EMCOR GROUP, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-Q)

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activity Descrition

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
operation, maintenance, and management of those facilities. Such operating
subsidiaries are organized into the following reportable segments:

•Construction and electrical installation services in the United States;

• Mechanical engineering and installation services in the United States;

•Construction services in the United States;

•Industrial services in the United States; and

•Building services in the United Kingdom.

For a more complete description of our operations, see 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.

Market Update

Although our business continues to recover from the financial impacts of the
COVID-19 pandemic and related government orders implemented to mitigate it, the
effect of the COVID-19 pandemic may continue to disrupt our customers'
operations and our job sites, and may continue to impact supply chains. Economic
disruptions, including supply chain, production, and other logistical issues, as
well as wage and general inflation, together with escalating commodity prices,
have and may continue to negatively impact our business. For example, we are
experiencing lead times significantly in excess of normal levels while also
experiencing the effects of inflation through increases in fuel, material, and
other commodity prices. These disruptions have manifested themselves through
project delays or scheduling impacts and reduced labor productivity and
efficiency, particularly within our United States construction segments and our
United States building services segment. In addition, the market for trade labor
remains tight in many of the regions in which we operate and the conflict in
Ukraine has added another layer of uncertainty, especially with respect to
energy costs. In response to these challenges, we continue to strive to more
effectively manage our business through enhanced labor planning and project
scheduling, increased pricing to the extent contractually permitted, and by
leveraging our relationships with our suppliers and customers. While we believe
the actions we have taken continue to be effective, as evidenced in part by the
sequential improvement in our operating performance throughout each quarter of
2022, the impact of these disruptions continues to evolve and there can be no
assurance that our actions will serve to mitigate such impacts in future
periods. Further, while we believe our remaining performance obligations are
firm, and we have not experienced any material project cancellations to date,
prolonged delays in the receipt of critical equipment could impact our ability
to convert such remaining performance obligations to revenues in the near term,
or result in our customers seeking to terminate existing or pending agreements.
Lastly, rising interest rates may cause a decline in our customers' capital
spending and, therefore, the demand for our services. Any of these events could
have a material adverse effect on our business, financial condition, and/or
results of operations.








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Insight

The following table presents selected financial data for the three months ended
September 30, 2022 and 2021 (in thousands, except percentages and per share
data):

                                                        For the three months ended
                                                              September 30,
                                                          2022               2021
     Revenues                                       $   2,826,361       $ 2,521,672
     Revenues increase from prior year                       12.1  %       

14.5%

     Gross profit                                   $     413,231       $  

381 343

     Gross profit as a percentage of revenues                14.6  %       

15.1%

     Operating income                               $     150,094       $  

137,421

     Operating income as a percentage of revenues             5.3  %       

5.4%

Net income attributable to EMCOR Group, Inc. $105,772 $

99,740

     Diluted earnings per common share              $        2.16       $  

1.85


Revenues of $2.83 billion for the quarter ended September 30, 2022 set a new
quarterly record for the Company and represent an increase of 12.1% from
revenues of $2.52 billion for the quarter ended September 30, 2021. Demand for
our services continues to be strong and, as described in further detail below,
we experienced revenue growth within all of our reportable segments except for
our United Kingdom building services segment, the reduction in revenues of which
was entirely due to unfavorable exchange rate movements during 2022, which more
than offset revenue growth experienced on a local currency basis. Companies
acquired in 2022 and 2021, the results of operations of which are included
within our United States electrical construction and facilities services
segment, generated incremental revenues of approximately $32.8 million during
the three months ended September 30, 2022.

Operating income for the quarter ended September 30, 2022 was $150.1 million, a
$12.7 million increase compared to operating income of $137.4 million for the
quarter ended September 30, 2021. Contributing to this increase in operating
income was improved operating results from each of our reportable segments,
other than our United States electrical construction and facilities services
segment. Operating margin was 5.3% and 5.4% for the quarters ended September 30,
2022 and 2021, respectively. The slight decrease in operating margin period over
period was driven by a reduction in gross profit margin, predominantly within
our United States electrical construction and facilities services segment, which
was almost entirely offset by a reduction in the ratio of selling, general and
administrative expenses to revenues as we continue to leverage our overhead cost
structure during periods of revenue growth. Refer to the operating income
section below for further discussion regarding the operating performance of each
of our reportable segments.

Net income of $105.8 million, or $2.16 per diluted share, for the quarter ended
September 30, 2022, compares favorably to net income of $99.7 million, or $1.85
per diluted share, for the quarter ended September 30, 2021. In addition to the
increase in operating income referenced above, our diluted earnings per share
for the third quarter of 2022 benefited from a reduced weighted average share
count given the impact of common stock repurchases made by us throughout 2021
and 2022.

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.

During the first nine months of 2022, we acquired four companies for total
consideration of $93.2 million. Such acquisitions include: (a) a company that
provides electrical construction services in the Greater Boston area, the
results of operations of which have been included in our United States
electrical construction and facilities services segment, and (b) three
companies, that enhance our presence in geographies where we have existing
operations, the results of operations of which were de minimis, consisting of:
(i) two companies that provide fire protection services in the Northeastern and
Southern regions of the United States, respectively, and that have been included
within our United States mechanical construction and facilities services
segment, and (ii) a company that specializes in building automation and controls
in the Southwestern region of the United States and that has been included
within our United States building services segment.


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We acquired eight companies during calendar year 2021 for total consideration of
$131.2 million. Such acquisitions include: (a) two companies, the results of
operations of which were de minimis, 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 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, the results of
operations of which were de minimis, that enhance our presence in geographies
where we have existing operations and provide either mobile mechanical services
or building automation and controls solutions.

Operating results

Revenue

The following tables present our operating segments’ revenues from unrelated entities and their respective percentages of total revenues (in thousands, excluding percentages):

For the three months ended September 30,

                                                                                   % of                                   % of
                                                               2022                Total               2021               Total
Revenues:

United States construction and electrical installation services

                                                  $    633,383                22  %       $   530,950                21  %

United States mechanical engineering and installation services

                                                     1,117,388                40  %         1,004,407                40  %
United States building services                                710,650                25  %           624,617                25  %
United States industrial services                              247,239                 9  %           232,218                 9  %
Total United States operations                               2,708,660                96  %         2,392,192                95  %
United Kingdom building services                               117,701                 4  %           129,480                 5  %
Total operations                                          $  2,826,361               100  %       $ 2,521,672               100  %



                                                                         

For the nine months ended September 30,

                                                                                   % of                                   % of
                                                               2022                Total               2021               Total
Revenues:

United States construction and electrical installation services

                                                  $  1,719,525                21  %       $ 1,482,475                20  %

United States mechanical engineering and installation services

                                                     3,184,205                39  %         2,887,572                40  %
United States building services                              2,016,298                25  %         1,804,488                25  %
United States industrial services                              842,524                11  %           702,763                10  %
Total United States operations                               7,762,552                96  %         6,877,298                95  %
United Kingdom building services                               363,746                 4  %           386,089                 5  %
Total operations                                          $  8,126,298               100  %       $ 7,263,387               100  %


As described below in more detail, our revenues for the third quarter of 2022
increased to $2.83 billion compared to $2.52 billion for the third quarter of
2021, and our revenues for the nine months ended September 30, 2022 increased to
$8.13 billion compared to $7.26 billion for the nine months ended September 30,
2021. For both 2022 periods presented, we experienced increases in revenues from
all of our reportable segments, except for our United Kingdom building services
segment, the reduction in revenues of which was entirely due to unfavorable
exchange rate movements during 2022, which more than offset revenue growth
experienced on a local currency basis. Companies acquired in 2022 and 2021
generated incremental revenues of approximately $32.8 million for the three
months ended September 30, 2022, and incremental revenues of approximately
$116.0 million for the nine months ended September 30, 2022.

