<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 21, 1999
Commission File No. 001-13783
INTEGRATED ELECTRICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0542208
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
515 Post Oak Boulevard
Suite 450
Houston, Texas 77027-9408
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (713) 860-1500
<PAGE> 2
ITEM 5. OTHER EVENTS
Integrated Electrical Services, Inc., a Delaware corporation (the
"Company") is a leading national provider and consolidator of electrical
contracting and maintenance services, focusing primarily on the commercial,
industrial, residential, powerline and data communication markets. In order to
comply with the disclosure requirements of the Securities and Exchange
Commission regarding the financial statements of businesses acquired or to be
acquired, the Company is filing this Current Report containing the following
audited and pro forma financial statements.
(a) Pro Forma Financial Information
See Pages 1 through 6
(b) Financial Statements of Businesses Acquired
See Pages 7 through 28
This Form 8-K/A is being filed to amend the Company's Current Reports on Forms
8-K, which were previously filed on April 29, 1999 and May 7, 1999.
<PAGE> 3
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma balance sheet reflects the acquisitions by
Integrated Electrical Services, Inc. ("IES"), of ten electrical contracting and
maintenance businesses from April 1, 1999 through May 18, 1999 (the
"Acquisitions"), as if they had occurred on March 31, 1999. The unaudited pro
forma statements of operations present the statement of operations data to give
effect to the Acquisitions and the related pro forma adjustments as if they had
occurred on October 1, 1997.
IES has analyzed the savings that it expects to realize from reductions
in salaries, bonuses and certain benefits to the owners. To the extent the
owners of the Acquisitions have contractually agreed to changes in salary,
bonuses, benefits and lease payments, these changes have been reflected in the
unaudited pro forma combined statement of operations.
Certain pro forma adjustments are based on preliminary estimates,
available information and certain assumptions that Company management deems
appropriate and may be revised as additional information becomes available. The
pro forma financial data do not purport to represent what IES's combined
financial position or results of operations would actually have been if such
transactions in fact had occurred on these dates and are not necessarily
representative of IES's combined financial position or results of operations for
any future period. Since the acquired entities were not under common control or
management prior to their acquisitions by IES, historical combined results may
not be comparable to, or indicative of, future performance. The unaudited pro
forma financial statements should be read in conjunction with the historical
consolidated financial statements and notes thereto included in the company's
Annual Report for the year ended September 30, 1998 filed on Form 10-K. See also
"Risk Factors" included elsewhere therein.
1
<PAGE> 4
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
IES AND PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................... $ 35,630 $ 4,207 $ (35,907) $ 3,930
Receivables, net ................................... 167,801 18,103 -- 185,904
Inventories, net ................................... 8,995 482 -- 9,477
Cost and estimated earnings in excess of
billings on uncompleted contracts .............. 21,129 2,918 -- 24,047
Prepaid expenses and other current assets ......... 4,418 1,652 -- 6,070
------------- ------------- ------------- -------------
Total current assets ............................ 237,973 27,362 (35,907) 229,428
RECEIVABLES FROM RELATED PARTIES ...................... 233 -- -- 233
GOODWILL, NET ......................................... 341,703 -- 54,797 396,500
PROPERTY AND EQUIPMENT, NET ........................... 29,721 5,144 -- 34,865
OTHER NONCURRENT ASSETS ............................... 9,013 100 -- 9,113
------------- ------------- ------------- -------------
Total assets .................................... $ 618,643 $ 32,606 $ 18,890 $ 670,139
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current
maturities of long-term debt ................... $ 537 $ 2,661 $ (2,661) $ 537
Accounts payable and accrued expense ............... 83,357 6,838 -- 90,195
Billings in excess of costs and estimated
earnings on uncompleted contracts .............. 29,863 1,779 -- 31,642
Income taxes payable ............................... 3,861 2,044 -- 5,905
Other current liabilities .......................... 451 -- -- 451
------------- ------------- ------------- -------------
Total current liabilities ....................... 118,069 13,322 (2,661) 128,730
------------- ------------- ------------- -------------
LONG-TERM DEBT, NET ................................... 851 881 (881) 851
SENIOR SUBORDINATED NOTES,
net of $1,188 discount ............................ 148,812 -- -- 148,812
OTHER NON-CURRENT LIABILITIES ......................... 1,498 39 -- 1,537
------------- ------------- ------------- -------------
Total liabilities ............................... 269,230 14,242 (3,542) 279,930
STOCKHOLDERS' EQUITY:
Preferred stock .................................... -- -- -- --
Common stock ....................................... 299 195 (169) 325
Restricted common stock ............................ 27 -- -- 27
Treasury stock ..................................... -- (22) 22 --
Additional paid-in capital ......................... 319,509 378 40,392 360,279
Retained earnings .................................. 29,578 17,813 (17,813) 29,578
------------- ------------- ------------- -------------
Total stockholders' equity ...................... 349,413 18,364 22,432 390,209
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity ....... $ 618,643 $ 32,606 $ 18,890 $ 670,139
============= ============= ============= =============
</TABLE>
2
<PAGE> 5
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
IES AND FISCAL 1998 FISCAL 1999 PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS ACQUISITIONS ADJUSTMENTS TOTAL
--------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES .......................... $ 386,721 $ 363,728 $ 210,717 $ -- $ 961,166
COST OF SERVICES .................. 306,052 295,349 157,214 -- 758,615
------------- ------------- ------------- ------------- -------------
GROSS PROFIT ................... 80,669 68,379 53,503 -- 202,551
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES ....... 47,390 62,621 34,134 (38,826) 105,319
NON-CASH, NON-RECURRING
COMPENSATION CHARGE .......... 17,036 -- -- (17,036) --
GOODWILL AMORTIZATION ............. 3,212 -- -- 6,880 10,092
