EMCOR Group, Inc. (EME) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Description

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. Such operating subsidiaries are organized into the following reportable segments:

•United States electrical construction and facilities services;

•United States mechanical construction and facilities services;

•United States building services;

•United States industrial services; and

•United Kingdom building services.

For a more complete description of our operations, refer to Item 1. Business.

Our reportable segments reflect certain reclassifications of prior year amounts from our United States electrical construction and facilities services segment to our United States industrial services and our United States building services segments due to changes in our internal reporting structure aimed at realigning our service offerings. Consequently, we have included and updated the year-over-year discussion and analysis of results of operations for 2020 compared to 2019 to reflect these changes.

COVID-19 and Market Update

As a result of the COVID-19 pandemic, we experienced significant disruptions throughout calendar year 2020, which impacted our ability to execute on our remaining performance obligations in many of the markets in which we operate. The economic and operational impact of the pandemic, which were most acute during the second quarter of 2020, negatively affected our results of operations during such period and continued to impact portions of our business in 2021. However, our strong balance sheet and operational flexibility have allowed us to manage through the ongoing impacts of the pandemic while protecting our cash flow and liquidity.

Although the majority of our businesses have largely recovered from the financial impacts of the COVID-19 pandemic experienced in 2020, as evidenced by our consolidated performance and the growth in our remaining performance obligations, our United States industrial services segment continues to be negatively impacted by the lingering effects of the pandemic. The prolonged impacts of lower demand and the overall lagging recovery of the oil and gas market have resulted in customers of this segment canceling or deferring regularly scheduled maintenance projects, reducing capital spending, implementing various cost cutting measures, and closing certain of their facilities. Such customer actions continue to impact the demand for our service offerings within this segment.

We continue to monitor the short- and long-term impacts of the pandemic. While our employees and customers have adapted to a new work environment and there continues to be scientific, societal, and economic progress to address the effects of COVID-19, including the widespread availability of effective vaccines in the markets we serve, there remains significant uncertainty about the future impacts of the pandemic, or any resulting market disruption or volatility, including the potential effects on our operations. We continue to be cautiously optimistic about the markets in which we operate and the customers we serve; however, should there be a slowdown in economic activity due to surges in the number of cases, or an increase in variants of the virus that are more virulent, contagious, or against which current vaccines are less effective, it is possible that projects could be delayed or canceled or that we could experience access restrictions to our customers’ facilities, preventing us from performing maintenance and service projects. The extent to which our business and results of operations are impacted in future periods will also depend upon a number of other factors. These include the duration and extent of the pandemic; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to quarantine; the cost and/or disruption of testing that may be required of our employees either by customer requirements or government mandates; the extent, duration, and effective execution of government stabilization and recovery efforts; the widespread adoption and long-term efficacy of vaccines and the availability and efficacy of other treatments; our customers’ demand for our services; our ability to continue to safely and effectively operate in this environment; and the ability of our customers to pay us for services rendered.

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While the emergency temporary standard requiring employers with 100 or more employees to ensure their workforce is fully vaccinated or to require unvaccinated workers to produce a negative test result on at least a weekly basis (the “ETS”) has been withdrawn by the Occupational Safety and Health Administration (“OSHA”), and Executive Order 14042 mandating vaccination for all federal contractors and subcontractors is currently stayed by the courts, it is unclear whether OSHA or another federal agency will mandate vaccination and/or testing. Costs related to any mandatory testing, including both the costs of tests and the costs to compensate employees for the time to undergo such testing, will likely represent a substantial expense to the Company, which could have a material adverse effect on our business, financial condition, and/or results of operations to the extent that a significant portion of our workforce does not choose to become vaccinated.

On January 10, 2022, the Biden Administration announced that it would require insurance companies and group health plans to cover the cost of at-home COVID-19 tests. As we are self-insured for employee-related healthcare claims, this new requirement could result in an additional expense for the Company. It is not possible at this time to determine the impact of this new requirement or whether it could have a material adverse effect on our financial condition and/or results of operations.

Supply chain disruptions, material shortages, or escalating commodity prices have and may continue to negatively impact our business. For example, we have experienced lead times significantly in excess of normal levels and have seen the effects of inflation through increases in commodity and material prices. Despite these challenges, to date, we have been able to 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, resulting in only modest disruptions to our project and service work within the majority of our reportable segments. However, the impact of the COVID-19 pandemic on our vendors and the pricing and availability of materials or supplies utilized in our operations continues to evolve and may have an adverse impact on our operations in future periods. While we believe our remaining performance obligations are firm, customers may also slow decision-making, delay planned work, or seek to terminate existing agreements. Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.

2021 versus 2020

Overview

The following table presents selected financial data for the fiscal years ended December 31, 2021 and 2020 (in thousands, except percentages and per share data):

Revenues of $9.90 billion for the year ended December 31, 2021 set a new annual record for the Company and represent an increase of 12.6% from revenues of $8.80 billion for the year ended December 31, 2020. As described in further detail below, we experienced revenue growth within all of our reportable segments.

Operating income for 2021 was $530.8 million, or 5.4% of revenues, compared to operating income of $256.8 million, or 2.9% of revenues, in 2020. Our operating results for the year ended December 31, 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin for 2020 by approximately 270 basis points. Excluding the impact of such impairment charges on our 2020 results, operating income increased by $41.2 million for the year ended December 31, 2021, as a result of increased operating income contribution from all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for its service offerings, as described in further detail below.

Net income of $383.5 million, or $7.06 per diluted share, for the year ended December 31, 2021, compares favorably to net income of $132.9 million, or $2.40 per diluted share, for the year ended December 31, 2020. While such increases were largely attributable to the growth in operating income referenced above, net income and diluted earnings per common share for the year ended December 31, 2021 also benefited from a more normalized income tax rate, as our tax rate in the prior year was negatively impacted by the non-cash impairment charges recorded in 2020, the majority of which were non-deductible for tax purposes. Our diluted earnings per share for 2021 additionally benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2020 and 2021.

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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.

We acquired eight companies in 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 bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.

We acquired three companies in 2020 for total consideration of $50.3 million. Such acquisitions include: (a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C. metro area, and (c) a company, the results of operations of which were de minimis, that provides mobile mechanical services in the Southern region of the United States. The results of operations for all three companies have been included within our United States building services segment.

