Company Quick10K Filing
Quick10K
Emcor Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$82.17 56 $4,610
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
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
PUK Prudential PLC 55,220
KB KB Financial Group 15,550
RXN Rexnord 3,020
IIVI II-VI 2,370
DIN Dine Brands Global 1,530
DHT DHT Holdings 836
SIC Select Interior Concepts 326
STQN Strategic Acquisitions 0
IMKT Ingles Markets 0
IORG Intreorg Systems 0
EME 2019-03-31
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-ex3112019331xq1.htm
EX-31.2 eme-ex3122019331xq1.htm
EX-32.1 eme-ex3212019331xq1.htm
EX-32.2 eme-ex3222019331xq1.htm
EX-95 eme-ex952019331xq1.htm

Emcor Group Earnings 2019-03-31

EME 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  x    No  o
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
x
Accelerated filer
o
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
Emerging growth company
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  o    No  x
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on April 25, 2019: 56,092,759 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)
 
March 31,
2019
(Unaudited)
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
252,031

 
$
363,907

Accounts receivable, less allowance for doubtful accounts of $14,657 and $15,361, respectively
1,797,479

 
1,773,620

Contract assets
178,366

 
158,243

Inventories
39,443

 
42,321

Prepaid expenses and other
46,542

 
48,116

Total current assets
2,313,861

 
2,386,207

Investments, notes and other long-term receivables
3,638

 
2,899

Property, plant and equipment, net
145,056

 
134,351

Operating lease right-of-use assets
228,131

 

Goodwill
1,004,710

 
990,887

Identifiable intangible assets, net
491,175

 
488,286

Other assets
91,753

 
86,177

Total assets
$
4,278,324

 
$
4,088,807

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt and finance lease liabilities
$
18,532

 
$
16,013

Accounts payable
577,883

 
652,091

Contract liabilities
536,363

 
552,290

Accrued payroll and benefits
293,409

 
343,069

Other accrued expenses and liabilities
198,220

 
170,935

Operating lease liabilities, current
48,776

 

Total current liabilities
1,673,183

 
1,734,398

Borrowings under revolving credit facility
25,000

 
25,000

Long-term debt and finance lease liabilities
255,438

 
254,764

Operating lease liabilities, long-term
191,226

 

Other long-term obligations
321,855

 
333,204

Total liabilities
2,466,702

 
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, 60,224,131 and 60,123,184 shares issued, respectively
602

 
601

Capital surplus
22,291

 
21,103

Accumulated other comprehensive loss
(86,516
)
 
(87,662
)
Retained earnings
2,128,326

 
2,060,440

Treasury stock, at cost 4,139,421 shares
(253,937
)
 
(253,937
)
Total EMCOR Group, Inc. stockholders’ equity
1,810,766

 
1,740,545

Noncontrolling interests
856

 
896

Total equity
1,811,622

 
1,741,441

Total liabilities and equity
$
4,278,324

 
$
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 March 31,
 
2019
 
2018
Revenues
$
2,158,728

 
$
1,900,388

Cost of sales
1,849,974

 
1,631,269

Gross profit
308,754

 
269,119

Selling, general and administrative expenses
206,169

 
191,025

Restructuring expenses
275

 
90

Operating income
102,310

 
78,004

Net periodic pension (cost) income
406

 
737

Interest expense, net
(2,823
)
 
(2,452
)
Income from continuing operations before income taxes
99,893

 
76,289

Income tax provision
27,483

 
20,633

Income from continuing operations
72,410

 
55,656

Loss from discontinued operation, net of income taxes

 
(282
)
Net income including noncontrolling interests
72,410

 
55,374

Less: Net income attributable to noncontrolling interests

 

Net income attributable to EMCOR Group, Inc.
$
72,410

 
$
55,374

 
 
 
 
Basic earnings (loss) per common share:
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.29

 
$
0.95

From discontinued operation

 
(0.00
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.29

 
$
0.95

Diluted earnings (loss) per common share:
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.28

 
$
0.94

From discontinued operation

 
(0.00
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.28

 
$
0.94

 
 
