depreciation and amortization			(412,224)						(394,242)
			$	179,378					$	157,819

---

(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 $51.8 million, $47.3 million, and $48.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

NOTE 8 - 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, 2023 and 2022 was $956.5 million and $919.2 million, respectively, with goodwill attributable to companies acquired in 2023 and 2022 valued at $37.4 million and $28.9 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 18 - Segment Information of the notes to consolidated financial statements. As of December 31, 2023, approximately 18.6% of our goodwill related to our United States electrical construction and facilities services segment, approximately 33.3% of our goodwill related to our United States mechanical construction and facilities services segment, approximately 36.2% of our goodwill related to our United States building services segment and approximately 11.9% 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, 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.

We performed our annual impairment assessment of all reporting units as of October 1, 2023, and determined there was no impairment of goodwill. In completing our annual impairment assessment, 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 10.9% for our United States construction segments, 11.2% for our United States building services segment, and 11.0% for our United States industrial services segment. 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 2.5% for all of our reporting units.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS (Continued)

For the years ended December 31, 2022 and 2021, no impairment of our goodwill was recognized.

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 $115.2 million, $249.9 million, $84.2 million, and $25.2 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 $56.5 million, $137.1 million, $40.4 million, and $9.3 million, respectively. Given the amounts by which the fair value exceeds the carrying value for each of our reporting units, the decreases in estimated fair values described above would not have significantly impacted the results of our 2023 impairment tests. Further, for each of our reporting units, a 10% decline in the estimated fair value of such reporting unit, due to other changes in our assumptions, including forecasted future cash flows, would not have significantly impacted the results of our 2023 impairment tests.

The changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2023 and 2022 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, 2021			$	159,512					$	303,887					$	312,781					$	114,088					$	890,268
Acquisitions			17,601						6,942						4,340						—						28,883
Intersegment transfers			900						4,500						(5,400)						—						—
Balance at December 31, 2022			178,013						315,329						311,721						114,088						919,151
Acquisitions			—						4,524						32,874						—						37,398
Intersegment transfers			—						(1,500)						1,500						—						—
Balance at December 31, 2023			$	178,013					$	318,353					$	346,095					$	114,088					$	956,549

The aggregate goodwill balance as of December 31, 2021 included $493.6 million of accumulated impairment charges, which were comprised of $139.5 million within the United States building services segment and $354.1 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 customer relationships, subsidiary trade names, developed technology/vendor network, and contract backlog, 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. For the years ended December 31, 2023, 2022, and 2021, no impairment of our indefinite-lived trade name intangible assets was recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS (Continued)

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. During the quarter ended September 30, 2023, we identified facts and circumstances that indicated the carrying values of certain long-lived assets within our United States mechanical construction and facilities services segment may not be fully recoverable. As a result, we determined that these assets were impaired, and, during the third quarter of 2023, recognized a $2.4 million impairment charge. For the years ended December 31, 2023, 2022, and 2021, there were no other indicators of impairment with respect to identifiable intangible assets that are being amortized as well as other long-lived assets.

Identifiable intangible assets as of December 31, 2023 and 2022 consisted of the following (in thousands):

			December 31, 2023
			Gross Carrying Amount						Accumulated Amortization						Accumulated Impairment Charge						Total
Customer relationships			$	807,766					$	(482,594)					$	(4,834)					$	320,338
Trade names (indefinite-lived)			299,271						—						(58,933)						240,338
Developed technology/Vendor network			95,661						(78,788)						—						16,873
Trade names (finite-lived)			35,991						(27,800)						—						8,191
Contract backlog			84,845						(84,553)						—						292
Total			$	1,323,534					$	(673,735)					$	(63,767)					$	586,032

			December 31, 2022
			Gross Carrying Amount						Accumulated Amortization						Accumulated Impairment Charge						Total
Customer relationships			$	762,516					$	(427,211)					$	(4,834)					$	330,471
Trade names (indefinite-lived)			289,121						—						(58,933)						230,188
Developed technology/Vendor network			95,661						(74,238)						—						21,423
Trade names (finite-lived)			33,791						(25,690)						—						8,101
Contract backlog			83,245						(79,453)						—						3,792
Total			$	1,264,334					$	(606,592)					$	(63,767)					$	593,975

Identifiable intangible assets attributable to businesses acquired in 2023 and 2022 have been valued at $59.2 million and $65.9 million, respectively, and consist of customer relationships, trade names, and contract backlog. 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 in a manner that best approximates the pattern in which the economic benefits of such assets are consumed, which is generally on a straight-line basis. The weighted average amortization periods for the unamortized balances remaining are, in the aggregate, approximately 7.00 years, which are comprised of the following: 7.25 years for customer relationships, 5.75 years for trade names, and 3.75 years for developed technology/vendor network.

Amortization expense related to identifiable intangible assets with finite lives was $67.1 million, $61.3 million, and $64.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - GOODWILL, IDENTIFIABLE INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS (Continued)

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

2024			$	63,873
2025			62,369
2026			55,782
2027			42,583
2028			33,818
Thereafter			87,269
			$	345,694

Other Considerations

As referenced above, impairment testing is based upon assumptions and estimates determined by management from a review of our operating results and business plans as well as forecasts of anticipated growth rates and margins, among other considerations. In addition, estimates of weighted average costs of capital are developed with the assistance of an independent third-party valuation specialist. These assumptions and estimates may change in future periods, especially in times of uncertain economic conditions and rising interest rates. Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future 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.

NOTE 9 - DEBT

Excluding finance lease liabilities, we had no outstanding debt as of December 31, 2023. Refer to Note 16 - Leases of the notes to consolidated financial statements for additional information regarding our finance leases, including outstanding balances.

Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2022 (in thousands):

									December 31, 2022
Term loan									$	242,813
Unamortized debt issuance costs									(2,080)
Finance lease liabilities									6,459
Total debt									247,192
Less: current maturities									15,567
Total long-term debt									$	231,625

Credit Agreement

Until December 20, 2023, we had a credit agreement that was entered into on March 2, 2020, which provided for a $1.3 billion revolving credit facility (the “2020 Revolving Credit Facility”) and a $300.0 million term loan (the “2020 Term Loan”). On December 20, 2023, we amended and restated such agreement (as amended and restated, the “2023 Credit Agreement”) to provide for a $1.3 billion revolving credit facility (the “2023 Revolving Credit Facility”) expiring December 20, 2028. If additional lenders are identified and/or existing lenders are willing to increase their current commitments, we may increase the 2023 Revolving Credit Facility by an amount equal to the greater of: (a) $900 million or (b) the Company’s Adjusted EBITDA (as such term is defined in the 2023 Credit Agreement) for the twelve-month period ending immediately prior to the increase in commitment. We may allocate up to $600.0 million of available capacity under the 2023 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries.

There were no direct borrowings outstanding under the 2023 Revolving Credit Facility as of December 31, 2023 or the 2020 Revolving Credit Facility as of December 31, 2022. However, outstanding letters of credit reduce the available capacity under these facilities, and as of December 31, 2023 and 2022, we had $116.7 million and $71.3 million of letters of credit outstanding, respectively. The balance of the 2020 Term Loan as of December 31, 2022 was $242.8 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - DEBT (Continued)

At the Company’s election, borrowings under the 2023 Revolving Credit Facility bear interest at either: (1) a base rate plus a margin of 0.125% to 0.875%, depending on the Company’s Leverage Ratio (as such term is defined in the 2023 Credit Agreement), or (2) a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable tenor plus 0.10% (“Adjusted Term SOFR”) plus a margin of 1.125% to 1.875%, depending on the Company’s Leverage Ratio. The base rate is determined by the greater of: (a) the prime commercial lending rate announced by Bank of Montreal from time to time, (b) the federal funds effective rate, plus ½ of 1.00%, (c) Adjusted Term SOFR for a one-month tenor, plus 1.00%, or (d) 0.00%.

A commitment fee is payable on the average daily unused amount of the 2023 Revolving Credit Facility, which ranges from 0.125% to 0.25%, depending on the Company’s Leverage Ratio. The fee was 0.125% of the unused amount as of December 31, 2023. Fees for letters of credit issued under the 2023 Revolving Credit Facility range from 0.85% to 1.875% of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed depending on the Company’s Leverage Ratio.

We capitalized an additional $3.4 million of debt issuance costs associated with the 2023 Credit Agreement. Debt issuance costs are amortized over the life of the agreement as part of interest expense.

Obligations under the 2023 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2023 Credit Agreement contains customary 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, 2023.

NOTE 10 - 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 – Significant unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring Fair Value Measurements

The following tables summarize the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2023 and 2022 (in thousands):

			Assets at Fair Value as of December 31, 2023
Asset Category			Level 1						Level 2						Level 3						Total
Cash and cash equivalents (1)			$	789,750					$	—					$	—					$	789,750
Deferred compensation plan assets (2)			47,315						—						—						47,315
Total			$	837,065					$	—					$	—					$	837,065

---

(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, 2023, we had $497.3 million in money market funds. From time to time, we have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

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

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NOTE 10 - FAIR VALUE MEASUREMENTS (Continued)

			Assets at Fair Value as of December 31, 2022
Asset Category			Level 1						Level 2						Level 3						Total
Cash and cash equivalents (1)			$	456,439					$	—					$	—					$	456,439
Deferred compensation plan assets (2)			36,882						—						—						36,882
Restricted cash (3)			629						—						—						629
Total			$	493,950					$	—					$	—					$	493,950

---

(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, 2022, we had $209.4 million in money market funds. From time to time, we have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

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

(3)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.

Nonrecurring Fair Value Measurements

We have recorded goodwill and identifiable intangible assets in connection with our business acquisitions. Such assets are measured at fair value at the time of acquisition based on valuation techniques that appropriately represent the methods which would be used by other market participants in determining fair value. In addition, goodwill, intangible assets, and certain other long-lived assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets. Periodically, we engage an independent third-party valuation specialist to assist with the valuation process, including the selection of appropriate methodologies and the development of market-based assumptions. The inputs used for these nonrecurring fair value measurements represent Level 3 inputs.

Fair Value of Financial Instruments

We believe that the carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities and low risk of counterparty default. Although there were no outstanding borrowings under our 2023 Credit Agreement as of December 31, 2023, the carrying value of any debt associated with this agreement would approximate its fair value due to the variable rate on such debt.

NOTE 11 - INCOME TAXES

For the years ended December 31, 2023, 2022, and 2021, our income tax provision was calculated based on income before income taxes as follows (in thousands):

			2023						2022						2021
United States			$	844,002					$	523,273					$	497,421
Foreign			28,851						35,477						31,882
			$	872,853					$	558,750					$	529,303

Foreign income for each of the years ended December 31, 2023, 2022, and 2021 was predominantly earned in the United Kingdom.

The income tax provision for the years ended December 31, 2023, 2022, and 2021 consisted of the following (in thousands):

			2023						2022						2021
Current provision:
Federal			$	187,463					$	100,707					$	95,782
State and local			62,316						36,547						35,883
Foreign			6,396						4,891						4,420
			256,175						142,145						136,085
Deferred (benefit) provision			(16,651)						10,483						9,517
			$	239,524					$	152,628					$	145,602

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - INCOME TAXES (Continued)

For the year ended December 31, 2023, our income tax provision was $239.5 million compared to $152.6 million for the year ended December 31, 2022 and $145.6 million for the year ended December 31, 2021. The increase in the income tax provision year-over-year was primarily due to increased income before income taxes.