Companies acquired in 2021 and 2020 generated incremental revenues of $196.3 million and incremental operating income of $4.0 million, inclusive of $11.5 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2021.

Discussion and Analysis of Results of Operations

Revenues

The following table presents our revenues for each of our operating segments and the approximate percentages that each segment’s revenues were of total revenues for the years ended December 31, 2021 and 2020 (in thousands, except for percentages):

As described in more detail below, revenues for the year ended December 31, 2021 increased to $9.90 billion compared to $8.80 billion for the year ended December 31, 2020. The increase in revenues for the year ended December 31, 2021 was attributable to revenue growth within all of our reportable segments. Companies acquired in 2021 and 2020 generated incremental revenues of $196.3 million in 2021.

Revenues of our United States electrical construction and facilities services segment were $2,015.5 million for the year ended December 31, 2021 compared to revenues of $1,806.1 million for the year ended December 31, 2020. Excluding the impact of acquisitions, the increase in revenues of this segment for the year ended December 31, 2021 was primarily attributable to: (a) a resumption of project activity within certain major metropolitan areas, where work was previously postponed due to access restrictions caused by the various containment and mitigation measures mandated in the prior year by certain of our customers and/or governmental authorities in response to the COVID-19 pandemic, leading to: (i) an increase in commercial market sector revenues and (ii) greater short-duration project volumes in the current year, (b) an increase in public works projects in the Western region of the United States, resulting in greater revenue contribution from the institutional market sector, (c) revenue growth within the healthcare market sector, due to greater construction project activity in the Northeastern region of the United

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States, and (d) an increase in telecommunication project activity within the commercial market sector. The results of this segment for the year ended December 31, 2021 included $93.1 million of incremental revenues generated by companies acquired in 2021. The revenue increases referenced above were partially offset by a reduction in revenues within the manufacturing and transportation market sectors due to the completion or substantial completion of certain projects in the Northeastern and Western regions of the United States.

Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2021 were $3,922.9 million, a $437.4 million increase compared to revenues of $3,485.5 million for the year ended December 31, 2020. The increase in this segment’s revenues for the year ended December 31, 2021 was attributable to revenue growth within the majority of the market sectors in which we operate, including: (a) the commercial market sector, driven by: (i) the continued build-out of our customers’ e-commerce supply chains, which has resulted in increased demand for our fire protection services within their warehousing and distribution facilities, (ii) continued growth in digital processing, cloud computing, and data storage, which has resulted in an increase in telecommunication construction project opportunities, and (iii) increased demand for our mechanical construction services by customers within the biotech, life-sciences, and pharmaceutical industries, as well as certain customers engaged in the production and development of electric vehicles and/or lithium batteries, (b) the healthcare market sector, due to increased mechanical system retrofits and installations as our healthcare customers seek to upgrade their existing facilities or build new facilities, (c) the manufacturing market sector, inclusive of certain large food processing projects, which began to accelerate during the second half of 2021, and (d) the water and wastewater market sector, given increased project activity within the Southern region of the United States. These increases were partially offset by the completion or substantial completion of certain projects within the institutional market sector, which resulted in a reduction of revenues within such sector during 2021.

Revenues of our United States building services segment were $2,468.9 million and $2,134.0 million for the years ended December 31, 2021 and 2020, respectively. Excluding incremental acquisition revenues within this segment’s mobile mechanical services division of $103.2 million, this segment’s revenue growth for the year ended December 31, 2021 was primarily attributable to: (a) greater project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, as well as an increase in project volume within our commercial site-based services operations, in both cases, partially as a result of a resumption in demand for certain of our service offerings when compared to the prior year, which was negatively impacted by the COVID-19 pandemic given the temporary closure of certain customer facilities, (b) a net increase in facilities maintenance contract revenues, partially as a result of new contract awards, (c) increased customer demand, stemming in part from the COVID-19 pandemic, for certain services aimed at either: (i) improving the indoor air quality or (ii) enhancing the cleaning protocols within their facilities, and (d) an increase in snow removal activity year-over-year within our commercial site-based services division.

Revenues of our United States industrial services segment for the year ended December 31, 2021 were $986.4 million, a $45.5 million increase compared to revenues of $940.9 million for the year ended December 31, 2020. The increase in this segment’s revenues for the year ended December 31, 2021 was attributable to greater revenues from both our field services and shop services operations during the second half of 2021, when compared to the same prior year period. While this segment’s revenues throughout the majority of both 2021 and 2020 were negatively impacted by the adverse market conditions within the oil and gas and related industrial markets, the impact on the demand for its service offerings was most severe during the second half of 2020, resulting in a favorable comparison in the current year. Although the demand for oil and other refined products has not returned to pre-pandemic levels, the oil and gas industry continues to recover and we remain cautiously optimistic that the demand for our traditional industrial services will continue to improve in future periods. Revenues of this segment for the year ended December 31, 2021 additionally benefited from the completion of a 200-megawatt solar project by certain subsidiaries of this segment during 2021.

Our United Kingdom building services segment revenues were $510.0 million in 2021 compared to $430.6 million in 2020. The increase in this segment’s revenues for the year ended December 31, 2021 was primarily a result of growth in project activities with existing customers, primarily within the commercial and water and wastewater market sectors, partially as a result of a resumption in demand as customers began to release projects which were previously deferred due to the uncertainty created by the COVID-19 pandemic. Similar to our United States building services segment, this segment additionally experienced increased revenues resulting from greater demand for services aimed at enhancing the cleaning protocols within its customers’ facilities in response to COVID-19. This segment’s revenues for the year ended December 31, 2021 were positively impacted by $34.6 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.

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Cost of sales and gross profit

The following table presents cost of sales, gross profit (revenues less cost of sales), and gross profit margin (gross profit as a percentage of revenues) for the years ended December 31, 2021 and 2020 (in thousands, except for percentages):

Our gross profit for the year ended December 31, 2021 was $1,501.7 million, a $106.4 million increase compared to gross profit of $1,395.4 million for the year ended December 31, 2020. The increase in gross profit for the year ended December 31, 2021 was predominately a result of increased gross profit contribution from our United States construction segments and our United States building services segment given greater revenue volume during 2021. In addition, we experienced an increase in gross profit within our United Kingdom building services segment due, in part, to both increased revenue and gross profit margin expansion when compared to 2020.

