Edgar Filing: EMCOR GROUP INC

Document

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 June 30, 2016



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 July 25, 2016: 60,799,915 shares.

Table of Contents

EMCOR Group, Inc.

INDEX



		Page No.
PART I. - Financial Information.
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets - as of June 30, 2016 and December 31, 2015	1
	Condensed Consolidated Statements of Operations - three and six months ended June 30, 2016 and 2015	2
	Condensed Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows - six months ended June 30, 2016 and 2015	4
	Condensed Consolidated Statements of Equity - six months ended June 30, 2016 and 2015	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.	30
Item 4.	Controls and Procedures.	31
PART II. - Other Information.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 6.	Exhibits.	31

Table of Contents

PART I. – FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS.

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	June 30, 2016 (Unaudited)			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	443,019		$	486,831
Accounts receivable, net	1,448,323			1,359,862
Costs and estimated earnings in excess of billings on uncompleted contracts	139,906			117,734
Inventories	41,946			37,545
Prepaid expenses and other	68,714			64,140
Total current assets	2,141,908			2,066,112
Investments, notes and other long-term receivables	7,668			8,359
Property, plant and equipment, net	128,376			122,018
Goodwill	979,339			843,170
Identifiable intangible assets, net	510,723			472,834
Other assets	32,352			30,164
Total assets	$	3,800,366		$	3,542,657
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations	$	17,354		$	17,541
Accounts payable	450,646			488,251
Billings in excess of costs and estimated earnings on uncompleted contracts	465,135			429,235
Accrued payroll and benefits	268,710			268,033
Other accrued expenses and liabilities	190,816			209,361
Total current liabilities	1,392,661			1,412,421
Borrowings under revolving credit facility	220,000			—
Long-term debt and capital lease obligations	289,841			297,559
Other long-term obligations	361,365			352,621
Total liabilities	2,263,867			2,062,601
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, 61,448,855 and 61,727,709 shares issued, respectively	614			617
Capital surplus	107,849			130,369
Accumulated other comprehensive loss	(76,801		)	(76,953		)
Retained earnings	1,513,863			1,432,980
Treasury stock, at cost 659,841 shares	(10,302		)	(10,302		)
Total EMCOR Group, Inc. stockholders’ equity	1,535,223			1,476,711
Noncontrolling interests	1,276			3,345
Total equity	1,536,499			1,480,056
Total liabilities and equity	$	3,800,366		$	3,542,657

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Revenues	$	1,933,416		$	1,652,585		$	3,678,386		$	3,241,772
Cost of sales	1,658,675			1,413,058			3,180,537			2,785,316
Gross profit	274,741			239,527			497,849			456,456
Selling, general and administrative expenses	181,811			161,391			349,213			322,982
Restructuring expenses	641			433			732			441
Operating income	92,289			77,703			147,904			133,033
Interest expense	(3,118		)	(2,208		)	(5,494		)	(4,424		)
Interest income	192			182			357			358
Income from continuing operations before income taxes	89,363			75,677			142,767			128,967
Income tax provision	32,911			28,727			51,880			48,952
Income from continuing operations	56,452			46,950			90,887			80,015
Loss from discontinued operation, net of income taxes	(1,097		)	(114		)	(1,178		)	(469		)
Net income including noncontrolling interests	55,355			46,836			89,709			79,546
Less: Net loss attributable to noncontrolling interests	25			13			19			152
Net income attributable to EMCOR Group, Inc.	$	55,380		$	46,849		$	89,728		$	79,698
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.93		$	0.75		$	1.49		$	1.27
From discontinued operation	(0.02		)	(0.00		)	(0.02		)	(0.01		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.91		$	0.75		$	1.47		$	1.26
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.92		$	0.74		$	1.48		$	1.26
From discontinued operation	(0.02		)	(0.00		)	(0.02		)	(0.01		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.90		$	0.74		$	1.46		$	1.25

Dividends declared per common share	$	0.08		$	0.08		$	0.16		$	0.16

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Net income including noncontrolling interests	$	55,355		$	46,836		$	89,709		$	79,546
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(754		)	(369		)	(801		)	(188		)
Post retirement plans, amortization of actuarial loss included in net income ⁽¹⁾	476			550			953			1,092
Other comprehensive (loss) income	(278		)	181			152			904
Comprehensive income	55,077			47,017			89,861			80,450
Less: Comprehensive loss attributable to noncontrolling interests	25			13			19			152
Comprehensive income attributable to EMCOR Group, Inc.	$	55,102		$	47,030		$	89,880		$	80,602

_________


(1)	Net of tax of $0.1 million and $0.2 million for the three months ended June 30, 2016 and 2015, respectively, and net of tax of $0.3 million and $0.3 million for the six months ended June 30, 2016 and 2015, respectively.

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)(Unaudited)



	Six months ended June 30,
	2016			2015
Cash flows - operating activities:
Net income including noncontrolling interests	$	89,709		$	79,546
Depreciation and amortization	19,265			17,942
Amortization of identifiable intangible assets	20,011			18,951
Provision for doubtful accounts	4,478			477
Deferred income taxes	1,734			1,406
Excess tax benefits from share-based compensation	(1,818		)	(1,038		)
Equity income from unconsolidated entities	(160		)	(1,034		)
Other non-cash items	5,565			5,237
Distributions from unconsolidated entities	863			3,316
Changes in operating assets and liabilities, excluding the effect of businesses acquired	(91,862		)	(130,869		)
Net cash provided by (used in) operating activities	47,785			(6,066		)
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired	(232,283		)	(1,176		)
Proceeds from sale of property, plant and equipment	909			2,569
Purchase of property, plant and equipment	(18,950		)	(15,793		)
Net cash used in investing activities	(250,324		)	(14,400		)
Cash flows - financing activities:
Proceeds from revolving credit facility	220,000			—
Repayments of long-term debt	(8,756		)	(8,758		)
Repayments of capital lease obligations	(816		)	(1,330		)
Dividends paid to stockholders	(9,734		)	(10,054		)
Repurchase of common stock	(34,074		)	(21,148		)
Proceeds from exercise of stock options	144			1,368
Payments to satisfy minimum tax withholding	(4,111		)	(3,790		)
Issuance of common stock under employee stock purchase plan	2,383			2,051
Payments for contingent consideration arrangements	—			(403		)
Distributions to noncontrolling interests	(2,050		)	(9,750		)
Excess tax benefits from share-based compensation	—			1,038
Net cash provided by (used in) financing activities	162,986			(50,776		)
Effect of exchange rate changes on cash and cash equivalents	(4,259		)	35
Decrease in cash and cash equivalents	(43,812		)	(71,207		)
Cash and cash equivalents at beginning of year	486,831			432,056
Cash and cash equivalents at end of period	$	443,019		$	360,849
Supplemental cash flow information:
Cash paid for:
Interest	$	4,662		$	3,682
Income taxes	$	69,555		$	47,899
Non-cash financing activities:
Assets acquired under capital lease obligations	$	1,402		$	950

