-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3vUDeo0W06pAqbYAiZvXGM5YAlwt1stmIrvreKDszG0Oe/x+/OzBkp4pbx/Mh6n RVnrfEeKwWuRCY22sj/PLQ== 0000950129-99-000371.txt : 19990205 0000950129-99-000371.hdr.sgml : 19990205 ACCESSION NUMBER: 0000950129-99-000371 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990204 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED ELECTRICAL SERVICES INC CENTRAL INDEX KEY: 0001048268 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] IRS NUMBER: 760542208 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13783 FILM NUMBER: 99521637 BUSINESS ADDRESS: STREET 1: 515 POST OAK BLVD STREET 2: SUITE 450 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138601500 MAIL ADDRESS: STREET 1: 515 POST AOK BLVD STREET 2: SUITE 450 CITY: HOUSTON STATE: TX ZIP: 77027-9408 8-K 1 INTEGRATED ELECTRICAL SERVICES, INC. - 02/03/99 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: February 4, 1999 Commission File No. 001-13783 INTEGRATED ELECTRICAL SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0542208 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 515 Post Oak Boulevard Suite 450 Houston, Texas 77027-9408 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (713) 860-1500 2 ITEM 5. OTHER EVENTS Integrated Electrical Services, Inc., a Delaware corporation (the "Company") is a leading national provider and consolidator of electrical contracting and maintenance services, focusing primarily on the commercial, industrial, residential, powerline and data communication markets. In connection with its business acquisitions, the Company plans to offer shares of the Company's Common Stock, $.01 par value per share (the "Common Stock") pursuant to its Registration Statement on Form S-1 (Registration No. 333-45479). In order to comply with the disclosure requirements of the Securities and Exchange Commission regarding the financial statements of businesses acquired or to be acquired, the Company is filing this Current Report containing the following audited and pro forma financial statements. (a) Financial Statements of Businesses Acquired See Pages 2 through 51 (b) Pro Forma Financial Information See Pages 52 through 56 3 INDEX TO FINANCIAL STATEMENTS PAGE ---- PRIMO ELECTRIC COMPANY - FINANCIAL STATEMENTS FOR THE YEAR ENDED APRIL 30, 1998 AND FOR PRIMO ELECTRIC COMPANY AND PRIMENET, LLC FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED) Report of Independent Certified Public Accountants ........................ 2 Balance Sheets ............................................................ 3 Statements of Income and Retained Earnings/Member's Equity ................ 5 Statements of Cash Flows .................................................. 6 Notes to Financial Statements ............................................. 8 KAYTON ELECTRIC, INC. - FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) Independent Auditors' Report .............................................. 15 Balance Sheets ............................................................ 16 Statements of Earnings and Retained Earnings .............................. 17 Statements of Cash Flows .................................................. 18 Notes to Financial Statements ............................................. 19 BACHOFNER ELECTRIC, INC. - FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND TEN MONTHS ENDED OCTOBER 31, 1997 AND 1998 (UNAUDITED) Independent Auditors' Report .............................................. 24 Balance Sheets ............................................................ 25 Statements of Operations .................................................. 26 Statements of Changes in Stockholders' Equity ............................. 27 Statements of Cash Flows .................................................. 28 Notes to Financial Statements ............................................. 29 PCX CORPORATION - FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) Report of Independent Public Accountants .................................. 39 Balance Sheets ............................................................ 40 Statements of Operations .................................................. 41 Statements of Stockholders' Equity ........................................ 42 Statements of Cash Flows .................................................. 43 Notes to Financial Statements ............................................. 44 INTEGRATED ELECTRIC SERVICES, INC. - UNAUDITED PRO FORMA FINANCIAL STATEMENTS Basis of Presentation ..................................................... 52 Unaudited Pro Forma Balance Sheet as of September 30, 1998 ................ 53 Unaudited Pro Forma Statement of Operations for the Year ended September 30, 1998 ................................................ 54 Notes to Unaudited Pro Forma Financial Statements ......................... 55 4 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS PRIMO ELECTRIC COMPANY 2340 Monumental Avenue Baltimore, Maryland 21227 We have audited the accompanying balance sheet of Primo Electric Company as of April 30, 1998 and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Primo Electric Company as of April 30, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Hertzbach & Company P.A. Certified Public Accountants Baltimore, Maryland July 14, 1998 2 5 PRIMO ELECTRIC COMPANY - APRIL 30, 1998 PRIMO ELECTRIC COMPANY AND PRIMENET, LLC - DECEMBER 31, 1998 (COMBINED) BALANCE SHEETS
April 30, December 31, 1998 1998 (Audited) (Unaudited) ------------ ------------ Assets CURRENT ASSETS Cash $ 655,509 $ 1,334,557 Marketable Equity Securities And Investments 1,327,111 1,586,407 Accounts Receivable-Contracts 4,925,977 3,497,555 Accounts Receivable-Other 4,223 -- Inventory 18,670 54,165 Loans Receivable-Officers -- 495,300 Loans Receivable-Employees 38,693 -- Refundable Income Taxes 39,000 -- Incurred Direct Costs And Earned Projected Gross Profit in Excess of Billings On Uncompleted Contracts 399,903 1,032,232 Prepaid Expenses And Refundable Deposits 36,029 53,511 ------------ ------------ Total Current Assets 7,445,115 8,053,727 ------------ ------------ PROPERTY AND EQUIPMENT Vehicles 840,435 1,197,990 Leasehold Improvements 59,188 69,406 Office Furniture And Fixtures 293,826 359,384 Equipment 205,331 338,130 ------------ ------------ 1,398,780 1,964,910 Less: Accumulated Depreciation 650,036 773,541 ------------ ------------ Total Property and Equipment 738,744 1,191,369 ------------ ------------ OTHER ASSETS Cash Surrender Value-Life Insurance 140,772 140,772 ------------ ------------ Total Other Assets 140,772 140,772 ------------ ------------ TOTAL ASSETS $ 8,334,631 $ 9,385,868 ============ ============
3 6 PRIMO ELECTRIC COMPANY - APRIL 30, 1998 PRIMO ELECTRIC COMPANY AND PRIMENET, LLC - DECEMBER 31, 1998 (COMBINED) BALANCE SHEETS - CONTINUED
April 30, December 31, 1998 1998 (Audited) (Unaudited) ------------ ------------ Liabilities, Stockholders' Equity, And Members' Equity CURRENT LIABILITIES Accounts Payable $ 1,048,259 $ 1,150,296 Notes Payable - Line of Credit 1,059,012 709,750 Current Maturities Of Long-Term Debt -- 28,508 Loans Payable-Officers 213,920 19,264 Security Deposits -- -- Payroll Taxes Payable 238,496 88,566 Billings in Excess Of Incurred Direct Costs And Earned Projected Gross Profit on Uncompleted Contracts 2,137,909 878,821 Accrued Income Taxes - Current And Deferred 412,920 1,464,560 Accrued Expenses 634,885 183,780 ------------ ------------ Total Current Liabilities 5,745,401 4,523,545 ------------ ------------ LONG TERM DEBT, LESS CURRENT MATURITIES -- 114,036 ------------ ------------ STOCKHOLDERS AND MEMBERS' EQUITY Common Stock 5,000 5,000 Retained Earnings 2,584,230 4,583,470 Members' Equity -- 159,817 ------------ ------------ Total Stockholders' Equity and Members' Equity 2,589,230 4,748,287 ------------ ------------ TOTAL LIABILITIES, STOCKHOLDERS EQUITY, AND MEMBERS' EQUITY $ 8,334,631 $ 9,385,868 ============ ============
