<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: June 28, 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 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 Businesses Acquired
See Pages 1 through 12
<PAGE> 3
Independent Auditors' Report
The Board of Directors
Pan American Electric, Inc.
Nashville, Tennessee
We have audited the accompanying balance sheets of Pan American Electric, Inc.
as of August 31, 1998 and 1997, 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 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 audits provide 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 Pan American Electric, Inc. as
of August 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Cooper, Travis & Company, PLC
Certified Public Accountants
Nashville, Tennessee
October 23, 1998
1
<PAGE> 4
PAN AMERICAN ELECTRIC, INC.
BALANCE SHEETS
AUGUST 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
See Note 13
------------
(Unaudited)
February 28,
1998 1997 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets
Cash $ 302,835 $ 204,163 $ 2,286,537
Accounts receivable:
Estimates due on contracts and service - Note 2 5,164,418 4,950,054 6,154,982
Retainage due on contracts - Note 2 2,304,496 2,121,852 3,057,721
Employees 10,596 7,265 7,697
Other 83,417 2,730 7,798
Costs and estimated earnings in excess of billings
on uncompleted contracts - Notes 1(b) and 3 1,161,620 526,511 1,695,521
Inventory -- 2,010 --
Prepaid taxes 41,035 41,948 41,035
------------ ------------ ------------
Total current assets 9,068,417 7,856,533 13,251,291
------------ ------------ ------------
Property and Equipment - Note 1(c)
Tools and equipment 189,617 449,689 201,004
Automobiles and trucks 226,522 286,970 226,522
Furniture and fixtures 125,274 196,445 131,180
Leasehold improvements -- 80,312 --
------------ ------------ ------------
Total property and equipment, at cost 541,413 1,013,416 558,706
Less: Accumulated depreciation (448,220) (843,361) (468,529)
------------ ------------ ------------
Total property and equipment, net 93,193 170,055 90,177
------------ ------------ ------------
Other Assets
Deposits - plans, utilities and other 91,256 18,884 49,536
------------ ------------ ------------
Total assets $ 9,252,866 $ 8,045,472 $ 13,391,004
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 5
PAN AMERICAN ELECTRIC, INC.
BALANCE SHEETS
AUGUST 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
See Note 13
-----------
(Unaudited)
February 28,
1998 1997 1999
----------- ----------- -----------
<S> <C> <C> <C>
Current Liabilities
Note payable, stockholder - Note 5 $ 213,500 $ -- $ 1,595,046
Accounts payable, trade (including $31,223 and
$189,233, respectively, to related parties) 3,001,413 2,258,432 5,864,832
Retainage due subcontractors 46,982 7,753 78,944
Billings in excess of costs and estimated earnings
on uncompleted contracts - Notes 1(b) and 3 906,185 741,390 1,940,359
Accrued expenses - Note 6 2,042,054 1,779,709 605,201
State franchise and income taxes: - Notes 1(d) and 7
Current 15,800 19,200 6,695
Deferred 2,600 2,600 2,600
----------- ----------- -----------
Total current liabilities 6,228,534 4,809,084 10,093,677
----------- ----------- -----------
Stockholders' Equity
Common stock ($1 par value; 100,000 shares
authorized; 50,000 shares issued and
outstanding) 50,000 50,000 50,000
Retained earnings 2,974,332 3,186,388 3,247,327
----------- ----------- -----------
Total stockholders' equity 3,024,332 3,236,388 3,297,327
----------- ----------- -----------
Total liabilities and stockholders' equity $ 9,252,866 $ 8,045,472 $13,391,004
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
]
PAN AMERICAN ELECTRIC, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
See Note 13
---------------------------
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
February 28, February 28,
1998 1997 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $35,903,105 $33,758,776 $24,518,344 $15,366,340
Cost of Revenues 31,293,074 30,035,515 21,273,830 12,655,275
----------- ----------- ----------- -----------
Gross profit 4,610,031 3,723,261 3,244,514 2,711,065
General and Administrative Expenses 3,431,270 3,025,459 1,139,705 1,281,450
Other Income 169,711 171,371 178,855 60,589
Other Deductions 345,347 158,646 75,669 198,638
----------- ----------- ----------- -----------
Income before state income taxes 1,003,125 710,527 2,207,995 1,291,566
----------- ----------- ----------- -----------
State Income Taxes
Current 14,000 20,000 -- --
Deferred -- 200 -- --
----------- ----------- ----------- -----------
14,000 20,200 -- --