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)(Unaudited)



				EMCOR Group, Inc. Stockholders
	Total			Common stock			Capital surplus			Accumulated other comprehensive (loss) income ⁽¹⁾			Retained earnings			Treasury stock			Noncontrolling interests
Balance, December 31, 2014	$	1,429,387		$	636		$	227,885		$	(83,197	)	$	1,280,991		$	(10,302	)	$	13,374
Net income including noncontrolling interests	79,546			—			—			—			79,698			—			(152		)
Other comprehensive income	904			—			—			904			—			—			—
Common stock issued under share-based compensation plans ⁽²⁾	2,340			3			2,337			—			—			—			—
Tax withholding for common stock issued under share-based compensation plans	(3,790		)	—			(3,790		)	—			—			—			—
Common stock issued under employee stock purchase plan	2,051			—			2,051			—			—			—			—
Common stock dividends	(10,054		)	—			111			—			(10,165		)	—			—
Repurchase of common stock	(21,148		)	(5		)	(21,143		)	—			—			—			—
Distributions to noncontrolling interests	(9,750		)	—			—			—			—			—			(9,750		)
Share-based compensation expense	4,801			—			4,801			—			—			—			—
Balance, June 30, 2015	$	1,474,287		$	634		$	212,252		$	(82,293	)	$	1,350,524		$	(10,302	)	$	3,472
Balance, December 31, 2015	$	1,480,056		$	617		$	130,369		$	(76,953	)	$	1,432,980		$	(10,302	)	$	3,345
Net income including noncontrolling interests	89,709			—			—			—			89,728			—			(19		)
Other comprehensive income	152			—			—			152			—			—			—
Common stock issued under share-based compensation plans ⁽³⁾	1,135			3			141			—			991			—			—
Tax withholding for common stock issued under share-based compensation plans	(4,111		)	—			(4,111		)	—			—			—			—
Common stock issued under employee stock purchase plan	2,383			—			2,383			—			—			—			—
Common stock dividends	(9,734		)	—			102			—			(9,836		)	—			—
Repurchase of common stock	(26,076		)	(6		)	(26,070		)	—			—			—			—
Distributions to noncontrolling interests	(2,050		)	—			—			—			—			—			(2,050		)
Share-based compensation expense	5,035			—			5,035			—			—			—			—
Balance, June 30, 2016	$	1,536,499		$	614		$	107,849		$	(76,801	)	$	1,513,863		$	(10,302	)	$	1,276


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


(2)	Includes the tax benefit associated with share-based compensation of $1.0 million for the six months ended June 30, 2015.


(3)	Includes a $1.0 million adjustment to retained earnings to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation upon the adoption of Accounting Standards Update No. 2016-09.

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. References to the “Company,” “EMCOR,” “we,” “us,” “our” and similar words refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of a normal recurring nature) necessary to present fairly our financial position and the results of our operations. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016.

NOTE 2 New Accounting Pronouncements

In March 2016, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board ("FASB") to update guidance on how companies account for certain aspects of share-based payments to employees. This pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and changes the presentation of excess tax benefits on the statement of cash flows. We adopted these provisions on a prospective basis. In addition, this pronouncement changes guidance on: (a) accounting for forfeitures of share-based awards and (b) employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation. As a result of the adoption, we recorded an adjustment to retained earnings of $1.0 million to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid in capital. The adoption of this pronouncement did not have a material impact on our financial position and/or results of operations.

In February 2016, an accounting pronouncement was issued by the FASB to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized in a manner similar to current accounting guidance. This pronouncement is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The adoption is required to be applied on a modified retrospective basis for each prior reporting period presented. We have not yet determined the effect that the adoption of this pronouncement may have on our financial position and/or results of operations.

On January 1, 2016, we adopted the accounting pronouncement issued by the FASB which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The adoption of this pronouncement did not have a material impact on our financial position and/or results of operations.

On January 1, 2016, we adopted the accounting pronouncement issued by the FASB to update the guidance related to the presentation of debt issuance costs. This guidance requires debt issuance costs, related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. We adopted this pronouncement on a retrospective basis, and the adoption did not have a material impact on our financial position and/or results of operations.

In November 2015, an accounting pronouncement was issued by the FASB to simplify the presentation of deferred income taxes within the balance sheet. This pronouncement eliminates the requirement that deferred tax assets and liabilities are presented as current or noncurrent based on the nature of the underlying assets and liabilities. Instead, the pronouncement requires all deferred tax assets and liabilities, including valuation allowances, be classified as noncurrent. This pronouncement is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We intend to adopt this pronouncement on January 1, 2017, and the adoption will not have a material impact on our financial position and/or results of operations.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 2 New Accounting Pronouncements - (Continued)

In May 2014, an accounting pronouncement was issued by the 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, 2017, with 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 April 15, 2016, we completed the acquisition of Ardent Services, L.L.C. and Rabalais Constructors, LLC (collectively, “Ardent”). This acquisition has been included in our United States electrical construction and facilities services segment. Ardent provides electrical and instrumentation services to the energy infrastructure market in North America, and this acquisition further strengthens our position in electrical construction and services and broadens our capabilities across the industrial and energy sectors, especially in the Gulf Coast, Midwest and Western regions of the United States. Under the terms of the transaction, we acquired 100% of Ardent’s equity interests for total consideration of $201.4 million. In connection with the acquisition of Ardent, we acquired working capital of $36.5 million and other net assets of $3.9 million and have preliminarily ascribed $119.5 million to goodwill and $41.5 million to identifiable intangible assets. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits expected from this strategic acquisition. We expect that $99.7 million of the acquired goodwill will be deductible for tax purposes. The weighted average amortization period for the identifiable intangible assets is approximately 13.5 years.

