IES HOLDINGS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number 1-13783
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 | |
| incorporation or organization) | Identification No.) |
1800 West Loop South, Suite 500, Houston, Texas 77027
(Address of principal executive offices and ZIP code)
(Address of principal executive offices and ZIP code)
Registrant’s telephone number, including area code:
(713) 860-1500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes
þ
No
o
The number of shares outstanding as of May 7, 2010 of the issuer’s common stock was 14,575,885.
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements
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| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
Table of Contents
DEFINITIONS
In this quarterly report on Form 10-Q, the words “IES”, the “Company”, “we”, “our”, “ours”, and
“us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified herein, to
our subsidiaries.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes certain statements that may be deemed “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that
the Company believes to be reasonable as of the date hereof. These statements involve risks and
uncertainties that could cause our actual results to differ materially from those set forth in such
statements. Such risks and uncertainties include, but are not limited to:
| • |
fluctuations in operating activity due to downturns in levels of construction, seasonality
and differing regional economic conditions;
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| • |
competition in the construction industry, both from third parties and former employees,
which could result in the loss of one or more customers or lead to lower margins on new
contracts;
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| • |
a general reduction in the demand for our services;
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a change in the mix of our customers, contracts and business;
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| • |
our ability to successfully manage construction projects;
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| • |
possibility of errors when estimating revenue and progress to date on
percentage-of-completion contracts;
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| • |
inaccurate estimates used when entering into fixed-priced contracts;
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challenges integrating new types of work or new processes into our divisions;
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| • |
the cost and availability of qualified labor, especially electricians and construction
supervisors;
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accidents resulting from the physical hazards associated with our work and the potential
for vehicle accidents;
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success in transferring, renewing and obtaining electrical and construction licenses after
the recent consolidation of our divisions;
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our ability to pass along increases in the cost of commodities used in our business, in
particular, copper, aluminum, steel, fuel and certain plastics;
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potential supply chain disruptions due to credit or liquidity problems faced by our
suppliers;
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| • |
loss of key personnel and effective transition of new management;
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warranty losses or other latent defect claims in excess of our existing reserves and
accruals;
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| • |
warranty losses or other unexpected liabilities stemming from former divisions which we
have sold or closed;
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| • |
growth in latent defect litigation in states where we provide residential electrical work
for home builders not otherwise covered by insurance;
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| • |
limitations on the availability of sufficient credit or cash flow to fund our working
capital needs;
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difficulty in fulfilling the covenant terms of our credit facilities;
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increased cost of surety bonds affecting margins on work and the potential for our surety
providers to refuse bonding at their discretion;
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3
Table of Contents
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increases in bad debt expense and days sales outstanding due to liquidity problems faced by
our customers;
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| • |
changes in the assumptions made regarding future events used to value our stock options and
performance-based stock awards;
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the recognition of potential goodwill, fixed asset and other investment impairments;
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uncertainties inherent in estimating future operating results, including revenues,
operating income or cash flow;
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disagreements with taxing authorities with regard to tax positions we have adopted;
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the recognition of tax benefits related to uncertain tax positions;
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complications associated with the incorporation of new accounting, control and operating
procedures;
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the financial impact of new or proposed accounting regulations;
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the ability of our controlling shareholder to take action not aligned with other
shareholders;
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the possibility that certain of our net operating losses may be restricted or reduced in a
change in ownership;
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credit and capital market conditions, including changes in interest rates that affect the
cost of construction financing and mortgages, and the inability for some of our customers to
retain sufficient financing which could lead to project cancellations; and
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the sale or disposition of the shares of our common stock held by our majority shareholder,
which, under certain circumstances, would trigger change of control provisions in contracts
such as employment agreements, supply agreements, and financing and surety arrangements.
|
You should understand that the foregoing, as well as other risk factors discussed in our annual
report on Form 10-K for the year ended September 30, 2009, could cause future outcomes to differ
materially from those experienced previously or from those expressed in this quarterly report and
our aforementioned annual report on Form 10-K. We undertake no obligation to publicly update or
revise information concerning our restructuring efforts, borrowing availability, cash position or
any forward-looking statements to reflect events or circumstances that may arise after the date of
this report. Forward-looking statements are provided in this quarterly report on Form 10-Q pursuant
to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and
should be evaluated in the context of the estimates, assumptions, uncertainties, and risks
described herein.
General information about us can be found at
www.ies-co.com
under “Investor Relations.” Our
annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well
as any amendments to those reports, are available free of charge through our website as soon as
reasonably practicable after we file them with, or furnish them to, the Securities and Exchange
Commission. You may also contact our Investor Relations department at 713-860-1500, and they will
provide you with copies of our public reports.
4
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 54,182 | $ | 64,174 | ||||
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Accounts receivable:
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Trade, net of allowance of $2,453 and $3,296, respectively
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86,631 | 100,753 | ||||||
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Retainage
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17,416 | 26,516 | ||||||
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Inventories
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9,456 | 10,155 | ||||||
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Costs and estimated earnings in excess of billings on uncompleted contracts
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12,885 | 13,554 | ||||||
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Prepaid expenses and other current assets
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6,030 | 6,118 | ||||||
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Total current assets
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186,600 | 221,270 | ||||||
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LONG-TERM RECEIVABLE, net of allowance of $3,992 and $278, respectively
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— | 3,714 | ||||||
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PROPERTY AND EQUIPMENT, net
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21,967 | 24,367 | ||||||
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GOODWILL
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3,981 | 3,981 | ||||||
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OTHER NON-CURRENT ASSETS, net
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14,056 | 15,093 | ||||||
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Total assets
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$ | 226,604 | $ | 268,425 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES:
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Current maturities of long-term debt
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$ | 1,997 | $ | 2,086 | ||||
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Accounts payable and accrued expenses
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56,657 | 76,478 | ||||||
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Billings in excess of costs and estimated earnings on uncompleted contracts
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13,601 | 21,142 | ||||||
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Total current liabilities
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72,255 | 99,706 | ||||||
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LONG-TERM DEBT, net of current maturities
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25,985 | 26,601 | ||||||
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LONG-TERM DEFERRED TAX LIABILITY
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2,291 | 2,290 | ||||||
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OTHER NON-CURRENT LIABILITIES
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6,706 | 7,280 | ||||||
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Total liabilities
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107,237 | 135,877 | ||||||
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STOCKHOLDERS’ EQUITY:
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and
outstanding
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— | — | ||||||
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Common stock, $0.01 par value, 100,000,000 shares authorized; 15,407,802
shares issued and 14,598,835 and 14,617,741 outstanding, respectively
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154 | 154 | ||||||
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Treasury stock, at cost, 808,967 and 790,061 shares, respectively
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(14,226 | ) | (14,097 | ) | ||||
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Additional paid-in capital
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171,727 | 170,732 | ||||||
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Accumulated other comprehensive income
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(81 | ) | (70 | ) | ||||
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Retained deficit
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(38,207 | ) | (24,171 | ) | ||||
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Total stockholders’ equity
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119,367 | 132,548 | ||||||
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Total liabilities and stockholders’ equity
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$ | 226,604 | $ | 268,425 | ||||
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The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
5
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2010 | March 31, 2009 | |||||||
| (Unaudited) | ||||||||
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Revenues
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$ | 107,619 | $ | 167,305 | ||||
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Cost of services
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94,031 | 137,401 | ||||||
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Gross profit
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13,588 | 29,904 | ||||||
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Selling, general and administrative expenses
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25,709 | 27,315 | ||||||
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Gain on sale of assets
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13 | (75 | ) | |||||
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Restructuring charges
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65 | 2,256 | ||||||
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Income (loss) from operations
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(12,199 | ) | 408 | |||||
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Interest and other (income) expense:
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Interest expense
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1,017 | 1,105 | ||||||
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Interest income
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(59 | ) | (113 | ) | ||||
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Other (income) expense, net
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(107 | ) | (413 | ) | ||||
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Interest and other expense, net
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851 | 579 | ||||||
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Loss from operations before income taxes
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(13,050 | ) | (171 | ) | ||||
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Provision (benefit) for income taxes
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180 | (29 | ) | |||||
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Net loss
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(13,230 | ) | (142 | ) | ||||
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Loss per share:
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Basic
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$ | (0.92 | ) | $ | (0.01 | ) | ||
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Diluted
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$ | (0.92 | ) | $ | (0.01 | ) | ||
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Shares used in the computation of loss per share (Note 4):
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Basic
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14,390,580 | 14,322,439 | ||||||
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Diluted
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14,390,580 | 14,322,439 | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
6
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
| Six Months Ended | Six Months Ended | |||||||
| March 31, 2010 | March 31, 2009 | |||||||
| (Unaudited) | ||||||||
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Revenues
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$ | 227,867 | $ | 340,433 | ||||
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Cost of services
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194,347 | 282,533 | ||||||
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Gross profit
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33,520 | 57,900 | ||||||
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Selling, general and administrative expenses
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44,976 | 55,830 | ||||||
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Gain on sale of assets
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(52 | ) | (178 | ) | ||||
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Restructuring charges
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763 | 3,141 | ||||||
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Loss from operations
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(12,167 | ) | (893 | ) | ||||
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Interest and other (income) expense:
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Interest expense
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2,085 | 2,090 | ||||||
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Interest income
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(116 | ) | (273 | ) | ||||
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Other (income) expense, net
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(226 | ) | (473 | ) | ||||
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Interest and other expense, net
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1,743 | 1,344 | ||||||
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Loss from operations before income taxes
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(13,910 | ) | (2,237 | ) | ||||
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Provision (benefit) for income taxes
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126 | (928 | ) | |||||
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Net loss
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(14,036 | ) | (1,309 | ) | ||||
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Loss per share
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Basic
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$ | (0.98 | ) | $ | (0.09 | ) | ||
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Diluted
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$ | (0.98 | ) | $ | (0.09 | ) | ||
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Shares used in the computation of loss per share (Note 4):
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Basic
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14,393,328 | 14,320,588 | ||||||
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Diluted
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14,393,328 | 14,320,588 | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
7
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
| Six Months Ended | Six Months Ended | |||||||
| March 31, 2010 | March 31, 2009 | |||||||
| (Unaudited) | ||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (14,036 | ) | $ | (1,309 | ) | ||
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Adjustments to reconcile net loss to net cash provided by operating activities:
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Net (income) loss from discontinued operations
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— | 20 | ||||||
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Bad debt expense
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4,984 | 617 | ||||||
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Deferred financing cost amortization
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148 | 128 | ||||||
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Depreciation and amortization
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2,795 | 4,028 | ||||||
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Gain on sale of assets
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(52 | ) | (178 | ) | ||||
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Non-cash compensation expense
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964 | 1,128 | ||||||
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Paid in kind interest
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— | 678 | ||||||
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Equity in (gains) losses of investment
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— | 37 | ||||||
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Goodwill adjustment — utilization of deferred tax assets
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— | 22 | ||||||
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Changes in operating assets and liabilities
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Accounts receivable
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21,951 | 1,708 | ||||||
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Inventories
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699 | 2,234 | ||||||
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Costs and estimated earnings in excess of billings
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669 | (516 | ) | |||||
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Prepaid expenses and other current assets
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641 | (557 | ) | |||||
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Other non-current assets
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229 | 4,531 | ||||||
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Accounts payable and accrued expenses
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(19,821 | ) | (22,396 | ) | ||||
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Billings in excess of costs and estimated earnings
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(7,541 | ) | 2,776 | |||||
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Other non-current liabilities
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(574 | ) | 1,311 | |||||
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Net cash used by continuing operations
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(8,944 | ) | (5,738 | ) | ||||
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Net cash (used in) provided by discontinued operations
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— | 1,333 | ||||||
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Net cash used by operating activities
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(8,944 | ) | (4,405 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchases of property and equipment
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(502 | ) | (1,303 | ) | ||||
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Proceeds from sales of property and equipment
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159 | 226 | ||||||
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Investment in unconsolidated affiliate
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— | (2,000 | ) | |||||
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Distribution from unconsolidated affiliate
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98 | — | ||||||
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Net cash used in investing activities
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(245 | ) | (3,077 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Borrowings of debt
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744 | — | ||||||
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Repayments of debt
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(1,449 | ) | (1,434 | ) | ||||
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Purchase of treasury stock
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(98 | ) | (4,224 | ) | ||||
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Net cash used in financing activities
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(803 | ) | (5,658 | ) | ||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS
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(9,992 | ) | (13,140 | ) | ||||
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CASH AND CASH EQUIVALENTS, beginning of period
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64,174 | 64,709 | ||||||
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CASH AND CASH EQUIVALENTS, end of period
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$ | 54,182 | $ | 51,569 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Cash paid for interest
|
$ | 2,637 | $ | 1,382 | ||||
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Cash paid for income taxes
|
$ | 33 | $ | 380 | ||||
The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
8
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(UNAUDITED)
1. BUSINESS
Integrated Electrical Services, Inc., a Delaware corporation, was founded in June 1997 to create a
leading national provider of electrical services, focusing primarily on the commercial, industrial,
residential, low voltage and service and maintenance markets. The words “IES”, the “Company”, “we”,
“our”, and “us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified
herein, to our wholly-owned subsidiaries.
