Edgar Filing: EMCOR GROUP INC

EME-2014.9.30-10Q

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, 2014



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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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

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 23, 2014: 64,747,535 shares.

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EMCOR Group, Inc.

INDEX



		Page No.
PART I. - Financial Information.
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets - as of September 30, 2014 and December 31, 2013	1
	Condensed Consolidated Statements of Operations - three and nine months ended September 30, 2014 and 2013	2
	Condensed Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2014 and 2013	3
	Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 2014 and 2013	4
	Condensed Consolidated Statements of Equity - nine months ended September 30, 2014 and 2013	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	31
Item 4.	Controls and Procedures.	32
PART II. - Other Information.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	32
Item 6.	Exhibits.	32

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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, 2014 (Unaudited)			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	437,446		$	439,813
Accounts receivable, net	1,233,916			1,268,226
Costs and estimated earnings in excess of billings on uncompleted contracts	121,577			90,727
Inventories	67,173			52,123
Prepaid expenses and other	66,558			79,216
Total current assets	1,926,670			1,930,105
Investments, notes and other long-term receivables	7,634			6,799
Property, plant and equipment, net	122,240			123,414
Goodwill	834,102			834,825
Identifiable intangible assets, net	513,001			541,497
Other assets	31,020			29,275
Total assets	$	3,434,667		$	3,465,915
LIABILITIES AND EQUITY
Current liabilities:
Borrowings under revolving credit facility	$	—		$	—
Current maturities of long-term debt and capital lease obligations	19,138			19,332
Accounts payable	404,094			487,738
Billings in excess of costs and estimated earnings on uncompleted contracts	384,782			381,295
Accrued payroll and benefits	247,151			237,779
Other accrued expenses and liabilities	191,965			172,599
Total current liabilities	1,247,130			1,298,743
Borrowings under revolving credit facility	—			—
Long-term debt and capital lease obligations	321,222			335,331
Other long-term obligations	340,592			352,215
Total liabilities	1,908,944			1,986,289
Equity:
EMCOR Group, Inc. stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero issued and outstanding	—			—
Common stock, $0.01 par value, 200,000,000 shares authorized, 66,230,165 and 67,627,359 shares issued, respectively	662			676
Capital surplus	342,247			408,083
Accumulated other comprehensive loss	(64,678		)	(65,777		)
Retained earnings	1,243,762			1,133,873
Treasury stock, at cost 659,841 and 730,841 shares, respectively	(10,302		)	(10,590		)
Total EMCOR Group, Inc. stockholders’ equity	1,511,691			1,466,265
Noncontrolling interests	14,032			13,361
Total equity	1,525,723			1,479,626
Total liabilities and equity	$	3,434,667		$	3,465,915

See Notes to Condensed Consolidated Financial Statements.

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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,
	2014			2013			2014			2013
Revenues	$	1,566,711		$	1,605,315		$	4,710,169		$	4,684,248
Cost of sales	1,344,482			1,398,753			4,051,496			4,099,473
Gross profit	222,229			206,562			658,673			584,775
Selling, general and administrative expenses	159,983			147,917			454,243			419,679
Restructuring expenses	398			601			799			652
Gain on sale of building	11,749			—			11,749			—
Operating income	73,597			58,044			215,380			164,444
Interest expense	(2,397		)	(2,351		)	(6,887		)	(5,978		)
Interest income	186			234			641			862
Income from continuing operations before income taxes	71,386			55,927			209,134			159,328
Income tax provision	23,998			24,024			75,428			60,622
Income from continuing operations	47,388			31,903			133,706			98,706
Loss from discontinued operation, net of income taxes	(611		)	(3,010		)	(4,087		)	(17,621		)
Net income including noncontrolling interests	46,777			28,893			129,619			81,085
Less: Net income attributable to noncontrolling interests	(1,753		)	(2,203		)	(3,421		)	(3,214		)
Net income attributable to EMCOR Group, Inc.	$	45,024		$	26,690		$	126,198		$	77,871
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.68		$	0.44		$	1.94		$	1.42
From discontinued operation	(0.01		)	(0.04		)	(0.06		)	(0.26		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.67		$	0.40		$	1.88		$	1.16
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.68		$	0.43		$	1.92		$	1.40
From discontinued operation	(0.01		)	(0.04		)	(0.06		)	(0.26		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.67		$	0.39		$	1.86		$	1.14

Dividends declared per common share	$	0.08		$	0.06		$	0.24		$	0.12

See Notes to Condensed Consolidated Financial Statements.

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EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Net income including noncontrolling interests	$	46,777		$	28,893		$	129,619		$	81,085
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(312		)	(491		)	(246		)	(463		)
Post retirement plans, amortization of actuarial loss included in net income ⁽¹⁾	449			611			1,345			1,714
Other comprehensive income	137			120			1,099			1,251
Comprehensive income	46,914			29,013			130,718			82,336
Less: Comprehensive income attributable to noncontrolling interests	(1,753		)	(2,203		)	(3,421		)	(3,214		)
Comprehensive income attributable to EMCOR Group, Inc.	$	45,161		$	26,810		$	127,297		$	79,122

_________


(1)	Net of tax of $0.1 million and $0.1 million for the three months ended September 30, 2014 and 2013, respectively, and net of tax of $0.4 million and $0.5 million for the nine months ended September 30, 2014 and 2013, respectively.

See Notes to Condensed Consolidated Financial Statements.

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EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)(Unaudited)



	Nine months ended September 30,
	2014			2013
Cash flows - operating activities:
Net income including noncontrolling interests	$	129,619		$	81,085
Depreciation and amortization	27,211			25,907
Amortization of identifiable intangible assets	28,497			21,317
Deferred income taxes	4,434			(666		)
Loss on sale of subsidiary	608			—
Gain on sale of building	(11,749		)	—
Excess tax benefits from share-based compensation	(5,886		)	(1,267		)
Equity income from unconsolidated entities	(1,349		)	(880		)
Other non-cash items	8,005			2,403
Distributions from unconsolidated entities	1,640			634
Changes in operating assets and liabilities, excluding the effect of businesses acquired	(72,036		)	(60,486		)
Net cash provided by operating activities	108,994			68,047
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired	—			(448,943		)
Proceeds from sale of subsidiary	1,108			—
Proceeds from sale of building	11,885			—
Proceeds from sale of property, plant and equipment	3,138			1,171
Purchase of property, plant and equipment	(27,574		)	(24,006		)
Maturity of short-term investments	—			4,616
Investments in and advances to unconsolidated entities and joint ventures	(1,865		)	—
Net cash used in investing activities	(13,308		)	(467,162		)
Cash flows - financing activities:
Proceeds from revolving credit facility	—			250,000
Repayments of long-term debt	(13,074		)	(6		)
Repayments of capital lease obligations	(1,272		)	(1,256		)
Dividends paid to stockholders	(16,109		)	(8,052		)
Repurchase of common stock	(76,395		)	(4,998		)
Proceeds from exercise of stock options	5,044			2,320
Payments to satisfy minimum tax withholding	(1,481		)	(927		)
Issuance of common stock under employee stock purchase plan	2,677			2,088
Payments for contingent consideration arrangements	—			(537		)
Distributions to noncontrolling interests	(2,750		)	(1,300		)
Excess tax benefits from share-based compensation	5,886			1,267
Net cash (used in) provided by financing activities	(97,474		)	238,599
Effect of exchange rate changes on cash and cash equivalents	(579		)	(750		)
Decrease in cash and cash equivalents	(2,367		)	(161,266		)
Cash and cash equivalents at beginning of year	439,813			605,303
Cash and cash equivalents at end of period	$	437,446		$	444,037
Supplemental cash flow information:
Cash paid for:
Interest	$	5,606		$	4,893
Income taxes	$	60,276		$	85,479
Non-cash financing activities:
Assets acquired under capital lease obligations	$	93		$	475

See Notes to Condensed Consolidated Financial Statements.