------------- ------------- ------------- ------------- -------------
INCOME FROM OPERATIONS ......... 13,031 5,758 19,369 48,982 87,140
OTHER INCOME (EXPENSE):
Interest expense ............... (1,161) -- (577) (2,554) (4,292)
Interest income ................ 433 730 590 (1,455) 298
Other, net ..................... 335 404 528 (462) 805
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE), NET ....... (393) 1,134 541 (4,471) (3,189)
INCOME BEFORE INCOME TAXES ........ 12,638 6,892 19,910 44,511 83,951
PROVISION FOR INCOME TAXES ........ 12,690 5,473 7,664 10,015 35,842
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) ................. $ (52) $ 1,419 $ 12,246 $ 34,496 $ 48,109
============= ============= ============= ============= =============
EARNING (LOSS) PER SHARE -
BASIC - ................. $ 0.00 $ 1.37
============= =============
DILUTED - ............... $ 0.00 $ 1.35
============= =============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - ................. 19,753,060 35,197,669
============= =============
DILUTED - ............... 19,753,060 35,597,502
============= =============
</TABLE>
3
<PAGE> 6
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
IES AND PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS ADJUSTMENTS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES .......................... $ 413,404 $ 70,184 $ -- $ 483,588
COST OF SERVICES .................. 326,934 53,320 (402) 379,852
------------ ------------ ------------ ------------
GROSS PROFIT ................... 86,470 16,864 402 103,736
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES ....... 45,590 20,189 (6,551) 59,228
GOODWILL AMORTIZATION ............. 3,943 -- 1,103 5,046
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS ......... 36,937 (3,325) 5,850 39,462
OTHER INCOME (EXPENSE):
Interest expense ............... (4,923) (195) 195 (4,923)
Interest income ................ 496 310 (310) 496
Other, net ..................... 283 217 -- 500
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE), NET ....... (4,144) 332 (115) (3,927)
INCOME BEFORE INCOME TAXES ........ 32,793 (2,993) 5,735 35,535
PROVISION FOR INCOME TAXES ........ 13,961 (1,152) 2,633 15,442
------------ ------------ ------------ ------------
NET INCOME (LOSS) ................. $ 18,832 $ (1,841) $ 3,102 $ 20,093
============ ============ ============ ============
EARNING (LOSS) PER SHARE -
BASIC - ................. $ 0.59 $ 0.57
============ ============
DILUTED - ............... $ 0.58 $ 0.56
============ ============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - ................. 31,761,207 35,197,669
============ ============
DILUTED - ............... 32,254,651 35,691,113
============ ============
</TABLE>
4
<PAGE> 7
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET:
The Pro Forma Adjustments reflects the Acquisitions which were
acquired subsequent to December 31, 1998.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS:
The Unaudited Pro Forma Statement of Operations for the year ended
September 30, 1998 for IES and Subsidiaries reflects the historical results of
Houston-Stafford Electric, Inc. ("Houston-Stafford") as the accounting acquirer
(restated for the effect of an acquisition accounted for as a
pooling-of-interest combined) the other Founding Companies beginning February
1, 1998, and the Acquired Companies beginning on their respective dates of
acquisition.
The Acquisitions column reflects the historical results of the
Acquisitions as if they had been acquired on October 1, 1997.
The following table summarizes the Pro Forma Adjustments for the Year
Ended September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------------------------------------------- PRO FORMA
(a) (b) (c) (d) ADJUSTMENTS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative expenses .... $(38,826) $ -- $ -- $ -- $(38,826)
Non-cash, nonrecurring compensation charge ...... (17,036) -- -- -- (17,036)
Goodwill amortization ........................... -- 6,880 -- -- 6,880
-------- -------- -------- -------- --------
Income (loss) from operations ................ 55,862 (6,880) -- -- 48,982
Other income (expense):
Interest expense ............................. -- -- (2,554) -- (2,554)
Interest income .............................. -- -- (1,455) -- (1,455)
Other, net ................................... -- (462) -- -- (462)
-------- -------- -------- -------- --------
Other income (expense), net .................. -- (462) (4,009) -- (4,471)
-------- -------- -------- -------- --------
Income (loss) before income taxes ............ 55,862 (7,342) (4,009) -- 44,511
Provision for income taxes ...................... -- -- -- 10,015 10,015
-------- -------- -------- -------- --------
Net income (loss) ............................... $ 55,862 $ (7,342) $ (4,009) $(10,015) $ 34,496
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------------------------------------------- PRO FORMA
(a) (b) (c) (d) ADJUSTMENTS
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Cost of services .............................. (402) -- -- -- (402)
-------- -------- -------- -------- --------
Gross profit ............................... 402 -- -- -- 402
Selling, general and administrative expenses .. $ (6,551) $ -- $ -- $ -- $ (6,551)
Goodwill amortization ......................... -- 1,103 -- -- 1,103
-------- -------- -------- -------- --------
Income (loss) from operations .............. 6,953 (1,103) -- -- 5,850
Other income (expense):
Interest expense ........................... -- -- 195 -- 195
Interest income ............................ -- -- (310) -- (310)
Other, net ................................. -- -- -- -- --
-------- -------- -------- -------- --------
Other income (expense), net ................ -- -- (115) -- (115)
-------- -------- -------- -------- --------
Income (loss) before income taxes .......... 6,953 (1,103) (115) -- 5,735
Provision for income taxes .................... -- -- -- 2,633 2,633
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 6,953 $ (1,103) $ (115) $ (2,633) $ 3,102
======== ======== ======== ======== ========
</TABLE>
5
<PAGE> 8
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Reflects the reduction in salaries, bonuses and benefits and lease
payments to the owners of the Acquisitions. These reductions in
salaries, bonuses and benefits and lease payments have been agreed to
in accordance with the terms of employment agreements executed as part
of the acquisitions. Such employment agreements are for five years,
contain restrictions related to competition and provide severance for
termination of employment in certain circumstances. Also, includes the
reversal of the $17.0 million non-cash, non-recurring compensation
charge in connection with the acquisition of the Founding Companies.
