NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- NATURE OF OPERATIONS

References to the "Company," "EMCOR," "we," "us," "our" and words of similar import refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise.

We are one of the largest electrical and mechanical construction and facilities services firms in the United States, Canada, the United Kingdom and in the world. We specialize principally in providing construction services relating to electrical and mechanical systems in facilities of all types and in providing comprehensive services for the operation, maintenance and management of substantially all aspects of such facilities, commonly referred to as "facilities services." We design, integrate, install, start-up, operate and maintain various electrical and mechanical systems, including: (a) electric power transmission and distribution systems; (b) premises electrical and lighting systems; (c) low-voltage systems, such as fire alarm, security and process control systems; (d) voice and data communication systems; (e) roadway and transit lighting and fiber optic lines; (f) heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems; (g) fire protection systems; (h) plumbing, process and high-purity piping systems; (i) water and wastewater treatment systems; and (j) central plant heating and cooling systems. We provide electrical and mechanical construction services and facilities services directly to corporations, municipalities and other governmental entities, owners/developers and tenants of buildings. We also provide these services indirectly by acting as a subcontractor to general contractors, systems suppliers and other subcontractors. Electrical and mechanical construction services generally fall into one of two categories: (a) large installation projects with contracts often in the multi-million dollar range that involve construction of industrial and commercial buildings and institutional and public works facilities or the fit-out of large blocks of space within commercial buildings and (b) smaller installation projects typically involving fit-out, renovation and retrofit work. Our facilities services businesses, which support the operation of a customer's facilities, include industrial maintenance and services, commercial and government site-based operations and maintenance, military base operations support services, mobile maintenance and services, facilities management, installation and support for building systems, technical consulting and diagnostic services, small modification and retrofit projects, program development, management and maintenance for energy systems. These services are provided to a wide range of commercial, industrial, utility and institutional facilities including those at which we provided construction services.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. All investments over which we exercise significant influence, but do not control (a 20% to 50% ownership interest), are accounted for using the equity method of accounting. Additionally, we participate in a joint venture with another company, and we have consolidated this joint venture as we have determined that through our participation we have a variable interest and are the primary beneficiary as defined by FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities".

Minority interest represents the allocation of earnings to our joint venture partners who either have a minority-ownership interest in joint ventures or are not at risk for the majority of losses of the joint venture, which joint ventures have been accounted for by us using the consolidation method of accounting.

On July 9, 2007 and February 10, 2006, we effected 2-for-1 stock splits in the form of stock distributions of one common share for each common share owned on the respective record dates of June 20, 2007 and January 30, 2006. The capital stock accounts, all share data and earnings per share data give effect to the stock splits, applied retroactively, to all periods presented. See Note I
- Common Stock of the notes to consolidated financial statements for additional information.

The results of operations for all years presented reflect discontinued operations accounting due to the sale of an ownership interest in a consolidated joint venture in 2007 and the sales of subsidiaries in each of 2006 and 2005.

The results of operations of acquisitions in 2007 and 2006 have been included in the results of operations from the date of the respective acquisition by us.

PRINCIPLES OF PREPARATION

The preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Reclassifications of prior years data have been made in the accompanying consolidated financial statements where appropriate to conform to the current presentation.

REVENUE RECOGNITION

Revenues from long-term construction contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Certain of our 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. Revenues from services contracts are recognized as services are provided. There are two basic types of services contracts (a) fixed price facilities services contracts which are signed in advance for maintenance, repair and retrofit work over periods typically ranging from one to three years
(pursuant to which our employees may be at a customer's site full time) and (b)
services contracts which may or may not be signed in advance for similar maintenance, repair and retrofit work on an as needed basis (frequently referred to as time and material work). Fixed price facilities services contracts are generally performed over the contract period, and, accordingly, revenue is recognized on a pro-rata basis over the life of the contract. Revenues derived from other services contracts are recognized when the services are performed in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition, revised and updated" ("SAB 104"). Expenses related to all services contracts are recognized as incurred. Provisions for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined. In the case of customer change orders for uncompleted long-term construction contracts, estimated recoveries are included for work performed in forecasting ultimate profitability on certain contracts. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined.

Our industrial maintenance and services business recognizes revenue associated with the engineering, manufacturing and repairing of shell and tube heat exchangers in accordance with SAB 104 when the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price to the buyer is fixed and determinable and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. Costs related to this work are included in inventory until the product is shipped. These costs include all direct material, labor and subcontracting costs and indirect costs related to performance such as, supplies, tools and repairs. Revenues from field service contracts are recognized as services are provided, the duration of which generally does not exceed one month.

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts arise in the consolidated balance sheets when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Also included in costs and estimated earnings on uncompleted contracts are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on construction costs incurred in connection with claim amounts. Claims and unapproved change orders made by us involve negotiation and, in certain cases, litigation. In the event litigation costs are incurred by us in connection with claims or unapproved change orders, such litigation costs are expensed as incurred, although we may seek to recover these costs. We believe that we have established legal bases for pursuing recovery of our recorded unapproved change orders and claims, and it is management's intention to pursue and litigate such claims, if necessary, until a decision or settlement is reached. Unapproved change orders and claims also involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims and unapproved change orders may be made in the near term. If we do not successfully resolve these matters, a net expense (recorded as a reduction in revenues) may be required, in addition to amounts that have been previously provided for. Claims against us are recognized when a loss is considered probable and amounts are reasonably determinable.

                                                                                 2007            2006
                                                                             ------------    ------------
Costs incurred on uncompleted contracts ...................................  $  9,186,361    $  7,983,614
Estimated earnings ........................................................       675,000         519,164
                                                                             ------------    ------------
                                                                                9,861,361       8,502,778
Less: billings to date ....................................................    10,288,873       8,766,999
                                                                             ------------    ------------
                                                                             $   (427,512)   $   (264,221)
                                                                             ============    ============

Such amounts were included in the accompanying Consolidated Balance Sheets at December 31, 2007 and 2006 under the following captions (in thousands):

                                                                                  2007           2006
                                                                               ---------      ---------
Costs and estimated earnings in excess of billings on uncompleted contracts .  $ 144,919      $ 147,848
Billings in excess of costs and estimated earnings on uncompleted contracts .   (572,431)      (412,069)
                                                                               ---------      ---------
                                                                               $(427,512)     $(264,221)
                                                                               =========      =========

As of December 31, 2007 and 2006, costs and estimated earnings in excess of billings on uncompleted contracts included unbilled revenues for unapproved change orders of approximately $31.3 million and $48.2 million, respectively, and claims of approximately $21.3 million and $22.4 million, respectively. In addition, accounts receivable as of December 31, 2007 and 2006 included claims of approximately $4.8 million and $6.7 million, respectively, plus unapproved change orders and contractually billed amounts related to such contracts of $60.5 million and $76.9 million, respectively. Generally, contractually billed amounts will not be paid by the customer to us until final resolution of related claims. Included in the claims amount is approximately $8.1 million and $8.2 million as of December 31, 2007 and 2006, respectively, related to projects of our Poole & Kent subsidiary, which projects had commenced prior to our acquisition of Poole & Kent in 1999. The Poole & Kent claims amount principally relate to a civil action in which Poole & Kent is a participant.

CLASSIFICATION OF CONTRACT AMOUNTS

In accordance with industry practice, we classify as current all assets and liabilities related to the performance of long-term contracts. The contracting cycle for certain long-term contracts may extend beyond one year, and, accordingly, collection or payment of amounts related to these contracts may extend beyond one year. Accounts receivable at December 31, 2007 and 2006 included $249.0 million and $216.1 million, respectively, of retainage billed under terms of these contracts. We estimate that approximately 82% of retainage recorded at December 31, 2007 will be collected during 2008. Accounts payable at December 31, 2007 and 2006 included $43.9 million and $43.7 million, respectively, of retainage withheld under terms of the contracts. We estimate that approximately 87% of retainage withheld at December 31, 2007 will be paid during 2008. Specific accounts receivable are evaluated when we believe a customer may not be able to meet its financial obligations. The allowance for doubtful accounts requirements are re-evaluated and adjusted on a regular basis and as additional information is received.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated financial statements, we consider all highly liquid instruments with original maturities of three months or less to be cash equivalents. We maintain a centralized cash management system whereby our excess cash balances are invested in high quality, short-term money market instruments, which are considered cash equivalents. At times, cash balances in our bank accounts may exceed federally insured limits.

                                                             2007        2006
                                                           --------    --------
Raw materials and construction materials ...............   $ 21,116    $ 18,676
Work in progress .......................................     32,515          --
Reserve for obsolescence ...............................     (1,384)       (661)
                                                           --------    --------
                                                           $ 52,247    $ 18,015
                                                           ========    ========

The 2007 work in process inventories are attributable to the acquisition of FR X Ohmstede Acquisition Co. ("Ohmstede") on September 19, 2007.

INVESTMENTS, NOTES AND OTHER LONG-TERM RECEIVABLES

Investments, notes and other long-term receivables were $22.7 million and $29.6 million at December 31, 2007 and 2006, respectively, and primarily consist of investments in joint ventures accounted for using the equity method of accounting. Included as investments, notes and other long-term receivables were investments of $11.3 million and $16.7 million as of December 31, 2007 and 2006, respectively, relating to a venture with Baltimore Gas & Electric (a subsidiary of Constellation Energy). This joint venture designs, constructs, owns, operates, leases and maintains facilities to produce chilled water for use in air conditioning commercial properties. During 2007, we recognized a $5.5 million impairment charge related to an other-than-temporary decline in fair value of our investment in this joint venture, which has been reflected as a component of cost of sales.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost. Depreciation, including amortization of assets under capital leases, is recorded principally using the straight-line method over estimated useful lives of 3 to 10 years for machinery and equipment, 3 to 5 years for vehicles, furniture and fixtures and computer hardware/software and 25 years for buildings. Leasehold improvements are amortized over the shorter of the remaining life of the lease term or the expected service life of the improvement. As events and circumstances indicate, we review the carrying amount of property, plant and equipment for impairment. In performing this review for recoverability, long-lived assets are assessed for possible impairment by comparing their carrying values to their undiscounted net pre-tax cash flows expected to result from the use of the asset. Impaired assets are written down to their fair values, generally determined based on their estimated future discounted cash flows. Through December 31, 2007, no material adjustment for the impairment of property, plant and equipment carrying value has been required.