On April 1, 2016, we acquired a company for an immaterial amount. This company provides mobile mechanical services within the Southeastern region of the United States, and its results have been included in our United States building services segment.

On June 1, 2015, we acquired a company for an immaterial amount. This company primarily provides mechanical construction services, and its results have been included in our United States mechanical construction and facilities services segment.

The purchase price allocations for the businesses acquired in 2016 are still preliminary and subject to change during their respective measurement periods. 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 value of their assets and liabilities at the dates of their respective acquisitions.

NOTE 4 Disposition of Assets

Due to a historical pattern of losses in the construction operations of our United Kingdom segment and our negative assessment of construction market conditions in the United Kingdom for the foreseeable future, we 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 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 June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Revenues	$	5		$	84		$	68		$	360
Loss from discontinued operation, net of income taxes	$	(1,097	)	$	(114	)	$	(1,178	)	$	(469	)
Diluted loss per share from discontinued operation	$	(0.02	)	$	(0.00	)	$	(0.02	)	$	(0.01	)

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 Disposition of Assets - (Continued)

Included in the Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015 are the following major classes of assets and liabilities associated with the discontinued operation (in thousands):



	June 30, 2016		December 31, 2015
Assets of discontinued operation:
Current assets	$	2,033	$	2,525

Liabilities of discontinued operation:
Current liabilities	$	3,690	$	4,407

At June 30, 2016, the assets and liabilities of the discontinued operation consisted 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 June 30, 2016, there remained $0.2 million of obligations related to employee severance and the termination of leased facilities, which are expected to be paid in 2016. The settlement of the remaining assets and liabilities may result in additional income and/or expenses. Such income and/or expenses are expected to be immaterial and will be reflected as discontinued operations as incurred.

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 six months ended June 30, 2016 and 2015 (in thousands, except share and per share data):



	For the three months ended June 30,
	2016			2015
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	56,477		$	46,963
Loss from discontinued operation, net of income taxes	(1,097		)	(114		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	55,380		$	46,849
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	60,808,502			62,809,699
Effect of dilutive securities—Share-based awards	395,719			520,554
Shares used to compute diluted earnings (loss) per common share	61,204,221			63,330,253
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.93		$	0.75
From discontinued operation	$	(0.02	)	$	(0.00	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.91		$	0.75
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	0.92		$	0.74
From discontinued operation	$	(0.02	)	$	(0.00	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	0.90		$	0.74

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5 Earnings Per Share - (Continued)



	For the six months ended June 30,
	2016			2015
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	90,906		$	80,167
Loss from discontinued operation, net of income taxes	(1,178		)	(469		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	89,728		$	79,698
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	60,854,781			62,932,295
Effect of dilutive securities—Share-based awards	421,497			536,327
Shares used to compute diluted earnings (loss) per common share	61,276,278			63,468,622
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.49		$	1.27
From discontinued operation	$	(0.02	)	$	(0.01	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.47		$	1.26
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.48		$	1.26
From discontinued operation	$	(0.02	)	$	(0.01	)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.46		$	1.25

There were no anti-dilutive restricted stock units for the three and six months ended June 30, 2016. The number of outstanding restricted stock units that were excluded from the computation of diluted EPS for the three and six months ended June 30, 2015 because they would be anti-dilutive were zero and 35,625, respectively.

NOTE 6 Inventories

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



	June 30, 2016		December 31, 2015
Raw materials and construction materials	$	22,360	$	23,239
Work in process	19,586		14,306
	$	41,946	$	37,545

NOTE 7 Debt

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



	June 30, 2016			December 31, 2015
Revolving credit facility	$	220,000		$	—
Term loan	306,250			315,000
Unamortized debt issuance costs	(3,159		)	(3,813		)
Capitalized lease obligations	4,066			3,869
Other	38			44
	527,195			315,100
Less: current maturities	17,354			17,541
	$	509,841		$	297,559

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 7 Debt - (Continued)

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 capacity under the 2013 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries. Obligations under the 2013 Credit Agreement are 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 Credit Agreement contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. We were in compliance with all such covenants as of June 30, 2016 and December 31, 2015. 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 was 0.20% of the unused amount as of June 30, 2016. 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 (3.50% at June 30, 2016) plus 0.25% to 0.75%, based on certain financial tests or (2) United States dollar LIBOR (0.47% at June 30, 2016) plus 1.25% to 1.75%, based on certain financial tests. The interest rate in effect at June 30, 2016 was 1.72%. 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 June 30, 2016 and December 31, 2015, the balance of the Term Loan was $306.3 million and $315.0 million, respectively. As of June 30, 2016 and December 31, 2015, we had approximately $109.6 million and $99.0 million of letters of credit outstanding, respectively. We had borrowings of $220.0 million outstanding under the 2013 Revolving Credit Facility as of June 30, 2016. There were no borrowings outstanding under the 2013 Revolving Credit Facility as of December 31, 2015.

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 June 30, 2016 and December 31, 2015 (in thousands):



	Assets at Fair Value as of June 30, 2016
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents ⁽¹⁾	$	443,019	$	—	$	—	$	443,019
Restricted cash ⁽²⁾	3,319		—		—		3,319
Deferred compensation plan assets ⁽³⁾	11,368		—		—		11,368
Total	$	457,706	$	—	$	—	$	457,706

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8 Fair Value Measurements - (Continued)



	Assets at Fair Value as of December 31, 2015
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents ⁽¹⁾	$	486,831	$	—	$	—	$	486,831
Restricted cash ⁽²⁾	4,232		—		—		4,232
Deferred compensation plan assets ⁽³⁾	7,497		—		—		7,497
Total	$	498,560	$	—	$	—	$	498,560

________


(1)	Cash and cash equivalents include money market funds with original maturity dates of three months or less, which are Level 1 assets. At June 30, 2016 and December 31, 2015, we had $155.4 million and $151.4 million, respectively, in money market funds.


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


(3)	Deferred compensation plan assets are classified as "Other assets" 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 June 30, 2016 and 2015, our income tax provision from continuing operations was $32.9 million and $28.7 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.5% and 37.8%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the three months ended June 30, 2016 and 2015, inclusive of discrete items, were 36.8% and 38.0%, respectively. For the six months ended June 30, 2016 and 2015, our income tax provision from continuing operations was $51.9 million and $49.0 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.6% and 37.8%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the six months ended June 30, 2016 and 2015, inclusive of discrete items, were 36.3% and 37.9%, respectively. The increase in the 2016 income tax provision was primarily due to increased income from continuing operations. The decreases in the 2016 actual income tax rates on income from continuing operations were primarily due to $1.8 million of tax benefits recognized upon the issuance of common stock under share-based compensation plans.