(b) Reflects the amortization of goodwill recorded as a result of these
acquisitions over a 40-year estimated life, as well as a reduction in
historical minority interest expense attributable to minority
interests that were acquired as part of the related acquisitions.
(c) Reflects the reduction of additional interest expense and income on
borrowings which will be repaid and collected, respectively,
subsequent to the acquisition and the reduction of certain
non-recurring other income.
(d) Reflects the incremental provision for federal and state income taxes
at a 38.5% overall tax rate, before non-deductible goodwill and other
permanent items, related to the other statements of operations
adjustments and for income taxes on the pretax income of acquired
companies that have historically elected S Corporation tax status.
6
<PAGE> 9
INDEPENDENT AUDITOR'S REPORT
Stockholder
Canova Electrical Contracting, Inc.
East McKeesport, Pennsylvania
We have audited the accompanying balance sheet of Canova Electrical
Contracting, Inc. as of December 31, 1998, and the related statements of
income, stockholder's equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Canova Electrical Contracting,
Inc., as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
April 29, 1999
7
<PAGE> 10
CANOVA ELECTRICAL CONTRACTING, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1998 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 258,015 $ 142,701
Accounts Receivable - Contracts (Net of Allowance for Doubtful
Accounts of $10,000) 922,676 784,764
Retainages Receivable 256,396 321,797
Accounts Receivable - Employees 5,881 3,860
Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts 15,080 99,155
Prepaid Expenses 20,484 9,632
--------------- ---------------
Total Current Assets $ 1,478,532 $ 1,361,909
PROPERTY AND EQUIPMENT (NET) 211,868 228,997
--------------- ---------------
Total Assets $ 1,690,400 $ 1,590,906
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of Credit $ 400,000 $ 50,000
Current Portion of Long-Term Debt 24,771 18,846
Accounts Payable - Trade 10,467 333,908
Accrued Expenses 19,846 48,802
Billings in Excess of Costs and Estimated Earnings on
Uncompleted Contracts 238,254 108,521
--------------- ---------------
Total Current Liabilities $ 693,338 $ 560,077
LONG-TERM DEBT (Net of Current Portion Shown Above) 20,269 30,040
--------------- ---------------
Total Liabilities $ 713,607 $ 590,117
--------------- ---------------
STOCKHOLDER'S EQUITY
Common Stock - $1 Par Value; 1,000
Shares Authorized, Issued and Outstanding $ 1,000 $ 1,000
Additional Paid-In Capital 130,736 130,736
Retained Earnings 845,057 869,053
--------------- ---------------
Total Stockholder's Equity $ 976,793 $ 1,000,789
--------------- ---------------
Total Liabilities and Stockholder's Equity $ 1,690,400 $ 1,590,906
=============== ===============
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE> 11
CANOVA ELECTRICAL CONTRACTING, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE THREE-MONTH PERIODS ENDED
MARCH 31, 1998 (UNAUDITED) AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ------------------------------------
1998 1998 1999
--------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CONTRACT REVENUES EARNED $ 5,772,864 $ 1,296,173 $ 1,546,460
CONTRACT COSTS 4,734,169 1,030,412 1,318,163
--------------- --------------- ---------------
GROSS PROFIT $ 1,038,695 $ 265,761 $ 228,297
GENERAL AND ADMINISTRATIVE EXPENSE 716,592 132,101 193,820
--------------- --------------- ---------------
INCOME FROM OPERATIONS $ 322,103 $ 133,660 $ 34,477
--------------- --------------- ---------------
OTHER INCOME
Interest Income $ 12,230 $ 2,619 $ 3,150
Interest Expense (8,818) (4,337) (3,665)
Bad Debts Recovered 8,104 776 776
--------------- --------------- ---------------
Total Other Income $ 11,516 $ (942) $ 261
--------------- --------------- ---------------
NET INCOME $ 333,619 $ 132,718 $ 34,738
=============== =============== ===============
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE> 12
CANOVA ELECTRICAL CONTRACTING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE THREE-MONTH PERIOD ENDED
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 1,000 $ 1,000 $ 130,736 $ 570,190 $ 701,926
Distributions to Stockholder
-- -- -- (58,752) (58,752)
Net Income
-- -- -- 333,619 333,619
--------------- --------------- --------------- --------------- ---------------
BALANCE, DECEMBER 31, 1998 1,000 $ 1,000 $ 130,736 $ 845,057 $ 976,793
Distributions to Stockholder
-- -- -- (10,742) (10,742)
Net Income
-- -- -- 34,738 34,738
--------------- --------------- --------------- --------------- ---------------
BALANCE, MARCH 31, 1999 1,000 $ 1,000 $ 130,736 $ 869,053 $ 1,000,789
=============== =============== =============== =============== ===============
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 13
CANOVA ELECTRICAL CONTRACTING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE THREE-MONTH PERIODS
ENDED MARCH 31, 1998 (UNAUDITED) AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------------
1998 1998 1999
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 333,619 $ 132,718 $ 34,738
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 81,450 17,251 17,251
Loss on Disposal of Equipment 3,456 -- --
(Increase) Decrease in Current Assets:
Accounts Receivable - Contracts (486,491) 31,123 72,511
Unbilled Revenues 92,742 27,946 (84,075)
Other Current Assets 51,564 -- 10,852
Increase (Decrease) in Current Liabilities:
Accounts Payable (67,676) 152,665 323,441
Excess Billings 204,047 22,486 (129,733)
Accrued Expenses (3,934) 5,760 28,956
Income Taxes Payable 2,400 --
---------- ---------- ----------
Net Cash Provided by Operating Activities $ 211,177 $ 389,949 $ 273,941
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Purchase of Equipment $ (56,558) $ (12,153) $ (19,380)