The income tax rates on income before income taxes for the years ended December 31, 2023, 2022, and 2021, were 27.5%, 27.3%, and 27.5%, respectively.

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, 2023, 2022, and 2021 were as follows (in thousands):

			2023						2022						2021
Federal income taxes at the statutory rate			$	183,230					$	117,338					$	111,118
State and local income taxes, net of federal tax benefits			46,752						29,519						31,257
Permanent differences			9,513						5,261						5,316
Foreign income taxes (including UK statutory rate changes)			640						(155)						(2,241)
Other			(611)						665						152
			$	239,524					$	152,628					$	145,602

As of December 31, 2023, we had undistributed foreign earnings from certain foreign subsidiaries of approximately $167.3 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, 2023, the amount of cash held by these foreign subsidiaries was approximately $135.0 million which, if repatriated, should not result in any material 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 2017 through 2021.

On March 11, 2021, the American Rescue Plan Act was signed into law. Such act includes certain tax provisions that could have an impact on the Company in future periods, including expanded limits on compensation deductions under Section 162(m) of the Internal Revenue Code for tax years beginning after December 31, 2026. We are currently evaluating the impact that this act may have on our financial position and/or results of operations; however, we anticipate that the expanded provisions of Section 162(m) will result in an increase in our effective income tax rate for years beginning after December 31, 2026.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law. For tax years beginning after December 31, 2022, the Inflation Reduction Act creates a 15% corporate alternative minimum tax on profits of corporations whose average annual adjusted financial statement income exceeds $1.0 billion for any consecutive three-tax-year period preceding the then current tax year. Based on our average annual income for the preceding three years, which was below the aforementioned $1.0 billion threshold, as well as the fact that our effective federal income tax rate is in excess of the 15% alternative minimum tax rate, this alternative minimum tax did not have an impact on our financial position and/or results of operations for the year ended December 31, 2023.

Legislation has been enacted in the United Kingdom to implement measures in concert with the Base Erosion and Profit Shifting Pillar Two framework for international taxation developed by the member countries of the Organization for Economic Co-operation and Development (the “Pillar Two Model Rules”). The Pillar Two Model Rules are intended to ensure that multinational enterprises pay a minimum 15% effective tax rate in every jurisdiction in which they operate. Given that our effective income tax rate in all jurisdictions in which we operate is in excess of such 15% minimum rate, we do not anticipate that these rules will have a material effect on our tax provision or effective income tax rate; however, we continue to monitor evolving tax legislation in the jurisdictions in which we operate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - 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, 2023 and 2022 were as follows (in thousands):

			December 31, 2023						December 31, 2022
Deferred income tax assets:
Excess of amounts expensed for financial statement purposes over amounts deducted for income tax purposes:
Insurance liabilities			$	59,667					$	57,278
Operating lease liabilities			92,410						78,391
Deferred compensation			54,313						40,682
Other (including liabilities and reserves)			40,110						35,584
Total deferred income tax assets			246,500						211,935
Valuation allowance for deferred tax assets			(4,385)						(3,580)
Net deferred income tax assets			242,115						208,355
Deferred income tax liabilities:
Costs capitalized for financial statement purposes and deducted for income tax purposes:
Goodwill and identifiable intangible assets			(165,073)						(153,767)
Operating lease right-of-use assets			(85,883)						(73,134)
Depreciation of property, plant, and equipment			(30,075)						(28,435)
Pension asset			(4,660)						(4,082)
Other			(13,063)						(10,500)
Total deferred income tax liabilities			(298,754)						(269,918)
Net deferred income tax liabilities			$	(56,639)					$	(61,563)

Our net deferred income tax liabilities of $56.6 million and $61.6 million as of December 31, 2023 and 2022, respectively, were included in “Other long-term obligations” in the accompanying Consolidated Balance Sheet.

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, 2023 and 2022, the total valuation allowance on deferred income tax assets, related to state and local net operating losses, foreign net operating losses, and foreign income tax credit carryovers, was approximately $4.4 million and $3.6 million, respectively. The increase in our valuation allowances at December 31, 2023 was a result of the recognition of additional deferred tax assets related to net operating loss carryovers and foreign income tax credit carryovers that we determined we would likely not be able to utilize.

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 allowances discussed above, will be realized. However, revisions to our forecasts or declining macroeconomic conditions could result in changes to our assessment of the realization of these deferred income tax assets.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - COMMON STOCK

As of December 31, 2023 and 2022, there were 47,047,265 and 47,666,725 shares of our common stock outstanding, respectively.

We have paid quarterly dividends since October 25, 2011. We currently pay a regular quarterly dividend of $0.18 per share. Subsequent to December 31, 2023, our Board of Directors announced its intention to increase the regular quarterly dividend to $0.25 per share commencing with the dividend to be paid in April 2024.

In September 2011, 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 authorized for repurchases under such program. Since the inception of the repurchase program, the Board has authorized us to repurchase up to $2.15 billion of our outstanding common stock. During the year ended December 31, 2023, we repurchased approximately 0.8 million shares of our common stock for approximately $128.7 million. Since the inception of the repurchase program through December 31, 2023, we have repurchased approximately 25.8 million shares of our common stock for approximately $1.89 billion. As of December 31, 2023, there remained authorization for us to repurchase approximately $261.1 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 2023 Credit Agreement placing limitations on such repurchases.

The Inflation Reduction Act, which was enacted into law on August 16, 2022, imposes a nondeductible excise tax of 1% on the fair value of net stock repurchases in excess of share issuances made by publicly traded U.S. corporations, effective for repurchases after December 31, 2022. The applicable excise tax for the year ended December 31, 2023 was approximately $1.0 million and has been included as a component of treasury stock as it represents a direct cost associated with the repurchase of our common stock.

