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, outage services to utilities and industrial plants, 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, retrofit projects to comply with clean air laws, and 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".

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

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 2007 and 2006 reflect discontinued operations accounting due to the sale of our interest in a consolidated joint venture in 2007 and the sale of a subsidiary in 2006.

The results of operations of companies acquired have been included in the results of operations from the date of the respective acquisition.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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.

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 in accordance with AICPA Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". 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 the performance of facilities services for maintenance, repair and retrofit work are recognized when the criteria in Staff Accounting Bulletin No. 104, "Revenue Recognition, revised and updated" ("SAB 104") have been met. Revenues from service contracts are recognized consistent with the performance of services generally on a pro-rata basis over the life of the contractual arrangement. Expenses related to all services arrangements are recognized as incurred. Revenues related to the engineering, manufacturing and repairing of shell and tube heat exchangers are recognized when the product is shipped and all other criteria in SAB 104 have been met. 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. Provisions for estimated losses on uncompleted 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 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.

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

                                                                                               2008          2007
                                                                                           -----------   -----------

Costs incurred on uncompleted contracts.................................................   $ 9,163,647   $ 9,186,361
Estimated earnings......................................................................       578,179       675,000
                                                                                           -----------   -----------
                                                                                             9,741,826     9,861,361
Less: billings to date..................................................................    10,238,219    10,288,873
                                                                                           -----------   -----------
                                                                                           $  (496,393)  $  (427,512)
                                                                                           ===========   ===========

Such amounts were included in the accompanying Consolidated Balance Sheets at December 31, 2008 and 2007 under the following captions (in thousands):

                                                                                                  2008        2007
                                                                                               ---------   ---------

Costs and estimated earnings in excess of billings on uncompleted contracts.................   $ 105,441   $ 155,060
Billings in excess of costs and estimated earnings on uncompleted contracts.................    (601,834)   (582,572)
                                                                                               ---------   ---------
                                                                                               $(496,393)  $(427,512)
                                                                                               =========   =========

As of December 31, 2008 and 2007, costs and estimated earnings in excess of billings on uncompleted contracts included unbilled revenues for unapproved change orders of approximately $12.2 million and $31.3 million, respectively, and claims of approximately $5.8 million and $21.3 million, respectively. In addition, accounts receivable as of December 31, 2008 and 2007 included claims of approximately $1.7 million and $4.8 million, respectively, plus contractually billed amounts related to such contracts of $45.0 million and $60.5 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 $0.3 million and $8.1 million as of December 31, 2008 and 2007, 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 claim amount in 2007 principally relates 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, 2008 and 2007 included $275.0 million and $249.0 million, respectively, of retainage billed under terms of these contracts. We estimate that approximately 70% of retainage recorded at December 31, 2008 will be collected during 2009. Accounts payable at December 31, 2008 and 2007 included $45.5 million and $43.9 million, respectively, of retainage withheld under terms of the contracts. We estimate that approximately 65% of retainage withheld at December 31, 2008 will be paid during 2009. 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. We have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

                                                                                                     2008      2007
                                                                                                   -------   -------

Raw materials and construction materials........................................................   $22,845   $19,732
Work in process.................................................................................    31,756    32,515
                                                                                                   -------   -------
                                                                                                   $54,601   $52,247
                                                                                                   =======   =======

INVESTMENTS, NOTES AND OTHER LONG-TERM RECEIVABLES

Investments, notes and other long-term receivables were $15.0 million and $22.7 million at December 31, 2008 and 2007, 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 $4.5 million and $11.3 million as of December 31, 2008 and 2007, respectively, relating to a venture with Baltimore Gas & Electric (a subsidiary of Constellation Energy). This venture designs, constructs, owns, operates, leases and maintains facilities to produce chilled water for use in air conditioning commercial properties. As a result of our discounted cash flow analysis, an impairment charge of $7.0 million and $5.5 million was recognized for 2008 and 2007, respectively, to write-down the carrying value of this investment to its estimated fair value. We recorded this other-than-temporary decline in fair value 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.

Property, plant and equipment in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 2008 and 2007 (in thousands):

                                                                                                  2008        2007
                                                                                               ---------   ---------

Machinery and equipment.....................................................................   $  72,973   $  60,991
Vehicles....................................................................................      36,909      35,295
Furniture and fixtures......................................................................      19,094      19,221
Computer hardware/software..................................................................      69,972      66,928
Land, buildings and leasehold improvements..................................................      63,921      61,591
                                                                                               ---------   ---------
                                                                                                 262,869     244,026
Accumulated depreciation and amortization...................................................    (166,153)   (160,063)
                                                                                               ---------   ---------
                                                                                               $  96,716   $  83,963
                                                                                               =========   =========

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Financial Accounting Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the carrying values of long-lived assets, including property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable.

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.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

For the years ended December 31, 2008, 2007 and 2006, no adjustment for the impairment of property, plant and equipment carrying value or finite-lived intangible assets has been required.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill at December 31, 2008 and 2007 was approximately $582.7 million and $563.9 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 2008 has been preliminarily valued at $14.8 million. FASB Statement No. 141, "Business Combinations" ("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. FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("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, absent any impairment indicators), and be written down if impaired. Statement 142 requires that goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives.

We test for impairment of goodwill at the reporting unit level utilizing the two-step process as prescribed by Statement 142. The first step of this test compares the fair value of the reporting unit, determined based upon discounted estimated future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying amount, no further work is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is potentially impaired and step two of the goodwill impairment test would need to be performed to measure the amount of an impairment loss, if any. For the years ended December 31, 2008, 2007 and 2006, no indicators of impairment of our goodwill or indefinite lived intangible assets resulted from our annual impairment review.

The changes in the carrying amount of goodwill during the years ended December 31, 2008 and 2007 were as follows (in thousands):

                                                                                                   2008       2007
                                                                                                 --------   --------

Balance at beginning of period................................................................   $563,918   $288,165
Earn-out payments/accruals on prior year acquisitions.........................................      7,349      3,000
Goodwill recorded for acquisition of businesses...............................................     11,447    274,693
Goodwill allocated to the sale of assets and other items, net.................................         --     (1,940)
                                                                                                 --------   --------
Balance at end of period......................................................................   $582,714   $563,918
                                                                                                 ========   ========

There may be contingent payments associated with the future performance of certain acquired entities, which may result in an increase to goodwill.