Property, plant and equipment in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2007 and 2006 (in thousands):

                                                            2007         2006
                                                         ---------    ---------
Machinery and equipment ..............................   $  64,340    $  43,723
Vehicles .............................................      33,095       31,047
Furniture and fixtures ...............................      18,873       19,640
Computer hardware/software ...........................      66,928       63,047
Land, buildings and leasehold improvements ...........      60,790       46,693
                                                         ---------    ---------
                                                           244,026      204,150
Accumulated depreciation and amortization ............    (160,063)    (151,370)
                                                         ---------    ---------
                                                         $  83,963    $  52,780
                                                         =========    =========

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill at December 31, 2007 and 2006 was approximately $563.9 million and $288.2 million, respectively, and reflects the excess of cost over fair market value of net identifiable assets of companies acquired. Goodwill attributable to companies acquired in 2007 has been preliminarily valued at $274.7 million. We have adopted the following accounting standards issued by the Financial Accounting Standards Board ("FASB"): Statement No. 141, "Business Combinations" ("Statement 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement 142"). Statement 141 requires that all business combinations be accounted for using the purchase method of accounting and that certain intangible assets acquired in a business combination be recognized as assets apart from goodwill. Statement 142 requires that goodwill and other identifiable intangible assets with indefinite useful lives not be amortized, but instead must be tested at least annually for impairment (which we test each October 1), and be written down if impaired, rather than amortized as previous standards required. Furthermore, Statement 142 requires identifiable intangible assets with finite lives be amortized over their useful lives. Statement 142 requires that goodwill be allocated to the reporting units. The fair value of the reporting unit is compared to the carrying amount on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value. The fair value for goodwill is determined based on discounted estimated future cash flows. Our annual impairment review is performed in accordance with the provisions of Statement 142.

The changes in the carrying amount of goodwill during the years ended December 31, 2007 and 2006 were as follows (in thousands):

                                                                   2007         2006
                                                                ---------    ---------
Balance at beginning of period ..............................   $ 288,165    $ 283,412
Earn-out payments/accruals on prior year acquisitions .......       3,000        3,502
Goodwill recorded for acquisition of businesses .............     274,693        1,890
Goodwill allocated to the sale of assets and other items, net      (1,940)        (639)
                                                                ---------    ---------
Balance at end of period ....................................   $ 563,918    $ 288,165
                                                                =========    =========

As of December 31, 2007, there are remaining contingent payments of approximately $20.3 million related to earn-out payments in connection with acquisitions.

Identifiable intangible assets at December 31, 2007 are comprised of $28.9 million of contract backlog, $85.4 million of developed technology, $76.7 million of customer relationships, $7.3 million of non-competition agreements and $85.1 million of trade names, all acquired as a result of acquisitions in 2002, 2005, 2006 and 2007. Identifiable intangible assets at December 31, 2006 were comprised of $14.7 million of contract backlog, $21.9 million of customer relationships, $2.1 million of non-competition agreements and $13.8 million of trade names, all acquired as a result of acquisitions in 2002, 2005 and 2006. Identifiable intangible assets attributable to companies acquired in 2007 have been preliminarily valued at $231.7 million. The $85.1 million attributable to trade names is not being amortized as trade names have indefinite lives, but are subject to an annual review for impairment in accordance with Statement 142. See Note C -Acquisitions of Businesses of the notes to consolidated financial statements for additional information. Except for Ohmstede's contract backlog, which is being expensed in a manner consistent with its expected revenue recognition, the identifiable intangible amounts are subject to amortization on a straight-line method. The amortization periods range from 4 months to 6 years for contract backlog, 20 years for developed technology, 5 to 20 years for customer relationships and 3 to 7 years for non-competition agreements. The contract backlog, developed technology customer relationships and non-competition agreements are presented in the consolidated balance sheets net of accumulated amortization of $31.1 million and $14.1 million at December 31, 2007 and 2006, respectively. The following table presents the estimated future amortization expense of identifiable intangible assets in the following years (in thousands):

2008  ...............................................................   $ 20,736
2009  ...............................................................     12,540
2010  ...............................................................     10,500
2011  ...............................................................      9,362
2012  ...............................................................      8,968
Thereafter ..........................................................    105,061
                                                                        --------
                                                                        $167,167
                                                                        ========

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

INSURANCE LIABILITIES

Our insurance liabilities are determined actuarially based on claims filed and an estimate of claims incurred but not yet reported. At December 31, 2007 and 2006, the estimated current portion of undiscounted insurance liabilities of $18.9 million and $16.5 million, respectively, were included in "Other accrued expenses and liabilities" in the accompanying Consolidated Balance Sheets. The estimated non-current portion of the undiscounted insurance liabilities included in "Other long-term obligations" at December 31, 2007 and 2006 were $89.9 million and $80.9 million, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities. The carrying value of our term loan approximates the fair value due to the variable rate on such debt.

FOREIGN OPERATIONS

The financial statements and transactions of our foreign subsidiaries are maintained in their functional currency and translated into U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency Translation". Translation adjustments have been recorded as "Accumulated other comprehensive loss", a separate component of "Stockholders' equity".

INCOME TAXES

We account for income taxes in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes" ("Statement 109"). Statement 109 requires an asset and liability approach which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.

DERIVATIVES AND HEDGING ACTIVITIES

As of December 31, 2007, we did not have any derivative instruments. As of December 31, 2006, we did not have any material derivative instruments.

VALUATION OF SHARE-BASED COMPENSATION PLANS

We have various types of share-based compensation plans and programs, which are administered by our Board of Directors or its Compensation and Personnel Committee. See Note J - Stock Options and Stock Plans for additional information regarding the share-based compensation plans and programs.

On January 1, 2006, we adopted FASB Statement No. 123(R), "Share-Based Payment" ("Statement 123(R)"). With the adoption of Statement 123(R), all share-based payments to our employees and non-employee directors, including grants of stock options, have been recognized in the income statement based on their fair values, on a straight-line basis over the requisite service period, which is generally the vesting period, utilizing the modified prospective method of accounting. The impact of the adoption of Statement 123(R) resulted in $4.0 million of compensation expense for the year ended December 31, 2006. As a result, net income was adversely impacted in this period by $2.4 million, and basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS") were both adversely impacted by $0.07. Prior to January 1, 2006, we applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25") and related interpretations in accounting for stock options. Accordingly, no compensation expense has been recognized in the accompanying Consolidated Statements of Operations for the year ended December 31, 2005 in respect of stock options granted during that period inasmuch as we granted stock options at fair market value. Had compensation expense for the options for the year ended December 31, 2005 been determined consistent with FASB Statement No. 123, "Accounting for Stock-Based Compensation" and FASB Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", our net income, Basic EPS and Diluted EPS would have been reduced from the "as reported amounts" below to the "pro forma amounts" below (in thousands, except per share amounts):

                                                                                              2005
                                                                                            -------
Income from continuing operations:
   As reported ..........................................................................   $59,313
   Less: Total stock-based compensation expense determined under fair value based method,
     net of related tax effects .........................................................     2,112
                                                                                            -------
   Pro Forma ............................................................................   $57,201
                                                                                            =======
Basic EPS from continuing operations:
   As reported ..........................................................................     $0.95
   Pro Forma ............................................................................     $0.92
Diluted EPS from continuing operations:
   As reported ..........................................................................     $0.93
   Pro Forma ............................................................................     $0.90

NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", an interpretation of FASB Statement No. 109, "Accounting for Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the adoption of FIN 48 and recognition of the cumulative effect of adoption of a new accounting principle, we recorded a $0.3 million increase in the liability for unrecognized income tax benefits, with an offsetting reduction in retained earnings. As of December 31, 2007, the liability on the Consolidated Balance Sheets for unrecognized income tax benefits was $8.8 million (of which $5.2 million, if recognized, would favorably affect our effective tax rate). We recognized interest related to uncertain tax positions in the income tax provision. As of December 31, 2007, we had approximately $3.2 million of accrued interest related to uncertain tax positions included in the liability on the Consolidated Balance Sheets, of which approximately $2.0 million was recorded during 2007. It is possible that approximately $1.7 million of income tax liability related to uncertain intercompany transfer pricing items will become a recognized income tax benefit in the next twelve months due to the closing of open tax years. The tax years 2004 to 2007 remain open to examination by United States taxing jurisdictions, and the tax years 2001 to 2007 remain open to examination by foreign taxing jurisdictions.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" ("Statement 157"). Statement 157 provides guidance for using fair value to measure assets and liabilities. The statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The statement does not expand the use of fair value in any new circumstances. Statement 157 is effective for our financial statements beginning with the first quarter of 2008. Early adoption is permitted. However, on February 12, 2008, the FASB issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP") that amends Statement 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). The FSP defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008. We have not determined the effect, if any, the adoption of Statement 157 will have on our financial position and results of operations. However, we believe we will likely be required to provide additional disclosures in future financial statements beginning after the effective date of the new standard.

In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("Statement 159"). Statement 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Statement 159 is effective for our financial statements beginning with the first quarter of 2008. We have determined that there will be no effect in adopting Statement 159 on our financial position and results of operations.

In December 2007, the FASB issued Statement No. 141 (revised 2007), "Business Combinations" ("Statement 141(R)"). Statement 141(R) changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and changes when restructurings related to acquisitions can be recognized. The standard is effective for fiscal years beginning on or after December 15, 2008 and will only impact the accounting for acquisitions that are made after adoption.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

In December 2007, the FASB issued Statement No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("Statement 160"). This statement is effective for fiscal years beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from our equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of Statement 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We have not determined the effect, if any, the adoption of Statement 160 will have on our financial position and results of operations.

