Company Quick10K Filing
Emcor Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 56 $4,869
10-Q 2019-10-29 Quarter: 2019-09-30
10-Q 2019-07-30 Quarter: 2019-06-30
10-Q 2019-04-30 Quarter: 2019-03-31
10-K 2019-02-21 Annual: 2018-12-31
10-Q 2018-10-25 Quarter: 2018-09-30
10-Q 2018-07-26 Quarter: 2018-06-30
10-Q 2018-04-26 Quarter: 2018-03-31
10-K 2018-02-22 Annual: 2017-12-31
10-Q 2017-10-26 Quarter: 2017-09-30
10-Q 2017-07-27 Quarter: 2017-06-30
10-Q 2017-04-27 Quarter: 2017-03-31
10-K 2017-02-23 Annual: 2016-12-31
10-Q 2016-10-27 Quarter: 2016-09-30
10-Q 2016-07-28 Quarter: 2016-06-30
10-Q 2016-04-28 Quarter: 2016-03-31
10-K 2016-02-25 Annual: 2015-12-31
10-Q 2015-10-29 Quarter: 2015-09-30
10-Q 2015-07-30 Quarter: 2015-06-30
10-Q 2015-04-30 Quarter: 2015-03-31
10-K 2015-02-26 Annual: 2014-12-31
10-Q 2014-10-28 Quarter: 2014-09-30
10-Q 2014-07-29 Quarter: 2014-06-30
10-Q 2014-04-29 Quarter: 2014-03-31
10-K 2014-02-25 Annual: 2013-12-31
10-Q 2013-10-24 Quarter: 2013-09-30
10-Q 2013-07-25 Quarter: 2013-06-30
10-Q 2013-04-25 Quarter: 2013-03-31
10-K 2013-02-26 Annual: 2012-12-31
10-Q 2012-10-25 Quarter: 2012-09-30
10-Q 2012-07-26 Quarter: 2012-06-30
10-Q 2012-04-26 Quarter: 2012-03-31
10-K 2012-02-27 Annual: 2011-12-31
10-Q 2011-10-27 Quarter: 2011-09-30
10-Q 2011-07-29 Quarter: 2011-06-30
10-Q 2011-04-28 Quarter: 2011-03-31
10-K 2011-02-25 Annual: 2010-12-31
10-Q 2010-11-02 Quarter: 2010-09-30
10-Q 2010-07-29 Quarter: 2010-06-30
10-Q 2010-04-29 Quarter: 2010-03-31
10-K 2010-02-25 Annual: 2009-12-31
8-K 2019-11-01
8-K 2019-10-29 Earnings
8-K 2019-10-04
8-K 2019-07-30 Earnings
8-K 2019-05-30 Officers, Shareholder Vote
8-K 2019-04-30 Earnings
8-K 2019-02-21 Earnings
8-K 2018-12-14 Officers, Exhibits
8-K 2018-10-25 Earnings
8-K 2018-07-26 Earnings
8-K 2018-06-01 Officers, Shareholder Vote
8-K 2018-04-26 Earnings
8-K 2018-02-22 Earnings
EME 2019-09-30
Part I. - Financial Information.
Item 1. Financial Statements.
Note 1 Basis of Presentation
Note 2 New Accounting Pronouncements
Note 3 Revenue From Contracts with Customers
Note 4 Acquisitions of Businesses
Note 5 Disposition of Assets
Note 6 Earnings per Share
Note 7 Inventories
Note 8 Debt
Note 9 Fair Value Measurements
Note 10 Income Taxes
Note 11 Common Stock
Note 12 Retirement Plans
Note 13 Commitments and Contingencies
Note 14 Leases
Note 15 Segment Information
Note 16 Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. - Other Information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 4. Mine Safety Disclosures.
Item 6. Exhibits.
EX-31.1 eme-ex3112019930xq3.htm
EX-31.2 eme-ex3122019930xq3.htm
EX-32.1 eme-ex3212019930xq3.htm
EX-32.2 eme-ex3222019930xq3.htm
EX-95 eme-ex952019930xq3.htm

Emcor Group Earnings 2019-09-30

EME 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
PWR 5,625 8,022 4,246 11,744 1,529 332 847 7,098 13% 8.4 4%
EME 4,869 4,394 2,499 8,759 1,301 314 531 4,930 15% 9.3 7%
BLD 2,705 2,581 1,439 2,566 651 171 315 3,309 25% 10.5 7%
BBU 2,052 27,318 20,824 0 0 0 0 455 0%
FIX 1,597 1,445 913 2,372 473 108 188 1,845 20% 9.8 7%
AMRC 683 1,110 771 171 36 89 858 22% 9.6 3%
MTRX 548 633 281 1,417 132 28 56 458 9% 8.2 4%
IESC 393 438 198 1,035 172 28 43 390 17% 9.0 6%
LMB 38 233 185 553 68 1 10 82 12% 8.4 0%
CADC 23 57 47 45 7 -8 -6 21 17% -3.3 -14%