NOTE 13 - 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. Under the terms of this plan, 3,250,000 shares were authorized, and 692,720 shares remain available for grant or issuance as of December 31, 2023. Any issuances under this plan are valued at the fair market value of our common stock on the grant date. Forfeitures are recognized as they occur.

The following table summarizes activity regarding restricted stock units since December 31, 2020:

						Shares						Weighted Average Price
Balance, December 31, 2020						397,918						$	73.16
Granted						129,859						$	96.32
Forfeited						(2,242)						$	78.86
Vested						(121,067)						$	77.86
Balance, December 31, 2021						404,468						$	79.16
Granted						107,621						$	123.52
Forfeited						(4,665)						$	105.88
Vested						(189,830)						$	67.40
Balance, December 31, 2022						317,594						$	100.83
Granted						103,024						$	156.06
Forfeited						(3,018)						$	118.59
Vested						(122,751)						$	90.38
Balance, December 31, 2023						294,849						$	124.30

An aggregate of 34,196 restricted stock units granted to current non-employee directors vested as of December 31, 2023, but, at the election of such directors, issuance has been deferred for up to 10 years from the date of vest. In addition, an aggregate of 6,086 restricted stock units granted to former employees vested as of December 31, 2023 but, in accordance with plan documents, were issued in January 2024.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - SHARE-BASED COMPENSATION PLANS (Continued)

We recognized approximately $13.7 million, $12.1 million, and $11.1 million of compensation expense for stock units awarded to non-employee directors and employees pursuant to our incentive plan for the years ended December 31, 2023, 2022, and 2021, respectively. We have approximately $11.4 million of compensation expense, net of income taxes, which will be recognized over the remaining vesting periods of up to 3 years.

The income tax benefit derived in 2023, 2022, and 2021 as a result of share-based compensation was approximately $3.3 million, $3.9 million, and $2.6 million, respectively, of which approximately $1.7 million, $1.7 million, and $0.8 million, respectively, represented excess tax benefits.

Through December 31, 2023, we sponsored an employee stock purchase plan, which generally allowed our corporate employees and non-union employees of our United States subsidiaries to purchase up to an aggregate of 3,000,000 of our shares. This plan was terminated subsequent to December 31, 2023.

NOTE 14 - 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 the Consolidated Balance Sheets with a corresponding adjustment to accumulated other comprehensive income (loss). Gains and losses for the differences between actuarial assumptions and actual results are recognized through accumulated other comprehensive income (loss). These amounts will be subsequently recognized as net periodic pension cost (income) within the Consolidated Statement of Operations, as described further below.

United Kingdom Retirement Plan

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 such plan.

The change in benefit obligations and assets of the UK Plan for the years ended December 31, 2023 and 2022 consisted of the following components (in thousands):

			2023						2022
Change in pension benefit obligation
Benefit obligation at beginning of year			$	193,956					$	349,147
Interest cost			9,722						5,693
Actuarial loss (gain)			651						(116,372)
Benefits paid			(10,411)						(11,095)
Foreign currency exchange rate changes			10,179						(33,417)
Benefit obligation at end of year			204,097						193,956
Change in pension plan assets
Fair value of plan assets at beginning of year			210,284						356,532
Actual return (loss) on plan assets			10,563						(105,544)
Employer contributions			1,564						4,875
Benefits paid			(10,411)						(11,095)
Foreign currency exchange rate changes			11,077						(34,484)
Fair value of plan assets at end of year			223,077						210,284
Funded status at end of year			$	18,980					$	16,328

The funded status of the UK Plan of $19.0 million and $16.3 million as of December 31, 2023 and 2022, respectively, is included in “Other assets” in the accompanying Consolidated Balance Sheets. No plan assets are expected to be returned to us during the year ending December 31, 2024.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - RETIREMENT PLANS (Continued)

The assumptions used to determine benefit obligations of the UK Plan as of December 31, 2023 and 2022 were as follows:

			2023						2022
Discount rate			4.8		%				5.0		%

The components of net periodic pension cost (income) of the UK Plan for the years ended December 31, 2023, 2022, and 2021 were as follows (in thousands):

			2023						2022						2021
Interest cost			$	9,722					$	5,693					$	5,326
Expected return on plan assets			(11,417)						(12,088)						(12,726)
Amortization of unrecognized loss			2,611						2,073						3,642
Net periodic pension cost (income)			$	916					$	(4,322)					$	(3,758)

The assumptions used to determine net periodic pension cost of the UK Plan for the years ended December 31, 2023, 2022, and 2021 were as follows:

			2023						2022						2021
Discount rate			5.0		%				1.8		%				1.4		%
Annual rate of return on plan assets			5.7		%				3.9		%				3.9		%

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 approach 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 rate of inflation of covered pension benefits assumed for both 2023 and 2022 was 2.8%.

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

			December 31, 2023						December 31, 2022
Unrecognized actuarial losses			$	82,344					$	79,313

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 2023 was 23 years.

The reclassification adjustment, net of income taxes, for the UK Plan from accumulated other comprehensive loss into net periodic pension cost was approximately $2.0 million for the year ended December 31, 2023, approximately $1.6 million for the year ended December 31, 2022, and approximately $2.9 million for the year ended December 31, 2021. 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 $2.0 million, net of income taxes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - RETIREMENT PLANS (Continued)

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 investment balances 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, 2023 and 2022 were as follows:

Asset Category			Target Asset Allocation 2023						Actual December 31, 2023						Target Asset Allocation 2022						Actual December 31, 2022
Debt			90.0		%				87.1		%				75.0		%				80.7		%
Cash and cash equivalents			—		%				3.9		%				15.0		%				9.4		%
Real estate			10.0		%				9.0		%				10.0		%				9.9		%
Total			100.0		%				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, as of December 31, 2023 and 2022, consisted of: (a) cash and cash equivalents, primarily held as collateral for other financial instruments, (b) debt securities, which include: (i) United Kingdom government debt, (ii) United States, United Kingdom, other European, and emerging market corporate debt, and (iii) real estate debt, and (c) real estate assets, which represent trusts which invest directly or indirectly in various properties throughout the United Kingdom.