----------- ----------- ----------- -----------
Net income $ 989,125 $ 690,327 $ 2,207,995 $ 1,291,566
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
PAN AMERICAN ELECTRIC, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
See Note 13
-----------
(Unaudited)
Six Months
Ended
February 28,
1998 1997 1999
----------- ----------- -----------
<S> <C> <C> <C>
Retained earnings at beginning of year $ 3,186,388 $ 3,062,311 $ 2,974,332
Add: Net income for the period 989,125 690,327 2,207,995
Less: Distributions to stockholder (1,201,181) (566,250) (1,935,000)
----------- ----------- -----------
Retained earnings at end of period $ 2,974,332 $ 3,186,388 $ 3,247,327
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
PAN AMERICAN ELECTRIC, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
See Note 13
--------------------------
(Unaudited) (Unaudited)
Six Months Six Months
Ended Ended
February 28, February 28,
1998 1997 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash at Beginning of Year $ 204,163 $ 856,353 $ 302,835 $ 204,163
---------- ---------- ---------- ----------
Cash flows from operating activities:
Cash received from customers 35,035,783 33,445,873 23,350,447 15,875,503
Cash paid to suppliers and employees (34,001,204) (32,808,227) (20,931,799) (14,547,278)
Interest received 47,288 35,669 19,980 17,410
Interest paid (921) (59,710) (59,836) (921)
Contributions paid (27,146) (30,040) (15,833) (14,636)
State income taxes paid (17,400) (22,300) (9,105) (22,000)
Miscellaneous income 122,423 135,702 158,875 43,179
---------- ---------- ---------- ----------
Net cash provided by operating activities - Schedule below 1,158,823 696,967 2,512,729 1,351,257
---------- ---------- ---------- ----------
Cash flows from investing activities:
Distributions to stockholder (1,201,181) (566,250) -- --
Proceeds from sale of equipment 6,100 -- -- 6,000
Payments to purchase property and equipment (6,198) (68,024) (17,293) (4,006)
(Increase) decrease in deposits - plans, utilities and
other, net (72,372) (14,883) 41,720 (45,752)
---------- ---------- ---------- ----------
Net cash provided (used) by investing activities (1,273,651) (649,157) 24,427 (43,758)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from stockholder debt 213,500 -- -- --
Principal payments on stockholder debt -- (700,000) (553,454) --
---------- ---------- ---------- ----------
Net cash provided (used) by financing activities 213,500 (700,000) (553,454) --
---------- ---------- ---------- ----------
Net increase (decrease) in cash 98,672 (652,190) 1,983,702 1,307,499
---------- ---------- ---------- ----------
Cash at End of Year $ 302,835 $ 204,163 $2,286,537 $1,511,662
========== ========== ========== ==========
Reconciliation of net income to net cash provided by operating
activities:
Net income $ 989,125 $ 690,327 $2,207,995 $1,291,566
---------- ---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 59,321 79,623 20,309 36,015
Loss on sale of equipment 17,639 -- -- 17,739
Provision for deferred income taxes -- 200 -- --
Effect on cash from changes in assets and liabilities:
Increase in accounts receivable (481,026) (747,777) (1,665,271) (229,780)
(Increase) decrease in prepaid taxes 913 (7,060) -- --
(Increase) decrease in inventory 2,010 (2,010) -- (53,795)
(Increase) decrease in other current assets (635,109) 508,414 (533,901) (259,596)
Increase (decrease) in accounts payable 742,981 (394,039) 2,863,419 1,077,562
Increase in other current liabilities 466,369 571,589 (370,717) (506,454)
Decrease in state franchise and income taxes payable (3,400) (2,300) (9,105) (22,000)
---------- ---------- ---------- ----------
Total adjustments 169,698 6,640 304,734 59,691
---------- ---------- ---------- ----------
Net cash provided by operating activities $1,158,823 $ 696,967 $2,512,729 $1,351,257
========== ========== ========== ==========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the unaudited period ended February 28, 1999 the Company recorded a
$1,935,000 note payable to its stockholder as a stockholder distribution.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies
a. Business Activity
The Company is a construction contractor specializing in electrical work. The
Company primarily serves commercial clients on a subcontract basis throughout
the United States.
b. Revenue Recognition
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. That method is
used because management considers total cost to be the best available measure
of progress on the contracts. Because of inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change
within the near term.