NOTE C -- ACQUISITIONS OF BUSINESSES

During 2007, we acquired four companies, which were not material individually or in the aggregate, for an aggregate of $53.2 million. Two of the companies primarily perform facilities services and have been included in our United States facilities services reporting segment, and the other two primarily perform mechanical construction work and have been included in our United States mechanical construction and facilities services reporting segment. Goodwill and identifiable intangible assets attributable to these companies, representing the excess purchase price over the fair value of amounts assigned to the net tangible assets acquired, were preliminarily valued at $14.7 million and $19.3 million, respectively.

Also during 2007, we acquired Ohmstede, which has been included in our United States facilities services segment. The purchase price paid for Ohmstede was approximately $455.4 million, net of cash acquired of approximately $1.5 million, and was funded by approximately $155.4 million of our cash on hand and from $300.0 million of borrowings under our new $300.0 million Term Loan Agreement (the "Term Loan"). The Term Loan is described further in Note G -- Long-Term Debt. Additionally, approximately $5.4 million was paid for directly related acquisition costs. Headquartered in Beaumont, Texas, Ohmstede is the leading North American provider of aftermarket maintenance and repair services, replacement parts and fabrication services for highly engineered shell and tube heat exchangers for refineries and the petrochemical industry.

During 2006, we acquired three companies, which were not individually or in the aggregate material, for an aggregate of $41.1 million in cash. Goodwill and identifiable intangible assets were valued at $5.1 million and $20.0 million, respectively, after completion of the final valuation and purchase price adjustments.

We believe the addition of these companies furthers our goal of service and geographic diversification and expansion of our facilities services and fire protection operations, as well as offering industrial services with a focus on the refinery and petrochemical industries. Additionally, these acquisitions create more opportunities for our subsidiaries to collaborate on national facilities services contracts. See Note B - Summary of Significant Accounting Policies of the notes to consolidated financial statements for a discussion of Goodwill and Identifiable intangible assets.

The purchase prices of certain acquisitions are subject to finalization based on certain contingencies provided for in the purchase agreements. These acquisitions were accounted for by the purchase method, and the purchase prices have been allocated to the assets acquired and liabilities assumed, based upon the preliminary estimated fair values of the respective assets and liabilities at the dates of the respective acquisitions.

The following table summarizes the preliminary purchase price allocation related to the 2007 acquisitions at the respective dates of acquisition (in thousands):

                                                            OTHER
                                              OHMSTEDE   ACQUISITIONS    TOTAL
                                              --------   ------------    -----
Current assets, including cash acquired ...   $ 78,274     $ 53,952    $132,226
Property, plant and equipment .............     25,803        3,312      29,115
Goodwill ..................................    259,819       14,874     274,693
Identifiable intangible assets. ...........    212,400       19,326     231,726
Other assets ..............................         --          227         227
                                              --------     --------    --------
  Total assets acquired ...................    576,296       91,691     667,987
                                              --------     --------    --------
Current liabilities. ......................     30,028       37,519      67,547
Deferred income tax liability .............     89,368          300      89,668
Other long-term obligations ...............         --          660         660
                                              --------     --------    --------
  Total liabilities assumed ...............    119,396       38,479     157,875
                                              --------     --------    --------
Net assets acquired .......................   $456,900     $ 53,212    $510,112
                                              ========     ========    ========

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- ACQUISITIONS OF BUSINESSES -- (CONTINUED)

The goodwill of $274.7 million was recorded based on preliminary purchase price allocations primarily to the United States mechanical construction and facilities services and United States facilities services segments. Goodwill results from the expected benefits of collaboration and synergies in future periods. It is expected that approximately $34.0 million of the goodwill and identifiable intangible assets associated with the companies acquired in 2007 will be deductible for tax purposes. In accordance with FASB Statement No. 141, "Business Combinations" ("Statement 141") and FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement 142"), goodwill will not be amortized, while certain other intangible assets with finite lives that have been preliminarily identified will be subject to amortization over their useful lives.

Of the total purchase price paid for all 2007 acquisitions, approximately $231.7 million has been preliminarily allocated to identifiable intangible assets, which includes acquired contract backlog, developed technology, customer relationships, non-competition agreements and trade names. Approximately $70.5 million has been allocated to trade names and is not being amortized as trade names have indefinite lives. Except for Ohmstede's contract backlog, which is being expensed in a manner consistent with its expected revenue recognition, the identifiable intangible amounts are subject to amortization on a straight-line method. The amortization periods range from four months to twenty years.

During 2007, the purchase price accounting for our acquisition of a United States mechanical construction company in October 2006 was finalized. As a result, identifiable intangible assets ascribed to its goodwill, contract backlog, customer relationships and to a related non-competition agreement were adjusted with an insignificant impact.

The following table presents unaudited pro forma results of operations including all companies acquired during 2007 as if the acquisitions had occurred at the beginning of fiscal 2006. The pro forma results of operations are not necessarily indicative of the results of operations had the acquisitions actually occurred at the beginning of fiscal 2006, nor is it necessarily indicative of future operating results (in thousands, except per share data):

                                                            2007            2006
                                                        -----------     -----------
Revenues ............................................   $ 6,249,243     $ 5,271,200
Operating income ....................................   $   234,979(1)  $   107,534(2)
Income from continuing operations ...................   $   132,900(1)  $    61,977(2)
Net income ..........................................   $   135,665     $    63,211
Diluted earnings per share from continuing operations   $      1.99     $      0.95
Diluted earnings per share ..........................   $      2.03     $      0.97

(1) Includes compensation related expenses of $18.7 million associated with certain share-based payments made to certain members of management of an acquired company prior to the acquisition date. These amounts were recorded in the pre-acquisition financial statements.

(2) Includes compensation related expenses of $26.6 million associated with certain contractual payments and vesting of stock options related to a prior acquisition involving the company we acquired. These amounts were recorded in the pre-acquisition financial statements.

The above pro forma balances include additional interest expense associated with the Term Loan, the loss of interest income related to the use of cash for the acquisition and the amortization expense associated with the preliminary value placed on the identifiable intangible assets related to companies acquired in the third and fourth quarters of 2007.

During 2007 and 2006, we recorded an aggregate of $3.0 million and $3.5 million, respectively, by reason of earn-out obligations in respect of prior year acquisitions.

NOTE D -- DISPOSITION OF ASSETS

Results of these operations for all periods presented in our consolidated financial statements reflect discontinued operations accounting. On August 6, 2007, we sold our majority ownership interest in a joint venture with CB Richard Ellis, Inc. ("CBRE") to CBRE for $8.0 million. This sale followed our purchase, for approximately $0.5 million, of certain of the joint venture's assets. Included in the results of discontinued operations for 2007 was a gain of $1.2 million (net of income tax benefit of $1.8 million) resulting from the sale of our joint venture interest. As of December 31, 2007, $5.5 million of purchase price had been received, and the balance is reflected as a current note receivable on our Consolidated Balance Sheet. The components of the results of discontinued operations for CBRE are as follows (in thousands):

                                                           2007(1)        2006        2005
                                                         ----------   ----------   ----------
Revenues ..............................................  $   79,095   $  119,253   $  103,613
Income from discontinued operation ....................  $    1,582   $    1,854   $    1,840
Gain on sale of discontinued operation ................  $    1,183   $       --   $       --
Net income from discontinued operation ................  $    2,765   $    1,854   $    1,840
Diluted earnings per share from discontinued operation   $     0.04   $     0.03   $     0.03

(1) Through date of sale, August 6, 2007.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- DISPOSITION OF ASSETS -- (CONTINUED)

On January 31, 2006, we sold a subsidiary that had been part of our United States mechanical construction and facilities services segment. On September 30, 2005, we sold a subsidiary that had been part of our United States facilities services segment. Included in the results of discontinued operations for the year ended December 31, 2006 was a loss of $0.6 million (net of income tax benefit of $0.1 million), which related to the January 2006 sale of the subsidiary that had been part of our United States mechanical construction and facilities services segment. Included in the $0.7 million gain (net of income taxes) from discontinued operations for the year ended December 31, 2005 is a loss of $1.0 million (net of income tax provision of $0.1 million), which related to the September 2005 sale of a subsidiary that had been part of our United States facilities services segment. An aggregate of $1.7 million and $4.4 million in cash and notes was received as consideration for both of these sales in 2006 and 2005, respectively. As of December 31, 2006, the notes had been paid in full. We will not have any future involvement with these subsidiaries. The components of the results of operations for these discontinued operations are not presented as they are not material to the consolidated results of operations.

                                                                          2007           2006           2005
                                                                      ------------   ------------   ------------
NUMERATOR:
Income before discontinued operations .............................   $    124,043   $     85,400   $     59,313
Income from discontinued operations ...............................          2,765          1,234            729
                                                                      ------------   ------------   ------------
Net income available to common stockholders .......................   $    126,808   $     86,634   $     60,042
                                                                      ============   ============   ============

DENOMINATOR:
Weighted average shares outstanding used to
  compute basic earnings per share ................................     64,431,471     63,215,431     62,286,727
Effect of diluted securities -
  Share-based awards ..............................................      2,300,465      2,264,962      1,383,035
                                                                      ------------   ------------   ------------
Shares used to compute diluted earnings
  per share .......................................................     66,731,936     65,480,393     63,669,762
                                                                      ============   ============   ============

Basic earnings per share:
  Continuing operations ...........................................   $       1.93   $       1.35   $       0.95
  Discontinued operations .........................................           0.04           0.02           0.01
                                                                      ------------   ------------   ------------
  Total ...........................................................   $       1.97   $       1.37   $       0.96
                                                                      ============   ============   ============

Diluted earnings per share:
  Continuing operations ...........................................   $       1.86   $       1.30   $       0.93
  Discontinued operations .........................................           0.04           0.02           0.01
                                                                      ------------   ------------   ------------
  Total ...........................................................   $       1.90   $       1.32   $       0.94
                                                                      ============   ============   ============

The number of options granted to purchase shares of our common stock that were excluded from the computation of Diluted EPS for the years ended December 31, 2007, 2006 and 2005 because they would be anti-dilutive were 120,000, zero and 365,940, respectively.