Our gross profit margin was 15.2% and 15.9% for 2021 and 2020, respectively. The decrease in gross profit margin for the year ended December 31, 2021 was predominantly attributable to a reduction in gross profit margin within all of our reportable segments, except for our United Kingdom building services segment. 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 selling, general and administrative expenses and SG&A margin (selling, general and administrative expenses as a percentage of revenues) for the years ended December 31, 2021 and 2020 (in thousands, except for percentages):

Our selling, general and administrative expenses for the year ended December 31, 2021 were $970.9 million compared to selling, general and administrative expenses of $903.6 million for the year ended December 31, 2020. For the year ended December 31, 2021, selling, general and administrative expenses included $19.2 million of incremental expenses directly related to companies acquired in 2021 and 2020, including amortization expense attributable to identifiable intangible assets of $4.3 million. Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $48.2 million for the year ended December 31, 2021. Such organic increase in selling, general and administrative expenses was primarily attributable to an increase in: (a) employee benefit costs, driven by greater medical claim activity related in part to the COVID-19 pandemic, (b) incentive compensation expense, predominantly within our United States construction segments and our United States building services segment given greater operating income when compared to the prior year, (c) salaries, as a result of: (i) an increase in headcount to support our organic revenue growth in the current year and (ii) the favorable impact in the prior year of certain short-term cost cutting measures enacted in response to the COVID-19 pandemic, including temporary furloughs and salary reductions, (d) computer hardware and software costs as a result of various information technology and cybersecurity initiatives currently in process, and (e) the provision for credit losses, within our United States industrial services segment, which included $5.8 million of expense associated with two customer bankruptcies during 2021.

Selling, general and administrative expenses as a percentage of revenues were 9.8% and 10.3% for 2021 and 2020, respectively. The decrease in SG&A margin for the year ended December 31, 2021 was 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.

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets

During the second quarter of 2020, we identified certain indicators of impairment resulting from the COVID-19 pandemic and its impact on the oil and gas and related industrial markets. These adverse conditions resulted in lower forecasted revenue and operating margin expectations for those of our businesses that are highly dependent on the strength of such markets, resulting in the recognition, during 2020, of impairment charges totaling $232.8 million within our United States industrial services segment.

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Despite the weaker results of our United States industrial services segment for the year ended December 31, 2021, when compared to historical periods, we did not identify any indicators of impairment in the current year, as the operating performance of this segment remained materially consistent with our near term expectations and forecasts. Further, we performed our annual impairment assessment as of October 1, 2021 and determined that the fair value of the industrial reporting unit remained in excess of its carrying value. However, a further deterioration in this segment’s operating performance, significant adverse changes to external market conditions or the assumptions utilized in our impairment tests, such as the weighted average cost of capital and our internal forecasts, if any, could result in the identification of future impairment indicators and potentially future goodwill impairment charges. It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such charge would be material to our results of operations.

Operating income (loss)

The following table presents by segment our operating income (loss) and each segment’s operating margin (operating income (loss) as a percentage of such segment’s revenues) for the years ended December 31, 2021 and 2020 (in thousands, except for percentages):

As described in more detail below, operating income was $530.8 million, or 5.4% of revenues, for the year ended December 31, 2021, compared to operating income of $256.8 million, or 2.9% of revenues, for the year ended December 31, 2020. Our operating results for 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin in 2020 by approximately 270 basis points. Excluding the impact of such impairment charges on our 2020 results, operating income increased by $41.2 million for the year ended December 31, 2021, as a result of increased operating income contribution from all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for its service offerings. Companies acquired in 2021 and 2020, generated incremental operating income of $4.0 million, inclusive of $11.5 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2021.

Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2021 was $168.4 million compared to operating income of $161.8 million for the year ended December 31, 2020. Companies acquired in 2021 contributed incremental operating income of $3.7 million, inclusive of $4.9 million of amortization expense associated with identifiable intangible assets. Excluding such acquisition contribution, operating income of this segment increased a modest $2.9 million for the year ended December 31, 2021. Gross profit gains from construction projects within the institutional and healthcare market sectors, primarily as a result of the revenue growth within these market sectors, as referenced above, were largely offset by gross profit declines within the transportation and manufacturing market sector, given the completion or close-out of certain projects in the prior year. Operating margins within this segment for the years ended December 31, 2021 and 2020 were 8.4% and 9.0%, respectively. The decrease in operating margin year-over-year was a result of a decline in this segment’s gross profit margin during 2021, predominantly within: (a) the commercial market sector,

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partially due to a change in the composition of project work performed period-over-period, and (b) the transportation market sector as the results for the prior year benefited from the successful close-out of several large construction projects within the Northeastern region of the United States.

Our United States mechanical construction and facilities services segment’s operating income for the year ended December 31, 2021 was $319.1 million, a $26.6 million increase compared to operating income of $292.5 million for the year ended December 31, 2020. The increase in operating income for 2021 was a result of an increase in gross profit from construction projects within the majority of the market sectors in which we operate, driven by increased revenue volume year-over-year. Operating margins within this segment for the years ended December 31, 2021 and 2020 were 8.1% and 8.4%, respectively. The 30 basis point reduction in this segment’s operating margin in 2021 was primarily a result of a decrease in gross profit margin within the manufacturing market sector as: (a) the results for the prior year benefited from the favorable close-out of several projects and (b) the results for the current year include increased revenues from certain large food processing projects, for which we are acting as the construction manager and therefore carry lower than average gross profit margins. This decrease in gross profit margin was partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues given an increase in segment revenues without a commensurate increase in overhead costs.