On November 10, 2008, Tontine Capital Partners, L.P. (“Tontine”), our controlling shareholder,
filed an amended Schedule 13D indicating, among other things that it has begun to explore
alternatives for the disposition of its holdings in our Company, including both common stock and a
$25.0 million term loan. In addition, on October 22, 2009, Tontine filed a further amendment to its
Schedule 13D indicating, among other things, that it has determined to form TCP Overseas Master
Fund II, L.P., (“TCP 2”) during the fourth quarter of 2009 and that it anticipated that the newly
formed TCP 2 would become the beneficial owner of IES securities. On February 1, 2010, Tontine
filed a further amendment to its Schedule 13D indicating, among other things, TCP 2 had become
beneficial recipient of 531,357 shares of our common stock. TCP 2 may hold and/or dispose of such
securities or may purchase additional securities of the Company, at any time and from time to time
in the open market or otherwise. Tontine, together with its affiliates, is our majority
shareholder. Should Tontine sell its position in the Company to a single shareholder or a non
Tontine affiliated group of shareholders, a change in control event would occur, causing us to be
in default under our credit agreements and triggering the change of control provisions in certain
of our employment contracts. Tontine also holds our $25.0 million term loan due on May 12, 2013,
which may or may not be negotiated for repayment in connection with Tontine’s exploration process
or under the terms of a potential sale of the Company. On April 30, 2010, we prepaid $15.0 million
of principal on the Tontine Term Loan. A change in ownership, as defined by Internal Revenue Code
Section 382, could reduce the availability of net operating losses for federal and state income tax
purposes. Should Tontine sell its position in IES to a single shareholder or an affiliated group of
shareholders, a change in ownership could occur. In addition, a change in ownership could occur
resulting from the purchase of common stock by an existing or a new 5% shareholder as defined by
Internal Revenue Code Section 382. Should a change in ownership occur, all net operating losses
incurred prior to the change in ownership would be subject to limitation imposed by Internal
Revenue Code Section 382 and this would substantially reduce the amount of net operating loss
currently available to offset taxable income.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These unaudited condensed consolidated financial statements reflect, in the opinion of management,
all adjustments necessary to present fairly the financial position as of, and the results of
operations for, the periods presented. All adjustments are considered to be normal and recurring
unless otherwise described herein. Interim period results are not necessarily indicative of results
of operations or cash flows for the full year. During interim periods, we follow the same
accounting policies disclosed in our annual report on Form 10-K for the year ended September 30,
2009, with the exception of the adoption of the new Financial Accounting Standards Board (“FASB”)
standard on business combinations and amended fair value disclosure requirements as described
below. Please refer to the
Notes to Consolidated Financial Statements
in our annual report on Form
10-K for the year ended September 30, 2009, when reviewing our interim financial results set forth
herein.
In December 2007, the FASB issued updated standards on business combinations and accounting and
reporting of non-controlling interests in consolidated financial statements. The changes require an
acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. The updated standards eliminate the step
acquisition model, change the recognition of contingent consideration from being recognized when it
is probable to being recognized at the time of acquisition, disallow the capitalization of
transaction costs, and change when restructuring charges related to acquisitions can be recognized.
The new standards became effective for us on October 1, 2009.
In January 2010, the FASB issued updated standards on fair value, which clarifies disclosure
requirements around fair value measurement. This update requires additional disclosure surrounding
the activity for assets and liabilities measured at fair value on a recurring basis, including
transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the
separate presentation of purchases, sales, issuances and settlements of assets and liabilities
within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosure of
the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3.
The new disclosure requirements became effective for us on January 1, 2010. As the update requires
only enhanced disclosures, its adoption did not have a material impact on the consolidated
financial statements.
9
Table of Contents
RECLASSIFICATIONS
In connection with the change in reportable segments, certain prior period amounts have been
reclassified to conform to the current year presentation of our segments with no effect on net
income (loss) or retained deficit. Specifically, the former Industrial segment has been combined
with the Commercial segment to form our Commercial & Industrial segment. For additional
information, please refer to Part 1. Item 1. Condensed Consolidated Financial Statements — Note 5,
“
Operating Segments
” of this report.
We have completed the wind down of our discontinued operations. All substantive assets
have been sold or transferred and liabilities have been retired. There is no longer any operating
activity. We have moved the remaining balances into our continuing operations presentation.
LONG-TERM RECEIVABLE
In March 2009, in connection with a construction project entering bankruptcy, we transferred $4.0 million of trade accounts receivable to long-term receivable
and initiated breach of contract and
mechanics’ lien foreclosure actions against the project’s general contractor and owner, respectively. At the same time, we reserved the costs in excess of billings
of $0.3 million associated with this receivable.
As of March 2010, we reserved the remaining balance of $3.7 million. We will continue to monitor
the proceedings and evaluate any potential future collectability. For additional information,
please refer to Part 1. Item 1. Condensed Consolidated Financial Statements — Note 10, “
Commitments
and Contingencies — Legal Matters
” of this report.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash and cash equivalents, accounts receivable, retainage
receivables, notes receivable, investments, accounts payable, a line of credit, notes payable
issued to finance insurance policies, and the Tontine Term Loan. We believe that the carrying value
of financial instruments, with the exception of the Tontine Term Loan in the accompanying
consolidated balance sheets, approximates their fair value due to their short-term nature.
We estimate that the fair value of the Tontine Term Loan is $28.0 million based on comparable debt
instruments at March 31, 2010. For additional information, please refer to Part 1. Item 1.
Condensed Consolidated Financial Statements — Note 3, “Debt and Liquidity
- The Tontine Capital
Partners Term Loan
” of this report.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, disclosures of contingent
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. Estimates
are primarily used in our revenue recognition of construction in progress, fair value assumptions
in analyzing goodwill, investments, intangible assets and long-lived asset impairments and
adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for
legal matters, assumptions regarding estimated costs to exit certain divisions, realizability of
deferred tax assets, and self-insured claims liabilities and related reserves.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Results of operations from our Residential construction segment are more seasonal, depending on
weather trends, with typically higher revenues generated during spring and summer and lower
revenues during fall and winter. The Commercial & Industrial segment of our business is less subject
to seasonal trends, as this work generally is performed inside structures protected from the
weather. Our service and maintenance business is generally not affected by seasonality. In
addition, the construction industry has historically been highly cyclical. Our volume of business
may be adversely affected by declines in construction projects resulting from adverse regional or
national economic conditions. Quarterly results may also be materially affected by the timing of
new construction projects. Accordingly, operating results for any fiscal period are not necessarily
indicative of results that may be achieved for any subsequent fiscal period.
2. STRATEGIC ACTIONS
In the first quarter of our 2009 fiscal year, we began a new restructuring program (the “2009
Restructuring Plan”) that was designed to consolidate operations within our three segments. The
2009 Restructuring Plan was the next level of our business optimization strategy. Our plan was to
streamline local project and support operations, which were managed through regional operating
centers, and to capitalize on the investments we had made over the past year to further leverage
our resources. We accelerated our trade name amortization during the 2009 fiscal year recording a
charge of $1.6 million that has been identified within the “Restructuring Charges”
caption in our consolidated statements of operations.
10
Table of Contents
During the three months ended March 31, 2010 and 2009, respectively, we incurred pre-tax
restructuring charges, including severance benefits and facility consolidations and closings, of
$0.1 million and $2.3 million associated with the 2009 Restructuring Plan. Costs incurred related
to our Commercial & Industrial segment were zero and $0.3 million for the three months ended March
31, 2010 and 2009, respectively. Costs incurred related to our Residential segment were zero and
$1.3 million for the three months ended March 31, 2010 and 2009, respectively. Costs incurred
related to our Corporate office were $0.1 million and $0.7 million for the three months ended March
31, 2010 and 2009, respectively.
During the six months ended March 31, 2010 and 2009, respectively, we incurred pre-tax
restructuring charges, including severance benefits and facility consolidations and closings, of
$0.8 million and $3.1 million associated with the 2009 Restructuring Plan. Costs incurred related
to our Commercial & Industrial segment were $0.7 million and $0.6 million for the six months ended
March 31, 2010 and 2009, respectively. Costs incurred related to our Residential segment were zero
and $1.7 million for the six months ended March 31, 2010 and 2009, respectively. Costs incurred
related to our Corporate office were $0.1 million and $0.8 million for the six months ended March
31, 2010 and 2009, respectively.
In addition, as a result of the continuing significant effects of the recession, during the third
quarter of fiscal year 2009, we implemented a more expansive cost reduction program, by further
reducing administrative personnel, primarily in the corporate office, and consolidating our
Commercial and Industrial administrative functions into one service center. As a result of the
expanded 2009 Restructuring Plan, we now manage and measure performance of our business in two
distinct operating segments: Commercial & Industrial and Residential. As part of this expanded 2009
Restructuring Plan, we do not expect to exceed $1.0 million in additional pre-tax restructuring
charges, including severance benefits and facility consolidations and closings over the remainder
of our current fiscal year.
The following table summarizes the activities related to our restructuring activities by component
(in thousands):
| Severance | Consulting/ | |||||||||||
| Charges | Other Charges | Total | ||||||||||
|
|
||||||||||||
|
Restructuring liability at September 30, 2009
|
$ | 2,097 | $ | 81 | $ | 2,178 | ||||||
|
Restructuring charges incurred
|
763 | — | 763 | |||||||||
|
Cash payments made
|
(1,810 | ) | (81 | ) | (1,891 | ) | ||||||
|
Non-cash/other adjustments made
|
(625 | ) | — | (625 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Restructuring liability at March 31, 2010
|
$ | 425 | $ | — | $ | 425 | ||||||
|
|
||||||||||||
3. DEBT AND LIQUIDITY
Debt consists of the following (in thousands):
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Tontine Term Loan, due May 15, 2013, bearing interest at 11.00%
|
$ | 25,000 | $ | 25,000 | ||||
|
Insurance Financing Agreements
|
2,288 | 2,912 | ||||||
|
Capital leases and other
|
694 | 775 | ||||||
|
|
||||||||
|
|
||||||||
|
Total debt
|
27,982 | 28,687 | ||||||
|
|
||||||||
|
Less — Short-term debt and current maturities of long-term debt
|
(1,997 | ) | (2,086 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total long-term debt
|
$ | 25,985 | $ | 26,601 | ||||
|
|
||||||||
Future payments on debt at March 31, 2010 are as follows (in thousands):
| Capital Leases | Term Debt | Total | ||||||||||
|
|
||||||||||||
|
2010
|
$ | 184 | $ | 1,228 | $ | 1,412 | ||||||
|
2011
|
306 | 1,060 | 1,366 | |||||||||
|
2012
|
297 | — | 297 | |||||||||
|
2013
|
287 | 25,000 | 25,287 | |||||||||
|
2014
|
24 | — | 24 | |||||||||
|
Thereafter
|
— | — | — | |||||||||
|
Less: Imputed Interest
|
(404 | ) | — | (404 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total
|
$ | 694 | $ | 27,288 | $ | 27,982 | ||||||
|
|
||||||||||||
11
Table of Contents
For the three months ended March 31, 2010 and 2009, we incurred interest expense of $1.0 million
and $1.1 million, respectively. For the six months ended March 31, 2010 and 2009, we incurred
interest expense of $2.1 million.
The Tontine Capital Partners Term Loan
On December 12, 2007, we entered into a $25.0 million senior subordinated loan agreement (the
“Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party. The Tontine Term Loan
bears interest at 11.0% per annum and is due on May 15, 2013. Interest is payable quarterly in cash
or in-kind at our option. Any interest paid in-kind will bear interest at 11.0% in addition to the
loan principal. We may repay the Tontine Term Loan at any time prior to the maturity date at par,
plus accrued interest without penalty. The Tontine Term Loan is subordinated to our existing
Revolving Credit Facility (defined below) with Bank of America, N.A. The Tontine Term Loan is an
unsecured obligation of the Company and its subsidiary borrowers. The Tontine Term Loan contains no
financial covenants or restrictions on dividends or distributions to stockholders.
On April 30, 2010, we prepaid $15.0 million of principal on the Tontine Term Loan.
Insurance Financing Agreements
From time to time, we elect to finance our commercial insurance policy premiums over a term equal
to or less than the term of the policy (“Insurance Financing Agreements”). We previously referred
to these financing arrangements as the “Camden Notes.”
Insurance Financing Agreements consist of the following (in thousands):
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Insurance Note Payable, due September 1, 2010, bearing interest at 4.99%
|
$ | 292 | $ | — | ||||
|
Insurance Note Payable, due June 1, 2010, bearing interest at 4.59%
|
273 | 719 | ||||||
|
Insurance Note Payable, due August 1, 2011, bearing interest at 4.99%
|
1,550 | 1,986 | ||||||
|
Insurance Note Payable, due November 1, 2010, bearing interest at 4.99%
|
173 | — | ||||||
|
Insurance Note Payable, due January 1, 2010, bearing interest at 5.99%
|
— | 207 | ||||||
|
|
||||||||
|
|
||||||||
|
Total Insurance Financing Agreements
|
$ | 2,288 | $ | 2,912 | ||||
|
|
||||||||
On October 1, 2009, we financed an insurance policy in the initial principal amount of $0.5 million
with First Insurance Funding Corp. (“First Insurance Funding”), which matures on September 1, 2010.
Under the terms of this note, we are to make eleven equal monthly payments of $49,319 (including
principal and interest) beginning on November 1, 2009.
On December 15, 2009, we financed an insurance policy in the initial principal amount of $0.2
million with First Insurance Funding, which matures on November 1, 2010. Under the terms of this
note, we are to make ten equal monthly payments of $22,037 (including principal and interest)
beginning on January 1, 2010.
The Insurance Financing Agreements are collateralized by the gross unearned premiums on the
respective insurance policies plus any payments for losses claimed under the policies.
The Revolving Credit Facility
On May 12, 2006, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”),
for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America, N.A. and
certain other lenders. On May 7, 2008, we renegotiated the terms of our Revolving Credit Facility
and entered into an amended agreement with the same financial institutions. In May 2008, we
incurred a $275 thousand charge from Bank of America as a result of this amendment, of which $200
thousand was classified as a prepaid expense and amortized over 12 months, and $75 thousand was
classified as a deferred financing fee and is being amortized over 24 months.
12
Table of Contents
The Loan and Security Agreement, as amended, provides us with access to a $60.0 million Revolving
Credit Facility. Borrowings under the Revolving Credit Facility may not exceed a “borrowing base”
that is determined monthly by our lenders based on available collateral, primarily certain accounts
receivables and inventory. At March 31, 2010, we had $6.3 million available to us under the
Revolving Credit Facility, based on a borrowing base of $26.8 million, $20.5 million in outstanding
letters of credit, and no outstanding borrowings.
The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens
on substantially all of our subsidiaries’ existing and future acquired assets, exclusive of
collateral provided to our surety providers. The Revolving Credit Facility contains customary
affirmative, negative and financial covenants. These were modified in conjunction with the renewal
and amendment of the Loan and Security Agreement on May 7, 2008. The Revolving Credit Facility also
restricts us from paying cash dividends and places limitations on our ability to repurchase our
common stock.
