1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 24, 1999
Commission File No. 001-13783
INTEGRATED ELECTRICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0542208
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
515 Post Oak Boulevard
Suite 450
Houston, Texas 77027-9408
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (713) 860-1500
2
ITEM 5. OTHER EVENTS
Integrated Electrical Services, Inc., a Delaware corporation (the
"Company") is a leading national provider of electrical contracting and
maintenance services, focusing primarily on the commercial, industrial,
residential, powerline and information technology markets. In order to comply
with the disclosure requirements of the Securities and Exchange Commission
regarding the financial statements of businesses acquired or to be acquired, the
Company is filing this Current Report containing the following audited and pro
forma financial statements.
(a) Financial Statements of Business Acquired
See Pages 1 through 15
(b) Pro Forma Financial Statements
See Pages 16 through 20
3
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Federal Communications Contractors, Inc.
We have audited the accompanying balance sheet of Federal Communications
Contractors, Inc. as of December 31, 1998, and the related statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Federal Communications
Contractors, Inc. as of December 31, 1998, and the results of its operations,
changes in stockholders' equity, and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
August 5, 1999
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4
FEDERAL COMMUNICATIONS CONTRACTORS, INC.
BALANCE SHEETS
December 31, 1998 and March 31, 1999
ASSETS
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Current Assets:
Cash and cash equivalents (Note 1) $ 14,387 $ 48,624
Accounts receivable - trade, net of
allowance for doubtful accounts
(Notes 1 and 2) 3,606,737 3,677,122
Accounts receivable - other 3,324 48,687
Inventory (Note 1) 443,259 477,612
Prepaid expenses 44,595 81,501
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Notes 1 and 3) 306,561 542,020
------------ ------------
Total Current Assets 4,418,863 4,875,566
------------ ------------
Property and Equipment:
(Notes 1, 4 and 6)
Equipment and tools 400,847 400,847
Leasehold improvements 87,240 87,240
Office furniture and equipment 516,459 547,422
Vehicles 40,805 40,805
Construction in progress 34,878 127,059
------------ ------------
1,080,229 1,203,373
Less: accumulated depreciation (704,577) (735,098)
------------ ------------
375,652 468,275
------------ ------------
Other Assets:
Cash surrender value of life insurance 15,073 15,073
Refundable deposits 37,231 22,150
Notes receivable 22,009 22,009
------------ ------------
74,313 59,232
------------ ------------
Total Assets $ 4,868,828 $ 5,403,073
============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
-2-
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
BALANCE SHEETS (Continued)
December 31, 1998 and March 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Current Liabilities:
Notes payable (Note 4) $ 941,565 $ 1,320,494
Capital lease obligations - current
portion (Notes 1 and 6) 34,456 33,103
Accounts payable - trade 1,008,411 1,062,600
Accrued wages and vacation pay 545,134 594,092
Deferred revenue 59,522 25,900
Other accrued expenses 67,288 99,251
Income taxes payable - current (Note 1) 6,067 5,212
Billings in excess of costs and
estimated earnings on uncompleted
contracts (Notes 1 and 3) 191,205 203,360
Accrued interest 436 940
------------ ------------
Total Current Liabilities 2,854,084 3,344,952
Long-Term Liabilities:
Notes payable to stockholders (Note 5) 240,000 240,000
Capital lease obligations - long-term
portion (Notes 1 and 6) 8,629 5,795
------------ ------------
Total Liabilities 3,102,713 3,590,747
------------ ------------
Commitments and Contingency: (Note 7) -- --
Stockholders' Equity: (Note 9)
Common stock - no par value; 1,000,000 shares
authorized; 200 shares issued and outstanding 200 200
Retained earnings 1,765,915 1,812,126
------------ ------------
Total Stockholders' Equity 1,766,115 1,812,326
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,868,828 $ 5,403,073
============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For The Year Ended December 31, 1998 and
For The Three Month Periods Ended March 31, 1999 and 1998
(UNAUDITED)
December 31, March 31, March 31,
1998 1999 1998
------------ ------------ ------------
Revenues $ 23,287,315 $ 4,459,099 $ 5,239,646
Cost of Revenues 18,297,216 3,443,403 4,353,155
------------ ------------ ------------
Gross Profit 4,990,099 1,015,696 886,491
Selling and Administrative Expenses 3,479,540 781,887 872,936
------------ ------------ ------------
