<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 27, 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 information technology markets. In order
to comply with the disclosure requirements of the Securities and Exchange
Commission regarding the financial statements of businesses acquired or to be
acquired, the Company is filing this Current Report containing the following
audited and pro forma financial statements.
(a) Financial Statements of Business Acquired
See Pages 1 through 13
(b) Pro Forma Financial Statements
See Pages 14 through 19
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors
Ernest P. Breaux Electrical, Inc.
P. O. Box 11640
New Iberia, LA 70562-1640
We have audited the accompanying balance sheets of Ernest P. Breaux Electrical,
Inc. as of April 30, 1999 and April 30, 1998, and the related statements of
income, retained earnings and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provided 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 Ernest P. Breaux Electrical,
Inc. as of April 30, 1999 and April 30, 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
MIXON, ROY, METZ & MIXON
CERTIFIED PUBLIC ACCOUNTANTS
July 14, 1999
New Iberia, LA
1
<PAGE> 4
Ernest P. Breaux Electrical, Inc.
Balance Sheet
April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Current Assets:
Cash (Note 5) $ 61,237 $ 82,851
Contract Receivables (See Note 3) 5,668,479 3,970,457
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts (See Note 2) 1,098,936 307,384
Inventories 318,520 494,566
Prepaid Interest 7,074 10,368
------------ ------------
Total Current Assets: $ 7,154,246 $ 4,865,626
------------ ------------
Investments:
Stocks (At Cost) $ 675 $ 675
Cash Surrender Value-Life Ins. (See Note 7) 1,415,725 1,193,125
Cash Surrender Value-Life Ins. Policy Assignment 120,000 120,000
------------ ------------
Total Investments: $ 1,536,400 $ 1,313,800
------------ ------------
Property, Plant and Equipment: (See Note 4)
Depreciable Assets $ 3,957,096 $ 3,293,544
Accumulated Depreciation (2,384,950) (2,368,477)
------------ ------------
Total Property, Plant and Equipment: $ 1,572,146 $ 925,067
------------ ------------
Total Assets: $ 10,262,792 $ 7,104,493
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
Ernest P. Breaux Electrical, Inc.
Balance Sheet (Continued)
April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Bank Overdraft (Note 5) $ 1,062,588 $ 798,754
Accounts Payable 1,635,142 1,482,750
Accrued and Withheld Taxes 244,744 7,481
Accrued Wages Payable 115,697 94,054
Sales Tax Payable 7,686 4,443
Accrued Property Tax 3,696 0
Accrued Compensated Absences (See Note 6) 120,179 96,257
Accrued Workman's Compensation Claim 0 16,188
Notes Payable - Bank (See Note 5) 88,504 170,000
Note Payable - Equipment (See Note 5) 26,739 26,739
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts (See Note 2) 330,032 461,926
Income Taxes Payable 824,950 124,115
------------ ------------
Total Current Liabilities: $ 4,459,957 $ 3,282,707
------------ ------------
Long-Term Liabilities: (See Note 5)
Note Payable - Stockholders $ 554,830 $ 395,166
Note Payable - Equipment 15,382 42,121
------------ ------------
Total Long-Term Liabilities: $ 570,212 $ 437,287
------------ ------------
Deferred Income Taxes: (See Note 11) $ 68,026 $ 39,046
------------ ------------
Stockholders' Equity:
Common Stock -
$1 Par Value, 100,000 Shares Authorized;
28,750 Shares Issued and 20,675 Shares
Outstanding for 1999
$100 Par Value, 1,000 Shares Authorized;
287.5 Shares Issued, and 174.25 Shares
Outstanding for 1999 $ 28,750 $ 28,750
Additional Paid in Capital 291,109 291,109
Treasury Stock, (8,075 and 113.25 Shares At
Cost for 1999) (82,041) (82,041)
Retained Earnings 4,926,779 3,107,635
------------ ------------
Total Stockholders' Equity: $ 5,164,597 $ 3,345,453
------------ ------------
Total Liabilities and Stockholders' Equity: $ 10,262,792 $ 7,104,493
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
Ernest P. Breaux Electrical, Inc.