Identifiable intangible assets at December 31, 2008 are comprised of $34.2 million of contract backlog, $91.0 million of developed technology, $112.7 million of customer relationships, $7.7 million of non-competition agreements and $100.5 million of trade names. Identifiable intangible assets at December 31, 2007 were 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. Identifiable intangible assets attributable to companies acquired in 2008 have been preliminarily valued at $48.0 million. The $100.5 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 FR X Ohmstede Acquisition Co.'s ("Ohmstede") 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 12 months to 31 months 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

2009 ................................................................................................   $ 19.0
2010 ................................................................................................     14.6
2011 ................................................................................................     13.0
2012 ................................................................................................     12.1
2013 ................................................................................................     11.5
Thereafter ..........................................................................................    121.4
                                                                                                        ------
                                                                                                        $191.6
                                                                                                        ======

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, 2008 and 2007, the estimated current portion of undiscounted insurance liabilities of $18.6 million and $18.9 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, 2008 and 2007 were $99.1 million and $89.9 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 income tax assets and deferred income 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 deferred income tax assets when it is more likely than not that a tax benefit will not be realized.

We recognize tax benefits in accordance with the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"), adopted as of January 1, 2007. We recognize accruals of interest and penalties related to unrecognized income tax benefits in income tax expense. Prior to our adoption of FIN 48, accruals for uncertain income tax positions were established in accordance with FASB Statement No. 5, "Accounting for Contingencies".

DERIVATIVES AND HEDGING ACTIVITIES

As of December 31, 2008 and 2007, we did not have any derivative instruments.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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 -- Share-Based Compensation Plans of the notes to consolidated financial statements for additional information regarding the share-based compensation plans and programs.

We account for share-based payments in accordance with the provision of FASB Statement No. 123(R), "Share-Based Payment" ("Statement 123(R)") which we adopted on January 1, 2006. Statement 123(R) requires that all share-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated forfeitures. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period. For shares subject to graded vesting, our policy is to apply the straight-line method in recognizing compensation expense. Statement 123(R) requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash inflow, rather than as an operating cash inflow on the Consolidated Statements of Cash Flows. This requirement reduces net operating cash flows and increases net financing cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

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. The adoption of Statement 157 did not affect our financial position or the results of operations. 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 until fiscal years beginning after November 15, 2008, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). We have not determined the effect, if any, the adoption of FSP will have on our financial position and results of operations. However, we believe we would 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 was effective for our financial statements beginning with the first quarter of 2008. We have elected not to account for any additional financial instruments or other items at fair value pursuant to Statement 159.

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 changing 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.

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

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

the interests of the parent and its noncontrolling interest. We have determined that the adoption of Statement 160 is not expected to have a material impact on our financial position and results of operations.

In March 2008, the FASB issued Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("Statement 161"). Statement 161 requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133") and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and, as such, we adopted the provisions of this standard on January 1, 2009. Although Statement 161 requires enhanced disclosures, its adoption will not impact our financial position and results of operations.

The FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"), in April 2008. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement 142"). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset, as determined under the provisions of Statement 142, and the period of expected cash flows used to measure the fair value of the asset in accordance with Statement 141(R). FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets acquired subsequent to its effective date. Accordingly, we adopted the provisions of this FSP on January 1, 2009. The impact that the adoption of FSP FAS 142-3 may have on our financial position and results of operations will depend on the nature and extent of any intangible assets acquired subsequent to its effective date.

In May 2008, the FASB issued Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("Statement 162"). This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP. Statement 162 is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". We do not expect the adoption of this standard to have a material impact on the preparation of our consolidated financial statements.

In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share pursuant to the two-class method, as described in Statement 128. The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. FSP EITF 03-6-1 is to be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2008; as such, we adopted the provisions of this FSP on January 1, 2009. We do not expect the adoption of this FSP to have a material impact on our results of operations.

In November 2008, the FASB ratified EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations" ("EITF No. 08-6"). EITF No. 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF No. 08-6 is effective for fiscal years beginning on or after December 15, 2008, and we adopted the provisions of this standard on January 1, 2009. We do not expect the adoption of EITF No. 08-6 to have a material impact on our consolidated financial statements.

In December 2008, the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-1"). FSP FAS
132(R)-1 amends Statement 132(R), and requires that an employer provide objective disclosures about the plan assets of a defined benefit pension plan or other postretirement plan, including disclosures about investment policies and strategies, categories of plan assets, fair value measurements of plan assets and significant concentrations of risk. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15,

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

2009, and, as such, we plan to adopt the provisions of FSP FAS 132(R)-1 as of December 31, 2009. We are currently evaluating the impact that the adoption of FSP FAS 132(R)-1 will have on our consolidated financial statements.

NOTE C -- ACQUISITIONS OF BUSINESSES

During 2008, we acquired five companies, which were not material individually or in the aggregate, for an aggregate purchase price of $81.5 million. One of the companies primarily provides industrial services to refineries, another primarily provides industrial maintenance services, and two others primarily perform mobile mechanical services. All four of these companies' results have been included in our United States facilities services reporting segment. The fifth company is a fire protection company that has been included in our United States mechanical construction and facilities services reporting segment. Goodwill and identifiable intangible assets attributable to these companies, in the aggregate, were preliminarily valued at $14.8 million and $48.0 million, respectively, representing the excess purchase price over the fair value amounts assigned to their net tangible assets.

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 $300.0 million Term Loan Agreement (the "Term Loan"). The Term Loan is described further in Note G -- Long-Term Debt of the notes to consolidated financial statements. Additionally, approximately $5.5 million was paid for directly related acquisition costs. Headquartered in Beaumont, Texas, Ohmstede is the leading North American provider of after-market maintenance and repair services, replacement parts and fabrication services for highly engineered shell and tube heat exchangers for refineries and the petrochemical industry.

Also during 2007, we acquired four companies, which were not material individually or in the aggregate, for an aggregate purchase price of $53.0 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 valued at $6.9 million and $31.2 million, respectively.

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 aforementioned acquisitions further 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.

During 2008, the purchase price accounting for our 2007 acquisitions and certain of our 2008 acquisitions were finalized. As a result, identifiable intangible assets ascribed to its goodwill, contract backlog, customer relationships and related non-competition agreements were adjusted with an insignificant impact. 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 estimated fair values of the respective assets and liabilities at the dates of the respective acquisitions.