As of March 31, 2010, we were subject to, and in compliance with, the following financial covenant
for the Revolving Credit Facility.
| Covenant | Requirement | Actual | ||||
|
|
||||||
|
Shutdown Subsidiaries Earnings Before Interest and Taxes
|
Cumulative loss not to exceed $2.0 million | Loss of $0.9 million | ||||
As of March 31, 2010, two additional financial covenants for the Revolving Credit Facility were in
effect any time Total Liquidity was less than $50 million and until such time as Total Liquidity
has been $50 million for a period of 60 consecutive days. The first was a minimum fixed charge
coverage ratio of 1.25 to 1.00. The second was a maximum leverage ratio of 3.50 to 1.0. As of March
31, 2010, we would not have met either of these financial covenants, had they been applicable. As
we were also in compliance with the Total Liquidity covenant as of March 31, 2009, we were in
compliance at that time with the terms under the Revolving Credit Facility.
Under the terms of the Revolving Credit Facility in effect as of March 31, 2010, interest for loans
and letter of credit fees was based on our Total Liquidity, which is calculated for any given
period as the sum of average daily availability for such period plus average daily unrestricted
cash on hand for such period, as shown in the following table.
| Annual Interest Rate for | ||||
| Total Liquidity | Annual Interest Rate for Loans | Letters of Credit | ||
|
|
||||
|
Greater than or equal to $60 million
|
LIBOR plus 2.75% or Base Rate plus 0.75% | 2.75% plus 0.25% fronting fee | ||
|
Greater than $40 million and less than $60 million
|
LIBOR plus 3.00% or Base Rate plus 1.00% | 3.00% plus 0.25% fronting fee | ||
|
Less than or equal to $40 million
|
LIBOR plus 3.25% or Base Rate plus 1.25% | 3.25% plus 0.25% fronting fee |
At March 31, 2010, our Total Liquidity was $63.5 million. For the six months ended March 31, 2010,
we paid no interest for loans, and a weighted average interest rate, including fronting fees, of
3.0% for letters of credit. In addition, we are charged monthly in arrears (1) an unused commitment
fee of either 0.5% or 0.375%, depending on the utilization of the credit line, and (2) certain
other fees and charges as specified in the Loan and Security Agreement as amended. Finally, the
Revolving Credit Facility would have been subject to termination charges of 0.25% of the aggregate
borrowing capacity if such termination occurred on or after May 12, 2009 and before May 12, 2010.
On April 30, 2010, we renegotiated the terms of, and entered into an amendment to, the Loan and
Security Agreement without incurring termination charges. Under the terms of the amended Revolving
Credit Facility, the size of the facility remains at $60.0 million, and the maturity date has been
extended to May 12, 2012. In connection with the amendment, we incurred an amendment fee of $0.2
million, which will be amortized over 24 months. Under the amended agreement, we will pay an
unused line fee of 0.5%. Interest for loans and letter of credit fees is based on our Total
Liquidity, which is calculated for any given period as the sum of average daily availability for
such period plus average daily unrestricted cash on hand for such period as shown in the following
table.
| Annual Interest Rate for | ||||
| Total Liquidity | Annual Interest Rate for Loans | Letters of Credit | ||
|
|
||||
|
Greater than or equal to $60 million
|
LIBOR plus 3.00% or Base Rate plus 1.00% | 3.00% plus 0.25% fronting fee | ||
|
Greater than $40 million and less than $60 million
|
LIBOR plus 3.25% or Base Rate plus 1.25% | 3.25% plus 0.25% fronting fee | ||
|
Less than or equal to $40 million
|
LIBOR plus 3.50% or Base Rate plus 1.50% | 3.50% plus 0.25% fronting fee |
13
Table of Contents
The amended financial covenants are discussed in the section titled “Financial Covenants.”
Financial Covenants
On April 30, 2010, we renegotiated the terms of, and entered into an amendment to, the Loan and
Security Agreement for our Revolving Credit Facility. Under the terms of the amended Revolving
Credit Facility, we are subject to one financial covenant. At any time the aggregate amount of
unrestricted cash on hand plus availability is less than $25.0 million, we must maintain a Fixed
Charge Coverage Ratio of not less than 1.0:1.0.
In the event that we are not able to meet the financial covenant of our amended Revolving Credit
Facility in the future, and are unsuccessful in obtaining a waiver from our lenders, the Company
expects to have adequate cash on hand to fully collateralize our outstanding letters of credits and
to provide sufficient cash for ongoing operations.
4. EARNINGS PER SHARE
Our restricted shares granted under the 2006 Equity Incentive Plan participate in any dividends
declared on our common stock. Accordingly, the restricted shares are considered participating
securities under the two-class method, which is an earnings allocation formula that determines
earnings for each class of common stock and participating securities according to dividends
declared or accumulated and participation rights in undistributed earnings. Under the two-class
method, net income is reduced by the amount of dividends declared in the current period for each
class of stock and by the contractual amounts of dividends that must be paid for the current
period. The remaining earnings are then allocated to common stock and participating securities to
the extent that each security may share in earnings as if all of the earnings for the period had
been distributed. Diluted earnings per share is calculated using the treasury stock and “if
converted” methods for potential common stock. Basic earnings per share is calculated as income
(loss) available to common stockholders, divided by the weighted average number of common shares
outstanding during the period. If the effect is dilutive, participating securities are included in
the computation of basic earnings per share. Our participating securities do not have a contractual
obligation to share in the losses in any given period. As a result, these participating securities
will not be allocated any losses in the periods of net losses, but will be allocated income in the
periods of net income using the two-class method.
The tables that follow reconcile the components of the basic and diluted earnings per share for the
three months and six months ended March 31, 2010 and 2009 (in thousands, except per share and per
share data):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Numerator:
|
||||||||
|
|
||||||||
|
Net loss attributable to common shareholders
|
$ | (13,230 | ) | $ | (142 | ) | ||
|
Net income attributable to restricted shareholders
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Net loss
|
$ | (13,230 | ) | $ | (142 | ) | ||
|
|
||||||||
|
|
||||||||
|
Denominator:
|
||||||||
|
Weighted average common shares outstanding — basic
|
14,390,580 | 14,322,439 | ||||||
|
Effect of dilutive stock options and non-vested restricted stock
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Weighted average common and common equivalent shares outstanding — diluted
|
14,390,580 | 14,322,439 | ||||||
|
|
||||||||
|
|
||||||||
|
Loss per share
|
||||||||
|
Basic
|
$ | (0.92 | ) | $ | (0.01 | ) | ||
|
Diluted
|
$ | (0.92 | ) | $ | (0.01 | ) | ||
| Six Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Numerator:
|
||||||||
|
|
||||||||
|
Net loss attributable to common shareholders
|
$ | (14,036 | ) | $ | (1,309 | ) | ||
|
Net income attributable to restricted shareholders
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Net loss
|
$ | (14,036 | ) | $ | (1,309 | ) | ||
|
|
||||||||
|
|
||||||||
|
Denominator:
|
||||||||
|
Weighted average common shares outstanding — basic
|
14,393,328 | 14,320,588 | ||||||
|
Effect of dilutive stock options and non-vested restricted stock
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Weighted average common and common equivalent shares outstanding — diluted
|
14,393,328 | 14,320,588 | ||||||
|
|
||||||||
|
|
||||||||
|
Loss per share
|
||||||||
|
Basic
|
$ | (0.98 | ) | $ | (0.09 | ) | ||
|
Diluted
|
$ | (0.98 | ) | $ | (0.09 | ) | ||
14
Table of Contents
5. OPERATING SEGMENTS
As a result of our 2009 Restructuring Plan, on October 1, 2009, the Company implemented
modifications to its system of reporting, resulting from changes to its internal organization,
which changed its reportable segments. These changes to the internal organization included the
realignment of our Industrial segment into our Commercial & Industrial segment. We now manage and
measure performance of our business in two distinct operating segments: Commercial & Industrial and
Residential. These segments are reflective of how the Company’s Chief Operating Decision Maker
(“CODM”) reviews operating results for the purposes of allocating resources and assessing
performance. The Company’s CODM is its Chief Executive Officer. Prior period disclosures have been
adjusted to reflect the change in reportable segments.
The Commercial & Industrial segment provides electrical and communications design, installation,
renovation, engineering and maintenance and replacement services in facilities such as office
buildings, high-rise apartments and condominiums, theaters, restaurants, hotels, hospitals and
critical-care facilities, school districts, light manufacturing and processing facilities, military
installations, airports, outside plants, network enterprises, switch network customers,
manufacturing and distribution centers, water treatment facilities, refineries, petrochemical and
power plants, and alternative energy facilities. In addition to these services, our Commercial &
Industrial segment also designs and assembles modular power distribution centers.
The Residential segment consists of electrical installation, replacement and renovation services in
single-family, condominium, townhouse and low-rise multifamily housing units.
We also have a Corporate office that provides general and administrative as well as support
services to our two operating segments.
The significant accounting policies of the segments are the same as those described in the summary
of significant accounting policies, set forth in Note 2 to our Consolidated Financial Statements
included in our annual report on Form 10-K for the year ended September 30, 2009. We evaluate
performance based on income from operations of the respective business units prior to the
allocation of Corporate office expenses.
As of October 1, 2009 we began allocating certain corporate selling, general and administrative
costs across our segments as we believe this more accurately reflects the costs associated with
operating each segment. We have reclassified our three months and six months ended March 31, 2009
selling, general and administrative costs using the same methodology.
Segment information for continuing operations for the three months and six months ended March 31,
2010 and 2009 is as follows (in thousands):
| Three Months Ended March 31, 2010 (Unaudited) | ||||||||||||||||
| Commercial & | ||||||||||||||||
| Industrial | Residential | Corporate | Total | |||||||||||||
|
Revenues
|
$ | 79,551 | $ | 28,068 | $ | — | $ | 107,619 | ||||||||
|
Cost of services
|
72,217 | 21,814 | — | 94,031 | ||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
7,334 | 6,254 | — | 13,588 | ||||||||||||
|
Selling, general and administrative
|
14,682 | 6,526 | 4,501 | 25,709 | ||||||||||||
|
Loss (gain) on sale of assets
|
15 | (2 | ) | — | 13 | |||||||||||
|
Restructuring charge
|
(2 | ) | — | 67 | 65 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from operations
|
$ | (7,361 | ) | $ | (270 | ) | $ | (4,568 | ) | $ | (12,199 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Other data:
|
||||||||||||||||
|
Depreciation and amortization expense
|
$ | 495 | $ | 255 | $ | 668 | $ | 1,418 | ||||||||
|
Capital expenditures
|
$ | 173 | $ | 64 | $ | 189 | $ | 426 | ||||||||
|
Total assets
|
$ | 101,312 | $ | 32,886 | $ | 92,406 | $ | 226,604 | ||||||||
15
Table of Contents
| Three Months Ended March 31, 2009 (Unaudited) | ||||||||||||||||
| Commercial & | ||||||||||||||||
| Industrial | Residential | Corporate | Total | |||||||||||||
|
Revenues
|
$ | 133,424 | $ | 33,881 | $ | — | $ | 167,305 | ||||||||
|
Cost of services
|
111,311 | 26,090 | — | 137,401 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
22,113 | 7,791 | — | 29,904 | ||||||||||||
|
Selling, general and administrative
|
14,745 | 8,385 | 4,185 | 27,315 | ||||||||||||
|
Loss (gain) on sale of assets
|
(75 | ) | — | — | (75 | ) | ||||||||||
|
Restructuring charge
|
265 | 1,254 | 737 | 2,256 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from operations
|
$ | 7,178 | $ | (1,848 | ) | $ | (4,922 | ) | $ | 408 | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Other data:
|
||||||||||||||||
|
Depreciation and amortization expense
|
$ | 325 | $ | 175 | $ | 2,543 | $ | 3,043 | ||||||||
|
Capital expenditures
|
$ | 310 | $ | 249 | $ | 1,708 | $ | 2,267 | ||||||||
|
Total assets
|
$ | 159,799 | $ | 38,243 | $ | 99,048 | $ | 297,090 | ||||||||
| Six Months Ended March 31, 2010 (Unaudited) | ||||||||||||||||
| Commercial & | ||||||||||||||||
| Industrial | Residential | Corporate | Total | |||||||||||||
|
Revenues
|
$ | 170,807 | $ | 57,060 | $ | — | $ | 227,867 | ||||||||
|
Cost of services
|
150,390 | 43,957 | — | 194,347 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
20,417 | 13,103 | — | 33,520 | ||||||||||||
|
Selling, general and administrative
|
24,525 | 12,549 | 7,902 | 44,976 | ||||||||||||
|
Loss (gain) on sale of assets
|
(49 | ) | (3 | ) | — | (52 | ) | |||||||||
|
Restructuring charge
|
714 | — | 49 | 763 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from operations
|
$ | (4,773 | ) | $ | 557 | $ | (7,951 | ) | $ | (12,167 | ) | |||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Other data:
|
||||||||||||||||
|
Depreciation and amortization expense
|
$ | 854 | $ | 397 | $ | 1,544 | $ | 2,795 | ||||||||
|
Capital expenditures
|
$ | 205 | $ | 76 | $ | 221 | $ | 502 | ||||||||
| Six Months Ended March 31, 2009 (Unaudited) | ||||||||||||||||
| Commercial & | ||||||||||||||||
| Industrial | Residential | Corporate | Total | |||||||||||||
|
Revenues
|
$ | 261,186 | $ | 79,247 | $ | — | $ | 340,433 | ||||||||
|
Cost of services
|
221,296 | 61,237 | — | 282,533 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
39,890 | 18,010 | — | 57,900 | ||||||||||||
|
Selling, general and administrative
|
29,648 | 17,661 | 8,521 | 55,830 | ||||||||||||
|
Loss (gain) on sale of assets
|
(192 | ) | 14 | — | (178 | ) | ||||||||||
|
Restructuring charge
|
596 | 1,722 | 823 | 3,141 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from operations
|
$ | 9,838 | $ | (1,387 | ) | $ | (9,344 | ) | $ | (893 | ) | |||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Other data:
|
||||||||||||||||
|
Depreciation and amortization expense
|
$ | 841 | $ | 1,453 | $ | 1,734 | $ | 4,028 | ||||||||
|
Capital expenditures
|
$ | 396 | $ | 265 | $ | 642 | $ | 1,303 | ||||||||
We have no operations or long-lived assets in countries outside of the United States.
