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 September 30, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8267

EMCOR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		11-2125338
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

301 Merritt Seven Norwalk, Connecticut		06851-1092
(Address of Principal Executive Offices)		(Zip Code)

(203) 849-7800

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

Applicable Only To Corporate Issuers

Number of shares of Common Stock outstanding as of the close of business on October 23, 2017: 58,813,795 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, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Operations - three and nine months ended September 30, 2017 and 2016	2
	Condensed Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2017 and 2016	3
	Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 2017 and 2016	4
	Condensed Consolidated Statements of Equity - nine months ended September 30, 2017 and 2016	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	18
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 4.	Mine Safety Disclosures.	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, 2017 (Unaudited)			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	480,496		$	464,617
Accounts receivable, less allowance for doubtful accounts of $16,948 and $12,252, respectively	1,537,819			1,495,431
Costs and estimated earnings in excess of billings on uncompleted contracts	135,602			130,697
Inventories	43,653			37,426
Prepaid expenses and other	34,402			40,944
Total current assets	2,231,972			2,169,115
Investments, notes and other long-term receivables	7,604			8,792
Property, plant and equipment, net	126,563			127,951
Goodwill	1,010,399			979,628
Identifiable intangible assets, net	497,278			487,398
Other assets	92,505			79,554
Total assets	$	3,966,321		$	3,852,438
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations	$	15,364		$	15,030
Accounts payable	485,701			501,213
Billings in excess of costs and estimated earnings on uncompleted contracts	532,386			489,242
Accrued payroll and benefits	309,237			310,514
Other accrued expenses and liabilities	209,591			195,775
Total current liabilities	1,552,279			1,511,774
Borrowings under revolving credit facility	125,000			125,000
Long-term debt and capital lease obligations	273,506			283,296
Other long-term obligations	397,671			394,426
Total liabilities	2,348,456			2,314,496
Equity:
EMCOR Group, Inc. stockholders’ equity:
Preferred stock, $0.10 par value, 1,000,000 shares authorized, zero issued and outstanding	—			—
Common stock, $0.01 par value, 200,000,000 shares authorized, 59,850,983 and 60,606,825 shares issued, respectively	599			606
Capital surplus	4,343			52,219
Accumulated other comprehensive loss	(100,559		)	(101,703		)
Retained earnings	1,748,100			1,596,269
Treasury stock, at cost 1,044,474 and 659,841 shares, respectively	(35,471		)	(10,302		)
Total EMCOR Group, Inc. stockholders’ equity	1,617,012			1,537,089
Noncontrolling interests	853			853
Total equity	1,617,865			1,537,942
Total liabilities and equity	$	3,966,321		$	3,852,438

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,
	2017			2016			2017			2016
Revenues	$	1,886,691		$	1,923,174		$	5,674,360		$	5,601,560
Cost of sales	1,591,621			1,655,130			4,838,449			4,835,667
Gross profit	295,070			268,044			835,911			765,893
Selling, general and administrative expenses	188,565			181,441			552,903			530,654
Restructuring expenses	46			539			954			1,271
Operating income	106,459			86,064			282,054			233,968
Interest expense	(3,324		)	(3,479		)	(9,464		)	(8,973		)
Interest income	277			161			607			518
Income from continuing operations before income taxes	103,412			82,746			273,197			225,513
Income tax provision	38,608			30,783			98,473			82,663
Income from continuing operations	64,804			51,963			174,724			142,850
Loss from discontinued operation, net of income taxes	(207		)	(406		)	(729		)	(1,584		)
Net income including noncontrolling interests	64,597			51,557			173,995			141,266
Less: Net income attributable to noncontrolling interests	—			(26		)	—			(7		)
Net income attributable to EMCOR Group, Inc.	$	64,597		$	51,531		$	173,995		$	141,259
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.10		$	0.85		$	2.94		$	2.35
From discontinued operation	(0.00		)	(0.01		)	(0.01		)	(0.03		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.10		$	0.84		$	2.93		$	2.32
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.09		$	0.85		$	2.93		$	2.33
From discontinued operation	(0.00		)	(0.01		)	(0.01		)	(0.03		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.09		$	0.84		$	2.92		$	2.30

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

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,
	2017			2016			2017			2016
Net income including noncontrolling interests	$	64,597		$	51,557		$	173,995		$	141,266
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(39		)	(255		)	(730		)	(1,056		)
Post retirement plans, amortization of actuarial loss included in net income ⁽¹⁾	640			440			1,874			1,393
Other comprehensive income	601			185			1,144			337
Comprehensive income	65,198			51,742			175,139			141,603
Less: Comprehensive income attributable to noncontrolling interests	—			(26		)	—			(7		)
Comprehensive income attributable to EMCOR Group, Inc.	$	65,198		$	51,716		$	175,139		$	141,596

_________


(1)	Net of tax of $0.2 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively, and net of tax of $0.5 million and $0.4 million for the nine months ended September 30, 2017 and 2016, 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,
	2017			2016
Cash flows - operating activities:
Net income including noncontrolling interests	$	173,995		$	141,266
Depreciation and amortization	30,235			29,117
Amortization of identifiable intangible assets	36,320			30,678
Provision for doubtful accounts	6,027			3,962
Deferred income taxes	(5,991		)	(830		)
Excess tax benefits from share-based compensation	(1,565		)	(2,062		)
Equity income from unconsolidated entities	(1,132		)	(719		)
Other non-cash items	4,735			6,844
Distributions from unconsolidated entities	2,308			863
Changes in operating assets and liabilities, excluding the effect of businesses acquired	(6,648		)	(80,195		)
Net cash provided by operating activities	238,284			128,924
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired	(82,724		)	(232,883		)
Proceeds from sale of property, plant and equipment	2,125			1,850
Purchase of property, plant and equipment	(26,113		)	(29,306		)
Net cash used in investing activities	(106,712		)	(260,339		)
Cash flows - financing activities:
Proceeds from revolving credit facility	—			220,000
Repayments of revolving credit facility	—			(95,000		)
Borrowings from long-term debt	—			400,000
Repayments of long-term debt and debt issuance costs	(11,401		)	(317,987		)
Repayments of capital lease obligations	(1,079		)	(1,144		)
Dividends paid to stockholders	(14,266		)	(14,598		)
Repurchase of common stock	(90,944		)	(34,805		)
Proceeds from exercise of stock options	—			508
Payments to satisfy minimum tax withholding	(3,376		)	(4,166		)
Issuance of common stock under employee stock purchase plan	3,459			3,583
Payments for contingent consideration arrangements	(1,017		)	—
Distributions to noncontrolling interests	—			(2,050		)
Net cash (used in) provided by financing activities	(118,624		)	154,341
Effect of exchange rate changes on cash and cash equivalents	2,931			(5,199		)
Increase in cash and cash equivalents	15,879			17,727
Cash and cash equivalents at beginning of year	464,617			486,831
Cash and cash equivalents at end of period	$	480,496		$	504,558
Supplemental cash flow information:
Cash paid for:
Interest	$	8,507		$	7,920
Income taxes	$	95,584		$	98,176
Non-cash financing activities:
Assets acquired under capital lease obligations	$	1,133		$	1,738