Statement of Income
For the Years Ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Contract Revenues Earned: $ 25,402,942 $ 19,090,879
Cost of Revenues Earned 20,557,966 16,598,310
------------ ------------
Gross Profit: $ 4,844,976 $ 2,492,569
Selling, General and Administrative Expense 1,853,668 1,390,809
------------ ------------
Income From Operations: $ 2,991,308 $ 1,101,760
------------ ------------
Other Income / (Expense):
Sale of Equipment $ 5,500 $ 5,900
Other Income 28,278 29,245
Gain on Cash Surrender Value Insurance 66,398 88,349
Stock Bonus 0 (105,913)
------------ ------------
Total Other Income: $ 100,176 $ 17,581
------------ ------------
Income Before Income Taxes: $ 3,091,484 $ 1,119,341
Income Tax Expense/Benefit:
Current (1,243,362) (413,858)
Deferred (28,978) 24,739
------------ ------------
Net Income: $ 1,819,144 $ 730,222
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
Ernest P. Breaux Electrical, Inc.
Statement of Retained Earnings
For the Years Ended April 30, 1999 and 1998
1999 1998
------------ ------------
Retained Earnings, Beginning of Year: $ 3,107,635 $ 2,452,713
Net Income, As Restated For 1998* 1,819,144 730,222
Less: Dividends Paid 0 (75,300)
------------ ------------
Retained Earnings, End of Year: $ 4,926,779 $ 3,107,635
============ ============
*Ernest P. Breaux Electrical, Inc., for year ending April 30, 1998, had written
off a bad debt of $192,000 on a contract in dispute. Subsequent to that write
off, the bad debt was collected. The effect of the correction is to restate
above April 30, 1998 retained earnings net of the associated income tax due as
follows:
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Previously Reported 4/30/98 $ 642,057
Bad Debt Written Off in Error 192,000
Associated Taxes on Internal Revenue Service Audit Paid in Year 4/30/99 (103,835)
------------
Net Income as Restated $ 730,222
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
Ernest P. Breaux Electrical, Inc.
Statement of Cash Flows
For the Years Ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,819,144 $ 730,222
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 314,755 266,801
Increase/Decrease in Inventory 176,046 (63,098)
Increase in Accounts Receivable (1,698,022) (447,303)
Increase/Decrease in Costs and Estimated
Earnings in Excess of Billings (791,552) 309,857
Increase/Decrease in Prepaid Expenses 3,294 (6,080)
Increase/Decrease in Accounts Payable 152,392 695,285
Increase in Billings in Excess of Costs
and Estimated Earnings (131,894) (141,471)
Decrease/Increase in Income Tax Payable 700,835 (123,282)
Decrease/Increase in Accrued Expenses 311,807 (659,090)
------------ ------------
Net Cash Used or Provided by Operating Activities: $ 856,805 $ 561,841
------------ ------------
Cash Flows From Investing Activities:
Increase/Decrease in Cash Surrender Value
of Life Insurance Policies/Policy Assignment $ (222,600) $ (229,950)
Purchase of Property, Plant and Equipment (971,083) (357,189)
------------ ------------
Net Cash Used by Investing Activities: $ (1,193,683) $ (587,139)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from Bank Loans $ 7,182,059 $ 5,908,735
Repayments on Bank Loans (7,093,555) (6,465,277)
Repayments on Equipment Loans (196,738) (153,460)
Proceeds from Stock Loans 282,411 316,522
Repayment on Stock Loans (122,747) (90,396)
Increase in Paid in Capital 0 265,109
Dividends Paid 0 (75,300)
------------ ------------
Net Cash Used or Provided by Financing Activities: $ 51,430 $ (294,067)
------------ ------------
Net Increase/(Decrease) in Cash and Cash Equivalents: $ (285,448) $ (319,365)
Cash and Cash Equivalents at Beginning of Year: (715,903) (396,538)
------------ ------------
Cash and Cash Equivalents at End of Year: $ (1,001,351) $ (715,903)
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 104,126 $ 66,390
Cash paid during the year for income taxes $ 309,991 $ 343,578
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 9
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements
April 30, 1999 and 1998
Note 1 - Significant Accounting Policies:
Company's Activities and Operating Cycle - Ernest P. Breaux Electrical, Inc.,
(the Company) performs commercial, substation, roadway and other projects as an
electrical contractor. The projects are located in Louisiana and surrounding
areas and are coordinated from its office in Iberia Parish. The length of the
Company's contracts is usually less than one year but sometimes up to two years.