Contract costs include all direct job costs and those indirect costs related to
contract performance, such as indirect labor, payroll taxes, supplies,
insurance, equipment repairs and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which the losses are
determined. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Changes in estimated job profitability
resulting from job performance, job conditions, contract penalty provisions,
claims, change orders, and settlements, are accounted for as changes in
estimates in the current period.
The asset, "Costs 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.
c. Property and Equipment
Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. The cost of equipment and
leasehold improvements is depreciated using the straight-line method for
financial reporting purposes and the straight-line and various accelerated
methods for income tax reporting purposes over estimated useful lives ranging
from 3 to 10 years.
Depreciation expense for the years ended August 31, 1998 and 1997 amounted to
$59,321 and $79,623 for financial reporting purposes and $18,172 and $83,063
for income tax reporting purposes, respectively.
d. Income Taxes - Subchapter S Election
The Company recognizes income from construction contracts on the
percentage-of-completion method for both financial reporting and tax reporting
purposes.
7
<PAGE> 10
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 1 - Continued
On September 1, 1987, the Company elected to be taxed under Subchapter S of the
Internal Revenue Code, whereby federal income taxes are payable by the
stockholders on income earned by the Corporation; therefore, these financial
statements contain no provision for federal income taxes.
Provision has been made for current corporate state income taxes and additional
deferred state income taxes applicable to depreciation timing differences
reported in the financial statements, but deferred to future periods for tax
purposes.
The Company's "tax basis" taxable income for the year ended August 31, 1998,
amounted to $214,000 which will increase the stockholders' personal federal
income tax liability for 1998 by approximately $85,000. The Company distributed
the $85,000 to the stockholders prior to August 31, 1998.
e. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents. There were no cash equivalents at August 31, 1998 or 1997.
f. 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.
Note 2 - Contract Receivables
Contract receivables at August 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Estimates and service receivable:
Completed contracts $ 598,693 $ 511,022
Uncompleted contracts 4,565,725 4,439,032
---------- ----------
$5,164,418 $4,950,054
========== ==========
Retainage receivable:
Completed contracts $ 459,296 $ 135,625
Uncompleted contracts 1,845,200 1,986,227
---------- ----------
$2,304,496 $2,121,852
========== ==========
</TABLE>
8
<PAGE> 11
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 3 - Uncompleted Contracts
As outlined in Note 1(b), the Company recognizes income from long-term
contracts on the percentage-of-completion method. Information concerning
uncompleted contracts at August 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted
contracts $ 33,254,535 $ 40,212,959
Estimated earnings recognized 1,475,750 2,664,453
------------ ------------
34,730,285 42,877,412
Less: Billings to date (34,474,850) (43,092,291)
------------ ------------
Percentage-of-completion adjustment $ 255,435 $ (214,879)
============ ============
</TABLE>
Included in the accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,161,620 $ 526,511
Billings in excess of costs and estimated
earnings on uncompleted contracts (906,185) (741,390)
----------- -----------
$ 255,435 $ (214,879)
=========== ===========
</TABLE>
Note 4 - Bank Line of Credit
The Company has available a $1,100,000 line of credit with the First American
National Bank, Nashville, Tennessee. The line of credit bears interest at 1/2
percent over the bank's "Index Rate" and matures on April 30, 1999. The line of
credit is secured by substantially all of the assets of the Company. There was
no outstanding balance at August 31, 1998; however, the First American National
Bank has established an irrevocable and unconditional letter of credit in the
favor of United States Fidelity and Guaranty Company (USF&G) as beneficiary, in
the amount of $400,000. The purpose of this letter of credit is to secure the
USF&G against default by the Company in the paying of claims up to their
deductible of $50,000 per claimant. As a result, the Company has $700,000
available on their line of credit.