Operating income of our United States building services segment for the year ended December 31, 2021 was $119.0 million, or 4.8% of revenues, compared to operating income of $114.2 million, or 5.3% of revenues, for the year ended December 31, 2020. The increase in this segment’s operating income for 2021 was primarily due to the resumption in demand for certain of our service offerings when compared to the prior year, which led to increased gross profit from project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, and project volumes within our commercial site-based services operations. In addition, gross profit for the year ended December 31, 2021 benefited from greater snow removal activity for our customers with whom we are contracted on a per snow event basis. Companies acquired in 2021 and 2020, which are included within this segment’s mobile mechanical services division, generated incremental operating income of approximately $0.7 million, inclusive of $6.2 million of amortization expense associated with identifiable intangible assets, during 2021. The 50 basis point reduction in operating margin for the year ended December 31, 2021 was attributable to a decrease in gross profit margin, partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues as this segment was able to effectively leverage its overhead cost structure during this period of revenue growth. The decline in gross profit margin resulted from a less favorable mix of work within this segment’s mobile mechanical services division, including a greater number of fixed price capital projects, which traditionally have lower gross profit margins than the other service and repair offerings of this segment. Gross profit margin of this segment in 2021 was also negatively impacted by: (a) supply chain disruptions, including longer lead times for certain materials and equipment, which resulted in a greater amount of unabsorbed labor costs in instances where projects were delayed pending the receipt of materials, and (b) an escalation in fuel prices for its fleet of over 4,000 service vans, a portion of which we were unable to pass along to our customers.

Our United States industrial services segment reported an operating loss of $1.7 million for the year ended December 31, 2021 compared to operating income of $1.2 million for the year ended December 31, 2020. Operating margin of this segment was (0.2)% and 0.1% for 2021 and 2020, respectively. Despite the increase in annual revenues compared to full year 2020, this segment’s operating results continue to be negatively impacted by the adverse macroeconomic conditions within the oil and gas industry. For example, pricing pressure from the customers of this segment has resulted in a lower margin portfolio of work, and therefore a decrease in gross profit when compared to the prior year, within both our field services and shop services operations. In addition to the effect of lower gross profit, operating income of this segment was negatively impacted by an increase in the provision for credit losses, which included approximately $5.8 million of expense associated with two customer bankruptcies during 2021, which resulted in a 60 basis point reduction to this segment’s operating margin.

Our United Kingdom building services segment operating income for the year ended December 31, 2021 was $28.0 million, or 5.5% of revenues, which compares favorably to operating income of $20.7 million, or 4.8% of revenues, for the year ended December 31, 2020. The increase in this segment’s operating income and operating margin for 2021 was primarily a result of an increase in gross profit and gross profit margin from projects within the commercial market sector, partially offset by an increase in selling, general and administrative expenses to support the segment’s revenue growth. In addition, this segment’s operating income and operating margin for the year ended December 31, 2021 benefited from successful contract close-outs during 2021. This segment’s operating income was positively impacted by $2.1 million during 2021 related to the effect of favorable exchange rates for the British pound versus the United States dollar.

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Our corporate administration expenses were $102.0 million for 2021 compared to $98.5 million in 2020. The increase in corporate administration expenses for the year ended December 31, 2021 was primarily due to: (a) an increase in employment costs, such as: (i) long-term incentive compensation expense given higher projected future operating results, as our expectations during 2020 were negatively impacted by the uncertainty created by the COVID-19 pandemic, and (ii) salaries, inclusive of certain non-recurring severance expenses associated with the continued realignment of our back office functions, and (b) a net increase in computer hardware, software, and consulting costs, as a result of various information technology and cybersecurity initiatives currently in process.

Other items

Interest expense was $6.1 million and $9.0 million for 2021 and 2020, respectively, and interest income was $0.9 million and $1.5 million for 2021 and 2020, respectively. The decrease in both interest expense and interest income for 2021 resulted from lower interest rates when compared to 2020. In addition, the decrease in interest expense was partially attributable to reduced average outstanding borrowings year-over-year.

Our income tax provision for the year ended December 31, 2021 was $145.6 million, based on an income tax rate of 27.5%, compared to an income tax provision and an income tax rate of $119.4 million and 47.3%, respectively, for the year ended December 31, 2020. Our income tax rate, and resulting income tax provision, for the year ended December 31, 2020 were impacted by the tax effect of the $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during 2020, the majority of which was non-deductible for tax purposes.

Remaining Unsatisfied Performance Obligations

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

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

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

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

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

Our remaining performance obligations at December 31, 2021 were $5.60 billion compared to $4.59 billion at December 31, 2020. The increase in remaining performance obligations year-over-year was primarily attributable to an increase in remaining performance obligations within our United States construction segments, driven by the award of various construction projects within the majority of the market sectors in which we operate, most notably: (a) the commercial market sector, inclusive of certain semiconductor projects, (b) the manufacturing market sector, inclusive of several food processing projects, and (c) the healthcare, institutional, and water and wastewater market sectors. In addition, we experienced an increase in remaining performance obligations within our United States building services segment given increased project opportunities within its mobile mechanical services division and the award of several facilities maintenance contracts within its commercial site-based services division. Remaining performance obligations increased by $162.8 million as a result of acquisitions during 2021.

2020 versus 2019

Overview

The following table presents selected financial data for the fiscal years ended December 31, 2020 and 2019 (in thousands, except percentages and per share data):

Revenues of $8.80 billion for the year ended December 31, 2020 decreased by 4.1% from revenues of $9.17 billion for the year ended December 31, 2019. As discussed in further detail below, such decrease in revenues was largely attributable to revenue declines within our United States industrial services segment, as a result of a decrease in demand for our service offerings within the oil and gas and related industrial markets given the negative macroeconomic conditions impacting these markets. In addition, we experienced a decrease in revenues within our United States electrical construction and facilities services segment, due to: (a) the effects of the COVID-19 pandemic on our operations during 2020, which resulted in: (i) a decrease in the number of short duration projects and (ii) project delays or access restrictions resulting from the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities, and (b) a reduction in commercial market sector activities given the completion or substantial completion of several projects. These revenue declines were partially offset by revenue growth within our United States mechanical construction and facilities services segment and our United States building services segment, inclusive of the impact of businesses acquired, as discussed below, as well as an increase in revenues of our United Kingdom building services segment.

Operating income for 2020 was $256.8 million, or 2.9% of revenues, compared to operating income of $460.9 million, or 5.0% of revenues, in 2019. Our operating results for the year ended December 31, 2020 included $232.8 million of non-cash impairment charges within our United States industrial services segment, which negatively impacted the Company’s operating margin for 2020 by approximately 270 basis points. Excluding the impact of such impairments, operating income and operating margin for the twelve months ended December 31, 2020 increased by $28.7 million and 60 basis points, respectively, primarily as a result of favorable execution within our United States construction segments, as described in further detail below.