The following tables set forth the fair value of assets of the UK Plan as of December 31, 2023 and 2022 (in thousands):

			Assets at Fair Value as of December 31, 2023
Asset Category			Level 1						Level 2						Level 3						Total
Corporate debt funds			$	—					$	44,504					$	—					$	44,504
Government bond funds			—						63,934						—						63,934
Cash and cash equivalents			8,797						—						—						8,797
Total plan assets in fair value hierarchy			$	8,797					$	108,438					$	—					117,235
Plan assets measured using NAV as a practical expedient: (1)
Debt funds																					85,786
Real estate funds																					20,056
Total plan assets at fair value																					$	223,077

			Assets at Fair Value as of December 31, 2022
Asset Category			Level 1						Level 2						Level 3						Total
Corporate debt funds			$	—					$	23,998					$	—					$	23,998
Government bond funds			—						45,619						—						45,619
Cash and cash equivalents			19,829						—						—						19,829
Total plan assets in fair value hierarchy			$	19,829					$	69,617					$	—					89,446
Plan assets measured using NAV as a practical expedient: (1)
Debt funds																					99,990
Real estate funds																					20,848
Total plan assets at fair value																					$	210,284

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(1)Certain investments measured using net asset value (“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. NAV is determined by the respective fund manager based on the fair value of the underlying assets held by the fund, less its liabilities, divided by the number of units outstanding.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - RETIREMENT PLANS (Continued)

Assets of the UK Plan are allocated within the fair value hierarchy discussed in Note 10 - Fair Value Measurements, based on the nature of the investment. Level 1 assets represent cash and cash equivalents. Level 2 assets consist of corporate debt funds and government bond 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.

Investments valued using 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 investments, primarily through U.S. corporate debt, global credit, and other structured debt instruments, and (b) funds which aim to provide long-term income through investment in UK property assets. These investments are redeemable at NAV, which is generally determined on a quarterly basis, and have redemption notice periods of up to 180 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.

Contributions

Our United Kingdom subsidiary expects to contribute approximately $0.6 million to the UK Plan in 2024.

Estimated Future Benefit Payments

The following estimated benefit payments are expected to be made from the UK Plan in the following years (in thousands):

			Pension Benefit Payments
2024			$	10,736
2025			$	11,185
2026			$	11,689
2027			$	12,079
2028			$	12,598
Succeeding five years			$	67,955

Other Retirement Plans

We also sponsor three domestic retirement plans in which participation by new individuals is frozen. The aggregate benefit obligation associated with these plans as of December 31, 2023 and 2022 was approximately $6.3 million and $6.7 million, respectively. The estimated fair value of the plan assets as of December 31, 2023 and 2022 was approximately $5.1 million and $4.9 million, respectively. The plan assets are predominantly invested in cash, equity securities, and equity and bond funds, which have quoted market prices in active markets, and as such are considered Level 1 assets within the fair value hierarchy. The liability balances as of December 31, 2023 and 2022 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 included discount rates of 4.75% and 5.20% as of December 31, 2023, and approximately 4.80% as of December 31, 2022. In addition, key assumptions included an expected rate of return of 7.00% in order to determine net periodic pension cost for both 2023 and 2022. The net periodic pension cost associated with the domestic plans, as well as the reclassification adjustment from accumulated other comprehensive loss to net periodic pension cost, were insignificant for all periods presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - RETIREMENT PLANS (Continued)

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 $36.7 million for the year ended December 31, 2023, $35.0 million for the year ended December 31, 2022, and $33.0 million for the year ended December 31, 2021. 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, 2023, 2022, and 2021 were approximately $10.2 million, $9.2 million, and $7.7 million, respectively.

Our United Kingdom subsidiary also has defined contribution retirement plans. The expenses recognized related to employer matching contributions for the years ended December 31, 2023, 2022, and 2021 were approximately $7.4 million, $7.3 million, and $8.3 million, respectively.

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 any plan 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.

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 material withdrawal liabilities for the years ended December 31, 2023, 2022, and 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - RETIREMENT PLANS (Continued)