9
<PAGE> 12
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 5 - Note Payable, Stockholder
At August 31, 1998, the Company had an unsecured note in the amount of $213,500
due its majority stockholder. The note was paid in full subsequent to year end
August 31, 1998.
Note 6 - Accrued Expenses
Accrued expenses are composed of the following at August 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Salaries, wages and bonuses $1,290,000 $1,152,962
Withheld payroll taxes and deductions 147,256 192,671
Insurance premiums 248,432 179,991
Legal and professional 170,000 150,000
401(k) expense and contribution 75,000 78,946
Payroll processing fee - related party 21,366 25,139
Rent 90,000 --
---------- ----------
$2,042,054 $1,779,709
========== ==========
</TABLE>
Note 7 - Deferred Income Taxes
As outlined in Note 1(d), the Company provides for deferred state income taxes
applicable to depreciation timing differences reported in the financial
statements, but deferred to future periods for tax purposes. The amount of net
deferred items is the difference in the methods used for the calculation of
depreciation. The following schedule summarizes the calculation of the
liability for deferred state income taxes at August 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 and 1997
--------------
<S> <C>
Net deferred items $ 43,750
Estimated state tax rates x 6%
--------------
Deferred state income tax
liability (rounded) $ 2,600
==============
</TABLE>
10
<PAGE> 13
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 8 - Backlog
The following schedule is a reconciliation of backlog representing contracts in
progress at August 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Balance, beginning of year $ 18,198,806 $ 22,609,004
New contracts executed and contract
adjustments 40,867,906 29,348,578
------------ ------------
59,066,712 51,957,582
Less: Contract revenue earned for
the year (35,903,105) (33,758,776)
------------ ------------
Balance, end of year $ 23,163,607 $ 18,198,806
============ ============
</TABLE>
Note 9 - Related Party Transactions
The Company leases office and warehouse facilities from related parties. Rental
expense paid amounted to $237,350 and $152,650, respectively, for the years
ended August 31, 1998 and 1997. The lease expires in September, 2002.
The Company also subcontracts work to a Company owned by a minority
stockholder. Subcontract expense paid to the related party amounted to $54,281
and $70,174, respectively, for the years ended August 31, 1998 and 1997.
A related party provides payroll services to the Company for its field labor
totaling $9,300,299 and $11,254,324, respectively, for the years ended August
31, 1998 and 1997. Fees for these services amounted to $21,386 and $21,439,
respectively, for the years ended August 31, 1998 and 1997.
Note 10 - Significant Concentrations of Credit Risk
The Company has concentrated its credit risk for cash by maintaining deposits
in banks located within the same geographic region. The maximum loss that would
have resulted from that risk totaled $1,430,301 and $1,004,105, respectively,
at August 31, 1998 and 1997 for the excess of the deposit liabilities reported
by the banks over the amounts that would have been covered by the Federal
Deposit Insurance Corporation (FDIC).
In addition, the Company in the normal course of business grants credit to its
customers throughout the United States.
11
<PAGE> 14
PAN AMERICAN ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997
Note 11 - Operating Leases
The Company has entered into various operating leases for equipment. Payments
on these leases for the year ended August 31, 1998 totaled $326,426. The
Company also leases office and warehouse facilities from related parties as
disclosed in Note 9. Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Office and
Year Ended August 31, Equipment Warehouse
--------- ----------
<S> <C> <C>
1999 $116,636 $192,000
2000 139,245 192,000
2001 -- 192,000
2002 -- 192,000
2003 -- 16,000
-------- --------
$255,881 $784,000
======== ========
</TABLE>
Note 12 - Retirement Plan
Effective September 1, 1994, the Company established a defined contribution
retirement plan under Internal Revenue Code Section 401(k). The plan covers
substantially all full time employees. Annual matching contributions by the
Company are determined at the sole discretion of the Board of Directors. During
the years ended August 31, 1998 and 1997, the Company made contributions
totaling $75,000 and $37,500, respectively.
In addition, the Company provides a flexible benefit "cafeteria" plan under
Internal Revenue Code Section 125. The Company has no funding obligation under
such plan.
