Amendment No. 1 to Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q/A

 


 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to            .

 

Commission File No. 1-13783

 


 

INTEGRATED ELECTRICAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   76-0542208

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)

1800 West Loop South

Suite 500

Houston, Texas

  77027-3233
(Address of principal executive offices)   (zip code)

 

Registrant’s telephone number, including area code: (713) 860-1500

 


 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ¨    No  x

 

Indicated by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)     Yes  x    No  ¨

 

The number of shares outstanding as of December 10, 2004 of the issuer’s common stock was 36,390,398 and of the issuer’s restricted voting common stock was 2,605,709.

 


 


Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

INDEX

 

          Page

PART I.    FINANCIAL INFORMATION     

Item 1.

  

Financial Statements

    

Consolidated Balance Sheets as of September 30, 2003 and June 30, 2004

   4

Consolidated Statements of Operations for the nine months ended June 30, 2003 and 2004

   5

Consolidated Statements of Operations for the three months ended June 30, 2003 and 2004

   6

Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2004

   7

Consolidated Statements of Cash Flows for the nine months ended June 30, 2003 and 2004

   8

Consolidated Statements of Cash Flows for the three months ended June 30, 2003 and 2004

   9

Notes to Condensed Consolidated Financial Statements

   10
PART II.   

OTHER INFORMATION

    

Item 6.

  

Exhibits

   23

Signatures

   24

 

2


Table of Contents

Explanatory Note:

 

This Form 10-Q/A is being filed to correct typographical errors that occurred within the statement of cash flows for the nine months ended June 30, 2004 in the initial filing on December 14, 2004. Additionally, the Company corrected the shares of common stock outstanding at December 10, 2004 on the cover of this Form 10-Q/A. All other condensed consolidated financial statements and disclosures are unchanged.

 

3


Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

 

    

September 30,

2003


   

June 30,

2004


 
     (Audited)     (Unaudited)  
     (Restated)        

ASSETS

                

CURRENT ASSETS:

                

Cash and cash equivalents

   $ 40,201     $ 13,290  

Accounts receivable:

                

Trade, net of allowance of $5,425 and $4,793 respectively

     245,618       242,443  

Retainage

     68,789       71,230  

Related party

     67       36  

Costs and estimated earnings in excess of billings on uncompleted contracts

     46,999       50,946  

Inventories

     20,473       26,331  

Prepaid expenses and other current assets

     14,427       27,788  
    


 


Total current assets

     436,574       432,064  

PROPERTY AND EQUIPMENT, net

     52,697       46,893  

GOODWILL, net

     197,884       197,884  

OTHER NON-CURRENT ASSETS

     27,332       32,184  
    


 


Total assets

   $ 714,487     $ 709,025  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

CURRENT LIABILITIES:

                

Current maturities of long-term debt

   $ 256     $ 35,099  

Accounts payable and accrued expenses

     138,143       139,766  

Billings in excess of costs and estimated earnings on uncompleted contracts

     42,415       42,118  
    


 


Total current liabilities

     180,814       216,983  

LONG-TERM BANK DEBT, net of current maturities

     —         7,926  

OTHER LONG-TERM DEBT, net of current maturities

     195       101  

SENIOR SUBORDINATED NOTES, net

     247,927       173,226  

OTHER NON-CURRENT LIABILITIES

     20,644       34,108  
    


 


Total liabilities

     449,580       432,344  
    


 


COMMITMENTS AND CONTINGENCIES

                

STOCKHOLDERS’ EQUITY:

                

Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding

     —         —    

Common stock, $.01 par value, 100,000,000 shares authorized, 38,439,984 shares issued

     385       385  

Restricted voting common stock, $.01 par value, 2,605,709 shares issued, authorized and outstanding

     26       26  

Treasury stock, at cost, 2,725,793 and 2,255,570 shares, respectively

     (16,361 )     (14,291 )

Unearned restricted stock

     —         (1,380 )

Additional paid-in capital

     427,709       429,291  

Retained deficit

     (146,852 )     (137,350 )
    


 


Total stockholders’ equity

     264,907       276,681  
    


 


Total liabilities and stockholders’ equity

   $ 714,487     $ 709,025  
    


 


 

The accompanying notes to condensed consolidated financial statements are an integral part of

these financial statements.

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

 

     Nine Months Ended June 30,

 
     2003

   2004

 
     (restated)       
     (Unaudited)  

Revenues

   $ 1,066,887    $ 1,067,210  

Cost of services

     913,181      930,464  
    

  


Gross profit

     153,706      136,746  

Selling, general and administrative expenses

     114,272      109,871  
    

  


Income from operations

     39,434      26,875  
    

  


Other (income)/expense:

               

Interest expense

     19,196      17,966  

(Gain)/loss on sale of assets

     204      (3 )

Other (income)/expense, net

     333      5,485  
    

  


       19,733      23,448  
    

  


Income before income taxes

     19,701      3,427  

Provision/(benefit) for income taxes

     7,600      (6,075 )
    

  


Net income

   $ 12,101    $ 9,502  
    

  


Basic earnings per share

   $ 0.31    $ 0.25  
    

  


Diluted earnings per share

   $ 0.31    $ 0.24  
    

  


Shares used in the computation of earnings per share (Note 5):

               

Basic

     39,188,518      38,529,576  
    

  


Diluted

     39,297,446      39,171,986  
    

  


 

 

The accompanying notes to condensed consolidated financial statements are an integral part of

these financial statements.