                                                                                                        OTHER
                                                                                          OHMSTEDE   ACQUISITIONS    TOTAL
                                                                                          --------   ------------   --------

Current assets, including cash acquired ...............................................   $ 77,056     $53,774      $130,830
Property, plant and equipment .........................................................     25,803       3,312        29,115
Goodwill ..............................................................................    261,749       6,927       268,676
Identifiable intangible assets ........................................................    216,300      31,210       247,510
Other assets ..........................................................................         --         228           228
                                                                                          --------     -------      --------
   Total assets acquired...............................................................    580,908      95,451       676,359
                                                                                          --------     -------      --------
Current liabilities ...................................................................     35,924      41,457        77,381
Deferred income tax liability .........................................................     88,084         300        88,384
Other long-term obligations ...........................................................         --         660           660
                                                                                          --------     -------      --------
   Total liabilities assumed...........................................................    124,008      42,417       166,425
                                                                                          --------     -------      --------
Net assets acquired ...................................................................   $456,900     $53,034      $509,934
                                                                                          ========     =======      ========

The goodwill of $268.7 million in the table above was recorded based on 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. Approximately $29.4 million of the goodwill and identifiable intangible assets associated with the companies acquired in 2007 will be deductible for tax purposes. In accordance with Statement 141 and Statement 142, goodwill will not be amortized, while certain other identifiable intangible assets with finite lives that have been identified will be subject to amortization over their useful lives.

Of the total purchase price paid for all 2007 acquisitions, approximately $247.5 million has been allocated to identifiable intangible assets, which includes acquired contract backlog, developed technology, customer relationships, non-competition agreements and trade names. Approximately $73.4 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.

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 unaudited pro forma results of operations for companies acquired during 2008, which are not material individually or in the aggregate, have been excluded. The unaudited 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 common share from continuing operations..............................   $     1.99   $     0.95
Diluted earnings per common 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.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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 2008 and 2007, we recorded an aggregate of $7.3 million and $3.0 million, respectively, by reason of earn-out obligations in respect of prior year acquisitions.

NOTE D -- DISPOSITION OF ASSETS

Results of operations for 2007 and 2006 presented in our consolidated financial statements reflect discontinued operations accounting. On August 6, 2007, we sold our majority ownership 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, 2008, the entire sale price of $8.0 million had been received. We will not have any significant future involvement with this entity. The components of the results of discontinued operations for CBRE are as follows (in thousands):

                                                                                                  2007(1)     2006
                                                                                                  -------   --------

Revenues.......................................................................................   $79,095   $119,253
Income from discontinued operation.............................................................   $ 1,582   $  1,854
Gain on sale of discontinued operation.........................................................   $ 1,183   $     --
Net income from discontinued operation.........................................................   $ 2,765   $  1,854
Diluted earnings per common share from discontinued operation..................................   $  0.04   $   0.03

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

On January 31, 2006, we sold a subsidiary that had been part of our United States mechanical construction and 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. The components of the results of operations for this discontinued operation is not presented as it is not material to the consolidated results of operations. We will not have any significant future involvement with this entity.

                                                                                        2008          2007          2006
                                                                                     -----------   -----------   -----------

NUMERATOR:
Income before discontinued operations ............................................   $   182,204   $   124,043   $    85,400
Income from discontinued operations ..............................................            --         2,765         1,234
                                                                                     -----------   -----------   -----------
Net income available to common stockholders ......................................   $   182,204   $   126,808   $    86,634
                                                                                     ===========   ===========   ===========
DENOMINATOR:
Weighted average shares outstanding used to compute basic earnings per common
 share ...........................................................................    65,373,483    64,431,471    63,215,431
Effect of diluted securities - Share-based awards ................................     1,743,778     2,300,465     2,264,962
                                                                                     -----------   -----------   -----------
Shares used to compute diluted earnings per common share .........................    67,117,261    66,731,936    65,480,393
                                                                                     ===========   ===========   ===========
Basic earnings per common share:
   From continuing operations.....................................................   $      2.79   $      1.93   $      1.35
   From discontinued operations...................................................            --          0.04          0.02
                                                                                     -----------   -----------   -----------
   Total..........................................................................   $      2.79   $      1.97   $      1.37
                                                                                     ===========   ===========   ===========
Diluted earnings per common share:
   From continuing operations.....................................................   $      2.71   $      1.86   $      1.30
   From discontinued operations...................................................            --          0.04          0.02
                                                                                     -----------   -----------   -----------
   Total..........................................................................   $      2.71   $      1.90   $      1.32
                                                                                     ===========   ===========   ===========

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, 2008, 2007 and 2006 because they would be anti-dilutive were 295,624, 120,000 and zero, respectively.

NOTE F -- CURRENT DEBT

CREDIT FACILITIES

Our revolving credit agreement (the "Revolving Credit Facility") provides for a credit facility of $375.0 million. The Revolving Credit Facility expires on October 17, 2010. It permits us to increase our borrowings to $500.0 million if additional lenders are identified and/or existing lenders are willing to increase their current commitments. We may allocate up to $125.0 million of the borrowing capacity under the Revolving Credit Facility to letters of credit. The 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 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 Revolving Credit Facility. The fee ranges from 0.25% to 0.5% of the unused amount, based on certain financial tests. Borrowings under the Revolving Credit Facility bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Nesbitt from time to time (3.25% at December 31, 2008) plus 0.0% to 0.5%, based on certain financial tests or (2) United States dollar LIBOR (0.44% at December 31, 2008) plus 1.0% to 2.25%, based on certain financial tests. The interest rates in effect at December 31, 2008 were 3.25% and 1.44% 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. As of December 31, 2008 and 2007, we had approximately

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- CURRENT DEBT -- (CONTINUED)

$53.7 million and $53.8 million of letters of credit outstanding, respectively. There were no borrowings under the Revolving Credit Facility as of December 31, 2008 and 2007.

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.

                                                                                                   2008       2007
                                                                                                 --------   --------

Term Loan, interest payable in varying amounts through 2010...................................   $197,750   $225,000
Capitalized Lease Obligations, at weighted average interest rates from 5.0% to 10.0% payable
 in varying amounts through 2014..............................................................      2,313      2,151
Other, at weighted average interest rates from 8.0% to 13.0%, payable in varying amounts
 through 2010.................................................................................         41         93
                                                                                                 --------   --------
                                                                                                  200,104    227,244
Less: current maturities......................................................................      3,886      3,791
                                                                                                 --------   --------
                                                                                                 $196,218   $223,453
                                                                                                 ========   ========

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 most of the assets 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 (3.25% at December 31, 2008) plus 0.0% to 0.5% based on certain financial tests or (2) U.S. dollar LIBOR (0.44% at December 31, 2008) plus 1.0% to 2.25% based on certain financial tests. The interest rate in effect at December 31, 2008 was 1.44%. 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. We have made total prepayments of $99.25 million since we entered into the Term Loan, $24.25 million of which were made during the year ended December 31, 2008, as well as mandatory repayments of $3.0 million, to reduce the balance of the Term Loan to $197.75 million at December 31, 2008.

On January 27, 2009, we entered into an interest rate swap, effective January 30, 2009, which hedges our interest rate risk associated with the $197.75 million principal amount of the variable rate term loan. This swap has monthly settlement dates over the term of the contract. The interest rate swap has been designated as an effective cash flow hedge, whereby changes in the cash flows from the swap perfectly offset the changes in the cash flows associated with the floating rate of interest on the $197.75 million of principal associated with the term loan.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- LONG-TERM DEBT -- (CONTINUED)

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 two years.