NOTE F -- CURRENT DEBT

CREDIT FACILITIES

Effective October 17, 2005, we replaced our pre-existing revolving credit facility with an amended and restated $350.0 million revolving credit facility (the "2005 Revolving Credit Facility"). The 2005 Revolving Credit Facility expires on October 17, 2010. It permits us to increase our borrowing to $500.0 million if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We utilized this feature to increase the line of credit under the 2005 Revolving Credit Facility from $350.0 million to $375.0 million on November 29, 2005. We may allocate up to $125.0 million of the borrowing capacity under the 2005 Revolving Credit Facility to letters of credit. The 2005 Revolving Credit Facility is guaranteed by certain of our direct and indirect subsidiaries, is secured by substantially all of our assets and most of the assets of our subsidiaries, and provides for borrowings in the form of revolving loans and letters of credit. The 2005 Revolving Credit Facility contains various covenants requiring, among other things, maintenance of certain financial ratios and certain restrictions with respect to payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. A commitment fee is payable on the average daily unused amount of the 2005 Revolving Credit Facility. The fee ranges from 0.25% to 0.5% of the unused amount, based on certain financial tests. Borrowings under the 2005 Revolving Credit Facility bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Nesbitt from time to time (7.25% at December 31,

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- CURRENT DEBT -- (CONTINUED)

2007) plus 0.0% to 0.5%, based on certain financial tests or (2) United States dollar LIBOR (4.80% at December 31, 2007) plus 1.0% to 2.25%, based on certain financial tests. The interest rates in effect at December 31, 2007 were 7.25% and 5.80% for the prime commercial lending rate and the United States dollar LIBOR, respectively. Letter of credit fees issued under this facility range from 1.0% to 2.25% of the respective face amounts of the letters of credit issued and are charged based on the type of letter of credit issued and certain financial tests. In connection with the replacement of our pre-existing revolving credit facility, $0.4 million of prepaid commitment fees were recorded as interest expense for 2005. As of December 31, 2007 and 2006, we had approximately $53.8 million and $55.6 million of letters of credit outstanding, respectively. There were no borrowings under the 2005 Revolving Credit Facility as of December 31, 2007 and 2006.

FOREIGN BORROWINGS

Our Canadian subsidiary, Comstock Canada Ltd., had a credit agreement with a bank providing for an overdraft facility of up to Cdn. $0.5 million that was terminated in November 2007. The facility was secured by a standby letter of credit and provided for interest at the bank's prime rate, which was 6.0% at December 31, 2006. There were no borrowings outstanding under this credit agreement at December 31, 2006.

                                                                         2007           2006
                                                                    ------------   ------------
Term Loan, interest payable in varying amounts through 2010 .....   $    225,000   $         --
Capitalized Lease Obligations, at weighted average interest
  rates from 5.0% to 9.0% payable in varying amounts through 2014          2,151          1,566
Other, at weighted average interest rates from 8.0% to 13.0%,
  payable in varying amounts through 2010 .......................             93            332
                                                                    ------------   ------------
                                                                         227,244          1,898
Less: current maturities ........................................          3,791            659
                                                                    ------------   ------------
                                                                    $    223,453   $      1,239
                                                                    ============   ============

TERM LOAN

On September 19, 2007, we entered into the Term Loan. The proceeds were used to pay a portion of the consideration for the acquisition of Ohmstede and costs and expenses incident thereto. The Term Loan contains financial covenants, representations and warranties and events of default. The Term Loan covenants require, among other things, maintenance of certain financial ratios and certain restrictions with respect to payment of dividends, common stock repurchases, investments, acquisitions, indebtedness and capital expenditures. We are required to make principal payments on the Term Loan in installments on the last day of March, June, September and December of each year, commencing March 2008 in the amount of $0.75 million. A final payment comprised of all remaining principal and interest is due on October 17, 2010. The Term Loan is secured by substantially all of our assets and substantially all of the assets of substantially all of our U.S. subsidiaries. The Term Loan bears interest at (1) the prime commercial lending rate announced by Bank of Montreal from time to time (7.25% at December 31, 2007) plus 0.0% to 0.5% based on certain financial tests or (2) U.S. dollar LIBOR (4.80% at December 31, 2007) plus 1.0% to 2.25% based on certain financial tests. The interest rate in effect at December 31, 2007 was 6.3%. We capitalized approximately $4.0 million of debt issuance costs associated with the Term Loan. This amount is being amortized over the life of the loan and is included as part of interest expense. The outstanding amount under the Term Loan at December 31, 2007 was $225.0 million reflecting a prepayment of $75.0 million on December 31, 2007 and, because of the prepayment, we recorded as interest expense additional amortization expense related to capitalized debt issuance costs of $0.9 million.

CAPITALIZED LEASE OBLIGATIONS

See Note L - Commitments and Contingencies of the notes to consolidated financial statements for additional information.

OTHER LONG-TERM DEBT

Other long-term debt consists primarily of loans for real estate, office equipment, automobiles and building improvements. The aggregate amount of other long-term debt maturing is approximately $0.1 million payable in varying amounts over the next three years.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- INCOME TAXES

The 2007 income tax provision was $77.7 million compared to $29.2 million for 2006 and $8.4 million for 2005. The provision on income before income taxes for 2007, 2006 and 2005 was recorded at an effective income tax rate of approximately 38.5%, 39.5% and 38.3%, respectively, excluding the items discussed below. The increase in the 2007 income tax provision was primarily due to increased income from continuing operations, while the effective income tax rate decreased primarily due to the utilization of net operating loss carryforwards in Canada.

The 2006 income tax provision was comprised of: (a) $45.3 million of income tax provision in respect of pre-tax earnings of $114.6 million; (b) $8.4 million of income tax benefit related to the reversal of a valuation allowance based on the determination that sufficient taxable income existed in the past and will continue in the future to realize the related United Kingdom tax assets; (c) a $3.9 million income tax benefit related to the realization of net operating losses for which valuation allowances had previously been recorded in Canada;
(d) an income tax benefit of $1.9 million for income tax reserves no longer required based on a current analysis of probable exposures; and (e) income tax benefits related to items aggregating approximately $1.9 million principally due to the deductibility of certain compensation arrangements for income tax purposes.

The income tax provision for 2005 was comprised of: (a) $25.9 million of income tax provision in respect of pre-tax earnings of $67.7 million; (b) $5.2 million of income tax provision related to a valuation allowance recorded to reduce deferred tax assets related to net operating losses and other temporary differences with respect to our Canada construction and facilities services segment, since there is uncertainty as to whether the segment will have sufficient taxable income in the future to realize the benefit of such deferred tax assets; and (c) the offset of such income tax provisions by a $22.7 million income tax benefit for income tax reserves no longer required based on a current analysis of probable exposures.

We have recorded liabilities for our best estimate of the probable loss on certain positions taken on our income tax returns. We believe our recorded income tax liabilities are adequate for all tax years subject to audit based on our assessment of many factors. Although we believe our recorded income tax assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, our assessments involve judgments about future events and rely on reasonable estimates and assumptions. These income tax liabilities generally are not finalized with the individual tax authorities until several years after the end of the annual period for which income taxes have been estimated. As of December 31, 2007 and 2006, we had total income tax reserves of $12.0 million (included in "Other long-term obligations") and $5.6 million (included in "Other accrued expenses and liabilities"), respectively.

We file income tax returns in the United States federal jurisdiction and various states and foreign jurisdictions. With few exceptions, we are no longer subject to United States federal, state and local, or non-United States income tax examinations by tax authorities for the years before 2004. We are not currently under Internal Revenue Service audit.

On January 1, 2007, we adopted FIN 48. As a result of the adoption of FIN 48 and recognition of the cumulative effect of adoption of a new accounting principle, we recorded a $0.3 million increase in the liability for unrecognized income tax benefits, with an offsetting reduction in retained earnings. As of December 31, 2007, the liability for unrecognized income tax benefits was $8.8 million (of which $5.2 million, if recognized, would favorably affect our effective tax rate). At December 31, 2007 and 2006, we had an accrual of $3.2 million and $1.2 million, respectively, for the payment of interest related to unrecognized tax positions included on the Consolidated Balance Sheets. We recognized interest related to unrecognized tax benefits in the income tax provision. During the years ended December 31, 2007 and 2006, we recognized approximately $2.0 million and $0.3 million in interest expense related to our unrecognized tax positions, respectively. A reconciliation of the beginning and end of year unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2007 ..........................................    $6,707
Additions based on tax positions related to the current year ........     2,008
Additions attributable to acquisitions of businesses ................     1,768
Reductions for tax positions of prior years .........................    (1,704)
                                                                         ------
Balance at December 31, 2007 ........................................    $8,779
                                                                         ======

It is possible that approximately $1.7 million of income tax liability, primarily related to uncertain intercompany transfer pricing items, will become a recognized income tax benefit in the next twelve months due to the closing of open tax years.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- INCOME TAXES -- (CONTINUED)

We file a consolidated federal income tax return including all of our U.S. subsidiaries. At December 31, 2007, we had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $1.8 million, which expire in the year 2009. In addition, at December 31, 2007, for United Kingdom tax purposes, we had trading loss carryforwards of approximately $10.7 million and nontrading and capital loss carryforwards of approximately $0.7 million, which have no expiration date. These losses and the U.S. NOLs are subject to review by taxing authorities.