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

 

     Three Months Ended June 30,

 
     2003

    2004

 
     (restated)        
     (Unaudited)  

Revenues

   $ 375,303     $ 367,009  

Cost of services

     321,930       324,213  
    


 


Gross profit

     53,373       42,796  

Selling, general and administrative expenses

     38,193       38,512  
    


 


Income from operations

     15,180       4,284  
    


 


Other (income)/expense:

                

Interest expense

     6,397       4,951  

(Gain)/loss on sale of assets

     234       (150 )

Other income, net

     (14 )     188  
    


 


       6,617       4,989  
    


 


Income before income taxes

     8,563       (705 )

Provision for income taxes

     3,303       (1,445 )
    


 


Net income

   $ 5,260     $ 740  
    


 


Basic earnings per share

   $ 0.14     $ 0.02  
    


 


Diluted earnings per share

   $ 0.13     $ 0.02  
    


 


Shares used in the computation of earnings per share (Note 5):

                

Basic

     38,789,237       38,769,241  
    


 


Diluted

     39,161,593       39,432,344  
    


 


 

 

The accompanying notes to condensed consolidated financial statements are an integral part of

these financial statements.

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

 

    Common Stock

  Restricted Voting
Common Stock


  Treasury Stock

   

Unearned

Restricted

Stock


   

Additional

Paid-In

Capital


   

Retained

(Deficit)


   

Total

Stockholders’

Equity


 
    Shares

  Amount

  Shares

  Amount

  Shares

    Amount

         

BALANCE, September 30, 2003 (restated)

  38,439,984   $ 385   2,605,709   $ 26   (2,725,793 )   $ (16,361 )   $ —       $ 427,709     $ (146,852 )   $ 264,907  

Issuance of stock (unaudited)

  —       —     —       —     8,098       41       —         17       —         58  

Issuance of restricted stock (unaudited)

  —       —     —       —     —         —         (1,992 )     1,992       —         —    

Purchase of treasury stock (unaudited)

  —       —     —       —     (549,200 )     (4,340 )     —         —         —         (4,340 )

Issuance of stock under employee stock purchase plan (unaudited)

                      199,438       1,290       —         (638 )     —         652  

Exercise of stock options (unaudited)

  —       —     —       —     811,887       5,079       —         255       —         5,334  

Non-cash compensation (unaudited)

  —       —     —       —     —         —         612       (44 )     —         568  

Net income (unaudited)

  —       —     —       —     —         —         —         —         9,502       9,502  
   
 

 
 

 

 


 


 


 


 


BALANCE, June 30, 2004 (unaudited)

  38,439,984   $ 385   2,605,709   $ 26   (2,255,570 )   $ (14,291 )   $ (1,380 )   $ 429,291     $ (137,350 )   $ 276,681  
   
 

 
 

 

 


 


 


 


 


 

 

The accompanying notes to condensed consolidated financial statements are an integral part of

these financial statements.

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

     Nine Months Ended
June 30,


 
     2003

    2004

 
     (restated)        

CASH FLOWS FROM OPERATING ACTIVITIES:

     (Unaudited)  

Net income

   $ 12,101     9,502  

Adjustments to reconcile net income to net cash provided by operating activities

              

Bad debt expense

     1,046     2,152  

Deferred income taxes

     (281 )   (6,490 )

Depreciation and amortization

     10,931     10,026  

Loss (gain) on sale of property and equipment

     204     (3 )

Non-cash compensation expense

     —       568  

Gain on divestiture

     (26 )   —    

Changes in operating assets and liabilities, net of acquisitions and dispositions of businesses

              

Accounts receivable

     156     (1,560 )

Inventories

     3,216     (5,858 )

Costs and estimated earnings in excess of billings on uncompleted contracts

     4,103     (3,947 )

Prepaid expenses and other current assets

     12,267     (2,937 )

Other noncurrent assets

     2,255     1,274  

Accounts payable and accrued expenses

     4,688     4,528  

Billings in excess of costs and estimated earnings on uncompleted contracts

     (10,240 )   (296 )

Other current liabilities

     185     —    

Other noncurrent liabilities

     (4,706 )   2,461  
    


 

Net cash provided by operating activities

     35,899     9,420  
    


 

CASH FLOWS FROM INVESTING ACTIVITIES:

              

Proceeds from sale of property and equipment

     1,787     684  

Purchases of property and equipment

     (7,304 )   (4,729 )

Purchases of business, net of cash acquired

     (2,723 )   —    

Sale of business

     1,084     —    

Investments in securities

     (500 )   (400 )
    


 

Net cash used in investing activities

     (7,656 )   (4,445 )
    


 

CASH FLOWS FROM FINANCING ACTIVITIES:

              

Borrowings

     37     50,040  

Repayments of debt

     (16,176 )   (82,386 )

Purchase of treasury stock

     (6,795 )   (4,340 )

Proceeds from exercise of stock options

     2,112     5,354  

Proceeds from issuance of stock

     —       39  

Proceeds from issuance of stock under employee stock purchase plan

     821     652  

Payments for debt issuance costs

     (679 )   (1,245 )
    


 

Net cash used in financing activities

     (20,680 )   (31,886 )
    


 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     7,563     (26,911 )

CASH AND CASH EQUIVALENTS, beginning of period

     32,779     40,201  
    


 

CASH AND CASH EQUIVALENTS, end of period

   $ 40,342     13,290  
    


 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

              

Cash paid for

              