16
Table of Contents
6. STOCKHOLDERS’ EQUITY
On May 12, 2008, 10,555 shares of outstanding common stock that were reserved for issuance upon
exchange of previously issued shares pursuant to our plan of reorganization were cancelled.
The 2006 Equity Incentive Plan (as amended, the “2006 Plan”) became effective on May 12, 2006. The
2006 Plan provides for grants of both stock options and common stock, including restricted stock
and performance-based restricted stock. We have approximately 1.1 million shares of common stock
authorized for issuance under the 2006 Plan.
Treasury Stock
On December 12, 2007, we entered into an amendment to our Loan and Security Agreement. The
amendment allowed us to implement a stock repurchase program for up to one million shares of our
common stock over the following 24 months. On December 12, 2007, our Board of Directors authorized
the repurchase of up to one million shares of our common stock. This share repurchase plan was
authorized through December 2009. As of the plan’s termination on December 31, 2009, we have
repurchased 886,360 shares of common stock at an average cost of $16.24 per share.
During the six months ended March 31, 2010, 12,886 shares of common stock were issued from treasury
stock for a restricted stock grant.
During the six months ended March 31, 2010, we repurchased 14,492 shares of common stock from our
employees to satisfy minimum tax withholding requirements upon the vesting of restricted stock
issued under the 2006 Plan, and 17,300 unvested shares of restricted stock were forfeited by former
employees and returned to treasury stock.
Restricted Stock
We granted 12,886 shares of restricted stock to an employee during the six months ended March 31,
2010. These restricted shares were granted at $5.82 per share. These shares will vest on December
15, 2010.
We granted 180,100 shares of restricted stock to our employees during the six months ended March
31, 2009, of which 10,900 have been forfeited as of March 31, 2010. These restricted shares were
granted at prices ranging from $8.44 to $12.31 per share with a weighted average price of $8.60 per
share under various vesting terms.
During the three months ended March 31, 2010 and 2009, we recognized $0.6 million and $0.4 million,
respectively, in compensation expense related to these awards. During the six months ended March
31, 2010 and 2009, we recognized $0.9 million and $0.9 million, respectively, in compensation
expense related to these awards. As of March 31, 2010, the unamortized compensation cost related to
outstanding unvested restricted stock was $0.7 million. We expect to recognize $0.4 million related
to these awards during the remaining six months of our 2010 fiscal year, and $0.3 million
thereafter.
All the restricted shares granted under the 2006 Plan (vested or unvested) participate in
dividends, if any, issued to common shareholders.
Phantom Stock Units
For the three months and six months ended March 31, 2010, we recognized $125 thousand in
compensation for Phantom Stock Units (“PSU’s”) granted to the Board of Directors in March 2010.
These PSU’s will be paid via unrestricted stock grants to each board member upon their departure.
Stock Options
Our determination of the fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by our stock price as well as assumptions regarding a number of
highly complex and subjective variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards, the risk-free rate of return, and
actual and projected employee stock option exercise behaviors. The expected life of stock options
is an input variable under the Black-Scholes option pricing model, but it is not considered under
the binomial option pricing model that we utilize.
During the six months ended March 31, 2010 and 2009, we granted no stock options.
17
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During the three months ended March 31, 2010 and 2009, we recognized $42 thousand and $163
thousand, respectively, in compensation expense related to these previously granted stock options.
During the six months ended March 31, 2010 and 2009, we recognized $80 thousand and $347 thousand,
respectively, in compensation expense related to these awards. As of March 31, 2010, the
unamortized compensation cost related to outstanding unvested stock options was $35 thousand. We
expect to recognize $15 thousand of equity based compensation expense related to these awards
during the remaining six months of our 2010 fiscal year, and $20 thousand thereafter.
The following table summarizes activity regarding our stock option and incentive compensation
plans:
| Weighted Average | ||||||||
| Shares | Exercise Price | |||||||
|
Outstanding, September 30, 2009
|
158,500 | $ | 18.66 | |||||
|
Options granted
|
— | — | ||||||
|
Exercised
|
— | — | ||||||
|
Expired
|
— | — | ||||||
|
Forfeited
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Outstanding, March 31, 2010
|
158,500 | $ | 18.66 | |||||
|
|
||||||||
|
|
||||||||
|
Exercisable, March 31, 2010
|
153,500 | $ | 18.67 | |||||
|
|
||||||||
The following table summarizes all options outstanding and exercisable at March 31, 2010:
| Remaining | ||||||||||||||||||||
| Outstanding as of | Contractual Life | Weighted-Average | Exercisable as of | Weighted-Average | ||||||||||||||||
| Range of Exercise Prices | March 31, 2010 | in Years | Exercise Price | March 31, 2010 | Exercise Price | |||||||||||||||
|
$12.31 – $18.79
|
123,500 | 6.62 | $ | 17.02 | 121,833 | $ | 17.07 | |||||||||||||
|
$20.75 – $33.55
|
35,000 | 7.22 | 24.46 | 31,667 | 24.85 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
158,500 | 6.75 | $ | 18.66 | 153,500 | $ | 18.67 | |||||||||||||
|
|
||||||||||||||||||||
Upon exercise of stock options, it is our policy to first issue shares from treasury stock, then to
issue new shares. Unexercised options expire between July 2016 and January 2018.
7. SECURITIES AND EQUITY INVESTMENTS
Investment in EPV Solar
Our investment in EPV Solar, Inc. (“EPV”) consists of the following debt and equity instruments (in
thousands):
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
|
Common stock (25.2 million shares)
|
$ | — | $ | — | ||||
|
Convertible note receivable
|
150 | 150 | ||||||
|
Stock warrants (0.5 million warrants / strike at $1.25)
|
— | — | ||||||
|
Stock warrants (1.2 million warrants / strike at $0.54)
|
— | — | ||||||
|
|
||||||||
|
|
||||||||
|
Total investment, net of impairment
|
$ | 150 | $ | 150 | ||||
|
|
||||||||
We have recognized an impairment loss on the entire carrying value for all of these instruments,
excluding our convertible note receivable, based on our assessment of their fair market values in
the previous fiscal year.
Our convertible note receivable has a $1.1 million face value, with a 1% interest rate payable
in-kind with interest paid semi-annually on December 1 and June 1, and is due on June 1, 2016. We
accounted for our convertible note receivable as an available for sale security at fair value with
the related unrealized gains and losses included in accumulated other comprehensive income (loss),
a component of stockholders’ equity, net of tax, unless such loss was other than temporary and
related to credit losses, then the loss would be recorded to other expense.
18
Table of Contents
On February 24, 2010, EPV filed for Chapter 11 bankruptcy protection. Despite this filing, we do
not believe our investment in EPV requires additional impairment. At March 31, 2010, we believe the
carrying value of our convertible note receivable approximates fair market value. Our $0.2 million
investment is currently recorded as a component of Other Non-Current Assets in our consolidated
balance sheet.
Investment in EnerTech Capital Partners II L.P.
Our investment in EnerTech Capital Partners II L.P. (“EnerTech”) is approximately 2% of the overall
ownership in EnerTech at March 31, 2010 and September 30, 2009. As such, we accounted for this
investment using the cost method of accounting.
EnerTech’s investment portfolio from time to time results in unrealized losses reflecting a
possible, other-than temporary impairment of our investment. If facts arise that lead us to
determine that any unrealized losses are not temporary, we would write-down our investment in
EnerTech through a charge to other expense in the period of such determination. The carrying value
of our investment in EnerTech at March 31, 2010 and September 30, 2009 was $2.3 million and
$2.5 million, respectively, and is currently recorded as a component of Other Non-Current Assets in
our consolidated balance sheet. The following table presents the reconciliation of the carrying
value and unrealized gains (losses) to the fair value of the investment in EnerTech as of March 31,
2010 and September 30, 2009 (in thousands):
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
|
Carrying value
|
$ | 2,321 | $ | 2,491 | ||||
|
Unrealized gains (losses)
|
125 | 276 | ||||||
|
|
||||||||
|
|
||||||||
|
Fair value
|
$ | 2,446 | $ | 2,767 | ||||
|
|
||||||||
On December 31, 2009, EnerTech’s general partner, with the consent of the fund’s investors,
extended the fund for an additional year through December 31, 2010. The fund will terminate on this
date unless extended by the fund’s valuation committee. The fund may be extended for another
one-year period through December 31, 2011 with the consent of the fund’s valuation committee.
Arbinet Corporation
On May 15, 2006, we received a distribution from the investment in EnerTech of 32,967 shares in
Arbinet Corporation (“Arbinet”), formerly Arbinet-thexchange Inc. The investment is an available
for sale marketable security and is currently recorded as a component of Other Non-Current Assets
in our consolidated balance sheet. Unrealized gains and losses are recorded to other comprehensive
income. The amount of unrealized holding losses included in other comprehensive income at March 31,
2010 and September 30, 2009 is $81 thousand and $70 thousand, respectively. Both the carrying and
market value of the investment at March 31, 2010 and September 30, 2009 were $67 thousand and $78
thousand, respectively.
8. EMPLOYEE BENEFIT PLANS
Executive Savings Plan
Under the Executive Deferred Compensation Plan adopted on July 1, 2004 (the “Executive Savings
Plan”), certain employees are permitted to elect to defer a portion (up to 75%) of their base
salary and/or bonus for a Plan Year. The Compensation Committee of the Board of Directors may, in
its sole discretion, credit one or more participants with an employer deferral (contribution) in
such amount as the Committee may choose (“Employer Contribution”). The Employer Contribution, if
any, may be a fixed dollar amount, a fixed percentage of the participant’s compensation, base
salary, or bonus, or a “matching” amount with respect to all or part of the participant’s elective
deferrals for such plan year, and/or any combination of the foregoing as the Committee may choose.
On February 13, 2009, we temporarily suspended Company matching cash contributions to employee’s
contributions due to the significant impact the economic recession has had on the Company’s
financial performance. The aggregate contributions by us to the Executive Savings Plan were zero
for the three months ended March 31, 2010 and 2009.
9. FAIR VALUE MEASUREMENTS
Fair value is considered the price to sell an asset, or transfer a liability, between market
participants on the measurement date. Fair value measurements assume that the asset or liability is
(1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or
liability, and (3) the market participants are independent, knowledgeable, able and willing to
transact an
exchange.
19
Table of Contents
Fair value accounting and reporting establishes a framework for measuring fair value by creating a
hierarchy for observable independent market inputs and unobservable market assumptions and expands
disclosures about fair value measurements. Considerable judgment is required to interpret the
market data used to develop fair value estimates. As such, the estimates presented herein are not
necessarily indicative of the amounts that could be realized in a current exchange. The use of
different market assumptions and/or estimation methods could have a material effect on the
estimated fair value.
Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2010,
are summarized in the following table by the type of inputs applicable to the fair value
measurements (in thousands):
| Significant | Significant | |||||||||||||||
| Other Observable | Unobservable | |||||||||||||||
| Total | Quoted Prices | Inputs | Inputs | |||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Equity securities
|
$ | 67 | $ | 67 | $ | — | $ | — | ||||||||
|
Debt securities
|
150 | — | — | 150 | ||||||||||||
|
Executive Savings Plan assets
|
1,079 | 1,079 | — | — | ||||||||||||
|
Executive Savings Plan liabilities
|
(1,079 | ) | (1,079 | ) | — | — | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 217 | $ | 67 | $ | — | $ | 150 | ||||||||
|
|
||||||||||||||||
Below is a description of the inputs used to value the assets summarized in the preceding table:
Level 1
— Inputs represent unadjusted quoted prices for identical assets exchanged in
active markets.
Level 2
— Inputs include directly or indirectly observable inputs other than Level 1 inputs
such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for
identical assets exchanged in inactive markets; and other inputs that are considered in fair value
determinations of the assets.
Level 3
— Inputs include unobservable inputs used in the measurement of assets. Management
is required to use its own assumptions regarding unobservable inputs because there is little, if
any, market activity in the assets or related observable inputs that can be corroborated at the
measurement date.
We estimated the fair value of our debt securities based on current available information
surrounding the private company in which we invested. No new circumstances arose in the quarter
ended March 31, 2010 to affect the fair value of these debt securities. The fair value of the
investments in debt and equity securities is $0.2 million at March 31, 2010 and September 30, 2009.
10. COMMITMENTS AND CONTINGENCIES
Legal Matters
Claims and litigation occur frequently in the construction business. There is an inherent risk of
claims and litigation associated with the number of people that work on construction sites and the
fleet of vehicles on the road everyday. Additionally, latent defect litigation is normal for
residential home builders in some parts of the country, and latent defect litigation is increasing
in certain states where we perform work. We proactively manage such claims and litigation risks
through safety programs, insurance programs, litigation management at the corporate and local
levels, and a network of attorneys and law firms throughout the country. Nevertheless, claims are
sometimes made and lawsuits filed for amounts in excess of their value or in excess of the amounts
for which they are eventually resolved.
Claims and litigation normally follow a predictable course of time to resolution. However, there
may be periods of time in which a disproportionate amount of our claims and litigation are
concluded in the same quarter or year. If multiple matters are resolved during a given period, then
the cumulative effect of these matters on our results of operations and financial condition for the
period may be disproportionally high. We believe that all current claims and litigation are either
adequately covered by insurance or, if not so covered, should not ultimately result in any
liability which would have a material adverse effect on our financial position, liquidity or
results of operations. We expense routine legal costs related to proceedings as they are incurred.
20
Table of Contents
Centerpoint Project
We are a co-plaintiff in a breach of contract and mechanics’ lien foreclosure action in Maricopa
County, Arizona superior court. The defendants are Centerpoint Construction, LLC (“Centerpoint
Construction”) and Tempe Land Company, LLC (“Tempe Land Company”), the general contractor and
owner, respectively, of a condominium and retail development project in Tempe, Arizona. In
December 2008, Tempe Land Company filed for Chapter 11 bankruptcy reorganization in the U.S.