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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, 2012	$	1,357,179		$	680		$	416,104		$	(81,040	)	$	1,022,239		$	(11,903	)	$	11,099
Net income including noncontrolling interests	81,085			—			—			—			77,871			—			3,214
Other comprehensive income	1,251			—			—			1,251			—			—			—
Common stock issued under share-based compensation plans ⁽²⁾	2,660			2			2,451			—			—			207			—
Common stock issued under employee stock purchase plan	2,088			—			2,088			—			—			—			—
Common stock dividends	(8,052		)	—			40			—			(8,092		)	—			—
Repurchase of common stock	(4,998		)	(1		)	(4,997		)	—			—			—			—
Distributions to noncontrolling interests	(1,300		)	—			—			—			—			—			(1,300		)
Share-based compensation expense	5,288			—			5,288			—			—			—			—
Balance, September 30, 2013	$	1,435,201		$	681		$	420,974		$	(79,789	)	$	1,092,018		$	(11,696	)	$	13,013
Balance, December 31, 2013	$	1,479,626		$	676		$	408,083		$	(65,777	)	$	1,133,873		$	(10,590	)	$	13,361
Net income including noncontrolling interests	129,619			—			—			—			126,198			—			3,421
Other comprehensive income	1,099			—			—			1,099			—			—			—
Common stock issued under share-based compensation plans ⁽²⁾	9,805			6			9,511			—			—			288			—
Common stock issued under employee stock purchase plan	2,677			—			2,677			—			—			—			—
Common stock dividends	(16,109		)	—			200			—			(16,309		)	—			—
Repurchase of common stock	(84,565		)	(20		)	(84,545		)	—			—			—			—
Distributions to noncontrolling interests	(2,750		)	—			—			—			—			—			(2,750		)
Share-based compensation expense	6,321			—			6,321			—			—			—			—
Balance, September 30, 2014	$	1,525,723		$	662		$	342,247		$	(64,678	)	$	1,243,762		$	(10,302	)	$	14,032


(1)	Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.


(2)	Includes the tax benefit associated with share-based compensation of $6.2 million and $1.3 million for the nine months ended September 30, 2014 and 2013, respectively.

See Notes to Condensed Consolidated Financial Statements.

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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 a normal recurring nature) necessary to present fairly our financial position and the results of our operations. The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014.

During the third quarter of 2014, we ceased construction operations in the United Kingdom. As a result, the segment formally named the United Kingdom construction and building services segment has been renamed the United Kingdom building services segment. Our reportable segments have been restated in all periods presented to reflect this change.

NOTE 2 New Accounting Pronouncements

In May 2014, an accounting pronouncement was 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. This pronouncement is effective for fiscal years and interim periods beginning after December 15, 2016, with no early adoption permitted. The guidance permits the use of one of two retrospective transition methods. We have not yet selected a transition method nor have we determined the effect that the adoption of the pronouncement may have on our financial position and/or results of operations.

NOTE 3 Acquisitions of Businesses

On July 29, 2013, we completed the acquisition of RepconStrickland, Inc. (“RSI”), a leading provider of recurring turnaround and specialty services to the North American refinery and petrochemical markets. This acquisition expands and strengthens our service offerings to new and existing customers and enhances our position within the industrial services and energy market sectors. Under the terms of the transaction, we acquired 100% of RSI's stock for total consideration of $463.6 million. The acquisition was funded with cash on hand and $250.0 million from borrowings under our revolving credit facility. This acquisition was accounted for using the acquisition method of accounting. We acquired working capital of $35.5 million and other net liabilities of $67.1 million and have ascribed $267.8 million to goodwill and $227.4 million to identifiable intangible assets in connection with the acquisition of RSI, which has been included in our United States industrial services segment. We expect that $49.0 million of acquired goodwill will be deductible for tax purposes.

On December 2, 2013 and May 31, 2013, we acquired two companies, each for an immaterial amount. These companies primarily provide mechanical construction services and have been included in our United States mechanical construction and facilities services segment. The purchase price accounting for the acquisition of these businesses was finalized with an insignificant impact during 2013. The acquisition of these businesses was accounted for by the acquisition method, and the prices paid for them have been allocated to their respective assets and liabilities, based upon the estimated fair values of their respective assets and liabilities at the date of their respective acquisitions. We believe these businesses further expand our service capabilities into new geographical and/or technical areas.

During the three months ended September 30, 2014 and 2013, respectively, we recorded a reversal of zero and $3.1 million of liabilities resulting in non-cash income attributable to contingent consideration arrangements relating to prior acquisitions. During the nine months ended September 30, 2014 and 2013, respectively, we recorded a net reversal of $0.2 million and $6.0 million of liabilities resulting in non-cash income attributable to contingent consideration arrangements relating to prior acquisitions.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 Disposition of Assets

In January 2014, we sold a subsidiary reported in our United States building services segment. Proceeds from the sale totaled approximately $1.1 million. Included in net income for the nine months ended September 30, 2014 was a loss of $0.6 million from this sale, which is classified as a component of "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Operations.

On July 22, 2014, we sold a building and land owned by one of our subsidiaries reported in the United States mechanical construction and facilities services segment. We recognized a gain of approximately $11.7 million for this transaction in the third quarter of 2014, which has been classified as a "Gain on sale of building" in the Condensed Consolidated Statements of Operations.

Due to recurring losses over the last several years 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 announced during the quarter ended June 30, 2013 our decision to withdraw from the construction market in the United Kingdom. During the third quarter of 2014, we ceased construction operations in the United Kingdom. The results of the construction operations of our United Kingdom segment for the three and nine months ended September 30, 2014 and 2013 are presented in our Condensed Consolidated Financial Statements as discontinued operations.

The results of discontinued operations are as follows (in thousands):



	For the three months ended September 30,						For the nine months ended September 30,
	2014			2013			2014			2013
Revenues	$	3,166		$	23,752		$	17,149		$	69,973
Loss from discontinued operation, net of income taxes	$	(611	)	$	(3,010	)	$	(4,087	)	$	(17,621	)
Diluted loss per share from discontinued operation	$	(0.01	)	$	(0.04	)	$	(0.06	)	$	(0.26	)

Included in the Consolidated Balance Sheets at September 30, 2014 and December 31, 2013 are the following major classes of assets and liabilities associated with the discontinued operation (in thousands):



	September 30, 2014		December 31, 2013
Assets of discontinued operation:
Current assets	$	10,927	$	26,630
Non-current assets	$	359	$	833

Liabilities of discontinued operation:
Current liabilities	$	15,555	$	41,024
Non-current liabilities	$	140	$	513

At September 30, 2014, the assets and liabilities of the discontinued operation consist of accounts receivable, contract retentions and contract warranty obligations that are expected to be collected or fulfilled in the ordinary course of business. Additionally at September 30, 2014, there remained $2.2 million of obligations related to employee severance and the termination of leased facilities, the majority of which is expected to be paid over the next twelve months.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5 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 and nine months ended September 30, 2014 and 2013 (in thousands, except share and per share data):



	For the three months ended September 30,
	2014			2013
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	45,635		$	29,700
Loss from discontinued operation, net of income taxes	(611		)	(3,010		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	45,024		$	26,690
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	66,714,641			67,174,848
Effect of dilutive securities—Share-based awards	702,906			988,853
Shares used to compute diluted earnings (loss) per common share	67,417,547			68,163,701
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.68		$	0.44
From discontinued operation	$	(0.01	)	$	(0.04	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.67		$	0.40
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.68		$	0.43
From discontinued operation	$	(0.01	)	$	(0.04	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.67		$	0.39



	For the nine months ended September 30,
	2014			2013
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc.	$	130,285		$	95,492
Loss from discontinued operation, net of income taxes	(4,087		)	(17,621		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	126,198		$	77,871
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	67,062,732			67,127,149
Effect of dilutive securities—Share-based awards	739,874			992,591
Shares used to compute diluted earnings (loss) per common share	67,802,606			68,119,740
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.94		$	1.42
From discontinued operation	(0.06		)	(0.26		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.88		$	1.16
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.92		$	1.40
From discontinued operation	(0.06		)	(0.26		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.86		$	1.14

