Certain Insurance Matters As of December 31, 1999, EMCOR was utilizing approximately $17.4 million of letters of credit obtained under its working capital credit facility as collateral for its current insurance obligations.

New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133" or "the Statement"). SFAS No. 133, as amended by SFAS No. 137, establishes for fiscal quarters of fiscal years beginning after June 15, 2000 accounting and reporting standards requiring derivative instruments, as defined, to be measured in the financial statements at fair value. The Statement also requires that changes in the derivative instruments' fair value be recognized currently in earnings unless certain accounting criteria are met. EMCOR does not expect the provision of SFAS No. 133 to have a significant effect on the financial condition or results of operations of EMCOR.

Quantitative and Qualitative Disclosures about Market Risk EMCOR is exposed to market risk for changes in interest rates for borrowings under its working capital credit facility. The working capital credit facility bears interest at variable rates, and the fair value of this borrowing is not significantly affected by changes in market interest rates. EMCOR is exposed to market risk on a forward contract that is designated as, and is effective as, an economic hedge. The amount of this forward contract is not material to the consolidated financial statements and it is not believed that a change in foreign exchange rates would have a significant effect on the fair value of this forward contract.

Amounts invested in EMCOR's foreign operations are translated into U.S. dollars at the exchange rates in effect at year end. The resulting translation adjustments are recorded as accumulated other comprehensive income, a component of stockholders' equity, in the consolidated balance sheets.

Year 2000 The Year 2000 issue concerned the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000.

EMCOR has completed the required modifications to its information technology systems. Modification costs have been expensed as SG&A as incurred and costs of new software have been capitalized and will be amortized over the expected useful life of the related software.

Since the inception of EMCOR's efforts to address the Year 2000 issue, approximately $1.0 million has been expensed as incurred. EMCOR does not anticipate additional material expenses related to the Year 2000 issue.

Additionally, EMCOR has not been notified or become aware of any significant Year 2000 related incidents which could materially impact operations. However, management will continue to monitor the Year 2000 issue in the event such incidents become evident.

This Annual Report contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995, particularly statements regarding market opportunities, market share growth, competitive growth, gross profit, and selling, general and administrative expenses. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in any such forward-looking statements. Such factors include, but are not limited to, adverse changes in general economic conditions, including changes in the specific markets for the Company's services, adverse business conditions, decreased or lack of growth in the mechanical and electrical construction and facilities services industries, increased competition, pricing pressures, risk associated with foreign operations and other factors.