Income from Operations 1,510,559 233,809 13,555
------------ ------------ ------------
Other Income (Expense):
Interest expense (130,174) (26,161) (21,798)
Interest income 4,897 602 1,610
Gain (loss) on sale of assets (400) 1,000 --
Other income 36,713 1,052 11,898
------------ ------------ ------------
(88,964) (23,507) (8,290)
------------ ------------ ------------
Net Income before Provision for
Income Taxes 1,421,595 210,302 5,265
------------ ------------ ------------
Provision for Income Tax Expense
- current (Note 1) 22,896 2,089 --
------------ ------------ ------------
Net Income 1,398,699 208,213 5,265
Retained Earnings at Beginning of Period 1,451,081 1,765,915 1,451,081
Dividends paid (1,083,865) (162,002) (48,000)
------------ ------------ ------------
Retained Earnings at End of Period $ 1,765,915 $ 1,812,126 $ 1,408,346
============ ============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
-4-
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
STATEMENTS OF CASH FLOWS
For The Year Ended December 31, 1998 and
For The Three Month Periods Ended March 31, 1999 and 1998
(UNAUDITED)
December 31, March 31, March 31,
1998 1999 1998
------------ ------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash flows from operating activities:
Cash received from customers $ 23,544,651 $ 4,366,818 $ 5,040,031
Cash paid to suppliers and employees (22,608,287) (4,395,179) (5,156,014)
Interest paid (130,898) (25,657) (22,059)
Interest received 4,897 602 1,610
Income taxes paid (21,503) (2,944) (16,364)
------------ ------------ ------------
Net cash provided (used) by
operating activities 788,860 (56,360) (152,796)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 1,200 1,000 --
Purchase of property and equipment (114,781) (123,144) (15,140)
Collections on notes receivable 29,875 -- 7,135
------------ ------------ ------------
Net cash used by
investing activities (83,706) (122,144) (8,005)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 11,452,006 2,089,874 2,353,201
Repayment of notes payable to
stockholders (240,000) -- --
Repayment of notes payable (10,883,344) (1,710,944) (2,235,868)
Repayment of capital lease
obligations (53,102) (4,187) (13,081)
Dividends paid (1,083,865) (162,002) (48,000)
------------ ------------ ------------
Net cash provided (used) by
financing activities (808,305) 212,741 56,252
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (103,151) 34,237 (104,549)
Cash and cash equivalents at beginning
of period 117,538 14,387 117,538
------------ ------------ ------------
Cash and cash equivalents at end of
period $ 14,387 $ 48,624 $ 12,989
============ ============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
STATEMENTS OF CASH FLOWS (Continued)
For The Year Ended December 31, 1998 and
For The Three Month Periods Ended March 31, 1999 and 1998
(UNAUDITED)
December 31, March 31, March 31,
1998 1999 1998
------------ ------------ ------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $ 1,398,699 $ 208,213 $ 5,265
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 128,228 30,520 31,084
(Gain) loss on sale of assets 400 (1,000) --
Changes in Assets and Liabilities:
Accounts receivable
- trade 245,512 (70,385) (94,793)
- other 9,618 (45,363) (95,229)
Inventory 6,665 (34,353) (15,312)
Prepaid expenses 40,898 (36,906) 76,156
Costs and estimated earnings in
excess of billings on
uncompleted contracts (15,468) (235,459) (8,678)
Cash surrender value of life
insurance (1,393) -- --
Refundable deposits (6,219) 15,081 1,047
Accounts payable - trade (402,950) 54,189 175,927
Accrued wages and vacation pay (222,440) 48,958 (136,709)
Deferred revenue (31,603) (33,622) (8,392)
Other accrued expenses (87,837) 31,963 (53,176)
Accrued interest (724) 504 (261)
Income taxes payable - current 1,393 (855) (16,364)
Billings in excess of costs
and estimated earnings on
uncompleted contracts (273,919) 12,155 (13,361)
------------ ------------ ------------
(609,839) (264,573) (158,061)
------------ ------------ ------------
Net cash provided (used) by operating
activities $ 788,860 $ (56,360) $ (152,796)
============ ============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
-6-
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Nature of Operations and
Use of Estimates:
Operations:
Federal Communications Contractors, Inc. is a Corporation which was
duly formed and organized under the laws of the State of Arizona on
June 21, 1984. The principal business purpose of the Corporation is
to sell, service and install computer and telephone cabling. The
Company operates throughout the southwestern United States.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and 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.