There were no anti-dilutive stock options for the three and nine months ended September 30, 2014 and 2013, respectively.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6 Inventories

Inventories in the accompanying Condensed Consolidated Balance Sheets consisted of the following amounts (in thousands):



	September 30, 2014		December 31, 2013
Raw materials and construction materials	$	35,618	$	32,795
Work in process	31,555		19,328
	$	67,173	$	52,123

NOTE 7 Debt

Debt in the accompanying Condensed Consolidated Balance Sheets consisted of the following amounts (in thousands):



	September 30, 2014		December 31, 2013
Term Loan	$	336,875	$	350,000
Capitalized lease obligations	3,423		4,652
Other	62		11
	340,360		354,663
Less: current maturities	19,138		19,332
	$	321,222	$	335,331

Credit Facilities

Until November 25, 2013, we had a revolving credit agreement (the "2011 Credit Agreement") as amended, which provided for a revolving credit facility of $750.0 million. The 2011 Credit Agreement was effective November 21, 2011. Effective November 25, 2013, we amended and restated the 2011 Credit Agreement to provide for a $750.0 million revolving credit facility (the “2013 Revolving Credit Facility”) and a $350.0 million term loan (the "Term Loan") (collectively referred to as the "2013 Credit Agreement") expiring November 25, 2018. The proceeds of the Term Loan were used to repay amounts drawn under the 2011 Credit Agreement. We may increase the 2013 Revolving Credit Facility to $1.05 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $250.0 million of available borrowings under the 2013 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries. The 2013 Credit Agreement is guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets and most of the assets of most of our subsidiaries. The 2013 Revolving Credit Facility and the Term Loan contain 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. A commitment fee is payable on the average daily unused amount of the 2013 Revolving Credit Facility, which ranges from 0.20% to 0.30%, based on certain financial tests. The fee is 0.20% of the unused amount as of September 30, 2014. Borrowings under the 2013 Credit Agreement bear interest at (1) a rate which is the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at September 30, 2014) plus 0.25% to 0.75%, based on certain financial tests or (2) United States dollar LIBOR (0.15% at September 30, 2014) plus 1.25% to 1.75%, based on certain financial tests. The interest rate in effect at September 30, 2014 was 1.40%. Fees for letters of credit issued under the 2013 Revolving Credit Facility range from 1.25% to 1.75% of the respective face amounts of outstanding letters of credit and are computed based on certain financial tests. We capitalized approximately $3.0 million of debt issuance costs associated with the 2013 Credit Agreement. This amount is being amortized over the life of the agreement and is included as part of interest expense. We are required to make principal payments on the Term Loan in installments on the last day of March, June, September and December of each year, which commenced with the calendar quarter ended March 31, 2014, in the amount of $4.4 million, with a payment of all unpaid principal and interest due on November 25, 2018. As of September 30, 2014, the balance of the Term Loan was $336.9 million. As of September 30, 2014 and December 31, 2013, we had approximately $97.2 million and $83.3 million of letters of credit outstanding, respectively. There were no borrowings outstanding under the 2013 Revolving Credit Facility as of September 30, 2014.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8 Fair Value Measurements

We use a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, which gives the highest priority to quoted prices in active markets, is comprised of the following three levels:

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

Level 2 – Observable inputs, other than Level 1 inputs. Level 2 inputs would typically include quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 – Prices or valuations that require inputs that are both significant to the measurement and unobservable.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2014 and December 31, 2013 (in thousands):



	Assets at Fair Value as of September 30, 2014
Asset Category	Level 1		Level 2	Level 3	Total
Cash and cash equivalents ⁽¹⁾	$	437,446	—	—	$	437,446
Restricted cash ⁽²⁾	6,938		—	—	6,938
Total	$	444,384	—	—	$	444,384



	Assets at Fair Value as of December 31, 2013
Asset Category	Level 1		Level 2	Level 3	Total
Cash and cash equivalents ⁽¹⁾	$	439,813	—	—	$	439,813
Restricted cash ⁽²⁾	6,934		—	—	6,934
Total	$	446,747	—	—	$	446,747

________


(1)	Cash and cash equivalents include money market funds with original maturity dates of three months or less, which are Level 1 assets. At September 30, 2014 and December 31, 2013, we had $167.4 million and $147.7 million, respectively, in money market funds.


(2)	Restricted cash is classified as “Prepaid expenses and other” in the Condensed Consolidated Balance Sheets.

We believe that the carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities and low risk of counterparty default. The carrying value of our debt associated with the 2013 Credit Agreement approximates its fair value due to the variable rate on such debt.

NOTE 9 Income Taxes

For the three months ended September 30, 2014 and 2013, our income tax provision on income from continuing operations was $24.0 million and $24.0 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.6% and 39.5%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the three months ended September 30, 2014 and 2013, inclusive of discrete items, were 34.5% and 44.7%, respectively. For the nine months ended September 30, 2014 and 2013, our income tax provision on income from continuing operations was $75.4 million and $60.6 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.6% and 37.5%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the nine months ended September 30, 2014 and 2013, inclusive of discrete items, were 36.6% and 38.8%, respectively. The increase in the 2014 income tax provision was primarily due to increased income before income taxes. The decrease in the actual income tax rates on income from continuing operations was primarily due to a change in the mix of earnings among various jurisdictions and the quarterly variance in discrete items.

As of September 30, 2014 and December 31, 2013, the amount of unrecognized income tax benefits was $4.3 million and $3.1 million (of which $2.2 million and $1.7 million, if recognized, would favorably affect our effective income tax rate, respectively.)

We report interest expense related to unrecognized income tax benefits in the income tax provision. As of September 30, 2014 and December 31, 2013, we had approximately $0.3 million of accrued interest related to unrecognized income tax benefits included as a liability in the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2014 and 2013,

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9 Income Taxes - (Continued)

less than $0.1 million and $0.2 million of interest expense was recognized, respectively. For the nine months ended September 30, 2014 and 2013, less than $0.1 million of interest income and $0.6 million of interest expense was recognized, respectively.

It is possible that approximately $0.1 million of unrecognized income tax benefits at September 30, 2014, primarily relating to uncertain tax positions attributable to compensation related accruals, will become recognized income tax benefits in the next twelve months due to the expiration of applicable statutes of limitations.

We file income tax returns with the Internal Revenue Service and various state, local and foreign tax agencies. The Company is currently under examination by various taxing authorities for the years 2008 through 2013. During the first quarter of 2014, the Internal Revenue Service finalized its audit of our federal income tax returns for the years 2010 through 2011. We agreed to and paid an assessment, for an immaterial amount, proposed by the Internal Revenue Service pursuant to such audit.

NOTE 10 Common Stock

As of September 30, 2014 and December 31, 2013, 65,570,324 and 66,896,518 shares of our common stock were outstanding, respectively.

During the three months ended September 30, 2014 and 2013, 66,126 and 28,493 shares of common stock, respectively, were issued primarily upon: (a) the exercise of stock options and (b) the purchase of common stock pursuant to our employee stock purchase plan. During the nine months ended September 30, 2014 and 2013, 628,850 and 243,690 shares of common stock, respectively, were issued primarily upon: (a) the exercise of stock options, (b) the satisfaction of required conditions under certain of our share-based compensation plans and (c) the purchase of common stock pursuant to our employee stock purchase plan.

On September 26, 2011, our Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. On December 5, 2013, our Board of Directors authorized us to repurchase up to an additional $100.0 million of our outstanding common stock. During 2014, we repurchased approximately 2.0 million shares of our common stock for approximately $84.6 million. Since the inception of the repurchase programs through September 30, 2014, we have repurchased 4.7 million shares of our common stock for approximately $162.1 million. As of September 30, 2014, there remained authorization for us to repurchase approximately $37.9 million of our shares. On October 23, 2014, our Board of Directors authorized us to repurchase up to an additional $250.0 million of our outstanding common stock. The repurchase programs do not obligate the Company to acquire any particular amount of common stock and may be suspended, recommenced or discontinued at any time or from time to time without prior notice. Acquisitions under our repurchase programs may be made from time to time to the extent permitted by securities laws and other legal requirements, including provisions in our credit agreement placing limitations on such repurchases. The repurchase programs have been and will be funded from our operations.