Revenue and Cost Recognition - The Company recognizes revenues from construction
contracts on the percentage-of-completion method, measured by the percentage of
cost incurred to date to estimated total cost for each contract. That method is
used because management considers total cost to be the best available measure of
progress on the contracts.
When long-term contracts extend over one year, revisions in cost and profit
estimates during the course of the work are reflected in the accounting period
in which the facts that require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss on both short and long-term contracts is accrued.
Contract cost includes all direct material and labor and those indirect costs
related to contract performance, such as indirect labor and equipment rentals.
The asset, "Cost and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues recognized.
Changes in job performance, job conditions, and estimated profitability may
result in revisions to costs and income, which are recognized in the period in
which the revisions are determined.
Cash - The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash. The Company's bank
overdrafts which occur when the revolving line of credit is used when amounts
are drawn against the bank in excess of cash values are considered cash
equivalents.
Contract Receivables - Contract receivables consist of only trade receivables.
The Company uses the direct write off method for bad debts. The results obtained
under this method do not differ materially from those that would be obtained
under the allowance method. The Company grants credit to its customers on a
short-term basis.
Inventory - Inventories are stated at lower cost or market determined on the
first in, first out basis. Inventory consists of materials such as wire and pipe
used on projects.
7
<PAGE> 10
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 1 - Significant Accounting Policies (continued):
Property, Plant and Equipment - The cost of property, plant and equipment are
depreciated over the estimated useful lives of the related assets. Useful lives
range from three to forty years. Financial statement depreciation is recorded
using the straight-line method whereas tax return depreciation is recorded using
accelerated methods.
Compensated Absences - Accumulated unpaid annual vacation and holiday pay is
accrued at the end of the fiscal year.
Uses of Estimates - The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Significant estimates made involved using the percentage of completion method of
accounting for contracts in progress.
Comprehensive Income - There were no items of other comprehensive income in the
current year, and, thus, net income is equal to comprehensive income for the
current year.
Note 2 - Uncompleted Contracts:
Costs, estimated earnings, and billings on uncompleted contracts are summarized
as follows:
<TABLE>
<S> <C>
1999
------------
Costs Incurred on Uncompleted Contracts $ 12,205,833
Estimated Earnings 2,482,199
------------
Revenues Earned $ 14,688,032
Billings to Date (13,919,128)
------------
Total $ 768,904
============
Included in accompanying balance sheets under the following captions:
1999
------------
Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts $ 1,098,936
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts (330,032)
------------
Total $ 768,804
============
</TABLE>
8
<PAGE> 11
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 2 - Uncompleted Contracts (continued):
Customers are billed upon accumulation of cost data and partial completion of
various stages of construction.
Note 3 - Contract Receivables:
The Company's contract receivables included the following billed and unbilled
amounts. Unbilled amounts represent invoice amounts on contracts to be billed
when the most recent invoice date was earlier than the year end.
<TABLE>
<CAPTION>
<S> <C> <C>
4/30/99 4/30/98
------------ ------------
Contract Receivables - Billed $ 5,668,479 $ 3,970,457
============ ============
</TABLE>
Retainage held on completed contracts and uncompleted contracts on April 30,
1999 and April 30, 1998 was $965,204 and $1,305,915, respectively. The retainage
is included in contract receivables.
All contract receivables are expected to be collected within one year.
Note 4 - Property, Plant, and Equipment:
Analysis of Depreciable Assets:
<TABLE>
<CAPTION>
4/30/99 4/30/98
------------ ------------
Cost Cost
------------ ------------
<S> <C> <C>
Company Vehicles $ 1,603,078 $ 1,456,779
Machinery and Equipment 1,733,235 1,600,527
Building and Improvements 219,226 20,896
Furniture and Fixtures 401,557 215,342
------------ ------------
Total $ 3,957,096 $ 3,293,544
Less: Accumulated Depreciation (2,384,950) (2,368,477)
------------ ------------
Total $ 1,572,146 $ 925,067
============ ============
</TABLE>
9
<PAGE> 12
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 5 - Long-Term Debt:
The Company's debt at April 30, 1999 and 1998 consists of the following:
1999 1998
------------ ------------
Notes Payable - Bank* $ 88,504 $ 170,000
Note Payable - Equipment 42,121 68,860
Note Payable - Stockholders** 554,830 395,166
------------ ------------
Total Debt $ 685,455 $ 634,026
Less Current Maturities (115,243) (196,739)
------------ ------------
Total Long-Term Debt $ 570,212 $ 437,287
============ ============
Notes: Amount Monthly Interest
Due Payments Rate Maturity Collateral
-------- -------- -------- -------- ----------
Note - Bank
$ 2,500,000 Limit $ 88,504 Variable Variable Demand Inv. & Equip
--------
The Company has overdraft protection where the revolving line of credit is used
when amounts are drawn against the bank in excess of their cash balance.
