## MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 

## Highlights 

Revenues for the year ended December 31, 2001 were $3.42 billion, compared to $3.46 billion and $2.89 billion for the years ended December 31, 2000 and 1999, respectively. Net income was $50.0 million for 2001, an increase of $9.9 million, or 24.7%, from $40.1 million for 2000. For 1999, net income was $27.8 million. Diluted earnings per share were $3.40 per share for 2001, compared to $2.95 per share for 2000 and $2.21 per share for 1999. 

## Operating Segments 

EMCOR’s business consists of the following operating segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, United States other services, Canada construction and facilities services, United Kingdom construction and facilities services and Other international construction and facilities services. The segments (i) United States other services primarily represents those operations which principally provide energy consulting, maintenance, office and facility management, and central energy systems monitoring services and (ii) Other international construction and facilities services represents EMCOR’s operations outside of the United States, Canada, and the United Kingdom, primarily South Africa, the Middle East and Europe, performing electrical construction, mechanical construction and facilities services. 

## Results of Operations 

EMCOR’s significant accounting policies are described in Note B to the consolidated financial statements included in this Annual Report. EMCOR believes its most critical accounting policy is revenue recognition from long-term contracts for which EMCOR uses the percentage-of- completion method of accounting. Percentage-of-completion accounting is the prescribed method of accounting for long- term contracts in accordance with accounting principles generally accepted in the United States and accordingly the method used for revenue recognition within EMCOR’s industry. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for each contract at completion. Certain of EMCOR’s electrical contracting business units measure percentage-of-completion by the percentage of labor costs incurred to date for each contract to the estimated total labor costs for such contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Application of percentage-of-completion 

accounting results in the recognition of costs and estimated earnings in excess of billings on uncompleted contracts within the consolidated balance sheets. Costs and estimated earnings in excess of billings on uncompleted contracts reflected on the consolidated balance sheets arise when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Costs and estimated earnings in excess of billings on uncompleted contracts also includes amounts EMCOR seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs. Such amounts are recorded at estimated net realizable value. Due to uncertainties inherent within estimates employed to apply percentage-of-completion accounting, it is possible that estimates will be revised as project work progresses. Application of percentage of completion accounting requires that the impact of those revised estimates be reported in the consolidated financial statements prospectively. 

## Revenues 

Revenues for the year ended December 31, 2001 decreased 1.2% to $3.42 billion, compared to $3.46 billion of revenues for 2000. The $40.3 million decrease in revenues for 2001 compared to 2000 was primarily due to reduced levels of fast-track data center construction in the New York, Chicago, Washington, D.C. and California markets, as well as a reduced level of activity in the Las Vegas and Ohio markets and Canada. The decrease was partially offset by growth in revenues associated with energy generation projects and transportation infrastructure construction on the west and east coasts and revenue growth from various activities in the Boston area market. Revenues for 2000 of $3.46 billion represented a 19.7% increase over revenues of $2.89 billion for 1999. The $566.2 million increase in revenues for 2000 compared to 1999 was attributable to (1) revenue growth from EMCOR’s operations (excluding revenues of Building Technology Engineers of North America, LLC (“BTENA”), EMCOR’s joint venture with CB Richard Ellis Inc., and 1999 acquisitions) of $420.2 million, and to (2) revenues from BTENA and 1999 acquisitions which approximated $146.0 million in incremental revenues during 2000. 