Revenue and Cost Recognition:
Revenues from fixed-price and modified fixed-price contracts are
recognized on the percentage-of-completion method, using the
cost-to-cost method applied to major job categories (labor, material,
overhead) of individual contracts. Direct costs include, amongst
other things, direct labor, supervision, equipment, rent,
subcontracting, direct materials, and direct overhead. General and
administrative expenses are accounted for as period costs and are,
therefore, not included in the calculation of the estimate to
complete contracts in progress. Material project losses are provided
for in their entirety without reference to their percentage of
completion. As contracts can extend over one or more accounting
periods, revisions in costs and earnings estimated during the course
of the work are reflected during the accounting period in which the
facts that require such revisions become known.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased
with an initial maturity of three (3) months or less to be cash
equivalents.
Accounts Receivable - Trade:
The Company provides for potentially uncollectible accounts
receivable by use of the allowance method. The allowance is provided
based upon a review of the individual accounts outstanding, and prior
history of uncollectible accounts receivable. At December 31, 1998
and March 31, 1999, allowances in the amounts of $55,750, and $66,895
(unaudited), respectively, have been provided for potentially
uncollectible accounts receivable. Unbilled accounts receivable
represent incurred costs under cost-reimbursement type contracts and
amounts arising from routine lags in billing.
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and
Use of Estimates: (Continued)
Inventory:
Inventory consists primarily of materials and supplies not charged to
specific installations or service contracts. Inventory is stated at
the lower of cost, first-in, first-out method, or market. Inventory
quantities are maintained on a perpetual system with periodic
physical counts of inventory on hand.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
based on the accelerated and straight-line methods over the estimated
useful lives of the assets. Maintenance and repairs that neither
materially add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Betterments or renewals
are capitalized as incurred. For the year ended December 31, 1998 and
for the three month periods ended March 31, 1999 and 1998,
depreciation expense was $128,228, $30,520 (unaudited) and $31,084
(unaudited), respectively.
Capital Lease Obligations:
The Company is the lessee of equipment under various capital lease
agreements. The assets and liabilities under the capital leases are
recorded at the lower of the present value of the minimum lease
payments or the fair market value of the assets. The assets are
depreciated over their estimated productive lives. Depreciation of
the assets under the capital lease agreements is included in
depreciation expense for the year ended December 31, 1998 and for the
three month periods ended March 31, 1999 (unaudited) and 1998
(unaudited).
Income Taxes:
Effective July 1, 1997, the Company elected to be treated as an S
corporation for income tax purposes. As an S corporation, all income
is taxable to the stockholders, and the corporation incurs no federal
income tax liability. The income tax liability at December 31, 1998
and March 31, 1999 (unaudited), consists of state income taxes due to
states that assess income taxes on S Corporations.
Advertising Expense:
Advertising costs are expensed as incurred. For the year ended
December 31, 1998 and for the three month periods ended March 31,
1999 and 1998, advertising expense was $30,647, $5,303 (unaudited)
and $9,637 (unaudited).