The income tax provision (benefit) in the accompanying Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 consisted of the following (in thousands):

                                                                       2007        2006        2005
                                                                     --------    --------    --------
Current:
  Federal provision (benefit) .....................................  $ 81,586    $ 28,447    $ (1,328)
  State and local .................................................    23,337       9,728       5,441
  Foreign benefit .................................................    (3,904)     (2,810)       (752)
                                                                     --------    --------    --------
                                                                      101,019      35,365       3,361
                                                                     --------    --------    --------
  Deferred ........................................................   (23,313)     (6,169)      5,002
                                                                     --------    --------    --------
                                                                     $ 77,706    $ 29,196    $  8,363
                                                                     ========    ========    ========

Factors accounting for the variation from U.S. statutory income tax rates for the years ended December 31, 2007, 2006 and 2005 were as follows (in thousands):

                                                                       2007        2006        2005
                                                                     --------    --------    --------
Federal income taxes at the statutory rate ........................  $ 70,612    $ 40,108    $ 23,687
State and local income taxes, net of federal tax benefits .........    11,656       5,407       1,454
Permanent differences .............................................    (1,680)      2,103       2,498
Foreign income taxes ..............................................    (1,350)     (6,122)     (1,673)
Adjustments to valuation allowance for deferred tax assets ........      (101)     (8,446)      5,181
Tax reserves ......................................................      (806)     (1,881)    (22,745)
Other .............................................................      (625)     (1,973)        (39)
                                                                     --------    --------    --------
                                                                     $ 77,706    $ 29,196    $  8,363
                                                                     ========    ========    ========

The components of the net deferred income tax asset are included in "Prepaid expenses and other" of $31.4 million and "Other long-term obligations" of $56.4 million at December 31, 2007 and "Prepaid expenses and other" of $19.9 million and "Other assets" of $8.3 million at December 31, 2006 in the accompanying Consolidated Balance Sheets. The amounts recorded for the years ended December 31, 2007 and 2006 were as follows (in thousands):

                                                                                  2007         2006
                                                                                ---------   ---------
Deferred income tax assets:
Net operating loss carryforwards .................................             $    3,995   $   4,974
Excess of amounts expensed for financial
  statement purposes over amounts deducted
  for income tax purposes:
    Insurance liabilities .........................................                37,239      22,622
    Pension liability .............................................                14,545      17,953
    Other liabilities .............................................                50,186      33,744
                                                                                ---------   ---------
Total deferred income tax assets ..................................               105,965      79,293
Valuation allowance for deferred tax assets .......................                (8,555)    (12,893)
                                                                                ---------   ---------
Net deferred income tax assets ....................................                97,410      66,400
                                                                                ---------   ---------
Deferred income tax liabilities:
Costs capitalized for financial statement
  purposes and deducted for income tax
  purposes:
  Amortization of identifiable intangible assets ..................              (112,700)    (28,454)
  Other, primarily depreciation of property,
    plant and equipment ...........................................                (9,701)     (9,792)
                                                                                ---------   ---------
Total deferred income tax liabilities .............................              (122,401)    (38,246)
                                                                                ---------   ---------
Net deferred income tax (liabilities) assets ......................             $ (24,991)  $  28,154
                                                                                =========   =========

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- INCOME TAXES -- (CONTINUED)

As of December 31, 2007 and 2006, the total valuation allowance on net deferred tax assets was approximately $8.6 million and $12.9 million, respectively. The primary reason for the decrease in the valuation allowance for 2007 was related to a $4.5 million reversal of a valuation allowance related to the capital loss carryforwards for which future taxable benefit was in doubt, but was realized as part of the capital gain recognized on the sale of CBRE. Realization of the deferred tax assets is dependent on our generating sufficient taxable income. We believe that the deferred tax assets will be realized through the future reversal of existing taxable temporary differences and projected future income. Although realization is not assured, we believe it is more likely than not that the deferred tax asset, with no corresponding valuation allowance, will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.

Income (loss) from continuing operations before income taxes for the years ended December 31, 2007, 2006 and 2005 consisted of the following (in thousands):

                                                2007         2006        2005
                                              ---------    ---------   ---------
United States .............................   $ 206,500    $ 104,509   $  65,044
Foreign ...................................      (4,751)      10,087       2,632
                                              ---------    ---------   ---------
                                              $ 201,749    $ 114,596   $  67,676
                                              =========    =========   =========

We have not recorded deferred income taxes on the undistributed earnings of our foreign subsidiaries because of our intent to indefinitely reinvest such earnings. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings. If invested capital was repatriated to the United States, there could be income taxes payable on any such amount.

NOTE I -- COMMON STOCK

On January 27, 2006, our stockholders approved an amendment to our Restated Certificate of Incorporation authorizing an increase in the number of shares of our common stock from 30.0 million shares to 80.0 million shares. On September 18, 2007, our stockholders approved an amendment to our Restated Certificate of Incorporation authorizing an increase in the number of shares of our common stock from 80.0 million shares to 200.0 million shares. On July 9, 2007 and February 10, 2006, we effected 2-for-1 stock splits in the form of stock distributions of one common share for each common share owned, payable to shareholders of record on June 20, 2007 and January 30, 2006. As of December 31, 2007 and 2006, 65,196,285 and 63,655,980 shares of our common stock were outstanding, respectively. Pursuant to a program authorized by our Board of Directors, we purchased 4,527,940 shares of our common stock prior to January 1, 2000. The aggregate amount of $14.1 million paid for those shares has been classified as "Treasury stock, at cost" in the Consolidated Balance Sheet at December 31, 2007, less the value of shares reissued pursuant to the exercise of stock options or issuance of restricted stock units as described in Note J - Stock Options and Stock Plans. Our management is authorized to expend up to an additional $3.2 million to purchase our common stock under this program.

                                             AUTHORIZED
                                               SHARES                 VESTING               EXPIRATION         VALUATION DATE
                                             ----------               -------               ----------         --------------

1994 Management Stock Option Plan             4,000,000            Generally, 33%         Ten years from      Fair market value
  (the "1994 Plan")                                             on each anniversary         grant date         of common stock
                                                                   of grant date                                on grant date

1995 Non-Employee Directors'                   800,000           100% on grant date       Ten years from      Fair market value
  Non-Qualified Stock Option Plan                                                           grant date         of common stock
  (the "1995 Plan")                                                                                             on grant date

1997 Non-Employee Directors'                  1,200,000                 (1)              Five years from      Fair market value
  Non-Qualified Stock Option Plan                                                           grant date         of common stock
  (the "1997 Directors' Stock Option Plan")                                                                     on grant date

1997 Stock Plan for Directors                  600,000                  (2)                    --             Fair market value
  (the "1997 Directors' Stock Plan")                                                                           of common stock
                                                                                                                on grant date

2003 Non-Employee Directors'                   480,000           100% on grant date       Ten years from      Fair market value
  Non-Qualified Stock Option Plan                                                           grant date         of common stock
  (the "2003 Directors' Stock Option Plan")                                                                     on grant date

2003 Management Stock Incentive Plan          1,320,000           To be determined        Ten years from      Fair market value
  ("2003 Management Plan")                                      by the Compensation     grant date, in the     of common stock
                                                                     Committee           case of options        on grant date

Executive Stock Bonus Plan                     880,000           100% on grant date       Ten years from      Fair market value
  ("ESBP")                                                                                  grant date         of common stock
                                                                                                                on grant date

2005 Management Stock Incentive Plan          1,800,000           To be determined        Ten years from      Fair market value
  ("2005 Management Plan")                                      by the Compensation     grant date, in the     of common stock
                                                                     Committee           case of options        on grant date

2005 Stock Plan for Directors                  104,000            50% on grant or              --             Fair market value
  (the "2005 Directors' Stock Plan")                             award date, 50% on                            of common stock
                                                               the first anniversary                            on grant date
                                                                   of grant date

2007 Incentive Plan                           1,495,000           To be determined       Eight years from     Fair market value
                                                                by the Compensation     grant date, in the     of common stock
                                                                     Committee           case of options        on grant date


Other Stock Option Grants                        Not           Generally, either 100%     Ten years from      Fair market value
                                              applicable      on first anniversary of       grant date         of common stock
                                                                grant date or 25% on                            on grant date
                                                               grant and 25% on each
                                                             anniversary of grant date

(1) All options under this plan become exercisable quarterly over the calendar year in which they are granted.
(2) 50% of the shares awarded vested on the grant date and 50% one year thereafter.

                     STOCK OPTIONS                                      RESTRICTED STOCK UNITS
-------------------------------------------------------      ------------------------------------------
                                               WEIGHTED
                                               AVERAGE
                                   SHARES       PRICE                                            SHARES
                                   ------       -----                                            ------
Balance, December 31, 2004         6,995,016     $7.83       Balance, December 31, 2004         466,148
  Granted                          1,525,808    $11.42         Granted                           62,552
  Forfeited                               --        --         Forfeited                             --
  Exercised                       (1,220,968)    $2.22         Issued                          (196,276)
                                  ----------                                                   --------
Balance, December 31, 2005         7,299,856     $9.51       Balance, December 31, 2005         332,424
  Granted                            158,120    $21.38         Granted                          296,282
  Forfeited                               --        --         Forfeited                        (30,568)
  Exercised                       (1,324,248)    $7.96         Issued                          (199,320)
                                  ----------                                                   --------
Balance, December 31, 2006         6,133,728    $10.16       Balance, December 31, 2006         398,818
  Granted                            155,624    $34.05         Granted                          132,626
  Forfeited                          (13,332)    $9.80         Forfeited                             --
  Exercised                       (1,487,934)    $6.93         Issued                           (84,220)
                                  ----------                                                   --------
Balance, December 31, 2007         4,788,086    $11.93       Balance, December 31, 2007         447,224
                                  ==========                                                   ========

In addition, 3,412 shares and 8,280 shares were issued to certain non-employee directors pursuant to annual retainer arrangements during the years ended December 31, 2007 and 2006, respectively. Compensation expense of $4.1 million and $4.0 million for the years ended December 31, 2007 and 2006, respectively, were recognized due to the vesting of stock option grants. Less than $0.1 million of compensation expense, net of income taxes, will be recognized over the approximate 3 month remaining vesting period for stock options outstanding at December 31, 2007. As a result of stock option exercises, $10.3 million and $10.4 million of proceeds were received during the years ended December 31, 2007 and 2006, respectively. The income tax benefit derived in 2007 and 2006 as a result of such exercises and share-based compensation was $15.2 million and $8.9 million, respectively, of which $13.4 million and $6.8 million, respectively, represented excess tax benefits. This compares to $1.7 million of proceeds from stock option exercises for the year ended December 31, 2005. The income tax benefit from the stock option exercises and other share-based compensation for the year ended December 31, 2005 was $3.9 million.