Interest

   $ 12,321     14,207  

Income taxes

   $ 599     666  

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

     Three Months Ended
June 30,


 
     2003

    2004

 
     (restated)        
     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

              

Net income

   $ 5,260     740  

Adjustments to reconcile net income to net cash provided by operating activities

              

Provision for allowance for doubtful accounts

     385     865  

Depreciation and amortization

     3,590     3,294  

Loss (gain) on sale of property and equipment

     234     (150 )

Non-cash compensation expense

     —       237  

Deferred income tax benefit

     (86 )   1,738  

Changes in operating assets and liabilities, net of acquisitions and dispositions of businesses

              

Accounts receivable

     (9,945 )   (18,220 )

Inventories

     1,141     (2,514 )

Costs and estimated earnings in excess of billings on uncompleted contracts

     2,879     (1,724 )

Prepaid expenses and other current assets

     2,703     (1,262 )

Other noncurrent assets

     1,229     (1,749 )

Accounts payable and accrued expenses

     13,786     17,010  

Billings in excess of costs and estimated earnings on uncompleted contracts

     (4,258 )   3,153  

Other current liabilities

     (177 )   (50 )

Other noncurrent liabilities

     1,188     1,028  
    


 

Net cash provided by operating activities

     17,929     2,396  
    


 

CASH FLOWS FROM INVESTING ACTIVITIES:

              

Proceeds from sale of property and equipment

     247     286  

Purchases of property and equipment

     (1,842 )   (1,590 )
    


 

Net cash used in investing activities

     (1,595 )   (1,304 )
    


 

CASH FLOWS FROM FINANCING ACTIVITIES:

              

Borrowings

     10     —    

Repayments of debt

     (146 )   (7,145 )

Purchase of treasury stock

     (3,419 )   —    

Proceeds from exercise of stock options

     2,112     300  

Payments for debt issuance costs

     (679 )   —    
    


 

Net cash used in financing activities

     (2,122 )   (6,845 )
    


 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     14,212     (5,753 )

CASH AND CASH EQUIVALENTS, beginning of period

     26,130     19,043  
    


 

CASH AND CASH EQUIVALENTS, end of period

   $ 40,342     13,290  
    


 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

              

Cash paid for

              

Interest

   $ 261     727  

Income taxes

   $ 599     340  

 

The accompanying notes to condensed consolidated financial statements are an integral part of

these financial statements.

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(UNAUDITED)

 

1. OVERVIEW

 

Integrated Electrical Services, Inc. (the “Company” or “IES”), a Delaware corporation, was founded in June 1997 to create a leading national provider of electrical services, focusing primarily on the commercial and industrial, residential, low voltage and service and maintenance markets.

 

The accompanying unaudited Condensed Consolidated Financial Statements (the “Financial Statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements, and therefore should be reviewed in conjunction with the financial statements and related notes thereto contained in the Company’s annual report for the year ended September 30, 2003, filed on Form 10-K with the Securities and Exchange Commission. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Actual operating results for the nine months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2004.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

For a description of these policies, refer to Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003.

 

SUBSIDIARY GUARANTIES

 

All of the Company’s operating income and cash flows are generated by its 100% owned subsidiaries, which are the subsidiary guarantors of the Company’s outstanding 9 3/8% senior subordinated notes due 2009 (the “Senior Subordinated Notes”). The Company is structured as a holding company and substantially all of its assets and operations are held by its subsidiaries. There are currently no significant restrictions on the Company’s ability to obtain funds from its subsidiaries by dividend or loan. The parent holding company’s independent assets, revenues, income before taxes and operating cash flows are less than 3% of the consolidated total. The separate financial statements of the subsidiary guarantors are not included herein because (i) the subsidiary guarantors are all of the direct and indirect subsidiaries of the Company; (ii) the subsidiary guarantors have fully and unconditionally, jointly and severally guaranteed the Senior Subordinated Notes; and (iii) the aggregate assets, liabilities, earnings and equity of the subsidiary guarantors is substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis. As a result, the presentation of separate financial statements and other disclosures concerning the subsidiary guarantors is not deemed material.

 

USE OF ESTIMATES AND ASSUMPTIONS

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in the Company’s revenue recognition of construction in progress, fair value assumptions in analyzing goodwill impairment, allowance for doubtful accounts receivable, realizability of deferred tax assets and self-insured claims liabilities.

 

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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

SEASONALITY AND QUARTERLY FLUCTUATIONS

 

The results of the Company’s operations, primarily from residential construction, are seasonal, dependent upon weather trends, with higher revenues typically generated during the spring and summer and lower revenues during the fall and winter. The commercial and industrial aspect of its business is less subject to seasonal trends, as this work generally is performed inside structures protected from the weather. The Company’s service business is generally not affected by seasonality. In addition, the construction industry has historically been highly cyclical. The Company’s volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by gross margins for both bid and negotiated projects, the timing of new construction projects and any acquisitions. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

 

NEW ACCOUNTING PRONOUNCEMENT

 

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“Interpretation 46”). The objective of Interpretation 46 is to improve the financial reporting by companies involved with variable interest entities. Until Interpretation 46, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interest. Interpretation 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Certain disclosure requirements applied to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company has investments in two firms, EnerTech Capital Partners II, L.P. (EnerTech) and Energy Photovoltaics, Inc. (EPV) that were considered in light of this interpretation. The Company determined that EPV was an exception to the provisions of Interpretation 46, and that the Company is not the primary beneficiary of EnerTech and as such, the adoption of Interpretation 46 did not have an impact on the Company’s results of operations or its financial position.

