e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the quarterly period ended March 31, 2005 |
|
OR |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the transition period
from to |
Commission file number 001-32164
INFRASOURCE SERVICES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
03-0523754 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
|
100 West Sixth Street,
Suite 300, Media, PA
(Address of principal executive offices) |
|
19063
(Zip Code) |
(610) 480-8000
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
At April 29, 2005, there were 39,348,650 shares of
InfraSource Services, Inc. Common Stock, par value of $.001,
outstanding.
For the Quarter Ended March 31, 2005
FORM 10-Q
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Table of Contents
2
PART I FINANCIAL INFORMATION
|
|
ITEM 1. |
FINANCIAL STATEMENTS |
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except | |
|
|
share data) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21,781 |
|
|
$ |
8,812 |
|
|
Restricted cash
|
|
|
5,000 |
|
|
|
|
|
|
Contract receivables (less allowances for doubtful accounts of
$3,305 and $3,303, respectively)
|
|
|
109,099 |
|
|
|
103,435 |
|
|
Costs and estimated earnings in excess of billings
|
|
|
59,517 |
|
|
|
83,410 |
|
|
Inventories
|
|
|
13,567 |
|
|
|
13,123 |
|
|
Deferred income taxes
|
|
|
2,970 |
|
|
|
1,672 |
|
|
Other current assets
|
|
|
9,037 |
|
|
|
10,102 |
|
|
Current assets discontinued operations
|
|
|
2,019 |
|
|
|
2,081 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222,990 |
|
|
|
222,635 |
|
|
|
|
|
|
|
|
Property and equipment (less accumulated depreciation of $30,754
and $36,560, respectively)
|
|
|
144,670 |
|
|
|
146,979 |
|
Goodwill
|
|
|
134,478 |
|
|
|
134,484 |
|
Intangible assets (less accumulated amortization of $14,950 and
$15,661, respectively)
|
|
|
6,795 |
|
|
|
5,183 |
|
Deferred charges and other assets, net
|
|
|
11,766 |
|
|
|
12,767 |
|
Deferred income taxes
|
|
|
1,265 |
|
|
|
877 |
|
Noncurrent assets discontinued operations
|
|
|
516 |
|
|
|
635 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
522,480 |
|
|
$ |
523,560 |
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and capital lease obligations
|
|
$ |
900 |
|
|
$ |
889 |
|
|
Revolving credit facility borrowings
|
|
|
|
|
|
|
6,000 |
|
|
Other liabilities related parties
|
|
|
3,904 |
|
|
|
13,103 |
|
|
Accounts payable
|
|
|
35,292 |
|
|
|
31,952 |
|
|
Accrued compensation and benefits
|
|
|
17,525 |
|
|
|
15,039 |
|
|
Other current and accrued liabilities
|
|
|
19,549 |
|
|
|
17,998 |
|
|
Accrued insurance reserves
|
|
|
26,042 |
|
|
|
26,419 |
|
|
Billings in excess of costs and estimated earnings
|
|
|
10,728 |
|
|
|
9,287 |
|
|
Deferred revenues
|
|
|
8,710 |
|
|
|
8,091 |
|
|
Current liabilities discontinued operations
|
|
|
1,304 |
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
123,954 |
|
|
|
130,404 |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
83,878 |
|
|
|
83,657 |
|
Long-term debt related party
|
|
|
1,000 |
|
|
|
1,000 |
|
Deferred revenues
|
|
|
16,935 |
|
|
|
16,671 |
|
Other long-term liabilities related parties
|
|
|
8,493 |
|
|
|
|
|
Other long-term liabilities
|
|
|
4,226 |
|
|
|
4,392 |
|
Non-current liabilities discontinued operations
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
238,497 |
|
|
|
236,135 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value (authorized
12,000,000 shares; 0 shares issued and outstanding)
|
|
|
|
|
|
|
|
|
|
Common stock $.001 par value (authorized
120,000,000 shares; issued and outstanding
38,942,728 and 39,001,456, respectively)
|
|
|
39 |
|
|
|
39 |
|
|
Additional paid-in capital
|
|
|
272,954 |
|
|
|
273,396 |
|
|
Deferred compensation
|
|
|
(329 |
) |
|
|
(302 |
) |
|
Retained earnings
|
|
|
10,911 |
|
|
|
13,653 |
|
|
Accumulated other comprehensive income
|
|
|
408 |
|
|
|
639 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
283,983 |
|
|
|
287,425 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
522,480 |
|
|
$ |
523,560 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except | |
|
|
per share data) | |
Contract revenues
|
|
$ |
146,888 |
|
|
$ |
182,917 |
|
Cost of revenues
|
|
|
121,883 |
|
|
|
161,273 |
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,005 |
|
|
|
21,644 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
15,534 |
|
|
|
17,638 |
|
Merger related costs
|
|
|
|
|
|
|
76 |
|
Provision (recoveries) of uncollectible accounts
|
|
|
(7 |
) |
|
|
80 |
|
Amortization of intangible assets
|
|
|
4,547 |
|
|
|
1,612 |
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,931 |
|
|
|
2,238 |
|
Interest income
|
|
|
54 |
|
|
|
194 |
|
Interest expense and amortization of debt discount
|
|
|
(3,352 |
) |
|
|
(1,456 |
) |
Other income (expense), net
|
|
|
152 |
|
|
|
3,829 |
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,785 |
|
|
|
4,805 |
|
Income tax expense
|
|
|
732 |
|
|
|
1,922 |
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1,053 |
|
|
|
2,883 |
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations (net of income tax
provision (benefit) of $12 and $(95), respectively)
|
|
|
19 |
|
|
|
(141 |
) |
|
|
|
|
|
|
|
Net income
|
|
$ |
1,072 |
|
|
$ |
2,742 |
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
28,057 |
|
|
|
38,981 |
|
|
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
29,142 |
|
|
|
39,794 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
|
|
Other | |
|
|
|
|
|
|
| |
|
Paid-In | |
|
Deferred | |
|
Comprehensive | |
|
Retained | |
|
|
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Income | |
|
Earnings | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except share amounts) | |
Balance as of December 31, 2004
|
|
|
38,942,728 |
|
|
$ |
39 |
|
|
$ |
272,954 |
|
|
$ |
(329 |
) |
|
$ |
408 |
|
|
$ |
10,911 |
|
|
$ |
283,983 |
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Stock options exercised
|
|
|
58,728 |
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
Income tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,742 |
|
|
|
2,742 |
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
|
39,001,456 |
|
|
$ |
39 |
|
|
$ |
273,396 |
|
|
$ |
(302 |
) |
|
$ |
639 |
|
|
$ |
13,653 |
|
|
$ |
287,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
1,053 |
|
|
$ |
2,883 |
|
|
Adjustments to reconcile income from continuing operations to
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,563 |
|
|
|
6,826 |
|
|
|
Amortization of intangibles
|
|
|
4,547 |
|
|
|
1,612 |
|
|
|
Deferred income taxes
|
|
|
(9 |
) |
|
|
1,512 |
|
|
|
Other
|
|
|
1,206 |
|
|
|
(5,036 |
) |
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Contract receivables, net
|
|
|
(3,298 |
) |
|
|
5,584 |
|
|
|
|
Contract receivables due from related parties, net
|
|
|
14,617 |
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings, net
|
|
|
(18,915 |
) |
|
|
(25,335 |
) |
|
|
|
Inventories
|
|
|
(883 |
) |
|
|
444 |
|
|
|
|
Other current assets
|
|
|
(1,711 |
) |
|
|
234 |
|
|
|
|
Deferred charges and other assets
|
|
|
550 |
|
|
|
(1,151 |
) |
|
|
|
Accounts payable
|
|
|
4,029 |
|
|
|
(3,340 |
) |
|
|
|
Other liabilities related parties
|
|
|
|
|
|
|
892 |
|
|
|
|
Other current and accrued liabilities
|
|
|
(17,840 |
) |
|
|
(780 |
) |
|
|
|
Accrued insurance reserves
|
|
|
596 |
|
|
|
377 |
|
|
|
|
Deferred revenue
|
|
|
4,051 |
|
|
|
(882 |
) |
|
|
|
Other liabilities
|
|
|
99 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities from continuing
operations
|
|
|
(6,345 |
) |
|
|
(16,190 |
) |
|
|
|
|
Net cash flows provided by operating activities from
discontinued operations
|
|
|
317 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities
|
|
|
(6,028 |
) |
|
|
(16,072 |
) |
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
(20,101 |
) |
|
|
(38 |
) |
|
Proceeds from restricted cash
|
|
|
|
|
|
|
5,000 |
|
|
Proceeds from sales of equipment
|
|
|
900 |
|
|
|
1,345 |
|
|
Additions to property, plant and equipment
|
|
|
(5,109 |
) |
|
|
(9,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities from continuing
operations
|
|
|
(24,310 |
) |
|
|
(2,818 |
) |
|
|
|
|
Net cash flows used in investing activities from discontinued
operations
|
|
|
(115 |
) |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(24,425 |
) |
|
|
(2,936 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Increase in revolving credit facility borrowings
|
|
|
5,000 |
|
|
|
6,000 |
|
|
Repayments of long-term debt and capital lease obligations
|
|
|
(399 |
) |
|
|
(231 |
) |
|
Proceeds from exercise of stock options
|
|
|
2,250 |
|
|
|
270 |
|
|
Proceeds from sale of common stock
|
|
|
27,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities from continuing
operations
|
|
|
34,374 |
|
|
|
6,039 |
|
|
|
|
|
Net cash flows provided by (used in) financing activities from
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
34,374 |
|
|
|
6,039 |
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,921 |
|
|
|
(12,969 |
) |
|
Cash and cash equivalents transferred to discontinued operations
|
|
|
(203 |
) |
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
12,176 |
|
|
|
21,781 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$ |
15,894 |
|
|
$ |
8,812 |
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
Distribution of property and equipment owed to related party
|
|
$ |
7,218 |
|
|
$ |
|
|
We acquired all of the voting interests of Maslonka for $77,476
in January, 2004
|
|
|
|
|
|
|
|
|
In conjunction with this acquisition, assets acquired and
liabilities assumed were as follows:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
|
41,093 |
|
|
|
|
|
Goodwill
|
|
|
59,549 |
|
|
|
|
|
Liability to sellers for taxes and cash holdback
|
|
|
(6,704 |
) |
|
|
|
|
Liabilities assumed
|
|
|
(23,166 |
) |
|
|
|
|
Equity issued to sellers
|
|
|
(50,671 |
) |
|
|
|
|
Cash paid for acquisition, net of cash acquired
|
|
|
(20,101 |
) |
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
1. |
Organization and Basis of Presentation |
InfraSource Services, Inc. (InfraSource) was
organized on May 30, 2003 as a Delaware corporation.