4 7 PRIMO ELECTRIC COMPANY - APRIL 30, 1998 PRIMO ELECTRIC COMPANY AND PRIMENET, LLC - DECEMBER 31, 1998 (COMBINED) Statements of Income and Retained Earnings/Members' Equity
For The For The For The Eight Months Eight Months Year Ended Ended Ended April 30, December 31, December 31, 1998 1998 1997 (Audited) (Unaudited) (Unaudited) ------------ ------------ ------------ Earned Construction Income $ 16,795,775 $ 17,156,356 $ 10,593,876 Applicable Direct Costs 13,387,357 11,628,002 6,970,490 ------------ ------------ ------------ Gross Profit From Contracts 3,408,418 5,528,354 3,623,386 General And Administrative Expenses 2,907,221 2,364,215 1,966,960 ------------ ------------ ------------ Operating Income 501,197 3,164,139 1,656,426 Other Income 201,491 175,062 126,167 ------------ ------------ ------------ 702,688 3,339,201 1,782,593 Other Expenses 187,416 70,111 76,765 ------------ ------------ ------------ 515,272 3,269,090 1,705,828 Net Unrealized Gain On Marketable Equity Securities 173,083 -- -- ------------ ------------ ------------ Income Before Income Taxes 688,355 3,269,090 1,705,828 ------------ ------------ ------------ Provision For Income Taxes 282,124 1,210,033 658,791 ------------ ------------ ------------ Net Income Primo Electric Company 406,231 1,999,240 1,047,037 Primenet, LLC -- 59,817 -- ------------ ------------ ------------ 406,231 2,059,057 1,047,037 Retained Earnings-Beginning Of Year/Period Primo Electric Company 2,177,999 2,584,230 2,177,999 Members' Equity-Beginning Of Period Primenet, LLC -- 100,000 -- ------------ ------------ ------------ $ 2,585,230 $ 2,684,230 $ 3,225,036 ============ ============ ============
5 8 PRIMO ELECTRIC COMPANY - APRIL 30, 1998 PRIMO ELECTRIC COMPANY AND PRIMENET, LLC - DECEMBER 31, 1998 (COMBINED) STATEMENTS OF CASH FLOWS
For The Eight Months Ended December 31, For The Year Ended ---------------------------------- April 30, 1998 1997 1998 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES (Audited) (Unaudited) (Unaudited) ------------------ -------------- -------------- Net Income $ 406,231 $ 2,059,057 $ 1,047,037 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 172,960 123,505 73,801 Deferred Income Taxes 156,531 -- -- Net Realized Loss On Sale Of Marketable Equity Securities 65,499 -- -- Net Unrealized (Gain) On Marketable Equity Securities (173,083) -- -- Purchases Of Marketable Equity Securities (804,596) (259,296) (199,739) Proceeds From Sale Of Marketable Equity Securities 585,225 -- -- (Increase) Decrease in Operating Assets: Accounts Receivable - Contracts (2,535,970) 1,428,422 (1,296,189) Accounts Receivable - Other (2,343) 4,223 1,880 Inventory 26,617 (36,495) (16,396) Loans Receivable - Employees (26,109) 38,693 12,584 Refundable Income Taxes (32,435) 39,000 6,565 Incurred Direct Costs And Earned Projected Gross Profit In Excess Of Billings On Uncompleted Contracts (204,796) (632,329) 29,685 Prepaid Expenses And Refundable Deposits (4,487) (17,482) (39,146) Increase (Decrease) In Operating Liabilities Accounts Payable 573,887 102,037 480,984 Security Deposits -- -- (1,170) Payroll Taxes Payable 234,928 (149,930) 62,649 Billings In Excess Of Incurred Direct Costs And Earned Projected Gross Profit On Uncompleted Contracts 1,180,993 (1,259,088) (229,919) Income Taxes Payable 16,928 1,051,640 569,626 Accrued Expenses 534,885 (451,105) 205,015 -------------- -------------- -------------- Net Cash Provided By Operating Activities 170,865 2,041,852 707,267 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Net Purchases Of Property And Equipment (464,191) (566,130) (188,156) Cash Surrender Value - Life Insurance (17,456) -- -- Capital Investment In Primenet, LLC -- 100,000 -- Decrease (Increase) In Loan Receivable - Officers 161,079 (495,300) (200,346) -------------- -------------- -------------- Net Cash Used In Investing Activities (320,568) (961,430) (388,502) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net (Repayments) Proceeds Notes Payable - Line Of Credit 475,860 (349,262) (469,712) Net Proceeds On Long-Term Debt -- 142,644 -- Net Proceeds (Repayments) From Loans Payable - Officers 167,156 (194,656) (7,500) -------------- -------------- -------------- Net Cash Provided By (Used In) Financing Activities 643,016 (401,374) (477,212) -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH 493,313 679,048 (158,447) CASH - BEGINNING OF YEAR/PERIOD 162,196 655,509 162,196 -------------- -------------- -------------- CASH - END OF YEAR/PERIOD $ 655,509 $ 1,334,557 $ 3,749 ============== ============== ==============
6 9 PRIMO ELECTRIC COMPANY - APRIL 30, 1998 PRIMO ELECTRIC COMPANY AND PRIMENET, LLC - DECEMBER 31, 1998(COMBINED)
Statements of Cash Flows - Continued For The Eight Months Ended December 31, For the Year Ended -------------------------- April 30, 1998 1997 1998 ----------- ----------- (Audited) (Unaudited) (Unaudited) ------------------ ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During The Year For: Interest $ 41,660 $ 29,557 $ 36,111 Income Taxes $ 141,100 $ 46,500 $ 29,598
7 10 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- APRIL 30, 1998 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Primo Electric Company (Company) was incorporated in the state of Maryland on May 1, 1968. The Company is engaged in commercial electrical contracting, primarily in the greater Baltimore metropolitan region. The accompanying financial statements include the operations of PrimeNet, a division of the Company which began operations in August, 1996. PrimeNet is engaged in the business of design, installation and servicing of communication and data transmission systems, primarily for hospitals, universities and colleges in the greater Baltimore Washington metropolitan area. The PrimeNet division generated approximately 37% of the Company's revenues for the year ended April 30, 1998. LONG-TERM CONSTRUCTION CONTRACTS - For financial reporting purposes, the Company records income on its long-term construction contracts on the percentage-of-completion method of accounting. Contract costs and estimated earnings are recognized as work on the contracts progresses, based upon the percentage that direct costs to date bear to total estimated direct costs. Billings on contracts not having sufficient progress are recognized to the extent of direct costs incurred and direct costs incurred on contracts not having sufficient progress to be billed are deferred. Cost and earnings estimates are revised and reflected as of the accounting period in which the facts which require the revision become known. Projected losses, if any, are provided for in their entirety. Contract costs include direct costs of construction and those indirect costs related to contract performance. Selling, general and administrative costs are charged to operations as incurred. ACCOUNTS RECEIVABLE - Management is of the opinion that all of the Company's accounts receivable are fully collectible and no allowance for doubtful accounts is required. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. The cost of repairs and maintenance is charged to operations as incurred. Major renewals, betterments, and additions are capitalized. When assets are sold or otherwise disposed of, the cost of the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Depreciation is computed using the following methods over the estimated useful lives of the assets.