Revenues of our United States electrical construction and facilities services
segment were $633.4 million and $1,719.5 million for the three and nine months
ended September 30, 2022, respectively, compared to revenues of $531.0 million
and $1,482.5 million for the three and nine months ended September 30, 2021,
respectively. This segment's results for the three and nine months ended
September 30, 2022 included $32.8 million and $101.4 million, respectively, of
incremental revenues from acquired companies. Excluding the impact of
acquisitions, revenues of this segment increased by $69.6 million and $135.6
million, respectively, primarily as a result of an increase in revenues from:
(a) the commercial market sector, predominantly within the telecommunications
sub-market sector, inclusive of our data center projects, and the technology
sub-market sector,
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(b) the manufacturing market sector, driven by an increase in: (i) transmission
and distribution projects, including those to support sustainable energy
solutions such as solar and wind, (ii) revenues from contracts with certain of
our other energy sector customers, and (iii) food processing construction
projects within the Midwestern region of the United States, and (c) the
healthcare market sector due to large project activity. Revenues of this segment
for the nine months ended September 30, 2022 additionally benefited from an
increase in traditional commercial construction projects. For the three and nine
months ended September 30, 2022, the aforementioned revenue increases were
partially offset by a decrease in revenues from the transportation market
sector, and for the nine months ended September 30, 2022, such revenue increase
was also partially offset by a reduction in institutional market sector
activity, in each case, due to the completion or substantial completion of
various projects.

Our United States mechanical construction and facilities services segment
revenues for the three months ended September 30, 2022 were $1,117.4 million, a
$113.0 million increase compared to revenues of $1,004.4 million for the three
months ended September 30, 2021. Revenues of this segment for the nine months
ended September 30, 2022 were $3,184.2 million, a $296.6 million increase
compared to revenues of $2,887.6 million for the nine months ended September 30,
2021. The increase in this segment's revenues for both periods was primarily
attributable to revenue growth within: (a) the commercial market sector, as a
result of increased demand for: (i) our mechanical construction and/or fire
protection services by certain customers engaged in the design and manufacturing
of semiconductors as well as customers within the biotech, life-sciences, and
pharmaceutical industries, and (ii) our fire protection services within various
warehousing and distribution facilities to support the build-out of our
customers' e-commerce supply chains, (b) the institutional market sector, due to
project activity throughout several of the regions in which we operate, and (c)
the water and wastewater market sector, given greater project activity within
the Southern region of the United States. While commercial market sector
revenues of this segment for the nine months ended September 30, 2022 reflected
a slight decrease within the telecommunications sub-market sector, we
experienced notable growth in telecommunications revenues during the three
months ended September 30, 2022 due to an increase in construction activity on
several data center projects. The results of this segment for the nine months
ended September 30, 2022 additionally included incremental revenues from the
manufacturing market sector, driven by certain large food processing projects.

Revenues of our United States building services segment were $710.7 million and
$2,016.3 million for the three and nine months ended September 30, 2022,
respectively, compared to revenues of $624.6 million and $1,804.5 million for
the three and nine months ended September 30, 2021, respectively. Excluding
incremental acquisition revenues within this segment's mobile mechanical
services division of $14.6 million during the nine months ended September 30,
2022, this segment's revenue growth for both periods was primarily attributable
to: (a) its mobile mechanical services division, due to: (i) increased project
work, including incremental demand for HVAC system retrofits and building
automation and controls services, partially as our customers continue to seek
ways to improve the energy efficiency or indoor air quality of their facilities,
and (ii) greater service repair and maintenance volumes, partially as a result
of incremental repair opportunities driven by supply chain delays, which have
created a need to extend the life of existing equipment in instances when
replacement equipment is not readily available, and (b) its commercial
site-based services division, due to the award of facilities maintenance
contracts with new customers, as well as scope or site expansion and increased
project work with existing customers. In addition, for the three months ended
September 30, 2022, revenues of this segment's mobile mechanical services
division were positively impacted by increased demand for HVAC repair and
maintenance services during the peak cooling season, when compared to the prior
year period.

Revenues of our United States industrial services segment for the three months
ended September 30, 2022 were $247.2 million, compared to revenues of $232.2
million for the three months ended September 30, 2021. Revenues of this segment
for the nine months ended September 30, 2022 were $842.5 million, compared to
revenues of $702.8 million for the nine months ended September 30, 2021. While
there remains significant disruption and uncertainty within the broader oil and
gas industry, most notably within the upstream and midstream energy sectors, we
began to experience a resumption in downstream energy demand within this segment
during the second half of 2021. Such increased demand continued into the first
nine months of 2022, resulting in revenue growth within this segment.
Specifically, more normalized turnaround project demand and an increase in
maintenance and capital project activity, when compared to the prior year, has
resulted in increased revenues from this segment's field services operations
during the three and nine months ended September 30, 2022. In addition, although
reduced slightly during the third quarter of 2022, revenues of this segment's
shop services operations have increased for the first nine months of 2022, as a
result of greater new build heat exchanger sales and an increase in maintenance,
repair, and hydro blast cleaning services.

Our United Kingdom building services segment revenues were $117.7 million and
$363.7 million for the three and nine months ended September 30, 2022,
respectively, compared to revenues of $129.5 million and $386.1 million for the
three and nine months ended September 30, 2021, respectively. The decrease in
this segment's revenues for both periods was entirely a result of unfavorable
exchange rate movements for the British pound versus the United States dollar,
which negatively impacted this segment's revenues by $20.2 million and $36.6
million for the three and nine months ended September 30, 2022, respectively.
Excluding the impact of foreign exchange rate movements, this segment's revenues
for each 2022 period increased as a result of growth in project activities with
existing customers, primarily within the commercial market sector, including
certain telecommunication projects.
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Cost of sales and gross margin

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            For the nine months ended
                                     September 30,                         September 30,
                                 2022               2021              2022               2021
     Cost of sales         $   2,413,130       $ 2,140,329       $  6,977,504       $ 6,164,692
     Gross profit          $     413,231       $   381,343       $  1,148,794       $ 1,098,695
     Gross profit margin            14.6  %           15.1  %            14.1  %           15.1  %


Our gross profit for the three months ended September 30, 2022 was $413.2
million, or 14.6% of revenues, compared to gross profit of $381.3 million, or
15.1% of revenues, for the three months ended September 30, 2021. Gross profit
for the nine months ended September 30, 2022 was $1,148.8 million, or 14.1% of
revenues, compared to gross profit of $1,098.7 million, or 15.1% of revenues,
for the nine months ended September 30, 2021. Companies acquired in 2022 and
2021 generated incremental gross profit of approximately $4.4 million and $16.0
million for the three and nine months ended September 30, 2022, respectively.
Excluding the impact of acquisitions, the increase in gross profit for both 2022
periods was a result of increased revenue volume, which despite the decrease in
gross profit margin discussed below, resulted in an increase in consolidated
gross profit.