InfraSource and its wholly owned subsidiaries are referred to
herein as the Company, we,
us, or our.
We are one of the largest specialty contractors serving the
utility transmission and distribution infrastructure in the
United States based on market share. We operate in two business
segments. Our principal segment, Infrastructure Construction
Services (ICS), provides design, engineering,
procurement, construction, testing, and maintenance services for
utility infrastructure. Our ICS customers include electric power
utilities, natural gas utilities, telecommunication customers,
government entities and heavy industrial companies, such as
petrochemical, processing and refining businesses. Our
Telecommunication Services (TS) segment provides
design, procurement, construction, and maintenance services for
telecommunications infrastructure. Our TS customers include
communication service providers, large industrial customers such
as pharmaceutical companies, school districts and other entities
with high bandwidth telecommunication needs. We operate in
multiple territories throughout the United States and do not
have significant operations or assets in countries outside the
United States.
On September 24, 2003, we acquired all of the voting
interests of InfraSource Incorporated and certain of its wholly
owned subsidiaries (collectively, the InfraSource
Group), pursuant to a merger transaction (the
Merger). On May 12, 2004, we completed our
initial public offering (IPO) of
8,500,000 shares of common stock. OCM/ GFI Power
Opportunities Fund, L.P. and OCM Principal Opportunities Fund,
L.P. (collectively, the Principal Stockholders),
both Delaware limited partnerships, own approximately 65% of our
common stock.
The accompanying unaudited condensed consolidated financial
statements reflect our financial position as of
December 31, 2004 and March 31, 2005 and our results
of operations and cash flows for the three months ended
March 31, 2004 and 2005. The accompanying condensed
consolidated financial statements are unaudited and have been
prepared in accordance with the rules and regulations of the
U.S. Securities and Exchange Commission (SEC).
These financial statements include all adjustments that we
consider necessary for a fair presentation of financial
position, results of operations and cash flows for the interim
periods presented. The December 31, 2004 condensed
consolidated balance sheet data were derived from audited
financial statements, but do not include all disclosures
required by accounting principles generally accepted in the
United States of America. The results for interim periods are
not necessarily indicative of results to be expected for a full
year or future interim periods. These financial statements
should be read in conjunction with our financial statements and
related notes included in our Report on Form 10-K for the
year ended December 31, 2004.
Certain amounts in the accompanying statements have been
reclassified for comparative purposes.
|
|
2. |
Recently Issued Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123R Share Based
Payment. SFAS No. 123R is a revision to
SFAS No. 123 Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board
(APB) Opinion No. 25 Accounting for Stock
Issued to Employees, and Related Interpretations and
amends FASB Statement No. 95, Statement of Cash
Flows. SFAS No. 123R requires a public entity to
expense the cost of employee services received in exchange for
an award of equity instruments. It provides guidance on valuing
and expensing these awards, as well as disclosure requirements
of these equity arrangements. As modified by the SEC on
April 15, 2005, SFAS No. 123R is effective for
the first annual or interim reporting period of the
registrants first fiscal year that begins after
June 15, 2005. We are required to adopt the provisions of
SFAS No. 123R effective January 1, 2006, at which
time we will begin recognizing an
7
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
expense for unvested share-based compensation that has been
issued or will be issued after that date.
SFAS No. 123R permits an issuer to use either a
prospective or one of two modified versions of retrospective
application under which financial statements for prior periods
are adjusted on a basis consistent with the pro forma
disclosures required for those periods by the original
SFAS No. 123. Under the retroactive options, prior
periods may be restated either as of the beginning of the year
of adoption or for all periods presented.
As permitted by SFAS No. 123, we currently account for
share-based compensation to employees using the intrinsic value
method of APB Opinion No. 25 and, as such, we generally
recognize no compensation cost for employee stock options. The
impact of the adoption of SFAS No. 123R cannot be
predicted at this time because it will be depend on levels of
share-based compensation granted in the future. However,
valuation of employee stock options under
SFAS No. 123R is similar to SFAS No. 123,
with minor exceptions. For information about what our reported
results of operations and earnings per share would have been had
we adopted SFAS No. 123, see the pro forma disclosure
in Note 8. Accordingly, the adoption of the fair value
method of SFAS No. 123R will likely have a significant
impact on our results of operations, although it will have no
impact on our overall financial position. We have not yet
completed the analysis of the ultimate impact that
SFAS No. 123R will have on our results of operations.
We plan to adopt SFAS No. 123R using the prospective
method.
In December 2004, the FASB issued Staff Position
(FSP) No. 109-1, Application of FASB
No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004. The American Jobs
Creation Act of 2004 (AJCA) introduces a special 3%
tax deduction, which is phased up to 9%, on qualified production
activities. FSP No. 109-1 clarifies that this tax deduction
should be accounted for as a special tax deduction in accordance
with SFAS No. 109. Pursuant to the AJCA and the
guidance provided to date, we will likely be viewed as engaging
in qualified production activities and, thus, be
able to claim this tax deduction in 2005. We do not expect these
new tax provisions to have a significant impact on our
consolidated financial position, results of operations or cash
flows.
On January 27, 2004, we acquired all of the voting
interests of Maslonka & Associates
(Maslonka), a complementary infrastructure services
business, for total purchase price consideration of
$83.1 million, which included the issuance of
4,330,820 shares of our common stock, cash, transaction
costs and purchase price contingencies. The value of the shares
issued to Maslonka stockholders was determined to be
approximately $50.7 million. The allocation of the purchase
price is subject to a working capital adjustment and settlement
of holdback adjustments to the purchase price in accordance with
the terms of the acquisition agreement. We expect the working
capital adjustment to be finalized during 2005 and expect the
holdback amounts, less any amounts retained by us, will be
released to the sellers in 2005 and 2006. Under the terms of the
holdback provisions, we withheld $6.6 million in cash and
957,549 shares of common stock. Of the cash holdback
amount, $5.5 million is contingent upon Maslonkas
achievement of certain performance targets as well as
satisfaction of any indemnification obligations owed to us,
which may be set-off against all other portions of the holdback.
In the fourth quarter of 2004, based on an evaluation of the
performance targets detailed in the acquisition agreement, we
recorded the $5.5 million additional contingent purchase
price. Any adjustments resulting from the working capital
adjustment and holdback adjustments could result in an
adjustment to goodwill, which amounts we do not expect to be
material. The results of Maslonka are included in our
consolidated results beginning January 27, 2004.
Additionally, at the time of the acquisition, Maslonka had an
outstanding letter of credit collateralized with a
$5.0 million time deposit account provided by the Maslonka
stockholders, which we acquired in the acquisition. As required
under the acquisition agreement, we reimbursed the Maslonka
stockholders for the
8
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
$5.0 million in the third quarter of 2004. After giving
effect to the holdback and the reimbursement of the time deposit
account, the amount paid at closing was $26.7 million in
cash and 3,373,271 shares of our common stock. We financed
the cash portion of the Maslonka acquisition with cash on hand
and the issuance of 5,931,950 shares of our common stock to
our principal stockholders and certain members of our management
team for cash of $27.5 million.
Intangible assets consisting of construction backlog have been
valued at $11.5 million and are being amortized over the
life of the related contracts, which range from one to two
years. The amortization of these intangible assets as well as
the goodwill currently estimated at $62.7 million is not
deductible for tax purposes. Since Maslonka is part of our ICS
segment, all resulting goodwill is included in the ICS segment.
On August 18, 2004, we acquired substantially all of the
assets and assumed certain liabilities of Utili-Trax Contracting
Partnerships, LLC (Utili-Trax), which provides
underground and overhead construction services for electric
cooperatives and municipal utilities throughout the upper
Midwest, for total purchase price consideration of
$5.3 million in cash, including transaction costs. The
intangible asset valued at $0.9 million relates to a
customer volume agreement that is being amortized over the life
of the contract. The purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated
fair value, which resulted in goodwill of $1.3 million. The
amortization of intangible assets and goodwill are deductible
for tax purposes. The results of Utili-Trax are included in our
consolidated results beginning August 18, 2004. Since
Utili-Trax is part of our ICS segment, all resulting goodwill is
included in the ICS segment.
On September 3, 2004, we acquired substantially all of the
assets and assumed certain liabilities of EnStructure
Corporations (EnStructure) operating
companies: Sub-Surface Construction Company, Flint Construction
Company and Iowa Pipeline Associates, for total purchase price
consideration of $20.9 million in cash, including
transaction costs. EnStructure, the construction services
business of SEMCO Energy, Inc., provides construction services
within the utilities, oil and gas markets throughout the
Midwestern, Southern and Southeastern regions of the United
States. Intangible assets consisting of construction backlog and
a volume agreement have been valued at $1.3 million and are
being amortized over the life of the related contracts which
range one to five years. The amortization of these intangible
assets is deductible for tax purposes. The results of
EnStructure are included in our consolidated results beginning
September 3, 2004. The fair value of the EnStructure net
assets exceeded the purchase price. Therefore, as described in
SFAS No. 141, Business Combinations, we
decreased the eligible assets by the excess amount.
|
|
|
Pro Forma Financial Information |
The following table provides pro forma unaudited consolidated
statements of operations data as if the Maslonka, Utili-Trax and
EnStructure acquisitions had occurred on January 1, 2004:
|
|
|
|
|
|
|
Three Months | |
|
|
Ended | |
|
|
March 31, 2004 | |
|
|
| |
Contract revenues
|
|
$ |
172,915 |
|
Net loss
|
|
|
(18,209 |
) |
Earnings Per Share Data:
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
30,178 |
|
Weighted average diluted common shares outstanding
|
|
|
30,178 |
|
Basic net loss per share
|
|
$ |
(0.60 |
) |
Diluted net loss per share
|
|
|
(0.60 |
) |
9
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Pro forma results of operations for the three months ended
March 31, 2004 presented above have been adjusted to
reflect Maslonka, Utili-Trax and EnStructure historical
operating results prior to their acquisitions, after giving
effect to adjustments directly attributable to the transactions
that are expected to have a continuing effect. Such adjustments
include (1) the amortization of intangible assets acquired
and recorded in accordance with the provisions of
SFAS No. 141, and related income tax effects;
(2) the effects of depreciation expense resulting from
changes in lives and book basis of certain fixed assets;
(3) the elimination of interest expense resulting from the
repayment of Maslonka debt and additional interest expense
associated with a note issued to the seller and related income
tax effects; and (4) the issuance of our common stock to
the sellers in the Maslonka acquisition and to the principal
stockholders and certain members of our management to finance a
portion of the purchase price.