Loans Receivable - Employees (2,000) 373 2,021
Loans Receivable - Affiliates (940) -- --
---------- ---------- ----------
Net Cash Used by Investing Activities $ (59,498) $ (11,780) $ (17,359)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change on Line of Credit $ -- $ (330,000) $ (350,000)
Payments on Long-Term Debt (23,086) (5,064) (11,154)
Distributions (58,752) (9,414) (10,742)
---------- ---------- ----------
Net Cash Used by Financing Activities $ (81,838) $ (344,478) $ (371,896)
---------- ---------- ----------
NET INCREASE IN CASH $ 69,841 $ 33,691 $ (115,314)
Cash - Beginning 188,174 188,174 258,015
---------- ---------- ----------
CASH - ENDING $ 258,015 $ 221,865 $ 142,701
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest Paid $ 8,818 $ 4,337 $ 3,665
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
TRANSACTIONS
Equipment Purchased with Long-Term Debt $ 30,000 $ -- $ 15,000
========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 14
CANOVA ELECTRICAL CONTRACTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company is engaged in the business of providing electrical
contracting services on various commercial, institutional, industrial
and multi-family residential projects located primarily in Western
Pennsylvania. The Company began operations in 1972 and conducted
business as a sole proprietorship until January 10, 1989, when it was
incorporated under the laws of the Commonwealth of Pennsylvania
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements and related disclosures
for the three-month periods ended March 31, 1998 and 1999, have not
been audited by independent accountants. However, the financial
statements for all interim periods have been prepared in conformity
with the accounting principles stated in the audited financial
statements for the year ended December 31, 1998, and include all
adjustments (which were of a normal, recurring nature) which, in the
opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows
for each of the periods presented. The operating results for the
interim periods presented are not necessarily indicative of results for
the full year.
REVENUE AND COST RECOGNITION
Revenues are recognized on the percentage-of-completion method,
measured by the costs incurred to date to the estimated total costs for
each contract. Contract revenue earned is the amount of direct costs
incurred plus the amount of gross profit recognized based on the extent
of progress toward completion.
Contract costs include all direct costs and job related overhead.
General and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job
performance, job condition, and estimated profitability may result in
revisions to costs and income and are recognized in the period in which
the revisions are determined. Because of inherent uncertainties in
estimating costs and revenues, it is at least reasonably possible that
the estimates used will change in the near term.
12
<PAGE> 15
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances with high quality financial
institutions. At times such cash balances may be in excess of the FDIC
insurance limit.
The Company's revenues are highly concentrated with a few customers.
Contract revenues from three customers in 1998 represented
approximately 75% of total contract revenues for the year ended
December 31, 1998. The contract accounts receivable from these
customers were $324,670 as of December 31, 1998. The loss of a
significant customer could have a material impact on the Company's
future earnings results.
The Company has recorded an allowance for doubtful accounts of
approximately $10,000 as of December 31, 1998. Management believes
that this allowance is adequate.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line and accelerated methods over the estimated
useful life of the asset. Equipment and fixtures are depreciated
between 5 and 7 years. Leasehold improvements are depreciated over the
life of the lease term.
At December 31, 1998, property and equipment consisted of:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
Equipment and Fixtures $ 188,998
Transportation Equipment 319,731
Leasehold Improvements 63,019
-----------
$ 571,748
Less: Accumulated Depreciation (359,880)
-----------
Property and Equipment, net $ 211,868
===========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and notes payable. Estimates of the fair
value of these instruments are based on interest rates available to the
Company. At December 31, 1998, the carrying value of the Company's
financial instruments approximated fair value.
INCOME TAXES
The Company has elected S corporation status for federal and state
income tax purposes whereby the Company's taxable income and any tax
credits resulting from operating losses will be included in the
individual income tax return of its stockholder. Therefore, no
provision for income taxes is included in these financial statements.
13
<PAGE> 16
CANOVA ELECTRICAL CONTRACTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 CONTRACTS IN PROGRESS
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Costs Incurred on Uncompleted Projects $ 3,678,709
Estimated Gross Profit 951,187
------------
Contract Revenues $ 4,629,896
Less: Billings 4,853,070
------------
$ (223,174)
============
Cost and Estimated Earnings in Excess of
Billings on Uncompleted Contracts $ 15,080
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts (238,254)
------------
Total, Net $ (223,174)
============
</TABLE>
NOTE 4 NOTE PAYABLE - BANK
The Company has a discretionary demand line of credit available from
Dollar Bank for maximum working capital borrowings of $500,000. The
line of credit is unsecured except for the personal guarantee of the
stockholder. The interest rate is equal to the prime rate and was
7.75% as of December 31, 1998. Borrowings on the line of credit as of
December 31, 1998 were $400,000.