The decrease in gross profit margin for both 2022 periods was primarily
attributable to a reduction in gross profit margin within each of our United
States construction segments, partially as a result of a less favorable project
mix. The decrease in gross profit margin for the three months ended September
30, 2022 was additionally attributable to the impact of certain discrete project
losses within our United States electrical construction and facilities services
segment, which negatively impacted our consolidated gross profit margin during
such period by 40 basis points. For the nine months ended September 30, 2022,
discrete project losses within both our United States electrical construction
and facilities services segment and our United States mechanical construction
and facilities services segment negatively impacted our consolidated gross
profit margin by 50 basis points. Refer to the operating income section below
for further discussion regarding the operating performance of each of our
reportable segments.

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                      For the nine months ended
                                                                   September 30,                                  September 30,
                                                           2022                       2021                 2022                     2021

Selling, general and administrative expenses $263,137

      $ 243,922          $    761,099               $ 710,912
SG&A margin                                                    9.3   %                  9.7  %                9.4   %                 9.8  %


Our selling, general and administrative expenses for the three months ended
September 30, 2022 were $263.1 million compared to selling, general and
administrative expenses of $243.9 million for the three months ended September
30, 2021. Selling, general and administrative expenses for the nine months ended
September 30, 2022 were $761.1 million compared to selling, general and
administrative expenses of $710.9 million for the nine months ended September
30, 2021.

For the three and nine months ended September 30, 2022, selling, general and
administrative expenses included $3.7 million and $12.1 million, respectively,
of incremental expenses directly related to companies acquired in 2022 and 2021,
including amortization expense attributable to identifiable intangible assets of
$1.2 million and $3.3 million, respectively. Excluding incremental expenses from
businesses acquired, our selling, general and administrative expenses increased
by $15.5 million and $38.1 million for the three and nine months ended September
30, 2022, respectively. The organic increase in selling, general and
administrative expenses for both periods was primarily attributable to an
increase in: (a) salaries and related employment expenses, largely as a result
of an increase in headcount to support our organic revenue growth, (b) incentive
compensation expense, predominantly within our United States mechanical
construction and facilities services segment and our United States building
services segment, due to higher projected annual operating results than those of
the prior year, (c) travel and entertainment expenses, given a resumption in
travel and business meals as COVID-19 related restrictions have eased, (d) rent
and other occupancy costs, partially driven by the expansion or addition of
certain fabrication facilities, which support our operations, and (e) computer
hardware and software costs, as a result of various information technology and
cybersecurity initiatives currently in process.

Selling, general and administrative expenses as a percentage of revenues were
9.3% and 9.7% for the three months ended September 30, 2022 and 2021,
respectively, and 9.4% and 9.8% for the nine months ended September 30, 2022 and
2021, respectively. The decrease in SG&A margin for both 2022 periods was
largely a result of an increase in revenues without a commensurate increase in
overhead costs, as we were able to leverage our existing overhead cost
structure.
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Operating profit (loss)

The following tables present our operating income (loss) and operating margin
(operating income (loss) as a percentage of segment revenues) (in thousands,
except for percentages):
                                                                           

For the three months ended September 30,

                                                                                   % of                                    % of
                                                                                 Segment                                 Segment
                                                              2022               Revenues              2021              Revenues

Operating profit (loss):
United States construction and electrical installation services

                                                  $   35,558                  5.6  %       $  44,284                  8.3  %

United States mechanical engineering and installation services

                                                      90,952                  8.1  %          80,797                  8.0  %
United States building services                               45,589                  6.4  %          32,865                  5.3  %
United States industrial services                             (1,392)                (0.6) %          (3,012)                (1.3) %
Total United States operations                               170,707                  6.3  %         154,934                  6.5  %
United Kingdom building services                               8,369                  7.1  %           6,582                  5.1  %
Corporate administration                                     (28,982)                   -            (24,095)                   -
Total operations                                             150,094                  5.3  %         137,421                  5.4  %
Other items:
Net periodic pension (cost) income                             1,025                                     908
Interest expense, net                                         (3,194)                                 (1,286)
Income before income taxes                                $  147,925                               $ 137,043



                                                                          

For the nine months ended September 30,

                                                                                   % of                                    % of
                                                                                 Segment                                 Segment
                                                              2022               Revenues              2021              Revenues

Operating profit (loss):
United States construction and electrical installation services

                                                  $   90,646                  5.3  %       $ 127,548                  8.6  %

United States mechanical engineering and installation services

                                                     226,571                  7.1  %         220,697                  7.6  %
United States building services                              107,672                  5.3  %          96,523                  5.3  %
United States industrial services                             18,324                  2.2  %          (5,663)                (0.8) %
Total United States operations                               443,213                  5.7  %         439,105                  6.4  %
United Kingdom building services                              25,372                  7.0  %          23,040                  6.0  %
Corporate administration                                     (80,890)                   -            (74,362)                   -
Total operations                                             387,695                  4.8  %         387,783                  5.3  %
Other items:
Net periodic pension (cost) income                             3,288                                   2,738
Interest expense, net                                         (6,234)                                 (3,965)
Income before income taxes                                $  384,749                               $ 386,556


Operating income for the three months ended September 30, 2022 was $150.1
million, a $12.7 million increase compared to operating income of $137.4 million
for the three months ended September 30, 2021. Contributing to this increase in
operating income was improved operating results from each of our reportable
segments other than our United States electrical construction and facilities
services segment. Operating margin was 5.3% and 5.4% for the three months ended
September 30, 2022 and 2021, respectively. The slight decrease in operating
margin period over period was driven by a reduction in gross profit margin,
predominantly within our United States electrical construction and facilities
services segment, which was almost entirely offset by a reduction in the ratio
of selling, general and administrative expenses to revenues as we continue to
leverage our overhead cost structure during periods of revenue growth. Operating
income for the nine months ended September 30, 2022 was $387.7 million, which
was essentially consistent with operating income for the nine months ended
September 30, 2021 of $387.8 million. We experienced increased year-to-date
operating results from each of our reportable segments other than our United
States electrical construction and facilities services segment. Operating margin
for the nine months ended September 30, 2022 and 2021 was 4.8% and 5.3%,
respectively. The reduction in year-to-date operating margin was driven by a
reduction in gross profit margin, predominantly within our United States
construction segments, due to a change in project mix, as well as the impact of
certain discrete project losses, described in further detail below. These
declines in gross profit margin were once again partially offset by a reduction
in the ratio of selling, general and administrative expenses to revenues.
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Operating income of our United States electrical construction and facilities
services segment was $35.6 million, or 5.6% of revenues, for the three months
ended September 30, 2022, compared to $44.3 million, or 8.3% of revenues, for
the three months ended September 30, 2021. Operating income of this segment for
the nine months ended September 30, 2022 was $90.6 million, or 5.3% of revenues,
compared to operating income of $127.5 million, or 8.6% of revenues, for the
nine months ended September 30, 2021. This segment's results included
incremental operating income from acquired companies of $1.4 million and $5.6
million, inclusive of $1.0 million and $3.3 million of amortization expense
associated with identifiable intangible assets, for the three and nine months
ended September 30, 2022, respectively. Excluding the contribution from
acquisitions, operating income of this segment decreased by $10.2 million and
$42.5 million during the three and nine months ended September 30, 2022,
respectively. A less favorable project mix within the commercial, institutional,
and transportation market sectors, coupled with certain discrete project losses
recognized during the first nine months of 2022, due, in part, to supply chain
disruptions and delays, resulted in a decrease in gross profit and gross profit
margin for both the three and nine months ended September 30, 2022. 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, the
operating results of our United States electrical construction and facilities
services segment were negatively impacted by approximately $10.5 million and
$26.5 million during the three and nine months ended September 30, 2022,
respectively. These reductions in estimated project profitability negatively
affected the operating margin of this segment by 170 basis points and 150 basis
points for the quarter and year-to-date 2022 periods, respectively. In addition
to the impact of supply chain disruptions, a portion of these losses were
attributable to project completion delays and time extensions, beyond our
control, on certain projects which were bid a number of years ago, under
different economic conditions. We continue to evaluate our contractual rights
and are pursuing recovery for such impacts to the extent permitted. The
aforementioned reductions in gross profit margin were partially offset by a
reduction in the ratio of selling, general, and administrative expense to
revenues as: (a) this segment was able to successfully leverage its overhead
cost structure during this period of revenue growth and (b) the reduced
profitability has resulted in a decrease in incentive compensation expense.