The pro forma results for the three months ended March 31,
2004 include a charge of $31.3 million for deferred
compensation expense, which was recorded in Maslonkas
historical results of operations, and $1.5 million for
transaction costs related to the Maslonka acquisition. The above
pro forma information is not necessarily indicative of the
results of operations that would have occurred had the 2004
acquisitions been made as of January 1, 2004, or of results
that may occur in the future.
|
|
4. |
Discontinued Operations |
During 2003, subsequent to the Merger, we committed to a plan to
sell substantially all of the assets of OSP Consultants, Inc.
and subsidiaries (OSP). On September 21, 2004,
we completed the sale of substantially all of the assets of RJE
Telecom, Inc. (RJE), a wholly owned subsidiary of
OSP, for aggregate cash proceeds of $9.4 million, net of
transaction costs. The RJE sale completed our commitment to sell
substantially all of the assets of OSP. RJE was part of our TS
segment.
In the third quarter of 2004, we committed to a plan to sell
substantially all of the assets of Utility Locate &
Mapping Services, Inc. (ULMS), which is part of our
ICS segment.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
financial position, results of operations and cash flows of OSP
and ULMS are reflected as discontinued operations in our
accompanying condensed consolidated financial statements. For
the three months ended March 31, 2004, both OSP and ULMS
are reflected as discontinued operations, while for the three
months ended March 31, 2005 only ULMS is reflected as a
discontinued operation since RJE was sold in 2004.
The tables below present balance sheet and statement of income
information for the previously mentioned discontinued operations.
Balance sheet information:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Contract receivables, net
|
|
$ |
1,894 |
|
|
$ |
1,294 |
|
Other current assets
|
|
|
125 |
|
|
|
787 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,019 |
|
|
|
2,081 |
|
Property and equipment, net
|
|
|
488 |
|
|
|
607 |
|
Other long-term assets, net
|
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,535 |
|
|
|
2,716 |
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
1,304 |
|
|
|
1,626 |
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
|
|
Deferred income taxes long term
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,315 |
|
|
|
1,637 |
|
|
|
|
|
|
|
|
Net assets
|
|
$ |
1,220 |
|
|
$ |
1,079 |
|
|
|
|
|
|
|
|
10
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Statement of income information:
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Contract revenues
|
|
$ |
1,733 |
|
|
$ |
2,591 |
|
Pre-tax income (loss)
|
|
|
31 |
|
|
|
(236 |
) |
|
|
5. |
Costs and estimated earnings in excess of billings |
Included in costs and estimated earnings in excess of billings
are costs related to claims of approximately $4.7 million
and $5.4 million at December 31, 2004 and
March 31, 2005, respectively. Claim amounts are primarily
related to a delay in the anticipated start date of one of our
electric transmission projects. Costs incurred that are
attributable to claims are included in the total estimated
revenue when realization is probable and amounts are estimable.
Profit from claims is recorded in the period such amounts are
agreed to with the customer.
|
|
6. |
Goodwill and Intangible Assets |
Our goodwill and intangible assets are comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Goodwill
|
|
$ |
134,478 |
|
|
$ |
134,484 |
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
Construction backlog
|
|
$ |
17,184 |
|
|
$ |
16,283 |
|
|
Volume agreements
|
|
|
4,561 |
|
|
|
4,561 |
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
21,745 |
|
|
|
20,844 |
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
Construction backlog
|
|
|
(13,491 |
) |
|
|
(13,787 |
) |
|
Volume agreements
|
|
|
(1,459 |
) |
|
|
(1,874 |
) |
|
|
|
|
|
|
|
Total accumulated amortization
|
|
|
(14,950 |
) |
|
|
(15,661 |
) |
|
|
|
|
|
|
|
Intangible assets, net
|
|
$ |
6,795 |
|
|
$ |
5,183 |
|
|
|
|
|
|
|
|
The goodwill balance as of December 31, 2004 and
March 31, 2005 was $126.0 million and
$8.5 million for the ICS and TS segments, respectively.
As a result of the adoption of SFAS No. 142,
Goodwill and Intangible Assets, goodwill is subject
to an assessment for impairment using a two-step fair
value-based test with the first step performed at least
annually, or more frequently if events or circumstances exist
which indicate that goodwill may be impaired. We complete our
annual analysis of our six reporting units at each fiscal year
end. The first step compares the fair value of a reporting unit
to its carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value, the second
step is then performed. The second step compares the carrying
amount of the reporting units goodwill to the fair value
of the goodwill. If the fair value of the goodwill is less than
the carrying amount, an impairment loss would be recorded as a
reduction to goodwill and a corresponding charge to operating
expense. No provisions for goodwill impairments were recorded
during the three months ended March 31, 2004 and 2005.
11
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Amortization expense of intangible assets was $4.5 million
and $1.6 million during the three months ended
March 31, 2004 and 2005, respectively. Once an intangible
asset is fully amortized, we net the accumulated amortization
against the intangible asset to remove the asset.
The estimated aggregate amortization expense of intangible
assets for the next five succeeding fiscal years is:
|
|
|
|
|
|
|
(In thousands) | |
|
|
| |
For the year ended December, 31, 2005 (excludes the three
months ended March 31, 2005)
|
|
$ |
3,143 |
|
2006
|
|
|
1,005 |
|
2007
|
|
|
429 |
|
2008
|
|
|
447 |
|
2009
|
|
|
159 |
|
|
|
|
|
Total
|
|
$ |
5,183 |
|
|
|
|
|
|
|
7. |
Computation of Per Share Earnings |
The following table is a reconciliation of the numerators and
denominators of the basic and diluted income per share
computation.
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(In thousands, except for per share | |
|
|
amounts) | |
Income from continuing operations (numerator)
|
|
$ |
1,053 |
|
|
$ |
2,883 |
|
Income (loss) from discontinued operations, net of tax expense
(benefit) of $12 and $(95), respectively
|
|
|
19 |
|
|
|
(141 |
) |
|
|
|
|
|
|
|
Net income
|
|
$ |
1,072 |
|
|
$ |
2,742 |
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding (denominator)
|
|
|
28,057 |
|
|
|
38,981 |
|
Potential common stock arising from stock options
|
|
|
1,085 |
|
|
|
813 |
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding (denominator)
|
|
|
29,142 |
|
|
|
39,794 |
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
Diluted net income per share
|
|
|
0.04 |
|
|
|
0.07 |
|
Included in potential common stock arising from stock options
for the three months ended March 31, 2004 and 2005 are
early exercises of unvested stock option awards, which are
excluded from the weighted average basic common shares
outstanding calculation. For the three months ended
March 31, 2005, there were 637,620 shares under option
grants excluded from the calculation of diluted earnings per
share as the effect of these shares would have been
anti-dilutive.
|
|
8. |
Stock-Based Compensation |
As permitted by SFAS No. 123, we account for
stock-based compensation in accordance with APB No. 25.
Under APB No. 25, we recognize no compensation expense
related to employee stock options unless options are granted at
a price below the market price on the day of the grant. Had we
applied the fair value
12
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
recognition provisions of SFAS No. 123 to stock-based
employee compensation, net income and basic and diluted net
income per share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
Net income as reported
|
|
$ |
1,072 |
|
|
$ |
2,742 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(209 |
) |
|
|
(157 |
) |
Add: Total stock-based employee compensation expense, net of
related tax effects included in the determination of net income
as reported
|
|
|
166 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
1,029 |
|
|
$ |
2,601 |
|
|
|
|
|
|
|
|
Basic and diluted income per share:
|
|
|
|
|
|
|
|
|
Basic net income per share as reported
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
Basic net income per share pro forma
|
|
|
0.04 |
|
|
|
0.07 |
|
Diluted net income per share as reported
|
|
|
0.04 |
|
|
|
0.07 |
|
Diluted net income per share pro forma
|
|
|
0.04 |
|
|
|
0.07 |
|
|
|
9. |
Concentration of Credit Risk |
We derive a significant portion of our revenues from a small
group of customers. Our top ten customers accounted for 57.0%
and 45.4% of our consolidated revenues for the three months
ended March 31, 2004 and 2005, respectively. Exelon
Corporation (Exelon) accounted for approximately
19.3% and 20.3% of our consolidated revenues for the three
months ended March 31, 2004 and 2005, respectively.
Additionally, for the three months ended March 31, 2004, we
had one other customer that accounted for approximately 20% of
our consolidated revenues.
At December 31, 2004 and March 31, 2005, accounts
receivable due from Exelon, inclusive of amounts due from a
prime contractor for Exelon work, represented 23.8% and 20.7%,
respectively, of our total accounts receivable balance.
|
|
10. |
Other Income (Expense), Net |
Other income (expense), net for the three months ended
March 31, 2005 includes a reversal of a $3.8 million
charge for a litigation judgment recorded in 2003 (see
Note 14).
The following table presents the components of comprehensive
income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Net income
|
|
$ |
1,072 |
|
|
$ |
2,742 |
|
Other comprehensive income
|
|
|
408 |
|
|
|
231 |
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
1,480 |
|
|
$ |
2,973 |
|
|
|
|
|
|
|
|
13
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Other comprehensive income during the three months ended
March 31, 2004 and 2005 is comprised of changes in the fair
value of interest rate cap and swap agreements designated and
qualifying as cash flow hedges under the provisions of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by
SFAS Nos. 137, 138 and 149, net of reclassifications to net
income.