NOTE 11 Retirement Plans

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

Components of Net Periodic Pension Cost

The components of net periodic pension cost of the UK Plan for the three and nine months ended September 30, 2014 and 2013 were as follows (in thousands):



	For the three months ended September 30,						For the nine months ended September 30,
	2014			2013			2014			2013
Interest cost	$	3,510		$	3,044		$	10,573		$	9,147
Expected return on plan assets	(4,226		)	(3,549		)	(12,729		)	(10,664		)
Amortization of unrecognized loss	508			633			1,530			1,902
Net periodic pension (income) expense	$	(208	)	$	128		$	(626	)	$	385

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 11 Retirement Plans - (Continued)

Employer Contributions

For the nine months ended September 30, 2014, our United Kingdom subsidiary contributed approximately $4.6 million to its UK Plan. It anticipates contributing an additional $1.3 million during the remainder of 2014.

NOTE 12 Commitments and Contingencies

Government Contracts

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

Legal Matters

One of our subsidiaries was a subcontractor to a mechanical contractor ("Mechanical Contractor") on a construction project where an explosion occurred. An investigation of the matter could not determine who was responsible for the explosion. As a result of the explosion, lawsuits have been commenced against various parties, but, to date, no lawsuits have been commenced against our subsidiary with respect to personal injury or damage to property as a consequence of the explosion. However, the Mechanical Contractor has asserted claims, in the context of an arbitration proceeding against our subsidiary, alleging that our subsidiary is responsible for a portion of the damages for which the Mechanical Contractor may be liable as a result of: (a) losses asserted by the owner of the project and/or the owner's general contractor because of delays in completion of the project and damages to its property, (b) personal injury suffered by individuals as a result of the explosion and (c) the Mechanical Contractor's legal fees and associated management costs in defending against any and all such claims. In the most recent filing with the Arbitrator, the Mechanical Contractor has indicated that it intends to pursue claims against our subsidiary for alleged violations of the Connecticut and Massachusetts Unfair and Deceptive Trade Practices Acts in the ongoing arbitration proceeding. We believe, and have been advised by counsel, that we have a number of meritorious defenses to all such matters. We believe that the ultimate outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. Notwithstanding our assessment of the final impact of this matter, we are not able to estimate with any certainty the amount of loss, if any, which would be associated with an adverse resolution.

One of our subsidiaries, USM, Inc. ("USM"), doing business in California provides, among other things, janitorial services to its customers by having those services performed by independent janitorial companies. USM and one of its customers, which owns retail stores (the “Customer”), are co-defendants in a federal class action lawsuit brought by employees of five of USM’s California janitorial contractors. The action was commenced on September 5, 2013 in a Superior Court of California and was removed by USM on November 22, 2013 to the United States District Court for the Northern District of California. The employees allege in their complaint, among other things, that USM and the Customer violated a California statute that prohibits USM from entering into a contract with a janitorial contractor when it knows or should know that the contract does not include funds sufficient to allow the janitorial contractor to comply with all local, state and federal laws or regulations governing the labor or services to be provided. The employees have asserted that the amounts USM pays to its janitorial contractors are insufficient to allow those janitorial contractors to meet their obligations regarding, among other things, wages due for all hours their employees worked, minimum wages, overtime pay and meal and rest breaks. These employees seek to represent not only themselves, but also all other individuals who provided janitorial services at the Customer’s stores in California during the relevant four year time period. We do not believe USM or the Customer has violated the California statute or that the employees may bring the action as a class action on behalf of other employees of janitorial contractors with whom USM contracted for the provision of janitorial services to the Customer. However, if the pending lawsuit is certified as a class action and USM is found to have violated the California statute, USM might have to pay significant damages and might be subject to similar lawsuits regarding the provision of janitorial services to its other customers in California. The plaintiffs seek a declaratory judgment that USM has violated the California statute, monetary damages, including all unpaid wages and interest thereon, restitution for unpaid wages, and an award of attorney fees and costs.

We are involved in several other proceedings in which damages and claims have been asserted against us. Other potential claims may exist that have not yet been asserted against us. We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves. We do not believe that any such matters will have a material adverse effect on our financial position, results of operations or liquidity. Litigation is subject to many uncertainties and the outcome of litigation is not predictable with assurance. It is possible that some litigation matters for which reserves have not been established could be

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12 Commitments and Contingencies - (Continued)

decided unfavorably to us, and that any such unfavorable decisions could have a material adverse effect on our financial position, results of operations or liquidity.

Restructuring expenses

Restructuring expenses were $0.4 million and $0.8 million for the three and nine months ended September 30, 2014, respectively. Restructuring expenses for the three months ended September 30, 2014 included $0.4 million of employee severance obligations. Restructuring expenses for the nine months ended September 30, 2014 included $0.6 million of employee severance obligations and $0.2 million relating to the termination of leased facilities. Restructuring expenses were $0.6 million and $0.7 million for the three and nine months ended September 30, 2013, respectively. Restructuring expenses for the three months ended September 30, 2013 included $0.5 million of employee severance obligations and $0.1 million relating to the termination of leased facilities. Restructuring expenses for the nine months ended September 30, 2013 included $0.6 million of employee severance obligations and $0.1 million relating to the termination of leased facilities. As of September 30, 2014, the balance of these restructuring obligations yet to be paid was $0.2 million, the majority of which is expected to be paid in 2014. No material expenses in connection with restructuring from continuing operations are expected to be incurred during the remainder of 2014.

The changes in restructuring activity by reportable segments during the nine months ended September 30, 2014 and September 30, 2013 were as follows (in thousands):



	United States electrical construction and facilities services segment			United States mechanical construction and facilities services segment			United States building services segment			Corporate administration			Total
Balance at December 31, 2012	$	53		$	—		$	—		$	—		$	53
Charges	—			473			179			—			652
Payments	(18		)	(129		)	(162		)	—			(309		)
Balance at September 30, 2013	$	35		$	344		$	17		$	—		$	396
Balance at December 31, 2013	$	30		$	164		$	—		$	—		$	194
Charges	375			124			—			300			799
Payments	(405		)	(114		)	—			(300		)	(819		)
Balance at September 30, 2014	$	—		$	174		$	—		$	—		$	174

A summary of restructuring expenses by reportable segments recognized for the nine months ended September 30, 2014 was as follows (in thousands):



	United States electrical construction and facilities services segment		United States mechanical construction and facilities services segment			United States building services segment		Corporate administration		Total
Severance	$	375	$	205		$	—	$	—	$	580
Leased facilities	—		(81		)	—		300		219
Total charges	$	375	$	124		$	—	$	300	$	799

NOTE 13 Segment Information

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)

(c) United States building services; (d) United States industrial services; and (e) United Kingdom building services. The “United States building services” and "United Kingdom building services" segments principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers’ facilities, including commercial and government site-based operations and maintenance; facility maintenance and services; outage services to utilities and industrial plants; military base operations support services; mobile maintenance and services; floor care and janitorial services; landscaping, lot sweeping and snow removal; facilities management; vendor management; call center services; installation and support for building systems; program development, management and maintenance for energy systems; technical consulting and diagnostic services; infrastructure and building projects for federal, state and local governmental agencies and bodies; small modification and retrofit projects; and retrofit projects to comply with clean air laws, which services are not generally related to customers' construction programs. The segment "United States industrial services" principally consists of those operations which provide industrial maintenance and services, mainly for refineries and petrochemical plants, including on-site repairs, maintenance and service of heat exchangers, towers, vessels and piping; design, manufacturing, repair and hydro blast cleaning of shell and tube heat exchangers and related equipment; refinery turnaround planning and engineering services; specialty welding services; overhaul and maintenance of critical process units in refineries and petrochemical plants; and specialty technical services for refineries and petrochemical plants.