Document
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 1-8267
EMCOR Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
11-2125338
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
301 Merritt Seven
 

Norwalk,
Connecticut
 
06851-1092
(Address of Principal Executive Offices)
 
(Zip Code)
(203)
849-7800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock
 
EME
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes      No  
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on October 24, 2019: 56,153,125 shares.


Table of Contents

EMCOR Group, Inc.
INDEX
 
 
 
Page No.
 
Item 1.
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 2.
Item 4.
Item 6.


Table of Contents

PART I. – FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
September 30,
2019
(Unaudited)
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
368,073

 
$
363,907

Accounts receivable, less allowance for doubtful accounts of $15,095 and $15,361, respectively
1,926,765

 
1,773,620

Contract assets
179,005

 
158,243

Inventories
38,721

 
42,321

Prepaid expenses and other
45,549

 
48,116

Total current assets
2,558,113

 
2,386,207

Investments, notes and other long-term receivables
1,478

 
2,899

Property, plant and equipment, net
149,023

 
134,351

Operating lease right-of-use assets
232,996

 

Goodwill
1,019,590

 
990,887

Identifiable intangible assets, net
482,785

 
488,286

Other assets
88,736

 
86,177

Total assets
$
4,532,721

 
$
4,088,807

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt and finance lease liabilities
$
18,196

 
$
16,013

Accounts payable
584,824

 
652,091

Contract liabilities
565,957

 
552,290

Accrued payroll and benefits
387,351

 
343,069

Other accrued expenses and liabilities
185,414

 
170,935

Operating lease liabilities, current
51,632

 

Total current liabilities
1,793,374

 
1,734,398

Borrowings under revolving credit facility

 
25,000

Long-term debt and finance lease liabilities
247,837

 
254,764

Operating lease liabilities, long-term
193,502

 

Other long-term obligations
322,197

 
333,204

Total liabilities
2,556,910

 
2,347,366

Equity:
 
 
 
EMCOR Group, Inc. stockholders’ equity:
 
 
 
Preferred stock, $0.10 par value, 1,000,000 shares authorized, zero issued and outstanding

 

Common stock, $0.01 par value, 200,000,000 shares authorized, 60,287,296 and 60,123,184 shares issued, respectively
603

 
601

Capital surplus
30,786

 
21,103

Accumulated other comprehensive loss
(87,370
)
 
(87,662
)
Retained earnings
2,285,083

 
2,060,440

Treasury stock, at cost 4,139,421 shares
(253,937
)
 
(253,937
)
Total EMCOR Group, Inc. stockholders’ equity
1,975,165

 
1,740,545

Noncontrolling interests
646

 
896

Total equity
1,975,811

 
1,741,441

Total liabilities and equity
$
4,532,721

 
$
4,088,807

See Notes to Consolidated Financial Statements.

1

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
2,287,741

 
$
2,047,049

 
$
6,770,671

 
$
5,901,323

Cost of sales
1,951,754

 
1,737,710

 
5,779,550

 
5,032,021

Gross profit
335,987

 
309,339

 
991,121

 
869,302

Selling, general and administrative expenses
220,119

 
197,334

 
652,536

 
578,266

Restructuring expenses
119

 
229

 
567

 
693

Impairment loss on identifiable intangible assets

 

 

 
907

Operating income
115,749

 
111,776

 
338,018

 
289,436

Net periodic pension (cost) income
381

 
615

 
1,187

 
2,069

Interest expense, net
(2,678
)
 
(2,736
)
 
(8,732
)
 
(8,011
)
Income from continuing operations before income taxes
113,452

 
109,655

 
330,473

 
283,494

Income tax provision
31,618

 
29,711

 
92,257

 
76,873

Income from continuing operations
81,834

 
79,944

 
238,216

 
206,621

Loss from discontinued operation, net of income taxes

 
(523
)
 

 
(1,010
)
Net income including noncontrolling interests
81,834

 
79,421

 
238,216

 
205,611

Less: Net income attributable to noncontrolling interests

 
(48
)
 

 
(48
)
Net income attributable to EMCOR Group, Inc.
$
81,834

 
$
79,373

 
$
238,216

 
$
205,563

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share:
 
 
 
 
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.46

 
$
1.37

 
$
4.24

 
$
3.54

From discontinued operation

 
(0.01
)
 

 
(0.02
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.46

 
$
1.36

 
$
4.24

 
$
3.52

Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.45

 
$
1.36

 
$
4.22

 
$
3.52

From discontinued operation

 
(0.01
)
 

 
(0.02
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.45

 
$
1.35

 
$
4.22

 
$
3.50

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.08

 
$
0.08

 
$
0.24

 
$
0.24

See Notes to Consolidated Financial Statements.