We operate in two business segments. Our principal segment, ICS,
provides design, engineering, procurement, construction,
testing, and maintenance services for utility infrastructure.
Our ICS customers include electric power utilities, natural gas
utilities, telecommunication customers, government entities and
heavy industrial companies, such as petrochemical, processing
and refining businesses. Our ICS services are provided by five
of our operating units, all of which have been aggregated into
one reportable segment due to their similar economic
characteristics, customer bases, products and production and
distribution methods. Our TS segment, consisting of a single
operating unit, provides design, procurement, construction, and
maintenance services for telecommunications infrastructure. Our
TS customers include communication service providers, large
industrial customers such as pharmaceutical companies, school
districts and other entities with high bandwidth
telecommunication needs. A business included in our TS segment
is a regulated public telecommunications utility, with
facilities throughout Delaware, Maryland, New Jersey and
Pennsylvania. During 2004, we changed to two reporting segments
and all prior periods presented have been restated. We operate
in multiple territories throughout the United States and do not
have significant operations or assets in countries outside the
United States.
Performance measurement and resource allocation for the
reportable segments are based on many factors. The primary
financial measures we use to evaluate our segment operations are
contract revenues and income (loss) from operations as adjusted,
a non-GAAP financial measure. Income (loss) from operations as
adjusted excludes amortization expense related to intangibles as
a result of our acquisitions. We exclude amortization to
facilitate our evaluation of operating unit performance as we
believe amortization expense does not reflect the core
operations of our business segments. A reconciliation of income
(loss) from operations as adjusted to the nearest GAAP
equivalent, income (loss) from operations is provided below.
We do not allocate corporate costs to our segments for internal
management reporting. Corporate and eliminations includes
unallocated corporate costs and elimination of revenues between
reporting segments which are not significant. The following
tables present segment information by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure | |
|
|
|
|
|
|
|
|
Construction | |
|
Telecommunication | |
|
Corporate and | |
|
|
Three Months Ended March 31, 2004 |
|
Services | |
|
Services | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues
|
|
$ |
140,561 |
|
|
$ |
6,347 |
|
|
$ |
(20 |
) |
|
$ |
146,888 |
|
Income (loss) from operations as adjusted
|
|
|
11,255 |
|
|
|
2,618 |
|
|
|
(4,395 |
) |
|
|
9,478 |
|
Depreciation
|
|
|
4,826 |
|
|
|
643 |
|
|
|
94 |
|
|
|
5,563 |
|
Amortization
|
|
|
4,547 |
|
|
|
|
|
|
|
|
|
|
|
4,547 |
|
Total assets
|
|
|
366,575 |
|
|
|
71,839 |
|
|
|
27,568 |
|
|
|
465,982 |
|
Capital expenditures
|
|
|
2,298 |
|
|
|
2,736 |
|
|
|
75 |
|
|
|
5,109 |
|
reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations as adjusted
|
|
$ |
11,255 |
|
|
$ |
2,618 |
|
|
$ |
(4,395 |
) |
|
$ |
9,478 |
|
Less: Amortization
|
|
|
4,547 |
|
|
|
|
|
|
|
|
|
|
|
4,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
6,708 |
|
|
|
2,618 |
|
|
|
(4,395 |
) |
|
|
4,931 |
|
Interest income
|
|
|
32 |
|
|
|
|
|
|
|
22 |
|
|
|
54 |
|
Interest expense and amortization of debt discount
|
|
|
(2,715 |
) |
|
|
(519 |
) |
|
|
(118 |
) |
|
|
(3,352 |
) |
Other income (expense), net
|
|
|
131 |
|
|
|
18 |
|
|
|
3 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$ |
4,156 |
|
|
$ |
2,117 |
|
|
$ |
(4,488 |
) |
|
$ |
1,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure | |
|
|
|
|
|
|
|
|
Construction | |
|
Telecommunication | |
|
Corporate and | |
|
|
Three Months Ended March 31, 2005 |
|
Services | |
|
Services | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues
|
|
$ |
171,628 |
|
|
$ |
10,514 |
|
|
$ |
775 |
|
|
$ |
182,917 |
|
Income (loss) from operations as adjusted
|
|
|
3,545 |
|
|
|
4,193 |
|
|
|
(3,888 |
) |
|
|
3,850 |
|
Depreciation
|
|
|
5,944 |
|
|
|
836 |
|
|
|
46 |
|
|
|
6,826 |
|
Amortization
|
|
|
1,612 |
|
|
|
|
|
|
|
|
|
|
|
1,612 |
|
Total assets
|
|
|
376,237 |
|
|
|
78,790 |
|
|
|
68,533 |
|
|
|
523,560 |
|
Capital expenditures
|
|
|
4,359 |
|
|
|
4,460 |
|
|
|
306 |
|
|
|
9,125 |
|
reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations as adjusted
|
|
$ |
3,545 |
|
|
$ |
4,193 |
|
|
$ |
(3,888 |
) |
|
$ |
3,850 |
|
Less: Amortization
|
|
|
1,612 |
|
|
|
|
|
|
|
|
|
|
|
1,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,933 |
|
|
|
4,193 |
|
|
|
(3,888 |
) |
|
|
2,238 |
|
Interest income
|
|
|
87 |
|
|
|
|
|
|
|
107 |
|
|
|
194 |
|
Interest expense and amortization of debt discount
|
|
|
(1,353 |
) |
|
|
(24 |
) |
|
|
(79 |
) |
|
|
(1,456 |
) |
Other income (expense), net
|
|
|
43 |
|
|
|
1 |
|
|
|
3,785 |
|
|
|
3,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$ |
710 |
|
|
$ |
4,170 |
|
|
$ |
(75 |
) |
|
$ |
4,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information regarding revenues by
end market:
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Electric
|
|
$ |
104,389 |
|
|
$ |
116,188 |
|
Gas
|
|
|
30,052 |
|
|
|
43,141 |
|
Telecommunications
|
|
|
9,092 |
|
|
|
19,381 |
|
Other
|
|
|
3,355 |
|
|
|
4,207 |
|
|
|
|
|
|
|
|
|
|
$ |
146,888 |
|
|
$ |
182,917 |
|
|
|
|
|
|
|
|
Electric, gas and other end market revenues are entirely part of
the ICS segment, while telecommunications end market revenue is
included in both the ICS and TS segments. Approximately 70% and
54% of our telecommunications end market revenues were from the
TS segment for the three months ended March 31, 2004 and
2005, respectively.
|
|
13. |
Related Party Transactions |
As of March 31, 2005, we had $5.2 million due to the
former owners of Blair Park Services, Inc. and Sunesys, Inc.
(collectively Blair Park) accrued in other
liabilities related parties on our condensed
consolidated balance sheet for additional contingent purchase
price consideration. Blair Park was acquired by InfraSource
Incorporated in 2001.
As of March 31, 2005, we have $7.9 million due to the
Maslonka shareholders accrued in other liabilities
related parties on our condensed consolidated balance sheet. Of
this amount, $6.6 million is holdback consideration from
our acquisition of Maslonka (see Note 2). The remaining net
balance relates to payments and collections we made on the
shareholders behalf which require cash settlement.
Maslonka is the issuer of a $1.0 million installment
promissory note in favor of Martin Maslonka, one of our
employees and stockholders. The promissory note bears interest
at an annual rate of 8.5%, and interest is payable in equal
monthly payments. The promissory note matures on June 30,
2006.
15
INFRASOURCE SERVICES, INC. AND SUBSIDARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
We lease our Maslonka headquarters in Mesa, Arizona and our
Maslonka Texas field office in San Angelo, Texas from EC
Source, LLC, which is wholly owned by Martin Maslonka, Our
leases for these two properties will run through February 2009,
subject to a five-year renewal option. Pursuant to these leases,
we expect to incur total annual lease payments of
$0.2 million.
We lease office and warehouse space from Coleman Properties of
which three officers of Blair Park are general partners. Our
lease for this space will run through October 2005, subject to a
six-year renewal option. Our annual lease payments under this
agreement are approximately $0.1 million.
We lease office and warehouse facilities in Michigan which are
owned by an employee and his family members. Our leases for
these properties will run through May 2005, subject to a
four-year renewal option. Pursuant to these leases, we expect to
incur total annual lease payments of $0.3 million.
We sublease two equipment yards which are owned by one of our
employees. Pursuant to six-month subleases through February
2005, we incurred aggregate lease payments of $0.1 million.
|
|
14. |
Commitments and Contingencies |
In January 2004, a judgment was entered against InfraSource in
Superior Court of Fulton County, Georgia in the amount of
$3.8 million, including $3.2 million in punitive
damages. We had $3.8 million accrued on our condensed
consolidated balance sheet as of December 31, 2004 for this
judgment. The judgment upheld allegations by the plaintiff that
in 1999 InfraSource Incorporated (formerly known as Exelon
Infrastructure Services, Inc.) had fraudulently induced the
plaintiff to incur expenses in connection with a proposed
business acquisition that was never consummated.
On March 22, 2005, the Court of Appeals of Georgia issued
an opinion reversing the $3.8 million judgment against us.
The plaintiff filed a motion for reconsideration of the decision
of the Appeals Court, which was denied on April 12, 2005.
On April 25, 2005, the plaintiff filed a petition
requesting the Supreme Court of Georgia to review and reverse
the opinion of the Court of Appeals.
Based on the Court of Appeals decision, we reversed the
$3.8 million litigation accrual for the original judgment
against us which had been recorded in 2003. Additionally, we
reversed $0.5 million in interest expense which we had been
accruing since the judgment date as stipulated by the original
judgment. For the three months ended March 31, 2005,
$3.8 million of income is included in other income
(expense), net and $0.5 million is included as a reduction
in interest expense.
Pursuant to our service contracts, we generally indemnify our
customers for the services we provide thereunder. Furthermore,
because our services are integral to the operation and
performance of the electric power transmission and distribution
infrastructure, we may become subject to lawsuits or claims for
any failure of the systems that we work on, even if our services
are not the cause for such failures, and we could be subject to
civil and criminal liabilities to the extent that our services
contributed to any property damage or blackout. The outcome of
these proceedings could result in significant costs and
diversion of managements attention to our business.