 

STOCK-BASED COMPENSATION

 

The Company accounts for its stock-based compensation arrangements using the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under APB 25, if the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company’s stock options have all been granted with exercise prices at fair value, therefore no compensation expense has been recognized under APB 25 (See Note 7) During the nine months ended June 30, 2004, the Company recorded compensation expense of $0.6 million in connection with a restricted stock award (See note 7). Additionally, the Company recorded no compensation expense associated with our Employee Stock Purchase Plan which is defined as a non-compensatory plan pursuant to Financial Accounting Standards Board Interpretation No. 44 (See note 8).

 

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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

The following table illustrates the effect on net income and earnings per share assuming the compensation costs for IES’ stock option and purchase plans had been determined using the fair value method at the grant dates amortized on a pro rata basis over the vesting period as required under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” for the three and nine months ended June 30, 2003 and 2004 (in thousands, except for per share data):

 

     Three months ended June 30,

   Nine months ended June 30,

     2003

   2004

   2003

   2004

Net income, as reported

   $ 5,260    $ 740    $ 12,101    $ 9,502

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

     —        137      —        329

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

     421      267      1,552      809
    

  

  

  

Pro forma net income for SFAS No. 123

   $ 4,839    $ 610    $ 10,549    $ 9,022
    

  

  

  

Earnings per share:

                           

Basic—as reported

   $ 0.14    $ 0.02    $ 0.31    $ 0.25

Basic—pro forma for SFAS No. 123

   $ 0.12    $ 0.02    $ 0.27    $ 0.23

Earnings per share:

                           

Diluted—as reported

   $ 0.13    $ 0.02    $ 0.31    $ 0.24

Diluted—pro forma for SFAS No. 123

   $ 0.12    $ 0.02    $ 0.27    $ 0.23

 

2. BUSINESS COMBINATIONS

 

Acquisition

 

On February 27, 2003, the Company purchased the assets of Riviera Electric LLC, an electrical contractor located in the state of Colorado, out of a bankruptcy auction of a prior competitor. The total consideration paid in this transaction was approximately $2.7 million, comprised entirely of cash, net of cash acquired. The fair value of the tangible net assets acquired exceeded the total consideration paid. As a result, the long-term fixed assets of the acquisition were reduced to zero. The purchase price was allocated as follows (in thousands):

 

Accounts receivable, net

   $ 11,643  

Retention

     3,884  

Costs and estimated earnings in excess of billings on uncompleted projects and other

     922  

Less: Accounts payable and accrued expenses

     (10,214 )

Less: Billings in excess of costs and estimated earnings on uncompleted projects and other

   $ (3,512 )
    


Cash paid, net of cash acquired

   $ 2,723  
    


 

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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

The unaudited pro forma data presented below reflect the results of operations of IES and the acquisition of Riviera Electric LLC assuming the transaction was completed on October 1, 2002 (in thousands):

 

    

Nine Months
Ended

June 30,
2003


Revenues

   $ 1,101,552

Net income

   $ 12,985

Basic earnings per share

   $ 0.33

Diluted earnings per share

   $ 0.33

 

The unaudited pro forma data summarized above also reflects pro forma adjustments primarily related to reductions in general and administrative expenses for contractually agreed reductions in compensation programs and additional income tax expense based on the Company’s effective income tax rate. The unaudited pro forma financial data does not purport to represent what the Company’s combined results of operations would actually have been if such transactions had in fact occurred on October 1, 2002, and are not necessarily representative of the Company’s results of operations for any future period.

 

Divestiture

 

On October 8, 2002, the Company sold all of the stock of one of its operating companies. The proceeds from the sale were $1.1 million in cash and 70,330 shares of the Company’s common stock. The Company recorded a pre-tax gain of less than $0.1 million associated with this sale that is recorded in other income.

 

In connection with the disposition discussed above, the net pre-tax gain was determined as follows for the quarter ended December 31, 2002 (in thousands):

 

Book value of assets divested

   $ 1,830  

Liabilities divested

     (502 )
    


Net assets divested

     1,328  
    


Cash received

     1,084  

Common stock received

     270  
    


Total consideration received

     1,354  
    


Pre-tax gain

   $ 26  
    


 

3. RESTRUCTURING CHARGES

 

In October 2001, the Company began implementation of a workforce reduction program. The purpose of this program was to cut costs by reducing the number of administrative staff both in the field and at the home office. The total number of terminated employees was approximately 450. As a result of the program implementation, the Company recorded pre-tax restructuring charges of $5.6 million associated with 45 employees during the year ended September 30, 2002 and presented these charges as a separate component of the Company’s results of operations for the period then ended. The charges were based on the costs of the workforce reduction program and included severance and other special termination benefits. The Company believes the reduction of these personnel resulted in annual savings of approximately $4.1 million in salaries and benefits.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

During the nine months ended June 30, 2004, the Company settled the remaining payments required under the restructuring agreements and reduced the restructuring accrual by $0.4 million, which is included as a reduction in selling, general, and administrative expenses. As of June 30, 2004, there are no amounts accrued and unpaid as a result of the restructuring.