2

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)(Unaudited)        
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income including noncontrolling interests
$
81,834

 
$
79,421

 
$
238,216

 
$
205,611

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(983
)
 
(289
)
 
(1,280
)
 
(669
)
Post retirement plans, amortization of actuarial loss included in net income (1)
509

 
573

 
1,572

 
1,553

Other comprehensive (loss) income
(474
)
 
284

 
292

 
884

Comprehensive income
81,360

 
79,705

 
238,508

 
206,495

Less: Comprehensive income attributable to noncontrolling interests

 
(48
)
 

 
(48
)
Comprehensive income attributable to EMCOR Group, Inc.
$
81,360

 
$
79,657

 
$
238,508

 
$
206,447

_________
(1)
Net of tax of $0.1 million for each of the three months ended September 30, 2019 and 2018, and net of tax of $0.4 million and $0.7 million for the nine months ended September 30, 2019 and 2018, respectively.
See Notes to Consolidated Financial Statements.


3

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited) 
 
Nine months ended September 30,
 
2019
 
2018
Cash flows - operating activities:
 
 
 
Net income including noncontrolling interests
$
238,216

 
$
205,611

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
32,412

 
28,685

Amortization of identifiable intangible assets
34,500

 
31,482

Provision for doubtful accounts
1,621

 
261

Deferred income taxes
(913
)
 
4,685

Excess tax benefits from share-based compensation
(601
)
 
(1,065
)
Equity loss (income) from unconsolidated entities
1,213

 
(247
)
Non-cash expense from contingent consideration arrangements
1,203

 
186

Non-cash expense for impairment of identifiable intangible assets

 
907

Non-cash share-based compensation expense
8,840

 
8,502

Distributions from unconsolidated entities
916

 
2,442

Other reconciling items
364

 
446

Changes in operating assets and liabilities, excluding the effect of businesses acquired
(140,850
)
 
(216,003
)
Net cash provided by operating activities
176,921

 
65,892

Cash flows - investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(79,984
)
 
(25,710
)
Proceeds from sale of property, plant and equipment
1,612

 
915

Purchase of property, plant and equipment
(35,829
)
 
(28,674
)
Investments in and advances to unconsolidated entities
(794
)
 
(3,484
)
Distributions from unconsolidated entities
38

 
82

Net cash used in investing activities
(114,957
)
 
(56,871
)
Cash flows - financing activities:
 
 
 
Repayments of revolving credit facility
(25,000
)
 

Repayments of long-term debt and debt issuance costs
(11,400
)
 
(11,434
)
Repayments of finance lease liabilities
(3,357
)
 
(1,050
)
Dividends paid to stockholders
(13,458
)
 
(14,036
)
Repurchase of common stock

 
(90,804
)
Taxes paid related to net share settlements of equity awards
(3,771
)
 
(3,745
)
Issuance of common stock under employee stock purchase plan
4,501

 
4,286

Payments for contingent consideration arrangements
(3,589
)
 
(3,300
)
Distributions to noncontrolling interests
(250
)
 

Net cash used in financing activities
(56,324
)
 
(120,083
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(2,047
)
 
(1,985
)
Increase (decrease) in cash, cash equivalents and restricted cash
3,593

 
(113,047
)
Cash, cash equivalents and restricted cash at beginning of year (1)
366,214

 
469,388

Cash, cash equivalents and restricted cash at end of period (2)
$
369,807

 
$
356,341

Supplemental cash flow information:
 
 
 
Cash paid for:
 
 
 
Interest
$
9,891

 
$
9,078

Income taxes
$
94,514

 
$
95,330

_________
(1)
Includes $2.3 million and $2.0 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2018 and 2017, respectively.
(2)
Includes $1.7 million and $2.4 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of September 30, 2019 and 2018, respectively.
See Notes to Consolidated Financial Statements.

