Company Quick10K Filing
Quick10K
Emcor Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$65.23 57 $3,750
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
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
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AMRC Ameresco
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LMB Limbach
RGSE Real Goods Solar
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EME 2018-09-30
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 Segment Information
Note 15 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-ex3112018930xq3.htm
EX-31.2 eme-ex3122018930xq3.htm
EX-32.1 eme-ex3212018930xq3.htm
EX-32.2 eme-ex3222018930xq3.htm
EX-95 eme-ex952018930xq3.htm

Emcor Group Earnings 2018-09-30

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 September 30, 2018
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)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 
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 October 22, 2018: 57,560,139 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
September 30,
2018
(Unaudited)
 
December 31,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
353,912

 
$
467,430

Accounts receivable, less allowance for doubtful accounts of $15,890 and $17,230, respectively
1,715,462

 
1,607,922

Contract assets
168,665

 
122,621

Inventories
41,932

 
42,724

Prepaid expenses and other
44,221

 
43,812

Total current assets
2,324,192

 
2,284,509

Investments, notes and other long-term receivables
3,542

 
2,309

Property, plant and equipment, net
128,765

 
127,156

Goodwill
978,243

 
964,893

Identifiable intangible assets, net
471,447

 
495,036

Other assets
89,704

 
92,001

Total assets
$
3,995,893

 
$
3,965,904

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt and capital lease obligations
$
15,769

 
$
15,364

Accounts payable
529,618

 
567,840

Contract liabilities
531,284

 
524,156

Accrued payroll and benefits
343,797

 
322,865

Other accrued expenses and liabilities
169,100

 
220,727

Total current liabilities
1,589,568

 
1,650,952

Borrowings under revolving credit facility
25,000

 
25,000

Long-term debt and capital lease obligations
258,569

 
269,786

Other long-term obligations
343,630

 
346,049

Total liabilities
2,216,767

 
2,291,787

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, 60,089,035 and 59,870,980 shares issued, respectively
601

 
599

Capital surplus
17,162

 
8,005

Accumulated other comprehensive loss
(93,316
)
 
(94,200
)
Retained earnings
1,987,113

 
1,796,556

Treasury stock, at cost 2,337,405 and 1,072,552 shares, respectively
(133,332
)
 
(37,693
)
Total EMCOR Group, Inc. stockholders’ equity
1,778,228

 
1,673,267

Noncontrolling interests
898

 
850

Total equity
1,779,126

 
1,674,117

Total liabilities and equity
$
3,995,893

 
$
3,965,904

See Notes to Condensed 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,
 
2018
 
2017
 
2018
 
2017
Revenues
$
2,047,049

 
$
1,886,691

 
$
5,901,323

 
$
5,674,360

Cost of sales
1,737,710

 
1,591,621

 
5,032,021

 
4,838,449

Gross profit
309,339

 
295,070

 
869,302

 
835,911

Selling, general and administrative expenses
197,334

 
188,980

 
578,266

 
554,112

Restructuring expenses
229

 
46

 
693

 
954

Impairment loss on identifiable intangible assets

 

 
907

 

Operating income
111,776

 
106,044

 
289,436

 
280,845

Net periodic pension (cost) income
615

 
415

 
2,069

 
1,209

Interest expense
(3,588
)
 
(3,324
)
 
(10,041
)
 
(9,464
)
Interest income
852

 
277

 
2,030

 
607

Income from continuing operations before income taxes
109,655

 
103,412

 
283,494

 
273,197

Income tax provision
29,711

 
38,608

 
76,873

 
98,473

Income from continuing operations
79,944

 
64,804

 
206,621

 
174,724

Loss from discontinued operation, net of income taxes
(523
)
 
(207
)
 
(1,010
)
 
(729
)
Net income including noncontrolling interests
79,421

 
64,597

 
205,611

 
173,995

Less: Net income attributable to noncontrolling interests
(48
)
 

 
(48
)
 

Net income attributable to EMCOR Group, Inc.
$
79,373

 
$
64,597

 
$
205,563

 
$
173,995

Basic earnings (loss) per common share:
 
 
 