As of June 30, 2016 and December 31, 2015, the amount of unrecognized income tax benefits for each period was $4.8 million (of which $3.0 million, if recognized, would favorably affect our effective income tax rate).

We report interest expense related to unrecognized income tax benefits in the income tax provision. As of June 30, 2016 and December 31, 2015, we had approximately $0.5 million and $0.4 million of accrued interest related to unrecognized income tax benefits included as a liability in the Condensed Consolidated Balance Sheets, respectively. For each of the three months ended June 30, 2016 and 2015, less than $0.1 million of interest expense was recognized. For each of the six months ended June 30, 2016 and 2015, less than $0.1 million of interest expense was recognized.

It is reasonably possible that approximately $4.1 million of unrecognized income tax benefits at June 30, 2016, primarily relating to uncertain tax positions attributable to tax return filing positions, will significantly decrease in the next twelve months as a result of estimated settlements with taxing authorities and 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 2014.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 10 Common Stock

As of June 30, 2016 and December 31, 2015, there were 60,789,014 and 61,067,868 shares of our common stock outstanding, respectively.

During the three months ended June 30, 2016 and 2015, 107,939 and 102,562 shares of common stock, respectively, were issued primarily upon: (a) the satisfaction of required conditions under certain of our share-based compensation plans, (b) the exercise of stock options and (c) the purchase of common stock pursuant to our employee stock purchase plan. During the six months ended June 30, 2016 and 2015, 306,066 and 281,490 shares of common stock, respectively, were issued primarily upon: (a) the satisfaction of required conditions under certain of our share-based compensation plans, (b) the exercise of stock options and (c) the purchase of common stock pursuant to our employee stock purchase plan.

On September 26, 2011, our Board of Directors authorized us to repurchase up to $100.0 million of our outstanding common stock. On December 5, 2013, October 23, 2014 and October 28, 2015, our Board of Directors authorized us to repurchase up to an additional $100.0 million, $250.0 million and $200.0 million of our outstanding common stock, respectively. During 2016, we have repurchased approximately 0.6 million shares of our common stock for approximately $26.1 million. Since the inception of the repurchase programs through June 30, 2016, we have repurchased 10.5 million shares of our common stock for approximately $421.9 million. As of June 30, 2016, there remained authorization for us to repurchase approximately $228.1 million of our shares. 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. We may repurchase our shares 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 UK Plan. On May 31, 2010, we curtailed the future accrual of benefits for active employees under such plan.

Components of Net Periodic Pension Cost

The components of net periodic pension cost of the UK Plan for the three and six months ended June 30, 2016 and 2015 were as follows (in thousands):



	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Interest cost	$	2,696		$	2,915		$	5,381		$	5,780
Expected return on plan assets	(3,717		)	(4,066		)	(7,418		)	(8,061		)
Amortization of unrecognized loss	535			636			1,067			1,259
Net periodic pension cost	$	(486	)	$	(515	)	$	(970	)	$	(1,022	)

Employer Contributions

For the six months ended June 30, 2016, our United Kingdom subsidiary contributed approximately $2.4 million to the UK Plan and anticipates contributing an additional $2.5 million during the remainder of 2016.

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.

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12 Commitments and Contingencies - (Continued)

Legal Matters

One of our subsidiaries was a subcontractor to a mechanical contractor (“Mechanical Contractor”) on a construction project where an explosion occurred in 2010. 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) personal injury suffered by individuals as a result of the explosion and (b) 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 stated claims against our subsidiary for alleged violations of the Connecticut and Massachusetts Unfair and Deceptive Trade Practices Acts in the ongoing arbitration proceeding. Further, the general contractor (as assignee of the Mechanical Contractor) on the construction project, and for whom the Mechanical Contractor worked, has alleged that our subsidiary is responsible for losses asserted by the owner of the project and/or the general contractor because of delays in completion of the project and for damages to the owner’s property. 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.

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 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, primarily relating to employee severance obligations, were $0.6 million and $0.7 million for the three and six months ended June 30, 2016, respectively, and $0.4 million for the three and six months ended June 30, 2015. As of June 30, 2016, the balance of these restructuring obligations yet to be paid was $0.3 million, the majority of which is expected to be paid during 2016. No material expenses in connection with restructuring from continuing operations are expected to be incurred during the remainder of 2016.

The changes in restructuring activity by reportable segments during the six months ended June 30, 2016 and 2015 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			Total
Balance at December 31, 2014	$	255		$	26		$	—		$	281
Charges	(106		)	6			541			441
Payments	(149		)	(32		)	—			(181		)
Balance at June 30, 2015	$	—		$	—		$	541		$	541
Balance at December 31, 2015	$	—		$	—		$	81		$	81
Charges	—			198			534			732
Payments	—			(52		)	(434		)	(486		)
Balance at June 30, 2016	$	—		$	146		$	181		$	327

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information

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; 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 our customers’ facilities, including commercial and government site-based operations and maintenance; facility maintenance and services, including reception, security and catering 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; and small modification and retrofit projects, 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 six months ended June 30, 2016 and 2015 (in thousands):



	For the three months ended June 30,
	2016			2015
Revenues from unrelated entities:
United States electrical construction and facilities services	$	420,632		$	346,202
United States mechanical construction and facilities services	629,895			554,003
United States building services	458,797			435,627
United States industrial services	333,508			225,168
Total United States operations	1,842,832			1,561,000
United Kingdom building services	90,584			91,585
Total worldwide operations	$	1,933,416		$	1,652,585

Total revenues:
United States electrical construction and facilities services	$	430,101		$	347,448
United States mechanical construction and facilities services	633,118			557,815
United States building services	472,110			448,990
United States industrial services	333,752			225,575
Less intersegment revenues	(26,249		)	(18,828		)
Total United States operations	1,842,832			1,561,000
United Kingdom building services	90,584			91,585
Total worldwide operations	$	1,933,416		$	1,652,585