The following table lists all MEPPs to which our contributions exceeded $2.0 million in 2023. This table also lists all MEPPs to which we contributed in 2023 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)
			2023						2022									2023						2022						2021
National Automatic Sprinkler Industry Pension Fund						52-6054620			001						Green						Green						NA						$	25,559					$	21,583					$	20,987					Yes						March 2024 to July 2027
National Electrical Benefit Fund						53-0181657			001						Green						Green						NA						18,128						15,192						12,310						Yes						February 2024 to November 2027
United Association National Pension Fund						52-6152779			001						Green						Green						NA						16,815						15,288						14,723						No						January 2024 to May 2029
Sheet Metal Workers National Pension Fund						52-6112463			001						Green						Green						NA						10,797						9,505						10,307						No						April 2024 to July 2028
Central Pension Fund of the IUOE & Participating Employers						36-6052390			001						Green						Green						NA						8,573						7,651						6,627						No						January 2024 to December 2026
Electrical Workers Local No. 26 Pension Trust Fund						52-6117919			001						Green						Green						NA						8,283						7,844						9,346						Yes						May 2024 to September 2027
Pension, Hospitalization & Benefit Plan of the Electrical Industry-Pension Trust Account						13-6123601			001						Green						Green						NA						7,198						8,122						7,355						No						January 2025 to April 2025
Plumbers Pipefitters & Mechanical Equipment Service Local Union 392 Pension Plan						31-0655223			001						Red						Red						Implemented						7,010						7,674						7,110						Yes						May 2024 to May 2025
Electrical Workers Pension Plan Local 103 IBEW						04-6063734			001						Green						Green						NA						6,537						2,900						—						Yes						August 2028
Northern California Pipe Trades Pension Plan						94-3190386			001						Green						Green						NA						6,317						3,238						2,663						No						June 2024 to July 2024
Edison Pension Plan						93-6061681			001						Green						Green						NA						5,840						5,325						4,229						Yes						December 2024
Sheet Metal Workers Pension Plan of Northern California						51-6115939			001						Red						Red						Implemented						5,738						6,074						7,850						Yes						June 2024 to June 2026
San Diego Electrical Pension Plan						95-6101801			001						Green						Green						NA						5,511						4,258						4,068						Yes						May 2024
Heating, Piping & Refrigeration Pension Fund						52-1058013			001						Green						Green						NA						5,315						4,625						5,591						Yes						July 2024 to July 2025
Pipefitters Union Local 537 Pension Fund						51-6030859			001						Green						Green						NA						5,179						5,039						5,922						Yes						August 2025
Southern California Pipe Trades Retirement Fund						51-6108443			001						Green						Green						NA						4,657						4,650						6,272						Yes						August 2024 to August 2026
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						4,432						3,516						4,225						No						June 2024 to December 2024
IBEW Local 701 Pension Fund						36-6455509			001						Green						Green						NA						3,989						2,625						1,276						No						May 2024 to September 2024
Eighth District Electrical Pension Fund						84-6100393			001						Green						Green						NA						3,844						3,339						3,298						Yes						February 2024 to February 2027
Southern California IBEW-NECA Pension Trust Fund						95-6392774			001						Yellow						Yellow						Implemented						3,801						4,287						4,876						No						May 2024 to November 2026
IBEW Local No. 82 Pension Plan						31-6127268			001						Green						Green						NA						3,701						2,549						956						Yes						December 2026
Sheet Metal Workers Pension Plan of Southern California, Arizona & Nevada						95-6052257			001						Green						Green						NA						3,399						2,921						3,322						No						June 2024 to July 2028
Kern County Electrical Workers Pension Fund						95-6123049			001						Green						Green						NA						3,299						1,542						1,167						Yes						November 2027

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - 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)
			2023						2022									2023						2022						2021
U.A. Local 393 Pension Trust Fund Defined Benefit						94-6359772			002						Green						Green						NA						3,263						3,517						3,507						Yes						June 2024 to July 2024
Arizona Pipe Trades Pension Trust Fund						86-6025734			001						Green						Green						NA						3,048						2,940						2,020						Yes						June 2024
Joint Pension Fund of Local Union No. 102						22-1615726			001						Green						Green						NA						2,868						1,762						1,531						Yes						June 2024
Plumbers & Steamfitters Local 486 Pension Fund						52-6124449			001						Green						Green						NA						2,828						1,599						1,351						Yes						December 2025
Plumbers & Pipefitters Local No. 189 Pension Fund						31-0894807			001						Green						Green						NA						2,557						1,272						596						Yes						May 2024 to June 2025
Local No. 697 IBEW and Electrical Industry Pension Fund						51-6133048			001						Green						Green						NA						2,528						2,287						1,753						Yes						May 2024
U.A. Plumbers Local 24 Pension Fund						22-6042823			001						Green						Green						NA						2,295						1,819						2,270						Yes						April 2025
NECA-IBEW Pension Trust Fund						51-6029903			001						Green						Green						NA						2,228						3,034						2,491						No						May 2024 to December 2024
IBEW 332 Pension Fund - Part A						94-2688032			004						Green						Green						NA						2,062						4,177						2,339						Yes						May 2024 to June 2024
Plumbers & Pipefitters Local 162 Pension Fund						31-6125999			001						Yellow						Yellow						Implemented						1,243						1,132						1,034						Yes						May 2024 to May 2026
Steamfitters Local Union No. 420 Pension Plan						23-2004424			001						Red						Red						Implemented						1,227						1,018						677						No						April 2026 to May 2026
Boilermaker-Blacksmith National Pension Trust						48-6168020			001						Red						Green						Implemented						1,140						6,434						3,479						Yes						April 2025 to September 2026
Plumbing & Pipe Fitting Local 219 Pension Fund						34-6682376			001						Red						Red						Implemented						919						1,172						1,167						Yes						May 2026
Carpenters Pension Trust Fund for Northern California						94-6050970			001						Red						Red						Implemented						610						532						568						No						June 2027
Other Multiemployer Pension Plans																																	56,091						53,723						51,818												Various
Total Contributions																																	$	258,829					$	236,165					$	221,081

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(1) The zone status represents the most recent available information for the respective MEPP, which may be from 2022 or earlier for the 2023 year and from 2021 or earlier for the 2022 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 or are projected to have a funding deficiency in any of the next ten years.

(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 therefore is not disclosed.

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 2021 have resulted in incremental contributions to various MEPPs of approximately $8.0 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 $243.5 million, $213.7 million, and $178.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. Acquisitions made by use since 2021 have resulted in incremental contributions to such other post retirement benefit plans of approximately $14.4 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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Severance Agreements

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.

Guarantees

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.

Surety Bonds

The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, surety bonds as a condition to the award of such contracts. These 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. As of December 31, 2023, 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 $2.2 billion, which represents approximately 25% of our total remaining performance obligations. 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. In addition, surety bonds may be issued as collateral for certain insurance obligations. As of December 31, 2023, we satisfied approximately $48.1 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.