Payments of significant amounts, even if reserved, could
adversely affect our reputation and liquidity position.
From time to time, we are a party to various other lawsuits,
claims and other legal proceedings that arise in the ordinary
course of our business. These actions typically seek, among
other things, compensation for alleged personal injury, breach
of contract, property damage, punitive damages, civil penalties
or other losses, or injunctive or declaratory relief. With
respect to such lawsuits, claims and proceedings, we accrue
reserves when it is probable a liability has been incurred and
the amount of loss can be reasonably estimated. We do not
believe any of these proceedings currently pending, individually
or in the aggregate, would be expected to have a material
adverse effect on our results of operations, cash flows, or
financial condition.
16
|
|
Item 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking and Cautionary Statements
In this Quarterly Report on Form 10-Q, we have made
forward-looking statements. Generally, these forward-looking
statements can be identified by words like may,
will, should, expect,
intend, anticipate, believe,
estimate, predict,
potential, or continue or the negative
of those words and other comparable words. These forward-looking
statements generally relate to our plans, objectives and
expectations for future operations and are based upon our
current estimates and projections of future results or trends.
Although we believe that our plans and objectives reflected in
or suggested by these forward-looking statements are reasonable,
we may not achieve these plans or objectives. These statements
are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially
from those contemplated by the statements. These statements only
reflect our predictions. Except as required by law, we will not
update forward-looking statements even though our situation may
change in the future. With respect to forward-looking
statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The factors that could affect future results and could cause
those results to differ materially from those expressed in the
forward-looking statements include, but are not limited to,
those described under Item 1, Business
Risk Factors in our Annual Report on Form 10-K for
the year ended December 31, 2004 and other risks outlined
in our periodic filings with the Securities and Exchange
Commission (SEC).
Introduction
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes
of InfraSource Services, Inc. and its wholly owned subsidiaries
included elsewhere in this Quarterly Report on Form 10-Q
and with the Management Discussion and Analysis of Financial
Condition and Results of Operations, Business Risk
Factors, and audited financial statements and notes included in
our Annual Report on Form 10-K.
General
We are one of the largest specialty contractors serving the
utility transmission and distribution infrastructure in the
United States based on market share. We operate in two business
segments. Our principal segment, Infrastructure Construction
Services (ICS), provides design, engineering,
procurement, construction, testing, and maintenance services for
utility infrastructure. Our ICS customers include electric power
utilities, natural gas utilities, telecommunication customers,
government entities and heavy industrial companies, such as
petrochemical, processing and refining businesses. Our
Telecommunication Services (TS) segment provides
design, procurement, construction, and maintenance services for
telecommunications infrastructure. Our TS customers include
communication service providers, large industrial customers such
as pharmaceutical companies, school districts and other entities
with high bandwidth telecommunication needs. We operate in
multiple territories throughout the United States and do not
have significant operations or assets in countries outside the
United States. Refer to Note 12 to our condensed
consolidated financial statements for additional information.
We had revenues of $182.9 million for the three months
ended March 31, 2005, of which 63% was attributable to
electric power customers, 24% to natural gas customers, 11% to
telecommunications customers, and 2% to ancillary services.
Approximately $10.5 million or 54% of the
telecommunications revenue was derived from our TS segment for
the three months ended March 31, 2005. Our top ten
customers accounted for 45.4% of our consolidated revenues for
the three months ended March 31, 2005. Exelon Corporation
(Exelon) accounted for 20.3% of our consolidated
revenues for the three months ended March 31, 2005.
We had revenues of $146.9 million for the three months
ended March 31, 2004, of which 71% was attributable to
electric power customers, 21% to natural gas customers, 6% to
telecommunications customers, and 2% to ancillary services.
Approximately $6.3 million or 70% of the telecommunications
revenue was
17
derived from our TS segment for the three months ended
March 31, 2004. Our top ten customers accounted for 57% of
our consolidated revenues for the three months ended
March 31, 2004. Exelon accounted for 19.3% of our
consolidated revenues for the three months ended March 31,
2004.
Our consolidated backlog was $925 million as of
March 31, 2005, 1% lower than our consolidated backlog of
$935 million as of December 31, 2004 and 17% higher
than our backlog of $790 million as of March 31, 2004.
Our ICS backlog was $819 million as of March 31, 2005,
2% lower than our ICS backlog of $835 million as of
December 31, 2004 and 18% higher than our ICS backlog of
$692 million as of March 31, 2004. Our TS backlog was
$106 million as of March 31, 2005, 6% higher than our
TS backlog of $100 million as of December 31, 2004 and
8% higher than our TS backlog of $98 million as of
March 31, 2004.
Acquisitions and Discontinued Operations
Maslonka: On January 27, 2004, we acquired all of
the voting interests of Maslonka & Associates
(Maslonka), a complementary infrastructure services
business, for total purchase price consideration of
$83.1 million, which included the issuance of
4,330,820 shares of our common stock, cash, transaction
costs and purchase price contingencies. The value of the shares
issued to Maslonka stockholders was determined to be
approximately $50.7 million. The allocation of the purchase
price is subject to a working capital adjustment and settlement
of holdback adjustments to the purchase price in accordance with
the terms of the acquisition agreement. We expect the working
capital adjustment to be finalized during 2005 and expect the
holdback amounts, less any amounts retained by us, will be
released to the sellers in 2005 and 2006. Under the terms of the
holdback provisions, we withheld $6.6 million in cash and
957,549 shares of common stock. Of the cash holdback
amount, $5.5 million is contingent upon Maslonkas
achievement of certain performance targets as well as
satisfaction of any indemnification obligations owed to us,
which may be set-off against all other portions of the holdback.
In the fourth quarter of 2004, based on an evaluation of the
performance targets detailed in the acquisition agreement, we
recorded the $5.5 million additional contingent purchase
price. Any adjustments resulting from the working capital
adjustment and holdback adjustments could result in an
adjustment to goodwill, which amounts we do not expect to be
material. The results of Maslonka are included in our
consolidated results beginning January 27, 2004. We
financed the cash portion of the Maslonka acquisition with cash
on hand and the issuance of 5,931,950 shares of our common
stock to our principal stockholders and certain members of our
management team for cash of $27.5 million. The purchase
price has been allocated to the assets acquired and liabilities
assumed based on their estimated fair value, which resulted in
goodwill of $62.7 million.
Utili-Trax: On August 18, 2004, we acquired
substantially all of the assets and assumed certain liabilities
of Utili-Trax Contracting Partnerships, LLC
(Utili-Trax), which provides underground and
overhead construction services for electric cooperatives and
municipal utilities throughout the upper Midwest, for total
purchase price consideration of $5.3 million in cash,
including transaction costs. The results of Utili-Trax are
included in our consolidated results beginning August 18,
2004. The purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair
value, which resulted in goodwill of $1.3 million.
EnStructure: On September 3, 2004, we acquired
substantially all of the assets and assumed certain liabilities
of EnStructure Corporations (EnStructure)
operating companies, Sub-Surface Construction Company, Flint
Construction Company and Iowa Pipeline Associates, for total
purchase price consideration of $20.9 million in cash,
including transaction costs. EnStructure, the construction
services business of SEMCO Energy, Inc., provides construction
services within the utilities, oil and gas markets throughout
the Midwestern, Southern and Southeastern regions of the United
States. The results of EnStructure are included in our
consolidated results beginning September 3, 2004. The fair
value of the EnStructure net assets exceeded the purchase price.
Therefore, as described in Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations, we decreased the eligible assets by the
excess amount.
18
During 2003 we committed to a plan to sell substantially all of
the assets of OSP Consultants, Inc. and subsidiaries
(OSP). On September 21, 2004, we completed the
sale of substantially all of the assets of RJE Telecom, Inc.
(RJE), a wholly owned subsidiary of OSP, for
aggregate cash proceeds of $9.4 million, net of transaction
costs. The RJE sale completed our commitment to sell
substantially all of the assets of OSP. RJE was part of our TS
segment.
In the third quarter of 2004, we committed to a plan to sell
substantially all of the assets of Utility Locate &
Mapping Services, Inc. (ULMS), which is part of our
ICS segment.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
financial position, results of operations and cash flows of OSP
and ULMS are reflected as discontinued operations in our
accompanying condensed consolidated financial statements. For
the three months ended March 31, 2004, both OSP and ULMS
are reflected as discontinued operations, while for the three
months ended March 31, 2005 only ULMS is reflected as a
discontinued operation since RJE was sold in 2004.
Results of Operations
Our results of operations are subject to seasonal variations.
During the winter months, demand for new projects and new
maintenance service arrangements is lower in some geographic
areas due to reduced construction activity, especially for
services to natural gas distribution customers. During the
winter months, our ICS business segment typically experiences
lower gross and operating margins. However, demand for repair
and maintenance services attributable to damage caused by
inclement weather during the winter months may partially offset
the loss of revenues from lower demand for new projects and new
maintenance service arrangements. Our working capital needs
generally follow these seasonal patterns. Additionally, our
industry can be highly cyclical as evidenced by the declines in
spending in the telecommunications and independent power
producers generation sectors. As a result, our volume of
business may be adversely affected by declines in new projects
in various geographic regions or industries in the United
States. The financial condition of our customers and their
access to capital, variations in the margins of projects
performed during any particular quarter, the timing and
magnitude of acquisition assimilation costs, regional economic
conditions and timing of acquisitions may also materially affect
quarterly results. Accordingly, our operating results in any
particular quarter may not be indicative of the results that can
be expected for any other quarter or for the entire year.
Our TS segment is not significantly affected by seasonality.
The following analysis includes a comparison of the results of
our operations for the three months ended March 31, 2005
with the three months ended March 31, 2004.