 

4. DEBT

 

Credit Facility

 

On February 27, 2004, the Company amended and restated the $125.0 million revolving credit facility to a $125.0 million revolving credit facility and a $50.0 million term loan led by Bank One, NA (the “Credit Facility”). The Company used the proceeds from the term loan and available cash to redeem $75.0 million principal amount of the Company’s long term bonds. Since February 27, 2004, and through December 10, 2004, the Company amended the Credit Facility four times. The amendments reduced the Credit Facility commitment, provided for covenants or waivers that permit the Company to file the Form 10-Q for the quarter ended June 30, 2004 on or before December 15, 2004, permitted the Company to issue senior convertible notes, specified mandatory debt reduction amounts by quarter, adjusted and redefined financial covenants on a monthly basis beginning December 31, 2004, increased pricing, established the borrowing base at 70 percent of qualifying receivables and permit the Company to release certain collateral related to bonded jobs to companies providing surety bonding. These amendments required the payments of fees upon their execution. These fees are capitalized as deferred financing costs and amortized over the life of the facility. The Credit Facility, as amended, matures on January 13, 2006. The Company has the ability to extend the facility until January 12, 2007 upon the payment of a fee if certain financial conditions are met. The term loan of the credit facility is due by September 30, 2005. At June 30, 2004, the term loan had outstanding borrowings of $42.9 million. Amounts borrowed under the Credit Facility, as amended, bear interest at an annual rate of the bank’s prime rate plus two percent. Fees of one percent per annum are assessed on the outstanding borrowings as of the beginning of each quarter beginning January 1, 2005. The Company’s direct and indirect subsidiaries guarantee the repayment of all amounts due under the facility and the facility is secured by a first perfected security interest in all the assets of the Company and those subsidiaries, including all of the outstanding capital shares of the capital stock of those subsidiaries. Among other restrictions, the financial covenants include minimum EBITDA requirements for core and all operations, a maximum senior secured debt to EBITDA ratio and a minimum interest coverage ratio.

 

As of June 30, 2004, the Company was in compliance with all financial covenants as they pertain to the Credit Facility, as amended.

 

As of June 30, 2004, the Company had $42.9 million outstanding under the term loan portion of its Credit Facility, no amounts outstanding under the revolving credit line portion of its Credit Facility, letters of credit outstanding under its Credit Facility of $25.8 million, $0.2 million of other borrowings and available borrowing capacity under its Credit Facility of $99.2 million.

 

Senior Subordinated Notes

 

The Company has outstanding two different issues of senior subordinated notes with similar terms. The notes bear interest at 9 3/8% and will mature on February 1, 2009. We pay interest on the notes on February 1 and August 1 of each year. The notes are unsecured senior subordinated obligations and are subordinated to all of our existing and future senior indebtedness. The notes are guaranteed on a senior subordinated basis by all of the Company’s subsidiaries. Under the terms of the notes, the Company is required to comply with various affirmative and negative covenants including (1) restrictions on additional indebtedness, and (2) restrictions on

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

liens, guarantees and dividends. During the year ended September 30, 2002, the Company retired approximately $27.1 million of these senior subordinated notes. In connection with these transactions, the Company recorded a gain of $1.0 million. This gain is recorded in interest and other expense, net during the year ended September 30, 2002 in accordance with SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which we adopted July 1, 2002. During the nine months ended June 30, 2004, the Company redeemed $75.0 million principal amount of the Company’s senior subordinated notes, paying a call premium of 4.688%, or $3.5 million. This premium along with a write off of previously capitalized deferred financing costs of $1.6 million was recorded as a loss in other income and expense in accordance with SFAS No. 145. At June 30, 2004, the Company had $172.9 million in outstanding senior subordinated notes.

 

Debt consists of the following (in thousands):

 

    

September 30,

2003


   

June 30,

2004


 

Secured Credit Facility and term loan with a group of lending institutions, due February 27, 2008, with a weighted average interest rate of 4.22%

   $ —       $ 42,926  

Senior Subordinated Notes, due February 1, 2009, bearing interest at 9.375% with an effective interest rate of 9.50%

     137,885       62,885  

Senior Subordinated Notes, due February 1, 2009, bearing interest at 9.375% with an effective interest rate of 10.00%

     110,000       110,000  

Other

     451       200  
    


 


Total debt

     248,336       216,011  

Less—short-term debt and current maturities of long-term debt

     (256 )     (35,099 )

Less—unamortized discount on Senior Subordinated Notes

     (3,198 )     (2,442 )

Add—fair value of terminated interest rate hedge

     3,240       2,783  
    


 


Total long-term debt

   $ 248,122     $ 181,253  
    


 


 

5. EARNINGS PER SHARE

 

The following table reconciles the numerators and denominators of the basic and diluted earnings per share for the nine months ended June 30, 2003 and 2004 (in thousands, except share data):

 

     Nine Months Ended June 30,

     2003

   2004

     (restated)     

Numerator:

             

Net income

   $ 12,101    $ 9,502
    

  

Denominator:

             

Weighted average shares outstanding—basic

     39,188,518      38,529,576

Effect of dilutive stock options

     108,928      642,410
    

  

Weighted average shares outstanding—diluted

     39,297,446      39,171,986
    

  

Earnings per share:

             

Basic

   $ 0.31    $ 0.25

Diluted

   $ 0.31    $ 0.24

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

For the nine months ended June 30, 2003 and 2004, stock options of 4.6 million and 2.2 million, respectively, were excluded from the computation of diluted earnings per share because the options exercise prices were greater than the average market price of the Company’s common stock.