NOTE H -- INCOME TAXES

The 2008 income tax provision was $116.6 million compared to $77.7 million for 2007 and $29.2 million for 2006. The provision on income before income taxes for 2008, 2007 and 2006 was recorded at an effective income tax rate of approximately 39.0%, 38.5% and 39.5%, respectively, except for 2006, which excludes certain items discussed below. The increase in the 2008 income tax provision was primarily due to increased income from continuing operations.

The 2007 income tax provision was $77.7 million. 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 deferred income 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.

We file income tax returns in the United States federal jurisdiction and various states, local 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 years prior to 2004. We are currently under Internal Revenue Service audit for the years 2005 through 2007.

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, 2008 and 2007, the amount of unrecognized income tax benefits was $9.6 million and $8.8 million (of which $6.3 million and $5.2 million, if recognized, would favorably affect our effective tax rate), respectively. At December 31, 2008 and 2007, we had an accrual of $3.9 million and $3.2 million, respectively, for the payment of interest related to unrecognized income tax benefits included on the Consolidated Balance Sheets. We recognized interest related to unrecognized income tax positions in the income tax provision. During the years ended December 31, 2008 and 2007, we recognized approximately $0.7 million and $2.0 million in interest expense related to our unrecognized income tax benefits, respectively. As of December 31, 2008 and 2007, we had total income tax reserves of $13.5 million ($12.8 million included in "Other long-term obligations" and $0.7 million

                                                                                                     2008      2007
                                                                                                   -------   -------

Balance at beginning of year....................................................................   $ 8,779   $ 6,707
Additions based on tax positions related to the current year....................................       447     2,008
Additions based on tax positions related to the prior year......................................     3,460        --
Additions attributable to acquisitions of businesses............................................        --     1,768
Reductions for tax positions of prior years.....................................................      (988)   (1,704)
Reductions for expired statute of limitations...................................................    (2,124)       --
                                                                                                   -------   -------
Balance at end of year..........................................................................   $ 9,574   $ 8,779
                                                                                                   =======   =======

It is possible that approximately $2.6 million of unrecognized income tax benefits at December 31, 2008, primarily relating to uncertain tax positions attributable to certain intercompany transactions, will become recognized income tax benefits in the next twelve months due to the expiration of applicable statutes of limitations.

We file a consolidated federal income tax return including all of our U.S. subsidiaries. At December 31, 2008, we had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $1.4 million, which expire in the year 2009. In addition, at December 31, 2008, for United Kingdom tax purposes, we had trading loss carryforwards of approximately $1.8 million and non-trading and capital loss carryforwards of approximately $0.4 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, 2008, 2007 and 2006 consisted of the following (in thousands):

                                                                                         2008       2007       2006
                                                                                       --------   --------   -------

Current:
  Federal provision.................................................................   $ 94,171   $ 81,586   $28,447
  State and local...................................................................     22,036     23,337     9,728
  Foreign provision (benefit).......................................................      9,873     (3,904)   (2,810)
                                                                                       --------   --------   -------
                                                                                        126,080    101,019    35,365
                                                                                       --------   --------   -------
  Deferred..........................................................................     (9,492)   (23,313)   (6,169)
                                                                                       --------   --------   -------
                                                                                       $116,588   $ 77,706   $29,196
                                                                                       ========   ========   =======

Factors accounting for the variation from U.S. statutory income tax rates for the years ended December 31, 2008, 2007 and 2006 were as follows (in thousands):

                                                                                          2008       2007      2006
                                                                                        --------   -------   -------

Federal income taxes at the statutory rate...........................................   $104,577   $70,612   $40,108
State and local income taxes, net of federal tax benefits............................     13,421    11,656     5,407
Permanent differences................................................................      1,126    (1,680)    2,103
Foreign income taxes.................................................................     (1,269)   (1,350)   (6,122)
Adjustments to valuation allowance for deferred tax assets...........................     (3,395)     (101)   (8,446)
Tax reserves.........................................................................      1,509      (806)   (1,881)
Other................................................................................        619      (625)   (1,973)
                                                                                        --------   -------   -------
                                                                                        $116,588   $77,706   $29,196
                                                                                        ========   =======   =======

The components of the net deferred income tax asset are included in "Prepaid expenses and other" of $35.6 million and "Other long-term obligations" of $48.8 million at December 31, 2008 and "Prepaid expenses and other" of $31.4

                                                                                                  2008        2007
                                                                                               ---------   ---------

Deferred income tax assets:
Net operating loss carryforwards............................................................   $     595   $   3,995
Excess of amounts expensed for financial statement purposes over amounts deducted for income
 tax purposes:
  Insurance liabilities.....................................................................      40,775      37,239
  Pension liability.........................................................................      16,565      14,545
  Other liabilities and reserves............................................................      61,695      50,186
                                                                                               ---------   ---------
Total deferred income tax assets............................................................     119,630     105,965
Valuation allowance for deferred tax assets.................................................      (5,160)     (8,555)
                                                                                               ---------   ---------
Net deferred income tax assets..............................................................     114,470      97,410
                                                                                               ---------   ---------
Deferred income tax liabilities:
Costs capitalized for financial statement purposes and deducted for income tax purposes:
  Amortization of identifiable intangible assets............................................    (120,575)   (112,700)
  Other, primarily depreciation of property, plant and equipment............................      (7,140)     (9,701)
                                                                                               ---------   ---------
Total deferred income tax liabilities.......................................................    (127,715)   (122,401)
                                                                                               ---------   ---------
Net deferred income tax liabilities.........................................................   $ (13,245)  $ (24,991)
                                                                                               =========   =========

As of December 31, 2008 and 2007, the total valuation allowance on net deferred income tax assets was approximately $5.2 million and $8.6 million, respectively. The primary reason for the decrease in the valuation allowance for 2008 was related to a $2.7 million reversal of a valuation allowance due to a reduction in the valuation allowance for Canadian deferred income tax assets. Realization of the deferred income tax assets is dependent on our generating sufficient taxable income. We believe that the deferred income 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 income tax asset, with no corresponding valuation allowance, will be realized. The amount of the deferred income 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, 2008, 2007 and 2006 consisted of the following (in thousands):

                                                                                        2008       2007       2006
                                                                                      --------   --------   --------

United States......................................................................   $269,074   $206,500   $104,509
Foreign............................................................................     29,718     (4,751)    10,087
                                                                                      --------   --------   --------
                                                                                      $298,792   $201,749   $114,596
                                                                                      ========   ========   ========

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 if such earnings or invested capital was repatriated to the United States.