-8-
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and
Use of Estimates: (Continued)
Interim Financial Information:
The interim financial statements for the three month periods ended
March 31, 1999 and 1998 are unaudited. In the opinion of management,
such statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair representation of the
results of the interim period. The results of operations for the
three month period ended March 31, 1999, are not necessarily
indicative of the results for the entire year.
Year 2000 Issue:
Like other companies, Federal Communications Contractors, Inc. could
be adversely affected if the computer systems we, our suppliers or
customers use do not properly process and calculate date-related
information and data from the period surrounding and including
January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and
devices such as production equipment, elevators, etc. At this time,
because of the complexities involved in the issue, management cannot
provide assurances that the Year 2000 issue will not have an impact
on the Company's operations.
2. Accounts Receivable - Trade:
At December 31, 1998 and March 31, 1999 (unaudited), accounts
receivable - trade consist of the following:
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Contracts in progress $ 944,194 $ 457,616
Completed contracts 1,990,593 2,150,919
Retentions receivable 26,865 31,860
Unbilled accounts receivable 700,835 1,103,622
------------ ------------
3,662,487 3,744,017
Less: allowance for doubtful
accounts receivable (55,750) (66,895)
------------ ------------
$ 3,606,737 $ 3,677,122
============ ============
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Contracts in Progress:
At December 31, 1998 and March 31, 1999 (unaudited), billings in
excess of costs and estimated earnings and costs and estimated
earnings in excess of billings on uncompleted contracts consist of
the following:
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Costs incurred on uncompleted
contracts $ 1,798,181 $ 2,178,318
Profit earned to date 358,233 393,216
------------ ------------
2,156,414 2,571,534
Less: billings to date (2,041,058) (2,232,874)
------------ ------------
$ 115,356 $ 338,660
============ ============
Included in the accompanying balance sheet under the following
captions:
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ 306,561 $ 542,020
Billings in excess of costs and
estimated earnings on
uncompleted contracts (191,205) (203,360)
------------ ------------
$ 115,356 $ 338,660
============ ============
4. Notes Payable:
At December 31, 1998 and March 31, 1999 (unaudited), notes payable
consist of the following:
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
Note payable to Heritage Bank on a $2,000,000 revolving line of
credit, with interest at prime plus one-half percent (.5%), expiring
May 31, 1999; collateralized by various corporate assets and
guaranteed by corporate stockholders $ 894,330 $ 1,274,203
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Notes Payable: (Continued)
(UNAUDITED)
December 31, March 31,
1998 1999
----------- ----------
Note payable to Heritage Bank on a $300,000 line of credit, with
interest at prime plus one percent (1.0%), expiring March 31, 1999;
collateralized by various corporate assets and guaranteed by
corporate stockholders. 45,000 45,000
8.5% note payable to Safeway Credit Union in monthly installments of
$329, including principal and interest through July, 1999;
collateralized by a vehicle. 2,235 1,291
---------- ----------
941,565 1,320,494
Less: current portion of long-term
notes payable (941,565) (1,320,494)
---------- ----------
$ - $ -
========== ==========
5. Related Party Transactions:
Notes Payable to Stockholders:
At December 31, 1998 and March 31, 1999 (unaudited), notes payable to
stockholders consist of the following:
(UNAUDITED)
December 31, March 31,
1998 1999
------------ ------------
7% note payable to a stockholder,
due September 1, 2002, interest
payable annually $ 120,000 $ 120,000
7% note payable to a stockholder,
due September 1, 2002, interest
payable annually 120,000 120,000
------------ ------------
$ 240,000 $ 240,000
============ ============
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Capital Lease Obligations:
The Company is the lessee of equipment with an aggregate cost of
$179,649 under various capital lease agreements which expire through
September, 2000.