4

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the three months ended September 30, 2018 and 2019
(In thousands)(Unaudited)        
 
 
 
EMCOR Group, Inc. Stockholders
 
 
 
Total
 
Common
stock
 
Capital
surplus
 
Accumulated other comprehensive loss (1)
 
Retained
earnings
 
Treasury
stock
 
Noncontrolling
interests
Balance, June 30, 2018
$
1,735,133

 
$
600

 
$
13,054

 
$
(93,600
)
 
$
1,912,430

 
$
(98,201
)
 
$
850

Net income including noncontrolling interests
79,421

 

 

 

 
79,373

 

 
48

Other comprehensive income
284

 

 

 
284

 

 

 

Common stock issued under employee stock purchase plan
1,528

 
1

 
1,527

 

 

 

 

Common stock dividends
(4,655
)
 

 
35

 

 
(4,690
)
 

 

Repurchase of common stock
(35,131
)
 

 

 

 

 
(35,131
)
 

Share-based compensation expense
2,546

 

 
2,546

 

 

 

 

Balance, September 30, 2018
$
1,779,126

 
$
601

 
$
17,162

 
$
(93,316
)
 
$
1,987,113

 
$
(133,332
)
 
$
898

Balance, June 30, 2019
$
1,894,831

 
$
603

 
$
26,640

 
$
(86,896
)
 
$
2,207,775

 
$
(253,937
)
 
$
646

Net income including noncontrolling interests
81,834

 

 

 

 
81,834

 

 

Other comprehensive loss
(474
)
 

 

 
(474
)
 

 

 

Tax withholding for common stock issued under share-based compensation plans
(36
)
 

 
(36
)
 

 

 

 

Common stock issued under employee stock purchase plan
1,532

 

 
1,532

 

 

 

 

Common stock dividends
(4,491
)
 

 
35

 

 
(4,526
)
 

 

Share-based compensation expense
2,615

 

 
2,615

 

 

 

 

Balance, September 30, 2019
$
1,975,811

 
$
603

 
$
30,786

 
$
(87,370
)
 
$
2,285,083

 
$
(253,937
)
 
$
646

 _________
(1)
Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.
See Notes to Consolidated Financial Statements.


5

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the nine months ended September 30, 2018 and 2019
(In thousands)(Unaudited)        
 
 
 
EMCOR Group, Inc. Stockholders
 
 
 
Total
 
Common
stock
 
Capital
surplus
 
Accumulated other comprehensive loss (1)
 
Retained
earnings
 
Treasury
stock
 
Noncontrolling
interests
Balance, December 31, 2017
$
1,674,117

 
$
599

 
$
8,005

 
$
(94,200
)
 
$
1,796,556

 
$
(37,693
)
 
$
850

Net income including noncontrolling interests
205,611

 

 

 

 
205,563

 

 
48

Other comprehensive income
884

 

 

 
884

 

 

 

Cumulative-effect adjustment (2)
(854
)
 

 

 

 
(854
)
 

 

Common stock issued under share-based compensation plans

 
1

 
(1
)
 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(3,745
)
 

 
(3,745
)
 

 

 

 

Common stock issued under employee stock purchase plan
4,286

 
1

 
4,285

 

 

 

 

Common stock dividends
(14,036
)
 

 
116

 

 
(14,152
)
 

 

Repurchase of common stock
(95,639
)
 

 

 

 

 
(95,639
)
 

Share-based compensation expense
8,502

 

 
8,502

 

 

 

 

Balance, September 30, 2018
$
1,779,126

 
$
601

 
$
17,162

 
$
(93,316
)
 
$
1,987,113

 
$
(133,332
)
 
$
898

Balance, December 31, 2018
$
1,741,441

 
$
601

 
$
21,103

 
$
(87,662
)
 
$
2,060,440

 
$
(253,937
)
 
$
896

Net income including noncontrolling interests
238,216

 

 

 

 
238,216

 

 

Other comprehensive income
292

 

 

 
292

 

 

 

Common stock issued under share-based compensation plans

 
2

 
(2
)
 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(3,771
)
 

 
(3,771
)
 

 

 

 

Common stock issued under employee stock purchase plan
4,501

 

 
4,501

 

 

 

 

Common stock dividends
(13,458
)
 

 
115

 

 
(13,573
)
 

 

Distributions to noncontrolling interests
(250
)
 

 

 

 

 

 
(250
)
Share-based compensation expense
8,840

 

 
8,840

 

 

 

 

Balance, September 30, 2019
$
1,975,811

 
$
603

 
$
30,786

 
$
(87,370
)
 
$
2,285,083

 
$
(253,937
)
 
$
646

 _________
(1)
Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.
(2)
Represents adjustment to retained earnings upon the adoption of Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers.”
See Notes to Consolidated Financial Statements.