 
 
Dividends declared per common share
$
0.08

 
$
0.08

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 March 31,
 
2019
 
2018
Net income including noncontrolling interests
$
72,410

 
$
55,374

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation adjustments
611

 
495

Post retirement plans, amortization of actuarial loss included in net income (1)
535

 
385

Other comprehensive income
1,146

 
880

Comprehensive income
73,556

 
56,254

Less: Comprehensive income attributable to noncontrolling interests

 

Comprehensive income attributable to EMCOR Group, Inc.
$
73,556

 
$
56,254

_________
(1)
Net of tax of $0.1 million and $0.4 million for the three months ended March 31, 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) 
 
Three months ended March 31,
 
2019
 
2018
Cash flows - operating activities:
 
 
 
Net income including noncontrolling interests
$
72,410

 
$
55,374

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
10,585

 
9,711

Amortization of identifiable intangible assets
11,610

 
10,668

(Recovery of) provision for doubtful accounts
(673
)
 
1,135

Deferred income taxes
2,496

 
2,944

Excess tax benefits from share-based compensation
(499
)
 
(716
)
Equity income from unconsolidated entities
(26
)
 
(41
)
Non-cash share-based compensation expense
3,557

 
3,268

Distributions from unconsolidated entities
80

 
1,585

Other reconciling items
413

 
379

Changes in operating assets and liabilities, excluding the effect of businesses acquired
(157,388
)
 
(143,394
)
Net cash used in operating activities
(57,435
)
 
(59,087
)
Cash flows - investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(31,124
)
 
(2,689
)
Proceeds from sale of property, plant and equipment
1,023

 
242

Purchase of property, plant and equipment
(13,113
)
 
(6,588
)
Investments in and advances to unconsolidated entities
(794
)
 
(2,804
)
Net cash used in investing activities
(44,008
)
 
(11,839
)
Cash flows - financing activities:
 
 
 
Repayments of long-term debt and debt issuance costs
(3,800
)
 
(3,800
)
Repayments of finance lease liabilities
(1,053
)
 
(372
)
Dividends paid to stockholders
(4,480
)
 
(4,704
)
Repurchase of common stock

 
(34,485
)
Taxes paid related to net share settlements of equity awards
(3,735
)
 
(3,267
)
Issuance of common stock under employee stock purchase plan
1,323

 
1,337

Payments for contingent consideration arrangements
(23
)
 

Distributions to noncontrolling interests
(40
)
 

Net cash used in financing activities
(11,808
)
 
(45,291
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
1,298

 
1,733

Decrease in cash, cash equivalents and restricted cash
(111,953
)
 
(114,484
)
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)
$
254,261

 
$
354,904

Supplemental cash flow information:
 
 
 
Cash paid for:
 
 
 
Interest
$
3,218

 
$
2,650

Income taxes
$
3,787

 
$
2,741

_________
(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 $2.2 million and $2.5 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of March 31, 2019 and 2018, respectively.
See Notes to Consolidated Financial Statements.

4

Table of Contents

EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)(Unaudited)        
 
 
 
EMCOR Group, Inc. Stockholders
 
 
 
Total
 
Common
stock
 
Capital
surplus
 
Accumulated other comprehensive (loss) income (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
55,374

 

 

 

 
55,374

 

 

Other comprehensive income
880

 

 

 
880

 

 

 

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
(3,267
)
 

 
(3,267
)
 

 

 

 

Common stock issued under employee stock purchase plan
1,337

 

 
1,337

 

 

 

 

Common stock dividends
(4,704
)
 

 
44

 

 
(4,748
)
 

 

Repurchase of common stock
(34,485
)
 

 

 

 

 
(34,485
)
 

Share-based compensation expense
3,268

 

 
3,268

 

 

 

 

Balance, March 31, 2018
$
1,691,666

 
$
600

 
$
9,386

 
$
(93,320
)
 
$
1,846,328

 
$
(72,178
)
 
$
850

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

 
$
601

 
$
21,103

 
$
(87,662
)
 
$
2,060,440

 
$
(253,937
)
 