The director shares and restricted stock units were awarded to directors and employees pursuant to non-employee director and key-person long-term incentive plans and a separation agreement for which $3.0 million, $1.9 million and $0.9 million of compensation expense was recognized for the years ended December 31, 2007, 2006 and 2005, respectively. We also have outstanding phantom equity units for which $3.6 million of income was recognized for the year ended December 31, 2007, compared to $2.8 million of expense recognized for the year ended December 31, 2006, in both cases due to changes in the market price of our common stock from the award date.

The total intrinsic value of options (the amounts by which the stock price exceeded the exercise price of the option on the date of exercise) that was exercised during 2007, 2006 and 2005 was $37.4 million, $23.7 million and $12.3 million, respectively.

At December 31, 2007, 2006 and 2005 approximately 4,420,000, 5,240,000 and 5,400,000 options were exercisable, respectively. The weighted average exercise price of exercisable options at December 31, 2007, 2006 and 2005 was approximately $11.99, $9.96 and $8.86, respectively.

                             STOCK OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                   ------------------------------------------------   ---------------------------
   RANGE OF                     WEIGHTED AVERAGE   WEIGHTED AVERAGE              WEIGHTED AVERAGE
EXERCISE PRICES     NUMBER       REMAINING LIFE     EXERCISE PRICE     NUMBER     EXERCISE PRICE
---------------     ------       --------------     --------------     ------     --------------
$ 4.05 - $ 9.67      606,000       2.83 Years            $ 5.98         606,000       $ 5.98
$10.41 - $13.20    3,280,598       5.50 Years            $11.21       2,909,267       $11.20
$13.69 - $17.79      625,864       4.81 Years            $13.96         625,864       $13.96
$22.53 - $28.13      155,624       7.69 Years            $23.63         155,624       $23.63
     $36.04          120,000       7.47 Years            $36.04         120,000       $36.04

The total aggregate intrinsic value of options outstanding as of December 31, 2007, 2006 and 2005 was approximately $56.0 million, $112.1 million and $53.8 million, respectively. The total aggregate intrinsic value of options exercisable as of December 31, 2007, 2006 and 2005 was approximately $51.4 million, $96.8 million and $43.3 million, respectively.

The pro forma effect on our net income, Basic EPS and Diluted EPS, had compensation costs been determined consistent with the recognition of compensation costs provisions of Statement No. 123, is presented in Note B - Summary of Significant Accounting Policies. The associated pro forma compensation costs related to the provisions of Statement No. 123, net of tax effects, were $2.1 million for the year ending December 31, 2005.

The fair value on the date of grant was calculated using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during the periods indicated:

                                                 FOR THE YEAR ENDED DECEMBER 31,
                                         --------------------------------------------
                                             2007            2006            2005
                                         ------------    ------------    ------------
Dividend yield .......................              0%              0%              0%
Expected volatility ..................           30.8%           34.0%           36.8%
Risk-free interest rate ..............            4.9%            4.9%            3.9%
Expected life of options in years ....            5.0             5.8             6.3
Weighted average grant date fair value         $12.35           $9.36           $4.98

Forfeitures of stock options have been historically insignificant to the calculation and are estimated to be zero in all periods presented.

NOTE K -- RETIREMENT PLANS

Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible employees (the "UK Plan"); however, no individuals joining that company after October 31, 2001 may participate in the plan. The benefits under the UK Plan are based on wages and years of service with the subsidiary. Our policy is to fund at least the minimum amount required by law. Currently, we have agreed to fund additional amounts under an agreement with the pension trustees. The measurement date of the UK Plan is December 31 of each year.

On December 31, 2006, we adopted the provisions of Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("Statement 158"). Statement 158 requires us to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of the UK Plan in the December 31, 2006 statement of financial position, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax. The adjustment to accumulated other comprehensive income (loss) at adoption represents the net unrecognized actuarial losses remaining from the initial adoption of Statement No. 87, "Employers' Accounting for Pensions" ("Statement 87"), all of which were previously netted against the plan's funded status in our statement of financial position pursuant to the provisions of Statement 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to our historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE K -- RETIREMENT PLANS -- (CONTINUED)

pension cost in the same periods will be recognized as a component of accumulated other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income (loss) at the adoption of Statement 158.

The incremental effects of adopting the provisions of Statement 158 for the UK Plan on our consolidated statement of financial position at December 31, 2006 are presented in the following table. The adoption of Statement 158 had no effect on our consolidated statement of operations for the year ended December 31, 2006, or for any prior period presented. Had we not been required to adopt Statement 158 at December 31, 2006, we would have recognized a minimum pension liability pursuant to the provisions of Statement 87 of $15.6 million.

The effect of recognizing the additional minimum liability for the UK Plan is included in the table below in the column labeled "Prior to Adopting Statement 158" (in thousands):

                                                            AT DECEMBER 31, 2006
                                                -------------------------------------------------
                                                   PRIOR TO       EFFECT OF        AS REPORTED
                                                   ADOPTING        ADOPTING              AT
                                                STATEMENT 158   STATEMENT 158   DECEMBER 31, 2006
                                                -------------   -------------   -----------------
Intangible asset (pension) ..................   $          --   $          --    $          --
Accrued pension liability ...................   $      16,592   $      43,250    $      59,842
Net deferred income tax asset ...............   $      15,179   $      12,975    $      28,154
Accumulated other comprehensive income (loss)   $       2,086   $     (30,275)   $     (28,189)

The change in benefit obligations and assets of the UK Plan for the years ended December 31, 2007 and 2006 consisted of the following components (in thousands):

                                                    2007         2006
                                                 ---------    ---------
CHANGE IN PENSION BENEFIT OBLIGATION
Benefit obligation at beginning of year ......   $ 266,636    $ 206,460
Service cost .................................       6,629        4,285
Interest cost ................................      13,758       10,484
Plan participants' contributions .............       2,698        2,794
Actuarial (gain) loss ........................     (10,040)      20,224
Benefits paid ................................      (9,067)      (7,970)
Foreign currency exchange rate changes .......       5,345       30,359
                                                 ---------    ---------
Benefit obligation at end of year ............   $ 275,959    $ 266,636
                                                 =========    =========

CHANGE IN PENSION PLAN ASSETS
Fair value of plan assets at beginning of year   $ 206,794    $ 163,630
Actual return on plan assets .................       9,183       18,195
Employer contributions .......................      10,788        6,349
Plan participants' contributions .............       2,698        2,794
Benefits paid ................................      (9,067)      (7,970)
Foreign currency exchange rate changes .......       4,122       23,796
                                                 ---------    ---------
Fair value of plan assets at end of year .....   $ 224,518    $ 206,794
                                                 ---------    ---------
Funded status at end of year .................   $ (51,441)   $ (59,842)
                                                 =========    =========

                                                    2007         2006
                                                 ---------    ---------
Unrecognized losses ..........................   $  51,934    $  58,888
                                                 =========    =========

The underfunded status of the UK Plan of $51.4 million and $59.8 million at December 31, 2007 and 2006, respectively, is included in "Other long-term obligations" in the accompanying Consolidated Balance Sheet. No plan assets are expected to be returned to us during the year ended December 31, 2008.

                                        2007    2006    2005
                                        ----    ----    ----
Discount rate ......................    5.6%    5.1%    4.8%
Annual rate of salary provision ....    4.2%    3.8%    3.1%
Annual rate of return on plan assets    6.8%    6.5%    6.3%

The annual rate of return on plan assets is based on the United Kingdom Government Bond yield, plus an estimated margin, at each year's measurement date. This annual rate approximates the historical annual return on plan assets and considers the expected asset allocation between equity and debt securities. For measurement purposes, the annual rates of inflation of covered pension benefits assumed for 2007 and 2006 were 3.2% and 2.8%, respectively.

The components of net periodic pension benefit cost for the years ended December 31, 2007, 2006 and 2005 were as follows (in thousands):

                                           2007        2006        2005
                                         --------    --------    --------
Service cost .........................   $  6,629    $  4,285    $  3,896
Interest cost ........................     13,758      10,484       9,701
Expected return on plan assets .......    (13,814)    (11,175)     (9,890)
Net amortization of prior service cost
and actuarial loss ...................         --          72          85
Amortization of unrecognized loss ....      2,746       1,675       1,351
                                         --------    --------    --------
Net periodic pension benefit cost ....   $  9,319    $  5,341    $  5,143
                                         ========    ========    ========

The estimated unrecognized loss for the UK Plan that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the next year is approximately $2.2 million.

                                                          TARGET
                                        DECEMBER 31,       ASSET
ASSET CATEGORY                              2007        ALLOCATION
--------------                          ------------    ----------
Equity securities ..................        71.6%          70.0%
Debt securities ....................        28.1           30.0
Other ..............................         0.3             --
                                           -----          -----
Total ..............................       100.0%         100.0%
                                           =====          =====

Plan assets of our UK Plan include marketable equity securities in both United Kingdom and United States companies. Debt securities consist mainly of fixed interest bonds.

The investment policies and strategies for plan assets are established to achieve a reasonable balance between risk, likely return and administration expense, as well as to maintain funds at a level to meet minimum funding requirements. In order to ensure that an appropriate investment strategy is in place, an analysis of the UK Plan's assets and liabilities is completed periodically.