Our United States mechanical construction and facilities services segment's
operating income for the three months ended September 30, 2022 was $91.0
million, or 8.1% of revenues, compared to operating income of $80.8 million, or
8.0% of revenues, for the three months ended September 30, 2021. Operating
income of this segment for the nine months ended September 30, 2022 was $226.6
million, or 7.1% of revenues, compared to operating income of $220.7 million, or
7.6% of revenues, for the nine months ended September 30, 2021. The increase in
operating income for both the three and nine months ended September 30, 2022, as
well as the increase in operating margin for the three months ended September
30, 2022, was primarily a result of increased gross profit contribution from the
commercial market sector, including profit recognized on: (a) several fire
protection projects and (b) certain construction projects for customers engaged
in the manufacturing of semiconductors. Partially offsetting the growth in
operating income for the first nine months of 2022, and the primary factor
resulting in the decline in operating margin for such nine month period, were
certain project write-downs, in the first half of 2022, which were partially a
result of supply chain disruptions and/or material price escalations, a portion
of which we are seeking recovery from our customers. 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, the operating results
of our United States mechanical construction and facilities services segment
were negatively impacted by approximately $8.4 million during the nine months
ended September 30, 2022. These reductions in estimated project profitability
negatively affected the year-to-date operating margin of this segment by 30
basis points. Similar to our United States electrical construction and
facilities services segment, operating margin of this segment for the quarter
and year-to-date 2022 periods has benefited from reductions in the ratio of
selling, general, and administrative expenses to revenues, given an increase in
revenues without a commensurate increase in certain overhead costs.

Operating income of our United States building services segment was $45.6
million, or 6.4% of revenues, for the three months ended September 30, 2022
compared to $32.9 million, or 5.3% of revenues, for the three months ended
September 30, 2021. Operating income of this segment for the nine months ended
September 30, 2022 was $107.7 million, or 5.3% of revenues, compared to
operating income of $96.5 million, or 5.3% of revenues, for the nine months
ended September 30, 2021. The increase in operating income for both 2022
periods, as well as the increase in operating margin for the year-to-date
period, was largely due to greater gross profit contribution from this segment's
mobile mechanical services division resulting from improved profitability across
the majority of its service lines, including projects, service repair and
maintenance, and building automation and controls. These improvements were due
to favorable project execution as well as certain price adjustments enacted, to
the extent contractually permitted, in response to inflationary pressures such
as increased material prices. Despite the increase in revenues from this
segment's commercial site-based services division, operating income of such
division was relatively consistent with that of the prior year period given: (a)
an increase in more traditional facilities maintenance revenues, which carry
lower gross profit margins, and (b) the continued effects of certain economic
disruptions, including: (i) inflation, which has negatively impacted the
profitability of a portion of this division's fixed price projects, and (ii)
labor shortages, which resulted in a greater use of subcontractors, thereby
reducing gross profit. On a year-to-date basis, operating margin of this segment
is consistent with that of the prior year as gross profit improvements in both
the second and third quarters of 2022 offset the negative impacts experienced in
the first quarter of 2022, such as supply chain disruptions and escalating fuel
prices.
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Our United States industrial services segment reported an operating loss of $1.4
million, or (0.6)% of revenues, for the three months ended September 30, 2022, a
slight improvement compared to an operating loss of $3.0 million, or (1.3)% of
revenues, for the three months ended September 30, 2021. For the nine months
ended September 30, 2022, this segment reported operating income of $18.3
million, or 2.2% of revenues, compared to an operating loss of $5.7 million, or
(0.8)% of revenues, for the nine months ended September 30, 2021. The improved
performance for the nine months ended September 30, 2022 was primarily due to
increased gross profit, resulting from the growth in this segment's revenues
referenced above. Operating margin of this segment during the year-to-date 2022
period benefited from a reduction in the ratio of selling, general and
administrative expenses to revenues, when compared to the prior year period,
given: (a) this segment was able to leverage its overhead cost structure during
a period of revenue growth and (b) the effect, in the prior year, of a $4.1
million provision for credit losses taken in connection with a specific customer
bankruptcy, which negatively impacted this segment's operating margin by 60
basis points for the nine months ended September 30, 2021. This segment's
operating margin for the first nine months of 2022 additionally benefited from
an increase in gross profit margin driven by greater absorption of certain
indirect cost of sales given the increase in year-to-date revenues.

Operating income of our United Kingdom building services segment was $8.4
million, or 7.1% of revenues, for the three months ended September 30, 2022
compared to $6.6 million, or 5.1% of revenues, for the three months ended
September 30, 2021. Operating income for the nine months ended September 30,
2022 was $25.4 million, or 7.0% of revenues, compared to $23.0 million, or 6.0%
of revenues, for the nine months ended September 30, 2021. This segment's
operating income for the three and nine months ended September 30, 2022 was
negatively impacted by $1.4 million and $2.4 million, respectively, related to
the effect of unfavorable exchange rates for the British pound versus the United
States dollar. Excluding the impact of foreign exchange rate movements,
operating income of this segment represented a $3.2 million and $4.7 million
increase for the three and nine months ended September 30, 2022, respectively,
when compared to operating income for the three and nine months ended September
30, 2021. The improvement in this segment's operating income and operating
margin for both 2022 periods was primarily a result of: (a) an increase in gross
profit, primarily as a result of a change in the mix of work, which included a
greater amount of revenue generated from project activity as opposed to
traditional facilities maintenance services, including an increased number of
telecommunication projects as referenced in the revenue commentary for this
segment, and (b) the favorable close-out of certain other contracts throughout
the year-to-date period.

Our corporate administration expenses for the three months ended September 30,
2022 were $29.0 million, compared to $24.1 million for the three months ended
September 30, 2021. For the nine months ended September 30, 2022, our corporate
administrative expenses were $80.9 million, compared to $74.4 million for the
nine months ended September 30, 2021. The increase in corporate administration
expenses for both 2022 periods was primarily due to greater: (a) incentive
compensation expense, partially as a result of incremental expense taken during
the third quarter of 2022, necessitated by revised estimates of our annual
operating performance, and (b) employment costs, given an increase in headcount
to support the revenue growth within our business as well as annual cost of
living wage increases.

Other items

Net interest expense for the three months ended September 30, 2022 and 2021 was
$3.2 million and $1.3 million, respectively. Net interest expense for the nine
months ended September 30, 2022 and 2021 was $6.2 million and $4.0 million,
respectively. The increase in net interest expense for both 2022 periods was a
result of both an increase in interest rates and greater average outstanding
borrowings.