Class Method ----- ------ Vehicles Accelerated Leasehold Improvements Straight-Line Office Furniture And Fixtures Accelerated Equipment Accelerated
INCOME TAXES - The Company reports profits and losses on its long-term construction contracts for income tax purposes on the completed contract method of accounting. Under this method, income and related costs are recognized only when a contract is fully completed, billed and accepted. Provision is made on the financial statements for deferred income taxes applicable to temporary differences between income recognized for financial reporting purposes and income recognized for income tax purposes under the asset/liability method. The principal sources of taxable and deductible temporary differences are different reporting methods for long-term construction contracts and marketable equity securities. Deferred income taxes are classified as current or noncurrent depending upon the balance sheet classification of the related asset or liability. 8 11 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORY - Inventory, primarily materials and supplies, is valued at cost. Cost is determined by the first-in, first-out method. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. CONCENTRATION OF CREDIT RISK - The Company maintains cash balances at several area financial institutions. Accounts at each institution are insured by agencies of the federal government up to $100,000. Cash balance at April 30, 1998 exceeded insured limits by $445,177. STATEMENTS OF CASH FLOWS - For the purpose of these statements, the Company considers all highly liquid investments, including certificates of deposit whose terms do not effectively restrict withdrawal, to be cash equivalents. ADVERTISING - The Company expenses the cost of advertising the first time the advertising takes place. Advertising costs amounted to $44,081 for the year ended April 30, 1998. 2. MARKETABLE EQUITY SECURITIES All of the Company's marketable equity securities have been classified as trading securities and are being carried at fair value with unrealized gains and losses included in earnings. Sales of marketable equity securities resulted in a net realized loss of $65,499 for the year ended April 30, 1998. Realized gains and losses are determined using the first-in, first-out (FIFO) method. 3. LIFE INSURANCE The Company is the owner and beneficiary of various life insurance policies on the lives of key employees.
Face Amount Cash Surrender Insured Of Policy Value ------- ----------- -------------- Primo China $ 70,000 $ 82,068 Primo China 200,000 45,184 Richard China 500,000 7,132 R. Manns 100,000 1,838 C. Meadows 100,000 2,083 R. Eller 100,000 2,467 -------------- $140,772 ==============
9 12 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 4. INCOME TAXES CURRENT INCOME TAXES - For the year ended April 30, 1998, the Company incurred a liability for federal and state income taxes as follows:
1998 --------- Federal Income Taxes $ -- Federal Alternative Minimum Tax 129,441 Alternative Minimum Tax Credit -- State Income Taxes -- --------- 129,441 Reduction In Income Taxes: Prior Year Over Accrual (3,848) --------- Current Income Tax Expense 125,593 --------- Estimated Payments Federal 78,000 State 39,000 Prior Year Over Accrual (3,848) Prior Year Under Accrual -- --------- 113,152 --------- Net Income Taxes Payable $ 12,441 ========= Federal Income Taxes Payable (Refundable) $ 51,441 State Income Taxes Payable (Refundable) (39,000) --------- Net Income Taxes Payable $ 12,441 =========
10 13 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 4. INCOME TAXES (CONTINUED) CARRYFORWARDS - The Company has available to reduce future federal income tax liabilities an alternative minimum tax credit carryforward in the amount of $150,521 at April 30, 1998, which may be utilized by the Company in years in which it is not subject to alternative minimum tax. The Company also has a capital loss carryover in the amount of $87,503 which may be used to reduce future taxable income. These carryforwards are being used to reduce deferred income taxes as shown below. DEFERRED INCOME TAXES - Differences between income and costs recognized for financial reporting and income tax purposes have generated deferred income taxes as follows:
1998 -------- Total Deferred Tax Liabilities $545,793 -------- Deferred Tax Assets, Excluding Alternative Minimum Tax Credit Carryforwards, Capital Loss Carryforwards -- Capital Loss Carryforwards 33,793 Alternative Minimum Tax Credit Carryforward 150,521 -------- Total Deferred Tax Assets 184,314 Less: Valuation Allowance -- -------- 184,314 -------- Net Deferred Tax Liabilities $361,479 ======== Deferred Income Taxes - Beginning Of Year $204,948 (Benefit) Provision For Deferred Income Taxes 156,531 -------- Deferred Income Taxes - End Of Year $361,479 ========
5. NOTES PAYABLE - LINE OF CREDIT The Company has available a $500,000 line of credit from Farmers' Bank. Borrowings under the line bear interest at a varying rate and are secured by accounts receivable and marketable equity securities. There was an outstanding balance of $492,262 at April 30, 1998. The Company has available at April 30, 1998 a $750,000 line of credit from Mercantile Safe Deposit and Trust Company. The line bears interest at a varying rate and is secured by a first lien on all accounts receivable and the personal guaranty of Richard L. China. There was an outstanding balance due of $566,750 at April 30, 1998. Interest expense on all of the Company's obligations amounted to $41,650 for the year ended April 30, 1998. 11 14 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 6. LEASE AGREEMENTS The Company leases its premises on a monthly basis, currently $8,500 per month, from Mr. Primo China. Rent and associated facilities costs for the year ended April 30, 1998 amounted to $125,880. 7. PROFIT SHARING AND DEFERRED COMPENSATION PLANS The Company maintains a profit sharing plan covering substantially all full time employees. Contributions, if any, are at the sole discretion of management. No contributions were made for the year ended April 30, 1998. The Company adopted a deferred compensation plan (401(k)) covering substantially all of its permanent employees during the year ended April 30, 1991. The arrangement is in the form of a salary reduction agreement between eligible employees and the employer under which a contribution is made by the employer if the employee chooses to participate. Company contributions under the 401(k) arrangement for the year ended April 30, 1998 were $37,667. 8. LOANS PAYABLE - OFFICERS The amount of $213,920 in the accompanying financial statements at April 30, 1998 represents unsecured non interest bearing loan due to the Company's officers and stockholders. 12 15 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 9. UNCOMPLETED CONTRACTS Earned income on uncompleted contracts is based upon the Company's projected estimated gross profit upon completion of the individual contracts. The Company's uncompleted contracts at April 30, 1998 are presented below based upon actual direct costs to date and estimated direct costs to complete, as follows:
1998 ------------ Costs Incurred To Date $ 10,568,905 Estimated Gross Profit Earned To Date 2,908,310 ------------ 13,477,215 Less: Billings To Date 15,215,221 ------------ $ (1,738,006) ============ Included In Accompanying Balance Sheets Under The Following Captions: Incurred Direct Costs And Earned Projected Gross Profit In Excess Of Billings On Uncompleted Contracts $ 399,903 Billings In Excess Of Incurred Direct Costs And Earned Projected Gross Profit On Uncompleted Contracts (2,137,909) ------------ $ (1,738,006) ============