14
<PAGE> 17
CANOVA ELECTRICAL CONTRACTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 LONG-TERM DEBT
<TABLE>
<CAPTION>
Description Collateral Amount
- ----------- ---------- --------
<S> <C> <C>
Installment Note - G.M.A.C., Interest at 9.50%, Monthly
Principal and Interest Payments of $420 through October 1999 Truck $ 3,635
Installment Note - Irwin Bank, Interest at 8.39%, Monthly
Principal and Interest Payments of $315 through April 1999 Van 1,239
Installment Note - Irwin Bank, Interest at 8.39%, Monthly
Principal and Interest Payments of $252 through April 1999 Truck 991
Installment Note - Irwin Bank, Interest at 8.38%, Monthly
Principal and Interest Payments of $315 through December
1999 Truck 3,615
Installment Note - Irwin Bank, Interest at 8.38%, Monthly
Principal and Interest Payments of $315 through December
1999 Van 3,615
Installment Note - G.M.A.C., Interest at 3.90%, Monthly
Principal and Interest Payments of $305 through February
2000 Automobile 4,166
Installment Note - Irwin Bank, Interest at 8.38%, Monthly
Principal and Interest Payments of $315 through September
2001 Truck 9,010
Installment Note - Ford Motor Credit, Interest at 0.90%, Monthly
Principal and Interest Payments of $212 through September
2002 Truck 8,769
Installment Note - Irwin Bank, Interest at 7.50%, Monthly
Principal and Interest Payments of $311 through January 2002
Truck 10,000
--------
Subtotal $ 45,040
Less: Current Portion 24,771
--------
Long-Term Portion $ 20,269
========
</TABLE>
15
<PAGE> 18
NOTE 5 LONG-TERM DEBT (CONTINUED)
Maturity requirements on long-term debt as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
- ------------------------ -------
<S> <C>
1999 $24,771
2000 9,522
2001 8,835
2002 1,912
-------
Total $45,040
=======
</TABLE>
NOTE 6 PROFIT SHARING PLAN
The Company provides a defined contribution profit sharing plan. The
Plan covers all full-time employees with at least one year of service.
The Company matches 20% of employee contributions up to a maximum of
15% of gross compensation. The employer contribution for the year
ended December 31, 1998 was $9,147.
NOTE 7 LEASE COMMITMENTS
On April 23, 1999, the Company agreed to a five year net operating
lease for its East McKeesport office and two warehouse with its sole
stockholder. The terms of the lease provide for the payment of fixed
monthly rentals of $2,500 plus all expenses of occupying and operating
the premises. Prior to this lease the facilities were leased under a
year-to-year basis. Rent expense was $17,900 for the year ended
December 31, 1998.
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
- ----------------------- --------
<S> <C>
1999 $ 20,000
2000 30,000
2001 30,000
2002 30,000
2003 30,000
Thereafter 10,000
--------
Total $150,000
========
</TABLE>
NOTE 8 SUBSEQUENT EVENT
On April 23, 1999 effective on April 16, 1999, the Company completed
the sale of substantially all of its assets and liabilities to
Integrated Electrical Services.
16
<PAGE> 19
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Tesla Power and Automation, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Tesla Power and Automation,
Inc. (a Texas corporation) as of December 31, 1998, and the related statements
of operations and comprehensive income, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tesla Power and Automation,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
BROCKMANN, ARMOUR & CO. LLC
Denver, Colorado
April 23, 1999
17
<PAGE> 20
TESLA POWER AND AUTOMATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31, 1999
1998 (unaudited)
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,171 $ 2,816,498
Accounts receivable:
Uncompleted contracts 1,055,864 81,762
Completed contracts, net of allowance of $50,000 1,196,431 461,278
Other 5,310 26,320
Marketable securities 1,373,206 --
Cost and estimated earnings in excess of billings
on uncompleted contracts 343,830 852,434
Prepaid expenses and other current assets 16,628 60,038
--------------- ---------------
Total current assets 4,007,440 4,298,330
Property and equipment, at cost, net of accumulated
depreciation and amortization 1,378,935 1,416,151
Other assets 1,420 1,420
--------------- ---------------
Total assets $ 5,387,795 $ 5,715,901
=============== ===============
LIABILITIES
Current liabilities:
Line of credit and margin securities account $ 301,849 $ 3,492
Accounts payable 892,935 435,346
Current portion of long-term debt 15,412 5,155
Current portion of notes payable to stockholders 96,674 73,223
Provision for product warranty 42,732
Billings in excess of costs and estimated earnings
on uncompleted contracts 292,738 115,739
Income taxes payable 54,512 18,746
Accrued 401(k)/profit sharing and payroll related expenses 53,301 209,966
--------------- ---------------
Total current liabilities 1,750,153 861,667
Long-term debt, net of current portion 30,534 395,534
Notes payable to stockholders 8,409 8,409
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 100,000 shares authorized,
50,000 shares issued and outstanding 50,000 50,000
Additional paid-in capital 53,900 53,900
Retained earnings 3,576,669 4,346,391
Unrealized loss on marketable securities (81,870) --
--------------- ---------------
3,598,699 4,450,291
--------------- ---------------
$ 5,387,795 $ 5,715,901
=============== ===============
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
18
<PAGE> 21
TESLA POWER AND AUTOMATION, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Month Periods Ended
-------------------------
Year ended March 31, 1998 March 31, 1999
December 31, 1998 (Unaudited) (Unaudited)
----------------- -------------- --------------
<S> <C> <C> <C>
Contract revenue $ 10,330,238 $ 2,416,582 $ 3,418,781
Cost of contract revenue 8,150,867 1,878,555 2,492,974
-------------- -------------- --------------
Gross profit 2,179,371 538,027 925,807
General and administrative expenses 1,322,085 511,992 491,895
-------------- -------------- --------------
Income from operations 857,286 26,035 433,912
Other income (expense):
Interest expense (77,678) (23,450) (7,188)
Interest income 101,331 2,374 6,476
Realized gain (loss) on sale of marketable
securities 28,708 -- (76,488)
Gain on sale of property and equipment 1,626 12,344 --
Rental income 63,841 -- --
Other income -- 2,880 44,110
-------------- -------------- --------------
117,828 (5,852) (33,090)
-------------- -------------- --------------
Income before state income taxes 975,114 20,183 400,822
Provision for state income taxes 50,825 -- 18,000
-------------- -------------- --------------
Net income 924,289 20,183 382,822
Other comprehensive income:
Unrealized holding losses recognized during the