Net income of $132.9 million, or $2.40 per diluted share, for the year ended December 31, 2020, compares unfavorably to net income of $325.1 million, or $5.75 per diluted share, for the year ended December 31, 2019. The decline in both net income and diluted earnings per common share are a result of the aforementioned impairment charges and the related tax effects as the majority of such charges were non-deductible for tax purposes.

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Impact of Acquisitions

We acquired three companies in 2020 for total consideration of $50.3 million. Such acquisitions include: (a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C. metro area, and (c) a company, the results of operations of which were de minimis, that provides mobile mechanical services in the Southern region of the United States. The results of operations for all three companies have been included within our United States building services segment.

On November 1, 2019, we completed the acquisition of Batchelor & Kimball, Inc. (“BKI”), a leading full service provider of mechanical construction and maintenance services, for total consideration of $220.3 million. This acquisition strengthens our position and broadens our capabilities in the Southern and Southeastern regions of the United States, and the results of its operations have been included within our United States mechanical construction and facilities services segment. In addition to BKI, during 2019, we completed six other acquisitions for total consideration of $85.4 million. Such acquisitions include: (a) a company that provides electrical contracting services in central Iowa, the results of operations of which have been included within our United States electrical construction and facilities services segment, (b) a company that provides mechanical contracting services in south-central and eastern Texas, the results of operations of which have been included within our United States mechanical 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 in the Southern region of the United States and (ii) three companies, the results of operations of which were de minimis, which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.

Companies acquired in 2020 and 2019 generated incremental revenues of $269.6 million and incremental operating income of $15.4 million, inclusive of $16.0 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2020.

Discussion and Analysis of Results of Operations

Revenues

The following table presents our revenues for each of our operating segments and the approximate percentages that each segment’s revenues were of total revenues for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):

As described in more detail below, revenues for the year ended December 31, 2020 decreased to $8.80 billion compared to $9.17 billion for the year ended December 31, 2019. Revenue declines within our United States industrial services segment, as a result of a decrease in demand for our service offerings within the oil and gas and related industrial markets, and our United States electrical construction and facilities services segment, as described in further detail below, were partially offset by revenue growth within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment. Companies acquired in 2020 and 2019, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment and our United States building services segment, generated incremental revenues of $269.6 million in 2020.

Revenues of our United States electrical construction and facilities services segment were $1,806.1 million for the year ended December 31, 2020 compared to revenues of $1,961.8 million for the year ended December 31, 2019. The decrease in revenues was attributable to: (a) the effects of the COVID-19 pandemic on our operations during 2020, which resulted in: (i) a decrease in the number of short duration projects and (ii) project delays or access restrictions resulting from the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities, and (b) a decline in revenues from

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construction projects within the commercial market sector, as a result of the completion or substantial completion of several projects. The results for the year ended December 31, 2020 included $25.4 million of incremental revenues generated by a company acquired in 2019.

Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2020 were $3,485.5 million, a $145.2 million increase compared to revenues of $3,340.3 million for the year ended December 31, 2019. The results for the year ended December 31, 2020 included $188.8 million of incremental revenues generated by companies acquired in 2019. Excluding the impact of acquisitions, revenues of this segment decreased by $43.7 million, primarily as a result of a decline in revenues from: (a) the manufacturing market sector, inclusive of certain large food processing construction projects, and (b) several telecommunications and technology projects. Similar to our United States electrical construction and facilities services segment, revenues of this segment were also negatively impacted by the effects of the COVID-19 pandemic during 2020, which resulted in project delays and temporary job site shutdowns, as well as a decrease in the number of short duration projects. These revenue reductions were partially offset by increased revenues from the majority of the remaining market sectors in which we operate, most notably the institutional, transportation, and commercial market sectors.

Revenues of our United States building services segment were $2,134.0 million and $2,121.7 million for the years ended December 31, 2020 and 2019, respectively. Excluding acquisition revenues of $55.4 million, this segment’s revenues decreased by approximately $43.0 million during the year ended December 31, 2020. Such reduction in revenues was primarily attributable to: (a) decreased project and controls activities within our mobile mechanical services operations, largely as a result of the impact of the COVID-19 pandemic during 2020, which resulted in fewer project opportunities given the temporary closure of certain customer facilities, (b) decreased large project activity within our energy services operations, primarily as a result of the completion of certain projects which were active in 2019, and (c) the loss of certain contracts not renewed pursuant to rebid within our government services business. These revenue declines were partially offset by increased customer demand for certain services aimed at improving the indoor air quality within their facilities as well as an increase in revenues within our commercial site-based services operations, as a result of new contract awards and scope expansion on certain contracts with existing customers.

Revenues of our United States industrial services segment for the year ended December 31, 2020 were $940.9 million, a $386.7 million decrease compared to revenues of $1,327.6 million for the year ended December 31, 2019. Revenues of this segment for the year ended December 31, 2020 were negatively impacted by adverse market conditions including unprecedented volatility in the price of crude oil, largely as a result of a decline in demand caused by the COVID-19 pandemic. Such macroeconomic conditions led to a decrease in demand for our services, which resulted in: (a) a decrease in maintenance and capital project activity within our field services operations and (b) a reduction in new build heat exchanger sales and a decrease in maintenance, repair, and hydro blast cleaning services within our shop services operations. In addition, revenues for the year ended December 31, 2020 were negatively impacted by project stoppages resulting from hurricanes, including certain named storms, within the Gulf Coast region.

Our United Kingdom building services segment revenues were $430.6 million in 2020 compared to $423.3 million in 2019. The year-over-year increase in revenues within this segment was primarily attributable to: (a) an increase in revenues from new maintenance contract awards within the commercial market sector, and (b) increased project activity with existing customers, primarily within the water and wastewater market sector, despite reduced opportunities for project work brought upon by the temporary closure of certain customer facilities and the temporary suspension of capital spending as a result of the COVID-19 pandemic in the first half of 2020. This segment’s revenues during 2020 were positively impacted by $2.3 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Cost of sales and gross profit

The following table presents cost of sales, gross profit, and gross profit margin for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):

Our gross profit for the year ended December 31, 2020 was $1,395.4 million, a $39.5 million increase compared to gross profit of $1,355.9 million for the year ended December 31, 2019. Our gross profit margin was 15.9% and 14.8% for 2020 and 2019, respectively. The increase in gross profit and gross profit margin for the year ended December 31, 2020 was predominantly a result of improved operating performance within both of our United States construction segments, as described in further detail below, despite the challenges brought on by the COVID-19 pandemic.