As of December 31, 1998 and March 31, 1999 (unaudited), minimum
future lease payments due under the capital lease agreements for the
next two (2) years, are as follows:
(UNAUDITED)
Years Ending Years Ending
December 31, March 31,
--------- ---------
1999 $ 36,368 $ --
2000 8,841 34,806
2001 -- 5,894
--------- ---------
Total minimum lease payments 45,209 40,700
Less: amount representing
interest (2,124) (1,802)
--------- ---------
Present value of net minimum
lease payments 43,085 38,898
Less: current maturities of
capital lease obligations (34,456) (33,103)
--------- ---------
Non-current maturities of capital
lease obligations $ 8,629 $ 5,795
========= =========
The interest rates under the capital leases are imputed based on the
lower of the Company's incremental borrowing rate at the inception of
the lease or the lessor's implicit rate of return. The interest rates
for the capital lease agreements range between six percent (6%) and
twenty-five percent (25%).
7. Commitments and Contingency:
Commitments:
The Company is currently leasing office and warehouse space in Tempe,
Arizona and Salt Lake City, Utah under non-cancellable operating
lease agreements expiring through December, 2001.
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingency: (Continued)
A schedule of future minimum lease payments due on the above non-
cancellable operating lease agreements for each of the next four (4)
years, is as follows:
(UNAUDITED)
Years Ending Years Ending
December 31, March 31,
------------ ------------
1999 $ 113,050 $ --
2000 110,545 133,534
2001 9,328 119,316
2002 -- 26,508
------------ ------------
$ 232,923 $ 279,358
============ ============
Rent expense under the aforementioned operating lease agreements for
the year ended December 31, 1998 and for the three month periods
ended March 31, 1999 and 1998 (unaudited) was $126,959, $32,674 and
$31,318, respectively.
In addition, the Company is currently leasing nineteen (19) vehicles
and various office equipment under non-cancellable operating lease
agreements expiring through July, 2002.
A schedule of future minimum lease payments due on the above vehicles
and various office equipment operating lease agreements for each of
the next five (5) years, is as follows:
(UNAUDITED)
Years Ending Years Ending
December 31, March 31,
------------ ------------
1999 $ 86,228 $ --
2000 86,228 98,023
2001 82,258 95,819
2002 39,341 83,637
2003 -- 20,940
------------ ------------
$ 294,055 $ 298,419
============ ============
Rental expense under the aforementioned operating lease agreements
for the year ended December 31, 1998 and for the three month periods
ended March 31, 1999 and 1998 (unaudited) was $82,371, $12,194, and
$7,950, respectively.
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FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingency: (Continued)
Contingency:
The Company has a contingent tax liability arising from the
conversion to a Sub-Chapter S corporation, pursuant to the built in
gain provisions of Internal Revenue Code Section 1374. It is
management's opinion that the Company is unlikely to incur any such
liability.
8. Profit Sharing Plan:
The Company implemented a profit sharing plan effective July 1, 1987,
covering substantially all full-time employees. The Plan is designed
as a 401(K) profit sharing plan, in which employees are permitted to
make voluntary contributions to the Plan. The Company can make an
additional contribution to the Plan, which amount is at the
discretion of the Board of Directors, and is subject to certain
limitations.
For the year ended December 31, 1998 and for the three month periods
ended March 31, 1999 and 1998 (unaudited), discretionary
contributions of $48,842, $29,704, and $0, respectively, were made to
the Plan.
9. Stock Purchase Agreement:
On November 4, 1987, the Corporation and the corporate stockholders
entered into a Stock Purchase Agreement providing for the purchase of
the corporate stock in the event of the death of a stockholder. The
acquisition price will be based upon the most recent annual
certificate of valuation, as adjusted. The Stock Purchase Agreement
is to be partially funded by the proceeds from life insurance
policies.
10. Significant Customers:
For the year ended December 31, 1998, the Company had four (4)
customers which accounted for forty-nine percent (49%) of total sales
volume. At December 31, 1998, the accounts receivable due from these
customers represented thirty percent (30%) of total accounts
receivable.
For the three month period ended March 31, 1999 (unaudited), the
Company had five (5) customers which accounted for fifty-four percent
(54%) of total sales volume. At March 31, 1999, the accounts
receivable due from these customers represented forty-seven percent
(47%) of total accounts receivable.