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	For the six months ended June 30,
	2016			2015
Revenues from unrelated entities:
United States electrical construction and facilities services	$	768,921		$	665,196
United States mechanical construction and facilities services	1,241,785			1,065,029
United States building services	898,448			875,119
United States industrial services	591,012			457,893
Total United States operations	3,500,166			3,063,237
United Kingdom building services	178,220			178,535
Total worldwide operations	$	3,678,386		$	3,241,772

Total revenues:
United States electrical construction and facilities services	$	784,205		$	667,686
United States mechanical construction and facilities services	1,248,350			1,071,182
United States building services	924,445			898,718
United States industrial services	591,622			458,891
Less intersegment revenues	(48,456		)	(33,240		)
Total United States operations	3,500,166			3,063,237
United Kingdom building services	178,220			178,535
Total worldwide operations	$	3,678,386		$	3,241,772



	For the three months ended June 30,
	2016			2015
Operating income (loss):
United States electrical construction and facilities services	$	23,011		$	25,277
United States mechanical construction and facilities services	38,180			32,364
United States building services	18,291			17,939
United States industrial services	33,148			17,415
Total United States operations	112,630			92,995
United Kingdom building services	3,258			2,834
Corporate administration	(22,958		)	(17,693		)
Restructuring expenses	(641		)	(433		)
Total worldwide operations	92,289			77,703
Other corporate items:
Interest expense	(3,118		)	(2,208		)
Interest income	192			182
Income from continuing operations before income taxes	$	89,363		$	75,677

Table of Contents

EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	For the six months ended June 30,
	2016			2015
Operating income (loss):
United States electrical construction and facilities services	$	39,718		$	41,951
United States mechanical construction and facilities services	62,057			53,265
United States building services	32,193			38,917
United States industrial services	52,014			30,248
Total United States operations	185,982			164,381
United Kingdom building services	6,569			5,212
Corporate administration	(43,915		)	(36,119		)
Restructuring expenses	(732		)	(441		)
Total worldwide operations	147,904			133,033
Other corporate items:
Interest expense	(5,494		)	(4,424		)
Interest income	357			358
Income from continuing operations before income taxes	$	142,767		$	128,967



	June 30, 2016		December 31, 2015
Total assets:
United States electrical construction and facilities services	$	597,231	$	372,525
United States mechanical construction and facilities services	876,681		894,366
United States building services	795,623		721,653
United States industrial services	927,469		883,338
Total United States operations	3,197,004		2,871,882
United Kingdom building services	115,448		133,782
Corporate administration	487,914		536,993
Total worldwide operations	$	3,800,366	$	3,542,657

Table of Contents



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.

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. The amounts discussed reflect the 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.

Overview

The following table presents selected financial data for the three months ended June 30, 2016 and 2015 (in thousands, except percentages and per share data):



	For the three months ended June 30,
	2016			2015
Revenues	$	1,933,416		$	1,652,585
Revenues increase from prior year	17.0		%	6.4		%
Restructuring expenses	$	641		$	433
Operating income	$	92,289		$	77,703
Operating income as a percentage of revenues	4.8		%	4.7		%
Net income attributable to EMCOR Group, Inc.	$	55,380		$	46,849
Diluted earnings per common share from continuing operations	$	0.92		$	0.74

The results of our operations for the 2016 second quarter set new company records in terms of revenues, operating income, net income attributable to EMCOR Group, Inc. and diluted earnings per common share from continuing operations for a second quarter. Revenues increased within all of our reportable segments, except for our United Kingdom building services segment. The increase in revenues was attributable to: (a) our domestic construction segments, due to increased activity within the majority of our market sectors, (b) our United States industrial services segment, due to increased demand for specialty services offerings within our field services operations, and (c) our United States building services segment, due to higher volume within its mobile mechanical services, energy services and site-based commercial services operations. The decrease in revenues from our United Kingdom building services segment was due to the effect of unfavorable exchange rates for the British pound versus the United States dollar.

Operating income increased within all of our reportable segments, except for our United States electrical construction and facilities services segment. Our operating income was favorably impacted by: (a) our United States industrial services segment, as a result of large project activity within our field services operations, (b) our United States mechanical construction and facilities services segment, resulting from: (i) increased revenues due to higher levels of work within nearly all of our market sectors and (ii) the favorable settlement of a claim by us against the former shareholder of a company we had previously acquired, and (c) our United Kingdom building services segment, as a result of improved performance within its commercial market sector. The decrease in operating income within our United States electrical construction and facilities services segment was primarily due to the impact of a $10.5 million loss incurred on a transportation project in the Northeastern United States, as a result of productivity issues attributable to unfavorable job-site conditions for which we will seek recovery. Corporate administration operating loss increased as a result of: (a) $2.8 million of transaction costs associated with the acquisition of Ardent Services, L.L.C. and Rabalais

Table of Contents

Constructors, LLC (collectively, “Ardent”) in April 2016 and (b) an increase in employment costs, such as incentive compensation, partially due to higher projected annual operating results than in the same prior year period.

Our operating margin (operating income as a percentage of revenues) for the three months ended June 30, 2016 was 4.8% compared to operating margin of 4.7% for the three months ended June 30, 2015. Operating margin increases within our United States industrial services segment, our United Kingdom building services segment and our United States mechanical construction and facilities services segment were offset by decreases in operating margin within our United States electrical construction and facilities services segment and our United States building services segment.

Companies acquired in 2016, which are reported in our United States electrical construction and facilities services segment and our United States building services segment, generated incremental revenues of $63.4 million and operating income of $4.7 million, net of $1.1 million of amortization expense associated with identifiable intangible assets. Companies acquired in 2015, which are reported in our United States mechanical construction and facilities services segment, generated incremental revenues of $14.0 million and operating income of $0.6 million, net of $0.2 million of amortization expense associated with identifiable intangible assets.