$
896

Net income including noncontrolling interests
72,410

 

 

 

 
72,410

 

 

Other comprehensive income
1,146

 

 

 
1,146

 

 

 

Common stock issued under share-based compensation plans

 
1

 
(1
)
 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(3,735
)
 

 
(3,735
)
 

 

 

 

Common stock issued under employee stock purchase plan
1,323

 

 
1,323

 

 

 

 

Common stock dividends
(4,480
)
 

 
44

 

 
(4,524
)
 

 

Distributions to noncontrolling interests
(40
)
 

 

 

 

 

 
(40
)
Share-based compensation expense
3,557

 

 
3,557

 

 

 

 

Balance, March 31, 2019
$
1,811,622

 
$
602

 
$
22,291

 
$
(86,516
)
 
$
2,128,326

 
$
(253,937
)
 
$
856

 _________
(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.

See Notes to Consolidated Financial Statements.

5

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 months ended March 31, 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 will 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 eliminates 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 our domestic retirement plans 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. The Company is currently evaluating the impact that the adoption of this accounting pronouncement will have on its 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, 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

6

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


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, the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment and/or agreement with the modification, as well as historical experience with the customer or similar contractual circumstances. Based

7

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


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 months ended March 31, 2019 and 2018, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods. In addition, for the three months ended March 31, 2019 and 2018, there were no significant reversals of revenue recognized associated with the revision of transaction prices.
(4) Allocate the transaction price to performance obligations in the contract
For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as market conditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation.
(5) Recognize revenue as performance obligations are satisfied
The Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service is considered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or at a point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.
For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

8

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the amount of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations.
For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.
The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer. For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping, if certain recognition criteria are met.
For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. For the three months ended March 31, 2019 and 2018, there were no changes in total estimated costs that had a significant impact on our operating results. In addition, for the three months ended March 31, 2019 and 2018, there were no significant losses recognized.
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.






9

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 (in thousands):
 
For the three months ended March 31, 2019
 
% of
Total
 
For the three months ended March 31, 2018
 
% of
Total
United States electrical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
269,441

 
51
%
 
$
184,382

 
40
%
Institutional market sector
22,345

 
4
%
 
28,008

 
6
%
Hospitality market sector
6,841

 
1
%
 
5,516

 
1
%
Manufacturing market sector
98,803

 
19
%
 
85,794

 
19
%
Healthcare market sector
17,615

 
3
%
 
38,507

 
8
%
Transportation market sector
58,139

 
11
%
 
71,264

 
16
%
Water and wastewater market sector
6,015

 
1
%
 
4,613

 
1
%
Short duration projects (1)
40,409

 
8
%
 
29,530

 
7
%
Service work
9,262

 
2
%
 
8,168

 
2
%
 
528,870

 

 
455,782

 
 
Less intersegment revenues
(800
)
 


 
(1,030
)
 
 
Total segment revenues
$
528,070

 

 
$
454,752

 
 
United States mechanical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
281,862

 
37
%
 
$
230,799

 
33
%
Institutional market sector
61,283

 
8
%
 
64,655

 
9
%
Hospitality market sector
13,648

 
2
%
 
26,527

 
4
%
Manufacturing market sector
98,763

 
13
%
 
92,214

 
13
%
Healthcare market sector
61,374

 
8
%
 
65,876

 
10
%
Transportation market sector
5,734

 
1
%
 
5,206

 
1
%
Water and wastewater market sector
43,211

 
6
%
 
36,751

 
5
%
Short duration projects (1)
99,936

 
13
%
 
79,722

 
12
%
Service work
89,466

 
12
%
 
86,225

 
13
%
 
755,277

 

 
687,975

 
 
Less intersegment revenues
(2,868
)
 


 
(3,225
)
 
 
Total segment revenues
$
752,409

 

 
$
684,750

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





10

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


 
For the three months ended March 31, 2019
 
% of
Total
 
For the three months ended March 31, 2018
 
% of
Total
United States building services:
 
 
 
 
 
 
 