CASH FLOWS:

CONTRIBUTIONS

Our United Kingdom subsidiary expects to contribute approximately $11.0 million to its UK Plan in 2008.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE K -- RETIREMENT PLANS -- (CONTINUED)

ESTIMATED FUTURE BENEFIT PAYMENTS

The following estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the following years (in thousands):

2008 ...............................................................   $   7,885
2009 ...............................................................       8,389
2010 ...............................................................       8,888
2011 ...............................................................       9,387
2012 ...............................................................       9,887
Succeeding five years ..............................................      56,923

The accumulated benefit obligation for the UK Plan for the years ended December 31, 2007 and 2006 was $234.9 million and $223.4 million, respectively.

The following table shows certain information for the UK Plan where the accumulated benefit obligation is in excess of plan assets as of December 31, 2007 and 2006 (in thousands):

                                                            2007          2006
                                                          --------      --------
Projected benefit obligation .........................    $275,959      $266,636
Accumulated benefit obligation .......................    $234,886      $223,386
Fair value of plan assets ............................    $224,518      $206,794

We also sponsor two domestic defined benefit plans in which participation by new individuals is frozen. The benefit obligation associated with these plans as of December 31, 2007 and 2006 was approximately $5.7 million and $5.3 million, respectively. The estimated fair value of the plan assets as of December 31, 2007 and 2006 was approximately $6.0 million and $5.5 million, respectively. The prepaid balances as of December 31, 2007 are classified as long-term assets on the balance sheet. The measurement date for these plans is December 31 of each year. As a result of adopting Statement 158 as of December 31, 2006 for these plans, Accumulated other comprehensive loss was increased by approximately $0.7 million, net of income taxes. The major assumptions used in the actuarial valuations for 2007 and 2006 included a discount rate of 5.5% and 6.0% and an expected rate of return of 8.0% and 8.5%, respectively. The estimated loss for these plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the next year is approximately $0.1 million. The future estimated benefit payments expected to be paid from the plans for the next ten years is approximately $0.3 million to $0.4 million per year.

We contribute to various multi-employer union pension funds based upon wages paid to our union employees. Such contributions approximated $187.0 million, $150.1 million and $133.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. The increase in contributions of $36.9 million for 2007 compared to 2006 was primarily related to increased hours worked and wages earned and incremental contributions for companies acquired in 2007 of approximately $2.0 million.

We have defined contribution retirement and savings plans that cover U.S. eligible employees. Contributions to these plans are based on a percentage of the employee's base compensation. The expenses recognized for the years ended December 31, 2007, 2006 and 2005 for these plans were $7.7 million, $7.1 million and $6.2 million, respectively.

Our United Kingdom subsidiary has a defined contribution retirement plan. The expense recognized for the years ended December 31, 2007, 2006 and 2005 was $2.2 million, $1.9 million and $1.7 million, respectively.

Our Canadian subsidiary has a defined contribution retirement plan. The expense recognized was $0.4 million for the year ended December 31, 2007 and $0.3 million for each of the years ended December 31, 2006 and 2005.

                                            CAPITAL      OPERATING      SUBLEASE
                                             LEASES        LEASES        INCOME
                                            --------      --------      --------
2008 ....................................   $    746      $ 49,954      $    515
2009 ....................................        870        43,147           272
2010 ....................................        362        32,888           105
2011 ....................................        159        24,419           104
2012 ....................................         54        15,862           104
Thereafter ..............................         53        34,021            --
                                            --------      --------      --------
Total minimum lease payment .............      2,244      $200,291      $  1,100
                                                          ========      ========
Amounts representing interest ...........        (93)
                                            --------
Present value of net minimum lease
  payments ..............................   $  2,151
                                            ========

Rent expense for operating leases and other rental items for the years ended December 31, 2007, 2006 and 2005 was $88.0 million, $74.0 million and $61.5 million, respectively. Rent expense for the years ended December 31, 2007, 2006 and 2005 included sublease rental income of $0.4 million, $0.3 million and $0.5 million, respectively.

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

We are contingently liable to sureties in respect of performance and payment bonds issued by sureties, usually at the request of customers in connection with construction projects, which secure our payment and performance obligations under contracts for such projects. In addition, at the request of labor unions representing certain of our employees, bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Our bonding requirements typically increase as the amount of public sector work increases. As of December 31, 2007, based on our percentage-of-completion of our projects in connection with which surety bonds were issued, our aggregate estimated exposure, had there been defaults on all our existing contractual obligations, would have been approximately $1.3 billion. The bonds are issued by our sureties in return for premiums, which vary depending on the size and type of bond. We have agreed to indemnify the sureties for amounts, if any, paid by them in respect of bonds issued on our behalf.

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

One of our subsidiaries has guaranteed $25.0 million of borrowings of a venture in which it has a 40% interest; the other venture partner, Baltimore Gas and Electric (a subsidiary of Constellation Energy), has a 60% interest. The venture designs, constructs, owns, operates, leases and maintains facilities to produce chilled water for sale to customers for use in air conditioning commercial properties. These guarantees are not expected to have a material affect on our financial position or results of operations. Each of the venturers is jointly and severally liable, in the event of default, for the venture's $25.0 million in borrowings due December 2031.

We presently employ approximately 29,000 people, approximately 73% of whom are represented by various unions pursuant to more than 400 collective bargaining agreements between our individual subsidiaries and local unions. We believe that our employee relations are generally good. Only one of these collective bargaining agreements is national or regional in scope.

Restructuring expenses, primarily relating to employee severance obligations and reduction of leased facilities, were $0.3 million, $1.6 million and $1.8 million for 2007, 2006 and 2005, respectively. As of December 31, 2007 and 2006, the balance of these obligations was $0.2 million. The obligation outstanding as of December 31, 2006 was paid in 2007, and the obligation outstanding as of December 31, 2007 is expected to be paid in 2008.

                                                        2007       2006       2005
                                                      --------   --------   --------
Cash paid during the year for:
  Interest ........................................   $ 11,377   $  1,788   $  8,573
  Income taxes ....................................   $ 85,469   $ 29,205   $  9,858
Non-cash financing activities:
  Assets acquired under capital lease obligations..   $    491   $    612   $    412
  Capital lease obligations terminated ............   $     --   $     --   $   (322)
  Contingent purchase price accrued ...............   $  3,000   $  3,372   $     --

NOTE N -- SEGMENT INFORMATION

We have the following reportable segments which provide services associated with the design, integration, installation, start-up, operation and maintenance of various systems: (a) United States electrical construction and facilities services (involving systems for electrical power transmission and distribution; premises electrical and lighting systems; low-voltage systems, such as fire alarm, security and process control; voice and data communication; roadway and transit lighting; and fiber optic lines); (b) United States mechanical construction and facilities services (involving systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation; fire protection; plumbing, process and high-purity piping; water and wastewater treatment and central plant heating and cooling); (c) United States facilities services; (d) Canada construction and facilities services; (e) United Kingdom construction and facilities services; and (f) Other international construction and facilities services. The segment "United States facilities services" principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers' facilities (industrial maintenance and services; commercial and government site-based operations and maintenance; military base operations support services; mobile maintenance and services; facilities management; installation and support for building systems; technical consulting and diagnostic services; small modification and retrofit projects; and program development, management and maintenance for energy systems), which services are not generally related to customers' construction programs, as well as industrial services operations, which primarily provide aftermarket maintenance and repair services, replacement parts and fabrication services for highly engineered shell and tube heat exchangers for the refinery and petrochemical industries. The Canada, United Kingdom and Other international segments perform electrical construction, mechanical construction and facilities services. Our "Other international construction and facilities services" segment, currently operating only in the Middle East, represents our operations outside of the United States, Canada and the United Kingdom. The following tables present information about industry segments and geographic areas for the years ended December 31, 2007, 2006 and 2005. Insignificant reclassifications of certain business units among the segments have been made for all periods presented due to changes in our internal reporting structure (in millions):

                                                                                              AS REPORTED
                                                                                --------------------------------------
                                                                                   2007          2006          2005
                                                                                ----------    ----------    ----------
Revenues from unrelated entities:
  United States electrical construction and facilities services .............   $  1,433.8    $  1,280.2    $  1,224.6
  United States mechanical construction and facilities services .............      2,343.1       1,820.9       1,671.6
  United States facilities services .........................................      1,048.1         830.1         681.6
                                                                                ----------    ----------    ----------
  Total United  States  operations ..........................................      4,825.0       3,931.2       3,577.8
  Canada construction and facilities services ...............................        382.0         299.1         342.1
  United Kingdom construction and facilities services .......................        720.2         671.5         673.1
  Other international construction and facilities services ..................           --            --            --
                                                                                ----------    ----------    ----------
  Total worldwide operations ................................................   $  5,927.2    $  4,901.8    $  4,593.0
                                                                                ==========    ==========    ==========

Total revenues:
  United States electrical construction and facilities services .............   $  1,442.2    $  1,284.7    $  1,236.9
  United States mechanical construction and facilities services .............      2,357.5       1,845.8       1,681.8
  United States facilities services .........................................      1,057.0         835.8         684.0
  Less intersegment revenues ................................................        (31.7)        (35.1)        (24.9)
                                                                                ----------    ----------    ----------
  Total United States operations ............................................      4,825.0       3,931.2       3,577.8
  Canada construction and facilities services ...............................        382.0         299.1         342.1
  United Kingdom construction and facilities services .......................        720.2         671.5         673.1
  Other international construction and facilities services ..................           --            --            --
                                                                                ----------    ----------    ----------
  Total worldwide operations ................................................   $  5,927.2    $  4,901.8    $  4,593.0
                                                                                ==========    ==========    ==========

