Published: 2022-04-28 00:00:00 ET

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The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to 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 (“U.S. GAAP”) have been condensed or omitted. References to the “Company,” “EMCOR,” “we,” “us,” “our,” and similar words refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly our financial position and the results of our operations.

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment, and from our United States building services segment to our United States construction segments, due to changes in our internal reporting structure aimed at realigning our service offerings.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

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The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by applying the following five step model:

(1) Identify the contract with a customer

A contract with a customer exists when: (a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectability of consideration is probable. Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist. In these situations, the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized. In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

(2) Identify the performance obligations in the contract

At contract inception, the Company assesses the goods or services promised in a contract and identifies, as a separate performance obligation, each distinct promise to transfer goods or services to the customer. The identified performance obligations represent the “unit of account” for purposes of determining revenue recognition. In order to properly identify separate performance obligations, the Company applies judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract.

In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract. To the extent the warranty terms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accounted for as a separate performance obligation. In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison to warranty terms which are standard in the industry.

Our contracts are often modified through change orders to account for changes in the scope and price of the goods or services we are providing. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of our change orders are for goods or services that are not distinct within the context of our original contract and, therefore, are not treated as separate performance obligations.

(3) Determine the transaction price

The transaction price represents the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to our customers. The consideration promised within a contract may include fixed amounts, variable amounts, or both. To the extent the performance obligation includes variable consideration, including contract bonuses and penalties that can either increase or decrease the transaction price, the Company estimates the amount of variable consideration to be included in the transaction price utilizing one of two prescribed methods, depending on which method better predicts the amount of consideration to which the entity will be entitled. Such methods include: (a) the expected value method, whereby the amount of variable consideration to be recognized represents the sum of probability-weighted amounts in a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range of possible consideration amounts. When applying these methods, the Company considers all information that is reasonably available, including historical, current, and estimates of future performance. The expected value method is typically utilized in situations where a contract contains a large number of possible outcomes while the most likely amount method is typically utilized in situations where a contract has only two possible outcomes.

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NOTE 3 - Revenue from Contracts with Customers (Continued)

Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This threshold is referred to as the variable consideration constraint. In assessing whether to apply the variable consideration constraint, the Company considers if factors exist that could increase the likelihood or the magnitude of a potential reversal of revenue, including, but not limited to, whether: (a) the amount of consideration is highly susceptible to factors outside of the Company’s influence, such as the actions of third parties, (b) the uncertainty surrounding the amount of consideration is not expected to be resolved for a long period of time, (c) the Company’s experience with similar types of contracts is limited or that experience has limited predictive value, (d) the Company has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances, and (e) the contract has a large number and broad range of possible consideration amounts.

Pending change orders represent one of the most common forms of variable consideration included within contract value and typically represent contract modifications for which a change in scope has been authorized or acknowledged by our customer but the final adjustment to contract price is yet to be negotiated. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment of and/or agreement with the modification, as well as historical experience with the customer or similar contractual circumstances. Based upon this assessment, the Company estimates the transaction price, including whether the variable consideration constraint should be applied.

Contract claims are another form of variable consideration which is common within our industry. Claim amounts represent revenue that has been recognized for contract modifications that are not submitted or are in dispute as to both scope and price. In estimating the transaction price for claims, the Company considers all relevant facts available. However, given the uncertainty surrounding claims, including the potential long-term nature of dispute resolution and the broad range of possible consideration amounts, there is an increased likelihood that any additional contract revenue associated with contract claims is constrained. The resolution of claims involves negotiations and, in certain cases, litigation. In the event litigation costs are incurred by us in connection with claims, such litigation costs are expensed as incurred, although we may seek to recover these costs.

For some transactions, the receipt of consideration does not match the timing of the transfer of goods or services to the customer. For such contracts, the Company evaluates whether this timing difference represents a financing arrangement within the contract. Although rare, if a contract is determined to contain a significant financing component, the Company adjusts the promised amount of consideration for the effects of the time value of money when determining the transaction price of such contract. Although our customers may retain a portion of the contract price until completion of the project and final contract settlement, these retainage amounts are not considered a significant financing component as the intent of the withheld amounts is to provide the customer with assurance that we will complete our obligations under the contract rather than to provide financing to the customer. In addition, although we may be entitled to advanced payments from our customers on certain contracts, these advanced payments generally do not represent a significant financing component as the payments are used to meet working capital demands that can be higher in the early stages of a contract, as well as to protect us from our customer failing to meet its obligations under the contract.