**The Note Payable Stockholders is unsecured with an interest rate of 10%.
Following are the maturities of the notes:
FYE 4/30/00 $ 115,243
FYE 4/30/01 15,382
FYE 4/30/02 0
FYE 4/30/03 0
FYE 4/30/04 0
The line of credit totaling $2,500,000 at April 30, 1999 had a used portion of
$88,504, and a used portion of $170,000 at April 30, 1998.
Note 6 - Accrued Compensated Absences:
Employees of the Company accrue annual vacation leave and holiday pay based on
hours worked. Employees can accumulate a maximum of two weeks vacation and two
years of holidays.
10
<PAGE> 13
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 7 - Cash Surrender Value - Life Insurance:
Cash surrender value of $1,415,725 represents amounts available on surrender of
policies on certain officers and key employees. The Company is the owner and
beneficiary of the policies. Life insurance proceeds on the death of an officer
are to be used to redeem the decedents's interest in the Company; whereby, the
Company is obligated to purchase the shares at a stated price. Stockholders have
assigned a portion of the cash surrender value of their personal life insurance
policies to the Company in the amounts of $120,000 and $120,000 for 1999 and
1998, respectively.
Note 8 - Related Party Transactions:
The Company rents land and buildings, from a partnership owned substantially by
the principal officers and stockholders of the Company. The total rent paid to
this related party during the fiscal year ended April 30, 1999 and 1998 was
$159,000 and $144,000, respectively. This partnership, through the job efforts
of E. P. Breaux Electrical has constructed the following facilities and Ernest
P. Breaux Electrical, Inc. incurred losses on the construction of those
facilities as reflected in the completed contract schedule of this report:
Contract Total
--------------
Job #980205 E. P. Breaux Office $ 224,294
Job #980301 E. P. Breaux Operation Office Warehouse $ 164,982
Job #980509 E. P. Breaux Site Clearing $ 62,099
Job #980302 E. P. Breaux Training Center $ 135,873
The jobs were completed as of April 30, 1999. There were rough estimated
contract totals used at the inception of the job and no signed contracts as to
the amount of the contract or scope of work.
The fabrication shop and carpenter shop was still in progress as of April 30,
1999 and had accumulated costs of $55,530 and a total contract price of $89,350.
The Company maintains a Note Payable - Stockholders account where loans and
related repayments are recorded.
Note 9 - Contract Backlog - Unaudited:
4/30/99 4/30/98
----------- -----------
Estimated gross revenue on work to be performed $11,626,452 $10,749,334
=========== ===========
11
<PAGE> 14
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 10 - Miscellaneous:
The Company's leases are operational and short-term in nature.
The Internal Revenue Service conducted in 1998 an audit on Ernest P. Breaux
Electrical, Inc. The results of the audit indicated that a bad debt previously
written off was recorded to income for the year April 30, 1998. Additional
timing issues were addressed, and tax due and associated timing difference
refunds have been appropriately offset. The Internal Revenue Service is
presently scheduled to audit Ernest P. Breaux Electrical's pension plan.
Note 11 - Income Taxes:
Deferred income taxes arise from timing differences resulting from income and
expenses items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or noncurrent depending on the
classification of the assets to which they relate.
The source of these timing differences was excess of tax over book depreciation
and accrued compensated absences.
The Company's effective tax rates are the maximum federal and state corporate
income tax rates.
Note 12 - Employee Benefit Plan:
The Company made available to its employees a 401K plan on October 1, 1991. All
employees, including shareholders, can participate depending on age and length
of employment requirements. Employees can defer up to 15% of their compensation.
The Company contributes 25% of employee contributions.
The Company has contributed amounts to a training program. The balance in the
training trust account as of April 30, 1999 was $48,627. The Company who is
maintaining this account is trying to secure non-profit tax exempt status.