10. SUBSEQUENT EVENTS On May 6, 1998 a new entity was formed known as Primenet, LLC. This entity purchased various assets from Primo Electric Company (Primenet Division) and performs the same type of service previously contracted from Primo Electric Company by its customers in the area of computer cabling and networking. Primenet, LLC is owned by stockholders of Primo Electric Company and former employees of Primo Electric Company's Primenet division. 11. AGREEMENT AND PLAN OF MERGER The Stockholders of Primo Electric Company and the Members of Primenet, LLC entered into a binding agreement to sell their ownership in both entities to Integrated Electrical Services, Inc. The agreement is dated January 12, 1999. 13 16 ================================================================================ PRIMO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- APRIL 30, 1998 12. INTERIM STATEMENTS The interim financial statements for the eight months ended December 31, 1998 and 1997, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. 13. COMBINATION OF ENTITIES FOR INTERIM STATEMENTS The interim financial statements for the eight months ended December 31, 1998 represent the combined balance sheets and related statements of income and retained earnings (Members' Equity) and combined cash flows for both Primo Electric Company and Primenet, LLC. 14 17 INDEPENDENT AUDITORS' REPORT The Board of Directors Kayton Electric, Inc.: We have audited the accompanying balance sheet of Kayton Electric, Inc. as of December 31, 1997 and the related statements of earnings and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kayton Electric, Inc. as of December 31, 1997 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP January 28, 1998 (November 19, 1998 as to Note 8) 15 18 KAYTON ELECTRIC, INC. Balance Sheets September 30, 1998 (unaudited) and December 31, 1997
SEPTEMBER 30, DECEMBER 31, ASSETS 1998 1997 ----------- ----------- (unaudited) Current assets: Cash $ 601,667 $ 830,628 Accounts receivable, including retainages of $621,799 (unaudited) and $707,935 at September 30, 1998 and December 31, 1997, respectively 1,587,585 2,407,479 Materials for projects in progress 440,000 600,000 Costs and estimated earnings in excess of billings on uncompleted contracts 625,529 428,756 Other current assets 191,000 179,000 ----------- --------- Total current assets 3,445,781 4,445,863 ----------- --------- Property and equipment, at cost 2,385,300 2,315,929 Less accumulated depreciation 1,482,115 1,417,895 ----------- --------- Net property, plant and equipment 903,185 898,034 ----------- --------- Other assets 26,881 7,997 ----------- --------- $ 4,375,847 $ 5,351,894 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 452,940 $ 627,762 Current installments of long-term debt 6,000 66,000 Billings in excess of costs and estimated earnings on uncompleted contracts 614,697 1,030,465 Accrued expenses 473,740 461,938 Other current liabilities 243,937 235,683 ----------- --------- Total current liabilities 1,791,314 2,421,848 Long-term debt -- 546,000 ----------- --------- Total liabilities 1,791,314 2,967,848 ----------- --------- Stockholders' equity: Common stock of $1 par value. Authorized 75,000 shares, issued 60,000 shares 60,000 60,000 Paid-in capital in excess of par value 84,989 84,989 Retained earnings 2,439,544 2,239,057 ----------- --------- Total stockholders' equity 2,584,533 2,384,046 Commitments ----------- ----------- $ 4,375,847 $ 5,351,894 =========== ===========
16 19 KAYTON ELECTRIC, INC Statements of Earnings and Retained Earnings Nine-month periods ended September 30, 1998 and 1997 (unaudited) and year ended December 31, 1997
SEPTEMBER 30, DECEMBER 31, 1998 1997 1997 ------------ ---------- ---------- (unaudited) Contract revenues $ 10,193,439 $10,650,913 $14,991,171 ------------ ----------- ----------- Cost of construction Direct 8,082,121 8,706,306 12,368,485 Indirect 573,222 576,920 775,260 ------------ ----------- ----------- Total cost of construction 8,655,343 9,283,226 13,143,745 ------------ ----------- ----------- Gross profit 1,538,096 1,367,687 1,847,426 General and administrative expenses 711,438 738,029 1,016,369 ------------ ----------- ----------- Operating income 826,658 629,658 831,057 ------------ ----------- ----------- Other income (deductions): Interest and dividend income 25,943 1,083 5,640 Interest expense (390) (11,594) (12,166) Miscellaneous 17,276 22,458 27,624 ------------ ----------- ----------- Total other income (deductions), net 42,829 11,947 21,098 ------------ ----------- ----------- Net earnings 869,487 641,605 852,155 Retained earnings, beginning of year 2,239,057 2,009,652 2,009,652 Dividends paid (669,000) (622,750) (622,750) ------------ ----------- ----------- Retained earnings, end of year $ 2,439,544 $ 2,028,507 $ 2,239,057 ============ =========== ===========
See accompanying notes to financial statements. 17 20 KAYTON ELECTRIC, INC. Statements of Cash Flows Nine-month periods ended September 30, 1998 and 1997 (unaudited) and year ended December 31, 1997
September 30, December 31, 1998 1997 1997 ------------ ------------ ------------ (unaudited) Cash flows from operating activities: Net earnings $ 869,487 $ 641,605 $ 852,155 ------------ ------------ ------------ Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 180,646 190,825 258,310 Gain from sale of equipment 2,574 4,941 4,941 Changes in assets and liabilities: Accounts receivable 819,894 273,699 (334,935) Materials for projects in progress 160,000 (80,000) 100,000 Costs and estimated earnings in excess of billings on (196,773) (77,198) 84,853 uncompleted contracts Other current assets (12,000) (12,000) (16,000) Other assets (18,884) 3,000 2,403 Accounts payable (174,822) (17,186) 40,312 Billings in excess of costs and estimated earnings on (415,768) 421,341 402,754 uncompleted contracts Accrued expenses 11,801 19,004 55,302 Other current liabilities 8,254 14,801 28,180 ------------ ------------ ------------ Total adjustments 364,922 741,227 626,120 ------------ ------------ ------------ Net cash provided by operating activities 1,234,409 1,382,832 1,478,275 ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures (201,745) (185,957) (247,379) Proceeds from sale of equipment 13,375 5,250 5,250 ------------ ------------ ------------ Net cash used by investing activities (188,370) (180,707) (242,129) ------------ ------------ ------------ Cash flows from financing activities: Principal payments on long-term debt (606,000) (1,235,250) (765,250) Proceeds from long-term debt -- 600,000 730,000 Dividends paid (669,000) (622,750) (622,750) ------------ ------------ ------------ Net cash used by financing activities (1,275,000) (1,258,000) (658,000) ------------ ------------ ------------ Net increase (decrease) in cash (228,961) (55,875) 578,146 Cash, beginning of year/period 830,628 252,482 252,482 ------------ ------------ ------------ Cash, end of year/period $ 601,667 $ 196,607 $ 830,628 ============ ============ ============
18 21 KAYTON ELECTRIC, INC. Notes to Financial Statements September 30, 1998 and 1997 and December 31, 1997 (Data as of and for the nine-months periods ended September 30, 1998 and 1997 is unaudited) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Kayton Electric, Inc. (the Company) is engaged in electrical contracting in Nebraska and neighboring states. The length of the Company's contracts is typically less than two years. METHOD OF ACCOUNTING FOR CONTRACTS The Company uses the percentage-of-completion method of accounting for financial reporting and tax purposes. Revenues on contracts are recorded on the basis of the Company's estimates of the percentage of completion of individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Provision for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in estimated profitability are recognized in the period the revisions are determined. MATERIALS FOR PROJECTS IN PROGRESS Materials are stated at the lower of cost or market and are charged to job costs as they are utilized. DEPRECIATION Depreciation is provided by the use of the straight-line depreciation method over the estimated useful lives of the respective assets. INCOME TAXES The Company has elected, under the S Corporation provisions of the Internal Revenue Code, not to pay any income tax on its income and instead, to have its stockholders pay taxes on such income, whether distributed or not. Consequently, no provision has been made in the accompanying financial statements for income taxes on earnings of the Company. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 19 22 KAYTON ELECTRIC, INC. Notes to Financial Statements September 30, 1998 and 1997 and December 31, 1997 (Data as of and for the nine-months periods ended September 30, 1998 and 1997 is unaudited) WARRANTY COSTS For certain contracts, the Company warrants labor for the first year after installation of new electrical systems. The Company generally warrants labor for 30 days after servicing of existing electrical systems. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. UNAUDITED INTERIM FINANCIAL INFORMATION The interim financial statements for the nine months ended September 30, 1998 and 1997, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. (2) CONTRACTS IN PROGRESS Costs incurred to date, estimated earnings and the related progress billings to date of contracts in progress at September 30, 1998 and December 31, 1997 are shown below:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Costs incurred to date $ 5,123,025 $5,112,997 Estimated earnings 873,459 739,808 ----------- ---------- 5,996,484 5,852,805 Less progress billings to date 5,985,652 6,454,514 ----------- ---------- $ 10,832 $ (601,709) =========== ==========