Changes in the estimates of transaction prices are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior periods. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. For the three months ended March 31, 2022 and 2021, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods. In addition, for the three months ended March 31, 2022 and 2021, there were no significant reversals of revenue recognized associated with the revision of transaction prices.

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NOTE 3 - Revenue from Contracts with Customers (Continued)

(4) Allocate the transaction price to performance obligations in the contract

For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as market conditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation.

(5) Recognize revenue as performance obligations are satisfied

The Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service is considered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or at a point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.

For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the number of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations.

For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly and the customer receives and consumes the benefits of our performance throughout the contract term.

The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer. For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping if certain recognition criteria are met.

For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds, and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

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NOTE 3 - Revenue from Contracts with Customers (Continued)

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted by approximately $10.0 million, during the three months ended March 31, 2022. Of this amount, approximately $4.6 million was recorded within our United States electrical construction and facilities services segment and approximately $5.4 million was recorded within our United States mechanical construction and facilities services segment. There were no changes in total estimated costs that had a significant impact on our operating results during the three months ended March 31, 2021.

Disaggregation of Revenues

Our revenues are principally derived from contracts to provide construction services relating to electrical and mechanical systems, as well as to provide a number of building services and industrial services to our customers. Our contracts are with many different customers in numerous industries. Refer to Note 14 - Segment Information of the notes to consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment.

The following tables provide further disaggregation of our revenues, by categories we use to evaluate our financial performance within each of our reportable segments, for the three months ended March 31, 2022 and 2021 (in thousands):

			For the three months ended March 31,
			2022						% of Total						2021						% of Total
United States electrical construction and facilities services:
Commercial market sector			$	270,315					52		%				$	245,841					53		%
Manufacturing market sector			66,465						13		%				48,454						11		%
Healthcare market sector			32,070						6		%				20,151						4		%
Institutional market sector			31,766						6		%				43,639						9		%
Transportation market sector			45,082						8		%				42,031						9		%
Water and wastewater market sector			5,312						1		%				3,651						1		%
Hospitality market sector			2,623						1		%				4,664						1		%
Short duration projects (1)			56,048						11		%				44,409						10		%
Service work			13,329						2		%				7,765						2		%
			523,010												460,605
Less intersegment revenues			(980)												(1,210)
Total segment revenues			$	522,030											$	459,395

 ________

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

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NOTE 3 - Revenue from Contracts with Customers (Continued)

			For the three months ended March 31,
			2022						% of Total						2021						% of Total
United States mechanical construction and facilities services:
Commercial market sector			$	379,604					38		%				$	366,477					40		%
Manufacturing market sector			149,571						15		%				121,686						13		%
Healthcare market sector			120,051						12		%				112,656						12		%
Institutional market sector			70,627						7		%				69,304						8		%
Transportation market sector			16,053						2		%				18,417						2		%
Water and wastewater market sector			61,744						6		%				43,848						5		%
Hospitality market sector			8,079						1		%				8,529						1		%
Short duration projects (1)			62,294						6		%				86,765						9		%
Service work			134,715						13		%				88,490						10		%
			1,002,738												916,172
Less intersegment revenues			(2,268)												(1,671)
Total segment revenues			$	1,000,470											$	914,501

 ________

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

			For the three months ended March 31,
			2022						% of Total						2021						% of Total
United States building services:
Mobile mechanical services			$	373,571					60		%				$	351,317					62		%
Commercial site-based services			203,550						32		%				175,647						31		%
Government site-based services			50,680						8		%				41,072						7		%
Total segment revenues			$	627,801											$	568,036

			For the three months ended March 31,
			2022						% of Total						2021						% of Total
United States industrial services:
Field services			$	271,418					87		%				$	207,554					88		%
Shop services			39,333						13		%				27,828						12		%
Total segment revenues			$	310,751											$	235,382
Total United States operations			$	2,461,052											$	2,177,314

			For the three months ended March 31,
			2022						% of Total						2021						% of Total
United Kingdom building services:
Service work			$	64,817					49		%				$	61,991					49		%
Project work			66,680						51		%				64,744						51		%
Total segment revenues			$	131,497											$	126,735
Total operations			$	2,592,549											$	2,304,049