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, 2015	$	1,480,056		$	617		$	130,369		$	(76,953	)	$	1,432,980		$	(10,302	)	$	3,345
Net income including noncontrolling interests	141,266			—			—			—			141,259			—			7
Other comprehensive income	337			—			—			337			—			—			—
Common stock issued under share-based compensation plans ⁽²⁾	1,492			3			498			—			991			—			—
Tax withholding for common stock issued under share-based compensation plans	(4,166		)	—			(4,166		)	—			—			—			—
Common stock issued under employee stock purchase plan	3,583			—			3,583			—			—			—			—
Common stock dividends	(14,598		)	—			143			—			(14,741		)	—			—
Repurchase of common stock	(29,028		)	(6		)	(29,022		)	—			—			—			—
Distributions to noncontrolling interests	(2,050		)	—			—			—			—			—			(2,050		)
Share-based compensation expense	7,000			—			7,000			—			—			—			—
Balance, September 30, 2016	$	1,583,892		$	614		$	108,405		$	(76,616	)	$	1,560,489		$	(10,302	)	$	1,302
Balance, December 31, 2016	$	1,537,942		$	606		$	52,219		$	(101,703	)	$	1,596,269		$	(10,302	)	$	853
Net income including noncontrolling interests	173,995			—			—			—			173,995			—			—
Other comprehensive income	1,144			—			—			1,144			—			—			—
Common stock issued under share-based compensation plans	1			2			(1		)	—			—			—			—
Tax withholding for common stock issued under share-based compensation plans	(3,376		)	—			(3,376		)	—			—			—			—
Common stock issued under employee stock purchase plan	3,459			1			3,458			—			—			—			—
Common stock dividends	(14,266		)	—			124			—			(14,390		)	—			—
Repurchase of common stock	(88,599		)	(10		)	(55,646		)	—			(7,774		)	(25,169		)	—
Distributions to noncontrolling interests	—			—			—			—			—			—			—
Share-based compensation expense	7,565			—			7,565			—			—			—			—
Balance, September 30, 2017	$	1,617,865		$	599		$	4,343		$	(100,559	)	$	1,748,100		$	(35,471	)	$	853


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


(2)	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.

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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 those of a normal recurring nature) necessary to present fairly our financial position and the results of our operations. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.

NOTE 2 New Accounting Pronouncements

On January 1, 2017, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“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 that all deferred tax assets and liabilities, including valuation allowances, be classified as noncurrent. We adopted this pronouncement on a retrospective basis. As a result of such adoption, approximately $41.7 million of net deferred tax assets, which were previously presented as “Prepaid expenses and other” in the Condensed Consolidated Balance Sheet as of December 31, 2016, were reclassified as a reduction to “Other long-term obligations.”

On January 1, 2017, we adopted the accounting pronouncement issued by the FASB to simplify the accounting for goodwill impairment. This guidance eliminates the requirement that an entity calculate the implied fair value of goodwill when measuring an impairment charge. Instead, an entity would record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. We adopted this pronouncement on a prospective basis. The adoption of this guidance 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.

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 anticipate adopting the standard on January 1, 2018 using the modified retrospective method. We have substantially completed the process to evaluate the impact of the new pronouncement on our contracts, including identifying potential differences that will result from applying the requirements of the new guidance. As a result of the review of our various types of revenue arrangements, we do not anticipate that the adoption will have a material impact on our financial position and/or results of operations, particularly as it relates to revenues generated from long-term construction, service maintenance, and time and materials contracts. With respect to our shop services operations within our United States industrial services segment, which currently recognize revenue related to the engineering, manufacturing and repair of shell and tube heat exchangers when the product is shipped and all other revenue recognition criteria have been met, the adoption of the new standard will accelerate the timing of revenue recognition for certain contracts for which control is transferred to our customers over time instead of at a point in time. We have also drafted revised accounting policies and have evaluated the enhanced disclosure requirements on our business processes, controls and systems.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3 Acquisitions of Businesses

On January 4, 2017 and March 1, 2017, we acquired two companies for a total consideration of $84.8 million. One company provides fire protection and alarm services primarily in the Southern region of the United States, and its results have been included in our United States mechanical construction and facilities services segment. The other company provides mobile mechanical services within the Western region of the United States, and its results have been included in our United States building services segment. In connection with these acquisitions, we acquired working capital of $9.6 million and other net assets of $0.3 million and have preliminarily ascribed $28.7 million to goodwill and $46.2 million to identifiable intangible assets. We expect that all of the acquired goodwill will be deductible for tax purposes.

The purchase price allocations for the businesses acquired in 2017 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 by us.

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 $34.1 million and other net assets of $3.9 million and have ascribed $121.9 million to goodwill and $41.5 million to identifiable intangible assets. 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. We completed the final allocation of Ardent’s purchase price during the first quarter of 2017 with an insignificant impact.

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. The purchase price for this acquisition was finalized in 2016.

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 ceased construction operations in the United Kingdom during the third quarter of 2014. The results of the construction operations of our United Kingdom segment for all periods are presented in the 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,
	2017			2016			2017			2016
Revenues	$	(81	)	$	40		$	863		$	108
Loss from discontinued operation, net of income taxes	$	(207	)	$	(406	)	$	(729	)	$	(1,584	)
Diluted loss per share from discontinued operation	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)

The loss from discontinued operations for the three and nine months ended September 30, 2017 was primarily due to legal costs related to the settlement of final contract balances on certain construction projects completed in prior years, partially offset by revenues recognized in the second quarter of 2017 upon the settlement of a previously outstanding contract claim.