20 23 KAYTON ELECTRIC, INC. Notes to Financial Statements September 30, 1998 and 1997 and December 31, 1997 (Data as of and for the nine-months periods ended September 30, 1998 and 1997 is unaudited) Included in the accompanying balance sheets at September 30, 1998 and December 31, 1997, under the following captions:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Costs and estimated earnings in excess of billings on contracts in progress $ 625,529 $ 428,756 Billings in excess of costs and estimated earnings on contracts in progress (614,697) (1,030,465) ------------- ------------ $ 10,832 $ (601,709) ============= ============
(3) PROPERTY, PLANT AND EQUIPMENT A summary of the major classifications of property, plant and equipment at September 30, 1998 and December 31, 1997 is shown below:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Land $ 51,556 $ 51,556 Vehicles and equipment 1,473,259 1,436,386 Tools 750,088 728,730 Office equipment 110,397 99,257 ------------- ------------ $2,385,300 $2,315,929 ============= ============
21 24 KAYTON ELECTRIC, INC. Notes to Financial Statements September 30, 1998 and 1997 and December 31, 1997 (Data as of and for the nine-months periods ended September 30, 1998 and 1997 is unaudited) (4) LONG-TERM DEBT AND NOTES PAYABLE Long-term debt at September 30, 1998 and December 31, 1997 is shown below:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Note payable to bank, due in monthly principal installments of $5,000 through May 2008, interest at a variable rate (9.5% at December 31, 1997), due semiannually, by asset of the Company - paid in 1998 $ -- $ 600,000 Note payable to a corporation, due in annual principal installments of $6,000 through April 1999, interest a fixed rate of 6.00%, due annually, secured by 6,000 12,000 real estate property of the Company ------------- ------------ Total long-term debt 6,000 612,000 Less current installments 6,000 66,000 ------------- ------------ Long-term debt, excluding current installments $ -- $ 546,000 ============= ============
The Company has a $300,000 operating line of credit with a financial institution with an interest rate of 8.95%. At September 30, 1998 and December 31, 1997, there was no outstanding balance on the line of credit. The operating line of credit expires on May 1, 1999 and is secured by the assets of the Company. (5) DEFERRED COMPENSATION The Company has deferred compensation agreements with certain key employees. The Company has elected to fund the agreements by purchasing life insurance policies for each employee. The cash surrender value of the policies is included in other current assets and the deferred compensation liability is included in other current liabilities in the financial statements. (6) RELATED PARTY TRANSACTIONS The Company has entered into lease agreements with a shareholder for the use of certain land and buildings. The leases expire June 30, 1999. The Company incurred $24,320 and $15,300 of lease expense related to this property for each of the nine-month periods ended September 30, 1998 and 1997 and $20,400 for the year ended December 31, 1997. 22 25 KAYTON ELECTRIC, INC. Notes to Financial Statements September 30, 1998 and 1997 and December 31, 1997 (Data as of and for the nine-months periods ended September 30, 1998 and 1997 is unaudited) (7) 401(K) PROFIT SHARING PLAN AND TRUST The Company has a 401(k) plan covering substantially all employees with one year of service and who have attained twenty-one years of age. Each participant may elect to contribute a percentage of their total compensation, not to exceed the Internal Revenue Service limitations. The Company contributes matching funds at a rate of $.50 for each dollar of the first 3% of the participant's contribution. The employer may also make an additional discretionary matching contribution each year. Company contributions to the plan are shown below:
SEPTEMBER 30, SEPTEMBER 30 DECEMBER 31, 1998 1997 1997 ------------- ------------ ------------ Matching contributions $20,493 $ 23,010 $ 30,027 Discretionary contribution -- -- 8,000 ------------- ------------ ------------ Total employer contributions $20,493 $ 23,010 $ 38,027 ============= ============ ============
(8) SUBSEQUENT EVENT On November 19, 1998, all the Company's common stock was sold to an unrelated purchaser, Integrated Electrical Services, Inc. and the Company became a subsidiary of Integrated Electrical Services, Inc. 23 26 INDEPENDENT AUDITORS' REPORT To the Board of Directors Bachofner Electric, Inc. Portland, Oregon We have audited the accompanying balance sheet of Bachofner Electric, Inc. as of December 31, 1997 and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bachofner Electric, Inc. as of December 31, 1997, and the results of operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. PECK & KOPACEK, P.C. Beaverton, Oregon January 25, 1999 24 27 BACHOFNER ELECTRIC, INC. BALANCE SHEETS --------
December 31,1997 October 31,1998 ---------------- --------------- (unaudited) ASSETS CURRENT ASSETS: Cash $ 648,929 $ 723,809 Marketable debt securities (Note 2) 697,525 -- Receivables (Notes 3 and 7) 548,842 815,494 Costs and estimated earnings in excess of billings on contracts in progress (Notes 5 and 7) 221,818 158,394 Prepaid expenses 19,110 23,049 ---------- ---------- TOTAL CURRENT ASSETS 2,136,224 1,720,746 Note receivable (Note 4) 41,311 43,277 Property and equipment, net (Notes 6 and 7) 217,536 177,521 ---------- ---------- $2,395,071 $1,941,544 ========== ========== LIABILITIES CURRENT LIABILITIES: Notes payable, current portion (Note 7) $ 29,802 $ 51,752 Trade accounts payable 78,873 272,719 Accrued payroll and payroll taxes 14,629 -- Billings in excess of costs and estimated earnings on contracts in progress (Note 5) 4,305 132,476 Accrued interest 370 -- Other accrued expenses 6,965 10,097 State income tax payable (Note 8) 10 -- ---------- ---------- TOTAL CURRENT LIABILITIES 134,954 467,044 Notes payable, long-term portion (Note 7) 79,739 93,527 ---------- ---------- 214,693 560,571 ---------- ---------- Commitments (Notes 5 and 14) STOCKHOLDERS' EQUITY Common stock, no par value; 100 shares authorized, issued and outstanding (Note 9) 20,000 20,000 Retained earnings (Note 8) 2,160,378 1,360,973 ---------- ---------- 2,180,378 1,380,973 ---------- ---------- $2,395,071 $1,941,544 ========== ==========
The accompanying notes are an integral part of the financial statements. 25 28 BACHOFNER ELECTRIC, INC. STATEMENTS OF OPERATIONS --------
