EMCOR files a consolidated federal income tax return including all its U.S. subsidiaries. At December 31, 1999, EMCOR had net operating loss carryforwards (“NOLs”) for U.S. income tax purposes of approximately $110.0 million, which expire in the years 2007 through 2012. The NOLs are subject to review by the Internal Revenue Service. Future changes in ownership of EMCOR, as defined by Section 382 of the Internal Revenue Code, could limit the amount of NOLs available for use in any one year.

EMCOR adopted Fresh-Start Accounting in connection with EMCOR’s reorganization in December 1994. As a result, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of December 15, 1994 will result in a charge to the tax provision (provision in lieu of income taxes) and be allocated to reorganization value in excess of amounts allocable to identifiable assets established in connection with EMCOR’s emergence from bankruptcy and to capital surplus. For the year ended December 31, 1996, EMCOR allocated approximately $4.5 million of its tax provision to reorganization value in excess of amounts allocable to identifiable assets, thereby reducing this balance to zero. The remaining utilization of NOLs and other deferred tax assets, approximately $15.6 million, $8.2 million and $5.6 million for the years ended December 31, 1999, 1998 and 1997, respectively, have been applied to capital surplus for the years then ended.

The income tax provision in the accompanying Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 consists of (in thousands):

Factors accounting for the variation from U.S. statutory income tax rates relating to continuing operations for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

The components of the net deferred income tax asset included in “Other assets” in the accompanying Consolidated Balance Sheets for the years ended December 31, 1999 and 1998 are as follows (in thousands):

Income before income taxes and extraordinary items for the years ended December 31, 1999, 1998, and 1997 consists of the following (in thousands):