The following tables present information about industry segments and geographic areas for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	For the three months ended September 30,
	2014			2013
Revenues from unrelated entities:
United States electrical construction and facilities services	$	314,666		$	340,529
United States mechanical construction and facilities services	565,227			616,403
United States building services	427,564			457,777
United States industrial services	172,452			110,879
Total United States operations	1,479,909			1,525,588
United Kingdom building services	86,802			79,727
Total worldwide operations	$	1,566,711		$	1,605,315

Total revenues:
United States electrical construction and facilities services	$	316,409		$	347,488
United States mechanical construction and facilities services	569,794			629,481
United States building services	438,864			471,576
United States industrial services	172,608			111,212
Less intersegment revenues	(17,766		)	(34,169		)
Total United States operations	1,479,909			1,525,588
United Kingdom building services	86,802			79,727
Total worldwide operations	$	1,566,711		$	1,605,315

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	For the nine months ended September 30,
	2014			2013
Revenues from unrelated entities:
United States electrical construction and facilities services	$	958,295		$	984,443
United States mechanical construction and facilities services	1,616,794			1,741,483
United States building services	1,293,750			1,361,392
United States industrial services	581,642			335,358
Total United States operations	4,450,481			4,422,676
United Kingdom building services	259,688			261,572
Total worldwide operations	$	4,710,169		$	4,684,248

Total revenues:
United States electrical construction and facilities services	$	971,361		$	1,000,598
United States mechanical construction and facilities services	1,632,511			1,780,112
United States building services	1,324,816			1,395,607
United States industrial services	582,426			337,282
Less intersegment revenues	(60,633		)	(90,923		)
Total United States operations	4,450,481			4,422,676
United Kingdom building services	259,688			261,572
Total worldwide operations	$	4,710,169		$	4,684,248



	For the three months ended September 30,
	2014			2013
Operating income (loss):
United States electrical construction and facilities services	$	20,666		$	23,971
United States mechanical construction and facilities services	30,206			27,421
United States building services	19,388			23,285
United States industrial services	7,385			308
Total United States operations	77,645			74,985
United Kingdom building services	3,082			3,192
Corporate administration	(18,481		)	(19,532		)
Restructuring expenses	(398		)	(601		)
Gain on sale of building	11,749			—
Total worldwide operations	73,597			58,044
Other corporate items:
Interest expense	(2,397		)	(2,351		)
Interest income	186			234
Income from continuing operations before income taxes	$	71,386		$	55,927

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	For the nine months ended September 30,
	2014			2013
Operating income (loss):
United States electrical construction and facilities services	$	67,162		$	68,147
United States mechanical construction and facilities services	78,052			56,809
United States building services	53,606			52,928
United States industrial services	43,155			26,320
Total United States operations	241,975			204,204
United Kingdom building services	12,647			11,845
Corporate administration	(50,192		)	(50,953		)
Restructuring expenses	(799		)	(652		)
Gain on sale of building	11,749			—
Total worldwide operations	215,380			164,444
Other corporate items:
Interest expense	(6,887		)	(5,978		)
Interest income	641			862
Income from continuing operations before income taxes	$	209,134		$	159,328



	September 30, 2014		December 31, 2013
Total assets:
United States electrical construction and facilities services	$	333,416	$	329,742
United States mechanical construction and facilities services	805,382		795,256
United States building services	749,382		756,785
United States industrial services	958,856		940,916
Total United States operations	2,847,036		2,822,699
United Kingdom building services	135,728		160,828
Corporate administration	451,903		482,388
Total worldwide operations	$	3,434,667	$	3,465,915

Our United Kingdom building services segment recognized income of $4.8 million during the second quarter of 2014, which has been recorded as a reduction of "Cost of sales" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2014, as a result of a reduction in the estimate of certain accrued contract costs that were no longer expected to be incurred within its building services operations. Our corporate administration operating loss for the nine months ended September 30, 2013 was reduced by the receipt of an insurance recovery of approximately $2.6 million that was received in January 2013 associated with a previously disposed of operation, which is classified as a component of "Cost of sales" in the Condensed Consolidated Statements of Operations.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We are one of the largest electrical and mechanical construction and facilities services firms in the United States. In addition, we provide a number of building services and industrial services. Our services are provided to a broad range of commercial, industrial, utility and institutional customers through approximately 70 operating subsidiaries and joint venture entities. Our offices are located in the United States and the United Kingdom.

Due to recurring losses over the last several years 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 announced during the quarter ended June 30, 2013 our decision to withdraw from the construction market in the United Kingdom. During the third quarter of 2014, we ceased construction operations in the United Kingdom. The results of the construction operations of our United Kingdom segment for all periods presented reflect discontinued operations accounting. The segment formally named the United Kingdom construction and building services segment has been renamed the United Kingdom building services segment.

Impact of Acquisitions

In order to provide a more meaningful period-over-period discussion of our operating results, we may discuss amounts generated or incurred (revenues, gross profit, selling, general and administrative expenses and operating income) from companies acquired. These amounts reflect the acquired companies' operating results in the current reported periods only for the time period these entities were not owned by EMCOR in the comparable prior reported periods.

Overview

The following table presents selected financial data for the three months ended September 30, 2014 and 2013 (in thousands, except percentages and per share data):



	For the three months ended September 30,
	2014			2013
Revenues	$	1,566,711		$	1,605,315
Revenues (decrease) increase from prior year	(2.4		)%	2.3		%
Restructuring expenses	$	398		$	601
Gain on sale of building	$	11,749		$	—
Operating income	$	73,597		$	58,044
Operating income as a percentage of revenues	4.7		%	3.6		%
Net income attributable to EMCOR Group, Inc.	$	45,024		$	26,690
Diluted earnings per common share from continuing operations	$	0.68		$	0.43

Overall operating income and operating margin (operating income as a percentage of revenues) increased in the 2014 third quarter compared to the 2013 third quarter despite a decrease in revenues. The decrease in revenues is primarily attributable to a decline in revenues from our: (a) United States mechanical construction and facilities services segment, (b) United States building services segment and (c) United States electrical construction and facilities services segment, partially offset by an increase in revenues from our United States industrial services segment and our United Kingdom building services segment. Companies acquired in 2013, which are reported in our United States industrial segment and our United States mechanical construction and facilities services segment, generated incremental revenues of $25.5 million. As previously discussed under "Impact of Acquisitions" above, this amount represents acquired companies' revenues in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period.

The increases in operating income and operating margin are primarily attributable to: (a) an $11.7 million gain on the sale of a building and (b) improved operating performance within our: (i) United States industrial services segment and (ii) United States mechanical construction and facilities services segment. The improved performance in these segments was partially offset by decreases in operating income and operating margin within our United States building services segment and our United States electrical construction and facilities services segment. Companies acquired in 2013, which are reported in our United States industrial segment and our United States mechanical construction and facilities services segment, incurred operating losses of $0.4 million, including the effect of $1.2 million of amortization expense associated with identifiable intangible assets for the third quarter of 2014. As previously discussed under "Impact of Acquisitions" above, these amounts represent acquired companies' operating results in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period.

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Operating Segments

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

As previously discussed, we completed the acquisition of RepconStrickland, Inc. (“RSI”) during the third quarter of 2013, and its results have been included in our United States industrial services segment since its acquisition. In addition, we completed two other acquisitions during 2013, and their results have been included in our United States mechanical construction and facilities services segment. These acquired businesses expanded our service capabilities into new technical areas.