Hazardous Materials

We are subject to regulation with respect to the handling or disposal of certain materials used in the performance of our services, 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.

Collective Bargaining Agreements

At December 31, 2023, we employed approximately 38,300 people, approximately 60% of whom are represented by various unions pursuant to nearly 450 collective bargaining agreements between our individual subsidiaries or trade associations and local unions, as well as two collective bargaining agreements that are national or regional in scope. We believe that our relations with our labor unions are generally positive.

Government Contracts

When we perform work as a federal government contractor/subcontractor or when we perform work on a project that has received federal government funding, 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.

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.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - 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.

Lease Position

The following table presents our lease-related assets and liabilities as of December 31, 2023 and 2022 (in thousands):

						Classification on the Consolidated Balance Sheet									December 31, 2023						December 31, 2022
Assets
Operating lease assets						Operating lease right-of-use assets									$	310,498					$	268,063
Finance lease assets						Property, plant, and equipment, net									4,932						6,117
Total lease assets															$	315,430					$	274,180
Liabilities
Current
Operating						Operating lease liabilities, current									$	75,236					$	67,218
Finance						Current maturities of long-term debt and finance lease liabilities									2,465						2,652
Noncurrent
Operating						Operating lease liabilities, long-term									259,430						220,764
Finance						Long-term debt and finance lease liabilities									2,838						3,807
Total lease liabilities															$	339,969					$	294,441

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - LEASES (Continued)

Lease Costs

The following table presents information related to our lease expense for the years ended December 31, 2023, 2022, and 2021 (in thousands):

						2023						2022						2021
Finance lease expense:
Amortization expense						$	2,816					$	3,550					$	4,255
Interest expense						175						178						255
Operating lease expense						93,158						77,143						70,928
Short-term lease expense (1)						224,047						185,061						150,500
Variable lease expense						9,482						6,782						5,421
Total lease expense						$	329,678					$	272,714					$	231,359

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(1)Short-term lease expense includes both leases and rentals with initial terms of one year or less and predominantly represents equipment used on construction projects.

Sublease rental income was approximately $6.7 million, $3.8 million, and $0.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Lease Term and Discount Rate

The following table presents certain information related to the lease terms and discount rates for our leases as of December 31, 2023 and 2022:

						December 31, 2023						December 31, 2022
Weighted-average remaining lease term:
Operating leases						5.7 years						5.9 years
Finance leases						2.9 years						2.9 years
Weighted-average discount rate:
Operating leases						4.11		%				3.45		%
Finance leases						3.57		%				2.85		%

Other Information

The following table presents supplemental cash flow information related to our leases for the years ended December 31, 2023, 2022, and 2021 (in thousands):

						2023						2022						2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases						$	90,412					$	74,927					$	69,797
Operating cash flows used for finance leases						$	175					$	178					$	255
Financing cash flows used for finance leases						$	2,776					$	3,551					$	4,189
Right-of-use assets obtained in exchange for new operating lease liabilities						$	125,417					$	75,027					$	80,661
Right-of-use assets obtained in exchange for new finance lease liabilities						$	1,427					$	2,209					$	2,301

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - LEASES (Continued)

Maturity of Lease Liabilities

The following table reconciles our future minimum lease payments on an undiscounted cash flow basis to our lease liabilities reported in the Consolidated Balance Sheet as of December 31, 2023 (in thousands):

			Operating Leases						Finance Leases
2024			$	87,058					$	2,605
2025			69,127						1,533
2026			60,558						782
2027			47,961						389
2028			36,858						222
Thereafter			74,510						64
Total minimum lease payments			376,072						5,595
Less: Amount of lease payments representing interest			(41,406)						(292)
Present value of future minimum lease payments			$	334,666					$	5,303
Current portion of lease liabilities			$	75,236					$	2,465
Noncurrent portion of lease liabilities			259,430						2,838
Present value of future minimum lease payments			$	334,666					$	5,303

NOTE 17 - ADDITIONAL CASH FLOW INFORMATION

The following table presents information about cash paid for interest and income taxes for the years ended December 31, 2023, 2022, and 2021 (in thousands):

			2023						2022						2021
Cash paid during the year for:
Interest			$	16,246					$	11,653					$	5,259
Income taxes			$	230,496					$	168,732					$	130,811

NOTE 18 - SEGMENT INFORMATION

We are one of the largest specialty contractors in the United States and a leading provider of electrical and mechanical construction and facilities services, building services, and industrial services. Our services are provided to a broad range of commercial, technology, manufacturing, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries. Such operating subsidiaries are organized into the following reportable segments:

• United States electrical construction and facilities services;

• United States mechanical construction and facilities services;

• United States building services;

• United States industrial services; and

• United Kingdom building services.

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment due to changes in our internal reporting structure aimed at realigning our service offerings.

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - SEGMENT INFORMATION (Continued)

The following tables present financial information for each of our reportable segments for the years ended December 31, 2023, 2022, and 2021 (in thousands):

			2023						2022						2021
Revenues from unrelated entities:
United States electrical construction and facilities services			$	2,783,723					$	2,433,114					$	2,029,893
United States mechanical construction and facilities services			5,074,803						4,292,208						3,922,200
United States building services			3,120,134						2,754,953						2,455,129
United States industrial services			1,167,790						1,118,767						986,407
Total United States operations			12,146,450						10,599,042						9,393,629
United Kingdom building services			436,423						477,078						509,951
Total operations			$	12,582,873					$	11,076,120					$	9,903,580
			2023						2022						2021
Total revenues:
United States electrical construction and facilities services			$	2,786,895					$	2,438,916					$	2,033,863
United States mechanical construction and facilities services			5,134,686						4,338,584						3,935,737
United States building services			3,228,056						2,856,115						2,553,566
United States industrial services			1,179,321						1,175,469						1,021,217
Less intersegment revenues			(182,508)						(210,042)						(150,754)
Total United States operations			12,146,450						10,599,042						9,393,629
United Kingdom building services			436,423						477,078						509,951
Total operations			$	12,582,873					$	11,076,120					$	9,903,580