Note 13 - Unaudited Interim Financial Information
The interim financial statements for the six months ended February 28, 1999 and
1998, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire fiscal year.
12
<PAGE> 15
ITEM 7. (B) PRO FORMA FINANCIAL INFORMATION
INTEGRATED ELECTRICAL SERVICES, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma balance sheet reflects the acquisitions by
Integrated Electrical Services, Inc. ("IES"), of 16 electrical
contracting and maintenance businesses from April 1, 1999 through June 18, 1999
(the "June Quarter Acquisitions"), and Pan American Electric, Inc. ("Pan
American") 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 65 electrical contracting
and maintenance companies and related entities (including the 16 companies
acquired concurrent with IES' IPO) acquired through June 18, 1999 (the
"Previously Closed Acquisitions"), Pan American 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, Pan American and the related pro forma adjustments as if they
had occurred on the earlier of their date of acquisition or 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 "Business-Risk Factors" included elsewhere therein.
13
<PAGE> 16
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 PAN AMERICAN ADJUSTMENTS TOTAL
------------- --------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................. $ 35,630 $ 3,675 $ 2,287 $ (36,392) $ 5,200
Receivables, net................................. 167,801 32,550 9,228 - 209,579
Inventories, net................................. 8,995 1,553 - - 10,548
Cost and estimated earnings in excess of
billings on uncompleted contracts............ 21,129 7,060 1,696 - 29,885
Prepaid expenses and other current assets....... 4,418 2,290 41 - 6,749
------------- --------------- -------------- ------------ -----------
Total current assets.......................... 237,973 47,128 13,252 (36,392) 261,961
RECEIVABLES FROM RELATED PARTIES.................... 233 - - - 233
GOODWILL, NET....................................... 341,703 - - 93,325 435,028
PROPERTY AND EQUIPMENT, NET......................... 29,721 8,089 90 - 37,900
OTHER NONCURRENT ASSETS............................. 9,013 1,994 49 - 11,056
------------- --------------- -------------- ------------ -----------
Total assets.................................. $ 618,643 $ 57,211 $ 13,391 $ 56,933 $ 746,178
============= =============== ============== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current
maturities of long-term debt................. $ 537 $ 5,875 $ 1,595 $ (7,470) $ 537
Accounts payable and accrued expense............. 83,357 14,160 6,549 - 104,066
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 29,863 3,110 1,940 - 34,913
Income taxes payable............................. 3,861 3,808 10 - 7,679
Other current liabilities........................ 451 - - - 451
------------- --------------- -------------- ------------ -----------
Total current liabilities..................... 118,069 26,953 10,094 (7,470) 147,646
------------- --------------- -------------- ------------ -----------
LONG-TERM BANK DEBT................................. 851 2,701 - 23,884 27,436
SENIOR SUBORDINATED NOTES,
net of $1,188 discount.......................... 148,812 - - - 148,812
OTHER NON-CURRENT LIABILITIES....................... 1,498 78 - - 1,576
------------- --------------- -------------- ------------ -----------
Total liabilities............................. 269,230 29,732 10,094 16,414 325,470
STOCKHOLDERS' EQUITY:
Preferred stock.................................. - - - - -
Common stock..................................... 299 823 50 (825) 347
Restricted common stock.......................... 27 - - - 27
Treasury stock................................... - (104) - 104 -
Additional paid-in capital....................... 319,509 669 - 70,578 390,756
Retained earnings................................ 29,578 26,091 3,247 (29,338) 29,578
------------- --------------- -------------- ------------ -----------
Total stockholders' equity.................... 349,413 27,479 3,297 40,519 420,708
------------- --------------- -------------- ------------ -----------
Total liabilities and stockholders' equity..... $ 618,643 $ 57,211 $ 13,391 $ 56,933 $ 746,178
============= =============== ============== ============ ===========
</TABLE>
14
<PAGE> 17
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 PAN AMERICAN ADJUSTMENTS TOTAL