Results of Operations

Revenues

The following table presents our operating segment revenues from unrelated entities and their respective percentages of total revenues (in thousands, except for percentages):



	For the three months ended September 30,
	2014		% of Total		2013		% of Total
Revenues:
United States electrical construction and facilities services	$	314,666	20	%	$	340,529	21	%
United States mechanical construction and facilities services	565,227		36	%	616,403		38	%
United States building services	427,564		27	%	457,777		29	%
United States industrial services	172,452		11	%	110,879		7	%
Total United States operations	1,479,909		94	%	1,525,588		95	%
United Kingdom building services	86,802		6	%	79,727		5	%
Total worldwide operations	$	1,566,711	100	%	$	1,605,315	100	%

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	For the nine months ended September 30,
	2014		% of Total		2013		% of Total
Revenues:
United States electrical construction and facilities services	$	958,295	20	%	$	984,443	21	%
United States mechanical construction and facilities services	1,616,794		34	%	1,741,483		37	%
United States building services	1,293,750		27	%	1,361,392		29	%
United States industrial services	581,642		12	%	335,358		7	%
Total United States operations	4,450,481		94	%	4,422,676		94	%
United Kingdom building services	259,688		6	%	261,572		6	%
Total worldwide operations	$	4,710,169	100	%	$	4,684,248	100	%

As described below in more detail, our revenues for the three months ended September 30, 2014 decreased to $1.57 billion compared to $1.61 billion of revenues for the three months ended September 30, 2013, and our revenues for the nine months ended September 30, 2014 increased to $4.71 billion compared to $4.68 billion for the nine months ended September 30, 2013. The decrease in revenues for the three months ended September 30, 2014 was primarily attributable to a decline in revenues from our: (a) United States mechanical construction and facilities services segment, (b) United States building services segment and (c) United States electrical construction and facilities services segment, partially offset by an increase in revenues due to: (a) revenues of $25.5 million attributable to companies acquired in 2013 and (b) higher revenues from our United States industrial services segment and our United Kingdom building services segment. The increase in revenues for the nine months ended September 30, 2014 was primarily attributable to revenues of $230.2 million attributable to companies acquired in 2013 and higher revenues from our United States industrial services segment. This increase was partially offset by lower revenues from the remainder of our reportable segments. We continue to be disciplined in a very competitive marketplace by only accepting work that we believe can be performed at reasonable margins.

Revenues of our United States electrical construction and facilities services segment were $314.7 million and $958.3 million for the three and nine months ended September 30, 2014, respectively, compared to revenues of $340.5 million and $984.4 million for the three and nine months ended September 30, 2013, respectively. The decrease in revenues for both periods was primarily attributable to a decrease in revenues from institutional, manufacturing and water and wastewater construction projects, primarily in the southern California and Washington D.C. markets. These decreases were partially offset by higher levels of work from transportation and healthcare projects. Additionally, the decrease for the nine months ended September 30, 2014 was partially offset by higher levels of work from commercial projects.

Our United States mechanical construction and facilities services segment revenues for the three months ended September 30, 2014 were $565.2 million, a $51.2 million decrease compared to revenues of $616.4 million for the three months ended September 30, 2013. Revenues of this segment for the nine months ended September 30, 2014 were $1,616.8 million, a $124.7 million decrease compared to revenues of $1,741.5 million for the nine months ended September 30, 2013. The decrease in revenues for the three and nine months ended September 30, 2014 was primarily attributable to declines in revenues from manufacturing and transportation construction projects, partially offset by: (a) an increase in revenues from commercial, water and wastewater and hospitality construction projects and (b) incremental revenues of $2.7 million and $18.2 million, respectively, generated by companies acquired in 2013. Revenues from institutional construction projects increased for the three months ended September 30, 2014 but decreased for the nine months ended September 30, 2014.

Revenues of our United States building services segment for the three months ended September 30, 2014 decreased by $30.2 million compared to the three months ended September 30, 2013, and revenues for the nine months ended September 30, 2014 decreased by $67.6 million compared to the nine months ended September 30, 2013. The decrease in revenues for both periods was primarily attributable to decreased revenues from: (a) our energy services operations, due to a reduction of large project work, and (b) our commercial site-based services operations, partially as a result of a large contract having been terminated by agreement of the parties.

Revenues of our United States industrial services segment for the three months ended September 30, 2014 increased by $61.6 million compared to the three months ended September 30, 2013, and revenues for the nine months ended September 30, 2014 increased by $246.3 million compared to the nine months ended September 30, 2013. For the one and seven months ended July 31, 2014, RSI generated incremental revenues of $22.8 million and $212.0 million, respectively. As previously discussed under "Impact of Acquisitions" above, these amounts represent RSI's revenues in the current reported periods only for the time period RSI was not owned by EMCOR in the comparable prior reported periods. The increase in revenues for the three and nine months ended September 30, 2014 was also attributable to an increased demand for our industrial field services operations. The

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increase in revenues for the nine months ended September 30, 2014 was partially offset by a decrease in revenues from our industrial shop services operations.

Our United Kingdom building services segment revenues were $86.8 million for the three months ended September 30, 2014 compared to revenues of $79.7 million for the three months ended September 30, 2013, and revenues were $259.7 million for the nine months ended September 30, 2014 compared to revenues of $261.6 million for the nine months ended September 30, 2013. The increase in revenues for the three months ended September 30, 2014 was due to increased activity in the commercial market and an increase of $6.1 million relating to the effect of favorable exchange rates for the British pound versus the United States dollar, partially offset by a decrease in activity in the institutional market. The decrease in revenues for the nine months ended September, 30, 2014 was due to decreased activity within the transportation and institutional markets, partially offset by increased activity within the healthcare market and an increase of $19.0 million relating to the effect of favorable exchange rates for the British pound versus the United States dollar.

Backlog

The following table presents our operating segment backlog from unrelated entities and their respective percentages of total backlog (in thousands, except for percentages):



	September 30, 2014		% of Total		December 31, 2013		% of Total		September 30, 2013		% of Total
Backlog:
United States electrical construction and facilities services	$	1,116,345	30	%	$	993,919	30	%	$	1,012,121	30	%
United States mechanical construction and facilities services	1,594,511		43	%	1,325,941		40	%	1,358,554		40	%
United States building services	742,461		20	%	761,855		23	%	753,877		22	%
United States industrial services	97,863		3	%	94,187		3	%	96,021		3	%
Total United States operations	3,551,180		96	%	3,175,902		95	%	3,220,573		96	%
United Kingdom building services	144,136		4	%	167,804		5	%	144,009		4	%
Total worldwide operations	$	3,695,316	100	%	$	3,343,706	100	%	$	3,364,582	100	%

Our backlog at September 30, 2014 was $3.70 billion compared to $3.34 billion at December 31, 2013 and $3.36 billion at September 30, 2013. The increase in backlog at September 30, 2014 compared to backlog at December 31, 2013 was primarily attributable to an increase in contracts awarded for work in our (a) United States mechanical construction and facilities services segment and (b) United States electrical construction and facilities services segment. Backlog increases with awards of new contracts and decreases as we perform work on existing contracts. Backlog is not a term recognized under United States generally accepted accounting principles; however, it is a common measurement used in our industry. We include a project within our backlog at such time as a contract is awarded. Backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of services contracts. However, we do not include in backlog contracts for which we are paid on a time and material basis and a fixed amount cannot be determined, and if the remaining term of a services contract exceeds 12 months, the unrecognized revenues attributable to such contract included in backlog are limited to only the next 12 months of revenues provided for in the contract award. Our backlog also includes amounts related to services contracts for which a fixed price contract value is not assigned when a reasonable estimate of total revenues can be made from budgeted amounts agreed to with our customer. Our backlog is 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 and (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 we consider recovery to be probable. Such claim amounts were immaterial for all periods presented. Our backlog does not include anticipated revenues from unconsolidated joint ventures or variable interest entities and anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis. We believe our backlog is firm, although many contracts are subject to cancellation at the election of our customers. Historically, cancellations have not had a material adverse effect on us.