For the three and nine months ended September 30, 2022, our income tax provision
was $42.2 million and $104.9 million, respectively, compared to an income tax
provision of $37.3 million and $104.5 million for the three and nine months
ended September 30, 2021, respectively. The increase in our income tax provision
for both 2022 periods was due to an increase in our income tax rate. The
increase in our income tax provision for the three months ended September 30,
2022 was additionally a result of an increase in income before income taxes. Our
income tax rate for the three and nine months ended September 30, 2022 was 28.5%
and 27.3%, respectively, compared to an income tax rate for the three and nine
months ended September 30, 2021 of 27.2% and 27.1%, respectively. The increase
in our income tax rate for both 2022 periods was attributable to an increase in
certain permanent book-to-tax differences and the unfavorable impact of certain
discrete tax items during the third quarter of 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law.
Such act implements various new tax provisions, some of which may have an impact
on our financial position and/or liquidity in future periods. For further
discussion regarding the potential impact of these provisions, refer to Note 9 -
Income Taxes of the notes to consolidated financial statements.




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Remaining unsatisfied performance obligations

The following table shows the transaction price allocated to the remaining unsatisfied performance obligations (“Remaining Performance Obligations”) for each of our reportable segments and their respective percentage of the total remaining performance obligations (in thousands, except percentages):

                                          September 30,                                December 31,                                 September 30,
                                               2022               % of Total               2021               % of Total                2021                % of Total
Remaining performance obligations:
United States electrical construction
and facilities services                 $    2,063,134                    29  %       $  1,224,577                    22  %       $    1,260,495                    23  %
United States mechanical construction
and facilities services                      3,662,623                    51  %          3,272,124                    58  %            2,998,965                    56  %
United States building services              1,109,221                    16  %            872,550                    16  %              832,785                    15  %
United States industrial services              122,714                     2  %            111,838                     2  %              143,299                     3  %
Total United States operations               6,957,692                    98  %          5,481,089                    98  %            5,235,544                    97  %
United Kingdom building services               143,769                     2  %            118,208                     2  %              143,202                     3  %
Total operations                        $    7,101,461                   100  %       $  5,599,297                   100  %       $    5,378,746                   100  %


Our remaining performance obligations at September 30, 2022 were $7.10 billion
compared to $5.60 billion at December 31, 2021 and $5.38 billion at September
30, 2021. The increase in remaining performance obligations at September 30,
2022, when compared to December 31, 2021, was attributable to an increase in
remaining performance obligations within all of our reportable segments. Most
notably, we experienced an increase in remaining performance obligations within:
(a) our United States construction segments, driven by the award of various
construction projects within the commercial market sector, inclusive of: (i)
data center projects, (ii) semiconductor projects, and (iii) other projects for
customers within the biotech, life-sciences, and pharmaceutical industries, and
(b) our United States building services segment given increased project
opportunities within its mobile mechanical services division and the award or
renewal of several facilities maintenance contracts within its site-based
services division. Remaining performance obligations of our United Kingdom
building services segment increased by $25.6 million since December 31, 2021,
despite unfavorable exchange rates for the British pound versus the United
States dollar, which negatively impacted this segment's remaining performance
obligations by $30.4 million. While the continued growth in our remaining
performance obligations is largely due to the strength in demand for our
services, a portion of this increase can likely be attributed to external market
factors such as material and labor inflation, which has increased the price of
certain of our project work, as well as supply chain delays, which has impacted
the timing of conversion of our remaining performance obligations to revenue, in
certain instances.

See Note 3 - Revenue from Contracts with Customers of the notes to consolidated
financial statements for further disclosure regarding our remaining performance
obligations.

Cash and capital resources

The following section discusses our principal liquidity and capital resources, as well as our principal liquidity requirements and our sources and uses of cash.

We are focused on the efficient conversion of operating income into cash to
provide for the Company's material cash requirements, including working capital
needs, investment in our growth strategies through business acquisitions and
capital expenditures, satisfaction of contractual commitments, including
principal and interest payments on our outstanding indebtedness, and shareholder
return through dividend payments and share repurchases. We strive to maintain a
balanced approach to capital allocation in order to achieve growth, deliver
value, and minimize risk.

Management monitors financial markets and overall economic conditions for
factors that may affect our liquidity and capital resources and adjusts our
capital allocation strategy as necessary. Negative macroeconomic trends could
have an adverse effect on future liquidity if we experience delays in the
payment of outstanding receivables beyond normal payment terms, an increase in
credit losses, or significant increases in the price of commodities or the
materials and equipment utilized for our project and service work, beyond those
experienced to date. In addition, during economic downturns, there have
typically been fewer small discretionary projects from the private sector and
our competitors have aggressively bid larger long-term infrastructure and public
sector contracts. Our liquidity is also impacted by: (a) the type and length of
construction contracts in place, as performance of long duration contracts
typically requires greater amounts of working capital, (b) the level of
turnaround activities within our United States industrial services segment, as
such projects are billed in arrears pursuant to contractual terms that are
standard within the industry, and (c) the billing terms of our maintenance
contracts, including those within our United States and United Kingdom building
services segments. While we strive to negotiate favorable billing terms, which
allow us to invoice in advance of costs incurred on certain of our contracts,
there can be no assurance that such terms will be agreed to by our customers.
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As of September 30, 2022, we had cash and cash equivalents, excluding restricted
cash, of $403.8 million, which are maintained in depository accounts and highly
liquid investments with original maturity dates of three months or less. Both
our short-term and long-term liquidity requirements are expected to be met
through our cash and cash equivalent balances, cash generated from our
operations, and, as necessary, the borrowing capacity under our revolving credit
facility. Our credit agreement provides for a $1.30 billion revolving credit
facility, for which there is $1.06 billion of available capacity as of
September 30, 2022.

Refer to Note 7 - Debt of the notes to consolidated financial statements for
further information regarding our credit agreement. Based upon our current
credit rating and financial position, we can also reasonably expect to be able
to secure long-term debt financing if required to achieve our strategic
objectives; however, no assurances can be made that such debt financing will be
available on favorable terms. We believe that we have sufficient financial
resources available to meet our short-term and foreseeable long-term liquidity
requirements.

Cash Flows

The following table provides a summary of our operating, investing and financing cash flows (in thousands):

                                                                                For the nine months ended
                                                                                      September 30,
                                                                                2022                    2021
Net cash provided by operating activities                               $      238,354              $  113,941
Net cash used in investing activities                                   $     (122,898)             $ (137,486)
Net cash used in financing activities                                   $     (512,598)             $ (213,127)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

                                                         $      (20,540)             $   (1,870)
Decrease in cash, cash equivalents, and restricted cash                 $     (417,682)             $ (238,542)


During the nine months ended September 30, 2022, our cash balance, including
cash equivalents and restricted cash, decreased by approximately $417.7 million
from $822.6 million at December 31, 2021 to $404.9 million at September 30,
2022. Changes in our cash position from December 31, 2021 to September 30, 2022
are described in further detail below.

Operating Activities - Operating cash flows generally represent our net income
as adjusted for certain non-cash items and changes in assets and liabilities.
Net cash provided by operating activities for the nine months ended September
30, 2022 was approximately $238.4 million compared to approximately $113.9
million of net cash provided by operating activities for the nine months ended
September 30, 2021. The increase in net cash provided by operating activities
for the first nine months of 2022, compared to the first nine months of 2021,
was primary a result of the collection of advanced billings on certain of our
uncompleted construction projects, as evidenced in part by the growth in our
contract liabilities.