 

The following table reconciles the numerators and denominators of the basic and diluted earnings per share for the three months ended June 30, 2003 and 2004 (in thousands, except share information):

 

     Three Months Ended June 30,

     2003

   2004

     (restated)     

Numerator:

             

Net income

   $ 5,260    $ 740
    

  

Denominator:

             

Weighted average shares outstanding—basic

     38,789,237      38,769,241

Effect of dilutive stock options

     372,356      663,103
    

  

Weighted average shares outstanding—diluted

     39,161,593      39,432,344
    

  

Earnings per share:

             

Basic

   $ 0.14    $ 0.02

Diluted

   $ 0.13    $ 0.02

 

For the three months ended June 30, 2003 and 2004, stock options of 2.9 million and 2.2 million, respectively, were excluded from the computation of diluted earnings per share because the options exercise prices were greater than the average market price of the Company’s common stock.

 

6. OPERATING SEGMENTS

 

The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information (SFAS 131).” Certain information is disclosed, per SFAS 131, based on the way management organizes financial information for making operating decisions and assessing performance.

 

The Company’s reportable segments are strategic business units that offer products and services to two distinct customer groups. They are managed separately because each business requires different operating and marketing strategies. These segments, which contain different economic characteristics, are managed through geographical regions.

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income from operations of the respective business units prior to home office expenses. Management allocates costs between segments for selling, general and administrative expenses, goodwill impairment, depreciation expense, capital expenditures and total assets.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

Segment information for the nine months ended June 30, 2003 and 2004 is as follows (in thousands):

 

     Nine Months Ended June 30, 2003

     (restated)
     Commercial/
Industrial


   Residential

   Other

    Total

Revenues

   $ 861,864    $ 205,023    $ —       $ 1,066,887

Cost of services

     752,128      161,053      —         913,181
    

  

  


 

Gross profit

     109,736      43,970      —         153,706

Selling, general and administrative

     75,265      24,949      14,058       114,272
    

  

  


 

Operating income

   $ 34,471    $ 19,021    $ (14,058 )   $ 39,434
    

  

  


 

Other data:

                            

Depreciation expense

   $ 8,546    $ 926    $ 1,459     $ 10,931

Capital expenditures

     4,475      548      2,281       7,304

Total assets

     507,366      107,505      109,584       724,455

 

     Nine Months Ended June 30, 2004

     Commercial/
Industrial


   Residential

   Other

    Total

Revenues

   $ 838,719    $ 228,491    $ —       $ 1,067,210

Cost of services

     746,437      184,027      —         930,464
    

  

  


 

Gross profit

     92,282      44,464      —         136,746

Selling, general and administrative

     67,420      25,575      16,876       109,871
    

  

  


 

Operating income

   $ 24,862    $ 18,889    $ (16,876 )   $ 26,875
    

  

  


 

Other data:

                            

Depreciation expense

   $ 7,429    $ 886    $ 1,711     $ 10,026

Capital expenditures

     2,334      903      1,492       4,729

Total assets

     512,123      107,708      89,194       709,025

 

Segment information for the three months ended June 30, 2003 and 2004 is as follows (in thousands):

 

     Three Months Ended June 30, 2003

     (restated)
    

Commercial/

Industrial


   Residential

   Other

    Total

Revenues

   $ 305,613    $ 69,690    $ —       $ 375,303

Cost of services

     266,999      54,931      —         321,930
    

  

  


 

Gross profit

     38,614      14,759      —         53,373

Selling, general and administrative

     25,143      8,090      4,960       38,193
    

  

  


 

Operating income

   $ 13,471    $ 6,669    $ (4,960 )   $ 15,180
    

  

  


 

Other data:

                            

Depreciation expense

   $ 2,650    $ 423    $ 517     $ 3,590

Capital expenditures

     1,222      188      432       1,842

Total assets

     507,366      107,505      109,584       724,455

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

     Three Months Ended June 30, 2004

    

Commercial/

Industrial


   Residential

   Other

    Total

Revenues

   $ 283,937    $ 83,072    $ —       $ 367,009

Cost of services

     255,677      68,536      —         324,213
    

  

  


 

Gross profit

     28,260      14,536      —         42,796

Selling, general and administrative

     23,330      8,757      6,425       38,512
    

  

  


 

Operating income

   $ 4,930    $ 5,779    $ (6,425 )   $ 4,284
    

  

  


 

Other data:

                            

Depreciation expense

   $ 2,413    $ 281    $ 600     $ 3,294

Capital expenditures

     943      179      468       1,590

Total assets

     512,123      107,708      89,194       709,025

 

The Company does not have significant operations or long-lived assets in countries outside of the United States.

 

7. 1999 INCENTIVE COMPENSATION PLAN

 

In November 1999, the Board of Directors adopted the 1999 Incentive Compensation Plan (the “1999 Plan”). The 1999 Plan authorizes the Compensation Committee of the Board of Directors or the Board of Directors to grant employees of the Company awards in the form of options, stock appreciation rights, restricted stock or other stock based awards. The Company has up to 5.5 million shares of common stock authorized for issuance under the 1999 Plan.

 

In December 2003, the Company granted a restricted stock award of 242,295 shares under its 1999 Plan to certain employees. This award will vest in equal installments on December 1, 2004 and 2005, provided the recipient is still employed by the Company. The market value of the stock on the date of grant for this award was $2.0 million, which will be recognized as compensation expense over the related two year vesting period. During the nine months ended June 30, 2004, the Company amortized $0.6 million to expense in connection with this award.

