NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G — INCOME TAXES EMCOR files a consolidated federal income tax return including all its U.S. subsidiaries. At December 31, 2001, EMCOR had net operating loss carryforwards (“NOLs”) for U.S. income tax purposes of approximately $3.3 million, which expire in the year 2018. The NOLs are subject to review by the Internal Revenue Service. EMCOR adopted Fresh-Start Accounting in connection with EMCOR’s bankruptcy 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 a credit to capital surplus. Amounts credited to Capital surplus were $21.4 million, $24.4 million and $15.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. The income tax provision in the accompanying Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 consisted of the following (in thousands): Factors accounting for the variation from U.S. statutory income tax rates relating to continuing operations for the years ended December 31, 2001, 2000 and 1999 were as follows (in thousands): The components of the net deferred income tax asset are included in “Prepaid expenses and other” and “Other assets” at December 31, 2001 and the net deferred income tax liability is included in “Other accrued expenses and liabilities” at December 31, 2000 in the accompanying Consolidated Balance Sheets. The amounts recorded for the years ended December 31, 2001, and 2000 were as follows (in thousands): 2001 2000 Deferred income tax assets: Net operating loss carryforwards $ 1,166 $ 16,257 Excess of amounts expensed for financial statement purposes over amounts deducted for income tax purposes 61,931 49,900 Other — 6,403 Total deferred income tax assets 63,097 72,560 Valuation allowance for deferred tax assets (21,805) (68,787) Net deferred income tax assets 41,292 3,773 Deferred income tax liabilities: Costs capitalized for financial statement purposes and deducted for income tax purposes (15,790) (7,885) Total deferred income tax liabilities (15,790) (7,885) Net deferred income tax asset (liability) $ 25,502 $ (4,112) 2001 2000 1999 Federal income taxes at the statutory rate $ 31,316 $ 25,055 $ 17,387 State and local income taxes, net of federal tax benefits 5,376 3,894 2,990 Foreign income taxes 68 890 271 Goodwill and other non-deductible expenses 2,088 1,771 1,336 Other 614 (112) (127) $ 39,462 $ 31,498 $ 21,857 2001 2000 1999 Current: Federal $ 5,274 $ 1,364 $ 872 State and local 7,049 3,394 2,510 Foreign 1,989 1,180 1,730 14,312 5,938 5,112 Deferred 3,725 1,138 1,100 Provision in lieu of income taxes 21,425 24,422 15,645 $ 39,462 $ 31,498 $ 21,857