Note 13 - Lawsuits and Pending Claims:
The Company has been involved in various lawsuits. Management and the insurance
companies who hold the insurance policies issued to the Company are vigorously
defending the claims. The attorneys' evaluation of the cases shows a favorable
chance of a successful defense and the range of an adverse ruling does not
impact this financial statement.
There were three pending workman compensation cases from prior years not yet
closed.
12
<PAGE> 15
Ernest P. Breaux Electrical, Inc.
Notes to Financial Statements (Continued)
April 30, 1999 and 1998
Note 14 - Subsequent Events:
The shareholders of Ernest P. Breaux Electrical, Inc. in June of 1999 sold their
shares to a publicly traded company.
Note 15 - Contingency - Year 2000 Issue - Unaudited:
The year 2000 issue (Y2K) involves the use of equipment and software that rely
on microchips which may not distinguish between the year 2000 and 1900.
The Company is in the process of taking the following actions:
1. Desktop systems including servers (most under 3 years old) have been
examined and are Y2K compliant.
2. Server software has been examined and shown to be free of Y2K
issues.
Even if the Company has no problems with the Y2K issue, it is not known how its
financial institutions, vendors, and customers may be effected.
We cannot provide any direct or indirect assurances that the Company will not
experience negative consequences due to the Y2K issue.
13
<PAGE> 16
ITEM 7. (B) PRO FORMA FINANCIAL INFORMATION
14
<PAGE> 17
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma balance sheet reflects the acquisition by
Integrated Electrical Services, Inc. ("IES"), of Ernest P. Breaux Electrical,
Inc. ("Breaux") and the 17 other electrical contracting and maintenance
businesses acquired from April 1, 1999 through June 30, 1999 (the "June Quarter
Acquisitions"), as if they had occurred on March 31, 1999. The unaudited pro
forma statements of operations for the year ended September 30, 1998, presents
the statement of operations data to give effect to the 69 electrical contracting
and maintenance companies and related entities (including the 16 companies
acquired concurrent with IES' IPO) acquired through June 30, 1999 (the
"Previously Closed Acquisitions"), Breaux and the related pro forma adjustments
as if they had occurred on October 1, 1997. The unaudited pro forma statement of
operations for the six months ended March 31, 1999, presents the statement of
operations data to give effect to the Previously Closed Acquisitions, Breaux and
the related pro forma adjustments as if they had occurred on October 1, 1998.
IES has analyzed the savings that it expects to realize from reductions
in salaries, bonuses and certain benefits to the owners. To the extent the
owners of the Acquisitions have contractually agreed to changes in salary,
bonuses, benefits and lease payments, these changes have been reflected in the
unaudited pro forma combined statement of operations.
Certain pro forma adjustments are based on preliminary estimates,
available information and certain assumptions that Company management deems
appropriate and may be revised as additional information becomes available. The
pro forma financial data do not purport to represent what IES's combined
financial position or results of operations would actually have been if such
transactions in fact had occurred on these dates and are not necessarily
representative of IES's combined financial position or results of operations for
any future period. Since the acquired entities were not under common control or
management prior to their acquisitions by IES, historical combined results may
not be comparable to, or indicative of, future performance. The unaudited pro
forma combined financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto included in the
company's Annual Report for the year ended September 30, 1998 filed on Form
10-K. See also "Risk Factors" included elsewhere therein.