For the For the Ten Months Ended Year Ended October 31, December 31, ------------------------------- 1997 1997 1998 ------------ ----------- ----------- (unaudited) (unaudited) CONTRACT REVENUES $ 4,857,603 $ 4,014,954 $ 4,109,041 CONTRACT COSTS 3,032,704 2,654,381 2,982,703 ----------- ----------- ----------- GROSS PROFIT 1,824,899 1,360,573 1,126,338 General and administrative expenses 837,045 637,029 720,583 ----------- ----------- ----------- INCOME FROM OPERATIONS 987,854 723,544 405,755 ----------- ----------- ----------- OTHER INCOME (Expense): Interest income 54,076 40,481 38,051 Miscellaneous income 17,401 31,776 24,290 Gain on sale of equipment (Note 12) 30,132 -- -- Interest expense (11,320) (6,201) (7,479) ----------- ----------- ----------- 90,289 66,056 54,862 ----------- ----------- ----------- INCOME BEFORE PROVISION FOR STATE INCOME TAX 1,078,143 789,600 460,617 Provision for state income tax (Note 8) 10 10 10 ----------- ----------- ----------- NET INCOME $ 1,078,133 $ 789,590 $ 460,607 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 26 29 BACHOFNER ELECTRIC, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -------- For the Year Ended December 31, 1997:
Common Stock Retained Shares Amount Earnings Totals ------ ---------- ---------- ---------- Balances, January 1, 1997 100 $ 20,000 $1,661,055 $1,681,055 Net income 1,078,133 1,078,133 Dividends to Stockholders (578,810) (578,810) ------ ---------- ---------- ---------- Balances, December 31, 1997 100 $ 20,000 $2,160,378 $2,180,378 ====== ========== ========== ==========
For the Ten Months Ended October 31, 1998 (unaudited):
Common Stock Retained Shares Amount Earnings Totals ------ ---------- ---------- ---------- Balances, January 1, 1998 100 $ 20,000 $2,160,378 $2,180,378 Net income 460,607 460,607 Dividends to Stockholders (1,260,012) (1,260,012) ------ ---------- ---------- ---------- Balances, October 31, 1998 100 $ 20,000 $1,360,973 $1,380,973 ====== ========== ========== ==========
The accompanying notes are an integral part of the financial statements. 27 30 BACHOFNER ELECTRIC, INC. STATEMENTS OF CASH FLOWS --------
For the For the Ten Months Ended Year Ended October 31, December 31, ------------------------------ 1997 1997 1998 ------------ ----------- ----------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,078,133 $ 789,590 $ 460,607 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 65,036 54,200 43,324 Gain on sale of equipment (30,132) (30,132) (15,109) Changes in operating assets and liabilities: Receivables 156,486 96,321 (277,668) Costs and estimated earnings in excess of billings on contracts in progress (144,921) 6,522 63,424 Other assets 24,131 31,597 (3,939) Accounts payable and other liabilities (250,259) (89,300) 181,969 Billings over costs and estimated earnings -- (95,663) 128,171 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 898,474 763,135 580,779 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES (Note 13): Equipment additions (44,395) (39,760) (123,826) Proceeds from sale of equipment -- -- 19,500 Repayments on notes receivable 59,475 58,800 9,050 Proceeds from (purchase of) marketable debt securities (697,525) -- 697,525 ----------- ----------- ----------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (682,445) 19,040 602,249 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES (Note 13): Proceeds from borrowings -- -- 65,540 Principal payments on notes payable (27,140) (7,979) (29,802) Dividends paid to stockholders (578,810) (551,983) (1,143,886) ----------- ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (605,950) (559,962) (1,108,148) ----------- ----------- ----------- Increase (decrease) in cash (389,921) 222,213 74,880 Cash, beginning of period 1,038,850 1,038,850 648,929 ----------- ----------- ----------- Cash, end of period $ 648,929 $ 1,261,063 $ 723,809 =========== =========== =========== SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 12,500 $ 6,201 $ 7,479 =========== =========== =========== Cash paid for income taxes $ 10 $ 10 $ 10 =========== =========== =========== Land and building distributed to stockholders as dividends $ -- $ -- $ 116,126 =========== =========== =========== Equipment sold through increase in notes receivable $ -- $ 44,593 $ -- =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 28 31 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS -------- 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Bachofner Electric, Inc. was incorporated in the State of Oregon on March 1, 1984. Company headquarters are located in Portland, Oregon. The following is a summary of the Company's significant accounting policies: Company's Activities and Operating Cycle The Company engages in commercial electrical contracting within the Portland, Oregon metropolitan area. The Company's contracting is performed under fixed-price, and time and material contracts. The operating cycles of the Company's contracts vary but generally are less than one year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenues and Cost Recognition Revenues from fixed-price and modified fixed-price electrical contracts are recognized using the percentage-of-completion method, measured by the actual costs incurred to date to estimated total costs for each contract. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. Because of inherent uncertainties in estimating, it is at least reasonably possible that the Company's estimates of revenues and costs will change in the near term due to changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements. Revisions are recognized in the period in which the related changes are determined. Projected contract losses are provided for in their entirety in the period first determined without reference to the percent complete. 29 32 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued: Revenues and Cost Recognition, Continued Revenues from time and material contracts are recognized as work is performed. Contract costs include all direct material, labor and subcontractor costs. Unallocated costs include shop and equipment expenses not identified with a specific contract. Unallocated costs and general and administrative expenses are charged to operations as incurred. The asset, "costs and estimated earnings in excess of billings on contracts in progress," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings on contracts in progress," represents billings in excess of revenues recognized. Property and Equipment Property and equipment are stated at cost. Depreciation of buildings and improvements is computed using the straight-line method. Depreciation of equipment is computed using tax basis accelerated methods, which result in amounts that are not materially different than had a method allowed under generally accepted accounting principles been applied. Maintenance and repairs are charged to operations as incurred; expenditures for additions, improvements and replacements are capitalized. Gains or losses from dispositions are reflected in operations. Advertising Costs The Company expenses advertising costs the first time the advertising takes place. Advertising expense was $45,779 for the year ended December 31, 1997. Income Taxes The stockholders of the Company have elected to have the corporation taxed as an S-corporation whereby taxable income or loss is included in the personal income tax returns of the stockholders. Accordingly, the provision for income taxes is limited to a $10 state income tax required by the State of Oregon. 30 33 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued: Income Taxes, Continued Certain revenues and costs are reported in different periods for income tax reporting purposes than for financial reporting. These differences arise from the use of the percentage-of-completion method of recognizing revenues and costs on electrical contracts in progress for financial reporting while using the completed contract method for tax reporting. Cash Flows For purposes of the statement of cash flows, the Company considers cash and short-term investments with maturities of three months or less to be cash. 2. MARKETABLE DEBT SECURITIES: Marketable debt securities consist of the following as of December 31, 1997:
Gross Unrealized Amortized Gains Fair Cost (losses) Value --------- --------- ---------- Held to maturity U.S. Government bonds $496,331 $ 2,419 $498,750 Municipal bonds 201,194 (374) 200,820 -------- --------- -------- $697,525 $ 2,045 $699,570 ======== ========= ========