Company Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
|
Three Months | |
|
|
|
|
Ended | |
|
% of | |
|
Ended | |
|
% of | |
|
|
March 31, 2004 | |
|
Revenue | |
|
March 31, 2005 | |
|
Revenue | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Contract Revenues
|
|
$ |
146,888 |
|
|
|
100.0 |
% |
|
$ |
182,917 |
|
|
|
100.0 |
% |
Gross profit
|
|
|
25,005 |
|
|
|
17.0 |
% |
|
|
21,644 |
|
|
|
11.8 |
% |
Selling, general and administrative expenses
|
|
|
15,534 |
|
|
|
10.6 |
% |
|
|
17,638 |
|
|
|
9.6 |
% |
Merger related costs
|
|
|
|
|
|
|
0.0 |
% |
|
|
76 |
|
|
|
0.0 |
% |
Provision (recoveries) of uncollectible accounts
|
|
|
(7 |
) |
|
|
0.0 |
% |
|
|
80 |
|
|
|
0.0 |
% |
Amortization of intangible assets
|
|
|
4,547 |
|
|
|
3.1 |
% |
|
|
1,612 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,931 |
|
|
|
3.4 |
% |
|
|
2,238 |
|
|
|
1.2 |
% |
Interest income
|
|
|
54 |
|
|
|
0.0 |
% |
|
|
194 |
|
|
|
0.1 |
% |
Interest expense and amortization of debt discount
|
|
|
(3,352 |
) |
|
|
(2.3 |
)% |
|
|
(1,456 |
) |
|
|
(0.8 |
)% |
Other income (expense), net
|
|
|
152 |
|
|
|
0.1 |
% |
|
|
3,829 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,785 |
|
|
|
1.2 |
% |
|
|
4,805 |
|
|
|
2.6 |
% |
Income tax expense
|
|
|
732 |
|
|
|
0.5 |
% |
|
|
1,922 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
1,053 |
|
|
|
0.7 |
% |
|
$ |
2,883 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
Three months ended March 31, 2005 compared to the
three months ended March 31, 2004 |
Revenues: Revenues increased $36.0 million, or
24.5%, to $182.9 million for the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 due to increases of $16.9 million from
other electric work, which resulted from increased utility
distribution and industrial electric projects,
$13.1 million from underground natural gas work, which
resulted from a combination of internal growth and our third
quarter 2004 acquisition of EnStructure, $10.3 million from
telecommunications work, which resulted from an increase in dark
fiber leases and demand for underground telecommunications
infrastructure scopes of work, and $4.7 million from new
underground electric transmission projects. These increases were
partially offset by a decrease of $9.8 million in aerial
electric transmission revenues primarily due to the substantial
progress recognized on the Path 15 project during the three
months ended March 31, 2004.
Gross profit: Gross profit decreased $3.4 million,
or 13.4%, to $21.6 million for the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 due to a decrease in the volume of higher
margin aerial electric transmission work, increases in the
volume of lower margin natural gas distribution and other
electric work, and the overall effect of rising fuel costs. This
decrease in gross profit was partially offset by an increase in
the volume of higher margin telecommunication services.
Selling, general and administrative expenses: Selling,
general and administrative expenses increased $2.1 million,
or 13.5%, to $17.6 million for the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004. The increase is primarily due to
incremental expenses incurred from our third quarter 2004
acquisitions, additional personnel hired to grow the business
internally and costs related to being a public company.
Merger related costs: For the three months ended
March 31, 2005, we recorded a charge to expense of
$0.1 million for retention bonuses earned by employees
during the period. These retention bonuses were accrued at the
closing of the September 24, 2003 merger transaction (the
Merger) in which we acquired all of the voting
interests of InfraSource Incorporated and certain of its wholly
owned subsidiaries, however, during 2004, we determined that a
portion of these bonuses provides a benefit to periods
subsequent to the Merger.
Amortization of intangible assets: Amortization of
intangible assets decreased $2.9 million, or 64.5%, to
$1.6 million during the three months ended March 31,
2005 compared to $4.5 million for three months ended
March 31, 2004. The decrease was primarily due to a lesser
amount of construction backlog amortization in 2005 compared to
2004, due to the completion of the Path 15 project and other
acquired contracts.
Interest expense and amortization of debt discount: We
incurred $1.5 million of interest expense for the three
months ended March 31, 2005, a decrease of
$1.9 million from the three months ended March 31,
2004, principally reflecting our debt reduction during the
second quarter of 2004 from the proceeds of our IPO. Interest
expense also decreased by approximately $0.5 million due to
the reversal of accrued interest related to a litigation
judgment which was reversed in this quarter (see Note 14 to
our condensed consolidated financial statements).
Other income (expense), net: Other income (expense), net
increased by $3.7 million to an other income, net balance
for the three months ended March 31, 2005 of
$3.8 million compared to an other income, net balance of
$0.2 million for the three months ended March 31,
2004. The increase in other income was primarily due to the
reversal of a $3.8 million charge for a litigation judgment
recorded in 2003 (see Notes 10 and 14 to our condensed
consolidated financial statements).
Provision for income taxes: The provision for income
taxes for the three months ended March 31, 2005 was
$1.9 million, compared to $0.7 million for the three
months ended March 31, 2004. This increase is due to an
increase in taxable income, partially offset by a lower
effective tax rate.
Income from continuing operations: As a result of the
factors discussed above, we recorded net income from continuing
operations of $2.9 million for the three months ended
March 31, 2005 compared to $1.1 million for the three
months ended March 31, 2004. During the three months ended
March 31, 2005 we
20
recorded approximately $0.2 million of adjustments related
to prior periods. We have determined this adjustment is not
material to the current or previously filed financial statements.
Discontinued operations, net of tax: Income (loss) from
discontinued operations for the three months ended
March 31, 2005 was $(0.1) million compared to
$0.02 million for the three months ended March 31,
2004. These amounts reflect the operations of both ULMS and OSP
for the three months ended March 31, 2004 and ULMS for the
three months ended March 31, 2005.
Net income: We recorded net income of $2.7 million
for the three months ended March 31, 2005 compared to
$1.1 million for the three months ended March 31, 2004
as a result of the factors discussed above.
Segment Results
We manage our operations in two segments, ICS and TS. The
primary financial measures we use to evaluate our segment
operations are contract revenues and income from operations as
adjusted, a non-GAAP financial measure. Income from operations
as adjusted, excludes amortization expense related to
intangibles as a result of our acquisitions. We exclude
amortization to facilitate our evaluation of operating unit
performance as we believe amortization expense does not reflect
the core operations of our business segments. A reconciliation
of income from operations as adjusted to the nearest GAAP
equivalent, income (loss) from operations is provided in
Note 12 to our condensed consolidated financial statements,
included in Item 1 of this Form 10-Q.
Our corporate overhead expenses are not allocated to our
segments because we evaluate segment performance prior to the
allocation of corporate expenses.
|
|
|
Three months ended March 31, 2005 compared to the
three months ended March 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
|
|
March 31, | |
|
Change | |
|
|
| |
|
| |
|
|
2004 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure Construction Services
|
|
$ |
140,561 |
|
|
$ |
171,628 |
|
|
$ |
31,067 |
|
|
|
22.1 |
% |
|
|
Telecommunication Services
|
|
|
6,347 |
|
|
|
10,514 |
|
|
|
4,167 |
|
|
|
65.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues
|
|
|
146,908 |
|
|
|
182,142 |
|
|
|
35,234 |
|
|
|
24.0 |
% |
|
Corporate and eliminations
|
|
|
(20 |
) |
|
|
775 |
|
|
|
795 |
|
|
|
(3975.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
146,888 |
|
|
$ |
182,917 |
|
|
$ |
36,029 |
|
|
|
24.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
|
|
March 31, | |
|
Change | |
|
|
| |
|
| |
|
|
2004 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Income from operations as adjusted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure Construction Services
|
|
$ |
11,255 |
|
|
$ |
3,545 |
|
|
$ |
(7,710 |
) |
|
|
(68.5 |
)% |
|
|
Telecommunication Services
|
|
|
2,618 |
|
|
|
4,193 |
|
|
|
1,575 |
|
|
|
60.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income from operations as adjusted
|
|
|
13,873 |
|
|
|
7,738 |
|
|
|
(6,135 |
) |
|
|
(44.2 |
)% |
|
Corporate and eliminations
|
|
|
(4,395 |
) |
|
|
(3,888 |
) |
|
|
507 |
|
|
|
(11.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations as adjusted
|
|
$ |
9,478 |
|
|
$ |
3,850 |
|
|
$ |
(5,628 |
) |
|
|
(59.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
21
ICS
Revenues: ICS revenues increased $31.1 million, or
22.1%, to $171.6 million for the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 due to increases of $16.9 million from
other electric work, which resulted from increased utility
distribution and industrial electric projects,
$13.1 million from underground natural gas work, which
resulted from a combination of internal growth and our third
quarter 2004 acquisition of EnStructure, $6.1 million from
underground telecommunications infrastructure scopes of work,
and $4.7 million from new underground electric transmission
projects These increases were partially offset by a decrease of
$9.8 million in aerial electric transmission revenues
primarily due to the substantial progress recognized on the Path
15 project during the three months ended March 31, 2004.
Income (loss) from operations as adjusted: Income from
operations as adjusted decreased by $7.7 million, or 68.5%,
to $3.5 million for the three months ended March 31,
2005 compared to the three months ended March 31, 2004.
This decrease was due to lower gross margins and higher selling,
general and administrative costs. Our lower gross margins
resulted from a decrease in the volume of higher margin aerial
electric transmission work, increases in the volume of lower
margin natural gas distribution and other electric work, and the
overall effect of rising fuel costs. Selling, general and
administrative costs increased by $2.4 million, primarily
due to incremental expenses incurred from our third quarter 2004
acquisitions and additional personnel hired to grow the business
internally.
TS
Revenues: TS revenues increased $4.2 million, or
65.7%, to $10.5 million for the three months ended
March 31, 2005 compared to the three months ended
March 31, 2004 due to an increase in dark fiber leases, as
well as, an increase in facility construction services, which
include the build-out of telecommunication infrastructure.
Income from operations as adjusted: Income from
operations as adjusted increased $1.6 million, or 60.2%, to
$4.2 million for the three months ended March 31, 2005
compared to the three months ended March 31, 2004. This
increase was primarily due to an increase in gross margins from
the increased revenue, partially offset by an increase of
$0.3 million in selling, general and administrative costs
resulting from increased personnel hired to support the growth
of the business.