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Cost of sales and Gross profit

The following table presents our cost of sales, gross profit (revenues less cost of sales) and gross profit margin (gross profit as a percentage of revenues) (in thousands, except for percentages):



	For the three months ended September 30,						For the nine months ended September 30,
	2014			2013			2014			2013
Cost of sales	$	1,344,482		$	1,398,753		$	4,051,496		$	4,099,473
Gross profit	$	222,229		$	206,562		$	658,673		$	584,775
Gross profit, as a percentage of revenues	14.2		%	12.9		%	14.0		%	12.5		%

Our gross profit increased by $15.7 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Gross profit increased by $73.9 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase in gross profit for the three months ended September 30, 2014 was attributable to improved profitability within all of our reportable segments, except for our United States building services segment and our United States electrical construction and facilities services segment. The increase in gross profit for the nine months ended September 30, 2014 was attributable to improved profitability within all of our reportable segments. Companies acquired in 2013 included in our United States industrial services segment and our United States mechanical construction and facilities services segment contributed an aggregate of $3.3 million and $35.6 million to gross profit for the three and nine months ended September 30, 2014, respectively.

Our gross profit margin was 14.2% and 12.9% for the three months ended September 30, 2014 and 2013, respectively. Gross profit margin was 14.0% and 12.5% for the nine months ended September 30, 2014 and 2013, respectively. Increases in gross profit margin for the three months ended September 30, 2014 within our domestic construction segments, our United States building services segment and our United States industrial services segment were partially offset by decreased gross profit margin with our United Kingdom building services segment. Increases in gross profit margin for the nine months ended September 30, 2014 within our domestic construction segments, our United States building services segment and our United Kingdom building segment were partially offset by decreased gross profit margin with our United States industrial services segment. Gross profit margin for the first nine months of 2013 was adversely impacted by two significant project write-downs reported in our United States mechanical construction and facilities services segment.

Selling, general and administrative expenses

The following table presents our selling, general and administrative expenses and selling, general and administrative expenses as a percentage of revenues (in thousands, except for percentages):



	For the three months ended September 30,						For the nine months ended September 30,
	2014			2013			2014			2013
Selling, general and administrative expenses	$	159,983		$	147,917		$	454,243		$	419,679
Selling, general and administrative expenses, as a percentage of revenues	10.2		%	9.2		%	9.6		%	9.0		%

Our selling, general and administrative expenses for the three months ended September 30, 2014 increased by $12.1 million to $160.0 million compared to $147.9 million for the three months ended September 30, 2013. Selling, general and administrative expenses for the nine months ended September 30, 2014 increased by $34.6 million to $454.2 million compared to $419.7 million for the nine months ended September 30, 2013. Selling, general and administrative expenses as a percentage of revenues were 10.2% and 9.6% for the three and nine months ended September 30, 2014, respectively, compared to 9.2% and 9.0% for the three and nine months ended September 30, 2013, respectively. This increase in selling, general and administrative expenses for the three and nine months ended September 30, 2014 primarily resulted from $3.7 million and $26.3 million of expenses directly related to companies acquired in 2013, including amortization expense of $1.2 million and $8.2 million attributable to identifiable intangible assets, respectively. The increase in selling, general and administrative expenses for the three months ended September 30, 2014 was also due to an increase in certain employee related costs such as employee benefits. Selling, general and administrative expenses for the three and nine months ended September 30, 2013 included $4.7 million and $6.1 million, respectively, of transaction costs associated with the acquisition of RSI. Selling, general and administrative expenses for the three and nine months ended September 30, 2013 were reduced by $3.1 million and $6.0 million, respectively, of income attributable to the reversal of contingent consideration accruals relating to acquisitions made prior to 2012.

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Restructuring expenses

Restructuring expenses were $0.4 million and $0.8 million for the three and nine months ended September 30, 2014, respectively. Restructuring expenses for the three months ended September 30, 2014 included $0.4 million of employee severance obligations. Restructuring expenses for the nine months ended September 30, 2014 included $0.6 million of employee severance obligations and $0.2 million relating to the termination of leased facilities. Restructuring expenses were $0.6 million and $0.7 million for the three and nine months ended September 30, 2013, respectively. Restructuring expenses for the three months ended September 30, 2013 included $0.5 million of employee severance obligations and $0.1 million relating to the termination of leased facilities. Restructuring expenses for the nine months ended September 30, 2013 included $0.6 million of employee severance obligations and $0.1 million relating to the termination of leased facilities. As of September 30, 2014, the balance of restructuring obligations yet to be paid was $0.2 million, the majority of which is expected to be paid in 2014. No material expenses in connection with restructuring from continuing operations are expected to be incurred during the remainder of 2014.

Gain on sale of building

Operating income

The following table presents our operating income (loss) and operating income (loss) as a percentage of segment revenues from unrelated entities (in thousands, except for percentages):



	For the three months ended September 30,
	2014			% of Segment Revenues		2013			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	20,666		6.6	%	$	23,971		7.0	%
United States mechanical construction and facilities services	30,206			5.3	%	27,421			4.4	%
United States building services	19,388			4.5	%	23,285			5.1	%
United States industrial services	7,385			4.3	%	308			0.3	%
Total United States operations	77,645			5.2	%	74,985			4.9	%
United Kingdom building services	3,082			3.6	%	3,192			4.0	%
Corporate administration	(18,481		)	—		(19,532		)	—
Restructuring expenses	(398		)	—		(601		)	—
Gain on sale of building	11,749			—		—			—
Total worldwide operations	73,597			4.7	%	58,044			3.6	%
Other corporate items:
Interest expense	(2,397		)			(2,351		)
Interest income	186					234
Income from continuing operations before income taxes	$	71,386				$	55,927

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	For the nine months ended September 30,
	2014			% of Segment Revenues		2013			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	67,162		7.0	%	$	68,147		6.9	%
United States mechanical construction and facilities services	78,052			4.8	%	56,809			3.3	%
United States building services	53,606			4.1	%	52,928			3.9	%
United States industrial services	43,155			7.4	%	26,320			7.8	%
Total United States operations	241,975			5.4	%	204,204			4.6	%
United Kingdom building services	12,647			4.9	%	11,845			4.5	%
Corporate administration	(50,192		)	—		(50,953		)	—
Restructuring expenses	(799		)	—		(652		)	—
Gain on sale of building	11,749			—		—			—
Total worldwide operations	215,380			4.6	%	164,444			3.5	%
Other corporate items:
Interest expense	(6,887		)			(5,978		)
Interest income	641					862
Income from continuing operations before income taxes	$	209,134				$	159,328

As described below in more detail, operating income was $73.6 million and $215.4 million for the three and nine months ended September 30, 2014, respectively, compared to $58.0 million and $164.4 million for the three and nine months ended September 30, 2013. Operating margin was 4.7% and 4.6% for the three and nine month periods ended September 30, 2014 compared to 3.6% and 3.5% for the three and nine months ended September 30, 2013, respectively. Included within operating income for both periods is an $11.7 million gain on the sale of a building, resulting in a 0.7% and 0.2% impact on our consolidated operating margin for the three and nine months ended September 30, 2014, respectively.

Operating income of our United States electrical construction and facilities services segment for the three and nine months ended September 30, 2014 was $20.7 million and $67.2 million, respectively, compared to operating income of $24.0 million and $68.1 million for the three and nine months ended September 30, 2013, respectively. The decrease in operating income for the three months ended September 30, 2014 was primarily due to a decrease in gross profit attributable to institutional and manufacturing construction projects, as well as in increase in selling, general and administrative expenses. The decrease in operating income for the nine months ended September 30, 2014 was primarily the result of a decrease in gross profit attributable to transportation and water and wastewater construction projects, as well an an increase in selling, general and administrative expenses, mainly attributable to employment costs. The decrease in operating margin for the three months ended September 30, 2014 was attributable to an increase in the ratio of selling, general and administrative expenses to revenues. The increase in operating margin for the nine months ended September 30, 2014 was primarily attributable to an increase in gross profit margin.