 
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.37

 
$
1.10

 
$
3.54

 
$
2.94

From discontinued operation
(0.01
)
 
(0.00
)
 
(0.02
)
 
(0.01
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.36

 
$
1.10

 
$
3.52

 
$
2.93

Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
From continuing operations attributable to EMCOR Group, Inc. common stockholders
$
1.36

 
$
1.09

 
$
3.52

 
$
2.93

From discontinued operation
(0.01
)
 
(0.00
)
 
(0.02
)
 
(0.01
)
Net income attributable to EMCOR Group, Inc. common stockholders
$
1.35

 
$
1.09

 
$
3.50

 
$
2.92

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.08

 
$
0.08

 
$
0.24

 
$
0.24

See Notes to Condensed 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,
 
2018
 
2017
 
2018
 
2017
Net income including noncontrolling interests
$
79,421

 
$
64,597

 
$
205,611

 
$
173,995

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(289
)
 
(39
)
 
(669
)
 
(730
)
Post retirement plans, amortization of actuarial loss included in net income (1)
573

 
640

 
1,553

 
1,874

Other comprehensive income
284

 
601

 
884

 
1,144

Comprehensive income
79,705

 
65,198

 
206,495

 
175,139

Less: Comprehensive income attributable to noncontrolling interests
(48
)
 

 
(48
)
 

Comprehensive income attributable to EMCOR Group, Inc.
$
79,657

 
$
65,198

 
$
206,447

 
$
175,139

_________
(1)
Net of tax of $0.1 million and $0.2 million for the three months ended September 30, 2018 and 2017, respectively, and net of tax of $0.7 million and $0.5 million for the nine months ended September 30, 2018 and 2017, respectively.
See Notes to Condensed 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,
 
2018
 
2017
Cash flows - operating activities:
 
 
 
Net income including noncontrolling interests
$
205,611

 
$
173,995

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
28,685

 
30,235

Amortization of identifiable intangible assets
31,482

 
36,320

Provision for doubtful accounts
261

 
6,027

Deferred income taxes
4,685

 
(5,991
)
Excess tax benefits from share-based compensation
(1,065
)
 
(1,565
)
Equity income from unconsolidated entities
(247
)
 
(1,132
)
Non-cash expense for impairment of identifiable intangible assets
907

 

Non-cash share-based compensation expense
8,502

 
7,565

Distributions from unconsolidated entities
2,442

 
2,308

Other reconciling items
632

 
(2,830
)
Changes in operating assets and liabilities, excluding the effect of businesses acquired
(216,003
)
 
(6,609
)
Net cash provided by operating activities
65,892

 
238,323

Cash flows - investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(25,710
)
 
(82,724
)
Proceeds from sale of property, plant and equipment
915

 
2,125

Purchase of property, plant and equipment
(28,674
)
 
(26,113
)
Investments in and advances to unconsolidated entities
(3,484
)
 

Distributions from unconsolidated entities
82

 

Net cash used in investing activities
(56,871
)
 
(106,712
)
Cash flows - financing activities:
 
 
 
Repayments of long-term debt and debt issuance costs
(11,434
)
 
(11,401
)
Repayments of capital lease obligations
(1,050
)
 
(1,079
)
Dividends paid to stockholders
(14,036
)
 
(14,266
)
Repurchase of common stock
(90,804
)
 
(90,944
)
Taxes paid related to net share settlements of equity awards
(3,745
)
 
(3,376
)
Issuance of common stock under employee stock purchase plan
4,286

 
3,459

Payments for contingent consideration arrangements
(3,300
)
 
(1,017
)
Net cash used in financing activities
(120,083
)
 
(118,624
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1,985
)
 
2,931

(Decrease) increase in cash, cash equivalents and restricted cash
(113,047
)
 
15,918

Cash, cash equivalents and restricted cash at beginning of year (1)
469,388

 
466,660

Cash, cash equivalents and restricted cash at end of period (2)
$
356,341

 
$
482,578

Supplemental cash flow information:
 
 
 
Cash paid for:
 
 
 
Interest
$
9,078

 
$
8,507

Income taxes
$
95,330

 
$
95,584

Non-cash financing activities:
 
 
 