Corporate
The $0.5 million decrease in corporate expenses from 2004
to 2005 was due to incremental expenses related to our IPO in
2004, partially offset by increased costs in 2005 as a result of
being a public company.
Liquidity and Capital Resources
|
|
|
Cash and Working Capital Requirements |
Our working capital needs are influenced by the seasonality of
our business. We generally experience a need for additional
working capital during the spring when we increase our level of
outdoor construction in weather-affected regions of the country.
Conversely, we generally convert working capital assets to cash
during the winter months. We expect capital expenditures to
range from $20.0 million to $25.0 million during the
remainder of 2005, which could vary depending on the expected
award and timing of the commencement of project-based work. We
have reduced our capital expenditures over the past two years as
a result of improved equipment utilization and an increase in
the use of leasing arrangements.
We anticipate that our cash on hand of $8.8 million as of
March 31, 2005, our credit facility and our future cash
flow from operations will provide sufficient cash to enable us
to meet our future operating needs, debt service requirements
and planned capital expenditures. However, we may find it
necessary or desirable to seek additional financing to support
our capital needs and provide funds for strategic initiatives,
such as acquisitions. Accordingly, this may require us to
increase our credit facility or complete equity-based
22
financing, such as the issuance of common stock or preferred
stock which would be dilutive to our existing shareholders.
As of March 31, 2005, we had cash and cash equivalents of
$8.8 million, working capital of $92.2 million and
long-term debt of $85.5 million principally consisting of
term loans under our credit facility. As of March 31, 2005,
we had $6.0 million in borrowings under the revolving
portion of our credit facility and $33.0 million in letters
of credit outstanding thereunder, leaving $46.0 million
available for additional borrowings. We also had an additional
$5.0 million letter of credit assumed in the Maslonka
acquisition, which was not part of our credit facility and has
subsequently expired in April 2005. As of April 29, 2005,
borrowings under the revolving portion of our credit facility
have increased to $11.5 million. As of December 31,
2004, we had cash and cash equivalents of $21.8 million,
restricted cash of $5.0 million, working capital of
$99.0 million and long-term debt of $85.8 million.
During the three months ended March 31, 2005, our contract
receivables and costs and estimated earnings in excess of
billings, net of billings in excess of costs and estimated
earnings increased 12.2%. The overall increase was due primarily
to an increase in project work that remains unbilled. A
significant portion of the increase was related to one of our
largest customers.
Included in costs and estimated earnings in excess of billings
are costs related to claims of approximately $5.4 million
at March 31, 2005. Claim amounts are primarily related to a
delay in the anticipated start date of one of our electric
transmission projects. Costs incurred that are attributable to
claims are included in the total estimated revenue when
realization is probable and amounts are estimable. Profit from
claims is recorded in the period such amounts are agreed to with
the customer.
Cash from operating activities from continuing
operations. During the three months ended March 31,
2005, net cash used in operating activities from continuing
operations was $16.2 million compared to $6.3 million
for the three months ended March 31, 2004. The principal
source of operating cash during the three months ended
March 31, 2005 was payments received from customers for
contract services performed. The principal uses of operating
cash during the three months ended March 31, 2005 were
payments for labor and materials related to performance of
services and selling, general, and administrative expenses.
Changes in operating assets and liabilities during the three
months ended March 31, 2005 used $24.0 million of
operating cash flow from continuing operations, while during the
three months ended March 31, 2004 changes in operating
assets and liabilities used $18.7 million in operating cash
flow from continuing operations. The greater use of cash from
changes in operating assets and liabilities from continuing
operations for the three months ended March 31, 2005
included a $19.8 million increase in contracts receivable,
including related parties, and costs and estimated earnings in
excess of billings, net, compared to a $7.6 million
increase during the three months ended March 31, 2005. The
change in contracts receivable resulted in a $3.3 million
use of cash during the three months ended March 31, 2004
compared to a $5.6 million source of cash in the three
months ended March 31, 2005; this was largely offset by the
change in accounts payable resulting in a $4.0 million
source of cash during the three months ended March 31, 2004
and a $3.3 million use of cash during the three months
ended March 31, 2005.
Cash from investing activities from continuing
operations. During the three months ended March 31,
2005, net cash used by investing activities from continuing
operations was $2.8 million compared to cash used by
investing activities from continuing operations of
$24.3 million for the three months ended March 31,
2004. The primary use of cash for the three months ended
March 31, 2005 was for the purchases of equipment of
$9.1 million, offset in part, by cash proceeds from the
sale of equipment of $1.3 million, and the release of
$5.0 million from restricted cash. The principal uses of
cash during the three months ended March 31, 2004 were cash
payments at closing for the acquisition of Maslonka, net of cash
acquired, and purchases of equipment of $5.1 million,
offset in part by $0.9 million in cash proceeds from sales
of equipment.
Cash from financing activities from continuing
operations. During the three months ended March 31,
2005, net cash provided by financing activities from continuing
operations was $6.0 million compared to net cash provided
by financing activities from continuing operations of
$34.4 million for the three months ended
23
March 31, 2004. The sources of cash from financing
activities for the three months ended March 31, 2005 were a
$6.0 million borrowing under our revolving credit facility
and proceeds of $0.3 million from the exercise of stock
options, offset by repayments of long-term debt and capital
leases of $0.2 million. The primary sources of cash from
financing activities for the three months ended March 31,
2004 were $27.5 million of proceeds from the issuance of
our common stock to principal shareholders and certain members
of management in conjunction with the acquisition of Maslonka
and $2.3 million from the exercise of stock options.
Additionally, we had net borrowing under our revolving credit
facility of $5.0 million and net repayments of long-term
debt of $0.4 million.
There was no net cash transferred to discontinued operations
during the three months ended March 31, 2005 compared to
cash transferred to discontinued operations of $0.2 million
for the three months ended March 31, 2004. For the three
months ended March 31, 2005, cash provided by operating
activities from discontinued operations was $0.1 million
and cash used in investing activities from discontinued
operations was $0.1 million. The investing activities
related to purchases of equipment.
Contractual Obligations and Other Commitments
As of March 31, 2005, our future contractual obligations,
including payments under capital leases, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period | |
|
|
| |
Long-Term Debt and Interest Payments |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Senior credit facility
|
|
$ |
640 |
|
|
$ |
853 |
|
|
$ |
853 |
|
|
$ |
853 |
|
|
$ |
853 |
|
|
$ |
80,398 |
|
|
$ |
84,450 |
|
Revolving credit facility
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
Long-term debt related party
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Bank notes
|
|
|
33 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92 |
|
Capital lease obligations
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Projected interest payments on long-term debt(1)
|
|
|
3,459 |
|
|
|
4,694 |
|
|
|
4,846 |
|
|
|
4,796 |
|
|
|
4,746 |
|
|
|
3,527 |
|
|
|
26,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,136 |
|
|
$ |
6,606 |
|
|
$ |
5,699 |
|
|
$ |
5,649 |
|
|
$ |
5,599 |
|
|
$ |
83,925 |
|
|
$ |
117,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period | |
|
|
| |
Other Contractual Obligations(2) |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Contingent earnouts(3)
|
|
$ |
3,300 |
|
|
$ |
8,493 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,793 |
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested options exercised
|
|
|
520 |
|
|
|
400 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
549 |
|
|
|
1,537 |
|
|
Other
|
|
|
|
|
|
|
2,556 |
|
|
|
57 |
|
|
|
57 |
|
|
|
57 |
|
|
|
128 |
|
|
|
2,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,820 |
|
|
$ |
11,449 |
|
|
$ |
125 |
|
|
$ |
57 |
|
|
$ |
57 |
|
|
$ |
677 |
|
|
$ |
16,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The total projected interest payments on long-term debt are
based upon borrowings and interest rates as of March 31,
2005. The interest rates on variable rate debt are subject to
changes beyond our control and may result in actual interest
expense and payments differing from the amounts projected above. |
|
(2) |
Trade accounts payable are not included in Contractual
Obligations. |
|
(3) |
See discussion below in Contingent Earnout Payments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period | |
|
|
| |
Other Commercial Commitments |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating leases
|
|
$ |
9,769 |
|
|
$ |
9,136 |
|
|
$ |
6,988 |
|
|
$ |
3,766 |
|
|
$ |
915 |
|
|
$ |
15 |
|
|
$ |
30,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
Contingent Earnout Payments |
We have an obligation to pay an earnout pursuant to
a Stock Purchase Agreement, dated as of November 15, 2000,
among InfraSource Incorporated, Blair Park Services, Inc.,
Sunesys, Inc. and the shareholders named therein. As of
March 31, 2005, a $5.2 million liability is included
in other liabilities related parties in our
condensed consolidated financial statements. This amount will
increase if these businesses continue to perform successfully in
2005. The earnout is payable in the first quarter of 2006.
Pursuant to the terms of the Maslonka acquisition agreement, a
portion of the consideration was subject to a holdback
provision. Under the terms of the holdback, we withheld
$6.6 million in cash and 957,549 shares of the common
stock we issued to the sellers. If Maslonka fails to achieve
specified financial targets, we will be entitled to retain a
portion of the holdback amount. We will also be entitled to
retain amounts under the holdback to satisfy any indemnification
obligations owed to us under the acquisition agreement. We
expect that the holdback amount, less any amounts retained by
us, will be released to the sellers in part in 2005 and the
remainder in 2006. We will pay accrued interest on the cash
portion of the holdback amount released to the sellers. The
sellers are entitled to exercise voting rights with respect to
the shares of common stock subject to the holdback provision. As
of March 31, 2005, based upon our current assessment of the
achievement of specified targets, we have accrued
$6.6 million in other liabilities related
parties in our condensed consolidated financial statements.
|
|
|
Related Party Transactions |
As of March 31, 2005, we had $5.2 million due to the
former owners of Blair Park Services, Inc. and Sunesys, Inc.
(collectively Blair Park) accrued in other
liabilities related parties on our condensed
consolidated balance sheet for additional contingent purchase
price consideration. Blair Park was acquired by InfraSource
Incorporated in 2001.