Operating Segments

Table of Contents

Results of Operations

Revenues

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



	For the three months ended June 30,
	2016		% of Total		2015		% of Total
Revenues:
United States electrical construction and facilities services	$	420,632	22	%	$	346,202	21	%
United States mechanical construction and facilities services	629,895		33	%	554,003		34	%
United States building services	458,797		24	%	435,627		26	%
United States industrial services	333,508		17	%	225,168		14	%
Total United States operations	1,842,832		95	%	1,561,000		94	%
United Kingdom building services	90,584		5	%	91,585		6	%
Total worldwide operations	$	1,933,416	100	%	$	1,652,585	100	%



	For the six months ended June 30,
	2016		% of Total		2015		% of Total
Revenues:
United States electrical construction and facilities services	$	768,921	21	%	$	665,196	21	%
United States mechanical construction and facilities services	1,241,785		34	%	1,065,029		33	%
United States building services	898,448		24	%	875,119		27	%
United States industrial services	591,012		16	%	457,893		14	%
Total United States operations	3,500,166		95	%	3,063,237		94	%
United Kingdom building services	178,220		5	%	178,535		6	%
Total worldwide operations	$	3,678,386	100	%	$	3,241,772	100	%

As described below in more detail, our revenues for the three months ended June 30, 2016 increased to $1.93 billion compared to $1.65 billion for the three months ended June 30, 2015, and our revenues for the six months ended June 30, 2016 increased to $3.68 billion compared to $3.24 billion for the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable to: (a) increased revenues from both of our domestic construction segments and (b) increased demand for our industrial field services within our United States industrial services segment.

Revenues of our United States electrical construction and facilities services segment were $420.6 million and $768.9 million for the three and six months ended June 30, 2016, respectively, compared to revenues of $346.2 million and $665.2 million for the three and six months ended June 30, 2015, respectively. Excluding the acquisition of Ardent, the increase in revenues for both periods was primarily attributable to an increase in revenues from commercial, transportation, manufacturing and hospitality construction projects, partially offset by a decrease in revenues from healthcare and water and wastewater construction projects. The results for the three and six months ended June 30, 2016 included $48.3 million of revenues generated by Ardent.

Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2016 were $629.9 million, a $75.9 million increase compared to revenues of $554.0 million for the three months ended June 30, 2015. Revenues of this segment for the six months ended June 30, 2016 were $1,241.8 million, a $176.8 million increase compared to revenues of $1,065.0 million for the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable to an increase in revenues from manufacturing, water and wastewater, hospitality, transportation and institutional construction projects, partially offset by a decline in revenues from healthcare construction projects. The results for the three and six months ended June 30, 2016 included $14.0 million and $28.4 million, respectively, of revenues generated by companies acquired in 2015.

Revenues of our United States building services segment for the three months ended June 30, 2016 increased by $23.2 million compared to the three months ended June 30, 2015, and revenues for the six months ended June 30, 2016 increased by $23.3 million compared to the six months ended June 30, 2015. The increase in revenues for both periods was primarily attributable

Table of Contents

to increased revenues from: (a) our mobile mechanical services operations, inclusive of $15.1 million of revenues generated by a company acquired in the second quarter of 2016, (b) our energy services operations, as a result of several new contract awards, and (c) our commercial site-based services operations, as a result of growth within their current contract portfolio. These increases were partially offset by a decrease in revenues from our government site-based services operations as a result of the loss of certain contracts not renewed pursuant to rebid.

Revenues of our United States industrial services segment for the three months ended June 30, 2016 increased by $108.3 million compared to the three months ended June 30, 2015, and revenues for the six months ended June 30, 2016 increased by $133.1 million compared to the six months ended June 30, 2015. The increase in revenues for both periods was due to increased demand for specialty services offerings within our field services operations, including large project activity. In addition, revenues for the six months ended June 30, 2015 were negatively impacted by a nationwide strike by union employees of certain major oil refineries which led to the loss and deferral of certain turnaround projects. The increase in revenues from our field services operations was partially offset by a decrease in revenues from our shop services operations due to lower demand for new heat exchangers as a result of volatility in crude oil prices that has led to a curtailment in capital spending from most large integrated oil companies.

Our United Kingdom building services segment revenues were $90.6 million for the three months ended June 30, 2016 compared to revenues of $91.6 million for the three months ended June 30, 2015, and revenues were $178.2 million for the six months ended June 30, 2016 compared to revenues of $178.5 million for the six months ended June 30, 2015. This segment's revenues decreased by $6.2 million and $11.3 million for the three and six months ended June 30, 2016, respectively, related to the effect of unfavorable exchange rates for the British pound versus the United States dollar resulting from the decision by the United Kingdom to exit the European Union, partially offset by an increase in contract activity within the commercial and transportation market sectors.

Backlog

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



	June 30, 2016		% of Total		December 31, 2015		% of Total		June 30, 2015		% of Total
Backlog:
United States electrical construction and facilities services	$	1,096,872	29	%	$	1,145,791	30	%	$	1,130,634	31	%
United States mechanical construction and facilities services	1,747,593		46	%	1,683,501		45	%	1,522,587		42	%
United States building services	762,463		20	%	762,196		20	%	723,790		20	%
United States industrial services	56,722		1	%	54,578		1	%	84,930		2	%
Total United States operations	3,663,650		96	%	3,646,066		97	%	3,461,941		96	%
United Kingdom building services	145,835		4	%	125,097		3	%	162,527		4	%
Total worldwide operations	$	3,809,485	100	%	$	3,771,163	100	%	$	3,624,468	100	%

Our backlog at June 30, 2016 was $3.81 billion compared to $3.77 billion at December 31, 2015 and $3.62 billion at June 30, 2015. The increase in backlog at June 30, 2016 compared to backlog at December 31, 2015 was primarily attributable to an increase in backlog from all of our reportable segments, except for our 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 and agreement on contract terms has been reached. 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

Table of Contents

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.

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 June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Cost of sales	$	1,658,675		$	1,413,058		$	3,180,537		$	2,785,316
Gross profit	$	274,741		$	239,527		$	497,849		$	456,456
Gross profit, as a percentage of revenues	14.2		%	14.5		%	13.5		%	14.1		%

Our gross profit increased by $35.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Gross profit increased by $41.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase in gross profit for the three months ended June 30, 2016 was attributable to increases in gross profit within all of our reportable segments, except for our United Kingdom building services segment. The increase in gross profit for the six months ended June 30, 2016 was attributable to increases in gross profit within all of our reportable segments, except for our United States building services segment. The increase in gross profit for both periods was primarily attributable to an increase in revenues. Our gross profit margin was 14.2% and 14.5% for the three months ended June 30, 2016 and 2015, respectively. Gross profit margin was 13.5% and 14.1% for the six months ended June 30, 2016 and 2015, respectively. The decrease in gross profit margin for both periods was partially attributable to a $10.5 million loss incurred on a transportation construction project in the Northeastern United States within our United States electrical construction and facilities services segment, resulting in a 0.5% and a 0.3% negative impact on the Company’s gross profit margin for the three and six months ended June 30, 2016, respectively.