Bankruptcy Court in Phoenix, Arizona. The principal amount of our claim is approximately
$4.0 million, exclusive of interest, attorneys’ fees and costs.
Our breach of contract claim for non-payment arises out of labor and services that we provided to
the project property pursuant to written subcontract agreements with Centerpoint Construction. We
do not have reason to believe that Centerpoint Construction has assets to satisfy any significant
part of the claim. Our claim against Tempe Land Company is based on Arizona’s mechanics’ lien
statutes, which provide for security interests against real property for the value of services
provided to real property by a contractor, such as us. The possibility of collection by foreclosing
on the mechanics’ lien depends on two primary issues: (1) whether our, and the other mechanics’
lien claimants’, encumbrance against the project is superior to the project lender’s deeds of trust
on the project, and (2) whether the project property, if sold at foreclosure, would raise
sufficient proceeds to pay the collective mechanics’ lien claims by us and the other mechanics’
lien claimants.
In March 2009, following Tempe Land Company filing for bankruptcy, we transferred $4.0 million of
trade accounts receivable to long-term receivable. At the same time, we reserved the costs in
excess of billings of $0.3 million associated with this receivable.
In April 2010, the project property was sold at foreclosure to the project lender. In this sale,
the project lender acquired the project property subject only to superior encumbrances. The
priority of the mechanics’ lien claims over the project lender’s deeds of trust will be determined
after legal briefing and oral argument scheduled for August 2010. If our and the other lien claims
are determined to not have priority over the project lender’s deeds of trust, we will not be able
to collect on our lien. If our and the other lien claims are determined to have priority over the
lender’s deeds of trust, it is estimated that net proceeds of approximately $20 million from a
subsequent foreclosure sale of the property would be required to pay our and the other lien claims
in full. If our and the other lien claims have priority and the property is sold at foreclosure for
less than the approximate $20 million necessary to satisfy our and the other lien claims in full,
then each lien claim will be paid pro rata from the proceeds of the foreclosure sale.
As a result of the April 2010 foreclosure sale, we have determined that there is a reasonable
possibility, but not a probability, of collection of our claim and have written-off the remaining
$3.7 million long-term receivable. Despite this write-off, we continue to believe in the merit of,
and will vigorously pursue, our claims.
Ward Transformer Site
One of our subsidiaries has been identified as one of more than 200 potentially responsible parties
(PRPs) with respect to the clean-up of an electric transformer resale and reconditioning facility,
known as the Ward Transformer Site, located in Raleigh, North Carolina. The facility built,
repaired, reconditioned and sold electric transformers from approximately 1964 to 2005. We did not
own or operate the facility but a subsidiary that we acquired in July 1999 is believed to have sent
transformers to the facility during the 1990’s. During the course of its operation, the facility
was contaminated by Polychlorinated Biphenyls (PCBs), which also have been found to have migrated
off the site.
Four PRPs have commenced clean-up of on-site contaminated soils under an Emergency Removal Action
pursuant to a settlement agreement and Administrative Order on Consent entered into between the
four PRPs and the U.S. Environmental Protection Agency (EPA) in September 2005. We are not a party
to that settlement agreement or Order on Consent. In April 2009, two of these PRPs, Carolina Power
and Light Company and Consolidation Coal Company, filed suit against us and most of the other PRPs
in the U.S. District Court for the Eastern District of North Carolina (Western Division) to
contribute to the cost of the clean-up. In addition to the on-site clean-up, the EPA has selected
approximately 50 PRPs to which it sent a Special Notice Letter in late 2008 to organize the
clean-up of soils off site and address contamination of groundwater and other miscellaneous
off-site issues. We were not a recipient of that letter.
In March 2010, the Court issued its decision on motions to dismiss filed by defendants, dismissing
all pending claims against us, with prejudice. One of the parties to the lawsuit has filed a motion
for reconsideration which, if granted, could reverse the dismissal. It is also possible that
contribution claims could be asserted in the future for offsite contamination not made the subject
of this lawsuit, but no claims are pending against us at this time.
Self-Insurance
We are subject to large deductibles on our property and casualty insurance policies. As a result,
many of our claims are effectively self-insured. Many claims against our insurance are in the form
of litigation. At March 31, 2010, we had $7.3 million accrued for self-insurance liabilities,
including $1.1 million for general liability coverage losses. We are also subject to construction
defect liabilities, primarily within our Residential segment. We believe the likely range of our
potential liability for construction defects is from $0.5 million to $1.0 million. As of March 31,
2010, we had reserved $0.5 million for these claims. Finally, for those legal proceedings
not expected to be covered by insurance, we had accrued $0.2 million at March 31, 2010.
21
Table of Contents
Surety
Many customers, particularly in connection with new construction, require us to post performance and payment bonds
issued by a surety. Those bonds provide a guarantee to the customer that we will perform under the terms of our
contract and that we will pay our subcontractors and vendors. If we fail to perform under the terms of our contract or
to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the
bond. We must reimburse the sureties for any expenses or outlays they incur on our behalf. To date, we have not been
required to make any reimbursements to our sureties for bond-related costs.
As is common in the surety industry, sureties issue bonds on a project-by-project basis, and can decline to issue bonds
at any time. We believe that our relationships with our sureties will allow us to provide surety bonds as they are
required. However, current market conditions as well as changes in our sureties’ assessment of our operating and
financial risk could cause our sureties to decline to issue bonds for our work. If our sureties decline to issue bonds
for our work, our alternatives would include posting other forms of collateral for project performance, such as letters
of credit or cash, seeking bonding capacity from other sureties, or engaging in more projects that do not require
surety bonds. In addition, if we are awarded a project for which a surety bond is required but we are unable to obtain
a surety bond, the result can be a claim for damages by the customer for the costs of replacing us with another
contractor.
As of March 31, 2010, we utilized a combination of cash and letters of credit totaling $10.1 million to collateralize
our obligations to our sureties, which was comprised of $3.5 million in letters of credit and $6.6 million of cash and
accumulated interest (as is included in Other Non-Current Assets). Posting letters of credit in favor of our sureties
reduces the borrowing availability under our Revolving Credit Facility. As of March 31, 2010, the estimated cost to
complete our bonded projects was approximately $58.3 million. We evaluate our bonding requirements on a regular basis,
including the terms offered by our sureties. We believe the bonding capacity presently provided by our sureties is
adequate for our operations currently and for the foreseeable future.
Other Commitments and Contingencies
Some of the underwriters of our casualty insurance program require us to post letters of credit as
collateral. This is common in the insurance industry. To date, we have not had a situation where an
underwriter has had reasonable cause to effect payment under a letter of credit. At March 31, 2010,
$11.8 million of our outstanding letters of credit were utilized to collateralize our insurance
program.
Between October 2004 and September 2005, we sold all or substantially all of the assets of certain
of our wholly-owned subsidiaries. These sales were made to facilitate the business needs and
purposes of the organization as a whole. Since we were a consolidator of electrical contracting
businesses, often the best candidate to purchase these assets was a previous owner of the assets
who usually was still associated with the subsidiary, often as an officer of that subsidiary, or
otherwise. To facilitate the desired timing, the sales were made with more than ordinary reliance
on the representations of the purchaser who was, in those cases, often the person most familiar
with the business sold. As these sales were assets sales, rather than stock sales, we may be
required to fulfill obligations that were assigned or sold to others, if the purchaser is unwilling
or unable to perform the transferred liabilities. If this were to occur, we would seek
reimbursement from the purchasers. These potential liabilities will continue to diminish over time.
As of March 31, 2010, all projects transferred have been completed. To date, we have not been
required to perform on any projects sold under this divestiture program.
From time to time, we may enter into firm purchase commitments for materials such as copper or
aluminum wire which we expect to use in the ordinary course of business. These commitments are
typically for terms less than one year and require us to buy minimum quantities of materials at
specific intervals at a fixed price over the term. As of March 31, 2010, we had no open purchase
commitments.
22
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in
conjunction with our audited consolidated financial statements, the related Notes, and management’s
discussion and analysis included in our annual report on Form 10-K for the year ended September 30,
2009. This discussion contains forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to the risk factors discussed in the “Risk Factors”
section of our annual report on Form 10-K for the year ended September 30, 2009, and in the
“Disclosures Regarding Forward-Looking Statements,” and elsewhere in this quarterly report on Form
10-Q. Actual results may differ materially from those contained in any forward-looking statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operation are based on our
condensed consolidated financial statements, which have been prepared in accordance with GAAP.
Preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses.
We have identified the accounting principles that we believe are most critical to our reported
financial status by considering accounting policies that involve the most complex or subjective
decisions or assessments. These accounting policies are those related to revenue recognition, the
assessment of goodwill impairment, our allowance for doubtful accounts receivable, the recording of
our self-insurance liabilities and our estimation of the valuation allowance for deferred tax
assets. These accounting policies, as well as others, are described
in Part 2. Item 8. Financial Statements and Supplementary Data —
Note 2, “Summary of Significant Accounting Policies” in our annual report on Form 10-K for the year ended September
30, 2009.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Results of operations from our Residential construction segment are more seasonal, depending on
weather trends, with typically higher revenues generated during spring and summer and lower
revenues during fall and winter. The Commercial & Industrial
segment of our business is less subject
to seasonal trends, as this work generally is performed inside structures protected from the
weather. Our service and maintenance business is generally not affected by seasonality. In
addition, the construction industry has historically been highly cyclical. Our volume of business
may be adversely affected by declines in construction projects resulting from adverse regional or
national economic conditions. Quarterly results may also be materially affected by the timing of
new construction projects. Accordingly, operating results for any fiscal period are not necessarily
indicative of results that may be achieved for any subsequent fiscal period.
RESTRUCTURING PROGRAM
In the first quarter of our 2009 fiscal year, we began a new restructuring program (the “2009
Restructuring Plan”) that was designed to consolidate operations within our three segments. The
2009 Restructuring Plan was the next level of our business optimization strategy. Our plan was to
streamline local project and support operations, which were managed through regional operating
centers, and to capitalize on the investments we had made over the past year to further leverage
our resources. We accelerated our trade name amortization during the 2009 fiscal year by recording
a charge of $1.6 million as identified within the “Restructuring Charges” caption in our
consolidated statements of operations.
In addition, as a result of the continuing significant effects of the recession, during the third
quarter of fiscal year 2009, we implemented a more expansive cost reduction program, by further
reducing administrative personnel, primarily in the corporate office, and consolidating our
Commercial and Industrial administrative functions into one service center. We now manage and
measure performance of our business in two distinct operating segments: Commercial & Industrial and
Residential. These segments are reflective of how the Company’s Chief Operation Decision Maker
(“CODM”) reviews operating results for the purposes of allocating resources and assessing
performance. The Company’s CODM is its Chief Executive Officer. Prior period disclosures have been
adjusted to reflect the change in reportable segments. As part of this expanded 2009 Restructuring
Plan, we do not expect to exceed $1.0 million in additional pre-tax restructuring charges,
including severance benefits and facility consolidations and closings over the remainder of our
current fiscal year.
Details
regarding the components of the restructuring charges are described
in Part 1. Item 1. Condensed
Consolidated Financial Statements — Note 2,
“Strategic Actions”
of this report, which is
incorporated herein by reference.
23
Table of Contents
FINANCING
The Tontine Capital Partners Term Loan
On December 12, 2007, we entered into a $25.0 million senior subordinated loan agreement (the
“Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party. The Tontine Term Loan
bears interest at 11.0% per annum and is due on May 15, 2013. Interest is payable quarterly in cash
or in-kind at our option. Any interest paid in-kind will bear interest at 11.0% in addition to the
loan principal. We may repay the Tontine Term Loan at any time prior to the maturity date at par,
plus accrued interest without penalty. The Tontine Term Loan is subordinated to our existing
Revolving Credit Facility (defined below) with Bank of America, N.A. The Tontine Term Loan is an
unsecured obligation of the Company and its subsidiary borrowers. The Tontine Term Loan contains no
financial covenants or restrictions on dividends or distributions to stockholders.
On April 30, 2010, we prepaid $15.0 million of principal on the Tontine Term Loan.
Insurance Financing Agreements
From time to time, we elect to finance our commercial insurance policy premiums over a term equal
to or less than the term of the policy (“Insurance Financing Agreements”). We previously referred
to these financing arrangements as the “Camden Notes.”
On October 1, 2009, we financed an insurance policy in the initial principal amount of $0.5 million
with First Insurance Funding Corp. (“First Insurance Funding”), which matures on September 1, 2010.
Under the terms of this note, we are to make eleven equal monthly payments of $49,319 (including
principal and interest) beginning on November 1, 2009.
On December 15, 2009, we financed an insurance policy in the initial principal amount of $0.2
million with First Insurance Funding, which matures on November 1, 2010. Under the terms of this
note, we are to make ten equal monthly payments of $22,037 (including principal and interest)
beginning on January 1, 2010.
The Insurance Financing Agreements are collateralized by the gross unearned premiums on the
respective insurance policies plus any payments for losses claimed under the policies.
The Revolving Credit Facility
On May 12, 2006, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”),
for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America, N.A. and
certain other lenders. On May 7, 2008, we renegotiated the terms of our Revolving Credit Facility
and entered into an amended agreement with the same financial institutions. In May 2008, we
incurred a $275 thousand charge from Bank of America as a result of this amendment, of which $200
thousand was classified as a prepaid expense and amortized over 12 months, and $75 thousand was
classified as a deferred financing fee and is being amortized over 24 months.
The Loan and Security Agreement, as amended, provides us with access to a $60.0 million Revolving
Credit Facility. Borrowings under the Revolving Credit Facility may not exceed a “borrowing base”
that is determined monthly by our lenders based on available collateral, primarily certain accounts
receivables and inventory. At March 31, 2010, we had $6.3 million available to us under the
Revolving Credit Facility, based on a borrowing base of $26.8 million, $20.5 million in outstanding
letters of credit, and no outstanding borrowings.
The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens
on substantially all of our subsidiaries’ existing and future acquired assets, exclusive of
collateral provided to our surety providers. The Revolving Credit Facility contains customary
affirmative, negative and financial covenants. These were modified in conjunction with the renewal
and amendment of the Loan and Security Agreement on May 7, 2008. The Revolving Credit Facility also
restricts us from paying cash dividends and places limitations on our ability to repurchase our
common stock.