The debt securities mature in 1998. 31 34 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 3. RECEIVABLES: Receivables consist of the following as of December 31, 1997 (see Notes 4 and 7): Current receivables on electrical contracts $ 519,693 Retainages receivable on contracts 20,311 Officer receivables 11,357 Employee advances 874 Note receivable, amounts maturing within one year 2,607 --------- 554,842 Less: allowance for doubtful accounts (6,000) --------- $ 548,842 =========
4. NOTES RECEIVABLE: The note receivable consists of the following as of December 31, 1997 (see Notes 3 and 12): Unsecured note receivable from an affiliated corporation in monthly installments of $538, including interest at 9.0%; June 2008 maturity: Amounts maturing within one year $ 2,607 Amounts maturing after one year 41,311 ------- $43,918 =======
Interest income on the note aggregated $4,629 for the year ended December 31, 1997. 32 35 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 5. ELECTRICAL CONTRACTS: Activity on electrical contracts in progress consist of the following as of December 31, 1997 (see Note 7): Costs incurred to date $ 532,260 Estimated earnings on percentage- of-completion basis 261,130 --------- Revenues recognized 793,390 Less: billings to date (575,877) --------- $ 217,513 =========
Included in the accompanying balance sheet as follows: Costs and estimated earnings in excess of billings on contracts in progress $ 221,818 Billings in excess of costs and estimated earnings on contracts in progress (4,305) --------- $ 217,513 =========
The following schedule summarizes electrical contract backlog for the year ended December 31, 1997: Electrical contract backlog, beginning of year $ 1,107,729 New contracts and contract adjustments 5,454,697 ----------- 6,562,426 Less: electrical contract revenues recognized during the year (4,857,603) ----------- Electrical contract backlog, end of year $ 1,704,823 ===========
Additionally, from December 31, 1997 through January 25, 1999 the Company entered into electrical contracts with estimated revenues aggregating $5,391,000. 33 36 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 6. PROPERTY AND EQUIPMENT: Property and equipment consist of the following as of December 31, 1997 (see Notes 7 and 14): Land $ 44,256 Buildings and improvements 97,105 Construction equipment and tools 81,255 Office furniture and equipment 134,808 Vehicles 221,593 --------- 579,017 Less: accumulated depreciation (361,481) --------- $ 217,536 =========
Estimated service lives for depreciation purposes are as follows:
Asset Category Years -------------- ----- Buildings and improvements 32 Years Construction equipment and tools 5 Years Office furniture and equipment 5-7 Years Vehicles 3-7 Years
Depreciation expense aggregated $65,036 for the year ended December 31, 1997. 7. NOTES PAYABLE: Notes payable consist of the following as of December 31, 1997:
Current Long-term Portion Portion Totals ------- --------- -------- Notes payable to U.S. National Bank of Oregon in monthly installments of $3,174, including interest at 8.6%; collateralized by vehicles (Note 6); various maturities to April 2001 $29,802 $79,739 $109,541 ======= ======= ========
34 37 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 7. NOTES PAYABLE, Continued: Future principal maturities on the notes payable consist of the following as of December 31, 1997:
For the Year to End December 31, Amounts ---------------- -------- 1998 $ 29,802 1999 32,476 2000 35,391 2001 11,872 -------- $109,541 ========
The Company has a line-of-credit agreement with U.S. National Bank of Oregon for borrowings up to $200,000 with interest at 1.5% above the bank's prime rate. Borrowings under the line-of-credit agreement are collateralized by receivables, contracts in progress and equipment, subject to prior encumbrances and are guaranteed by Company stock-holders. There were no outstanding borrowings under the agreement as of December 31, 1997. The agreement is renewed annually in May. 8. INCOME TAXES: The provision for state income tax consists of the following for the year ended December 31, 1997: Currently payable provision: State of Oregon tax $ 10 =========
With the election of S-corporation tax reporting status the taxable income or losses of the corporation are reported on the individual income tax returns of the Company's stockholders with the Company incurring only an annual tax of $10 to the State of Oregon. Temporary differences between the Company's financial statements and tax returns result in the following analysis of retained earnings as of December 31, 1997: Retained earnings recognized for federal income tax purposes through December 31, 1997: S-corporation accumulations $1,884,828
35 38 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 8. INCOME TAXES, Continued: Retained earnings representing income not yet recognized for federal income tax purposes due to temporary reporting differences in the report- ing of contracts in progress 275,550 ---------- Retained earnings as of December 31, 1997, per the accompanying financial statements $2,160,378 ==========
The Company has distributed $1,437,371 in dividends to its stockholders from December 31, 1997 through January 25, 1999. 9. COMMON STOCK: All of the Company's outstanding shares of common stock are subject to a buy/sell agreement which places restrictions on the sale of shares (see Note 14). 10. RETIREMENT PLANS: Company employees with at least 1000 hours of service and not covered by collective bargaining agreements may participate in a 401-K retirement plan where the Company matches employee contributions up to a maximum of 4% of gross pay. Company contributions to the plan aggregated $6,265 for the year ended December 31, 1997. The Company also maintains a defined contribution profit-sharing plan which covers all employees not covered by a collective bargaining agreement which have completed one year of service and attained the age of 21. Contributions are determined by the Board of Directors. Contributions to the plan for 1997 aggregated $50,000. 36 39 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 11. CONCENTRATIONS: Financial instruments which potentially subject the Company to credit risk consist of cash, marketable debt securities, and accounts receivables. The Company's cash balances are concentrated at a regional bank. The balances periodically exceed insured limits. Bank balances exceeded insured amounts by $649,297 as of December 31, 1997. The marketable debt securities are due from a federal agency and a city government. The Company's receivables are highly concentrated in owners and/or general contractors of construction projects in the states of Oregon and Washington. Five of the Company's customers accounted for approximately 55% of the Company's revenues for 1997. 12. RELATED PARTY TRANSACTIONS: The assets, liabilities and operations of the former telecommunications division of the Company were transferred to Bachofner Datacom, Inc. in 1996. Bachofner Datacom, Inc., a corporation with headquarters in Portland, Oregon, is owned by the stockholders of Bachofner Electric, Inc. Vehicles were sold to Bachofner Datacom, Inc. during 1997 for a gain of $30,132 (see Note 13). Interest income on a note receivable from Bachofner Datacom, Inc. aggregated $4,629 during the year ended December 31, 1997 (see Note 4 for note receivable balance). 13. SUPPLEMENTARY INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES: The Company transferred vehicles to an affiliated corporation in exchange for a note receivable during the year ended December 31, 1997 as follows (see Notes 4 and 12): Net book value of vehicles $14,461 Gain recognized 30,132 ------- Note receivable $44,593 =======
37 40 BACHOFNER ELECTRIC, INC. NOTES TO FINANCIAL STATEMENTS, Continued -------- 14. SUBSEQUENT EVENTS: The land and building assets held by the Company as of December 31, 1997 were distributed to the stockholders of the Company during 1998. Effective November 1, 1998 the Company entered into a five year lease agreement with the stockholders with monthly lease payments of $3,000. The agreement requires an increase of 3% per annum. Future minimum lease commitments are as follows as of December 31, 1997:
For the Year to End December 31, Amounts ---------------- -------- 1998 $ 6,000 1999 36,180 2000 37,266 2001 39,336 2002 40,512 2003 33,760 -------- $193,054 ========