Assets acquired under capital lease obligations
$
1,035

 
$
1,133

_________
(1)
Includes $2.0 million of restricted cash classified as “Prepaid expenses and other” in the Condensed Consolidated Balance Sheet as of December 31, 2017 and 2016.
(2)
Includes $2.4 million and $2.1 million of restricted cash classified as “Prepaid expenses and other” in the Condensed Consolidated Balance Sheet as of September 30, 2018 and 2017, respectively.
See Notes to Condensed 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, 2016
$
1,537,942

 
$
606

 
$
52,219

 
$
(101,703
)
 
$
1,596,269

 
$
(10,302
)
 
$
853

Net income including noncontrolling interests
173,995

 

 

 

 
173,995

 

 

Other comprehensive income
1,144

 

 

 
1,144

 

 

 

Common stock issued under share-based compensation plans
1

 
2

 
(1
)
 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(3,376
)
 

 
(3,376
)
 

 

 

 

Common stock issued under employee stock purchase plan
3,459

 
1

 
3,458

 

 

 

 

Common stock dividends
(14,266
)
 

 
124

 

 
(14,390
)
 

 

Repurchase of common stock (2)
(88,599
)
 
(10
)
 
(55,646
)
 

 
(7,774
)
 
(25,169
)
 

Share-based compensation expense
7,565

 

 
7,565

 

 

 

 

Balance, September 30, 2017
$
1,617,865

 
$
599

 
$
4,343

 
$
(100,559
)
 
$
1,748,100

 
$
(35,471
)
 
$
853

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 (3)
(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 (2)
(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

 _________
(1)
Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.
(2)
Beginning June 1, 2017, shares of common stock repurchased are held as treasury stock by the Company.
(3)
Represents adjustment to retained earnings upon the adoption of Accounting Standards Codification Topic 606.
See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

EMCOR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 Basis of Presentation
The accompanying unaudited condensed 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 condensed 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. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.
NOTE 2 New Accounting Pronouncements
On January 1, 2018, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) to clarify existing guidance on revenue recognition. This guidance includes the required steps to achieve the core principle that a company should recognize 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. We adopted this pronouncement on a modified retrospective basis, and its impact on our financial position and results of operations, as well as required additional disclosures, are included in Note 3 - Revenue from Contracts with Customers. As a result of the adoption of this standard, certain changes have been made to the Condensed Consolidated Balance Sheets. The accounts previously named “Costs and estimated earnings in excess of billings on uncompleted contracts” and “Billings in excess of costs and estimated earnings on uncompleted contracts” have been renamed “Contract assets” and “Contract liabilities”, respectively. In addition, for periods beginning after December 31, 2017, amounts representing deferred revenues on services contracts, which were previously included in “Other accrued expenses and liabilities” within the Condensed Consolidated Balance Sheets, have been reclassified as “Contract liabilities.”
On January 1, 2018, we adopted the accounting pronouncement issued by the FASB to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance requires entities to show changes in the total of cash, cash equivalents and restricted cash in the statement of cash flows. This guidance was adopted on a retrospective basis, and such adoption did not have a material impact on our financial position and/or results of operations.
In February 2016, an accounting pronouncement was issued by the 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 current accounting guidance. This pronouncement is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB added a transition practical expedient to reduce the cost and complexity of implementing the new standard. Such transition option eliminates the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption. We will adopt this pronouncement on January 1, 2019 utilizing such transition option. In preparation for adoption, we have substantially completed a process to identify a complete population of our leases, including the review of various contracts to identify whether such arrangements convey the right to control the use of an identified asset. We have additionally begun implementing new accounting systems to assist with the adoption of this pronouncement and are currently in the process of quantifying the impact that the adoption will have on our financial position and/or results of operations. We have drafted revised accounting policies and will continue to evaluate the impact of the new accounting pronouncement, including enhanced disclosure requirements, on our business processes and controls.
NOTE 3 Revenue from Contracts with Customers
The Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) on January 1, 2018. The adoption of ASC 606 represents a change in accounting principle that aligns revenue recognition with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with ASC 606:


6

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


(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 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

7

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


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 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, 2018, we recognized revenue of $6.3 million associated with final settlement of contract value for two projects which were completed in prior periods. During the nine months ended September 30, 2017, we recognized $18.1 million of gross profit associated with the recovery of certain contract costs previously disputed on a project completed in 2016. In addition, for the three and nine months ended September 30, 2018 and 2017, there were no significant reversals of revenue recognized associated with the revision to 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

8

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.
For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.
For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls. 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. 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. These performance obligations 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. 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 the criteria of ASC 606 are met.
For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. During 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 other changes in total estimated costs that resulted in a significant impact to our operating results for the three and nine months ended September 30, 2018 and 2017.