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Selling, general and administrative expenses

The following table presents selling, general and administrative expenses and SG&A margin, for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):

Our selling, general and administrative expenses for the year ended December 31, 2020 were $903.6 million compared to selling, general and administrative expenses of $893.5 million for the year ended December 31, 2019. For the year ended December 31, 2020, selling, general and administrative expenses included $29.6 million of incremental expenses directly related to companies acquired in 2020 and 2019, including amortization expense attributable to identifiable intangible assets of $9.5 million. Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses for 2020 decreased by $19.4 million, primarily as a result of certain cost reductions resulting from, or actions taken in response to, the COVID-19 pandemic, including: (a) a reduction in certain discretionary spending, such as travel and entertainment costs, (b) a decrease in salary expense due to: (i) a reduction in headcount, resulting from lower revenues than in the same 2019 period, and (ii) certain short-term cost cutting measures, including temporary furloughs and salary reductions, and (c) a decrease in employee benefit costs, partially due to a decline in medical claims. These cost reductions were partially offset by an increase in incentive compensation expense, predominantly within our United States mechanical construction and facilities services segment, due to improved operating performance by several of our subsidiaries when compared to 2019.

Selling, general and administrative expenses as a percentage of revenues were 10.3% and 9.7% for 2020 and 2019, respectively. The increase in SG&A margin for the year ended December 31, 2020 was primarily due to a reduction in revenues without a commensurate decrease in certain of our overhead costs, including: (a) certain fixed costs within our United States industrial services segment, despite the significant revenue decline within such segment, and (b) the above referenced increase in incentive compensation expense.

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets

During the second quarter of 2020, we identified certain indicators of impairment resulting from the uncertainties caused by the COVID-19 pandemic and the significant volatility in the price of crude oil. These uncertainties resulted in lower forecasted revenue and operating margin expectations for those of our businesses that are highly dependent on the strength of the oil and gas and related industrial markets, resulting in the recognition, during 2020, of impairment charges totaling $232.8 million within our United States industrial services segment.

Operating income (loss)

The following table presents by segment our operating income (loss) and each segment’s operating margin for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):

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As described in more detail below, operating income was $256.8 million, or 2.9% of revenues, for the year ended December 31, 2020, compared to operating income of $460.9 million, or 5.0% of revenues, for the year ended December 31, 2019. Our operating results for 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin in 2020 by approximately 270 basis points. Excluding the impact of such impairment charges on our 2020 results, operating income and operating margin for the year ended December 31, 2020 increased by $28.7 million and 60 basis points, primarily as a result of favorable execution within our United States construction segments. Companies acquired in 2020 and 2019, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, and our United States building services segment, generated incremental operating income of $15.4 million, inclusive of $16.0 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2020.

Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2020 was $161.8 million, or 9.0% of revenues, compared to operating income of $147.8 million, or 7.5% of revenues, for the year ended December 31, 2019. A company acquired in 2019 contributed incremental operating income of $1.6 million, inclusive of $0.1 million of amortization expense associated with identifiable intangible assets, during 2020. The year-over-year increase in operating income and operating margin was largely attributable to an increase in gross profit and gross profit margin given favorable project execution and a more profitable mix of work within this segment during 2020. Improved profitability was experienced within: (a) the commercial market sector, inclusive of several telecommunication construction projects, despite the decrease in revenues within such market sector, (b) the manufacturing market sector, and (c) the transportation market sector, due to the successful completion or close-out of certain projects. These gross profit gains were partially offset by a reduction in gross profit from short duration project activities, given the effects of the COVID-19 pandemic, which led to fewer short duration project opportunities. Operating income of this segment for the year ended December 31, 2020 additionally benefited from a reduction in selling, general and administrative expenses, including a curtailment in certain discretionary spending, such as travel and entertainment costs, and a decrease in employee benefit costs, resulting from a decline in medical claims.

Our United States mechanical construction and facilities services segment’s operating income for the year ended December 31, 2020 was $292.5 million, a $67.5 million increase compared to operating income of $225.0 million for the year ended December 31, 2019. Companies acquired in 2019 contributed incremental operating income of $9.3 million, inclusive of $12.7 million of amortization expense associated with identifiable intangible assets for the year ended December 31, 2020. Excluding the impact of businesses acquired, annual operating income of this segment increased by approximately $58.2 million. Despite the disruption caused by the COVID-19 pandemic during 2020, our United States mechanical construction and facilities services segment experienced an increase in gross profit from construction projects within the majority of the market sectors in which we operate. Operating margins within this segment for the years ended December 31, 2020 and 2019 were 8.4% and 6.7%, respectively. The year-over-year increase in operating margin for this segment was attributable to an increase in gross profit margin, primarily within: (a) the manufacturing market sector, driven by certain large food processing construction projects, and (b) the commercial market sector, inclusive of a number of technology and semiconductor projects, which reached substantial completion during the year. The increases in gross profit and gross profit margin were partially offset by an increase in selling, general and administrative expenses, as well as the ratio of selling, general and administrative expenses to revenues, largely as a result of an increase in incentive compensation expense due to the improved year-over-year operating performance and an increase in amortization expense associated with identifiable intangible assets resulting from companies acquired in 2019.

Operating income of our United States building services segment was $114.2 million in 2020, compared to $115.4 million in 2019. Operating margin of this segment was 5.3% and 5.4% for 2020 and 2019, respectively. Companies acquired in 2020, which are included within this segment’s mobile mechanical services division, contributed incremental operating income of $4.5 million, inclusive of $3.2 million of amortization expense associated with identifiable intangible assets. The decrease in segment operating income for the year ended December 31, 2020 was primarily due to a decrease in gross profit resulting from: (a) a reduction in large project activity within our energy services operations, and (b) when excluding the impact of acquired businesses, reduced project and controls activities within our mobile mechanical services operations, largely as a result of the temporary closure of certain customer facilities impacted by the COVID-19 pandemic. These gross profit reductions were partially offset by increased gross profit from service repair and maintenance activities within our mobile mechanical services operations, partially as a result of increased customer demand for certain services aimed at improving the indoor air quality within their facilities. Operating income of this segment additionally benefited from an overall decrease in selling, general and administrative expenses due to certain cost reduction measures enacted during 2020.