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

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- COMMON STOCK -- (CONTINUED)

each common share owned, payable to stockholders of record on June 20, 2007 and January 30, 2006. As of December 31, 2008 and 2007, 65,520,096 and 65,196,285 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. These shares have been classified as "Treasury stock, at cost" in the Consolidated Balance Sheet at December 31, 2008, less the value of shares reissued pursuant to the exercise of stock options or issuance of restricted stock units as described in Note J -- Share-Based Compensation Plans of the notes to consolidated financial statements. 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
                                                             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
                                                                                                                  on grant date

1997 Non-Employee Directors'               1,200,000          Generally, 25% on         Five years from       Fair market value of
  Non-Qualified Stock Option Plan                             grant date and 25%          grant date            common stock on
                                                                 each quarter                                      grant date

1997 Stock Plan for Directors               600,000            50% on grant or                 --             Fair market value of
                                                              award date, 50% on                                common stock on
                                                            the first anniversary                                  grant date
                                                                of grant date

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

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

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

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

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

2007 Incentive Plan                        1,495,000           To be determined        Five/eight years       Fair market value of
                                                             by the Compensation       from grant date,         common stock on
                                                                  Committee             in the case of             grant date
                                                                                            options
Other Stock Option Grants                Not applicable              (1)                Ten years from        Fair market value of
  Grants                                                                                  grant date            common stock on
                                                                                                                    grant date

(1) Generally, either 100% on the first anniversary of grant date or periodically, in equal installments over a three year period following the grant date, commencing on the grant date or the first anniversary thereof.

                        STOCK OPTIONS                                              RESTRICTED STOCK UNITS
-------------------------------------------------------------   ------------------------------------------------------------
                                                     WEIGHTED                                                       WEIGHTED
                                                      AVERAGE                                                        AVERAGE
                                          SHARES       PRICE                                              SHARES      PRICE
                                        ----------   --------                                            --------   --------

Balance, December 31, 2005...........    7,299,856    $ 9.51    Balance, December 31, 2005 ...........    332,424    $ 9.78
  Granted............................      158,120    $21.38      Granted.............................    296,282    $18.04
  Forfeited..........................           --        --      Forfeited...........................    (30,568)   $17.79
  Exercised..........................   (1,324,248)   $ 7.96      Issued..............................   (199,320)   $ 9.75
                                        ----------                                                       --------
Balance, December 31, 2006...........    6,133,728    $10.16    Balance, December 31, 2006 ...........    398,818    $15.32
  Granted............................      155,624    $34.05      Granted.............................    132,626    $28.13
  Forfeited..........................      (13,332)   $ 9.80      Forfeited...........................         --        --
  Exercised..........................   (1,487,934)   $ 6.93      Issued..............................    (84,220)   $ 9.59
                                        ----------                                                       --------
Balance, December 31, 2007...........    4,788,086    $11.93    Balance, December 31, 2007 ...........    447,224    $20.20
  Granted............................      199,998    $26.33      Granted.............................    135,337    $23.01
  Forfeited..........................           --        --      Forfeited...........................         --        --
  Exercised..........................     (249,736)   $ 9.64      Issued..............................    (78,133)   $14.68
                                        ----------                                                       --------
Balance, December 31, 2008...........    4,738,348    $12.66    Balance, December 31, 2008                504,428    $21.81
                                        ==========                                                       ========

In addition, 2,096, 3,412 and 8,280 shares were issued to certain non-employee directors pursuant to annual retainer arrangements during the years ended December 31, 2008, 2007 and 2006, respectively. The shares awarded to non-employee directors and stock units awarded to employees were pursuant to incentive plans and separation agreements for which $3.9 million, $3.0 million and $1.9 million of compensation expense was recognized for the years ended December 31, 2008, 2007 and 2006, respectively. We have $1.9 million of compensation expense, net of income taxes, which will be recognized over the remaining vesting period related to the stock units awarded to employees. We also have outstanding phantom equity units, which will be settled in cash based upon the value of our stock price, for which $1.2 million and $3.6 million of income were recognized for the years ended December 31, 2008 and 2007, respectively, and $2.8 million of expense was recognized for the year ended December 31, 2006. These changes were due to changes in the market price of our common stock from the award date.

Compensation expense of $2.0 million, $4.1 million and $4.0 million for the years ended December 31, 2008, 2007 and 2006, respectively, was recognized due to the vesting of stock option grants. All outstanding stock options were fully vested as of December 31, 2008. As a result of stock option exercises, $2.4 million, $10.3 million and $10.4 million of proceeds were received during the years ended December 31, 2008, 2007 and 2006, respectively. The income tax benefit derived in 2008, 2007 and 2006 as a result of such exercises and share-based compensation was $1.8 million, $15.2 million and $8.9 million, respectively, of which $1.2 million, $13.4 million and $6.8 million, respectively, represented excess tax benefits.

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 2008, 2007 and 2006 was $4.1 million, $37.5 million and $23.7 million, respectively.

At December 31, 2008, 2007 and 2006, 4,738,348, 4,416,755 and 5,263,663 options were exercisable, respectively. The weighted average exercise price of exercisable options at December 31, 2008, 2007 and 2006 was approximately $12.66, $11.99 and $9.96, respectively.

            STOCK OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------------------------------------
   RANGE OF                   WEIGHTED AVERAGE   WEIGHTED AVERAGE
EXERCISE PRICES     NUMBER     REMAINING LIFE     EXERCISE PRICE
---------------   ---------   ----------------   ----------------

 $4.05 - $9.67      538,000      2.04 Years           $ 6.09
$10.41 - $13.20   3,118,862      4.67 Years           $11.22
$13.69 - $17.79     605,864      3.83 Years           $13.96
$20.54 - $28.13     355,622      6.65 Years           $25.15
    $36.04          120,000      6.47 Years           $36.04

The total aggregate intrinsic value of options outstanding and exercisable as of December 31, 2008 was approximately $46.3 million. The total aggregate intrinsic value of options outstanding as of December 31, 2007 and 2006 was approximately $56.0 million and $112.1 million, respectively. The total aggregate intrinsic value of options exercisable as of December 31, 2007 and 2006 was approximately $51.4 million and $97.2 million, respectively.