------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES.................................. $ 386,721 $ 661,799 $ 35,903 $ -- $ 1,084,423
COST OF SERVICES.......................... 306,052 527,234 31,293 -- 864,579
------------ ------------- -------------- ------------- -------------
GROSS PROFIT........................... 80,669 134,565 4,610 -- 219,844
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............... 47,390 106,171 3,431 (39,743)(a) 117,249
NON-CASH, NON-RECURRING
COMPENSATION CHARGE.................. 17,036 -- -- (17,036)(b) --
GOODWILL AMORTIZATION..................... 3,212 -- -- 7,844 (c) 11,056
------------ ------------- -------------- ------------- -------------
INCOME FROM OPERATIONS................. 13,031 28,394 1,179 48,935 91,539
OTHER INCOME (EXPENSE):
Interest expense....................... (1,161) (1,160) (1) (3,601)(d) (5,923)
Interest income........................ 433 1,364 47 (1,546)(d) 298
Other, net............................. 335 1,041 (222) (462)(d) 692
------------ ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE), NET............... (393) 1,245 (176) (5,609) (4,933)
INCOME BEFORE INCOME TAXES................ 12,638 29,639 1,003 43,326 86,606
PROVISION FOR INCOME TAXES................ 12,690 18,290 14 6,242 (e) 37,236
------------ ------------- -------------- ------------- -------------
NET INCOME (LOSS)......................... $ (52) $ 11,349 $ 989 $ 37,084 $ 49,370
============ ============= ============== ============= =============
EARNING (LOSS) PER SHARE -
BASIC - $ 0.00 $ 1.32
============ =============
DILUTED - $ 0.00 $ 1.31
============ =============
SHARES USED IN THE
COMPUTATION OF
EARNINGS (LOSS)
PER SHARE
BASIC - 19,753,060 37,357,994
============ =============
DILUTED - 19,753,060 37,757,827
============ =============
</TABLE>
15
<PAGE> 18
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 PAN AMERICAN ADJUSTMENTS TOTAL
------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES.................................. $ 413,404 $ 114,253 $ 24,518 $ -- $ 552,175
COST OF SERVICES.......................... 326,934 89,674 21,274 (402)(a) 437,480
------------ ------------- -------------- ------------- -------------
GROSS PROFIT........................... 86,470 24,579 3,244 402 114,695
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............... 45,590 24,361 1,097 (6,953)(a) 64,095
GOODWILL AMORTIZATION..................... 3,943 -- -- 1,586 (c) 5,529
------------ ------------- -------------- ------------- -------------
INCOME FROM OPERATIONS................. 36,937 218 2,147 5,769 45,071
OTHER INCOME (EXPENSE):
Interest expense....................... (4,923) (552) -- (263)(d) (5,738)
Interest income........................ 496 322 30 (352)(d) 496
Other, net............................. 283 282 30 -- 595
------------ ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE), NET............... (4,144) 52 60 (615) (4,647)
INCOME BEFORE INCOME TAXES................ 32,793 270 2,207 5,154 40,424
PROVISION FOR INCOME TAXES................ 13,961 104 -- 3,645 (e) 17,710
------------ ------------- -------------- ------------- -------------
NET INCOME ............................... $ 18,832 $ 166 $ 2,207 $ 1,509 $ 22,714
============ ============= ============== ============= =============
EARNING PER SHARE -
BASIC - $ 0.59 $ 0.61
============ =============
DILUTED - $ 0.58 $ 0.60
============ =============
SHARES USED IN THE
COMPUTATION OF
EARNINGS
PER SHARE
BASIC - 31,761,207 37,357,994
============ =============
DILUTED - 32,254,651 37,851,438
============ =============
</TABLE>
16
<PAGE> 19
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 $109.7 million,
including $49.2 million in cash and 3.6 million shares of common stock and Pan
American which was acquired for total consideration of $18.3 million, including
$3.0 million in cash and 1.0 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.
17
<PAGE> 20
ITEM 7. (C) EXHIBITS
23.1 Consent of Cooper, Travis & Company, PLC
18
<PAGE> 21
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: June 24, 1999
19
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Cooper, Travis & Company, PLC
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated October 23, 1998, on the financial statements of Pan
American Electric, 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/ COOPER, TRAVIS & COMPANY PLC
Cooper, Travis & Company PLC
Nashville, Tennessee
June 24, 1999