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Our United States industrial services segment’s operating income for the year ended December 31, 2020 was $1.2 million, or 0.1% of revenues, compared to $57.5 million, or 4.3% of revenues, for the year ended December 31, 2019. As previously referenced, this segment’s results for the year ended December 31, 2020 were severely impacted by adverse macroeconomic factors impacting the oil and gas industry. As a result of such conditions, this segment experienced a reduction in gross profit from both our field services and shop services operations due to: (a) a decrease in demand for our service offerings, (b) the deferral, curtailment, or cancellation of previously scheduled projects with certain customers, and (c) an unfavorable mix of work, which included a greater number of projects with lower than typical gross profit margins. The aforementioned decrease in gross profit was partially offset by a reduction in selling, general and administrative expenses during the year, including: (a) incentive compensation and salaries, (b) employee benefit costs, and (c) certain discretionary spending, such as travel and entertainment costs. The decrease in operating margin for the year ended December 31, 2020 was attributable to a decrease in gross profit margin resulting from the above noted factors, as well as an increase in the ratio of selling, general and administrative expenses to revenues due to a decrease in revenue without a commensurate decrease in certain of this segment’s fixed overhead costs.

Our United Kingdom building services segment’s operating income for the year ended December 31, 2020 was $20.7 million, or 4.8% of revenues, which compares favorably to operating income of $18.3 million, or 4.3% of revenues, for the year ended December 31, 2019. The increase in annual operating income of this segment was primarily a result of incremental gross profit from new maintenance contract awards. Exchange rate movements for the British pound versus the United States dollar did not have a significant impact on this segment’s operating income for the twelve months ended December 31, 2020. The year-over-year increase in this segment’s operating margin was attributable to an increase in gross profit margin, primarily as a result of a more favorable mix of work, and a decrease in the ratio of selling, general and administrative expenses to revenues.

Our corporate administration expenses were $98.5 million for 2020 compared to $101.7 million in 2019. The decrease in corporate administration expenses for the year ended December 31, 2020 was primarily due to: (a) a decrease in long-term incentive compensation expense, (b) a decrease in salary expense as a result of: (i) certain short-term cost cutting measures, including temporary furloughs and salary reductions, and (ii) permanent headcount reductions resulting from the realignment of certain of our back office functions, (c) curtailment in certain discretionary spending, such as travel and entertainment costs, and (d) a reduction in professional fees.

Other items

Interest expense was $9.0 million and $13.8 million for 2020 and 2019, respectively. Interest income was $1.5 million and $2.3 million for 2020 and 2019, respectively. The decrease in both interest expense and interest income for 2020 resulted from lower interest rates. The decrease in interest expense was partially offset by the impact of higher average outstanding borrowings during 2020.

Our income tax provision for the year ended December 31, 2020 was $119.4 million based on an income tax rate of 47.3%, compared to an income tax provision and an income tax rate of $125.7 million and 27.9%, respectively, for the year ended December 31, 2019. Our income tax rate and income tax provision for 2020 were impacted by the tax-effect of the $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during 2020, the majority of which was non-deductible for tax purposes.

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Liquidity and Capital Resources

The following section discusses our principal liquidity and capital resources, as well as our primary liquidity requirements and 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. For example, the uncertainty brought on by the COVID-19 pandemic in 2020 resulted in the temporary suspension of acquisition and share repurchase activity, during portions of such year, while we focused on maintaining operational flexibility. 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. 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.

As of December 31, 2021, we had cash and cash equivalents, excluding restricted cash, of $821.3 million, which are maintained in 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, if 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 $1.23 billion of available capacity as of December 31, 2021. Refer to Note 9 - Debt of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data 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 presents our net cash provided by (used in) operating activities, investing activities, and financing activities (in thousands):

For the year ended December 31, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $81.0 million from $903.6 million as of December 31, 2020 to $822.6 million as of December 31, 2021. Changes in our cash position from December 31, 2020 to December 31, 2021 are described in further detail below. For a discussion of the changes in our cash position from December 31, 2019 to December 31, 2020, refer to the Liquidity and Capital Resources section included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2020.

Operating Activities – Operating cash flows generally represent our net income as adjusted for certain non-cash items and changes in assets and liabilities. For 2021, net cash provided by operating activities was approximately $318.8 million compared to approximately $806.4 million of net cash provided by operating activities in 2020.

The $487.5 million decrease in operating cash flows during 2021, when compared to 2020, was primarily attributable to strong organic revenue growth in the current year, which resulted in an increase in working capital balances, most notably accounts receivable and contract assets. In addition, operating cash flow in 2020 benefited from the deferral of approximately

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$117.5 million of certain non-income based taxes resulting from various government measures enacted in response to the COVID-19 pandemic, of which approximately $66 million was repaid in 2021.

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. For 2021, we utilized approximately $153.1 million of cash for investing activities compared to $94.9 million in 2020. The increase in investing cash flows year-over-year was primarily driven by a $67.9 million increase in payments for acquisitions, partially offset by a $11.8 million reduction in capital expenditures.

Financing Activities – Financing cash flows consist primarily of the issuance and repayment of short-term and long-term debt, repurchases of common stock, payment of dividends to stockholders, and the issuance of common stock through certain employee equity plans. Net cash used in financing activities for 2021 was $245.5 million compared to $171.9 million in 2020.

The increase in cash used in financing activities in 2021, when compared to 2020, was primarily due to an $83.0 million increase in funds used for the repurchase of our common stock. During the year ended December 31, 2021, cash payments related to share repurchases were $195.5 million compared to $112.6 million for the year ended December 31, 2020. The timing of repurchases is at management’s discretion subject to securities laws and other legal requirements and will depend upon several factors, including market and business conditions, future liquidity, share price, and share availability, among others. The repurchase program has been and will be funded from our operations. For additional detail regarding our share repurchase program, refer to Note 12 - Common Stock of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

Throughout 2021, we paid a quarterly dividend of $0.13 per share compared to a quarterly dividend of $0.08 per share during 2020. For the years ended December 31, 2021 and 2020, cash payments related to dividends were $28.2 million and $17.7 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 a quarterly dividend of $0.13 per share for the foreseeable future.