9

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


Disaggregation of Revenues
Our revenues are principally derived from contracts to provide construction services relating to electrical and mechanical systems, as well as to provide a number of building services and industrial services to our customers. Our contracts are with many different customers in numerous industries. Refer to Note 14 - Segment Information of the notes to the condensed 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.
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 September 30, 2018
 
% of
Total
 
For the nine months ended September 30, 2018
 
% of
Total
United States electrical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
196,293

 
40
%
 
$
579,958

 
41
%
Institutional market sector
27,903

 
6
%
 
86,971

 
6
%
Hospitality market sector
9,860

 
2
%
 
22,665

 
2
%
Manufacturing market sector
100,563

 
20
%
 
280,375

 
20
%
Healthcare market sector
28,121

 
6
%
 
103,307

 
7
%
Transportation market sector
72,816

 
15
%
 
216,591

 
15
%
Water and wastewater market sector
4,194

 
1
%
 
14,947

 
1
%
Short duration projects (1)
38,452

 
8
%
 
93,177

 
6
%
Service work
8,147

 
2
%
 
25,151

 
2
%
 
486,349

 

 
1,423,142

 
 
Less intersegment revenues
(375
)
 


 
(2,874
)
 
 
Total segment revenues
$
485,974

 

 
$
1,420,268

 
 
United States mechanical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
289,032

 
37
%
 
$
784,543

 
35
%
Institutional market sector
78,084

 
10
%
 
221,790

 
10
%
Hospitality market sector
26,170

 
3
%
 
73,888

 
3
%
Manufacturing market sector
96,203

 
12
%
 
295,126

 
13
%
Healthcare market sector
55,844

 
7
%
 
181,964

 
8
%
Transportation market sector
3,072

 
1
%
 
13,002

 
1
%
Water and wastewater market sector
43,032

 
6
%
 
122,302

 
6
%
Short duration projects (1)
76,711

 
10
%
 
236,720

 
11
%
Service work
107,168

 
14
%
 
291,694

 
13
%
 
775,316

 

 
2,221,029

 
 
Less intersegment revenues
(2,984
)
 


 
(9,193
)
 
 
Total segment revenues
$
772,332

 

 
$
2,211,836

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


10

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


 
For the three months ended September 30, 2018
 
% of
Total
 
For the nine months ended September 30, 2018
 
% of
Total
United States building services:
 
 
 
 
 
 
 
Commercial site-based services
$
120,917

 
26
%
 
$
386,721

 
28
%
Government site-based services
52,332

 
11
%
 
162,888

 
12
%
Mechanical services
276,722

 
58
%
 
764,313

 
55
%
Energy services
23,730

 
5
%
 
75,564

 
5
%
Total segment revenues
$
473,701

 

 
$
1,389,486

 
 
United States industrial services:
 
 

 
 
 
 
Field services
$
169,036

 
79
%
 
$
442,653

 
78
%
Shop services
45,440

 
21
%
 
124,117

 
22
%
Total segment revenues
$
214,476

 

 
$
566,770

 
 
 
 
 
 
 
 
 
 
Total United States operations
$
1,946,483

 
 
 
$
5,588,360

 
 
United Kingdom building services:
 
 
 
 
 
 
 
Service work
$
51,815

 
52
%
 
$
162,088

 
52
%
Projects & extras
48,751

 
48
%
 
150,875

 
48
%
Total segment revenues
$
100,566

 

 
$
312,963

 
 
 
 
 

 
 
 
 
Total worldwide operations
$
2,047,049

 

 
$
5,901,323

 
 

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 both 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 Condensed Consolidated Balance Sheets.
Contract liabilities from our long-term construction contracts occur 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 Condensed Consolidated Balance Sheets.