Investing Activities - Investing cash flows consist primarily of payments for
the acquisition of businesses, capital expenditures, and proceeds from the sale
or disposal of property, plant, and equipment. Net cash used in investing
activities for the nine months ended September 30, 2022 decreased by
approximately $14.6 million compared to the nine months ended September 30, 2021
due to a decrease in payments for business acquisitions, partially offset by
higher capital expenditures used to invest in organic growth.

Financing Activities - Financing cash flows consist primarily of the issuance
and repayment of short-term and long-term debt, repurchases of common stock,
payments of dividends to stockholders, and the issuance of common stock through
certain equity plans. Net cash used in financing activities for the nine months
ended September 30, 2022 was $512.6 million compared to net cash used in
financing activities for the nine months ended September 30, 2021 of $213.1
million. The $299.5 million increase in cash used in financing activities was
primarily due to a $473.3 million increase in funds used for the repurchase of
our common stock, partially offset by $170.0 million in net borrowings made
under our revolving credit facility during 2022. The timing of common stock
repurchases is at management's discretion subject to securities laws and other
legal requirements and depends upon several factors, including market and
business conditions, current and anticipated future liquidity, share price, and
share availability, among others. For additional detail regarding our share
repurchase program, refer to Note 10 - Common Stock of the notes to consolidated
financial statements.

We currently pay a regular quarterly dividend, which commencing with the
dividend to be paid on October 31, 2022, will increase from $0.13 per share to
$0.15 per share. For the nine months ended September 30, 2022 and 2021, cash
payments related to dividends were $20.0 million and $21.2 million,
respectively. Our credit agreement places limitations on the payment of
dividends on our common stock. However, we do not believe that the terms of such
agreement currently materially limit our ability to pay such quarterly dividends
for the foreseeable future.

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash -
We are exposed to fluctuations in foreign currency exchange rates, almost
entirely with respect to the British pound. Therefore, the $18.7 million
variance between the nine months ended September 30, 2022 and 2021 was a direct
result of unfavorable exchange rate movements for the British pound versus the
United States dollar.
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Significant cash requirements related to contractual and other obligations

From September 30, 2022our significant short-term and long-term cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments - As of September 30, 2022, the amount
outstanding under our term loan was $256.7 million, and we had $170.0 million in
direct borrowings outstanding under our revolving credit facility. We are
required to make annual principal payments on our term loan of $13.9 million on
December 31 of each year until maturity. All remaining unpaid amounts are due on
March 2, 2025, when the credit agreement governing our term loan and revolving
credit facility expires. Until such time, we are required to make periodic
interest payments on our outstanding indebtedness. Future interest payments will
be determined based on prevailing interest rates during that time, which are
anticipated to increase in the near term. Refer to Note 7 - Debt of the notes to
consolidated financial statements for further detail of our debt obligations,
including our term loan and revolving credit facility.

Operating and Finance Leases - In the normal course of business, we lease real
estate, vehicles, and equipment under various arrangements which are classified
as either operating or finance leases. Future payments for such leases,
excluding leases with initial terms of one year or less, were $318.7 million at
September 30, 2022, with $73.7 million payable within the next 12 months.

Open Purchase Obligations - As of September 30, 2022, we had $2.16 billion of
open purchase obligations, of which payments totaling approximately $1.84
billion are expected to become due within the next 12 months. These obligations
represent open purchase orders to suppliers and subcontractors related to our
construction and services contracts. These purchase orders are not reflected in
the Consolidated Balance Sheets and are not expected to impact future liquidity
as amounts should be recovered through customer billings.

Insurance Obligations - As described in further detail in Note 12 - Commitments
and Contingencies of the notes to consolidated financial statements, we have
loss payment deductibles and/or self-insured retentions for certain insurance
matters. As of September 30, 2022, our insurance liabilities, net of estimated
recoveries, were $193.3 million. Of this net amount, approximately $36.7 million
is estimated to be payable within the next 12 months. Due to many uncertainties
inherent in resolving these matters, it is not practical to estimate these
payments beyond such period. To the extent that the amount required to settle
claims covered by insurance continues to increase, the cost of our insurance
coverage, including premiums and deductibles, is likely to increase.

Retirement Plan Obligations - As of September 30, 2022, expected future payments
relating to our defined benefit post retirement plans were approximately $3.8
million per year. We provide funding to our post retirement plans based on at
least the minimum funding required by applicable regulations. In determining the
minimum funding required, we utilize current actuarial assumptions and exchange
rates to forecast amounts that may be payable. In our judgment, minimum funding
estimates cannot be reliably estimated beyond a five-year time horizon. Refer to
Note 11 - Retirement Plans of the notes to consolidated financial statements for
further information about our post retirement plans.

Deferred Payroll Taxes - The Coronavirus Aid, Relief, and Economic Security Act
(the "CARES Act") allowed U.S. companies to defer the employer's portion of
social security taxes between March 27, 2020 and December 31, 2020. Our first
installment of these deferred social security taxes, totaling approximately $51
million, was paid in the fourth quarter of 2021 and our second installment of
approximately $51 million is expected to be paid in the fourth quarter of 2022.

Contingent Consideration Liabilities - We have incurred liabilities related to
contingent consideration arrangements associated with certain acquisitions,
payable in the event discrete performance objectives are achieved by the
acquired businesses during designated post-acquisition periods. The aggregate
amount of these liabilities can change due to additional business acquisitions,
settlement of outstanding liabilities, changes in the fair value of amounts owed
based on performance during such post-acquisition periods, and accretion in
present value. As of September 30, 2022, the present value of expected future
payments relating to these contingent consideration arrangements was $20.2
million. Of this amount, $13.7 million is estimated as being payable within the
next 12 months, with the remainder due pursuant to the terms of our contractual
agreements some of which extend through 2025.

In addition, significant cash requirements for other potential obligations, for which we cannot reasonably estimate future payments, include the following:

Legal Proceedings - We are involved in several legal proceedings in which
damages and claims have been asserted against us. While litigation is subject to
many uncertainties and the outcome of litigation is not predictable with
assurance, we do not believe that any such matters will have a material adverse
effect on our financial position, results of operations, or liquidity. Refer to
Note 12 - Commitments and Contingencies of the notes to consolidated financial
statements for more information regarding legal proceedings.
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Multiemployer Benefit Plans - In addition to our Company sponsored benefit
plans, we participate in certain multiemployer pension and other post retirement
plans. The cost of these plans is equal to the annual required contributions
determined in accordance with the provisions of negotiated collective bargaining
agreements. Our future contributions to the multiemployer plans are dependent
upon a number of factors. Amounts of future contributions that we would be
contractually obligated to make pursuant to these plans cannot be reasonably
estimated.

Off-balance sheet arrangements and other commercial commitments

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 September 30, 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 21%
of our total remaining performance obligations.

Surety bonds expire at various times ranging from final completion of a project
to a period extending beyond contract completion in certain circumstances. Such
amounts can also fluctuate from period to period based upon the mix and level of
our bonded operating activity. For example, public sector contracts require
surety bonds more frequently than private sector contracts and, accordingly, our
bonding requirements typically increase as the amount of our public sector work
increases. Our estimated maximum exposure as it relates to the value of the
surety bonds outstanding is lowered on each bonded project as the cost to
complete is reduced, and each commitment under a surety bond generally
extinguishes concurrently with the expiration of its related contractual
obligation.