15
<PAGE> 18
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
IES AND JUNE QUARTER PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS BREAUX ADJUSTMENTS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash .......................................... $ 35,630 $ 6,833 $ (450) $ (36,613) $ 5,400
Receivables, net .............................. 167,801 38,839 4,910 -- 211,550
Inventories, net .............................. 8,995 1,278 391 -- 10,664
Cost and estimated earnings in excess of
billings on uncompleted contracts ......... 21,129 8,089 824 -- 30,042
Prepaid expenses and other current
assets ................................... 4,418 2,013 318 -- 6,749
------------ ------------ ------------ ------------ ------------
Total current assets ....................... 237,973 57,052 5,993 (36,613) 264,405
RECEIVABLES FROM RELATED PARTIES ................. 233 -- -- -- 233
GOODWILL, NET .................................... 341,703 -- -- 100,672 442,375
PROPERTY AND EQUIPMENT, NET ...................... 29,721 9,653 1,007 -- 40,381
OTHER NONCURRENT ASSETS .......................... 9,013 729 1,314 -- 11,056
------------ ------------ ------------ ------------ ------------
Total assets ............................... $ 618,643 $ 67,434 $ 8,314 $ 64,059 $ 758,750
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current
maturities of long-term debt .............. $ 537 $ 8,147 $ 78 $ (8,225) $ 537
Accounts payable and accrued expense .......... 83,357 19,117 1,909 -- 104,383
Billings in excess of costs and estimated
earnings on uncompleted contracts ......... 29,863 4,233 829 -- 34,925
Income taxes payable .......................... 3,861 3,016 884 -- 7,761
Other current liabilities ..................... 451 574 -- -- 1,025
------------ ------------ ------------ ------------ ------------
Total current liabilities .................. 118,069 35,087 3,700 (8,225) 148,631
------------ ------------ ------------ ------------ ------------
LONG-TERM BANK DEBT .............................. 851 2,291 410 29,620 33,172
SENIOR SUBORDINATED NOTES,
net of $1,188 discount ....................... 148,812 -- -- -- 148,812
OTHER NON-CURRENT LIABILITIES .................... 1,498 99 39 -- 1,636
------------ ------------ ------------ ------------ ------------
Total liabilities .......................... 269,230 37,477 4,149 21,395 332,251
STOCKHOLDERS' EQUITY:
Preferred stock ............................... -- -- -- -- --
Common stock .................................. 299 1,478 29 (1,455) 351
Restricted common stock ....................... 27 -- -- -- 27
Treasury stock ................................ -- (513) (82) 595 --
Additional paid-in capital .................... 319,509 378 291 76,065 396,243
Retained earnings ............................. 29,578 28,614 3,927 (32,541) 29,578
------------ ------------ ------------ ------------ ------------
Total stockholders' equity ................. 349,413 29,957 4,165 42,664 426,199
============ ============ ============ ============ ============
Total liabilities and
stockholders' equity ..................... $ 618,643 $ 67,434 $ 8,314 $ 64,059 $ 758,450
============ ============ ============ ============ ============
</TABLE>
16
<PAGE> 19
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREVIOUSLY
IES AND CLOSED PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS BREAUX ADJUSTMENTS TOTAL
------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES............................... $ 386,721 $ 694,359 $ 19,684 $ -- $ 1,100,764
COST OF SERVICES....................... 306,052 553,422 17,942 -- 877,416
------------ ------------- -------------- ------------- -------------
GROSS PROFIT........................ 80,669 140,937 1,742 -- 223,348
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............ 47,390 111,326 1,278 (40,502)(a) 119,492
NON-CASH, NON-RECURRING
COMPENSATION CHARGE............... 17,036 -- -- (17,036)(b) --
GOODWILL AMORTIZATION.................. 3,212 -- -- 8,028 (c) 11,240
------------ ------------- -------------- ------------- -------------
INCOME FROM OPERATIONS.............. 13,031 29,611 464 49,510 92,616
OTHER INCOME (EXPENSE):
Interest expense.................... (1,161) (1,212) (65) (3,843)(d) (6,281)
Interest income..................... 433 1,418 -- (1,553)(d) 298
Other, net.......................... 335 863 8 (462)(c) 744
------------ ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE), NET............ (393) 1,069 (57) (5,858) (5,239)
INCOME BEFORE INCOME TAXES............. 12,638 30,680 407 43,652 87,377
PROVISION FOR INCOME TAXES............. 12,690 18,490 168 6,256 (e) 37,604
------------ ------------- -------------- ------------- -------------
NET INCOME (LOSS)...................... $ (52) $ 12,190 $ 239 $ 37,396 $ 49,773
============ ============= ================ ============= =============
EARNING (LOSS) PER SHARE -
BASIC - $ 0.00 $ 1.32
============ =============
DILUTED - $ 0.00 $ 1.30
============ =============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - 19,753,060 37,743,715
============ =============
DILUTED - 19,753,060 38,143,548
============ =============