			2023						2022						2021
Operating income (loss):
United States electrical construction and facilities services			$	230,640					$	148,728					$	169,355
United States mechanical construction and facilities services			530,644						330,325						312,809
United States building services			182,995						146,639						124,335
United States industrial services			35,375						19,787						(1,666)
Total United States operations			979,654						645,479						604,833
United Kingdom building services			25,681						29,838						27,998
Corporate administration			(127,229)						(110,440)						(102,031)
Impairment loss on long-lived assets			(2,350)						—						—
Total operations			875,756						564,877						530,800
Other items:
Net periodic pension (cost) income			(1,119)						4,311						3,625
Interest expense			(17,199)						(13,199)						(6,071)
Interest income			15,415						2,761						949
Income before income taxes			$	872,853					$	558,750					$	529,303

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - SEGMENT INFORMATION (Continued)

			2023						2022						2021
Capital expenditures:
United States electrical construction and facilities services			$	6,929					$	11,228					$	4,985
United States mechanical construction and facilities services			37,543						11,930						10,108
United States building services			19,843						13,303						11,539
United States industrial services			10,433						9,905						6,159
Total United States operations			74,748						46,366						32,791
United Kingdom building services			1,984						2,816						3,015
Corporate administration			1,672						107						386
Total operations			$	78,404					$	49,289					$	36,192
			2023						2022						2021
Depreciation and amortization of property, plant, and equipment:
United States electrical construction and facilities services			$	8,402					$	7,543					$	7,229
United States mechanical construction and facilities services			12,503						11,492						11,354
United States building services			15,672						12,964						12,090
United States industrial services			11,146						10,888						11,723
Total United States operations			47,723						42,887						42,396
United Kingdom building services			3,116						2,752						3,938
Corporate administration			983						1,657						2,013
Total operations			$	51,822					$	47,296					$	48,347

			December 31, 2023						December 31, 2022						December 31, 2021
Contract assets:
United States electrical construction and facilities services			$	73,464					$	75,603					$	48,382
United States mechanical construction and facilities services			97,252						99,632						89,102
United States building services			61,867						56,694						42,818
United States industrial services			17,129						10,727						18,992
Total United States operations			249,712						242,656						199,294
United Kingdom building services			20,173						30,520						30,849
Total operations			$	269,885					$	273,176					$	230,143
			December 31, 2023						December 31, 2022						December 31, 2021
Contract liabilities:
United States electrical construction and facilities services			$	399,550					$	271,161					$	200,966
United States mechanical construction and facilities services			925,481						594,453						386,518
United States building services			223,202						184,821						150,333
United States industrial services			17,366						17,746						16,481
Total United States operations			1,565,599						1,068,181						754,298
United Kingdom building services			29,510						30,082						33,836
Total operations			$	1,595,109					$	1,098,263					$	788,134

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EMCOR Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - SEGMENT INFORMATION (Continued)

			December 31, 2023						December 31, 2022						December 31, 2021
Long-lived assets:
United States electrical construction and facilities services			$	290,896					$	302,448					$	237,766
United States mechanical construction and facilities services			526,567						517,649						514,065
United States building services			574,917						497,892						500,368
United States industrial services			318,077						341,646						365,563
Total United States operations			1,710,457						1,659,635						1,617,762
United Kingdom building services			9,761						10,320						11,402
Corporate administration			1,741						990						2,535
Total operations			$	1,721,959					$	1,670,945					$	1,631,699

			December 31, 2023						December 31, 2022						December 31, 2021
Total assets:
United States electrical construction and facilities services			$	1,243,707					$	1,078,405					$	855,417
United States mechanical construction and facilities services			2,242,833						1,835,001						1,664,822
United States building services			1,382,664						1,206,518						1,097,568
United States industrial services			571,658						552,545						589,017
Total United States operations			5,440,862						4,672,469						4,206,824
United Kingdom building services			277,066						255,547						241,740
Corporate administration			891,793						596,591						992,882
Total operations			$	6,609,721					$	5,524,607					$	5,441,446

NOTE 19 - SUBSEQUENT EVENTS

Subsequent to December 31, 2023, we entered into definitive agreements to acquire three companies for upfront consideration of approximately $137.0 million. These transactions are expected to close in the second quarter of 2024, subject to customary closing conditions. These acquisitions are comprised of: (a) two companies that will be included within our United States mechanical construction and facilities services segment including: (i) a leading plumbing services provider in the Southeast region of the United States and (ii) a full service provider of mechanical construction and maintenance services in Central Texas, and (b) a company which provides building automation and controls solutions in the Northeast region of the United States, that will be included in our United States building services segment.

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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, 2023 and 2022, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 28, 2024 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 Construction Contracts
Description of the Matter						As described in Note 3 to the consolidated financial statements, the Company generally recognizes revenue from 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, 2023 were derived from construction contracts. The determination of revenue recognized from 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 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 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 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
Description of the Matter						At December 31, 2023, the Company’s goodwill was approximately $956.5 million. As discussed in Note 8 to the consolidated financial statements, goodwill is tested for impairment at least annually. Auditing management’s 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. 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 goodwill are affected by expectations about future market or economic conditions relevant to each of the 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. 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, 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 28, 2024

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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, 2023, 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, 2023, 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 2023 consolidated financial statements of the Company and our report dated February 28, 2024 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 28, 2024

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