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Table of Contents

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. 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. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission.
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly our financial position and the results of our operations. Our reportable segments reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States industrial services segment due to changes in our internal reporting structure.
The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
NOTE 2 New Accounting Pronouncements
On January 1, 2019, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases continue to be recognized in a manner similar to previous accounting guidance. We adopted this pronouncement utilizing the transition practical expedient added by the FASB, which eliminated the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption. The adoption of this accounting pronouncement resulted in the recognition of operating lease right-of-use assets and associated lease liabilities on our balance sheet of $220.2 million and $227.1 million, respectively, as of January 1, 2019. Additional required disclosures have been included within Note 14 - Leases of the notes to consolidated financial statements. Such adoption did not have an impact on our liquidity, results of operations or our compliance with the various covenants contained within our 2016 Credit Agreement as described in further detail within Note 8 - Debt of the notes to consolidated financial statements.
On January 1, 2019, we adopted the accounting pronouncement issued by the FASB related to the reporting of certain items in accumulated other comprehensive income (loss) (“AOCI”). This guidance provides entities the option to reclassify to retained earnings certain tax effects stranded in AOCI as a result of tax reform. As part of our adoption of this accounting pronouncement, we elected not to reclassify the stranded tax effects related to the retirement plans of our United States subsidiaries as such amounts are immaterial. Tax effects remaining in AOCI will be released upon liquidation of each individual retirement plan.
In June 2016, an accounting pronouncement was issued by the FASB which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable. This pronouncement is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In preparation for adoption, we have substantially completed a process to identify and group financial assets with similar characteristics into collective pools. We have additionally begun implementing processes and internal controls to identify information, including macroeconomic forecasts and key credit indicators, relevant to estimating expected credit losses. As a result, we are in the process of quantifying the impact that the adoption of this accounting pronouncement will have on our financial position and/or results of operations.
NOTE 3 Revenue from Contracts with Customers
The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by applying the following five step model:
(1) Identify the contract with a customer
A contract with a customer exists when: (a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectibility of consideration is probable. Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist. In these situations,

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Table of Contents
EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)


the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized. In determining if the collectibility of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.
(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,

8

Table of Contents
EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)


the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment of and/or agreement with the modification, as well as historical experience with the customer or similar contractual circumstances. Based upon this assessment, the Company estimates the transaction price, including whether the variable consideration constraint should be applied.
Contract claims are another form of variable consideration which is common within our industry. Claim amounts represent revenue that has been recognized for contract modifications that are not submitted or are in dispute as to both scope and price. In estimating the transaction price for claims, the Company considers all relevant facts available. However, given the uncertainty surrounding claims, including the potential long-term nature of dispute resolution and the broad range of possible consideration amounts, there is an increased likelihood that any additional contract revenue associated with contract claims is constrained. The resolution of claims involves negotiations and, in certain cases, litigation. In the event litigation costs are incurred by us in connection with claims, such litigation costs are expensed as incurred, although we may seek to recover these costs.
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. For the three and nine months ended September 30, 2019, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods. For the three and nine months ended September 30, 2018, we recognized revenue of $6.3 million associated with the final settlement of contract value for two projects which were completed in prior periods. In addition, for the three and nine months ended September 30, 2019 and 2018, there were no significant reversals of revenue recognized associated with the revision of transaction prices.
(4) Allocate the transaction price to performance obligations in the contract
For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as market conditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation.
(5) Recognize revenue as performance obligations are satisfied
The Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service is considered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or at a point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.

9

Table of Contents
EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)


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. For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the amount of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations.
For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.
The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer. For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping, if certain recognition criteria are met.
For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. For the three and nine months ended September 30, 2019, there were no changes in total estimated costs that had a significant impact on our operating results. During the three and nine months ended September 30, 2018, we recognized losses of $4.7 million and $5.5 million, respectively, related to a change in total estimated costs on a transportation project within our United States electrical construction and facilities services segment, resulting in part from contract scope issues. There were no significant losses recognized during the three and nine months ended September 30, 2019.
Disaggregation of Revenues
Our revenues are principally derived from contracts to provide construction services relating to electrical and mechanical systems, as well as to provide a number of building services and industrial services to our customers. Our contracts are with many different customers in numerous industries. Refer to Note 15 - Segment Information of the notes to consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment, as well as a more complete description of our business.



10

Table of Contents
EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)


The following tables provide further disaggregation of our revenues by categories we use to evaluate our financial performance within each of our reportable segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
For the three months ended September 30,
 
2019
 
% of
Total
 
2018
 
% of
Total
United States electrical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
260,871

 
47
%
 
$
196,293