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NOTE 3 - Revenue from Contracts with Customers (Continued)

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recognized in the period we deliver goods and services to our customers or when our right to consideration is unconditional. The Company maintains an allowance for credit losses to reduce outstanding receivables to their net realizable value. A considerable amount of judgment is required when determining expected credit losses. Estimates of such losses are recorded when we believe a customer, or group of customers, may not be able to meet their financial obligations due to deterioration in financial condition or credit rating. Factors relevant to our assessment include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends in credit quality indicators or past events, and forecasts of future economic conditions. In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

At March 31, 2022 and December 31, 2021, our allowance for credit losses was $23.0 million and $23.5 million, respectively. The decrease in our allowance for credit losses was predominantly attributable to the write-off of specific amounts deemed unrecoverable. Allowances for credit losses are based on the best facts available and are reassessed and adjusted on a regular basis as additional information is received. Should anticipated collections fail to materialize, or if future economic conditions compare unfavorably to our forecasts, we could experience an increase in our credit losses.

The change in the allowance for credit losses for the three months ended March 31, 2022 was as follows (in thousands):

Balance at December 31, 2021			$	23,534
Provision for credit losses			15
Amounts written off against the allowance, net of recoveries			(593)
Balance at March 31, 2022			$	22,956

Contract Assets and Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts are not yet billable under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrial services segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded as revenue is recognized in advance of billings.

Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to scope and/or price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue. The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets.

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NOTE 3 - Revenue from Contracts with Customers (Continued)

Net contract liabilities in the accompanying Consolidated Balance Sheets consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

			March 31, 2022						December 31, 2021
Contract assets, current			$	262,119					$	230,143
Contract assets, non-current			—						—
Contract liabilities, current			(827,708)						(788,134)
Contract liabilities, non-current			(1,663)						(2,505)
Net contract liabilities			$	(567,252)					$	(560,496)

The $6.8 million increase in net contract liabilities for the three months ended March 31, 2022 was primarily attributable to an increase in net contract liabilities on our uncompleted construction projects, partially as a result of the timing of invoicing to our customers. There was no significant impairment of contract assets recognized during the periods presented.

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations     

The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentages of total remaining performance obligations as of March 31, 2022 (in thousands, except for percentages):

			March 31, 2022						% of Total
Remaining performance obligations:
United States electrical construction and facilities services			$	1,297,086					22		%
United States mechanical construction and facilities services			3,384,089						57		%
United States building services			995,003						16		%
United States industrial services			116,496						2		%
Total United States operations			5,792,674						97		%
United Kingdom building services			160,207						3		%
Total operations			$	5,952,881					100		%

Our remaining performance obligations at March 31, 2022 were $5.95 billion. Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts. We include a project within our remaining performance obligations at such time the project is awarded and agreement on contract terms has been reached. Our remaining performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of the total transaction price can be made.

Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts. Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts as the risk of cancellation is very low due to the inherent substantial economic penalty that our customers would incur upon cancellation or termination. We believe our reported remaining performance obligations for our construction contracts are firm and contract cancellations have not had a material adverse effect on us.

Remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts. However, to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty, the remaining contract term, and therefore, the amount of unrecognized revenues included within remaining performance obligations, is limited to the notice period required for the termination.

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NOTE 3 - Revenue from Contracts with Customers (Continued)

Our remaining performance obligations are comprised of: (a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business, (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts. Such claim and other variable consideration amounts were immaterial for all periods presented.

Refer to the table below for additional information regarding our remaining performance obligations, including an estimate of when we expect to recognize such remaining performance obligations as revenue (in thousands):

			Within one year						Greater than one year
Remaining performance obligations:
United States electrical construction and facilities services			$	1,150,600					$	146,486
United States mechanical construction and facilities services			2,737,236						646,853
United States building services			892,868						102,135
United States industrial services			116,496						—
Total United States operations			4,897,200						895,474
United Kingdom building services			135,870						24,337
Total operations			$	5,033,070					$	919,811

Acquisitions are accounted for utilizing the acquisition method of accounting and the prices paid for them are allocated to their respective assets and liabilities based upon the estimated fair value of such assets and liabilities at the dates of their respective acquisition by us.