Material Cash Requirements from Contractual and Other Obligations

As of December 31, 2021, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of December 31, 2021, the amount outstanding under our term loan was $256.7 million. Based on our outstanding balance, we are required to make annual principal payments of $13.9 million on December 31 of each year until maturity. Any remaining unpaid principal is due on March 2, 2025, when the credit agreement governing our term loan expires. We have no direct borrowings outstanding under our revolving credit facility. In addition to annual principal payments, we are required to make quarterly interest payments on our outstanding indebtedness. Future interest payments will be determined based on prevailing interest rates during that time. Refer to Note 9 - Debt of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data 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 $317.8 million at December 31, 2021, with $69.0 million payable within the next 12 months. Refer to Note 16 - Leases of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for further detail surrounding our lease obligations and the timing of expected future payments.

Open Purchase Obligations – As of December 31, 2021, we had $1.73 billion of open purchase obligations, of which payments totaling approximately $1.50 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 2 - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, we have loss payment deductibles and/or self-insured retentions for certain insurance matters. As of December 31, 2021, our insurance liabilities, net of estimated recoveries, were $178.6 million. Of this net amount, approximately $35.2 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.

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Retirement Plan Obligations – As of December 31, 2021, expected future payments relating to our defined benefit post retirement plans were approximately $4.6 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 14 - Retirement Plans of the notes to consolidated financial statements in Item 8. Financial Statements and Supplementary Data 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 December 31, 2021, the present value of expected future payments relating to these contingent consideration arrangements was $11.8 million. Of this amount, $5.6 million is estimated as being payable during 2022, with the remainder due substantially during 2023.

In addition, material 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 15 - Commitments and Contingencies of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information regarding legal proceedings.

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. During 2021, 2020, and 2019, contributions made to these plans were $396.5 million, $360.2 million, and $369.0 million, respectively; however, 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. Refer to Note 14 - Retirement Plans of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information regarding these multiemployer benefit plans.

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 December 31, 2021, 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 26% 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 December 31, 2021, 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 under such facility.

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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 do not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.

Other Items

To help mitigate the impacts of greenhouse gas emissions on climate change, EMCOR has established initial carbon-based fuel consumption and greenhouse gas emission reduction targets, and will continue to refine such targets as necessary. Although to date we have not incurred any material costs or capital expenditures associated with achieving our targets, we could be required to expend amounts in future periods as we continue to work towards our goals. During 2021, EMCOR purchased carbon credits totaling nearly 25,000 metric tonnes, for approximately $0.3 million. It is not possible, at this time, to estimate the impact that future costs and/or capital expenditures may have on our business, financial condition, results of operations, or liquidity.

New Accounting Pronouncements

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 - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data 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.

Critical 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. Financial Statements and Supplementary Data. 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 year ended December 31, 2021. We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition 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.

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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.

During each of the years ended December 31, 2021, 2020, and 2019, there were no changes in total estimated costs that had a significant impact on our operating results. Additionally, there were no significant amounts of revenue recognized during the years ended December 31, 2021 or 2019 related to performance obligations satisfied in prior periods. During the year ended December 31, 2020, we recognized revenue of $6.1 million associated with the final settlement of contract value for two projects within our United States electrical construction and facilities services segment that were completed or substantially completed in prior periods. For each of the years ended December 31, 2021, 2020, and 2019, there were no significant reversals of revenue recognized associated with the revision of transaction prices.

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 December 31, 2021, 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 of approximately $60 million for the year ended December 31, 2021.

See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for further disclosure regarding revenue recognition.

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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 December 31, 2021 and 2020, our accounts receivable of $2,204.5 million and $1,922.1 million, respectively, were recorded net of allowances for credit losses of $23.5 million and $18.0 million, respectively. The increase in our allowance for credit losses was predominantly attributable to our evaluation of specific outstanding receivables within our United States industrial services segment. 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 during 2021, 2020, and 2019 amounted to approximately $8.0 million, $3.3 million, and $2.6 million, respectively.

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 $13.0 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. Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $6.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, partially as a result of greater potential exposures, including the impact of acquired companies. 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 $17.9 million of additional expense for the year ended December 31, 2021.

Income Taxes

As of December 31, 2021 and 2020, we had net deferred income tax liabilities of $51.0 million and $29.4 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 $212.3 million and $217.1 million of deferred income tax assets as of December 31, 2021 and 2020, respectively. The total valuation allowance on deferred income tax assets was approximately $2.5 million and $3.9 million as of December 31, 2021 and 2020, respectively. 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. Refer to Note 11 - Income Taxes of the notes to consolidated financial statements in Item 8. Financial Statements and Supplementary Data for further detail regarding our deferred income taxes.

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Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets

Goodwill

As of December 31, 2021 and 2020, we had goodwill of $890.3 million and $851.8 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 18 - Segment Information of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. As of December 31, 2021, approximately 17.9% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.2% related to our United States mechanical construction and facilities services segment, approximately 35.1% related to our United States building services segment, and approximately 12.8% related to our United States industrial services segment.

We performed our annual impairment assessment of all reporting units as of October 1, 2021 and determined there was no impairment of goodwill. Based on these impairment assessments, the 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 exceeded their carrying values by approximately $1,516.1 million, $2,772.7 million, $784.2 million, and $40.6 million, respectively.

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.

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, such a 10% decrease would cause the estimated fair value of this reporting unit to approximate its carrying value.

Identifiable Intangible Assets and Other Long-Lived Assets

As of December 31, 2021 and 2020, 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 $589.4 million and $582.9 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.

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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 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 fully recoverable.

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.

With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, we did not identify any circumstances indicating that their carrying values may not be fully recoverable and, therefore, no impairment testing was required for these assets during the year ended December 31, 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, especially in consideration of the uncertainty created by the COVID-19 pandemic and its potential impact on the broader economy and our results of operations in future periods, particularly with respect to our United States industrial services segment. Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future impairment charges. 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.

Refer to Note 8 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for further information about our goodwill and identifiable intangible assets as well as our impairment testing, including the $232.8 million of impairment charges recorded during the year ended December 31, 2020. For the year ended December 31, 2019, no impairment of our goodwill or identifiable intangible assets was recognized.

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