11

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


Net contract liabilities consisted of the following (in thousands):
 
September 30, 2018
 
December 31, 2017
Contract assets, current
$
168,665

 
$
122,621

Contract assets, non-current

 

Contract liabilities, current
(531,284
)
 
(524,156
)
Contract liabilities, non-current
(2,905
)
 

Deferred revenue (1)

 
(47,328
)
Net contract liabilities
$
(365,524
)
 
$
(448,863
)
 ________
(1)
Represents deferred revenue on service contracts, which was included in “Accrued expenses and other” and “Other long-term liabilities” in the Condensed Consolidated Balance Sheet as of December 31 2017. For the periods after December 31, 2017, these amounts are included within “Contract liabilities.”

The $83.3 million decrease in net contract liabilities for the nine months ended September 30, 2018 was attributable to a decrease in the net contract liability balance on our uncompleted long-term construction contracts as a result of the completion or substantial completion of certain large projects which were previously billed ahead pursuant to contract terms. Contract assets and contract liabilities increased by approximately $0.3 million and $2.1 million, respectively, as a result of acquisitions made in 2018. There was no significant impairment of contract assets recognized during the period.
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):
 
September 30, 2018
 
% of Total
Remaining performance obligations:
 
 
 
United States electrical construction and facilities services
$
1,181,620

 
30
%
United States mechanical construction and facilities services
2,152,271

 
54
%
United States building services
434,386

 
11
%
United States industrial services
74,659

 
2
%
Total United States operations
3,842,936

 
97
%
United Kingdom building services
126,732

 
3
%
Total worldwide operations
$
3,969,668

 
100
%

Our remaining performance obligations at September 30, 2018 were $3.97 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.


12

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


Remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts. However, to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty, the remaining contract term, and therefore, the amount of unrecognized revenues included within remaining performance obligations, is limited to the notice period required for the termination.
Our remaining performance obligations are comprised of: (a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business, (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts. Such claim and other variable consideration amounts were immaterial for all periods presented.
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
$
1,054,046

 
$
127,574

United States mechanical construction and facilities services
1,571,103

 
581,168

United States building services
421,903

 
12,483

United States industrial services
74,659

 

Total United States operations
3,121,711

 
721,225

United Kingdom building services
76,905

 
49,827

Total worldwide operations
$
3,198,616

 
$
771,052


Impact of the Adoption of ASC 606 on our Financial Statements
The Company adopted ASC 606 on a modified retrospective basis. As part of such adoption, the new standard was applied only to those contracts which were not completed as of the date of adoption. Additionally, the Company has not retrospectively restated contract positions for contract modifications made prior to the adoption of ASC 606. The cumulative effect of applying the new guidance was recorded on January 1, 2018 as a reduction to retained earnings in the amount of $0.9 million, net of tax. The majority of this adjustment related to: (a) a change in the measurement of our progress towards complete satisfaction of performance obligations for certain of our contracts within the United States electrical construction and facilities services segment, (b) a change in the timing of revenue recognition from a point in time to over time for certain repair projects within the United Kingdom building services segment, (c) the recognition of revenue for certain bill-and-hold arrangements within our United States industrial services segment that was not allowed under previous revenue recognition guidance, (d) the recognition of variable consideration for contract bonuses within certain of our construction contracts, and (e) a change in the timing of revenue recognition from a point in time to over time for certain of our contracts within our United States industrial services segment to manufacture or repair heat exchangers. These adjustments were not material to our financial position either individually or in the aggregate.











13

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

NOTE 3 Revenue from Contracts with Customers - (Continued)


The following tables compare the differences between our reported and pro forma results under previous revenue guidance for each financial statement line item within our reported Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations, as of and for the three and nine months ended September 30, 2018 (in thousands):
 
As reported
 
Pro forma
 
September 30, 2018 (Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
353,912

 
$
353,912

Accounts receivable
1,715,462

 
1,715,012

Contract assets
168,665

 
162,481