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Foreign
Operations
The
financial
statements
and
transactions
of
EMCOR’s
foreign
subsidiaries
are
maintained
in
their
functional
currency
and
translated
into
U.S.
dollars
in
accordance
with
Statement
of
Financial
Accounting
Standards
No.
52,
“Foreign
Currency
Translation.”
Translation
adjustments
have
been
accumulated
as
a
separate
component
of
Stockholders’
equity
as
Accumulated
other
comprehensive
income
(loss).
Income
Taxes
EMCOR
accounts
for
income
taxes
in
accordance
with
the
provisions
of
Statement
of
Financial
Accounting
Standards
No.
109,
“Accounting
for
Income
Taxes”
(“SFAS
109”).
SFAS
109
requires
an
asset
and
liability
approach
which
requires
the
recognition
of
deferred
tax
assets
and
deferred
tax
liabilities
for
the
expected
future
tax
consequences
of
temporary
differences
between
the
carrying
amounts
and
the
tax
bases
of
assets
and
liabilities.
Valuation
allowances
are
established
when
necessary
to
reduce
net
deferred
tax
assets
to
the
amount
expected
to
be
realized.
Foreign
Exchange Contracts
Gains
and
losses
on
contracts
designated
as
hedges
of
net
investments
in
foreign
subsidiaries
are
recognized
in
the
Consolidated
Statements
of
Stockholders’
Equity
and
Comprehensive
Income
as
a
component
of
Accumulated
other
comprehensive
income
(loss).
As
of
December
31,
1999,
EMCOR
had
one
forward
contract
that
was
designated
as,
and
was
effective
as,
an
economic
hedge.
The
amount
of
this
forward
contract
was
not
material
to
the
Consolidated
Financial
Statements.
Valuation
of Stock Option Grants
EMCOR
accounts
for
its
stock
option
plans
under
Accounting
Principles
Board
Opinion
No.
25,
“Accounting
for
Stock
Issued
to
Employees”
(“APB
25”).
See
Note
I
for
pro
forma
information
relating
to
treatment
of
EMCOR’s
stock
option
plans
under
Statement
of
Financial
Accounting
Standards
No.
123,
“Accounting
for
Stock-Based
Compensation”
(“SFAS
123”).
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
133”).
SFAS
133,
as
amended
by
Statement
of
Financial
Accounting
Standards
No.
137,
“Accounting
for
Derivative
Instruments
and
Hedging
Activities-Deferral
of
the
Effective
Date
of
SFAS
No.
133,”
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.
SFAS
133
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
133
to
have
a
significant
effect
on
the
financial
condition
or
results
of
operations
of
EMCOR.
During
1999, EMCOR acquired two businesses and paid additional consideration
by reason of earnouts on prior acquisitions for an aggregate of
$55.8 million in cash. During 1998, EMCOR acquired ten businesses
for an aggregate purchase price of $36.8 million, $28.5 million
of which was paid in cash and $8.3 million was paid in notes made
by EMCOR. The purchase price of certain transactions 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 price has been allocated to the
assets acquired and liabilities assumed, based upon the estimated
fair values of these assets and liabilities at the dates of acquisition.
The purchase prices of these transactions are
of a preliminary basis and are subject to certain purchase accounting
adjustments. Goodwill, representing the excess purchase price over
the fair value of amounts assigned to the net tangible assets acquired,
was $68.0 million and $22.7 million at December 31, 1999 and 1998,
respectively, and is being amortized over periods of 5 to 20 years.
Amortization expense for the year ended December 31, 1999, 1998
and 1997 was $3.4 million, $0.7 million and $0.1 million, respectively.
The pro forma effect on EMCOR’s revenues, net income and earnings
per share for 1999, 1998 and 1997, as though the acquisitions occurred
as of January 1 of each year, was not material.
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