On April 30, 2010, we renegotiated the terms of, and entered into an amendment to, the Loan and
Security Agreement without incurring termination charges. Under the terms of the amended Revolving
Credit Facility, the size of the facility remains at $60.0 million, and the maturity date has been
extended to May 12, 2012. In connection with the amendment, we incurred an amendment fee of $0.2
million, which will be amortized over 24 months. Under the amended agreement, we will pay an
unused line fee of 0.50%. Interest for loans and letter of credit fees is based on our Total
Liquidity, which is calculated for any give period as the sum of average daily availability for
such period plus average daily unrestricted cash on hand for such period.
The financial covenants in effect as of March 31, 2010 under the Revolving Credit Facility, as well
as the financial covenants in effect as of April 29, 2010 under the amended Revolving Credit
Facility, are described in Part 1. Item 1. Condensed Consolidated Financial Statements - Note 3, “Debt
and Liquidity” of this report. The Revolving Credit Facility also restricts us from paying cash
dividends and places limitations on our ability to repurchase our common stock.
24
Table of Contents
SURETY
Surety
Many customers, particularly in connection with new construction, require us to post performance and payment bonds
issued by a surety. Those bonds provide a guarantee to the customer that we will perform under the terms of our
contract and that we will pay our subcontractors and vendors. If we fail to perform under the terms of our contract or
to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the
bond. We must reimburse the sureties for any expenses or outlays they incur on our behalf. To date, we have not been
required to make any reimbursements to our sureties for bond-related costs.
As is common in the surety industry, sureties issue bonds on a project-by-project basis, and can decline to issue bonds
at any time. We believe that our relationships with our sureties will allow us to provide surety bonds as they are
required. However, current market conditions as well as changes in our sureties’ assessment of our operating and
financial risk could cause our sureties to decline to issue bonds for our work. If our sureties decline to issue bonds
for our work, our alternatives would include posting other forms of collateral for project performance, such as letters
of credit or cash, seeking bonding capacity from other sureties, or engaging in more projects that do not require
surety bonds. In addition, if we are awarded a project for which a surety bond is required but we are unable to obtain
a surety bond, the result can be a claim for damages by the customer for the costs of replacing us with another
contractor.
As of March 31, 2010, we utilized a combination of cash and letters of credit totaling $10.1 million to collateralize
our obligations to our sureties, which was comprised of $3.5 million in letters of credit and $6.6 million of cash and
accumulated interest (as is included in Other Non-Current Assets). Posting letters of credit in favor of our sureties
reduces the borrowing availability under our Revolving Credit Facility. As of March 31, 2010, the estimated cost to
complete our bonded projects was approximately $58.3 million. We evaluate our bonding requirements on a regular basis,
including the terms offered by our sureties. We believe the bonding capacity presently provided by our sureties is
adequate for our operations currently and for the foreseeable future.
RELATED PARTY TRANSACTIONS
Phantom Stock Units
For the three months and six months ended March 31, 2010, we recognized $125 thousand in
compensation for Phantom Stock Units (“PSU’s”) granted to the Board of Directors in March 2010.
These PSU’s will be paid via unrestricted stock grants to each board member upon their departure.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2009
MONTHS ENDED MARCH 31, 2009
The following tables present selected historical results of operations of IES and its subsidiaries,
with dollar amounts in millions and percentages expressed as a percent of revenues:
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Revenues
|
$ | 107.6 | 100.0 | % | $ | 167.3 | 100.0 | % | ||||||||
|
Cost of services
|
94.0 | 87.4 | % | 137.4 | 82.1 | % | ||||||||||
|
|
||||||||||||||||
|
Gross profit
|
13.6 | 12.6 | % | 29.9 | 17.9 | % | ||||||||||
|
Selling, general and administrative expenses
|
25.7 | 23.9 | % | 27.3 | 16.3 | % | ||||||||||
|
Gain on sale of assets
|
— | — | % | (0.1 | ) | (0.0 | )% | |||||||||
|
Restructuring charges
|
0.1 | 0.1 | % | 2.3 | 1.4 | % | ||||||||||
|
|
||||||||||||||||
|
Income (loss) from operations
|
(12.2 | ) | (11.3 | )% | 0.4 | 0.3 | % | |||||||||
|
Interest and other expense, net
|
0.8 | 0.7 | % | 0.6 | 0.5 | % | ||||||||||
|
|
||||||||||||||||
|
Loss before income taxes
|
(13.0 | ) | (12.1 | )% | (0.2 | ) | (0.2 | )% | ||||||||
|
Provision for income taxes
|
0.2 | 0.2 | % | (0.1 | ) | (0.0 | )% | |||||||||
|
|
||||||||||||||||
|
Net loss
|
$ | (13.2 | ) | (12.3 | )% | $ | (0.1 | ) | (0.1 | )% | ||||||
|
|
||||||||||||||||
25
Table of Contents
Revenues
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 79.6 | 73.9 | % | $ | 133.4 | 79.7 | % | ||||||||
|
Residential
|
28.0 | 26.1 | % | 33.9 | 20.3 | % | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 107.6 | 100.0 | % | $ | 167.3 | 100.0 | % | ||||||||
|
|
||||||||||||||||
Consolidated revenues for the quarter ended March 31, 2010 were $59.7 million less than the quarter
ended March 31, 2009, a reduction of 35.7%. Each of our two business segments experienced declines
in construction activity during 2010, primarily due to a nationwide decline in construction
activity as a result of the challenging economic environment and adverse weather in the
northeastern and southern regions of the United States during our second quarter of 2010.
Revenues in our Commercial & Industrial segment decreased $53.8 million, or 40.4%, during the
quarter ended March 31, 2010, compared to the quarter ended March 31, 2009. Many of our operating
locations experienced revenue declines, as most industry sectors have continued to reduce, delay or
cancel proposed construction projects, including office buildings, hotels and retailers. We also
experienced increased competition from residential contractors who have been affected by the
housing slowdown for less specialized retail work with lower barriers to entry. We experienced some
revenue increases relating to our communications business due to our presence in markets with
stronger growth.
Residential segment revenues decreased $5.9 million during the quarter ended March 31, 2010, a
decrease of 17.2%, compared to the quarter ended March 31, 2009, due to the slowdown in
multi-family housing construction. The ongoing nationwide decline in demand for single-family homes
affected our Residential segment, particularly in markets such as Southern California, Arizona,
Georgia, Nevada and Texas. In addition, multi-family housing construction declined markedly in
2010, primarily due to the deferral of certain projects as they await financing or were cancelled
altogether. We attribute this decrease largely to reductions in building activity throughout the
markets we serve as well as the effect of intense market competition which has impacted the prices
we ultimately charge our customers.
Gross Profit
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 7.3 | 9.2 | % | $ | 22.1 | 16.6 | % | ||||||||
|
Residential
|
6.3 | 22.3 | % | 7.8 | 23.0 | % | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 13.6 | 12.6 | % | $ | 29.9 | 17.9 | % | ||||||||
|
|
||||||||||||||||
Our consolidated gross profit for the quarter ended March 31, 2010 declined by $16.3 million, or
54.6% compared to consolidated gross profit for the quarter ended March 31, 2009. Our overall
gross profit percentage of revenue decreased to 12.6% during the quarter ended March 31, 2010,
compared to 17.9% during the quarter ended March 31, 2009, primarily due to a decline in higher
margin construction projects and increases in costs of materials.
26
Table of Contents
Our Commercial & Industrial segment’s gross profit during the quarter ended March 31, 2010
decreased $14.8 million compared to the quarter ended March 31, 2009. Commercial & Industrial’s
gross margin percentage decreased approximately 7.5% during the quarter ended March 31, 2010,
primarily due to a decline in higher margin construction projects and increases in costs of
materials.
During the quarter ended March 31, 2010, our Residential segment experienced a $1.5 million
reduction in gross profit compared to the quarter ended March 31, 2009. Gross margin percentage in
the Residential segment declined approximately 0.7% to 22.3% during the quarter ended March 31,
2010. We attribute the decline in Residential’s gross margin to the decline in higher margin
multi-family housing projects and an increase in material costs during our second quarter 2010 in
our single family sector.
Selling, General and Administrative Expenses
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 14.7 | 18.5 | % | $ | 14.7 | 11.1 | % | ||||||||
|
Residential
|
6.5 | 23.3 | % | 8.4 | 24.7 | % | ||||||||||
|
Corporate
|
4.5 | — | 4.2 | — | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 25.7 | 23.9 | % | $ | 27.3 | 16.3 | % | ||||||||
|
|
||||||||||||||||
Selling, general and administrative expenses are those costs not directly associated with
performing work for our customers. These costs consist primarily of compensation and benefits
related to corporate and business unit management, occupancy and utilities, training, professional
services, consulting fees, travel, and certain types of depreciation and amortization.
During the quarter ended March 31, 2010, our selling, general and administrative expenses were
$25.7 million, a decrease of $1.6 million, or 5.9%, over the quarter ended March 31, 2009. The
reduction in 2010 expenses was primarily due to a $4.5 million decrease in employment expenses as a
result of our ongoing cost reduction efforts; a $0.9 million decrease in accounting, legal and
other professional fees; and a $0.7 million decrease in occupancy costs offset by increases of $3.7
million for the write-off of our Centerpoint long-term receivable and $0.9 million of executive
severance. For additional information, please refer to Part 1. Item 1. Condensed Consolidated
Financial Statements — Note 10, “Commitments and Contingencies
— Legal Matters
” of this report.
As of October 1, 2009, we began allocating certain corporate selling, general and administrative
costs across our segments as we believe this more accurately reflects the costs associated with
operating each segment. We reclassified our quarter ended March 31, 2009 selling, general and
administrative costs using the same methodology.
As a result of our 2009 Restructuring Plan, on October 1, 2009, the Company implemented
modifications to its system of reporting, resulting from changes to its internal organization,
which changed its reportable segments. These changes to the internal organization included the
realignment of our Industrial segment into our Commercial & Industrial segment.
Restructuring Charges
In 2007, we restructured our operations from a decentralized structure into three major lines of
business: Commercial, Industrial and Residential. Thereafter, on October 1, 2009 we consolidated
the Industrial segment into the Commercial & Industrial segment. These lines of business are
supported by two dedicated administrative shared service centers which consolidated many of the
administrative functions into centralized locations. In addition, the next level of our business
optimization strategy has been to streamline local projects and support operations, which will be
managed through regional operating centers, and to capitalize on the investments we made over the
past two years to further leverage our resources.
27
Table of Contents
In conjunction with our 2009 Restructuring Plan, we recognized the following costs during the three
months ended March 31, 2010 and 2009 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
|
||||||||
|
Severance compensation
|
$ | 65 | $ | 1,193 | ||||
|
Consulting and other charges
|
— | 661 | ||||||
|
Non-cash asset amortization and write-offs
|
— | 402 | ||||||
|
|
||||||||
|
|
||||||||
|
Total restructuring charges
|
$ | 65 | $ | 2,256 | ||||
|
|
||||||||
Interest and Other Expense, Net
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
|
||||||||
|
Interest expense
|
$ | 944 | $ | 1,041 | ||||
|
Debt prepayment penalty and deferred cost amortization
|
73 | 64 | ||||||
|
|
||||||||
|
|
||||||||
|
Total interest expense
|
1,017 | 1,105 | ||||||
|
Interest income
|
(59 | ) | (113 | ) | ||||
|
Other income (expense)
|
(107 | ) | (413 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total interest and other expense, net
|
$ | 851 | $ | 579 | ||||
|
|
||||||||
During the quarter ended March 31, 2010, we incurred interest expense of $1.0 million on an average
debt balance of $25.0 million for the Tontine Term Loan and an average letter of credit balance of
$23.3 million and an average unused line of credit balance of $36.7 million under the Revolving
Credit Facility. This compared to interest expense of $1.1 million for the quarter ended March 31,
2009, on an average debt balance of $25.0 million on the Tontine Term Loan and an average letter of
credit balance of $34.0 million and an average unused line of credit balance of $26.0 million.
During the quarter ended March 31, 2010, total interest expense was offset by $0.1 million in
interest income on an average cash and cash equivalents balance of $55.1 million, compared to $0.1
million in interest income on an average cash and cash equivalents balance of $54.4 million during
the quarter ended March 31, 2009. Interest income was negatively impacted by lower interest rates
which averaged 0.5% during the quarter ended March 31, 2010, compared to 0.8% during the quarter
ended March 31, 2009.
Provision for Income Taxes
On May 12, 2006, we had a change in ownership as defined in Internal Revenue Code Section 382. As
such, our net operating loss utilization after the change date will be subject to Section 382
limitations for federal income taxes and some state income taxes. We have provided valuation
allowances on all net operating losses where it is determined it is more likely than not that they
will expire without being utilized.
The provision for income taxes from continuing operations increased from a benefit of $29 thousand
for the quarter ended March 31, 2009 to a provision of $180 thousand for the quarter ended March
31, 2010. The increase in the provision for income taxes for the quarter ended March 31, 2010 is
attributable to the increase in loss from continuing operations, a decrease in state income taxes
and a decrease in the provision for uncertain tax benefits. The impact of the implementation of the
update standards on business combination did not effect the provision for the quarter ended March
31, 2010. As described in Part 1. Item 1. Condensed Consolidated Financial Statements — Note 1, “Summary
of Significant Accounting Policies” of this report, which is incorporated herein by reference, the
FASB issued updated standards on business combinations and accounting and reporting of
non-controlling interests in consolidated financial statements that will change this accounting,
requiring recognition of previously unrecorded tax benefits as a reduction of income tax expense.
After our adoption of the new standards on October 1, 2009, reductions in the valuation allowance
attributable to all periods, if any should occur, will be recorded as an adjustment to our income
tax expense.