 

8. EMPLOYEE STOCK PURCHASE PLAN

 

The Company has an Employee Stock Purchase Plan (the “ESPP”), which provides for the sale of common stock to participants as defined at a price equal to the lower of 85% of the Company’s closing stock price at the beginning or end of the option period, as defined. The ESPP is intended to qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended. In the nine months ended June 30, 2003 and 2004, 248,982 and 199,438 shares were issued under the ESPP, respectively.

 

9. COMMITMENTS AND CONTINGENCIES

 

The Company and its subsidiaries are involved in various legal proceedings that have arisen in the ordinary course of business. While it is not possible to predict the outcome of such proceedings with certainty and it is possible that the results of legal proceedings may materially adversely affect us, in the opinion of the Company, all such proceedings are either adequately covered by insurance or, if not so covered, should not ultimately result in any liability which would have a material adverse effect on the financial position, liquidity or results of operations of the Company. The Company expenses routine legal costs related to such proceedings as incurred.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

On August 20, 2004, August 23, 2004, September 10, 2004, September 15, 2004, and October 4, 2004, Corinne Orem, Elaine English, Park Partners, L.P., Jack Zimny, and James Elmore, respectively, each filed a putative class action complaint against IES, and certain of our officers and directors, in the United States District Court for the Southern District of Texas, alleging that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeking a class determination for purchasers of IES stock between November 10, 2003 and August 13, 2004. The complaints seek unspecified amounts of compensatory damages, interest and costs, including legal fees. On November 19, 2004, these cases were consolidated. A motion to appoint a lead plaintiff is pending before the Court, and once an appointment is made plaintiff will have sixty days to file a consolidated amended complaint. Defendants will have sixty days from the filing of this consolidated amended complaint to respond.

 

On September 3, 2004, Chris Radek filed a shareholder derivative action in the District Court of Harris County, Texas naming Herbert R. Allen, Richard L. China, William W. Reynolds, Britt Rice, David A. Miller, Ronald P. Badie, Donald P. Hodel, Alan R. Sielbeck, C. Byron Snyder, Donald C. Trauscht, and James D. Woods as individual defendants and IES as nominal defendant. In this derivative action, the plaintiff makes substantially similar claims as made in the putative class action complaints, and adds common law claims against the individual defendants. The complaint in the shareholder derivative actions seeks unspecified amounts of damages, interest and costs, including legal fees. By agreement, the Defendants will not respond to this action until the plaintiff files an amended petition.

 

The Company intends to vigorously contest these actions. However, because they are at an early stage, it is premature at this time to predict liability or to estimate the damages, or the range of damages, if any, that we might incur in connection with these actions. An adverse outcome in these actions could have a material adverse effect on our business, consolidated financial condition, results of operations or cash flows.

 

Some of the Company’s customers require the Company to post letters of credit as a means of guaranteeing performance under its contracts and ensuring payment by the Company to subcontractors and vendors. If the customer has reasonable cause to effect payment under a letter of credit, the Company would be required to reimburse its creditor for the letter of credit. Depending on the circumstances surrounding a reimbursement to its creditor, the Company may have a charge to earnings in that period. To date the Company has not had a situation where a customer has had reasonable cause to effect payment under a letter of credit. At June 30, 2004, $1.7 million of the Company’s outstanding letters of credit were to collateralize its customers.

 

Some of the underwriters of the Company’s casualty insurance program require it to post letters of credit as collateral. This is common in the insurance industry. To date the Company has not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At June 30, 2004, $19.1 million of the Company’s outstanding letters of credit were to collateralize its insurance program.

 

Many of the Company’s customers require us to post performance and payment bonds issued by a surety. Those bonds guarantee the customer that the Company will perform under the terms of a contract and that it will pay its subcontractors and vendors. In the event that the Company fails to perform under a contract or pay subcontractors and vendors, the customer may demand the surety to pay or perform under the Company’s bond. The Company’s relationship with its sureties is such that it will indemnify the sureties for any expenses they incur in connection with any of the bonds they issues on the Company’s behalf. To date, the Company has not incurred significant expenses to indemnify its sureties for expenses they incurred on the Company’s behalf. As of June 30, 2004, the Company’s cost to complete projects covered by surety bonds was approximately $192.8 million and utilized a combination of cash and letters of credit totaling $5.0 million to collateralize its bonding program.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

In April 2000, the Company committed to invest up to $5.0 million in EnerTech Capital Partners II L.P. (EnerTech). EnerTech is a private equity firm specializing in investment opportunities emerging from the deregulation and resulting convergence of the energy, utility and telecommunications industries. Through June 30, 2004, the Company had invested $3.1 million under the Company’s commitment to EnerTech. The carrying value of this Enertech investment at September 30, 2003 and June 30, 2004 was $2.5 million and $2.6 million, respectively. This investment is accounted for on the cost basis of accounting and accordingly, the Company does not record unrealized losses for the EnerTech investment that it believes are temporary in nature. As of June 30, 2004, the unrealized losses related to the Company’s share of the Enertech fund amounted to approximately $0.9 million, which it believes are temporary in nature. If facts arise that lead the Company to determine that such unrealized losses are not temporary, the Company would write down the investment in EnerTech through a charge to other expense during the period of such determination.