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,
                                                                                              ----------------------
                                                                                               2008    2007     2006
                                                                                              -----   ------   -----

Dividend yield.............................................................................       0%       0%      0%
Expected volatility........................................................................    34.2%    30.8%   34.0%
Risk-free interest rate....................................................................     3.4%     4.9%    4.9%
Expected life of options in years..........................................................     5.0      5.0     5.8
Weighted average grant date fair value.....................................................   $9.51   $12.35   $9.36

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

On June 18, 2008, our stockholders approved the adoption by our Board of Directors of an Employee Stock Purchase Plan (the "Stock Purchase Plan"), which became effective on October 1, 2008. Under the terms of the Stock Purchase Plan, the maximum number of shares of our common stock that may be purchased is 3,000,000 shares. Generally, our employees and non-union employees of our United States and Canadian subsidiaries are eligible to participate in the Stock Purchase Plan. Employees covered by collective bargaining agreements generally are not eligible to participate.

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 Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("Statement 158"). Statement 158 for our defined benefit plans requires that (a) the funded status, which is measured as the difference between the fair value of plan assets and the projected benefit obligations, be recorded in our balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss) and (b) gains and losses for the differences between actuarial assumptions and actual results, and unrecognized service costs, be recognized through accumulated other comprehensive income (loss). These amounts will be subsequently recognized as net periodic pension cost.

                                                                                                   2008       2007
                                                                                                 --------   --------

CHANGE IN PENSION BENEFIT OBLIGATION
Benefit obligation at beginning of year.......................................................   $275,959   $266,636
Service cost..................................................................................      4,361      6,629
Interest cost.................................................................................     14,283     13,758
Plan participants' contributions..............................................................      2,176      2,698
Actuarial gain................................................................................    (22,636)   (10,040)
Benefits paid.................................................................................     (9,877)    (9,067)
Foreign currency exchange rate changes........................................................    (71,847)     5,345
                                                                                                 --------   --------
Benefit obligation at end of year.............................................................   $192,419   $275,959
                                                                                                 ========   ========
CHANGE IN PENSION PLAN ASSETS
Fair value of plan assets at beginning of year................................................   $224,518   $206,794
Actual return on plan assets..................................................................    (41,694)     9,183
Employer contributions........................................................................     10,301     10,788
Plan participants' contributions..............................................................      2,176      2,698
Benefits paid.................................................................................     (9,877)    (9,067)
Foreign currency exchange rate changes........................................................    (52,165)     4,122
                                                                                                 --------   --------
Fair value of plan assets at end of year......................................................   $133,259   $224,518
                                                                                                 --------   --------
Funded status at end of year..................................................................   $(59,160)  $(51,441)
                                                                                                 ========   ========

AMOUNTS NOT YET REFLECTED IN NET PERIODIC BENEFIT COST AND INCLUDED IN ACCUMULATED OTHER
COMPREHENSIVE LOSS:

                                                                                                     2008      2007
                                                                                                   -------   -------

Unrecognized losses...........................................................................     $62,598   $51,934
                                                                                                   =======   =======

The underfunded status of the UK Plan of $59.2 million and $51.4 million at December 31, 2008 and 2007, respectively, is included in "Other long-term obligations" in the accompanying Consolidated Balance Sheets. No plan assets are expected to be returned to us during the year ended December 31, 2009.

The weighted-average assumptions used to determine benefit obligations as of December 31, 2008 and 2007 were as follows:

                                                                                                  2008   2007
                                                                                                  ----   ----

Discount rate.................................................................................     5.8%   5.6%
Annual rate of salary provision...............................................................     3.8%   4.2%

The weighted-average assumptions used to determine net periodic benefit cost as of December 31, 2008, 2007 and 2006 were as follows:

                                                                                                  2008   2007   2006
                                                                                                  ----   ----   ----

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 yield of risk-free bonds, plus an estimated equity-risk premium, 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 of the liability, the annual rates of inflation of covered pension benefits assumed for 2008 and 2007 were 2.8% and 3.2%, respectively.

                                                                                        2008       2007       2006
                                                                                      --------   --------   --------

Service cost.......................................................................   $  4,361   $  6,629   $  4,285
Interest cost......................................................................     14,283     13,758     10,484
Expected return on plan assets.....................................................    (14,305)   (13,814)   (11,175)
Net amortization of prior service cost and actuarial loss..........................         --         --         72
Amortization of unrecognized loss..................................................      2,053      2,746      1,675
                                                                                      --------   --------   --------
Net periodic pension benefit cost..................................................   $  6,392   $  9,319   $  5,341
                                                                                      ========   ========   ========

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 $3.9 million.

                                                                              TARGET
                                                                               ASSET     DECEMBER 31,   DECEMBER 31,
ASSET CATEGORY                                                              ALLOCATION       2008           2007
--------------                                                              ----------   ------------   ------------

Equity securities........................................................       70.0%         68.9%          71.6%
Debt securities..........................................................       30.0          30.4           28.1
Other....................................................................         --           0.7            0.3
                                                                               -----         -----          -----
Total....................................................................      100.0%        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 $7.9 million to its UK Plan in 2009.

                                                                                               PENSION
                                                                                              BENEFITS
                                                                                              --------

2009.......................................................................................    $ 6,722
2010.......................................................................................      7,224
2011.......................................................................................      7,851
2012.......................................................................................      8,624
2013.......................................................................................      9,325
Succeeding five years......................................................................     56,708

                                                                                             2008       2007
                                                                                           --------   --------

Projected benefit obligation ...........................................................   $192,419   $275,959
Accumulated benefit obligation .........................................................   $166,616   $234,886
Fair value of plan assets ..............................................................   $133,259   $224,518

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, 2008 and 2007 was approximately $5.3 million and $5.7 million, respectively. The estimated fair value of the plan assets as of December 31, 2008 and 2007 was approximately $4.1 million and $6.0 million, respectively. The pension liability balances as of December 31, 2008 are classified as "Other long-term obligations" on the accompanying Consolidated Balance Sheets. The prepaid pension balances as of December 31, 2007 are classified as "Other assets" on the accompanying Consolidated Balance Sheets. The measurement date for these plans is December 31 of each year. The major assumptions used in the actuarial valuations to determine benefit obligations as of December 31, 2008 and 2007 included a discount rate of 6.5% and 5.5% and an expected rate of return of 7.5% and 8.0%, 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 $0.3 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 $221.1 million, $185.3 million and $150.6 million for the years ended December 31, 2008, 2007 and 2006, respectively. The increase in contributions of $31.4 million for 2008 compared to 2007 was primarily related to increased hours worked and wages earned, as well as incremental contributions of $22.3 million from companies acquired in 2008 and 2007.

We have defined contribution retirement and savings plans that cover eligible employees in the United States. Contributions to these plans are based on a percentage of the employee's base compensation. The expenses recognized for the years ended December 31, 2008, 2007 and 2006 for these plans were $9.3 million, $7.7 million and $7.1 million, respectively. At our discretion, we may make additional supplemental matching contributions to a defined contribution retirement and savings plan. The supplemental contributions for the years ended December 31, 2008, 2007 and 2006 were $5.6 million, $4.9 million and $4.8 million, respectively.