28
Table of Contents
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2010 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2009
The following tables present selected historical results of operations of IES and its subsidiaries,
with dollar amounts in millions and percentages expressed as a percent of revenues:
| Six Months Ended | Six Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Revenues
|
$ | 227.9 | 100.0 | % | $ | 340.4 | 100.0 | % | ||||||||
|
Cost of services
|
194.4 | 85.3 | % | 282.5 | 83.0 | % | ||||||||||
|
|
||||||||||||||||
|
Gross profit
|
33.5 | 14.7 | % | 57.9 | 17.0 | % | ||||||||||
|
Selling, general and administrative expenses
|
45.0 | 19.7 | % | 55.8 | 16.4 | % | ||||||||||
|
Gain on sale of assets
|
(0.1 | ) | (0.0 | )% | (0.2 | ) | (0.0 | )% | ||||||||
|
Restructuring charges
|
0.8 | 0.3 | % | 3.1 | 0.9 | % | ||||||||||
|
|
||||||||||||||||
|
Loss from operations
|
(12.2 | ) | (5.3 | )% | (0.8 | ) | (0.2 | )% | ||||||||
|
Interest and other expense, net
|
1.7 | 0.8 | % | 1.4 | 0.4 | % | ||||||||||
|
|
||||||||||||||||
|
Loss before income taxes
|
(13.9 | ) | (6.1 | )% | (2.2 | ) | (0.6 | )% | ||||||||
|
Benefit (provision) for income taxes
|
0.1 | 0.1 | % | (0.9 | ) | (0.2 | )% | |||||||||
|
|
||||||||||||||||
|
Net loss
|
$ | (14.0 | ) | (6.2 | )% | $ | (1.3 | ) | (0.3 | )% | ||||||
|
|
||||||||||||||||
Revenues
| Six Months Ended | Six Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 170.8 | 75.0 | % | $ | 261.2 | 76.7 | % | ||||||||
|
Residential
|
57.1 | 25.0 | % | 79.2 | 23.3 | % | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 227.9 | 100.0 | % | $ | 340.4 | 100.0 | % | ||||||||
|
|
||||||||||||||||
Consolidated revenues for the six months ended March 31, 2010 were $112.5 million less than the six
months ended March 31, 2009, a reduction of 33.1%. Each of our two business segments experienced
declines in construction activity during 2010, primarily due to a nationwide decline in
construction activity as a result of the challenging economic environment and adverse weather in
the northeastern and southern regions of the United States during our second quarter of 2010.
Revenues in our Commercial & Industrial segment decreased $90.4 million, or 34.6%, during the six
months ended March 31, 2010, compared to the six months ended March 31, 2009. Many of our operating
locations experienced revenue declines, as most industry sectors have continued to reduce, delay or
cancel proposed construction projects, including office buildings, hotels and retailers. We also
experienced increased competition from residential contractors who have been affected by the
housing slowdown for less specialized retail work with lower barriers to entry. We experienced some
revenue increases relating to our communications business due to our presence in markets with
stronger growth.
Residential segment revenues decreased $22.1 million during the six months ended March 31, 2010, a
decrease of 28.0%, compared to the six months ended March 31, 2009, due to the slowdown in both
single-family and multi-family housing construction. The ongoing nationwide decline in demand for
single-family homes affected our Residential segment, particularly in markets such as Southern
California, Arizona, Georgia, Nevada and Texas. In addition, multi-family housing construction
declined for the first time in 2009, primarily due to the deferral of certain projects as they
await financing or were cancelled altogether. We attribute this decrease largely to reductions in
building activity throughout the markets we serve, and to a lesser extent to adverse weather in
certain markets in the six months ended March 31, 2010 as well as the effect of intense market
competition, which has impacted the prices we ultimately charge our customers.
Gross Profit
| Six Months Ended | Six Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 20.4 | 12.0 | % | $ | 39.9 | 15.3 | % | ||||||||
|
Residential
|
13.1 | 23.0 | % | 18.0 | 22.7 | % | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 33.5 | 14.7 | % | $ | 57.9 | 17.0 | % | ||||||||
|
|
||||||||||||||||
29
Table of Contents
Our consolidated gross profit for the six months ended March 31, 2010 declined by $24.4 million, or
42.1% compared to consolidated gross profit for the six months ended March 31, 2009. Our overall
gross profit percentage of revenue decreased to 14.7% during the six months ended March 31, 2010,
compared to 17.0% during the six months ended March 31, 2009, primarily due to higher margin
construction projects and increases in costs of materials.
Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2010
decreased $19.5 million compared to the six months ended March 31, 2009. Commercial & Industrial’s
gross margin percentage decreased approximately 3.3% during the six months ended March 31, 2010,
primarily due to lower margin construction projects and increases in costs of materials.
During the six months ended March 31, 2010, our Residential segment experienced a $4.9 million
reduction in gross profit compared to the six months ended March 31, 2009. Gross margin percentage
in the Residential segment improved approximately 0.3% to 23.0% during the six months ended March
31, 2010. We attribute much of the improvement in Residential’s gross margin to improved execution
particularly in multi-family housing, and the ability to more effectively manage labor costs to
meet project demands despite an increase in material costs during the six months in our single
family sector.
Selling, General and Administrative Expenses
| Six Months Ended | Six Months Ended | |||||||||||||||
| March 31, 2010 | March 31, 2009 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| (Dollars in millions, Percentage of revenues) | ||||||||||||||||
|
|
||||||||||||||||
|
Commercial & Industrial
|
$ | 24.5 | 14.4 | % | $ | 29.6 | 11.4 | % | ||||||||
|
Residential
|
12.6 | 22.0 | % | 17.6 | 22.3 | % | ||||||||||
|
Corporate
|
7.9 | — | 8.6 | — | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Consolidated
|
$ | 45.0 | 19.7 | % | $ | 55.8 | 16.4 | % | ||||||||
|
|
||||||||||||||||
Selling, general and administrative expenses are those costs not directly associated with
performing work for our customers. These costs consist primarily of compensation and benefits
related to corporate and business unit management, occupancy and utilities, training, professional
services, consulting fees, travel, and certain types of depreciation and amortization.
During the six months ended March 31, 2010, our selling, general and administrative expenses were
$45.0 million, a decrease of $10.8 million, or 19.4%, over the six months ended March 31, 2009. The
reduction in 2010 expenses was primarily due to a $10.8 million decrease in employment expenses as
a result of our ongoing cost reduction efforts; a $2.1 million decrease in accounting, legal and
other professional fees; a $1.3 million decrease in occupancy costs; a $0.7 million decrease
related to lower information technology and computer expenses offset by increases of $3.7 million
for the write-off of our Centerpoint long-term receivable and $0.9 million of executive severance.
For additional information, please refer to Part 1. Item 1. Condensed Consolidated Financial
Statements — Note 10, “Commitments and Contingencies
— Legal Matters
” of this report.
As of October 1, 2009, we began allocating certain corporate selling, general and administrative
costs across our segments as we believe this more accurately reflects the costs associated with
operating each segment. We reclassified our six months ended March 31, 2009 selling, general and
administrative costs using the same methodology.
As a result of our 2009 Restructuring Plan, on October 1, 2009, the Company implemented
modifications to its system of reporting, resulting from changes to its internal organization,
which changed its reportable segments. These changes to the internal organization included the
realignment of our Industrial segment into our Commercial & Industrial segment.
Restructuring Charges
In 2007, we restructured our operations from a decentralized structure into three major lines of
business: Commercial, Industrial and Residential. Thereafter, on October 1, 2009 we consolidated
the Industrial segment into the Commercial & Industrial segment. These lines of business are
supported by two dedicated administrative shared service centers which consolidated many of the
administrative functions into centralized locations. In addition, the next level of our business
optimization strategy has been to streamline local projects and support operations, which will be
managed through regional operating centers, and to capitalize on the investments we made over the
past two years to further leverage our resources.
30
Table of Contents
In conjunction with our 2009 Restructuring Plan, we recognized the following costs during the six
months ended March 31, 2010 and
2009 (in thousands):
| Six Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
|
||||||||
|
Severance compensation
|
$ | 763 | $ | 1,676 | ||||
|
Consulting and other charges
|
— | 661 | ||||||
|
Non-cash asset amortization and write-offs
|
— | 804 | ||||||
|
|
||||||||
|
|
||||||||
|
Total restructuring charges
|
$ | 763 | $ | 3,141 | ||||
|
|
||||||||
Interest and Other Expense, Net
| Six Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
|
||||||||
|
Interest expense
|
$ | 1,937 | $ | 1,962 | ||||
|
Debt prepayment penalty and deferred cost amortization
|
148 | 128 | ||||||
|
|
||||||||
|
|
||||||||
|
Total interest expense
|
2,085 | 2,090 | ||||||
|
Interest income
|
(116 | ) | (273 | ) | ||||
|
Other income (expense)
|
(226 | ) | (473 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total interest and other expense, net
|
$ | 1,743 | $ | 1,344 | ||||
|
|
||||||||
During the six months ended March 31, 2010, we incurred interest expense of $2.1 million on an
average debt balance of $25.0 million for the Tontine Term Loan and an average letter of credit
balance of $23.7 million and an average unused line of credit balance of $36.3 million under the
Revolving Credit Facility. This compared to interest expense of $2.1 million for the six months
ended March 31, 2009, on an average debt balance of $25.0 million on the Tontine Term Loan and an
average letter of credit balance of $34.0 million and an average unused line of credit balance of
$26.0 million.
During the six months ended March 31, 2010, total interest expense was offset by $0.1 million in
interest income on an average cash and cash equivalents balance of $55.2 million, compared to $0.3
million in interest income on an average cash and cash equivalents balance of $55.0 million during
the six months ended March 31, 2009. Interest income was negatively impacted by lower interest
rates which averaged 0.5% during the six months ended March 31, 2010, compared to 1.0% during the
six months ended March 31, 2009.
Provision for Income Taxes
On May 12, 2006, we had a change in ownership as defined in Internal Revenue Code Section 382. As
such, our net operating loss utilization after the change date will be subject to Section 382
limitations for federal income taxes and some state income taxes. We have provided valuation
allowances on all net operating losses where it is determined it is more likely than not that they
will expire without being utilized.
The provision for income taxes from continuing operations increased from a benefit of $0.9 million
for the six months ended March 31, 2009 to a provision of $126 thousand for the six months ended
March 31, 2010. The increase in the provision for income taxes for the six months ended March 31,
2010 is attributable to the increase in loss from continuing operations, a decrease in state income
taxes and a decrease in the provision for uncertain tax benefits. The impact of the implementation
of the updated standards on business combination did not effect the provision for the six months
ended March 31, 2010. As described in Part 1. Item 1. Condensed Consolidated Financial Statements — Note
1, “Summary of Significant Accounting Policies” of this report, which is incorporated herein by
reference, the FASB issued updated standards on business combinations and accounting and reporting
of non-controlling interests in consolidated financial statements that will change this accounting,
requiring recognition of previously unrecorded tax benefits as a reduction of income tax expense.
After our adoption of the new standards on October 1, 2009, reductions in the valuation allowance
attributable to all periods, if any should occur, will be recorded as an adjustment to our income
tax expense.
31
Table of Contents
Working Capital
| March 31, | September 30, | |||||||
| 2010 | 2009 | |||||||
| (Dollars in millions) | ||||||||
|
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 54.2 | $ | 64.2 | ||||
|
Accounts receivable
|
||||||||
|
Trade, net of allowance of $2.5 and $3.6 respectively
|
86.6 | 100.8 | ||||||
|
Retainage
|
17.4 | 26.5 | ||||||
|
Inventories
|
9.5 | 10.1 | ||||||
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
12.9 | 13.6 | ||||||
|
Prepaid expenses and other current assets
|
6.0 | 6.1 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current assets
|
$ | 186.6 | $ | 221.3 | ||||
|
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Current maturities of long-term debt
|
$ | 2.0 | $ | 2.1 | ||||
|
Accounts payable and accrued expenses
|
56.7 | 76.5 | ||||||
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
13.6 | 21.1 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current liabilities
|
$ | 72.3 | $ | 99.7 | ||||
|
|
||||||||
|
|
||||||||
|
Working capital
|
$ | 114.3 | $ | 121.6 | ||||
|
|
||||||||
During the six months ended March 31, 2010 working capital decreased by $7.3 million from September
30, 2009, reflecting a $34.7 million decrease in current assets and a $27.4 million decrease in
current liabilities during the period.
During the six months ended March 31, 2010 our current assets decreased by $34.7 million, or 15.7%,
to $186.6 million, as compared to $221.3 million as of September 30, 2009. Cash and cash
equivalents decreased by $10.0 million during six months ended March 31, 2010 as compared to
September 30, 2009. Current trade accounts receivables, net, decreased by $14.2 million at March
31, 2010, as compared to September 30, 2009, as days sales outstanding (“DSOs”) increased to 86
days as of March 31, 2010 from 72 days as of September 30, 2009. This increase was driven
predominantly by the decline in revenues that we experienced during the six months ended March 31,
2010 as compared to the six months ended September 30, 2009 and, to a lesser extent, slow-downs in
receipt of certain customer payments, both of which we attribute to distressed financial markets
and the challenging economic environment. Our receivables write-offs have been low as a result of
our ability to secure liens against our customers’ over-due receivables, and while collections may
be delayed, our secured position ensures that collection will occur eventually to the extent that
our security retains value. In light of the volatility of the current financial markets, we closely
monitor the collectability of our receivables. We also experienced a $9.1 million decrease in
retainage and a $0.7 million decrease in costs in excess of billings during the six months ended
March 31, 2010 compared to September 30, 2009, primarily due to the continued reduction in volumes.
Inventories decreased by $0.6 million during the six months ended March 31, 2010, compared to
September 30, 2009, reflecting our continued reduction in volume, continued success of our
strategic efforts to better manage our supply chain through utilization of just-in-time systems,
improved material management and a vendor managed inventory strategy. Prepaid expenses and other
current assets decreased by a total of $0.1 million during the six months ended March 31, 2010,
compared to September 30, 2009.
During the six months ended March 31, 2010 our total current liabilities decreased by $27.4 million
to $72.3 million, compared to $99.7 million as of September 30, 2009. During the six months ended
March 31, 2010 accounts payable and accrued expenses decreased $19.8 million as a result of lower
volume and early pay discounts associated with our preferred vendor program. Billings in excess of
costs decreased by $7.5 million during the six months ended March 31, 2010 compared to September
30, 2009, due to our efforts to increase cash flow. Finally, current maturities of long-term debt
decreased by $0.1 million during the six months ended March 31, 2010 compared to September 30,
2009.