Selling, general and administrative expenses

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



	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Selling, general and administrative expenses	$	181,811		$	161,391		$	349,213		$	322,982
Selling, general and administrative expenses, as a percentage of revenues	9.4		%	9.8		%	9.5		%	10.0		%

Our selling, general and administrative expenses for the three months ended June 30, 2016 increased by $20.4 million to $181.8 million compared to $161.4 million for the three months ended June 30, 2015. Selling, general and administrative expenses for the six months ended June 30, 2016 increased by $26.2 million to $349.2 million compared to $323.0 million for the six months ended June 30, 2015. Selling, general and administrative expenses as a percentage of revenues were 9.4% and 9.5% for the three and six months ended June 30, 2016, respectively, compared to 9.8% and 10.0% for the three and six months ended June 30, 2015, respectively. The increase in selling, general and administrative expenses was due to higher employee related costs such as incentive compensation and salaries, as well as certain other costs including legal and professional fees and the provision for doubtful accounts. Increased incentive compensation was principally due to higher projected annual operating results than in the same prior year period, which resulted in increased accruals for certain of our incentive compensation plans. The increase in salaries was attributable to an increase in headcount due to higher revenues than in the same prior year period, as well as cost of living adjustments and merit pay increases. The increase in professional fees for the three and six months ended June 30, 2016 included $2.8 million and $3.8 million, respectively, of transaction costs associated with the acquisition of Ardent in April 2016. Additionally, the increase in selling, general and administrative expenses for the three and six months ended June 30, 2016 included $9.3 million and $10.2 million, respectively, of expenses directly related to companies acquired in 2016 and 2015, including amortization expense attributable to identifiable intangible assets of $1.1 million and $1.3 million, respectively. The decrease in SG&A margin for both periods was partially attributable to an increase in revenues without commensurate increases in our overhead cost structure.

Table of Contents

Restructuring expenses

Operating income

The following tables present 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 June 30,
	2016			% of Segment Revenues		2015			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	23,011		5.5	%	$	25,277		7.3	%
United States mechanical construction and facilities services	38,180			6.1	%	32,364			5.8	%
United States building services	18,291			4.0	%	17,939			4.1	%
United States industrial services	33,148			9.9	%	17,415			7.7	%
Total United States operations	112,630			6.1	%	92,995			6.0	%
United Kingdom building services	3,258			3.6	%	2,834			3.1	%
Corporate administration	(22,958		)	—		(17,693		)	—
Restructuring expenses	(641		)	—		(433		)	—
Total worldwide operations	92,289			4.8	%	77,703			4.7	%
Other corporate items:
Interest expense	(3,118		)			(2,208		)
Interest income	192					182
Income from continuing operations before income taxes	$	89,363				$	75,677



	For the six months ended June 30,
	2016			% of Segment Revenues		2015			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	39,718		5.2	%	$	41,951		6.3	%
United States mechanical construction and facilities services	62,057			5.0	%	53,265			5.0	%
United States building services	32,193			3.6	%	38,917			4.4	%
United States industrial services	52,014			8.8	%	30,248			6.6	%
Total United States operations	185,982			5.3	%	164,381			5.4	%
United Kingdom building services	6,569			3.7	%	5,212			2.9	%
Corporate administration	(43,915		)	—		(36,119		)	—
Restructuring expenses	(732		)	—		(441		)	—
Total worldwide operations	147,904			4.0	%	133,033			4.1	%
Other corporate items:
Interest expense	(5,494		)			(4,424		)
Interest income	357					358
Income from continuing operations before income taxes	$	142,767				$	128,967

As described below in more detail, operating income was $92.3 million and $147.9 million for the three and six months ended June 30, 2016, respectively, compared to $77.7 million and $133.0 million for the three and six months ended June 30, 2015, respectively. Operating margin was 4.8% and 4.0% for the three and six months ended June 30, 2016, respectively, compared to 4.7% and 4.1% for the three and six months ended June 30, 2015, respectively.

Table of Contents

Operating income of our United States electrical construction and facilities services segment for the three and six months ended June 30, 2016 was $23.0 million and $39.7 million, respectively, compared to operating income of $25.3 million and $42.0 million for the three and six months ended June 30, 2015, respectively. The decrease in operating income and operating margin for the three months ended June 30, 2016 was attributable to a loss incurred on a transportation construction project in the Northeastern United States, as a result of productivity issues attributable to unfavorable job-site conditions for which we will seek recovery, resulting in a 2.3% negative impact on the segment’s operating margin for the second quarter of 2016. This project is expected to be completed by the end of 2016. The decrease in operating income and operating margin for the six months ended June 30, 2016 was also due to losses incurred on two additional transportation construction projects in the first quarter of 2016. The losses for both periods were partially offset by an increase in gross profit from commercial and hospitality construction projects. Ardent contributed operating income of $3.9 million, net of $0.6 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2016.

Our United States mechanical construction and facilities services segment operating income for the three months ended June 30, 2016 was $38.2 million, a $5.8 million increase compared to operating income of $32.4 million for the three months ended June 30, 2015. Operating income for the six months ended June 30, 2016 was $62.1 million, an $8.8 million increase compared to operating income of $53.3 million for the six months ended June 30, 2015. The increase in operating income for both periods was attributable to an increase in gross profit from manufacturing, commercial, healthcare and hospitality construction projects. The results for the three and six months ended June 30, 2016 included the receipt of $2.0 million from the former owner of a company we had previously acquired as a result of a settlement of a claim by us under the acquisition agreement. Companies acquired in 2015 generated operating income of $0.6 million and $1.3 million, net of $0.2 million and $0.4 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2016, respectively. The increase in operating margin for the three months ended June 30, 2016 was attributable to a decrease in the ratio of selling, general and administrative expenses to revenues.