Operating income (loss):
  United States electrical construction and facilities services .............   $     88.2    $     46.8    $     79.8
  United States mechanical construction and facilities services .............        135.7          82.1          20.2
  United States facilities services .........................................         43.6          33.3          20.2
                                                                                ----------    ----------    ----------
  Total United States operations ............................................        267.5         162.2         120.2
  Canada construction and facilities services ...............................          6.8           0.4          (7.9)
  United Kingdom construction and facilities services .......................        (12.9)          6.8           7.4
  Other international construction and facilities services ..................         (0.5)         (0.1)          0.0
  Corporate administration ..................................................        (60.8)        (55.9)        (43.2)
  Restructuring expenses ....................................................         (0.3)         (1.6)         (1.8)
                                                                                ----------    ----------    ----------
  Total worldwide operations ................................................        199.8         111.8          74.7

Other corporate items:
  Interest expense ..........................................................         (9.2)         (2.3)         (8.3)
  Interest income ...........................................................         13.2           6.2           2.7
  Minority interest .........................................................         (2.1)         (1.1)         (1.4)
                                                                                ----------    ----------    ----------
  Income from continuing operations before income taxes .....................   $    201.7    $    114.6    $     67.7
                                                                                ==========    ==========    ==========

                                                                                  2007       2006       2005
                                                                               ---------- ---------- ----------
Capital expenditures:
  United States electrical construction and facilities services ............   $      6.6 $      2.8 $      2.4
  United States mechanical construction and facilities services ............          4.2        3.4        2.5
  United States facilities services ........................................          6.3        9.1        3.9
                                                                               ---------- ---------- ----------
  Total United States operations ...........................................         17.1       15.3        8.8
  Canada construction and facilities services ..............................          1.6        2.7        1.3
  United Kingdom construction and facilities services ......................          2.4        1.1        0.3
  Other international construction and facilities services .................           --         --         --
  Corporate administration .................................................          0.4        0.6        2.0
                                                                               ---------- ---------- ----------
  Total worldwide operations ...............................................   $     21.5 $     19.7 $     12.4
                                                                               ========== ========== ==========

Depreciation and amortization of Property, plant and equipment:
  United States electrical construction and facilities services ............   $      3.2 $      3.1 $      3.0
  United States mechanical construction and facilities services ............          6.0        5.3        5.6
  United States facilities services ........................................          6.6        4.1        5.8
                                                                               ---------- ---------- ----------
  Total United States operations ...........................................         15.8       12.5       14.4
  Canada construction and facilities services ..............................          1.3        1.0        0.9
  United Kingdom construction and facilities services ......................          2.6        2.8        2.8
  Other international construction and facilities services .................           --         --         --
  Corporate administration .................................................          1.0        0.8        1.3
                                                                               ---------- ---------- ----------
  Total worldwide operations ...............................................   $     20.7 $     17.1 $     19.4
                                                                               ========== ========== ==========

                                                                                  2007       2006
                                                                               ---------- ----------
Costs and estimated earnings in excess of billings on uncompleted contracts:
  United States electrical construction and facilities services ............   $     51.2 $     49.3
  United States mechanical construction and facilities services ............         52.4       62.8
  United States facilities services ........................................         13.5       11.1
                                                                               ---------- ----------
  Total United States operations ...........................................        117.1      123.2
  Canada construction and facilities services ..............................         19.9       18.3
  United Kingdom construction and facilities services ......................          7.9        6.3
  Other international construction and facilities services .................           --         --
                                                                               ---------- ----------
  Total worldwide operations ...............................................   $    144.9 $    147.8
                                                                               ========== ==========

Billings in excess of costs and estimated earnings on uncompleted contracts:
  United States electrical construction and facilities services ............   $    180.3 $    144.8
  United States mechanical construction and facilities services ............        264.4      166.8
  United States facilities services ........................................         33.6       15.7
                                                                               ---------- ----------
  Total United States operations ...........................................        478.3      327.3
  Canada construction and facilities services ..............................         23.3       17.3
  United Kingdom construction and facilities services ......................         70.8       67.5
  Other international construction and facilities services .................           --         --
                                                                               ---------- ----------
  Total worldwide operations ...............................................   $    572.4 $    412.1
                                                                               ========== ==========

                                                                    2007       2006
                                                                  --------   --------
Long lived assets:
  United States electrical construction and facilities services   $   16.2   $   11.1
  United States mechanical construction and facilities services      213.0      206.8
  United States facilities services ...........................      657.1      145.7
                                                                  --------   --------
  Total United States operations ..............................      886.3      363.6
  Canada construction and facilities services .................        5.9        6.7
  United Kingdom construction and facilities services .........        6.2        6.4
  Other international construction and facilities services ....         --         --
  Corporate administration ....................................        1.6        2.5
                                                                  --------   --------
  Total worldwide operations ..................................   $  900.0   $  379.2
                                                                  ========   ========

Goodwill:
  United States electrical construction and facilities services   $    3.8   $    3.8
  United States mechanical construction and facilities services      168.8      166.9
  United States facilities services ...........................      391.3      117.5
                                                                  --------   --------
  Total United States operations ..............................      563.9      288.2
  Canada construction and facilities services                           --         --
  United Kingdom construction and facilities services                   --         --
  Other international construction and facilities services              --         --
  Corporate administration                                              --         --
                                                                  --------   --------
  Total worldwide operations ..................................   $  563.9   $  288.2
                                                                  ========   ========

Total assets:
  United States electrical construction and facilities services   $  400.4   $  363.7
  United States mechanical construction and facilities services      842.3      748.0
  United States facilities services ...........................      996.4      366.1
                                                                  --------   --------
  Total United States operations ..............................    2,239.1    1,477.8
  Canada construction and facilities services .................      146.3       87.7
  United Kingdom construction and facilities services .........      268.3      255.1
  Other international construction and facilities services ....        0.3        0.5
  Corporate administration ....................................      217.6      267.9
                                                                  --------   --------
  Total worldwide operations ..................................   $2,871.6   $2,089.0
                                                                  ========   ========

                                           MARCH 31         JUNE 30         SEPT. 30        DEC. 31
                                        -------------    -------------   -------------   -------------
2007 QUARTERLY RESULTS
Revenues ............................   $   1,286,766    $   1,371,955   $   1,500,798   $   1,767,633
Gross profit ........................   $     129,012    $     164,600   $     168,911   $     240,299
Net income ..........................   $      11,992    $      26,150   $      38,336   $      50,330
Basic EPS - continuing operations ...   $        0.18    $        0.40   $        0.57   $        0.77
Basic EPS - discontinued operations .            0.01             0.01            0.02            0.00
                                        -------------    -------------   -------------   -------------
                                        $        0.19    $        0.41   $        0.59   $        0.77
                                        =============    =============   =============   =============
Diluted EPS continuing operations ...   $        0.17    $        0.38   $        0.55   $        0.75
Diluted EPS discontinued operations..            0.01             0.01            0.02            0.00
                                        -------------    -------------   -------------   -------------
                                        $        0.18    $        0.39   $        0.57   $        0.75
                                        =============    =============   =============   =============

2006 QUARTERLY RESULTS
Revenues ............................   $   1,123,362    $   1,191,573   $   1,239,400   $   1,347,448
Gross profit ........................   $     111,962    $     129,498   $     143,988   $     166,952
Net income ..........................   $       7,013    $      16,861   $      22,553   $      40,207
Basic EPS - continuing operations ...   $        0.12    $        0.26   $        0.35   $        0.62
Basic EPS - discontinued operations .           (0.01)            0.01            0.01            0.01
                                        -------------    -------------   -------------   -------------
                                        $        0.11    $        0.27   $        0.36   $        0.63
                                        =============    =============   =============   =============
Diluted EPS - continuing operations .   $        0.12    $        0.25   $        0.33   $        0.60
Diluted EPS - discontinued operations           (0.01)            0.01            0.01            0.01
                                        -------------    -------------   -------------   -------------
                                        $        0.11    $        0.26   $        0.34   $        0.61
                                        =============    =============   =============   =============

During the fourth quarter of 2007, we recognized a $5.5 million impairment charge related to an other-than-temporary decline in fair value of our investment in a joint venture in our United States facilities services segment, which has been reflected as a component of cost of sales. See Note B - Summary of Significant Accounting Policies of the notes to consolidated financial statements for additional information.

NOTE P -- LEGAL PROCEEDINGS

On March 14, 2003, John Mowlem Construction plc ("Mowlem") presented a claim in arbitration against our United Kingdom subsidiary, EMCOR Group (UK) plc (formerly named EMCOR Drake & Scull Group plc) ("D&S"), in connection with a subcontract D&S entered into with Mowlem with respect to a project for the United Kingdom Ministry of Defence at Abbey Wood in Bristol, U.K. Mowlem seeks damages arising out of alleged defects in the D&S design and construction of the electrical and mechanical engineering services for the project. Mowlem's claim is for 39.5 million British pounds sterling (approximately $78.5 million), which includes costs allegedly incurred by Mowlem in connection with rectification of the alleged defects, overhead, legal fees, delay and disruption costs related to such defects, and interest on such amounts. The claim also includes amounts in respect of liabilities that Mowlem accepted in connection with a settlement agreement it entered into with the Ministry of Defence and which it claims are attributable to D&S. D&S believes it has good and meritorious defenses to the Mowlem claim. D&S has denied liability and has asserted a counterclaim for approximately 11.6 million British pounds sterling (approximately $23.0 million) for certain design, labor and delay and disruption costs incurred by D&S in connection with its subcontract with Mowlem for work performed through 1996.

On December 17, 2007, one of our subsidiaries, F&G Mechanical Corp. ("F&G"), was served with a grand jury subpoena duces tecum issued by a grand jury empanelled by the United States District Court for the District of New Jersey that is investigating allegations of union corruption. Two additional subpoenas for documents were served on F&G in January 2008. F&G and one of its vice presidents have been identified as targets of the investigation in connection with certain payments made to third parties by F&G for services to F&G at various construction sites. F&G has produced documents in response to the subpoenas and has cooperated with investigators since learning of the investigation.

We are involved in other proceedings in which damages and claims have been asserted against us. We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves and do not believe that any significant liabilities will result.