Period (121,498) -- --
Previously recognized unrealized loss on
marketable securities 39,628 -- 81,870
-------------- -------------- --------------
Comprehensive income $ 842,419 $ 20,183 $ 464,692
============== ============== ==============
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
19
<PAGE> 22
TESLA POWER AND AUTOMATION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED
PAID-IN GAIN (LOSSES)
COMMON STOCK CAPITAL RETAINED ON MARKETABLE
SHARES AMOUNT STOCK EARNINGS SECURITIES TOTAL
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 50,000 $ 50,000 $ 53,900 $ 2,977,380 $ 39,628 $ 3,120,908
Distributions to stockholders -- -- -- (325,000) -- (325,000)
Accumulated other comprehensive
income -- -- -- -- (121,498) (121,498)
Net income -- -- -- 924,289 -- 924,289
--------- --------- --------- ----------- ----------- -----------
Balance, December 31, 1998 50,000 50,000 53,900 3,576,669 (81,870) 3,598,699
Merger with UCI (unaudited) -- -- -- 386,900 -- 386,900
Accumulated other comprehensive
income (unaudited) -- -- -- -- 81,870 81,870
Net income (unaudited) -- -- -- 382,822 -- 382,822
--------- --------- --------- ----------- ----------- -----------
Balance, March 31, 1999 (unaudited) 50,000 $ 50,000 $ 53,900 $ 4,346,391 $ -- $ 4,450,291
========= ========= ========= =========== =========== ===========
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
20
<PAGE> 23
TESLA POWER AND AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Month Periods Ended
Year Ended March 31, 1998 March 31, 1999
December 31, 1998 (Unaudited) (Unaudited)
--------------- ------------- ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 924,289 $ 20,183 $ 382,822
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization 142,224 33,106 36,367
Realized (loss) on sale of marketable securities 28,708 -- 76,488
(Gain) loss on sale of property and equipment (1,626) (12,344) --
(Increase) decrease in--
Accounts receivable (132,905) 436,308 2,039,457
Costs and estimated earnings in excess of billings
On uncompleted contracts 516,317 211,648 (426,019)
Other current assets 13,003 2,965 (30,289)
Increase (decrease) in--
Accounts payable 181,396 124,420 (523,291)
Billings in excess of costs and estimated
Earnings on uncompleted contracts 262,118 (15,722) (176,999)
Other current liabilities 15,276 (12,260) 45,785
------------- ------------- -------------
Net cash provided by operating activities 1,948,800 788,304 1,424,321
Cash flows from investing activities:
Purchase of property and equipment (260,684) (46,547) (37,272)
Purchase of marketable securities (157,759) -- --
Proceeds from sale of investments -- -- 1,378,588
Proceeds from sale of property and equipment 17,500 -- --
------------- ------------- -------------
Net cash used by investing activities (400,943) (46,547) 1,341,316
Cash flows from financing activities:
Proceeds on margin securities account (604,690) -- 3,492
Cash received in Merger -- -- 1,755
Distributions to stockholders (325,000) (100,000) --
Borrowings on line of credit 3,755,730 -- --
Payments on line of credit (3,734,922) (613,838) (301,849)
Proceeds from issuance of long-term debt -- -- 350,000
Payments on long-term debt (642,350) (26,923) (18,708)
------------- ------------- -------------
Net cash used by financing activities (1,551,232) (740,761) 34,690
------------- ------------- -------------
Net increase in cash and cash equivalents (3,375) 996 2,800,327
Cash and cash equivalents, beginning of period 19,546 20,545 16,171
------------- ------------- -------------
Cash and cash equivalents, end of period $ 16,171 $ 21,541 $ 2,816,498
============= ============= =============
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
21
<PAGE> 24
TESLA POWER AND AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Organization and description of business:
Tesla Power and Automation, Inc. (the Company) is an engineering and
manufacturing company specializing in the construction of electrical
power control units. The Company was incorporated on January 18, 1988,
in the state of Texas. The Company's long-term construction contracts
are primarily comprised of fixed-price contracts.
2. Summary of significant accounting policies:
Interim financial statements
The accompanying interim financial statements and related disclosures
as of March 31, 1999 and for the three months ended March 31, 1998 and
1999, have not been audited by independent accountants. However, the
financial statements for all interim periods have been prepared in
conformity with the accounting principles stated in the audited
financial statements for the year ended December 31, 1998, and include
all adjustments (which were of a normal, recurring nature) which, in
the opinion of management, are necessary to present fairly the
financial position of the Company and the results of operations and
cash flows for each of the periods presented. The operating results
for the interim periods presented are not necessarily indicative of
results for the full year.
As discussed further in note 12, on January 13, 1999, the Company
completed a corporate reorganization. The interim financial statement
information as of and for the three months ended March 31, 1999,
include the accounts and entities owned by Tesla Power and Automation
(Nevada), Inc.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Accounting for construction contracts
Revenues from long-term construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of total
costs incurred to date to estimated total costs for each contract.
Contract costs include all direct job costs and those indirect costs
related to contract performance, such as indirect labor, supplies,
insurance, equipment repairs, and depreciation costs. General and
administrative costs are charged to expense as incurred
22
<PAGE> 25
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenue recognized in excess of
billings. The liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts", represents billings in excess of
revenues recognized. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Cash and cash equivalents
The Company records as cash and cash equivalents all cash and
short-term investments with original maturities of three months or
less.
Concentrations of risk
Financial instruments that potentially subject the Company to credit
risk consist principally of cash and cash equivalents and contract
receivables.
The Company maintains cash balances at single financial institution.
Accounts at this institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. At times, the balances in the
Company's accounts may exceed this limit.