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 or letters of credit may
be issued as collateral for certain insurance obligations. As of September 30,
2022, we satisfied approximately $48.1 million and $71.2 million of the
collateral requirements of our insurance programs by utilizing surety bonds and
letters of credit, respectively. All such letters of credit were issued under
our revolving credit facility, therefore reducing the available capacity of such
facility.

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.

From time to time, we discuss with our current and other surety bond providers
the amounts of surety bonds that may be available to us based on our financial
strength and the absence of any default by us on any surety bond issued on our
behalf and believe those amounts are currently adequate for our needs. However,
if we experience changes in our bonding relationships or if there are adverse
changes in the surety industry, we may: (a) seek to satisfy certain customer
requests for surety bonds by posting other forms of collateral in lieu of surety
bonds, such as letters of credit, parent company guarantees, or cash, in order
to convince customers to forego the requirement for surety bonds, (b) increase
our activities in our businesses that rarely require surety bonds, and/or (c)
refrain from bidding for certain projects that require surety bonds.

There can be no assurance that we would be able to effectuate alternatives to
providing surety bonds to our customers or to obtain, on favorable terms,
sufficient additional work that does not require surety bonds. Accordingly, a
reduction in the availability of surety bonds could have a material adverse
effect on our financial position, results of operations, and/or cash flows.

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.

We have no other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.

New accounting statements

We review new accounting standards to determine the expected impact, if any,
that the adoption of such standards will have on our financial position and/or
results of operations. See Note 2 - New Accounting Pronouncements of the notes
to consolidated financial statements for further information regarding new
accounting standards, including the anticipated dates of adoption and the
effects on our consolidated financial position, results of operations, or
liquidity.


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Significant Accounting Policies and Estimates

The preparation of our consolidated financial statements is based on the
application of significant accounting policies, which require management to make
estimates and assumptions. Our significant accounting policies are described
further in Note 2 - Summary of Significant Accounting Policies of the notes to
consolidated financial statements included in Item 8 of our Form 10-K for the
year ended December 31, 2021. We base our estimates on historical experience,
known or expected trends, third-party valuations, and various other assumptions
that we believe to be reasonable under the circumstances. As future events and
their effects cannot be determined with precision, actual results could differ
significantly from these estimates. There have been no significant changes to
our critical accounting policies or methods for the nine months ended
September 30, 2022. We believe the following critical accounting policies govern
the more significant judgments and estimates used in the preparation of our
financial statements.

Recognition of revenue from contracts with customers

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.

The nature of our contracts gives rise to several types of variable
consideration, including pending change orders and claims; contract bonuses and
incentive fees; and liquidated damages and penalties. We recognize revenue for
such variable consideration when it is probable, in our 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. 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.

Due to uncertainties inherent in the estimation process, as well as the
significant judgment involved in determining variable consideration, it is
possible that estimates of costs to complete a performance obligation, and/or
our estimates of transaction prices, 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, or changes in the estimate
of transaction prices, are recognized on a cumulative catch-up basis in the
period in which the revisions to the estimates are made.


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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
$10.5 million and $34.9 million during the three and nine months ended September
30, 2022, respectively. The entire amount recorded during the three months ended
September 30, 2022, was reported within our United States electrical
construction and facilities services segment. However, of the amount recorded
during the nine months ended September 30, 2022, approximately $26.5 million was
reported within our United States electrical construction and facilities
services segment and approximately $8.4 million was reported 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 and nine months ended September 30, 2021.

Due to the significant judgments utilized in the estimation process described
above, if subsequent actual results and/or updated assumptions, estimates, or
projections related to our underlying project positions were to change from
those utilized at September 30, 2022, it could result in a material impact to
our results of operations. For example, a 50 basis point increase or decrease in
the estimated gross profit margin on our uncompleted construction projects, in
the aggregate, as a result of a revision in estimated costs to complete a
performance obligation or a revision in estimated transaction price, would have
resulted in an increase or decrease to operating income in excess of $80 million
for the nine months ended September 30, 2022.

See Note 3 – Revenue from contracts with customers in the notes to the consolidated financial statements for more information on revenue recognition.

Accounts receivable and allowance for credit losses

Accounts receivable are recognized in the period we deliver goods or provide
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 September 30, 2022 and December 31, 2021, our accounts receivable of $2,510.6
million and $2,204.5 million, respectively, were recorded net of allowances for
credit losses of $25.3 million and $23.5 million, respectively. The increase in
our allowance for credit losses was attributable to an increase in the provision
for credit losses, partially offset by the write-off of specific amounts deemed
unrecoverable. We have adjusted our allowance for credit losses during the nine
months of 2022 to account for the impact of changing economic conditions,
including rising interest rates. 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. The provision for credit losses amounted to
approximately $3.2 million and $5.8 million for the nine months ended
September 30, 2022 and 2021, respectively. The period-over-period decrease in
the provision for credit losses was a result the impact of an approximately $4.1
million reserve taken for a specific customer bankruptcy within our United
States industrial services segment in the 2021 period, partially offset by
incremental expense taken during the first nine months of 2022, which primarily
resulted from the aforementioned change in economic conditions.

Should anticipated collections fail to materialize, or if future economic
conditions compare unfavorably to our forecasts, we could experience an increase
in our allowances for credit losses. For example, if economic conditions were to
significantly deteriorate, such as to those experienced during the last global
financial crisis, the portion of our allowance for credit losses, which is
estimated based on our historical credit loss experience, could increase by up
to approximately $13 million.

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. We believe the liabilities recognized on the Consolidated
Balance Sheets for these obligations are adequate. However, such obligations are
difficult to assess and estimate due to numerous factors, including severity of
injury, determination of liability in proportion to other parties, timely
reporting of occurrences, and effectiveness of safety and risk management
programs. Therefore, if our actual experience differs from the assumptions and
estimates used for recording the liabilities, adjustments may be required and
will be recorded in the period that the experience becomes known. In addition,
as discussed above, an increase in the cost to settle insurance claims could
result in
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higher insurance costs and deductibles. Our estimated net insurance liabilities
for workers' compensation, automobile liability, general liability, and property
claims increased by $14.7 million at September 30, 2022 compared to December 31,
2021, partially as a result of greater potential exposures and an increase in
certain of our deductibles or self-insured retentions. If our estimated
insurance liabilities for workers' compensation, automobile liability, general
liability, and property claims were to increase by 10%, it would have resulted
in $19.3 million of additional expense for the nine months ended September 30,
2022.

Income Taxes

As of September 30, 2022 and December 31, 2021, we had net deferred income tax
liabilities of $52.4 million and $51.0 million, respectively, primarily
resulting from differences between the carrying value and income tax bases of
certain identifiable intangible assets, goodwill, and depreciable fixed assets.
Included within these net deferred income tax liabilities are $213.8 million and
$212.3 million of deferred income tax assets as of September 30, 2022 and
December 31, 2021, respectively. The total valuation allowance on deferred
income tax assets was approximately $2.5 million as of both September 30, 2022
and December 31, 2021. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on our taxable
income, which has generally exceeded the amount of our net deferred income tax
asset balance, as well as current projections of future taxable income, we have
determined that it is more likely than not that our net deferred income tax
assets will be realized. However, revisions to our forecasts or declining
macroeconomic conditions could result in changes to our assessment of the
realization of these deferred income tax assets.