During the first quarter of 2022, we acquired a company for an immaterial amount. This company provides fire protection services in the Northeastern region of the United States.

During calendar year 2021, we acquired eight companies for total consideration of $131.2 million. Such acquisitions include: (a) two companies, the results of operations of which have been included within our United States mechanical construction and facilities services segment, consisting of: (i) a company that provides mechanical services within the Southern region of the United States and (ii) a company that provides fire protection services in the Midwestern region of the United States, (b) two companies that provide electrical construction services for a broad array of customers in the Midwestern region of the United States, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (c) four companies, the results of operations of which have been included within our United States building services segment, consisting of: (i) a company that provides mobile mechanical services across North Texas and (ii) three companies that bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions. In connection with these acquisitions, we acquired working capital of $22.9 million and other net liabilities of $0.6 million, including certain deferred tax liabilities, and have preliminarily ascribed $38.3 million to goodwill and $70.6 million to identifiable intangible assets.

We expect that the majority of the goodwill acquired in connection with these acquisitions will be deductible for tax purposes. The purchase price allocations for the business acquired in 2022 and one of the businesses acquired in 2021 are preliminary and subject to change during their respective measurement periods. As we finalize such purchase price allocations, adjustments may be recorded relating to finalization of intangible asset valuations, tax matters, or other items. Although not expected to be significant, such adjustments may result in changes in the valuation of assets and liabilities acquired. The purchase price allocations for the other businesses acquired in 2021 have been finalized during their respective measurement periods with an insignificant impact.

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Calculation of Basic and Diluted Earnings per Common Share

The following table summarizes our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three months ended March 31, 2022 and 2021 (in thousands, except share and per share data):

			For the three months ended March 31,
			2022						2021
Numerator:
Net income attributable to EMCOR Group, Inc. common stockholders			$	73,386					$	84,774
Denominator:
Weighted average shares outstanding used to compute basic earnings per common share			52,713,005						54,896,548
Effect of dilutive securities—Share-based awards			203,554						238,756
Shares used to compute diluted earnings per common share			52,916,559						55,135,304
Basic earnings per common share			$	1.39					$	1.54
Diluted earnings per common share			$	1.39					$	1.54

The number of share-based awards excluded from the computation of diluted EPS for the three months ended March 31, 2022 because they would be anti-dilutive were 62,481. There were no anti-dilutive share-based awards outstanding for the three months ended March 31, 2021.

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of March 31, 2022 and December 31, 2021 (in thousands):

			March 31, 2022						December 31, 2021
Raw materials and construction materials			$	60,339					$	46,186
Work in process			11,124						7,912
Inventories			$	71,463					$	54,098

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Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of March 31, 2022 and December 31, 2021 (in thousands):

			March 31, 2022						December 31, 2021
Term loan			$	256,688					$	256,688
Unamortized debt issuance costs			(2,800)						(3,040)
Finance lease liabilities			7,545						8,037
Total debt			261,433						261,685
Less: current maturities			16,017						16,235
Total long-term debt			$	245,416					$	245,450

Credit Agreement        

We have a credit agreement dated as of March 2, 2020, which provides for a $1.3 billion revolving credit facility (the “2020 Revolving Credit Facility”) and a $300.0 million term loan (the “2020 Term Loan”) (collectively referred to as the “2020 Credit Agreement”) expiring March 2, 2025. We may increase the 2020 Revolving Credit Facility to $1.9 billion if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $400.0 million of available capacity under the 2020 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries.

At the Company’s election, borrowings under the 2020 Credit Agreement bear interest at either: (1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (0.46% at March 31, 2022) 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 (3.50% at March 31, 2022), (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%. In the event of the discontinuation of LIBOR, our 2020 Credit Agreement contains provisions which allow for the use of alternate benchmark rates. The interest rate in effect at March 31, 2022 was 1.46%. A commitment fee is payable on the average daily unused amount of the 2020 Revolving Credit Facility, which ranges from 0.10% to 0.25%, based on certain financial tests. The fee was 0.10% of the unused amount as of March 31, 2022. Fees for letters of credit issued under the 2020 Revolving Credit Facility range from 0.75% to 1.75% of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed based on certain financial tests.