Our United Kingdom subsidiary has a defined contribution retirement plan. The expense recognized for the years ended December 31, 2008, 2007 and 2006 was $3.7 million, $2.4 million and $2.0 million, respectively.

Our Canadian subsidiary has a defined contribution retirement plan. The expense recognized was $0.3 million for the year ended December 31, 2008, $0.4 million for the year ended December 31, 2007 and $0.3 million for the year ended December 31, 2006.

NOTE L -- COMMITMENTS AND CONTINGENCIES

We lease land, buildings and equipment under various leases. The leases frequently include renewal options and escalation clauses and require us to pay for utilities, taxes, insurance and maintenance expenses.

                                                                                      CAPITAL   OPERATING   SUBLEASE
                                                                                       LEASES     LEASES     INCOME
                                                                                      -------   ---------   --------

2009...............................................................................    $1,039    $ 53,589    $  851
2010...............................................................................       737      44,359       586
2011...............................................................................       482      33,912       613
2012...............................................................................       260      23,763       617
2013...............................................................................        65      17,039       512
Thereafter.........................................................................         7      40,892     1,067
                                                                                       ------    --------    ------
Total minimum lease payment........................................................     2,590    $213,554    $4,246
                                                                                                 ========    ======
Amounts representing interest......................................................      (277)
                                                                                       ------
Present value of net minimum lease payments........................................    $2,313
                                                                                       ======

Rent expense for operating leases and other rental items, including short- term equipment rentals charged to cost of sales for our construction contracts, for the years ended December 31, 2008, 2007 and 2006 was $108.2 million, $87.6 million and $73.7 million, respectively. Rent expense for the years ended December 31, 2008, 2007 and 2006 included sublease rental income of $0.6 million, $0.4 million and $0.3 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, 2008, 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 $1.4 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.

At December 31, 2008, we employed approximately 28,000 people, approximately 68% of whom are represented by various unions pursuant to more than 375 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.

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Restructuring expenses, primarily relating to employee severance obligations and reduction of leased facilities, were $1.8 million, $0.3 million and $1.6 million for 2008, 2007 and 2006, respectively. The 2008 and 2007 restructuring expenses were primarily attributable to our United Kingdom operations, while the 2006 restructuring expenses were primarily attributable to our United States facilities services segment. As of December 31, 2008, the balance of the severance obligations was $0.5 million. As of December 31, 2007 and 2006, the balance of these severance obligations was $0.2 million. The severance obligations outstanding as of December 31, 2007 and 2006 were paid during 2008 and 2007, respectively, and the severance obligations outstanding as of December 31, 2008 are expected to be paid in 2009.

                                                                                          2008       2007      2006
                                                                                        --------   -------   -------

Cash paid during the year for:
  Interest...........................................................................   $  9,993   $11,377   $ 1,788
  Income taxes.......................................................................   $120,384   $85,469   $29,205
Non-cash financing activities:
  Assets acquired under capital lease obligations....................................   $    528   $   491   $   612
  Contingent purchase price accrued..................................................   $  3,297   $ 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; outage services to utilities and industrial plants; 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; retrofit projects to comply with clean air laws; 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, 2008, 2007 and 2006 (in millions):

                                                                                                       AS REPORTED
                                                                                              ------------------------------
                                                                                                2008       2007       2006
                                                                                              --------   --------   --------

Revenues from unrelated entities:
   United States electrical construction and facilities services...........................   $1,700.5   $1,433.8   $1,280.2
   United States mechanical construction and facilities services...........................    2,475.0    2,343.1    1,820.9
   United States facilities services.......................................................    1,519.2    1,048.1      830.1
                                                                                              --------   --------   --------
   Total United States operations..........................................................    5,694.7    4,825.0    3,931.2
   Canada construction and facilities services.............................................      424.5      382.0      299.1
   United Kingdom construction and facilities services.....................................      666.0      720.2      671.5
   Other international construction and facilities services................................         --         --         --
                                                                                              --------   --------   --------
   Total worldwide operations..............................................................   $6,785.2   $5,927.2   $4,901.8
                                                                                              ========   ========   ========
Total revenues:
   United States electrical construction and facilities services...........................   $1,702.3   $1,442.2   $1,284.7
   United States mechanical construction and facilities services...........................    2,492.1    2,357.5    1,845.8
   United States facilities services.......................................................    1,526.7    1,057.0      835.8
   Less intersegment revenues..............................................................      (26.4)     (31.7)     (35.1)
                                                                                              --------   --------   --------
   Total United States operations..........................................................    5,694.7    4,825.0    3,931.2
   Canada construction and facilities services.............................................      424.5      382.0      299.1
   United Kingdom construction and facilities services.....................................      666.0      720.2      671.5
   Other international construction and facilities services................................         --         --         --
                                                                                              --------   --------   --------
   Total worldwide operations..............................................................   $6,785.2   $5,927.2   $4,901.8
                                                                                              ========   ========   ========
Operating income (loss):
   United States electrical construction and facilities services...........................   $  114.4   $   88.2   $   46.8
   United States mechanical construction and facilities services...........................      129.5      135.7       82.1
   United States facilities services.......................................................      101.8       43.6       33.3
                                                                                              --------   --------   --------
   Total United States operations..........................................................      345.7      267.5      162.2
   Canada construction and facilities services.............................................       10.9        6.8        0.4
   United Kingdom construction and facilities services.....................................       14.4      (12.9)       6.8
   Other international construction and facilities services................................       (0.7)      (0.5)      (0.1)
   Corporate administration................................................................      (65.9)     (60.8)     (55.9)
   Restructuring expenses..................................................................       (1.8)      (0.3)      (1.6)
                                                                                              --------   --------   --------
   Total worldwide operations..............................................................      302.6      199.8      111.8
Other corporate items:
   Interest expense........................................................................      (11.8)      (9.2)      (2.3)
   Interest income.........................................................................        9.9       13.2        6.2
   Minority interest.......................................................................       (1.9)      (2.1)      (1.1)
                                                                                              --------   --------   --------
   Income from continuing operations before income taxes...................................   $  298.8   $  201.7   $  114.6
                                                                                              ========   ========   ========
Capital expenditures:
   United States electrical construction and facilities services...........................   $    6.6   $    6.6   $    2.8
   United States mechanical construction and facilities services...........................        9.7        4.2        3.4
   United States facilities services.......................................................       17.9        6.3        9.1
                                                                                              --------   --------   --------
   Total United States operations..........................................................       34.2       17.1       15.3
   Canada construction and facilities services.............................................        0.8        1.6        2.7
   United Kingdom construction and facilities services.....................................        0.7        2.4        1.1
   Other international construction and facilities services................................         --         --         --
   Corporate administration................................................................        1.8        0.4        0.6
                                                                                              --------   --------   --------
   Total worldwide operations..............................................................   $   37.5   $   21.5   $   19.7
                                                                                              ========   ========   ========