 

10. SUBSEQUENT EVENTS

 

Goodwill Impairment

 

On August 13, 2004, the Company announced that it would be unable to timely file results for the three months ended June 30, 2004 on Form 10-Q. There was also a possibility that factors surrounding certain material weaknesses in internal control may require a restatement of prior periods. Following this announcement, the Company’s stock price declined 40 percent to $3.93 on August 16, 2004. The Company believes that this decline in stock price plus the jury verdict and uncertainties surrounding its ability to obtain surety bonds was reflective of a change in its operations that indicated that a possible impairment of the carrying amount of goodwill existed at September 30, 2004. Therefore, the Company performed a test for impairment and consequently recorded a charge of $99.8 million. This charge is included in arriving at income (loss) from operations for the year ended September 30, 2004. The impairment detailed by the Company’s operating regions follows (amounts in millions):

 

Southeast

   $ 28.8

Northeast

     16.3

Gulf Plains

     2.1

Central

     51.0

West

     1.6
    

Total

   $ 99.8
    

 

As a result of these operating uncertainties, the Company decided to begin selling or divesting operations that were underperforming, and were heavily dependant on bonding or were in markets that continue to have weak economic forecasts. These operations accounted for $289.2 million in revenues and a loss of $13.1 million in operating income during the year ended September 30, 2004. The identification of the subsidiaries to sell or close required the Company to assess if further goodwill impairment exists. The Company determined that an impairment did exist and accordingly recorded an additional $7.3 million write off of goodwill in the first quarter of fiscal 2005. The impairment related to the Company’s operating regions as follows (amounts in millions):

 

Northeast

   $ 1.6

Gulf Plains

     0.5

Central

     1.1

West

     4.1
    

Total

   $ 7.3
    

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

Discontinued Operations

 

Subsequent to September 30, 2004, the Company sold three operating units for total proceeds of $11.5 million. These subsidiaries had a combined revenues of $49.7 million, $46.1 million and $57.7 million and income from operations of $4.3 million, $3.1 million, and $1.1 million for the years ended September 30, 2002, 2003, and 2004, respectively.

 

Litigation Settlement

 

As previously reported pursuant to the Company’s Current Report on Form 8-K dated October 4, 2004, on September 30, 2004, a verdict was rendered by a jury in a case pending in the 133rd District Court of Harris County, Texas involving a dispute arising from a failed attempted sale of the assets of a wholly owned subsidiary of the Company and an employment claim by a former officer of that subsidiary. The jury verdict, if judgment had been entered on that verdict, could have been for approximately $30,000,000. The parties settled the lawsuit post-verdict for a cash payment of $8,000,000. This settlement was entered on December 2, 2004 and the matter was resolved. This amount was accrued at September 30, 2004.

 

Amendments to the Credit Facility

 

On November 18, 2004, the Company obtained a third amendment to the Credit Facility effective on November 24, 2004 upon the initial funding of Senior Convertible Notes. The amendment modified certain provisions of the Credit Facility to permit the issuance of the Senior Convertible Notes, modified certain definitions, specified mandatory debt reduction amounts and required a fee.

 

On December 10, 2004, the Company obtained a fourth amendment to the Credit Facility, effective as of June 30, 2004 with respect to specific financial covenants. The amendment modified the Credit Facility to reduce the total facility commitment to a revolving loan commitment of $82.1 million plus outstanding term loan commitments, modified definitions, specified mandatory debt reduction amounts by quarter, adjusted and redefined financial covenants on a monthly basis, released defined collateral under specified conditions, increased pricing, established the borrowing base at 70% of qualifying assets and required a fee.

 

Senior Convertible Notes

 

On November 24, 2004, the Company entered into a purchase agreement for a private placement of $36.0 million aggregate principal amount of its 6.5% Senior Convertible Notes due 2014. Investors in the notes agreed to a purchase price equal to 100% of the principal amount of the notes. The investors have an option to purchase up to an aggregate of $14 million in additional notes on or before the later to occur of the 90th day after the closing date and the fifth business day after the Company’s next annual meeting of stockholders. The notes require payment of interest semi-annually in arrears at an annual rate of 6.5%, have a stated maturity of November 1, 2014, constitute senior unsecured obligations of the Company, are guaranteed on a senior unsecured basis by the Company’s significant domestic subsidiaries, and are convertible at the option of the holder under certain circumstances into shares of the Company’s common stock at an initial conversion price of $3.25 per share, subject to adjustment. The total number of shares of common stock deliverable upon conversion of the notes is limited to approximately 9.4 million shares (including approximately 1.9 million treasury shares), absent receipt of stockholder approval of the issuance of additional shares. Subject to certain conditions, to the extent that more shares would otherwise be issuable upon conversions of notes, the Company will be required to settle such conversions in cash by paying the value of the stock into which the notes would otherwise be

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2004

(UNAUDITED)

 

convertible. The net proceeds from the sale of the notes were used to prepay a portion of the Company’s senior secured Credit Facility and for general corporate purposes. The notes, the guarantees and the shares of common stock issuable upon conversion of the notes to be offered have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and, unless so registered, the securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

 

Posting of Collateral

 

Subsequent to June 30, 2004, the Company has posted cash collateral with its surety of $17.5 million and issued additional letters of credit to its insurance underwriters of $12.6 million.

 

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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

PART II. OTHER INFORMATION

 

ITEM 6.    EXHIBITS

31.1    Rule 13a-14(a)/15d-14(a) Certification of Herbert R. Allen, Chief Executive Officer and Interim Chief Financial Officer
32.1    Section 1350 Certification

 

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Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed this report on behalf of the Registrant and as the principal financial officer of the Registrant.

 

   

INTEGRATED ELECTRICAL SERVICES, INC.

Date: December 16, 2004

 

By:

 

/s/    HERBERT R. ALLEN        


       

Herbert R. Allen

Chief Executive Officer and

Interim Chief Financial Officer

 

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