As of March 31, 2022 and December 31, 2021, the balance of the 2020 Term Loan was $256.7 million. As of March 31, 2022 and December 31, 2021, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility; however, we had $71.3 million of letters of credit outstanding, which reduce the available capacity under such facility. We capitalized an additional $3.1 million of debt issuance costs associated with the 2020 Credit Agreement. Debt issuance costs are amortized over the life of the agreement as part of interest expense.

Obligations under the 2020 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2020 Credit Agreement contains various covenants providing for, among other things, the maintenance of certain financial ratios and certain limitations on the payment of dividends, common stock repurchases, investments, acquisitions, indebtedness, and capital expenditures. We were in compliance with all such covenants as of March 31, 2022 and December 31, 2021.

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For disclosure purposes, we utilize a fair value hierarchy to categorize qualifying assets and liabilities into three broad levels based on the priority of the inputs used to determine their fair values. The hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs, is comprised of the following three levels:

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

Level 2 – Observable inputs, other than Level 1 inputs, that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring Fair Value Measurements

The following tables summarize the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):  

			Assets at Fair Value as of March 31, 2022
Asset Category			Level 1						Level 2						Level 3						Total
Cash and cash equivalents (1)			$	514,513					$	—					$	—					$	514,513
Restricted cash (2)			1,356						—						—						1,356
Deferred compensation plan assets (3)			44,257						—						—						44,257
Total			$	560,126					$	—					$	—					$	560,126

			Assets at Fair Value as of December 31, 2021
Asset Category			Level 1						Level 2						Level 3						Total
Cash and cash equivalents (1)			$	821,345					$	—					$	—					$	821,345
Restricted cash (2)			1,223						—						—						1,223
Deferred compensation plan assets (3)			42,344						—						—						42,344
Total			$	864,912					$	—					$	—					$	864,912

 ________

(1)Cash and cash equivalents consist of deposit accounts and money market funds with original maturity dates of three months or less, which are Level 1 assets. At March 31, 2022 and December 31, 2021, we had $194.6 million and $336.0 million, respectively, in money market funds.

(2)Restricted cash is classified as “Prepaid expenses and other” in the Consolidated Balance Sheets. Restricted cash primarily represents cash held in account for use on customer contracts.

(3)Deferred compensation plan assets are classified as “Other assets” in the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

We have recorded goodwill and identifiable intangible assets in connection with our business acquisitions. Such assets are measured at fair value at the time of acquisition based on valuation techniques that appropriately represent the methods which would be used by other market participants in determining fair value. In addition, goodwill and intangible assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets. Periodically, we engage an independent third-party valuation specialist to assist with the valuation process, including the selection of appropriate methodologies and the development of market-based assumptions. The inputs used for these nonrecurring fair value measurements represent Level 3 inputs.

Fair Value of Financial Instruments

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The following table presents our income tax provision and our income tax rate for the three months ended March 31, 2022 and 2021 (in thousands, except percentages):

			For the three months ended March 31,
			2022						2021
Income tax provision			$	26,451					$	31,604
Income tax rate			26.5		%				27.2		%

The difference between the U.S. statutory tax rate of 21% and our income tax rate for both the three months ended March 31, 2022 and 2021 was primarily a result of state and local income taxes and other permanent book to tax differences. The decrease in our income tax provision for the three months ended March 31, 2022 was a result of a reduction in taxable income as well as a decrease in our income tax rate during the period. The decrease in our income tax rate for the three months ended March 31, 2022 was attributable to: (a) a reduction in certain permanent book to tax differences, (b) the favorable impact of certain discrete tax items during the first quarter of 2022, including an increase in the income tax benefit recognized upon the issuance of common stock under our share-based compensation programs, and (c) a reduction in our state income tax rate due to a change in the allocation of earnings among the jurisdictions in which our income is taxed.

As of March 31, 2022 and December 31, 2021, we had no unrecognized income tax benefits.

As of March 31, 2022 and December 31, 2021, there were 51,829,923 and 53,299,738 shares of our common stock outstanding, respectively.

During the three months ended March 31, 2022 and 2021, we issued 95,331 and 91,243 shares of common stock, respectively. These shares were issued upon either the satisfaction of required conditions under our share-based compensation plans or the purchase of common stock pursuant to our employee stock purchase plan.

We have paid quarterly dividends since October 25, 2011. We currently pay a regular quarterly dividend of $0.13 per share.