Commercial site-based services
$
155,978

 
30
%
 
$
146,761

 
32
%
Government site-based services
48,791

 
10
%
 
55,409

 
12
%
Mechanical services
274,166

 
54
%
 
227,342

 
50
%
Energy services
33,144

 
6
%
 
25,240

 
6
%
Total segment revenues
$
512,079

 

 
$
454,752

 
 
United States industrial services:
 
 

 
 
 
 
Field services
$
216,770

 
84
%
 
$
162,187

 
81
%
Shop services
41,875

 
16
%
 
37,057

 
19
%
Total segment revenues
$
258,645

 

 
$
199,244

 
 
 
 
 
 
 
 
 
 
Total United States operations
$
2,051,203

 
 
 
$
1,793,498

 
 
United Kingdom building services:
 
 
 
 
 
 
 
Service work
$
54,634

 
51
%
 
$
55,275

 
52
%
Projects & extras
52,891

 
49
%
 
51,615

 
48
%
Total segment revenues
$
107,525

 

 
$
106,890

 
 
 
 
 

 
 
 
 
Total worldwide operations
$
2,158,728

 

 
$
1,900,388

 
 

Contract Assets and Contract Liabilities
Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrial services segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to scope and/or price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.
Contract liabilities from our long-term construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue. The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets.



11

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


Net contract liabilities consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Contract assets, current
$
178,366

 
$
158,243

Contract assets, non-current

 

Contract liabilities, current
(536,363
)
 
(552,290
)
Contract liabilities, non-current
(2,119
)
 
(2,069
)
Net contract liabilities
$
(360,116
)
 
$
(396,116
)


The $36.0 million decrease in net contract liabilities for the three months ended March 31, 2019 was primarily attributable to a decrease in net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the timing of billings to our customers. Contract assets and contract liabilities increased by approximately $0.7 million and $7.3 million, respectively, as a result of an acquisition made by us in 2019. There was no significant impairment of contract assets recognized during either period presented.
Transaction Price Allocated to Remaining Unsatisfied Performance Obligations     
The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentages of total remaining performance obligations (in thousands, except for percentages):
 
March 31, 2019
 
% of Total
Remaining performance obligations:
 
 
 
United States electrical construction and facilities services
$
1,125,052

 
27
%
United States mechanical construction and facilities services
2,256,936

 
54
%
United States building services
544,618

 
13
%
United States industrial services
78,861

 
2
%
Total United States operations
4,005,467

 
96
%
United Kingdom building services
151,124

 
4
%
Total worldwide operations
$
4,156,591

 
100
%

Our remaining performance obligations at March 31, 2019 were $4.16 billion. Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts. We include a project within our remaining performance obligations at such time the project is awarded and agreement on contract terms has been reached. Our remaining performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of total transaction price can be made.
Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts. Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations due to the inherent substantial economic penalty that would be incurred by our customers upon cancellation. 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)

12

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


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.
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
$
1,027,849

 
$
97,203

United States mechanical construction and facilities services
1,793,969

 
462,967

United States building services
535,198

 
9,420

United States industrial services
78,861

 

Total United States operations
3,435,877

 
569,590

United Kingdom building services
99,405

 
51,719

Total worldwide operations
$
3,535,282

 
$
621,309



NOTE 4 Acquisitions of Businesses     
In January 2019, we acquired a company for an immaterial amount. This company provides mobile mechanical services within the Southern region of the United States, and its results have been included in our United States building services segment.
During 2018, we acquired four companies for a total consideration of $71.6 million. Two companies provide mobile mechanical services, one within the Eastern region and the other within the Western region of the United States. The third company is a full service provider of mechanical services within the Southern region of the United States. The results of these three companies have been included in our United States building services segment. The fourth company provides electrical construction and maintenance services for industrial and commercial buildings in North Texas, and its results have been included in our United States electrical construction and facilities services segment. In connection with these acquisitions, we acquired working capital of $8.9 million and have preliminarily ascribed $26.1 million to goodwill and $36.6 million to identifiable intangible assets. We expect that all of the acquired goodwill will be deductible for tax purposes.
The purchase price allocation for the business acquired in January 2019 and the businesses acquired in 2018 are preliminary and subject to change during their respective measurement periods. The acquisition of each business was accounted for by the acquisition method of accounting, and the prices paid for them have been allocated to their respective assets and liabilities, based upon the estimated fair value of such assets and liabilities at the dates of their respective acquisitions by us.
NOTE 5 Disposition of Assets    
Due to a historical pattern of losses in the construction operations of our United Kingdom segment and our negative assessment of construction market conditions in the United Kingdom for the foreseeable future, we ceased construction operations in the United Kingdom during the third quarter of 2014. The results of the construction operations of our United Kingdom segment for all periods are presented in the consolidated financial statements as discontinued operations.
The results of discontinued operations are as follows (in thousands):
 