The Company's contract revenues are highly concentrated with two
individual customers. These customers accounted for approximately
$3,003,000 or 29% of contract revenues for the year ended December 31,
1998. The associated accounts receivable from these customers total
approximately $375,000 or 17% of total accounts receivable at December
31, 1998. The loss of a significant customer could have a material
impact on the Company's future earnings results. These sales are
primarily derived from sales of electrical power control units
concentrated with customers in the petroleum industry. The Company has
recorded an allowance for doubtful accounts of approximately $50,000
as of December 31, 1998. Management believes that this allowance is
adequate.
The Company purchases materials, parts and supplies from four
unrelated third party vendors and one vendor under common control as
more further discussed in Note 10. These vendors accounted for
approximately $4,299,000 or 68% of material, part and supply purchases
during the year ended December 31, 1998. Management believes there are
alternative sources of supply should a loss of one of these vendors
occur, however, the loss may result in a short-term impact to the
Company.
Advertising
Advertising expenses are charged to expense as incurred and are
included in general and administrative expenses. Advertising expense
totaled $22,234 for the year ended December 31, 1998.
23
<PAGE> 26
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation and
amortization is provided on a straight-line basis over the estimated
useful life of the asset. Machinery and equipment, vehicles and
furniture and fixtures are depreciated between 5 and 7 years. Building
and improvements are depreciated and amortized between 31 and 39
years. Repairs and maintenance of a routine nature are charged to
expense as incurred, while those that improve or extend the life of
existing assets are capitalized.
At December 31, 1998, property, plant and equipment consist of the
following:
<TABLE>
<S> <C>
Furniture and fixtures $ 22,056
Machinery and equipment 564,428
Vehicles 197,682
Building and improvements 716,204
Land 445,349
-----------
1,945,719
Less--accumulated depreciation
and amortization (566,784)
-----------
Property, plant and equipment, net $ 1,378,935
===========
</TABLE>
Depreciation expense of $38,988 has been included in selling, general
and administrative expenses and $103,236 has been included in cost of
sales for the year ended December 31, 1998.
Accrued Product Warranty
The Company provides limited warranties, through its original
equipment manufacturers (OEM) for the products it sells. Generally,
warranty costs during the basic warranty period, which varies based on
the OEM, are reimbursed by the OEM. The accrued product warranty in
the accompanying financial statements is based on management's
estimate of future warranty costs for warranties provided by the
Company outside of the OEM warranty period.
Income taxes
The Company, with the consent of its stockholders, elected under the
Internal Revenue Code to be taxed as an S Corporation. In lieu of
corporate income taxes, the stockholders of an S Corporation are taxed
individually on the Company's taxable income. As a result of the
Company being a non-taxpaying entity, no provision for income taxes
has been provided for Federal income tax reporting purposes.
The Company reports income for both financial and tax reporting using
the percentage-of-completion method on its long-term contracts.
The provision for income taxes relates to State of Texas franchise
taxes owed by the Company.
24
<PAGE> 27
Upon completion of the acquisition of the Company's outstanding stock
as discussed in Note 12, the Company's S Corporation tax status will
be terminated.
Fair value of financial instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents
The carrying amount approximates fair value because of the short
maturity of those instruments.
Marketable securities
The fair values of marketable securities are estimated based on quoted
market prices for those or similar investments. The carrying amount
approximates fair value.
Long-term debt
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same
remaining maturities. The carrying amount approximates fair value.
3. Change in accounting principle
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. This
statement requires the disclosure of comprehensive income as well as
net income. The only element of comprehensive income that the Company
has that is not part of net income is unrealized gains on marketable
securities. The Company has reclassified its 1997 financial statements
in conjunction with the adoption of this statement. Other
comprehensive income is shown of net realized gains on the sale of
marketable securities.
4. Marketable securities
The Company records its investment in marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's marketable securities consist of mutual
funds and are classified as "available-for-sale." Accordingly,
unrealized gains and losses are excluded from earnings and reported as
a separate component of stockholders' equity. Realized gains or losses
are computed based on specific identification of the securities sold.
The following is an analysis of marketable securities available for sale at
December 31, 1998:
<TABLE>
<S> <C>
Balance at cost $ 1,455,076
Gross unrealized losses (81,870)
-----------
$ 1,373,206
===========
</TABLE>
25
<PAGE> 28
In March, 1999, the marketable securities were sold and the net
proceeds were distributed to the stockholders on April 13, 1999.
5. Contracts in progress
Contracts in progress at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Total contracts $ 5,528,445
-----------
Estimated costs
Costs to date 944,576
Costs to complete 3,288,872
-----------
Total estimated costs 4,233,448
-----------
Estimated gross profit $ 1,294,997
===========
Amount billed to date $ 1,214,594
Costs and estimated earnings in excess of billings 343,830
Billings in excess of costs and estimated earnings (292,738)
-----------
Contract revenue earned 1,265,686
Costs to date (944,576)
-----------
Gross profit earned $ 321,110
===========
</TABLE>
6. Line of credit and margin securities account
The Company has a $750,000 revolving line of credit with a financial
services company. Advances on the LOC are limited to 80% of eligible
accounts receivable. As of December 31, 1998, the maximum amount
available under the LOC is approximately $448,000, with interest due
monthly at 30-day commercial paper rate plus 2.9% per annum (totaling
8.0% at December 31, 1998). As of December 31, 1998, a total of
$301,849 was outstanding. The line of credit is collateralized by the
Company's accounts receivable, property, plant and equipment, is
guaranteed by the Company's stockholders and requires the Company to
maintain a minimum tangible net worth of $1,500,000. Subsequent to
December 31, 1998, the Company repaid the amounts on the line of
credit prior to its expiration on January 31, 1999.