Operating income of our United States building services segment for the three months ended June 30, 2016 increased by $0.4 million compared to operating income for the three months ended June 30, 2015, and its operating income for the six months ended June 30, 2016 decreased by $6.7 million compared to the six months ended June 30, 2015. The increase in operating income for the three months ended June 30, 2016 was attributable to: (a) the acquisition of a company during the second quarter of 2016, within our mobile mechanical services operations, which generated operating income of $0.8 million, net of $0.5 million of amortization expense associated with identifiable intangible assets, and (b) a reduction in selling, general and administrative expenses within our commercial site-based services operations, as a result of a decrease in employee related costs such as salaries and incentive compensation, partially due to a reduction in headcount. The decrease in operating income for the six months ended June 30, 2016 was attributable to: (a) an increase in selling, general and administrative expenses due to: (i) an increase in headcount, primarily within our mobile mechanical services operations as a result of increased volume, (ii) cost of living adjustments and merit pay increases and (iii) an increase in the provision for doubtful accounts, (b) lower operating income within our commercial site-based services operations, partially as a result of a reduction in snow removal activities due to less snowfall in areas where our contracts are based on a per snow event basis, and (c) a decrease in operating income within our government site-based services operations. In addition, operating income for the six months ended June 30, 2015 included the impact of $3.0 million of gross profit recognized upon the favorable settlement of a claim by us against the former owner of a company we previously acquired. The decrease in operating margin for the six months ended June 30, 2016 was attributable to a decrease in gross profit margin and an increase in the ratio of selling, general and administrative expenses to revenues, primarily as a result of the items discussed above.

Operating income of our United States industrial services segment for the three months ended June 30, 2016 increased by $15.7 million compared to operating income for the three months ended June 30, 2015, and its operating income for the six months ended June 30, 2016 increased by $21.8 million compared to the six months ended June 30, 2015. The increase in operating income for both periods was attributable to an increase in gross profit from specialty services offerings within our field services operations, including large project activity. In addition, this segment's results for the first half of 2015 were negatively impacted by a nationwide strike by union employees of certain major oil refineries, which led to the loss and deferral of certain turnaround projects. The increase in operating income for both periods was partially offset by a decrease in gross profit from our shop services operations due to lower demand for new heat exchangers as a result of volatility in crude oil prices that has led to a curtailment in capital spending. The increase in operating margin for both periods was attributable to a decrease in the ratio of selling, general and administrative expenses to revenues due to an increase in revenues without commensurate increases in our overhead cost structure.

Our United Kingdom building services segment operating income was $3.3 million and $6.6 million for the three and six months ended June 30, 2016, respectively, compared to operating income of $2.8 million and $5.2 million for the three and six months ended June 30, 2015, respectively. The increase in operating income for the three and six months ended June 30, 2016 was primarily attributable to an increase in gross profit from project activity within the commercial market, partially as a result of several contract awards won in 2015, partially offset by decreases of $0.3 million and $0.4 million, respectively, relating to the effect of unfavorable exchange rates for the British pound versus the United States dollar. The increase in operating margin for

Table of Contents

both 2016 periods was attributable to an increase in gross profit margin and a decrease in the ratio of selling, general and administrative expenses to revenues.

Our corporate administration operating loss for the three months ended June 30, 2016 was $23.0 million compared to $17.7 million for the three months ended June 30, 2015. Our corporate administration operating loss for the six months ended June 30, 2016 was $43.9 million compared to $36.1 million for the six months ended June 30, 2015. The increase in expenses for the three and six months ended June 30, 2016 was primarily due to: (a) $2.8 million and $3.8 million, respectively, of transaction costs associated with the acquisition of Ardent in April 2016, (b) an increase in employment costs, such as incentive compensation, partially due to higher projected annual operating results than in the same prior year period, and (c) an increase in legal costs.

Interest expense for the three months ended June 30, 2016 and 2015 was $3.1 million and $2.2 million, respectively. Interest expense for the six months ended June 30, 2016 and 2015 was $5.5 million and $4.4 million, respectively. The increase in interest expense for both periods was due to outstanding borrowings on the revolving credit facility in 2016. Interest income for each of the three months ended June 30, 2016 and 2015 was $0.2 million. Interest income for each of the six months ended June 30, 2016 and 2015 was $0.4 million.

Discontinued operations

Liquidity and Capital Resources

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



	For the six months ended June 30,
	2016			2015
Net cash provided by (used in) operating activities	$	47,785		$	(6,066	)
Net cash used in investing activities	$	(250,324	)	$	(14,400	)
Net cash provided by (used in) financing activities	$	162,986		$	(50,776	)
Effect of exchange rate changes on cash and cash equivalents	$	(4,259	)	$	35

Our consolidated cash balance decreased by approximately $43.8 million from $486.8 million at December 31, 2015 to $443.0 million at June 30, 2016. Net cash provided by operating activities for the six months ended June 30, 2016 was $47.8 million compared to net cash used in operating activities of $6.1 million for the six months ended June 30, 2015. The increase in cash provided by operating activities was primarily due to a $32.4 million increase in net over-billings related to the timing of customer billings and payments, a $27.3 million decrease in our accounts receivable balances and a $14.5 million decrease in inventories, partially offset by a $21.7 million increase in income taxes paid. Net cash used in investing activities was $250.3 million for the six months ended June 30, 2016 compared to net cash used in investing activities of $14.4 million for the six months ended June 30, 2015. The increase in net cash used in investing activities was primarily due to the increase in payments for acquisitions of businesses and property, plant and equipment. Net cash provided by financing activities for the six months ended June 30, 2016 increased by approximately $213.8 million compared to the six months ended June 30, 2015. The increase in net cash provided by financing activities was primarily due to borrowings of $220.0 million under our revolving credit facility and a

Table of Contents

decrease in distributions to noncontrolling interests, partially offset by an increase in funds used for the repurchase of common stock. Cash flows from discontinued operations were immaterial and are not expected to significantly affect future liquidity.

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
Revolving credit facility (including interest at 1.72%) ⁽¹⁾	$	229.2	$	3.8	$	225.4	$	—	$	—
Term loan (including interest currently at 1.72%)⁽¹⁾	318.3		22.7		295.6		—		—
Capital lease obligations	4.3		1.3		1.9		1.1		—
Operating leases	264.9		61.8		94.6		57.6		50.9
Open purchase obligations ⁽²⁾	1,017.7		795.1		205.5		17.1		—
Other long-term obligations, including current portion ⁽³⁾	381.4		45.1		326.0		10.3		—
Liabilities related to uncertain income tax positions ⁽⁴⁾	5.3		4.6		—		—		0.7
Total Contractual Obligations	$	2,221.1	$	934.4	$	1,149.0	$	86.1	$	51.6