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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 September 30, 2017 and December 31, 2016 are the following major classes of assets and liabilities associated with the discontinued operation (in thousands):



	September 30, 2017		December 31, 2016
Assets of discontinued operation:
Current assets	$	360	$	1,233

Liabilities of discontinued operation:
Current liabilities	$	3,511	$	4,036

At September 30, 2017, 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 September 30, 2017, there remained less than $0.1 million of obligations related to employee severance, which are expected to be paid in 2018. 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 nine months ended September 30, 2017 and 2016 (in thousands, except share and per share data):



	For the three months ended September 30,
	2017			2016
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	64,804		$	51,937
Loss from discontinued operation, net of income taxes	(207		)	(406		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	64,597		$	51,531
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	59,061,768			60,889,484
Effect of dilutive securities—Share-based awards	357,432			428,573
Shares used to compute diluted earnings (loss) per common share	59,419,200			61,318,057
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.10		$	0.85
From discontinued operation	(0.00		)	(0.01		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.10		$	0.84
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	1.09		$	0.85
From discontinued operation	(0.00		)	(0.01		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	1.09		$	0.84

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5 Earnings Per Share - (Continued)



	For the nine months ended September 30,
	2017			2016
Numerator:
Income from continuing operations attributable to EMCOR Group, Inc. common stockholders	$	174,724		$	142,843
Loss from discontinued operation, net of income taxes	(729		)	(1,584		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	173,995		$	141,259
Denominator:
Weighted average shares outstanding used to compute basic earnings (loss) per common share	59,371,672			60,866,532
Effect of dilutive securities—Share-based awards	349,513			423,856
Shares used to compute diluted earnings (loss) per common share	59,721,185			61,290,388
Basic earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.94		$	2.35
From discontinued operation	(0.01		)	(0.03		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.93		$	2.32
Diluted earnings (loss) per common share:
From continuing operations attributable to EMCOR Group, Inc. common stockholders	$	2.93		$	2.33
From discontinued operation	(0.01		)	(0.03		)
Net income attributable to EMCOR Group, Inc. common stockholders	$	2.92		$	2.30

There were 500 anti-dilutive share-based awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2017. There were no anti-dilutive share-based awards for the three and nine months ended September 30, 2016.

NOTE 6 Inventories

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



	September 30, 2017		December 31, 2016
Raw materials and construction materials	$	25,709	$	21,997
Work in process	17,944		15,429
Inventories	$	43,653	$	37,426

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 7 Debt

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



	September 30, 2017			December 31, 2016
Revolving credit facility	$	125,000		$	125,000
Term loan	288,608			300,000
Unamortized debt issuance costs	(4,548		)	(5,437		)
Capitalized lease obligations	4,788			3,732
Other	22			31
Total debt	413,870			423,326
Less: current maturities	15,364			15,030
Total long-term debt	$	398,506		$	408,296

Credit Agreement

Until August 3, 2016, we had a credit agreement dated as of November 25, 2013 (as amended, the “2013 Credit Agreement”), which provided for a revolving credit facility of $750.0 million (the “2013 Revolving Credit Facility”) and a term loan of $350.0 million (the “2013 Term Loan”). On August 3, 2016, we amended and restated the 2013 Credit Agreement to provide for a $900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”) expiring August 3, 2021. The proceeds of the 2016 Term Loan were used to repay amounts drawn under the 2013 Term Loan, as well as a portion of the outstanding balance under the 2013 Revolving Credit Facility. We may increase the 2016 Revolving Credit Facility to $1.3 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $300.0 million of available capacity under the 2016 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries. Obligations under the 2016 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2016 Credit Agreement contains various covenants providing for, among other things, maintenance of certain financial ratios and certain limitations on payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. We were in compliance with all such covenants as of September 30, 2017 and December 31, 2016. A commitment fee is payable on the average daily unused amount of the 2016 Revolving Credit Facility, which ranges from 0.15% to 0.30%, based on certain financial tests. The fee was 0.15% of the unused amount as of September 30, 2017. Borrowings under the 2016 Credit Agreement bear interest at (1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (1.24% at September 30, 2017) plus 1.00% to 1.75%, based on certain financial tests. The base rate is determined by the greater of (a) the prime commercial lending rate announced by Bank of Montreal from time to time (4.25% at September 30, 2017), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00%, or (d) 0.00%. The interest rate in effect at September 30, 2017 was 2.24%. Fees for letters of credit issued under the 2016 Revolving Credit Facility range from 1.00% to 1.75% of the respective face amounts of outstanding letters of credit and are computed based on certain financial tests. We capitalized an additional $3.0 million of debt issuance costs associated with the 2016 Credit Agreement. Debt issuance costs are amortized over the life of the agreement and are included as part of interest expense. The 2016 Term Loan required us to make principal payments of $5.0 million on the last day of March, June, September and December of each year, which commenced with the calendar quarter ended December 31, 2016. On December 30, 2016, we made a payment of $100.0 million, of which $5.0 million represented our required quarterly payment and $95.0 million represented a prepayment of outstanding principal. Such prepayment was applied against the remaining mandatory quarterly payments on a ratable basis. As a result, commencing with the calendar quarter ended March 31, 2017, our required quarterly payment has been reduced to $3.8 million. All unpaid principal and interest is due on August 3, 2021. As of September 30, 2017 and December 31, 2016, the balance of the 2016 Term Loan was $288.6 million and $300.0 million, respectively. As of September 30, 2017 and December 31, 2016, we had approximately $111.8 million and $91.9 million of letters of credit outstanding, respectively. There were $125.0 million in borrowings outstanding under the 2016 Revolving Credit Facility as of September 30, 2017 and December 31, 2016.

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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, 2017 and December 31, 2016 (in thousands):



	Assets at Fair Value as of September 30, 2017
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents ⁽¹⁾	$	480,496	$	—	$	—	$	480,496
Restricted cash ⁽²⁾	2,082		—		—		2,082
Deferred compensation plan assets ⁽³⁾	20,372		—		—		20,372
Total	$	502,950	$	—	$	—	$	502,950



	Assets at Fair Value as of December 31, 2016
Asset Category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents ⁽¹⁾	$	464,617	$	—	$	—	$	464,617
Restricted cash ⁽²⁾	2,043		—		—		2,043
Deferred compensation plan assets ⁽³⁾	12,153		—		—		12,153
Total	$	478,813	$	—	$	—	$	478,813