The Company has a margin securities account with a financial services
company to provide borrowings up to 50% of the marketable securities
balance with interest at a 30-day commercial paper rate plus 2.9%
payable monthly. Outstanding balances under the margin securities
account are collaterialized by marketable securities. No balance was
outstanding under the margin securities account at December 31, 1998.
As a result of the acquisition of the Company's outstanding stock as
discussed in Note 12, the line of credit agreement was not renewed and
the margin securities account was cancelled.
26
<PAGE> 29
7. Long-term debt and notes payable stockholders
<TABLE>
<CAPTION>
<S> <C>
Term note payable to a financial service company with monthly payments
of $7,679, including interest at 30 day commercial paper rate plus 2.9%
(totaling 8.0% at December 31, 1998) through January 31, 2003 when any
outstanding principal and interest is due. Cross-collateralized with
line of credit and secured by accounts receivable, fixtures and
equipment. Guaranteed by the Company's stockholders
$ 8,410
Term note payable to financial institution with monthly payments of
$767.71 including interest at 9.9% per annum through May 15, 2001, with
a balloon payment of $18,507 due at maturity; collaterialized by a
vehicle and guaranty by the Company's stockholders
37,536
---------
45,946
Less current portion (15,412)
---------
$ 30,534
Unsecured notes payable to stockholders; monthly payments of $8,465 =========
including interest at 8% per annum; due January 12, 2000
$ 105,083
Less current portion (96,674)
---------
$ 8,409
=========
</TABLE>
8. Operating leases
The Company is obligated under several non-cancelable operating leases
for office equipment and machinery that expire at various dates
through the year 2002.
The annual minimum lease payments under non-cancelable operating leases
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 49,645
2000 48,645
2001 26,631
2002 68,371
--------
$193,292
========
</TABLE>
Rent expense totaled $76,647 for the year ended December 31, 1998.
9. Benefit plans
On January 1, 1994, Company adopted a salary reduction/profit-sharing
plan (the Plan)
27
<PAGE> 30
under the provisions of Section 401(k) of the Internal Revenue Code.
The Plan covers substantially all full-time employees who have
completed one year of service. The Plan provides for the Company to
match voluntary employee contributions at a rate of 25%. Such matching
rate can be changed at the Company's discretion. All contributions by
the Company are funded annually and vest over six years. All employee
contributions are immediately vested. Company matching contributions
to the Plan were $52,601 for the year ended December 31, 1998.
10. Related party transactions
The Company purchases substantially all of its fabricated sheet metal
products from Unlimited Controls, Inc. (UCI), a Texas corporation
controlled by the stockholders of the Company. Purchases from this
entity during the year ended December 31, 1998 totaled $2,283,486. The
Company also rents manufacturing space to UCI. Rent received from UCI
totaled $63,841 for the year ended December 31, 1998.
Interest expense related to notes payable to stockholders as discussed
in Note 7 totaled $12,322 for the year ended December 31, 1998.
11. Cash flows
During the year ended December 31, 1998, interest paid was $77,698.
During the year ended December 31, 1998, the Company had non-cash
investing activities related to unrealized holding losses on
marketable securities of $121,498.
12. Subsequent events
On January 13, 1999, the Company completed a corporate reorganization
whereby the Company merged with Unlimited Controls, Inc into a newly
formed entity, Tesla Power and Automation (Nevada), Inc., a Nevada
corporation (TPAN). TPAN contributed its operating assets to Tesla
Power and Automation, LLP (TPALLP) in exchange for a 99% limited
partnership interest and contributed real estate to Tesla Properties,
LLP (TPLLP) in exchange for a 99% limited partnership interest. The
ownership of TPAN and the 1% general partnership interests in TPALLP
and TPLLP are in direct proportion to the ownership of the Company.
On April 23, 1999, the stockholders of TPAN and the general partners
of TPALLP and TPLLP completed the sale of 100% of their ownership
interests in TPAN, TPALLP and TPLLP to Integrated Electrical Services
(IES).
28
<PAGE> 31
ITEM 7. EXHIBITS
(C) EXHIBITS
23.1 Consent of Larson, Allen, Weishair & Co., LLP
23.2 Consent of Brockmann, Armour & Co., LLC
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ JOHN F. WOMBWELL
JOHN F. WOMBWELL
SENIOR VICE PRESIDENT
AND GENERAL COUNSEL
Dated: May 20, 1999
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Larson, Allen, Weishair & Co., LLP
23.2 Consent of Brockmann, Armour & Co., LLC
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report, dated April 29, 1999, on
the financial statements of Canova Electrical Contracting, Inc., included in
this Form 8-K/A, into Integrated Electrical Services, Inc's previously filed
Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and
333-45449), previously filed Registration Statement on Amendment No. 1 to Form
S-4 (File No. 33-75139) and on previously filed Post Effective Amendment No. 5
to Form S-1 on Form S-4 (File No. 333-50031), and to all references to our firm.
/s/ LARSON, ALLEN, WEISHAIR & CO., LLP
LARSON, ALLEN, WEISHAIR & Co., LLP
Minneapolis, MN
May 20, 1999
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EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated April 23, 1999, on the financial statements of Tesla Power and
Automation, Inc., included in this Form 8-K/A, into Integrated Electrical
Services Inc.'s previously filed Registration Statements on Form S-8 (File Nos.
333-67113, 333-45447 and 333-45449), previously filed Registration Statement on
Amendment No. 1 to Form S-4 (File No. 333-75139), and on previously filed Post
Effective Amendment No. 5 to Form S-1 on Form S-4 (File No. 333-50031), and to
all references to our firm.
/s/ BROCKMAN, ARMOUR & CO. LLC
BROCKMAN, ARMOUR & CO. LLC
Denver, Colorado
May 20, 1999