In September 2011, our Board of Directors (the “Board”) authorized a share repurchase program allowing us to begin repurchasing shares of our outstanding common stock. Subsequently, the Board has from time to time increased the amount authorized for repurchases under such program. Since the inception of the repurchase program, the Board has authorized us to repurchase up to $1.45 billion of our outstanding common stock. During the three months ended March 31, 2022, we repurchased approximately 1.6 million shares of our common stock for approximately $181.8 million. Since the inception of the repurchase program through March 31, 2022, we have repurchased approximately 20.7 million shares of our common stock for approximately $1.28 billion. As of March 31, 2022, there remained authorization for us to repurchase approximately $168.6 million of our shares. Subsequent to March 31, 2022, the Board authorized us to repurchase up to an additional $200.0 million of our outstanding common stock. The repurchase program has no expiration date, does 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 2020 Credit Agreement placing limitations on such repurchases. The repurchase program has been and will be funded from our operations.

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NOTE 11 - Retirement Plans (Continued)

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.

We also sponsor three domestic retirement plans in which participation by new individuals is frozen. Amounts related to these domestic retirement plans were immaterial for all periods presented.

Components of Net Periodic Pension Cost

The components of net periodic pension cost (income) of the UK Plan for the three months ended March 31, 2022 and 2021 were as follows (in thousands): 

			For the three months ended March 31,
			2022						2021
Interest cost			$	1,529					$	1,336
Expected return on plan assets			(3,244)						(3,192)
Amortization of unrecognized loss			556						913
Net periodic pension cost (income)			$	(1,159)					$	(943)

Employer Contributions

For the three months ended March 31, 2022, our United Kingdom subsidiary contributed approximately $1.2 million to the UK Plan and anticipates contributing an additional $3.2 million during the remainder of 2022.

Severance Agreements

We have agreements with our executive officers and certain other key management personnel providing for severance benefits for such employees upon termination of their employment under certain circumstances.

Guarantees

In the ordinary course of business, we, at times, guarantee obligations of our subsidiaries under certain contracts. Generally, we are liable under such an arrangement only if our subsidiary fails to perform its obligations under the contract. Historically, we have not incurred any substantial liabilities as a consequence of these guarantees.

Surety Bonds

The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, surety bonds as a condition to the award of such contracts. These surety bonds are issued in return for premiums, which vary depending on the size and type of the bond, and secure our payment and performance obligations under such contracts. We have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of surety bonds issued on our behalf. As of March 31, 2022, based on the percentage-of-completion of our projects covered by surety bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.5 billion, which represents approximately 25% of our total remaining performance obligations.

Surety bonds are sometimes provided to secure obligations for wages and benefits payable to or for certain of our employees, at the request of labor unions representing such employees. In addition, surety bonds may be issued as collateral for certain insurance obligations. As of March 31, 2022, we satisfied approximately $48.1 million of the collateral requirements of our insurance programs by utilizing surety bonds.

We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

Hazardous Materials

We are subject to regulation with respect to the handling of certain materials used in construction, which are classified as hazardous or toxic by federal, state, and local agencies. Our practice is to avoid participation in projects principally involving the remediation or removal of such materials. However, when remediation is required as part of our contract performance, we believe we comply with all applicable regulations governing the discharge of hazardous materials into the environment or otherwise relating to the protection of the environment.

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NOTE 12 - Commitments and Contingencies (continued)

Government Contracts

As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, which such audits may result in 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 Proceedings     

We are involved in several legal 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. We do not believe that any such matters will have a material adverse effect on our financial position, results of operations, or liquidity. We record a loss contingency if the potential loss from a proceeding or claim is considered probable and the amount can be reasonably estimated or a range of loss can be determined. We provide disclosure when it is reasonably possible that a loss will be incurred in excess of any recorded provision. Significant judgment is required in these determinations. As additional information becomes available, we reassess prior determinations and may change our estimates. Additional claims may be asserted against us in the future. Litigation is subject to many uncertainties, and the outcome of litigation is not predictable with assurance. It is possible that a litigation matter for which liabilities have not been recorded could be decided unfavorably to us, and that any such unfavorable decision could have a material adverse effect on our financial position, results of operations, or liquidity.