Good willidentifiable intangible assets and other long-lived assets

Good will

As of September 30, 2022 and December 31, 2021, we had goodwill of $916.8
million and $890.3 million, respectively, arising out of the acquisition of
businesses. Goodwill is not amortized but instead allocated to its respective
reporting unit and evaluated for impairment annually, or more frequently if
events or circumstances indicate that the carrying amount of goodwill may be
impaired. We have determined that our reporting units are consistent with the
reportable segments identified in Note 14 - Segment Information of the notes to
consolidated financial statements. As of September 30, 2022, approximately 19.2%
of our goodwill related to our United States electrical construction and
facilities services segment, approximately 34.4% related to our United States
mechanical construction and facilities services segment, approximately 34.0%
related to our United States building services segment, and approximately 12.4%
related to our United States industrial services segment.

Absent any earlier identified impairment indicators, we perform our annual
goodwill impairment assessment on October 1 each fiscal year. Qualitative
indicators that may trigger the need for interim quantitative impairment testing
include, among others, a deterioration in macroeconomic conditions, declining
financial performance, deterioration in the operational environment, or an
expectation of selling or disposing of a portion of a reporting unit.
Additionally, an interim impairment test may be triggered by a significant
change in business climate, a loss of a significant customer, increased
competition, or a sustained decrease in share price. In assessing whether our
goodwill is impaired, we compare the fair value of the reporting unit to its
carrying amount, including goodwill. If the fair value exceeds the carrying
amount, no impairment is recognized. However, if the carrying amount of the
reporting unit exceeds the fair value, the goodwill of the reporting unit is
impaired and an impairment loss in the amount of the excess is recognized and
charged to operations.

At the date of our last impairment test (October 1, 2021), the fair values ​​of our United States electrical construction and installation services sector, our United States mechanical engineering and plant services sector, our United States construction services segment, and our United States
industrial services segment exceeded their book value by approximately
$1,516.1 million, $2,772.7 million, $784.2 millionand $40.6 millionrespectively.

In completing our annual impairment assessment, we determined the fair value of
each of our reporting units using an income approach whereby fair value was
calculated utilizing discounted estimated future cash flows, assuming a
risk-adjusted industry weighted average cost of capital. The weighted average
cost of capital used in our annual impairment testing was 10.4% for our United
States construction segments and our United States building services segment,
and 11.3% for our United States industrial services segment. These weighted
average cost of capital estimates were developed with the assistance of an
independent third-party valuation specialist and reflect the overall level of
inherent risk within the respective reporting unit and the rate of return a
market participant would expect to earn.

Our cash flow projections were derived from our most recent internal forecasts
of anticipated revenue growth rates and operating margins, with cash flows
beyond the discrete forecast period estimated using a terminal value calculation
which incorporated historical and forecasted trends, an estimate of long-term
growth rates, and assumptions about the future demand for our services. The
perpetual growth rate used for our annual testing was 2.0% for all of our
reporting units.


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Due to the inherent uncertainties involved in making estimates, our assumptions
may change in future periods. Estimates and assumptions made for purposes of our
goodwill impairment testing may prove to be inaccurate predictions of the
future, and other factors used in assessing fair value, such as the weighted
average cost of capital, are outside the control of management. Unfavorable
changes in certain of these key assumptions may affect future testing results.
For example, keeping all other assumptions constant, a 50 basis point increase
in the weighted average cost of capital would cause the estimated fair values of
our United States electrical construction and facilities services segment, our
United States mechanical construction and facilities services segment, our
United States building services segment, and our United States industrial
services segment to decrease by approximately $103.6 million, $185.5 million,
$74.5 million, and $25.9 million, respectively. In addition, keeping all other
assumptions constant, a 50 basis point reduction in the perpetual growth rate
would cause the estimated fair values of our United States electrical
construction and facilities services segment, our United States mechanical
construction and facilities services segment, our United States building
services segment, and our United States industrial services segment to decrease
by approximately $52.4 million, $95.9 million, $35.8 million, and $9.5 million,
respectively. Given the amounts by which the fair value exceeds the carrying
value for each of our reporting units, the decreases in estimated fair values
described above would not have significantly impacted the results of our
impairment tests. Further, for each of our reporting units, other than our
United States industrial services segment, a 10% decline in the estimated fair
value of such reporting unit, due to other changes in our assumptions, including
forecasted future cash flows, would not have significantly impacted the results
of our impairment tests. In the case of our United States industrial services
segment, however, a 10% decrease would cause the estimated fair value of this
reporting unit to approximate its carrying value.

No impairment of our goodwill was recorded during the three and nine months ended September 30, 2022 and 2021.

Identifiable intangible assets and other long-lived assets

As of September 30, 2022 and December 31, 2021, net identifiable intangible
assets (primarily consisting of our customer relationships, subsidiary trade
names, developed technology/vendor network, and contract backlog) arising out of
the acquisition of businesses were $605.9 million and $589.4 million,
respectively. The determination of related estimated useful lives for
identifiable intangible assets and whether those assets are impaired involves
significant judgments based upon short- and long-term projections of future
performance. These forecasts reflect assumptions regarding anticipated
macroeconomic conditions as well as our ability to successfully integrate
acquired businesses.

Absent earlier indicators of impairment, we test for impairment of subsidiary
trade names that are not subject to amortization on an annual basis (October 1).
In performing this test, we calculate the fair value of each trade name using
the "relief from royalty payments" methodology. This approach involves two
steps: (a) estimating reasonable royalty rates for each trade name and (b)
applying these royalty rates to a net revenue stream and discounting the
resulting cash flows to determine fair value. This fair value is then compared
with the carrying value of each trade name. If the carrying amount is greater
than the implied fair value of the trade name, an impairment in the amount of
the excess is recognized and charged to operations.

As of October 1, 2021, we performed our annual impairment testing of all
subsidiary trade names that are not subject to amortization and determined that
there was no impairment of these assets. In performing this impairment
assessment, we considered the sensitivity of the reported amounts to the
methods, assumptions, and estimates underlying our testing. For example, we
performed sensitivity analyses and concluded that, individually, none of the
following changes in estimates or assumptions would have significantly impacted
the results of our testing or resulted in an impairment of our subsidiary trade
names: (a) a 50 basis point increase in the discount rate utilized in our
testing, (b) a 50 basis point decline in the perpetual growth rate utilized in
our testing, or (c) a 10% decrease in the estimated fair value of each trade
name.

In addition, we review for impairment of identifiable intangible assets that are
being amortized as well as other long-lived assets whenever facts and
circumstances indicate that their carrying values may not be recoverable. This
test compares their carrying values to the undiscounted pre-tax cash flows
expected to result from the use of the assets. If the assets are impaired, the
assets are written down to their fair values, generally determined based on
their discounted estimated future cash flows.

No impairment of our identifiable intangible assets or other long-lived assets
was recognized during the three and nine months ended September 30, 2022 and
2021.

Other Considerations

As referenced above, impairment testing is based upon assumptions and estimates
determined by management from a review of our operating results and business
plans as well as forecasts of anticipated growth rates and margins, among other
considerations. In addition, estimates of weighted average costs of capital are
developed with the assistance of an independent third-party valuation
specialist. These assumptions and estimates may change in future periods.
Significant adverse changes to external market conditions or our internal
forecasts, if any, could result in future impairment charges, particularly with
respect to our United States industrial services segment given that the fair
value of this reporting unit more closely approximates its carrying value. It is
not possible at this time to determine if any future impairment charge will
result or, if it does, whether such a charge would be material to our results of
operations.
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