                                                                                                        2008    2007    2006
                                                                                                       -----   -----   -----

Depreciation and amortization of Property, plant and equipment:
   United States electrical construction and facilities services....................................   $ 4.0   $ 3.2   $ 3.1
   United States mechanical construction and facilities services....................................     6.7     6.0     5.3
   United States facilities services................................................................    10.5     6.6     4.1
                                                                                                       -----   -----   -----
   Total United States operations...................................................................    21.2    15.8    12.5
   Canada construction and facilities services......................................................     1.2     1.3     1.0
   United Kingdom construction and facilities services..............................................     1.8     2.6     2.8
   Other international construction and facilities services.........................................      --      --      --
   Corporate administration.........................................................................     1.0     1.0     0.8
                                                                                                       -----   -----   -----
   Total worldwide operations.......................................................................   $25.2   $20.7   $17.1
                                                                                                       =====   =====   =====

                                                                                                       2008    2007
                                                                                                      ------  ------

Costs and estimated earnings in excess of billings on uncompleted contracts:
   United States electrical construction and facilities services ..................................   $ 37.9  $ 54.8
   United States mechanical construction and facilities services ..................................     36.7    59.0
   United States facilities services ..............................................................     13.1    13.5
                                                                                                      ------  ------
   Total United States operations .................................................................     87.7   127.3
   Canada construction and facilities services ....................................................     11.9    19.9
   United Kingdom construction and facilities services ............................................      5.8     7.9
   Other international construction and facilities services .......................................       --      --
                                                                                                      ------  ------
   Total worldwide operations .....................................................................   $105.4  $155.1
                                                                                                      ======  ======
Billings in excess of costs and estimated earnings on uncompleted contracts:
   United States electrical construction and facilities services ..................................   $187.6  $183.9
   United States mechanical construction and facilities services ..................................    282.0   271.0
   United States facilities services ..............................................................     32.4    33.6
                                                                                                      ------  ------
   Total United States operations .................................................................    502.0   488.5
   Canada construction and facilities services ....................................................     35.2    23.3
   United Kingdom construction and facilities services ............................................     64.6    70.8
   Other international construction and facilities services .......................................       --      --
                                                                                                      ------  ------
   Total worldwide operations .....................................................................   $601.8  $582.6
                                                                                                      ======  ======
Long-lived assets:
   United States electrical construction and facilities services ..................................   $ 18.7  $ 16.2
   United States mechanical construction and facilities services ..................................    225.5   213.0
   United States facilities services ..............................................................    717.7   657.1
                                                                                                      ------  ------
   Total United States operations .................................................................    961.9   886.3
   Canada construction and facilities services ....................................................      4.2     5.9
   United Kingdom construction and facilities services ............................................      3.1     6.2
   Other international construction and facilities services .......................................       --      --
   Corporate administration .......................................................................      2.4     1.6
                                                                                                      ------  ------
   Total worldwide operations .....................................................................   $971.6  $900.0
                                                                                                      ======  ======

                                                                                                           2008       2007
                                                                                                         --------   --------

Goodwill:
   United States electrical construction and facilities services......................................   $    3.8   $    3.8
   United States mechanical construction and facilities services......................................      173.5      168.8
   United States facilities services..................................................................      405.4      391.3
                                                                                                         --------   --------
   Total United States operations.....................................................................      582.7      563.9
   Canada construction and facilities services........................................................         --         --
   United Kingdom construction and facilities services................................................         --         --
   Other international construction and facilities services...........................................         --         --
   Corporate administration...........................................................................         --         --
                                                                                                         --------   --------
   Total worldwide operations.........................................................................   $  582.7   $  563.9
                                                                                                         ========   ========
Total assets:
   United States electrical construction and facilities services......................................   $  379.9   $  403.9
   United States mechanical construction and facilities services......................................      810.2      848.9
   United States facilities services..................................................................    1,088.5    1,001.7
                                                                                                         --------   --------
   Total United States operations.....................................................................    2,278.6    2,254.5
   Canada construction and facilities services........................................................      128.5      146.3
   United Kingdom construction and facilities services................................................      203.8      268.3
   Other international construction and facilities services...........................................         --        0.3
   Corporate administration...........................................................................      397.5      217.6
                                                                                                         --------   --------
   Total worldwide operations.........................................................................   $3,008.4   $2,887.0
                                                                                                         ========   ========

                                                                            MARCH 31      JUNE 30     SEPT. 30      DEC. 31
                                                                           ----------   ----------   ----------   ----------

2008 QUARTERLY RESULTS
Revenues ...............................................................   $1,661,403   $1,722,972   $1,720,349   $1,680,518
Gross profit ...........................................................   $  189,925   $  225,211   $  224,346   $  247,169
Net income .............................................................   $   29,328   $   43,954   $   48,635   $   60,287
Basic EPS -- continuing operations .....................................   $     0.45   $     0.67   $     0.74   $     0.92
Basic EPS -- discontinued operations ...................................         0.00         0.00         0.00         0.00
                                                                           ----------   ----------   ----------   ----------
                                                                           $     0.45   $     0.67   $     0.74   $     0.92
                                                                           ==========   ==========   ==========   ==========
Diluted EPS -- continuing operations ...................................   $     0.44   $     0.65   $     0.72   $     0.90
Diluted EPS -- discontinued operations .................................         0.00         0.00         0.00         0.00
                                                                           ----------   ----------   ----------   ----------
                                                                           $     0.44   $     0.65   $     0.72   $     0.90
                                                                           ==========   ==========   ==========   ==========

                                                                            MARCH 31      JUNE 30     SEPT. 30      DEC. 31
                                                                           ----------   ----------   ----------   ----------

2007 QUARTERLY RESULTS
Revenues ...............................................................   $1,286,767   $1,371,954   $1,500,798   $1,767,633
Gross profit ...........................................................   $  129,013   $  164,599   $  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
                                                                           ==========   ==========   ==========   ==========

EMCOR GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE O -- SELECTED UNAUDITED QUARTERLY INFORMATION -- (CONTINUED)

During the fourth quarters of 2008 and 2007, we recognized $7.0 million and $5.5 million, respectively, of impairment charges related to an other-than- temporary decline in fair value of our investment in a venture in our United States facilities services segment, which have 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 $58.0 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 $17.0 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. We do not believe that any significant liabilities will result from any proceeding to which we are presently a party or from any claim currently asserted against us.