________


(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, 2017 and December 31, 2016, we had $187.0 million and $154.6 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 2016 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, 2017 and 2016, our income tax provision from continuing operations was $38.6 million and $30.8 million, respectively, based on an effective income tax rate, before discrete items and less amounts attributable to noncontrolling interests, of 37.1% and 38.1%, respectively. The actual income tax rate on income from continuing operations, less amounts attributable to noncontrolling interests, for the three months ended September 30, 2017 and 2016, inclusive of discrete items, was 37.3% and 37.2%, respectively. For the nine months ended September 30, 2017 and 2016, our income tax provision from continuing operations was $98.5 million and $82.7 million, respectively, based on effective income tax rates, before discrete items and less amounts attributable to noncontrolling interests, of 37.4% and 37.8%, respectively. The actual income tax rates on income from continuing operations, less amounts attributable to noncontrolling interests, for the nine months ended September 30, 2017 and 2016, inclusive of discrete items, were 36.0% and 36.7%, respectively. The increase in the 2017 income tax provision was primarily due to increased income from continuing operations. The decrease in the 2017 actual income tax rate on income from continuing operations was due to the net impact of discrete items, inclusive of the reversal of reserves for previously unrecognized income tax benefits in the first quarter of 2017.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9 Income Taxes - (Continued)

As of September 30, 2017 and December 31, 2016, the amount of unrecognized income tax benefits was $1.9 million and $4.0 million (of which $0.7 million and $2.2 million, if recognized, would favorably affect our effective income tax rate), respectively.

We report interest expense and/or income related to unrecognized income tax benefits in the income tax provision. As of September 30, 2017 and December 31, 2016, we had approximately $0.2 million and $0.5 million, respectively, of accrued interest expense related to unrecognized income tax benefits included as a liability in the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2017 and 2016, less than $0.1 million of interest expense and less than $0.1 million of interest income, respectively, was recognized in the income tax provision. For the nine months ended September 30, 2017 and 2016, $0.3 million and less than $0.1 million of interest income, respectively, was recognized in the income tax provision.

We do not anticipate any significant changes to our reserves for uncertain tax positions in the next twelve months.

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 2012 through 2015. During the first quarter of 2017, the Company settled an examination with a taxing authority which resulted in the recognition of $3.3 million of income tax benefits upon the reversal of reserves for previously uncertain tax positions.

NOTE 10 Common Stock

As of September 30, 2017 and December 31, 2016, there were 58,806,509 and 59,946,984 shares of our common stock outstanding, respectively.

During the three months ended September 30, 2017 and 2016, we issued 19,679 and 47,050 shares of common stock, respectively, primarily upon: (a) the purchase of common stock pursuant to our employee stock purchase plan and (b) the satisfaction of required conditions under certain of our share-based compensation plans. During the nine months ended September 30, 2017 and 2016, we issued 213,060 and 353,116 shares of common stock, respectively, primarily upon: (a) the satisfaction of required conditions under certain of our share-based compensation plans, (b) the purchase of common stock pursuant to our employee stock purchase plan and (c) the exercise of stock options.

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 2017, we have repurchased approximately 1.4 million shares of our common stock for approximately $88.6 million. Since the inception of the repurchase programs through September 30, 2017, we have repurchased approximately 12.8 million shares of our common stock for approximately $573.0 million. As of September 30, 2017, there remained authorization for us to repurchase approximately $77.0 million of our shares. Subsequent to September 30, 2017, our Board of Directors authorized us to repurchase up to an additional $100.0 million of our outstanding common stock. The repurchase programs have no expiration date and 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 2016 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.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 11 Retirement Plans - (Continued)

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, 2017 and 2016 were as follows (in thousands):



	For the three months ended September 30,						For the nine months ended September 30,
	2017			2016			2017			2016
Interest cost	$	2,162		$	2,465		$	6,331		$	7,846
Expected return on plan assets	(3,388		)	(3,398		)	(9,919		)	(10,816		)
Amortization of unrecognized loss	738			489			2,160			1,556
Net periodic pension cost (income)	$	(488	)	$	(444	)	$	(1,428	)	$	(1,414	)

Employer Contributions

For the nine months ended September 30, 2017, our United Kingdom subsidiary contributed approximately $3.5 million to the UK Plan and anticipates contributing an additional $1.3 million during the remainder of 2017.

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 in 2010. 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. The Mechanical Contractor previously asserted claims under the Connecticut and Massachusetts Unfair and Deceptive Trade Practices Acts, but such claims were recently withdrawn. 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. We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves. Other potential claims may exist that have not yet been asserted against us. 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 liabilities have not been recorded 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 less than $0.1 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, and $0.5 million and $1.3 million for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the balance of these restructuring obligations yet to be paid was less than $0.1 million and is expected to be paid during the remainder of 2017. No material expenses in connection with restructuring from continuing operations are expected to be incurred during the remainder of 2017.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12 Commitments and Contingencies - (Continued)

The changes in restructuring activity by reportable segments during the nine months ended September 30, 2017 and 2016 were as follows (in thousands):



	United States mechanical construction and facilities services segment			United States building services segment			Total
Balance at December 31, 2015	$	—		$	81		$	81
Charges	401			870			1,271
Payments	(108		)	(770		)	(878		)
Balance at September 30, 2016	$	293		$	181		$	474
Balance at December 31, 2016	$	188		$	13		$	201
Charges	181			773			954
Payments	(369		)	(737		)	(1,106		)
Balance at September 30, 2017	$	—		$	49		$	49

NOTE 13 Segment Information

Our reportable segments reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment due to changes in our internal reporting structure.

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; process instrumentation in the refining, chemical process, food process and mining industries; 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 “United States industrial services” segment 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.

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)

The following tables present information about industry segments and geographic areas for the three and nine months ended September 30, 2017 and 2016 (in thousands):



	For the three months ended September 30,
	2017			2016
Revenues from unrelated entities:
United States electrical construction and facilities services	$	457,919		$	458,553
United States mechanical construction and facilities services	760,084			691,818
United States building services	437,107			460,715
United States industrial services	145,679			239,052
Total United States operations	1,800,789			1,850,138
United Kingdom building services	85,902			73,036
Total worldwide operations	$	1,886,691		$	1,923,174

Total revenues:
United States electrical construction and facilities services	$	460,066		$	465,476
United States mechanical construction and facilities services	767,398			696,549
United States building services	451,396			475,106
United States industrial services	147,133			239,489
Less intersegment revenues	(25,204		)	(26,482		)
Total United States operations	1,800,789			1,850,138
United Kingdom building services	85,902			73,036
Total worldwide operations	$	1,886,691		$	1,923,174