</TABLE>
17
<PAGE> 20
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREVIOUSLY
IES AND CLOSED PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS BREAUX ADJUSTMENTS TOTAL
------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES............................... $ 413,404 $ 131,141 $ 15,421 $ -- $ 559,966
COST OF SERVICES....................... 326,934 102,782 11,392 (402) 440,706
------------ ------------- -------------- ------------- -------------
GROSS PROFIT........................ 86,470 28,359 4,029 402 119,260
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............ 45,590 26,535 1,194 (6,776)(a) 66,543
GOODWILL AMORTIZATION.................. 3,943 -- -- 1,677 (c) 5,620
------------ ------------- -------------- ------------- -------------
INCOME FROM OPERATIONS.............. 36,937 1,824 2,835 5,501 47,097
OTHER INCOME (EXPENSE):
Interest expense.................... (4,923) (537) (68) (390)(d) (5,918)
Interest income..................... 496 346 -- (346)(d) 496
Other, net.......................... 283 737 (114) -- 906
------------ ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE), NET............ (4,144) 546 (182) (736) (4,516)
INCOME BEFORE INCOME TAXES............. 32,793 2,370 2,653 4,765 42,581
PROVISION FOR INCOME TAXES............. 13,961 912 1,092 2,410 (e) 18,375
------------ ------------- -------------- ------------- -------------
NET INCOME (LOSS)...................... $ 18,832 $ 1,458 $ 1,561 $ 2,355 $ 24,206
============ ============= ============== ============= =============
EARNING (LOSS) PER SHARE -
BASIC - $ 0.59 $ 0.64
============ =============
DILUTED - $ 0.58 $ 0.63
============ =============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - 31,761,207 37,743,715
============ =============
DILUTED - 32,254,651 38,237,159
============ =============
</TABLE>
18
<PAGE> 21
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET:
The Unaudited Pro Forma Balance Sheet gives effect to the June Quarter
Acquisitions which were acquired for total consideration of $128.8 million,
including $51.7 million in cash and 4.7 million shares of common stock and
Breaux which was acquired for total consideration of $10.4 million, including
$5.6 million in cash and 0.3 million shares of common stock.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS:
The Unaudited Pro Forma Statement of Operations for the year ended
September 30, 1998 for IES and Subsidiaries reflects the historical results of
Houston-Stafford Electric, Inc. ("Houston-Stafford") as the accounting acquirer
(restated for the effect of an acquisition accounted for as a
pooling-of-interest combined) the other Founding Companies beginning February 1,
1998, and the Acquired Companies beginning on their respective dates of
acquisition.
Pro Forma Adjustments consist of the following:
(a) Reflects the reduction in salaries, bonuses and benefits and lease
payments to the owners of the Acquisitions. These reductions in
salaries, bonuses and benefits and lease payments have been agreed to
in accordance with the terms of employment agreements executed as part
of the acquisitions. Such employment agreements are for five years,
contain restrictions related to competition and provide severance for
termination of employment in certain circumstances.
(b) Includes the reversal of the $17.0 million non-cash, non-recurring
compensation charge in connection with the acquisition of the Founding
Companies.
(c) Reflects the amortization of goodwill recorded as a result of these
acquisitions over a 40-year estimated life, as well as a reduction in
historical minority interest expense attributable to minority interests
that were acquired as part of the related acquisitions.
(d) Reflects the reduction of additional interest expense and income on
borrowings which will be repaid and collected, respectively, subsequent
to the acquisition and the reduction of certain non-recurring other
income.
(e) Reflects the incremental provision for federal and state income taxes
at a 38.5% overall tax rate, before non-deductible goodwill and other
permanent items, related to the other statements of operations
adjustments and for income taxes on the pretax income of acquired
companies that have historically elected S Corporation tax status.
19
<PAGE> 22
ITEM 7. (C) EXHIBITS
23.1 Consent of Mixon, Roy, Metz & Mixon
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ STANLEY H. FLORANCE
----------------------------
STANLEY H. FLORANCE
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: July 26, 1999
21
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report, dated July 14, 1999, on the financial statements
of Ernest P. Breaux Electrical, Inc. included in this Form 8-K, into Integrated
Electrical Services, Inc.'s previously filed Registration Statements on
Form S-8 (File Nos. 333-67113, 333-45447 and 333-45449), previously Filed
Registration Statement on Amendment No. 3 to Form S-4 (File No. 333-75139)
and on previously filed Post Effective Amendment No. 5 to Form S-1 on
Form S-4 (File No. 333-50031).
/s/ MIXON, ROY, METZ AND MIXON
New Iberia, Louisiana
July 26, 1999