Liquidity and Capital Resources
As of March 31, 2010, we had cash and cash equivalents of $54.2 million, working capital of $114.3
million, $25.0 million in outstanding borrowings under our Tontine Term Loan, $20.5 million of
letters of credit outstanding and $6.3 million of available capacity under our Revolving Credit
Facility. We anticipate that the combination of cash on hand, cash flows and available capacity
under our Revolving Credit Facility will provide sufficient cash to enable us to meet our working
capital needs, debt service requirements and capital expenditures for property and equipment
through the next twelve months. Our ability to generate cash flow is dependent on many factors,
including demand for our services, the availability of projects at margins acceptable to us, the
ultimate
collectability of our receivables, and our ability to borrow on our amended Revolving Credit
Facility, if needed.
32
Table of Contents
Recent distress in the financial markets did not have a significant impact on our overall financial
position, results of operations or cash flows as of and for the year ended September 30, 2009,
although certain of our operations revenue were impacted during the six months ended March 31,
2010, as a result of the challenging economic environment. We were in compliance with our covenants
under our Revolving Credit Facility at March 31, 2010. However, we continue to closely monitor the
financial markets and general national and global economic conditions. To date, we have experienced
no loss or lack of access to our invested cash or cash equivalents; however, we can provide no
assurances that access to our invested cash and cash equivalents will not be impacted in the future
by adverse conditions in the financial markets.
Operating Activities
Our cash flow from operations is primarily influenced by cyclicality, demand for our services,
operating margins and the type of services we provide but can also be influenced by working capital
needs such as the timing of our receivable collections. Working capital needs are generally lower
during our fiscal first and second quarters due to decreased services as a result of unfavorable
weather conditions in many regions of the country. Operating activities used net cash of
$8.9 million during the six months ended March 31, 2010, as compared to $4.4 million of net cash
used in the six months ended March 31, 2009. The change in operating cash flows in the six months
ended March 31, 2010 was due to increased collections of accounts receivable and retainage of $22.0
million, coupled with reduced overall working capital needs during the six months ended March 31,
2009, primarily as a result of lower levels of revenue activity and improved material management,
including a vendor managed inventory strategy. Additionally, the reduction of our accounts payable
and accrued expenses totaling $19.8 million was primarily due to the overall reduction in our
revenues against the same period last year combined with reduced billings in excess of costs on
uncompleted projects of $7.5 million compared to the six months ended March 31, 2009.
Investing Activities
In the six months ended March 31, 2010, we used net cash from investing activities of $0.2 million
as compared to $3.1 million of net cash used in investing activities in the six months ended March
31, 2009. Investing activities in the six months ended March 31, 2010 included $0.5 million used
for capital expenditures partially offset by a cash distribution from an investment of $0.1 million
and $0.2 million of proceeds from the sale of equipment. Investing activities in the six months
ended March 31, 2009 included $1.3 million used for capital expenditures, partially offset by
$0.2 million of proceeds from the sale of equipment. In addition, investing activities in the six
months ended March 31, 2009 included $2.0 million used for an investment in EPV Solar, Inc.
Financing Activities
In the six months ended March 31, 2010, financing activities used net cash flow of $0.8 million as
compared to $5.7 million in net cash used by financing activities in the six months ended March 31,
2009. The primary change in net cash used in financing activities in the six months ended March 31,
2010, as compared to the six months ended March 31, 2009, was due to the acquisition of
$4.2 million in treasury stock that occurred during the six months ended March 31, 2009, netted
against $0.7 million related to a new insurance financing for the six months ended March 31, 2010.
Financing activities in the six months ended March 31, 2010 included $1.4 million used for payments
of long-term debt and $0.1 million used for the acquisition of treasury stock. Financing activities
in the six months ended March 31, 2009 included $1.4 million used for payments of long-term debt.
Bonding Capacity
At March 31, 2010, we had adequate surety bonding capacity under our surety agreements. Our ability
to access this bonding capacity is at the sole discretion of our surety providers. As of March 31,
2010, the expected cumulative cost to complete for projects covered by our surety providers was
$58.3 million. We believe we have adequate remaining available bonding capacity to meet our current
needs, subject to the sole discretion of our surety providers. For
additional information, please refer to Part 1. Item 1. Condensed
Consolidated Financial Statements — Note 10, “Commitments
and Contingencies —
Surety
” of this report.
Off-Balance Sheet Arrangements and Contractual Obligations
As is common in our industry, we have entered into certain off-balance sheet arrangements that
expose us to increased risk. Our significant off-balance sheet transactions include commitments
associated with non-cancelable operating leases, letter of credit obligations, firm commitments for
materials and surety guarantees.
We enter into non-cancelable operating leases for many of our vehicle and equipment needs. These
leases allow us to retain our cash when we do not own the vehicles or equipment, and we pay a
monthly lease rental fee. At the end of the lease, we have no further obligation to the lessor. We
may determine to cancel or terminate a lease before the end of its term. Typically, we are liable
to the lessor for various lease cancellation or termination costs and the difference between the
then fair market value of the leased asset and
the implied book value of the leased asset as calculated in accordance with the lease agreement.
33
Table of Contents
Some of our customers and vendors require us to post letters of credit as a means of guaranteeing
performance under our contracts and ensuring payment by us to subcontractors and vendors. If our
customer has reasonable cause to effect payment under a letter of credit, we would be required to
reimburse our creditor for the letter of credit. Depending on the circumstances surrounding a
reimbursement to our creditor, we may have a charge to earnings in that period. At March 31, 2010,
$5.2 million of our outstanding letters of credit were to collateralize our customers and vendors.
Some of the underwriters of our casualty insurance program require us to post letters of credit as
collateral, as is common in the insurance industry. To date, we have not had a situation where an
underwriter has had reasonable cause to effect payment under a letter of credit. At March 31, 2010,
an additional $11.8 million of our outstanding letters of credit were to collateralize our
insurance programs.
From time to time, we may enter into firm purchase commitments for materials such as copper wire
and aluminum wire, among others, which we expect to use in the ordinary course of business. These
commitments are typically for terms less than one year and require us to buy minimum quantities of
materials at specified intervals at a fixed price over the term. As of March 31, 2010, we did not
have any open purchase commitments.
Many of our customers require us to post performance and payment bonds issued by a surety. Those
bonds guarantee the customer that we will perform under the terms of a contract and that we will
pay subcontractors and vendors. In the event that we fail to perform under a contract or pay
subcontractors and vendors, the customer may demand the surety to pay or perform under our bond.
Our relationship with our sureties is such that we will indemnify the sureties for any expenses
they incur in connection with any of the bonds they issues on our behalf. To date, we have not
incurred any costs to indemnify our sureties for expenses they incurred on our behalf. As of March
31, 2010, we utilized a combination of cash, accumulated interest thereon and letters of credit
totaling $10.1 million to collateralize our bonding programs.
As of March 31, 2010, our future contractual obligations due by September 30 of each of the
following fiscal years include (in thousands) (1):
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||||||
|
Long-term debt obligations
|
$ | 1,228 | $ | 1,060 | $ | — | $ | 25,000 | $ | — | $ | — | $ | — | $ | 27,288 | ||||||||||||||||
|
Operating lease obligations
|
$ | 2,824 | $ | 5,929 | $ | 4,269 | $ | 1,743 | $ | 692 | $ | 133 | $ | 21 | $ | 15,611 | ||||||||||||||||
|
Capital lease obligations
|
$ | 184 | $ | 306 | $ | 297 | $ | 287 | $ | 24 | $ | — | $ | — | $ | 1,098 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total
|
$ | 4,236 | $ | 7,295 | $ | 4,566 | $ | 27,030 | $ | 716 | $ | 133 | $ | 21 | $ | 43,997 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) |
The tabular amounts exclude the interest obligations that will be created if the debt and capital lease obligations are
outstanding for the periods presented.
|
Outlook
We anticipate that the combination of cash on hand, cash flows and available capacity under our
Revolving Credit Facility will provide sufficient cash to enable us to meet our working capital
needs, debt service requirements and capital expenditures for property and equipment through the
next twelve months. We expect that our capital expenditures will not exceed $1.5 million for the
fiscal year ending on September 30, 2010, as we invest in our infrastructure to improve management
information and project management systems. Our ability to generate cash flow is dependent on our
successful finalization of our restructuring efforts and many other factors, including demand for
our products and services, the availability of projects at margins acceptable to us, the ultimate
collectability of our receivables and our ability to borrow on our amended Revolving Credit
Facility.
Inflation
During the six months ended March 31, 2010, we experienced general inflationary pressure and
specific increases in fuel, steel and copper prices. The combination of these price increases and
the continued slowdown in the overall construction sector contributed to our gross margin decline.
Over the long-term, we expect to adjust our pricing to incorporate these conditions and other
inflationary factors.
34
Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management is actively involved in monitoring exposure to market risk and continues to develop and
utilize appropriate risk
management techniques. Our exposure to significant market risks includes fluctuations in commodity
prices for copper, aluminum, steel and fuel. Commodity price risks may impact our results of
operations due to the fixed price nature of many of our contracts. We are also exposed to interest
rate risk with respect to our outstanding debt obligations, if any, on the Revolving Credit
Facility.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
In accordance with Exchange Act Rule 13a-15 and 15d-15, we carried out an evaluation, under the
supervision and with the participation of management, including our Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
March 31, 2010 to provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our
disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed in reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during
the six months ended March 31, 2010 that has materially effected, or is reasonably likely to
materially effect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For additional information, please refer to Part 1. Item 1. Condensed Consolidated Financial
Statements — Note 10,
“
Commitments and Contingencies — Legal Matters
”
of this report, which is
incorporated herein by reference. We are not aware of any litigation or pending litigation that we
believe will have a material impact on our results of operations or our financial position other
than these matters that are disclosed in Note 10.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed under Item 1.A. “
Risk Factors
”
in our annual report on Form 10-K for the year ended September 30, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Removed and Reserved.
35
Table of Contents
ITEM 5. OTHER INFORMATION
The Company held its annual meeting of stockholders in Houston, Texas on February 2, 2010. The
following sets forth the matters submitted to a vote of the stockholders:
(A) The individuals listed in the table below were elected to the Board of Directors as stated in
the Company’s Proxy Statement dated December 30, 2009, for terms expiring at the 2011 annual
stockholders’ meeting and until their successors have been elected and qualified. Each nominee was
elected by a vote that totaled more than a majority of the common stock of the Company.
| Nominee |
Affirmative
Votes |
Votes
Withheld |
||||||
|
Charles H. Beynon
|
13,106,905 | 25,716 | ||||||
|
Michael J. Caliel
|
13,108,617 | 24,004 | ||||||
|
Michael J. Hall
|
13,107,152 | 25,469 | ||||||
|
Joseph P. Lash
|
11,147,167 | 1,985,454 | ||||||
|
Donald P. Luke
|
13,108,885 | 23,736 | ||||||
|
John E. Welsh III
|
13,108,929 | 23,692 | ||||||
(B) The stockholders ratified the appointment of Ernst & Young LLP to audit the financial
statements of the Company and its subsidiaries, by a vote of 13,876,311 shares, with 37,732 shares
against and 180 shares abstaining.
ITEM 6. EXHIBITS
| 3.1 |
Second Amended and Restated Certificate of Incorporation of Integrated Electrical
Services, Inc. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-8 filed on May 12, 2006)
|
|||
|
|
||||
| 3.2 |
Bylaws of Integrated Electrical Services, Inc. (Incorporated by reference to Exhibit
4.2 to the Company’s Registration Statement on Form S-8, filed on May 12, 2006)
|
|||
|
|
||||
| 10.1 |
Amendment, dated as of April 30, 2010, to Loan and Security Agreement, dated May 12,
2006, by and among Integrated Electrical Services, Inc. and its subsidiaries, Bank of
America, N.A. and Wells Fargo Capital Finance LLC. (Incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K filed on May 6, 2010)
|
|||
|
|
||||
| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Michael J. Caliel, Chief Executive Officer (1)
|
|||
|
|
||||
| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Terry L. Freeman, Chief Financial Officer (1)
|
|||
|
|
||||
| 32.1 |
Section 1350 Certification of Michael J. Caliel, Chief Executive Officer (1)
|
|||
|
|
||||
| 32.2 |
Section 1350 Certification of Terry L. Freeman, Chief Financial Officer (1)
|
| (1) |
Filed herewith.
|
36
Table of Contents
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed
this report on behalf of the registrant and as the principal financial officer of the registrant.
|
|
INTEGRATED ELECTRICAL SERVICES, INC.
|
|||||
|
Date: May 10, 2010
|
By: |
/s/ Terry L. Freeman
|
||||
|
|
Senior Vice President and Chief Financial Officer | |||||
37
Table of Contents
EXHIBIT INDEX
| 3.1 |
Second Amended and Restated Certificate of Incorporation of Integrated Electrical
Services, Inc. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-8 filed on May 12, 2006)
|
|||
|
|
||||
| 3.2 |
Bylaws of Integrated Electrical Services, Inc. (Incorporated by reference to Exhibit
4.2 to the Company’s Registration Statement on Form S-8, filed on May 12, 2006)
|
|||
|
|
||||
| 10.1 |
Amendment, dated as of April 30, 2010, to Loan and Security Agreement, dated May 12,
2006, by and among Integrated Electrical Services, Inc. and its subsidiaries, Bank of
America, N.A. and Wells Fargo Capital Finance LLC. (Incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K filed on May 6, 2010)
|
|||
|
|
||||
| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Michael J. Caliel, Chief Executive Officer (1)
|
|||
|
|
||||
| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Terry L. Freeman, Chief Financial Officer (1)
|
|||
|
|
||||
| 32.1 |
Section 1350 Certification of Michael J. Caliel, Chief Executive Officer (1)
|
|||
|
|
||||
| 32.2 |
Section 1350 Certification of Terry L. Freeman, Chief Financial Officer (1)
|
| (1) |
Filed herewith.
|
TABLE OF CONTENTS
Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintItem 5. Other InformationprintItem 6. Exhibitsprint