As of March 31, 2005, we have $7.9 million due to the
Maslonka shareholders accrued in other liabilities
related parties on our condensed consolidated balance sheet. Of
this amount, $6.6 million is holdback consideration from
our acquisition of Maslonka. The remaining net balance relates
to payments and collections we made on the shareholders behalf
which require cash settlement.
Maslonka is the issuer of a $1.0 million installment
promissory note in favor of Martin Maslonka, one of our
employees and stockholders. The promissory note bears interest
at an annual rate of 8.5%, and interest is payable in equal
monthly payments. The promissory note matures on June 30,
2006.
We lease our Maslonka headquarters in Mesa, Arizona and our
Maslonka Texas field office in San Angelo, Texas from EC
Source, LLC, which is wholly owned by Martin Maslonka, Our
leases for these two properties will run through February 2009,
subject to a five-year renewal option. Pursuant to these leases,
we expect to incur total annual lease payments of
$0.2 million.
We lease office and warehouse space from Coleman Properties of
which three officers of Blair Park are general partners. Our
lease for this space will run through October 2005, subject to a
six-year renewal option. Our annual lease payments under this
agreement are approximately $0.1 million.
We lease office and warehouse facilities in Michigan which are
owned by an employee and his family members. Our leases for
these properties will run through May 2005, subject to a
four-year renewal option. Pursuant to these leases, we expect to
incur total annual lease payments of $0.3 million.
We sublease two equipment yards which are owned by one of our
employees. Pursuant to six-month subleases through February
2005, we incurred aggregate lease payments of $0.1 million.
|
|
|
New Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R Share
Based Payment. SFAS No. 123R is a revision to
SFAS No. 123 Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board
(APB) Opinion No. 25 Accounting for Stock
Issued to Employees, and Related Interpretations and
amends FASB Statement No. 95, Statement
25
of Cash Flows. SFAS No. 123R requires a public
entity to expense the cost of employee services received in
exchange for an award of equity instruments. It provides
guidance on valuing and expensing these awards, as well as
disclosure requirements of these equity arrangements. As
modified by the SEC on April 15, 2005,
SFAS No. 123R is effective for the first annual or
interim reporting period of the registrants first fiscal
year that begins after June 15, 2005. We are required to
adopt the provisions of SFAS No. 123R effective
January 1, 2006, at which time we will begin recognizing an
expense for unvested share-based compensation that has been
issued or will be issued after that date.
SFAS No. 123R permits an issuer to use either a
prospective or one of two modified versions of retrospective
application under which financial statements for prior periods
are adjusted on a basis consistent with the pro forma
disclosures required for those periods by the original
SFAS No. 123. Under the retroactive options, prior
periods may be restated either as of the beginning of the year
of adoption or for all periods presented.
As permitted by SFAS No. 123, we currently account for
share-based compensation to employees using the intrinsic value
method of APB Opinion No. 25 and, as such, we generally
recognize no compensation cost for employee stock options. The
impact of the adoption of SFAS No. 123R cannot be
predicted at this time because it will be depend on levels of
share-based compensation granted in the future. However,
valuation of employee stock options under
SFAS No. 123R is similar to SFAS No. 123,
with minor exceptions. For information about what our reported
results of operations and earnings per share would have been had
we adopted SFAS No. 123, see the pro forma disclosure
in Note 8 to our condensed consolidated financial
statements. Accordingly, the adoption of the fair value method
of SFAS No. 123R will likely have a significant impact
on our results of operations, although it will have no impact on
our overall financial position. We have not yet completed the
analysis of the ultimate impact that SFAS No. 123R
will have on our results of operations. We plan to adopt
SFAS No. 123R using the prospective method.
In December 2004, the FASB issued Staff Position
(FSP) No. 109-1, Application of FASB
No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004. The American Jobs
Creation Act of 2004 (AJCA) introduces a special 3%
tax deduction, which is phased up to 9%, on qualified production
activities. FSP No. 109-1 clarifies that this tax deduction
should be accounted for as a special tax deduction in accordance
with SFAS No. 109. Pursuant to the AJCA and the
guidance provided to date, we will likely be viewed as engaging
in qualified production activities and, thus, be
able to claim this tax deduction in 2005. We do not expect these
new tax provisions to have a significant impact on our
consolidated financial position, results of operations or cash
flows.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
We are exposed to market risk primarily related to potential
adverse changes in interest rates as discussed below. We have
not historically used derivative financial instruments for
trading or to speculate on changes in interest rates or
commodity prices. On October 10, 2003, we entered into an
interest rate swap agreement and an interest rate cap agreement
with a term of three years, both of which qualify as cash flow
hedges, to hedge the variability of cash flows related to our
variable rate term loan. We are not exposed to any significant
market risks, foreign currency exchange risk or interest rate
risk from the use of derivative financial instruments.
The sensitivity analysis below, which illustrates our
hypothetical potential market risk exposure, estimates the
effects of hypothetical sudden and sustained changes in the
applicable market conditions on 2005 earnings. The sensitivity
analysis presented does not consider any additional actions we
may take to mitigate our exposure to such changes. The
hypothetical changes and assumptions may be different from what
actually occurs in the future.
Interest Rates. As of March 31, 2005, our
$84.5 million term loan facility was subject to floating
interest rates. On October 10, 2003, we entered into an
interest rate swap on a $70.0 million notional amount where
we pay a fixed rate of 2.395% in exchange for three month LIBOR
until October 10, 2006. We also purchased a 4.00% interest
rate cap that matures October 10, 2006 on
$20.0 million of term loan principal. After those
transactions, we had $14.5 million of our term loans
subject to some floating rate risk. As such, we are exposed
26
to earnings and fair value risk due to changes in interest rates
with respect to our long-term obligations. The detrimental
effect on our pre-tax earnings of a hypothetical 50 basis
point increase in interest rates would be approximately
$0.1 million. As of March 31, 2005, we had
$6.0 million in borrowings under the revolving portion of
our credit facility.
|
|
Item 4. |
Controls and Procedures |
|
|
|
Disclosure Controls and Procedures |
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d- 15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act))
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures as of the end of the period covered by this
report were designed and functioning effectively to provide
reasonable assurance that the information required to be
disclosed by the Company in reports filed under the Exchange
Act, is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. The
Company believes that a controls system, no matter how well
designed and operated, cannot provide absolute assurance that
the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have
been detected.
|
|
|
Internal Control Over Financial Reporting |
No change in the Companys internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and
15d-15 (f) under the Exchange Act) occurred during the
Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
In January 2004, a judgment was entered against InfraSource in
Superior Court of Fulton County, Georgia in the amount of
$3.8 million, including $3.2 million in punitive
damages. We had $3.8 million accrued on our condensed
consolidated balance sheet as of December 31, 2004 for this
judgment. The judgment upheld allegations by the plaintiff that
in 1999 InfraSource Incorporated (formerly known as Exelon
Infrastructure Services, Inc.) had fraudulently induced the
plaintiff to incur expenses in connection with a proposed
business acquisition that was never consummated.
On March 22, 2005, the Court of Appeals of Georgia issued
an opinion reversing the $3.8 million judgment against us.
The plaintiff filed a motion for reconsideration of the decision
of the Appeals Court, which was denied on April 12, 2005.
On April 25, 2005, the plaintiff filed a petition
requesting the Supreme Court of Georgia to review and reverse
the opinion of the Court of Appeals.
Based on the Court of Appeals decision, we reversed the
$3.8 million litigation accrual for the original judgment
against us which had been recorded in 2003. Additionally, we
reversed $0.5 million in interest expense which we had been
accruing since the judgment date as stipulated by the original
judgment. For the three months ended March 31, 2005,
$3.8 million of income is included in other income
(expense), net and $0.5 million is included as a reduction
in interest expense.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds. |
None.
27
|
|
Item 3. |
Defaults Upon Senior Securities. |
None.
|
|
Item 4. |
Submission of Matters to a Vote of Security
Holders. |
None.
|
|
Item 5. |
Other Information. |
None.
|
|
|
|
|
|
3 |
.1 |
|
Form of Restated Certificate of Incorporation of InfraSource
Services, Inc.(1) |
|
|
3 |
.1.1 |
|
Form of Certificate of Amendment to the Restated Certificate of
Incorporation of InfraSource Services, Inc.(1) |
|
|
3 |
.2 |
|
Form of Amended and Restated Bylaws of InfraSource Services,
Inc.(1) |
|
|
3 |
.3 |
|
Specimen of stock certificate.(1) |
|
|
4 |
.1 |
|
Stockholders Agreement, dated as of September 24, 2003, by
and among InfraSource Services, Inc. (f/k/a the Dearborn
Holdings Corporation) and its Security Holders party thereto.(2) |
|
|
4 |
.2 |
|
Registration Rights Agreement, dated as of April 20, 2004,
by and among InfraSource Services, Inc. OCM Principal
Opportunities Fund II, L.P., OCM/GFI Power Opportunities
Funds, L.P., Martin Maslonka, Thomas B. Tilford, Mark C.
Maslonka, Justin Campbell, Joseph Gabbard, Sidney Strauss, Jon
Maslonka, David R. Helwig, Terence R. Montgomery and Paul M.
Daily.(1) |
|
|
31 |
.1 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief
Executive Officer.* |
|
|
31 |
.2 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief
Financial Officer.* |
|
|
32 |
.1 |
|
Certification pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code.* |
|
|
(1) |
Filed as an exhibit to the Registrants Registration
Statement on Form S-1, Amendment No. 3 (Registration
No. 333-112375) filed with the Commission on April 29,
2004. |
|
(2) |
Filed as an exhibit to the Registrants Registration
Statement on Form S-1 (Registration No. 333-112375)
filed with the Commission on January 30, 2004. |
28
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.
|
|
|
INFRASOURCE SERVICES, INC. |
|
(Registrant) |
|
|
|
|
By: |
/s/ TERENCE R. MONTGOMERY
|
|
|
|
|
|
Terence R. Montgomery |
|
Chief Financial Officer and Senior Vice President |
Date: May 6, 2005
29
EXHIBIT INDEX
|
|
|
|
|
|
31 |
.1 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief
Executive Officer. |
|
|
31 |
.2 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief
Financial Officer. |
|
|
32 |
.1 |
|
Certification pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code. |
30