	For the nine months ended September 30,
	2017			2016
Revenues from unrelated entities:
United States electrical construction and facilities services	$	1,350,157		$	1,227,474
United States mechanical construction and facilities services	2,173,030			1,925,793
United States building services	1,315,401			1,366,973
United States industrial services	591,694			830,064
Total United States operations	5,430,282			5,350,304
United Kingdom building services	244,078			251,256
Total worldwide operations	$	5,674,360		$	5,601,560

Total revenues:
United States electrical construction and facilities services	$	1,355,206		$	1,249,681
United States mechanical construction and facilities services	2,197,231			1,937,089
United States building services	1,360,189			1,407,361
United States industrial services	593,648			831,111
Less intersegment revenues	(75,992		)	(74,938		)
Total United States operations	5,430,282			5,350,304
United Kingdom building services	244,078			251,256
Total worldwide operations	$	5,674,360		$	5,601,560

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	For the three months ended September 30,
	2017			2016
Operating income (loss):
United States electrical construction and facilities services	$	46,583		$	30,927
United States mechanical construction and facilities services	57,484			38,890
United States building services	25,981			23,125
United States industrial services	(4,844		)	14,586
Total United States operations	125,204			107,528
United Kingdom building services	3,933			2,591
Corporate administration	(22,632		)	(23,516		)
Restructuring expenses	(46		)	(539		)
Total worldwide operations	106,459			86,064
Other corporate items:
Interest expense	(3,324		)	(3,479		)
Interest income	277			161
Income from continuing operations before income taxes	$	103,412		$	82,746



	For the nine months ended September 30,
	2017			2016
Operating income (loss):
United States electrical construction and facilities services	$	109,735		$	70,645
United States mechanical construction and facilities services	150,971			100,607
United States building services	60,375			55,658
United States industrial services	16,573			66,600
Total United States operations	337,654			293,510
United Kingdom building services	9,109			9,160
Corporate administration	(63,755		)	(67,431		)
Restructuring expenses	(954		)	(1,271		)
Total worldwide operations	282,054			233,968
Other corporate items:
Interest expense	(9,464		)	(8,973		)
Interest income	607			518
Income from continuing operations before income taxes	$	273,197		$	225,513

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EMCOR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13 Segment Information - (Continued)



	September 30, 2017		December 31, 2016
Total assets:
United States electrical construction and facilities services	$	595,680	$	631,581
United States mechanical construction and facilities services	1,055,857		954,633
United States building services	774,449		753,434
United States industrial services	840,757		850,434
Total United States operations	3,266,743		3,190,082
United Kingdom building services	121,659		105,081
Corporate administration	577,919		557,275
Total worldwide operations	$	3,966,321	$	3,852,438

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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 75 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 September 30, 2017 and 2016 (in thousands, except percentages and per share data):



	For the three months ended September 30,
	2017			2016
Revenues	$	1,886,691		$	1,923,174
Revenues (decrease) increase from prior year	(1.9		)%	13.2		%
Operating income	$	106,459		$	86,064
Operating income as a percentage of revenues	5.6		%	4.5		%
Net income attributable to EMCOR Group, Inc.	$	64,597		$	51,531
Diluted earnings per common share from continuing operations	$	1.09		$	0.85

The results for the 2017 third quarter set new company records in terms of quarterly operating income, net income attributable to EMCOR Group, Inc. and diluted earnings per common share from continuing operations, despite the challenges faced by our United States industrial services segment during the quarter. In addition, our operating margin (operating income as a percentage of revenues) was a new company record for a third quarter. The decrease in revenues for the 2017 third quarter was primarily attributable to our field services operations within our United States industrial services segment due to: (a) decreased demand for our specialty services offerings, including large project activity, and (b) a decrease in turnaround activities, as the third quarter of 2017 was negatively impacted by Hurricane Harvey, which resulted in the deferral of, and may lead to the potential cancellation of, previously scheduled turnaround projects. In addition, revenues decreased within our United States building services segment, primarily attributable to: (a) the loss of certain contracts not renewed pursuant to rebid within our commercial and government site-based services operations and (b) a reduction in large project activity within our energy services operations. These decreases were partially offset by an increase in revenues from our United States mechanical construction and facilities services segment due to increased activity within the healthcare, hospitality and commercial market sectors. In addition, companies acquired in 2017, which are reported in our United States mechanical construction and facilities services segment and our United States building services segment, generated incremental revenues of $34.7 million.

Operating income and operating margin increased within all of our reportable segments, except for our United States industrial services segment. The overall increase in operating income and operating margin was mainly attributable to the results of our domestic construction segments, which were favorably impacted by an increase in gross profit within the majority of the market sectors in which we operate. In addition, the results of our United States electrical construction and facilities services segment for the 2016 third quarter were negatively impacted by $6.9 million of losses incurred on a transportation construction project. Companies acquired in 2017 contributed incremental operating income of $1.3 million, inclusive of $2.3 million of amortization expense associated with identifiable intangible assets.

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Operating Segments

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 September 30,
	2017		% of Total		2016		% of Total
Revenues:
United States electrical construction and facilities services	$	457,919	24	%	$	458,553	24	%
United States mechanical construction and facilities services	760,084		40	%	691,818		36	%
United States building services	437,107		23	%	460,715		24	%
United States industrial services	145,679		8	%	239,052		12	%
Total United States operations	1,800,789		95	%	1,850,138		96	%
United Kingdom building services	85,902		5	%	73,036		4	%
Total worldwide operations	$	1,886,691	100	%	$	1,923,174	100	%

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	For the nine months ended September 30,
	2017		% of Total		2016		% of Total
Revenues:
United States electrical construction and facilities services	$	1,350,157	24	%	$	1,227,474	22	%
United States mechanical construction and facilities services	2,173,030		38	%	1,925,793		34	%
United States building services	1,315,401		23	%	1,366,973		24	%
United States industrial services	591,694		10	%	830,064		15	%
Total United States operations	5,430,282		96	%	5,350,304		96	%
United Kingdom building services	244,078		4	%	251,256		4	%
Total worldwide operations	$	5,674,360	100	%	$	5,601,560	100	%

As described below in more detail, our revenues for the three months ended September 30, 2017 decreased to $1.89 billion compared to $1.92 billion for the three months ended September 30, 2016, and our revenues for the nine months ended September 30, 2017 increased to $5.67 billion compared to $5.60 billion for the nine months ended September 30, 2016. The decrease in revenues for the three months ended September 30, 2017 was primarily attributable to a decrease in revenues from our United States industrial services segment and our United States building services segment, partially offset by an increase in revenues from our United States mechanical construction and facilities services segment. The increase in revenues for the nine months ended September 30, 2017 was primarily attributable to increased revenues from both of our domestic construction segments. Companies acquired in 2017 and 2016, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment and our United States building services segment, generated incremental revenues of $34.7 million and $156.5 million for the three and nine months ended September 30, 2017, respectively.