For the three month period ended March 31, 1998 (unaudited), the
Company had four (4) customers which accounted for sixty-five percent
(65%) of total sales volume. At March 31, 1998, the accounts
receivable due from these customers represented seventy percent (70%)
of total accounts receivable.
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17
FEDERAL COMMUNICATIONS CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
11. Subsequent Event:
On June 2, 1999, all of the outstanding stock of the Company was
acquired by Integrated Electrical Services, Inc. Upon the sale of the
stock, the Company was merged into FCG Acquisition Corporation, a
Delaware corporation, which is a wholly-owned subsidiary of
Integrated Electrical Services, Inc.
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ITEM 7. (B) PRO FORMA FINANCIAL INFORMATION
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma balance sheet reflects the acquisition by
Integrated Electrical Services, Inc. ("IES"), of six electrical contracting and
maintenance businesses acquired or which are probable of being acquired from
July 1, 1999 through September 21, 1999 (the "September Quarter Acquisitions"),
as if they had occurred on June 30, 1999. The unaudited pro forma statements of
operations for the year ended September 30, 1998, presents the statement of
operations data to give effect to the 75 electrical contracting and maintenance
companies and related entities (including the 16 companies acquired concurrent
with IES' IPO) acquired or which are probable of being acquired through
September 21, 1999 (the "Previously Closed Acquisitions"), Federal
Communications Contractors, Inc. ("FCG") and the related pro forma adjustments
as if they had occurred on October 1, 1997. The unaudited pro forma statement of
operations for the nine months ended June 30, 1999, presents the statement of
operations data to give effect to the Previously Closed Acquisitions, FCG and
the related pro forma adjustments as if they had occurred on October 1, 1998.
IES has analyzed the savings that it expects to realize from reductions
in salaries, bonuses and certain benefits to the owners. To the extent the
owners of the Acquisitions have contractually agreed to changes in salary,
bonuses, benefits and lease payments, these changes have been reflected in the
unaudited pro forma combined statement of operations.
Certain pro forma adjustments are based on preliminary estimates,
available information and certain assumptions that Company management deems
appropriate and may be revised as additional information becomes available. The
pro forma financial data do not purport to represent what IES's combined
financial position or results of operations would actually have been if such
transactions in fact had occurred on these dates and are not necessarily
representative of IES's combined financial position or results of operations for
any future period. Since the acquired entities were not under common control or
management prior to their acquisitions by IES, historical combined results may
not be comparable to, or indicative of, future performance. The unaudited pro
forma combined financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto included in the
company's Annual Report for the year ended September 30, 1998 filed on Form
10-K. See also "Risk Factors" included elsewhere therein.
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INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS)
SEPTEMBER
IES AND QUARTER PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS ADJUSTMENTS TOTAL
------------ ------------ ----------- ----------
ASSETS
CURRENT ASSETS:
Cash......................................... $ 2,965 $ 1,643 $ 592 $ 5,200
Receivables, net............................. 238,674 12,900 251,574
Inventories, net............................. 12,426 878 13,304
Cost and estimated earnings in excess of
billings on uncompleted contracts........ 31,641 1,037 32,678
Prepaid expenses and other current assets... 3,742 420 4,162
-------- -------- -------- --------
Total current assets...................... 289,448 16,878 592 306,918
RECEIVABLES FROM RELATED PARTIES................ 157 10 -- 167
GOODWILL, NET................................... 448,334 183 25,167 473,684
PROPERTY AND EQUIPMENT, NET..................... 43,721 2,774 -- 46,495
OTHER NONCURRENT ASSETS......................... 8,929 302 -- 9,231
-------- -------- -------- --------
Total assets.............................. $790,589 $ 20,147 $ 25,759 $836,495
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current