Our United States mechanical construction and facilities services segment operating income for the three months ended September 30, 2014 was $30.2 million, a $2.8 million increase compared to operating income of $27.4 million for the three months ended September 30, 2013. Operating income for the nine months ended September 30, 2014 was $78.1 million, a $21.2 million increase compared to operating income of $56.8 million for the nine months ended September 30, 2013. Operating income for both periods was favorably impacted by an increase in gross profit from commercial, water and wastewater, healthcare and hospitality construction projects, partially offset by a decrease in gross profit from institutional and transportation construction projects. The results for the nine months ended September 30, 2014 included the receipt of $3.0 million from former shareholders of a company we had acquired as a result of the settlement of a claim by us under the acquisition agreement; this payment has been recorded as a reduction of "Cost of sales" in the Condensed Consolidated Statements of Operations. The results for the three and nine months ended September 30, 2013 included losses of $4.2 million and $22.6 million, respectively, from one of our subsidiaries at two projects located in the southeastern United States, partially offset by $3.0 million and $5.9 million, respectively, of income attributable to the reversal of contingent consideration accruals related to prior acquisitions. For the three months ended September 30, 2014, a company acquired in 2013 incurred an operating loss of less than $0.1 million, predominantly from amortization expense attributable to identifiable intangible assets. Companies acquired in 2013 generated operating income of $0.9 million, net of amortization expense of $0.2 million attributable to identifiable intangible assets, for the nine months ended September 30, 2014. The increase in operating margin for both 2014 periods was attributable to an increase in gross profit margin.

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Operating income of our United States building services segment for the three months ended September 30, 2014 decreased by $3.9 million compared to operating income for the three months ended September 30, 2013, and its operating income for the nine months ended September 30, 2014 increased by $0.7 million compared to operating income for the nine months ended September 30, 2013. The decrease in operating income for the three months ended September 30, 2014 was primarily attributable to: (a) our energy services operations, due to a reduction of large project work and (b) our commercial site-based services operations, as a result of a large contract having been terminated by agreement of the parties. The increase in operating income for the nine months ended September 30, 2014 was primarily attributable to an increase in gross profit from this segment's: (a) mobile mechanical services operations, partially due to increased profitability in controls projects and repair services work, (b) government site-based services operations and (c) snow removal and other labor based services performed by certain of our commercial site-based services operations. The decrease in operating margin for the three months ended September 30, 2014 was attributable to an increase in the ratio of selling, general and administrative expenses to revenues. The increase in operating margin for the nine months ended September 30, 2014 was attributable to an increase in gross profit margin.

Operating income of our United States industrial services segment for the three months ended September 30, 2014 increased by $7.1 million compared to operating income for the three months ended September 30, 2013, and its operating income for the nine months ended September 30, 2014 increased by $16.8 million compared to the nine months ended September 30, 2013. For the one month ended July 31, 2014, RSI incurred an operating loss of $0.3 million, including the effect of $1.1 million of amortization expense attributable to identifiable intangible assets. For the seven months ended July 31, 2014, RSI contributed $8.4 million of operating income, net of $8.0 million of amortization expense attributable to identifiable intangible assets. As previously discussed under "Impact of Acquisitions" above, these amounts represent RSI's operating results in the current reported periods only for the time period RSI was not owned by EMCOR in the comparable prior reported periods. Operating income for both periods also benefited from an increase in demand for this segment’s industrial field services. The increase in operating income for the nine months ended September 30, 2014 was partially offset by a reduction in operating income from our industrial shop services operations, which had benefited from exceptionally strong demand during the first quarter of 2013. The increase in operating margin for the three months ended September 30, 2014 was attributable to a decrease in the ratio of selling, general and administrative expenses to revenues, as well as an increase in gross profit margin. The decrease in operating margin for the nine months ended September 30, 2014 was attributable to a decrease in gross profit margin.

Our United Kingdom building services segment operating income was $3.1 million and $12.6 million for the three and nine months ended September 30, 2014, respectively, compared to operating income of $3.2 million and $11.8 million for the three and nine months ended September 30, 2013, respectively. For the three months ended September 30, 2014, a decrease in selling, general and administrative expenses was offset by a decrease in income recognized from the transportation market. For the nine months ended September 30, 2014, this segment recognized income of $4.8 million, which has been recorded as a reduction of "Cost of sales" in the Condensed Consolidated Statements of Operations, as a result of a reduction in the estimate of certain accrued contract costs that were no longer expected to be incurred, which was partially offset by a decrease in income from the commercial market. The decrease in operating margin for the three months ended September 30, 2014 was attributable to a decrease in gross profit margins. The increase in operating margin for the nine months ended September 30, 2014 was attributable to an increase in gross profit margins.

Our corporate administration operating loss for the three months ended September 30, 2014 was $18.5 million compared to $19.5 million for the three months ended September 30, 2013. Our corporate administration loss for the nine months ended September 30, 2014 was $50.2 million compared to $51.0 million for the nine months ended September 30, 2013. Our corporate administration operating loss for the three and nine months ended September 30, 2013 included $4.7 million and $6.1 million, respectively, of transaction costs associated with the acquisition of RSI. The benefit of the absence of these transaction costs for both periods was partially offset by an increase in certain employment costs, such as employee benefits and incentive compensation, as a result of anticipated operating results. Also, our corporate administration operating loss for the nine months ended September 30, 2013 was reduced by the receipt of an insurance recovery of approximately $2.6 million that was received in January 2013 associated with a previously disposed of operation, which is classified as a component of "Cost of sales" in the Condensed Consolidated Statements of Operations.

Interest expense for each of the three months ended September 30, 2014 and 2013 was $2.4 million. Interest expense for the nine months ended September 30, 2014 and 2013 was $6.9 million and $6.0 million, respectively. The increase in interest expense for the nine months ended September 30, 2014 periods was primarily due to increased borrowings. Interest income for each of the three months ended September 30, 2014 and 2013 was $0.2 million. Interest income for the nine months ended September 30, 2014 and 2013 was $0.6 million and $0.9 million, respectively.

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of discrete items, were 34.5% and 44.7%, respectively. For the nine months ended September 30, 2014 and 2013, our income tax provision on income from continuing operations was $75.4 million and $60.6 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.6% and 37.5%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the nine months ended September 30, 2014 and 2013, inclusive of discrete items, were 36.6% and 38.8%, respectively. The increase in the 2014 income tax provision was primarily due to increased income before income taxes. The decrease in the actual income tax rates on income from continuing operations was primarily due to a change in the mix of earnings among various jurisdictions and the quarterly variance in discrete items.

Discontinued operations

Liquidity and Capital Resources

The following table presents our net cash used in operating activities, investing activities and financing activities (in thousands):



	For the nine months ended September 30,
	2014			2013
Net cash provided by operating activities	$	108,994		$	68,047
Net cash used in investing activities	$	(13,308	)	$	(467,162	)
Net cash (used in) provided by financing activities	$	(97,474	)	$	238,599
Effect of exchange rate changes on cash and cash equivalents	$	(579	)	$	(750	)

Our consolidated cash balance decreased by approximately $2.4 million from $439.8 million at December 31, 2013 to $437.4 million at September 30, 2014. Net cash provided by operating activities for the nine months ended September 30, 2014 was $109.0 million compared to $68.0 million of net cash provided by operating activities for the nine months ended September 30, 2013. The increase in cash provided by operating activities was primarily due to: (a) a $53.9 million decrease in our accounts receivable balances and (b) a $25.2 million reduction in income taxes paid, partially offset by a $63.3 million decrease in accounts payable. Net cash used in investing activities was $13.3 million for the nine months ended September 30, 2014 compared to net cash used in investing activities of $467.2 million for the nine months ended September 30, 2013. The decrease in cash used in investing activities was primarily due to the reduction in payments for acquisitions of businesses. Net cash used in financing activities for the nine months ended September 30, 2014 increased by approximately $336.1 million compared to the nine months ended September 30, 2013. The increase in net cash used in financing activities was primarily due to an increase in funds used for the repurchase of common stock, repayment of long-term debt, and payment of regular quarterly dividends to stockholders, partially offset by an increase in proceeds from the exercise of stock options. Cash flows from discontinued operations were immaterial and are not expected to significantly affect future liquidity.

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The following is a summary of material contractual obligations and other commercial commitments (in millions):



			Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Term Loan (including interest currently at 1.40%)⁽¹⁾	$	354.8	$	22.2	$	43.7	$	288.9	$	—
Capital lease obligations	3.6		1.7		1.7		0.2		—
Operating leases