Revenues of our United States electrical construction and facilities services segment were $457.9 million and $1,350.2 million for the three and nine months ended September 30, 2017, respectively, compared to revenues of $458.6 million and $1,227.5 million for the three and nine months ended September 30, 2016, respectively. The decrease in revenues for the three months ended September 30, 2017 was primarily attributable to a decrease in revenues from electrical construction projects with customers in the industrial and power generation industries, partially offset by an increase in revenues from institutional and commercial construction projects. The increase in revenues for the nine months ended September 30, 2017 was primarily attributable to an increase in revenues from commercial and transportation construction projects. The increase in revenues within the commercial market sector for both periods was primarily as a result of work performed on numerous telecommunication construction projects. The results for the nine months ended September 30, 2017 included $50.4 million of incremental revenues generated by the acquisition of Ardent Services, L.L.C. and Rabalais Constructors, LLC (collectively, “Ardent”).

Our United States mechanical construction and facilities services segment revenues for the three months ended September 30, 2017 were $760.1 million, a $68.3 million increase compared to revenues of $691.8 million for the three months ended September 30, 2016. Revenues of this segment for the nine months ended September 30, 2017 were $2,173.0 million, a $247.2 million increase compared to revenues of $1,925.8 million for the nine months ended September 30, 2016. The increase in revenues for both periods was primarily attributable to an increase in revenues from healthcare, commercial and hospitality construction projects. In addition, revenues for the nine months ended September 30, 2017 benefited from an increase in revenues from water and wastewater construction projects, partially offset by a decrease in revenues from institutional construction projects. The results for the three and nine months ended September 30, 2017 included $17.9 million and $55.7 million, respectively, of incremental revenues generated by a company acquired in 2017.

Revenues of our United States building services segment for the three months ended September 30, 2017 decreased by $23.6 million compared to the three months ended September 30, 2016, and revenues for the nine months ended September 30, 2017 decreased by $51.6 million compared to the nine months ended September 30, 2016. The decrease in revenues for both periods was primarily attributable to: (a) the loss of certain contracts not renewed pursuant to rebid within our commercial and government site-based services operations and (b) a reduction in large project activity within our energy services operations. In addition, the decrease in revenues for the nine months ended September 30, 2017 was partially due to a reduction in snow removal activities within our commercial site-based services operations. These decreases were partially offset by an increase in revenues from our mobile mechanical services operations as a result of greater project, service and controls activities. The results for the three and nine months ended September 30, 2017 included $16.8 million and $50.4 million, respectively, of incremental revenues generated by companies acquired in 2017 and 2016.

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Revenues of our United States industrial services segment for the three months ended September 30, 2017 decreased by $93.4 million compared to the three months ended September 30, 2016, and revenues for the nine months ended September 30, 2017 decreased by $238.4 million compared to the nine months ended September 30, 2016. This segment’s results for the three months ended September 30, 2017 were negatively impacted by Hurricane Harvey, which resulted in the deferral of, and may lead to the potential cancellation of, previously scheduled turnaround projects. In addition, the decrease in revenues for both periods was attributable to decreased large project activity from our specialty services offerings within our field services operations.

Our United Kingdom building services segment revenues were $85.9 million for the three months ended September 30, 2017 compared to revenues of $73.0 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, revenues for this segment were $244.1 million compared to revenues of $251.3 million for the nine months ended September 30, 2016. This segment’s revenues for the three and nine months ended September 30, 2017 were negatively impacted by $0.3 million and $22.1 million, respectively, related to the effect of unfavorable exchange rates for the British pound versus the United States dollar. The unfavorable exchange rates for the nine months ended September 30, 2017 resulted, in part, from the decision by the United Kingdom to exit the European Union. Excluding the impact of unfavorable exchange rates, the increase in revenues for both periods was the result of increased revenues from new contract awards within the commercial and institutional market sectors, partially offset by a decrease in project activity with existing customers.

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, 2017		% of Total		December 31, 2016		% of Total		September 30, 2016		% of Total
Backlog:
United States electrical construction and facilities services	$	1,219,755	31	%	$	1,221,237	31	%	$	1,154,939	30	%
United States mechanical construction and facilities services	1,816,413		46	%	1,818,536		47	%	1,834,335		47	%
United States building services	701,569		18	%	663,340		17	%	706,188		18	%
United States industrial services	57,476		1	%	50,279		1	%	51,200		1	%
Total United States operations	3,795,213		96	%	3,753,392		96	%	3,746,662		96	%
United Kingdom building services	167,955		4	%	149,530		4	%	156,032		4	%
Total worldwide operations	$	3,963,168	100	%	$	3,902,922	100	%	$	3,902,694	100	%

Our backlog at September 30, 2017 was $3.96 billion compared to $3.90 billion at both December 31, 2016 and September 30, 2016. The increase in backlog at September 30, 2017 compared to backlog at December 31, 2016 was attributable to an increase in backlog from our United States building services segment, our United Kingdom building services segment and our United States industrial services segment, inclusive of acquisitions. 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 ventures or variable interest entities nor 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,
	2017			2016			2017			2016
Cost of sales	$	1,591,621		$	1,655,130		$	4,838,449		$	4,835,667
Gross profit	$	295,070		$	268,044		$	835,911		$	765,893
Gross profit, as a percentage of revenues	15.6		%	13.9		%	14.7		%	13.7		%

Our gross profit increased by $27.0 million for three months ended September 30, 2017 compared to the three months ended September 30, 2016. Gross profit increased by $70.0 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Our gross profit margin was 15.6% and 13.9% for the three months ended September 30, 2017 and 2016, respectively. Gross profit margin was 14.7% and 13.7% for the nine months ended September 30, 2017 and 2016, respectively. Gross profit and gross profit margin for both periods were favorably impacted by improved operating performance within all of our domestic segments, except for our United States industrial services segment. The Company’s gross profit and gross profit margin for the three and nine months ended September 30, 2016 were negatively impacted by $6.9 million and $17.4 million, respectively, of losses incurred on a transportation construction project within our United States electrical construction and facilities services segment, which resulted in a 0.3% negative impact on the Company’s gross profit margin for both prior year periods. In addition, gross profit and gross profit margin within our United States mechanical construction and facilities services segment for the nine months ended September 30, 2017 were favorably impacted by the recovery of certain contract costs previously disputed on a project that was completed in 2016, resulting in $18.1 million of gross profit and a 0.2% favorable impact on the Company’s gross profit margin.