maturities of long-term debt............. $ 2,814 $ 1,737 $ (1,737) $ 2,814
Accounts payable and accrued expense......... 110,377 3,867 -- 114,244
Billings in excess of costs and estimated
earnings on uncompleted contracts........ 37,811 2,232 -- 40,043
Income taxes payable......................... 6,312 38 -- 6,350
Other current liabilities.................... 624 24 -- 648
-------- -------- -------- --------
Total current liabilities................. 157,938 7,898 (1,737) 164,099
-------- -------- -------- --------
LONG-TERM BANK DEBT............................. 42,500 -- -- 42,500
OTHER LONG-TERM DEBT, net of current
maturities.................................. 1,094 1,483 20,702 23,279
SENIOR SUBORDINATED NOTES,
net of $1,170 discount...................... 148,830 -- -- 148,830
OTHER NON-CURRENT LIABILITIES................... 1,624 28 -- 1,652
-------- -------- -------- --------
Total liabilities......................... 351,986 9,409 18,965 380,360
STOCKHOLDERS' EQUITY:
Preferred stock.............................. -- -- -- --
Common stock................................. 351 64 (50) 365
Restricted common stock...................... 27 -- -- 27
Treasury stock............................... -- -- -- --
Additional paid-in capital................... 395,002 58 17,460 412,520
Retained earnings............................ 43,223 10,616 (10,616) 43,223
-------- -------- -------- --------
Total stockholders' equity................ 438,603 10,738 6,794 456,135
-------- -------- -------- --------
Total liabilities and
stockholders' equity..................... $790,589 $ 20,147 $ 25,759 $836,495
======== ======== ======== ========
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INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
PREVIOUSLY
IES AND CLOSED PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS FCG ADJUSTMENTS TOTAL
------------ ------------- ---------------- -------------- ---------------
REVENUES............................... $ 386,721 $ 755,744 $ 24,002 $ -- $ 1,166,467
COST OF SERVICES....................... 306,052 604,911 18,986 -- 929,949
------------ ------------- ---------------- -------------- ---------------
GROSS PROFIT........................ 80,669 150,833 5,016 -- 236,518
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............ 47,390 115,451 3,738 (41,756)a 124,823
NON-CASH, NON-RECURRING
COMPENSATION CHARGE............... 17,036 -- -- (17,036)b --
GOODWILL AMORTIZATION.................. 3,212 -- -- 8,868 c 12,080
------------ ------------- ---------------- -------------- ---------------
INCOME FROM OPERATIONS.............. 13,031 35,382 1,278 49,924 99,615
OTHER INCOME (EXPENSE):
Interest expense.................... (1,161) (1,335) (115) (17,398)d (20,009)
Interest income..................... 433 1,583 4 (1,722)d 298
Other, net.......................... 335 1,129 55 (306)c 1,213
------------ ------------- ---------------- -------------- ---------------
OTHER INCOME (EXPENSE), NET............ (393) 1,377 (56) (19,426) (18,498)
INCOME BEFORE INCOME TAXES............. 12,638 36,759 1,222 30,478 81,117
PROVISION FOR INCOME TAXES............. 12,690 15,309 20 7,498 e 35,517
------------ ------------- ---------------- -------------- ---------------
NET INCOME (LOSS)...................... $ (52) $ 21,450 $ 1,202 $ 23,000 $ 45,600
============ ============= ================ ============== ===============
EARNING (LOSS) PER SHARE -
BASIC - $ 0.00 $ 1.17
============ ===============
DILUTED - $ 0.00 $ 1.16
============ ===============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - 19,753,060 38,940,554
============ ===============
DILUTED - 19,753,060 39,340,387
============ ===============
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INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
PREVIOUSLY
IES AND CLOSED PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS FCG ADJUSTMENTS TOTAL
------------ ------------- -------------- ------------- ---------------
REVENUES............................... $ 693,146 $ 222,425 $12,016 $ -- $ 927,587
COST OF SERVICES....................... 544,798 178,120 9,350 (402)a 731,866
------------ ------------- -------------- ------------- ---------------
GROSS PROFIT........................ 148,348 44,305 2,666 402 195,721
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............ 77,610 34,557 2,862 (7,964)a 107,065
GOODWILL AMORTIZATION.................. 6,457 -- -- 2,603 c 9,060
------------ ------------- -------------- ------------- ---------------