Insurance Liabilities

We have loss payment deductibles for certain workers’ compensation, automobile liability, general liability, and property claims, have self-insured retentions for certain other casualty claims, and are self-insured for employee-related healthcare claims. In addition, we maintain a wholly-owned captive insurance subsidiary to manage certain of our insurance liabilities. Losses are recorded based upon estimates of our liability for claims incurred and for claims incurred but not reported. The liabilities are derived from known facts, historical trends, and industry averages, utilizing the assistance of an independent third-party actuary to determine the best estimate for the majority of these obligations. As of March 31, 2022 and December 31, 2021, the estimated current portion of such undiscounted insurance liabilities, included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets, were $55.6 million and $61.5 million, respectively. The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” as of March 31, 2022 and December 31, 2021 were $216.2 million and $242.4 million, respectively. The current portion of anticipated insurance recoveries of $18.4 million and $26.4 million as of March 31, 2022 and December 31, 2021, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $66.6 million and $99.0 million as of March 31, 2022 and December 31, 2021, respectively, were included in “Other assets” in the accompanying Consolidated Balance Sheets. These balances decreased from December 31, 2021 as a result of the payment, by our insurers, of certain claims for which we previously maintained a reserve and corresponding insurance receivable.

The following table presents additional cash flow information for the three months ended March 31, 2022 and 2021 (in thousands):  

			For the three months ended March 31,
			2022						2021
Cash paid for:
Interest			$	1,264					$	1,323
Income taxes			$	33,489					$	4,385
Right-of-use assets obtained in exchange for new operating lease liabilities			$	21,286					$	9,868
Right-of-use assets obtained in exchange for new finance lease liabilities			$	552					$	676

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We are one of the largest specialty contractors in the United States and a leading provider of electrical and mechanical construction and facilities services, building services, and industrial services. Our services are provided to a broad range of commercial, industrial, utility, and institutional customers through approximately 90 operating subsidiaries, which specialize principally in providing construction services relating to electrical and mechanical systems in all types of facilities and in providing various services relating to the operating, maintenance, and management of those facilities. Such operating subsidiaries are organized into the following reportable segments:

•United States electrical construction and facilities services;

•United States mechanical construction and facilities services;

•United States building services;

•United States industrial services; and

•United Kingdom building services.

For a more complete description of our operations, refer to Item 1. Business of our Form 10-K for the year ended December 31, 2021.

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment, and from our United States building services segment to our United States construction segments, due to changes in our internal reporting structure aimed at realigning our service offerings.

The following tables present financial information for each of our reportable segments for the three months ended March 31, 2022 and 2021 (in thousands): 

			For the three months ended March 31,
			2022						2021
Revenues from unrelated entities:
United States electrical construction and facilities services			$	522,030					$	459,395
United States mechanical construction and facilities services			1,000,470						914,501
United States building services			627,801						568,036
United States industrial services			310,751						235,382
Total United States operations			2,461,052						2,177,314
United Kingdom building services			131,497						126,735
Total operations			$	2,592,549					$	2,304,049
Total revenues:
United States electrical construction and facilities services			$	523,414					$	460,775
United States mechanical construction and facilities services			1,004,856						916,722
United States building services			652,231						590,445
United States industrial services			324,501						245,928
Less intersegment revenues			(43,950)						(36,556)
Total United States operations			2,461,052						2,177,314
United Kingdom building services			131,497						126,735
Total operations			$	2,592,549					$	2,304,049

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NOTE 14 - Segment Information (continued)

			For the three months ended March 31,
			2022						2021
Operating income (loss):
United States electrical construction and facilities services			$	19,993					$	40,252
United States mechanical construction and facilities services			58,674						63,176
United States building services			23,922						31,120
United States industrial services			13,258						(2,443)
Total United States operations			115,847						132,105
United Kingdom building services			10,588						9,411
Corporate administration			(26,478)						(24,512)
Total operations			99,957						117,004
Other items:
Net periodic pension (cost) income			1,169						908
Interest expense, net			(1,289)						(1,363)
Income before income taxes			$	99,837					$	116,549

			March 31, 2022						December 31, 2021
Total assets:
United States electrical construction and facilities services			$	847,786					$	855,417
United States mechanical construction and facilities services			1,698,791						1,672,546
United States building services			1,132,080						1,089,844
United States industrial services			659,795						589,017
Total United States operations			4,338,452						4,206,824
United Kingdom building services			259,522						241,740
Corporate administration			633,180						992,882
Total operations			$	5,231,154					$	5,441,446

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