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 September 30,						For the nine months ended September 30,
	2017			2016			2017			2016
Selling, general and administrative expenses	$	188,565		$	181,441		$	552,903		$	530,654
Selling, general and administrative expenses, as a percentage of revenues	10.0		%	9.4		%	9.7		%	9.5		%

Our selling, general and administrative expenses for the three months ended September 30, 2017 increased by $7.1 million to $188.6 million compared to $181.4 million for the three months ended September 30, 2016. Selling, general and administrative expenses for the nine months ended September 30, 2017 increased by $22.2 million to $552.9 million compared to $530.7 million for the nine months ended September 30, 2016. The increase in selling, general and administrative expenses for the three and nine months ended September 30, 2017 included $3.8 million and $20.0 million, respectively, of incremental expenses directly related to companies acquired in 2017 and 2016, including amortization expense attributable to identifiable intangible assets of $0.7 million and $3.1 million, respectively. In addition to the impact of acquisitions, selling, general and administrative expenses increased in both periods due to: (a) an increase in salaries, primarily within our United States mechanical construction and facilities segment, partially as a result of an increase in headcount due to higher revenues than in the same prior year periods, (b) an increase in the provision for doubtful accounts, primarily within our United States building services segment and (c) an increase in medical insurance costs. These increases were partially offset by lower incentive compensation expense for both periods partially due to the lower projected annual operating results for our United States industrial services segment than in the same prior year period, which resulted in decreased accruals for this segment’s incentive compensation plans. In addition, selling, general and administrative expenses for the nine months ended September 30, 2016 included $3.8 million of transaction costs associated with the acquisition of Ardent. Selling, general and administrative expenses as a percentage of revenues were 10.0% and 9.7% for the three and nine months ended September 30, 2017, respectively, compared to 9.4% and 9.5% for the three and nine months ended September 30, 2016, respectively. The increase in SG&A margin for the three months ended September 30, 2017 was due to: (a) unabsorbed overhead costs within our United States industrial services segment due to the deferral of certain turnaround activity as a result of Hurricane Harvey and (b) an increase in both the provision for doubtful accounts and medical insurance costs as discussed above.

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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 September 30,
	2017			% of Segment Revenues		2016			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	46,583		10.2	%	$	30,927		6.7	%
United States mechanical construction and facilities services	57,484			7.6	%	38,890			5.6	%
United States building services	25,981			5.9	%	23,125			5.0	%
United States industrial services	(4,844		)	(3.3	)%	14,586			6.1	%
Total United States operations	125,204			7.0	%	107,528			5.8	%
United Kingdom building services	3,933			4.6	%	2,591			3.5	%
Corporate administration	(22,632		)	—		(23,516		)	—
Restructuring expenses	(46		)	—		(539		)	—
Total worldwide operations	106,459			5.6	%	86,064			4.5	%
Other corporate items:
Interest expense	(3,324		)			(3,479		)
Interest income	277					161
Income from continuing operations before income taxes	$	103,412				$	82,746



	For the nine months ended September 30,
	2017			% of Segment Revenues		2016			% of Segment Revenues
Operating income (loss):
United States electrical construction and facilities services	$	109,735		8.1	%	$	70,645		5.8	%
United States mechanical construction and facilities services	150,971			6.9	%	100,607			5.2	%
United States building services	60,375			4.6	%	55,658			4.1	%
United States industrial services	16,573			2.8	%	66,600			8.0	%
Total United States operations	337,654			6.2	%	293,510			5.5	%
United Kingdom building services	9,109			3.7	%	9,160			3.6	%
Corporate administration	(63,755		)	—		(67,431		)	—
Restructuring expenses	(954		)	—		(1,271		)	—
Total worldwide operations	282,054			5.0	%	233,968			4.2	%
Other corporate items:
Interest expense	(9,464		)			(8,973		)
Interest income	607					518
Income from continuing operations before income taxes	$	273,197				$	225,513

As described below in more detail, operating income was $106.5 million and $282.1 million for the three and nine months ended September 30, 2017, respectively, compared to $86.1 million and $234.0 million for the three and nine months ended September 30, 2016, respectively. Operating margin was 5.6% and 5.0% for the three and nine months ended September 30, 2017, respectively, compared to 4.5% and 4.2% for the three and nine months ended September 30, 2016, respectively. Operating income and operating margin for the nine months ended September 30, 2017 benefited from the recovery of certain contract costs previously

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disputed on a project completed in 2016 within our United States mechanical construction and facilities services segment, which resulted in a 0.3% favorable impact on the Company’s operating margin.

Operating income of our United States electrical construction and facilities services segment for the three and nine months ended September 30, 2017 was $46.6 million and $109.7 million, respectively, compared to operating income of $30.9 million and $70.6 million for the three and nine months ended September 30, 2016, respectively. The increase in operating income for both periods was attributable to an increase in gross profit from: (a) the transportation market sector, due to large project activity, (b) the commercial market sector, primarily as a result of work performed on numerous telecommunication construction projects, and (c) construction projects within the institutional market sector. In addition, the results for the three and nine months ended September 30, 2016 included losses of $6.9 million and $17.4 million, respectively, incurred on a construction project in the Northeastern United States. The increase in operating margin for both 2017 periods was attributable to improved operating performance, partially as a result of increased gross profit margin from numerous construction projects within the commercial and transportation market sectors. Operating margin for the prior year periods was negatively impacted by 1.4% and 1.3% for the three and nine months ended September 30, 2016, respectively, as a result of the losses incurred on the construction project discussed above.

Our United States mechanical construction and facilities services segment operating income for the three months ended September 30, 2017 was $57.5 million, an $18.6 million increase compared to operating income of $38.9 million for the three months ended September 30, 2016. Operating income for the nine months ended September 30, 2017 was $151.0 million, a $50.4 million increase compared to operating income of $100.6 million for the nine months ended September 30, 2016. The increase in operating income for both periods was attributable to an increase in gross profit from the majority of the market sectors in which we operate. Additionally, this segment’s operating income for the nine months ended September 30, 2017 benefited from the recovery of certain contract costs previously disputed on a project completed in 2016, which resulted in $18.1 million of gross profit. A company acquired in 2017 contributed incremental operating income of $0.1 million and $1.3 million, net of $2.0 million and $6.1 million of amortization expense associated with identifiable intangible assets, for the three and nine months ended September 30, 2017, respectively. The increase in operating margin for both periods was attributable to an increase in gross profit margin. The recovery of the disputed contract costs discussed above favorably impacted this segment’s operating margin by 0.7% for the nine months ended September 30, 2017.