For the three months ended March 31,
 
2019
 
2018
Revenues
$

 
$

Loss from discontinued operation, net of income taxes
$

 
$
(282
)
Diluted loss per share from discontinued operation
$

 
$
(0.00
)

The loss from discontinued operations in 2018 was primarily due to legal costs related to the settlement of final contract balances on certain construction projects completed in prior years.


13

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

NOTE 5 Disposition of Assets - (Continued)


Included in the Consolidated Balance Sheet at December 31, 2018 were approximately $3.7 million of current liabilities associated with the discontinued operation, primarily consisting of contract retentions, contract warranty obligations and other accrued expenses. No significant liabilities remain as of March 31, 2019.
NOTE 6 Earnings Per Share
Calculation of Basic and Diluted Earnings (Loss) per Common Share
The following tables summarize our calculation of Basic and Diluted Earnings (Loss) per Common Share (“EPS”) for the three months ended March 31, 2019 and 2018 (in thousands, except share and per share data):
 
For the three months ended March 31,
 
2019
 
2018
Numerator:
 
 
 
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders
$
72,410

 
$
55,656

Loss from discontinued operation, net of income taxes

 
(282
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
72,410

 
$
55,374

Denominator:
 
 
 
Weighted average shares outstanding used to compute basic earnings (loss) per common share
56,168,356

 
58,739,115

Effect of dilutive securities—Share-based awards
255,866

 
325,049

Shares used to compute diluted earnings (loss) per common share
56,424,222

 
59,064,164

Basic earnings (loss) per common share:
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.29

 
$
0.95

From discontinued operation

 
(0.00
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.29

 
$
0.95

Diluted earnings (loss) per common share:
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.28

 
$
0.94

From discontinued operation

 
(0.00
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.28

 
$
0.94



The number of outstanding share-based awards that were excluded from the computation of diluted EPS for the three months ended March 31, 2019 and 2018 because they would be anti-dilutive were 2,150 and 20,675, respectively.
NOTE 7 Inventories
Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts (in thousands):
 
March 31,
2019
 
December 31,
2018
Raw materials and construction materials
$
29,878

 
$
30,006

Work in process
9,565

 
12,315

Inventories
$
39,443

 
$
42,321




14

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

NOTE 8 Debt            
Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts (in thousands):
 
March 31,
2019
 
December 31,
2018
Revolving credit facility
$
25,000

 
$
25,000

Term loan
265,823

 
269,620

Unamortized debt issuance costs
(2,768
)
 
(3,065
)
Finance lease obligations (1)
10,910

 
4,213

Other
5

 
9

Total debt
298,970

 
295,777

Less: current maturities
18,532

 
16,013

Total long-term debt
$
280,438

 
$
279,764


 ________
(1)
See Note 14 - Leases for further disclosure regarding finance lease obligations.
Credit Agreement        
We have a credit agreement dated as of August 3, 2016, which provides for a $900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”) expiring August 3, 2021. We may increase the 2016 Revolving Credit Facility to $1.3 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $300.0 million of available capacity under the 2016 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries. Obligations under the 2016 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2016 Credit Agreement contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. We were in compliance with all such covenants as of March 31, 2019 and December 31, 2018. A commitment fee is payable on the average daily unused amount of the 2016 Revolving Credit Facility, which ranges from 0.15% to