INCOME FROM OPERATIONS.............. 64,281 9,748 (196) 5,763 79,596
OTHER INCOME (EXPENSE):
Interest expense.................... (9,156) (824) (109) (4,917)d (15,006)
Interest income..................... 797 468 2 (470)d 797
Other, net.......................... 484 528 15 -- 1,027
------------ ------------- -------------- ------------- ---------------
OTHER INCOME (EXPENSE), NET............ (7,875) 172 (92) (5,387) (13,182)
INCOME BEFORE INCOME TAXES............. 56,406 9,920 (288) 376 66,414
PROVISION FOR INCOME TAXES............. 23,929 3,713 (5) 1,147 e 28,784
------------ ------------- -------------- ------------- ---------------
NET INCOME (LOSS)...................... $ 32,477 $ 6,207 $ (283) $ (771) $ 37,630
============ ============= ============== ============= ===============
EARNING (LOSS) PER SHARE -
BASIC - $ 0.99 $ 0.97
============ ===============
DILUTED - $ 0.97 $ 0.95
============ ===============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - 32,832,083 38,940,554
============ ===============
DILUTED - 33,318,447 39,433,998
============ ===============
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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET:
The Unaudited Pro Forma Balance Sheet gives effect to the September
Quarter Acquisitions which were acquired or are probable of being acquired for
total consideration of $37.6 million, including $18.2 million in cash and 1.2
million shares of common stock and FCG which was acquired for total
consideration of $7.9 million, including $3.6 million in cash and 0.3 million
shares of common stock.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS:
The Unaudited Pro Forma Statement of Operations for the year ended
September 30, 1998 for IES and Subsidiaries reflects the historical results of
Houston-Stafford Electric, Inc. ("Houston-Stafford") as the accounting acquirer
(restated for the effect of an acquisition accounted for as a
pooling-of-interest combined) the other Founding Companies beginning February 1,
1998, and the Acquired Companies beginning on their respective dates of
acquisition.
Pro Forma Adjustments consist of the following:
(a) Reflects the reduction in salaries, bonuses and benefits and lease
payments to the owners of the Acquisitions. These reductions in
salaries, bonuses and benefits and lease payments have been agreed to
in accordance with the terms of employment agreements executed as part
of the acquisitions. Such employment agreements are for five years,
contain restrictions related to competition and provide severance for
termination of employment in certain circumstances.
(b) Includes the reversal of the $17.0 million non-cash, non-recurring
compensation charge in connection with the acquisition of the Founding
Companies.
(c) Reflects the amortization of goodwill recorded as a result of these
acquisitions over a 40-year estimated life, as well as a reduction in
historical minority interest expense attributable to minority interests
that were acquired as part of the related acquisitions.
(d) Reflects the reduction of additional interest expense and income on
borrowings which will be repaid and collected, respectively, subsequent
to the acquisition and the reduction of certain non-recurring other
income.
(e) Reflects the incremental provision for federal and state income taxes
at a 38.5% overall tax rate, before non-deductible goodwill and other
permanent items, related to the other statements of operations
adjustments and for income taxes on the pretax income of acquired
companies that have historically elected S Corporation tax status.
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ITEM 7. (C) EXHIBITS
23.1 Consent of Semple & Cooper, LLP
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ STANLEY H. FLORANCE
---------------------------------
STANLEY H. FLORANCE
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: September 23, 1999
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of Semple & Cooper, LLP
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report, dated August 5, 1999, on the financial statements
of Federal Communications Contractors, Inc., included in this Form 8-K, by
reference into Integrated Electrical Services, Inc.'s previously filed
Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and
333-45449), previously filed Registration Statement on Amendment No. 3 to Form
S-4 (File No. 333-75139) and on previously filed Post Effective Amendment No. 5
to Form S-1 on Form S-4 (File No. 333-50031).
/s/ SEMPLE & COOPER, LLP
Semple & Cooper, LLP
Phoenix, Arizona
September 22, 1999