Operating income of our United States building services segment for the three months ended September 30, 2017 increased by $2.9 million compared to operating income for the three months ended September 30, 2016, and its operating income for the nine months ended September 30, 2017 increased by $4.7 million compared to the nine months ended September 30, 2016. The increase in operating income for the three months ended September 30, 2017 was primarily attributable to increases in operating income from: (a) our energy services operations and (b) our commercial site-based services operations, partially as a result of decreased selling, general and administrative expenses due to restructuring activities. The increase in operating income for the nine months ended September 30, 2017 was due to increases in operating income from: (a) our mobile mechanical services operations, as a result of increases in gross profit from project, service and control activities, and (b) our energy services operations. The increase in operating income for our energy services operations for both periods primarily resulted from improved operating performance, as the results for the three months ended September 30, 2016 included a loss incurred on a large project. Additionally, companies acquired in 2017 and 2016 within our mobile mechanical services operations, contributed incremental operating income of $1.2 million and $2.6 million, net of $0.3 million and $1.2 million of amortization expense associated with identifiable intangible assets, for the three and nine months ended September 30, 2017, respectively. The increase in operating income for the nine months ended September 30, 2017 was partially offset by a decrease in gross profit from our commercial site-based services operations partially due to a reduction in snow removal activities. The increase in operating margin for both periods was attributable to an increase in gross profit margin.

Our United States industrial services segment operating loss for the three months ended September 30, 2017 was $4.8 million compared to operating income of $14.6 million for the three months ended September 30, 2016. Operating income for the nine months ended September 30, 2017 was $16.6 million, a $50.0 million decrease compared to operating income of $66.6 million for the nine months ended September 30, 2016. This segment’s results for the three months ended September 30, 2017 were negatively impacted by Hurricane Harvey, which resulted in the deferral of, and may lead to the potential cancellation of, previously scheduled turnaround projects. In addition, the decrease in operating income for both periods was attributable to a decrease in gross profit from specialty services offerings within our field services operations as a result of reduced large project activity. The decrease in operating margin for both periods was attributable to a decrease in gross profit margin and an increase in the ratio of selling, general and administrative expenses to revenues. The increase in SG&A margin for the three months ended September 30, 2017 was primarily the result of unabsorbed overhead costs as a result of the project deferrals due to Hurricane Harvey and lower specialty services revenues.

Our United Kingdom building services segment operating income was $3.9 million and $9.1 million for the three and nine months ended September 30, 2017, respectively, compared to operating income of $2.6 million and $9.2 million for the three and

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nine months ended September 30, 2016, respectively. This segment’s results included a decrease in operating income of $0.7 million for the nine months ended September 30, 2017 relating to the effect of unfavorable exchange rates for the British pound versus the United States dollar. Excluding the impact of exchange rates, operating income increased in both periods, primarily due to an increase in gross profit from new contract awards, partially offset by a decrease in gross profit from project activity. The increase in operating margin for the three months ended September 30, 2017 was attributable to an increase in gross profit margin and a decrease in SG&A margin.

Our corporate administration operating loss for the three months ended September 30, 2017 was $22.6 million compared to $23.5 million for the three months ended September 30, 2016. Our corporate administration operating loss for the nine months ended September 30, 2017 was $63.8 million compared to $67.4 million for the nine months ended September 30, 2016. The decrease in corporate administration expenses for the nine months ended September 30, 2017 was primarily due to a decrease in other professional fees, as the same prior year period included $3.8 million of transaction costs associated with the acquisition of Ardent.

Interest expense for the three months ended September 30, 2017 and 2016 was $3.3 million and $3.5 million, respectively. Interest expense for the nine months ended September 30, 2017 and 2016 was $9.5 million and $9.0 million, respectively. The increase in interest expense for the nine months ended September 30, 2017 was primarily due to increased outstanding borrowings in the first quarter of 2017 and a higher United States dollar LIBOR rate. Interest income for the three months ended September 30, 2017 and 2016 was $0.3 million and $0.2 million, respectively. Interest income for the nine months ended September 30, 2017 and 2016 was $0.6 million and $0.5 million, respectively.

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 nine months ended September 30,
	2017			2016
Net cash provided by operating activities	$	238,284		$	128,924
Net cash used in investing activities	$	(106,712	)	$	(260,339	)
Net cash (used in) provided by financing activities	$	(118,624	)	$	154,341
Effect of exchange rate changes on cash and cash equivalents	$	2,931		$	(5,199	)

Our consolidated cash balance increased by approximately $15.9 million from $464.6 million at December 31, 2016 to $480.5 million at September 30, 2017. Net cash provided by operating activities for the nine months ended September 30, 2017 was $238.3 million compared to net cash provided by operating activities of $128.9 million for the nine months ended September 30, 2016. The increase in cash provided by operating activities was primarily due to a $32.7 million increase in net income and improved cash flows from accounts receivable. Net cash used in investing activities was $106.7 million for the nine months ended September 30, 2017 compared to net cash used in investing activities of $260.3 million for the nine months ended September 30, 2016. The decrease in net cash used in investing activities was primarily due to a reduction in payments for acquisitions of

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businesses. Net cash flows from financing activities for the nine months ended September 30, 2017 decreased by approximately $273.0 million compared to the nine months ended September 30, 2016 primarily as a result of borrowings of $220.0 million under our revolving credit facility in the prior year. Net cash used in financing activities for the nine months ended September 30, 2017 was primarily 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 2.24%) ⁽¹⁾	$	135.9	$	2.8	$	5.7	$	127.4	$	—
Term loan (including interest at 2.24%)⁽¹⁾	311.4		21.6		42.2		247.6		—
Capital lease obligations	5.1		1.5		3.0		0.6		—
Operating leases	293.6		67.0		111.0		67.1		48.5
Open purchase obligations ⁽²⁾	1,059.7		892.8		166.2		0.7		—
Other long-term obligations, including current portion ⁽³⁾	416.9		64.5		342.5		9.9		—
Liabilities related to uncertain income tax positions ⁽⁴⁾	2.1		—		—		—		2.1
Total Contractual Obligations	$	2,224.7	$	1,050.2	$	670.6	$	453.3	$	50.6

			Amount of Commitment Expiration by Period
Other Commercial Commitments	Total Committed		Less than 1 year