The stockholders of the Company signed an agreement in principle in December 1998 to sell their ownership in the Company. The sale was completed in January 1999. 15. UNAUDITED INTERIM FINANCIAL STATEMENTS: The accompanying interim financial statements as of October 31, 1998, and for the ten months ended October 31, 1997 and 1998 are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 38 41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To PCX Corporation: We have audited the accompanying balance sheet of PCX Corporation (a Delaware corporation) as of December 31, 1997, and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PCX Corporation as of December 31, 1997, and the results of its operations and its cash flows for year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Raleigh, North Carolina, March 17, 1998. 39 42 PCX CORPORATION BALANCE SHEETS -- DECEMBER 31, 1997, AND SEPTEMBER 30, 1998 (UNAUDITED)
DECEMBER 31, SEPTEMBER 30, ASSETS 1997 1998 ------ ------------ ------------- (unaudited) CURRENT ASSETS: Cash $ 706,722 $ 78,375 Accounts receivable, net 1,711,577 2,651,641 Other receivables 217,071 29,532 Inventories 1,231,269 1,159,233 Other current assets 59,025 155,608 ---------- ---------- Total current assets 3,925,664 4,074,389 DEFERRED TAX ASSETS 11,565 11,565 PROPERTY AND EQUIPMENT, net 989,982 982,461 OTHER ASSETS 20,000 20,000 ---------- ---------- $4,947,211 $5,088,415 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Line of credit $ 0 $ 164,000 Accounts payable 1,298,522 1,544,711 Accrued liabilities 995,293 308,268 Other current liabilities 206,848 115,790 ---------- ---------- Total current liabilities 2,500,663 2,132,769 ---------- ---------- DEFERRED TAX LIABILITY 8,000 8,000 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 8 and 9) STOCKHOLDERS' EQUITY: Series A convertible preferred stock 1,356,422 1,099,422 Common stock, $.001 per share par value, 3,000,000 shares authorized; 961,000 and 1,650,000 issued and outstanding in 1997 and 1998 355 1,650 Additional paid-in capital, common stock 40,645 208,350 Accumulated earnings 1,041,126 1,638,224 ---------- ---------- Total stockholders' equity 2,438,548 2,947,646 ---------- ---------- $4,947,211 $5,088,415 ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 40 43 PCX CORPORATION STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, AND THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 (UNAUDITED), AND SEPTEMBER 30, 1998 (UNAUDITED)
NINE-MONTH PERIODS ENDED YEAR ENDED -------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1997 1997 1998 ------------ ------------- ------------- (unaudited) (unaudited) GROSS SALES $12,596,434 $9,238,194 $10,650,615 SALES DISCOUNTS (156,823) (104,483) (302,948) ----------- ---------- ----------- NET SALES 12,439,611 9,133,711 10,347,667 COST OF SALES (8,961,366) (6,645,381) (7,688,288) ----------- ---------- ----------- Gross profit 3,478,245 2,488,330 2,659,379 SELLING EXPENSES (639,805) (467,977) (501,735) ENGINEERING EXPENSES (489,035) (337,277) (464,322) GENERAL AND ADMINISTRATIVE EXPENSES (749,389) (559,940) (422,227) ----------- ---------- ----------- Income from operations 1,600,016 1,123,136 1,271,095 INTEREST EXPENSE (52,180) (51,657) (345) INTEREST INCOME 8,814 303 11,322 OTHER EXPENSES 0 0 (200,981) ----------- ---------- ----------- INCOME BEFORE INCOME TAX PROVISION 1,556,650 1,071,782 1,081,091 INCOME TAX PROVISION 566,546 404,578 408,092 ----------- ---------- ----------- NET INCOME $ 990,104 $ 667,204 $ 672,999 =========== ========== ===========
The accompanying notes to financial statements are an integral part of these statements. 41 44 PCX CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1997, AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 (UNAUDITED)
SERIES A CONVERTIBLE ADDITIONAL PREFERRED STOCK COMMON STOCK PAID-IN --------------------- ---------------- CAPITAL ACCUMULATED SHARES AMOUNT SHARES AMOUNT STOCK EARNINGS TOTAL -------- ---------- ------- ------ ---------- ----------- ---------- BALANCE, December 31, 1996 1,256,481 $1,252,922 165,000 $ 165 $ 18,035 $ 154,522 $1,425,644 Exercise of common stock options 0 0 796,000 190 22,610 0 22,800 Cumulative preferred stock dividend accrual 0 103,500 0 0 0 (103,500) 0 Net income 0 0 0 0 0 990,104 990,104 --------- ---------- --------- ------ -------- ---------- ---------- BALANCE, December 31, 1997 1,256,481 1,356,422 961,000 355 40,645 1,041,126 2,438,548 Exercise of common stock options (unaudited) 0 0 689,000 1,295 167,705 0 169,000 Cumulative preferred stock dividend accrual (unaudited) 0 75,901 0 0 0 (75,901) 0 Payment of cumulative preferred stock dividends (unaudited) 0 (332,901) 0 0 0 0 (332,901) Net income (unaudited) 0 0 0 0 0 672,999 672,999 --------- ---------- --------- ------ -------- ---------- ---------- BALANCE, September 30, 1998 (unaudited) 1,256,481 $1,099,422 1,650,000 $1,650 $208,350 $1,638,224 $2,947,646 ========= ========== ========= ====== ======== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 42 45 PCX CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997, AND THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 (UNAUDITED), AND SEPTEMBER 30, 1998 (UNAUDITED)
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1997 1997 1998 ------------ ------------- ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 990,104 $ 667,204 $ 672,999 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Benefit from deferred taxes 60,226 0 0 Depreciation and amortization 170,000 125,000 176,679 Gain (loss) on sale of property and equipment (60,188) (61,440) 793 Increase (decrease) in net cash from changes in operating assets and liabilities: Increase in accounts receivable and other receivables (65,718) (635,994) (752,525) (Increase) decrease in inventories 39,018 177,774 72,036 (Increase) decrease in other current assets (43,888) (20,534) (96,583) Increase in accounts payable 337,236 89,027 246,189 Increase (decrease) in accrued liabilities 451,150 163,323 (687,025) Decrease in other current liabilities (335,056) (354,016) (91,058) --------- --------- ---------- Net cash provided by (used in) operating activities 1,542,884 150,344 (458,495) --------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (837,155) (101,292) (172,451) Proceeds from sale of property and equipment 708,492 695,992 2,500 --------- --------- ---------- Net cash (used in) provided by investing activities (128,663) 594,700 (169,951) --------- --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 4,287,000 4,287,000 626,000 Payment of line of credit (4,634,000) (4,634,000) (462,000) Payment of long-term debt (448,617) (448,617) 0 Payment of preferred dividends 0 0 (332,901) Proceeds from the exercise of common stock options 22,800 22,800 169,000 --------- --------- ---------- Net cash (used in) provided by financing activities (772,817) (772,817) 99 --------- --------- ---------- NET INCREASE (DECREASE) IN CASH 641,404 (27,773) (628,347) CASH, beginning of period 65,318 65,318 706,722 --------- --------- ---------- CASH, end of period $ 706,722 $ 37,545 $ 78,375 ========= ========= ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES - Cumulative preferred dividend accrual $ 103,500 $ 77,625 $ 75,901 ========= ========= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 57,089 $ 56,566 $ 345 Cash paid during the year for income taxes 438,900 386,600 899,379 ========= ========= ==========
The accompanying notes to financial statements are an integral part of these statements. 43 46 PCX CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, SEPTEMBER 30, 1997 (UNAUDITED) AND SEPTEMBER 30, 1998 (UNAUDITED) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS: PCX Corporation (the Company) is engaged in the design, manufacture and sale of electrical power distribution centers (Electrical Centers) and electrical generator houses (Power Centers) for industrial and commercial facilities, typically large retail chains. The Company was incorporated on June 10, 1993, in the state of Delaware. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS The accompanying interim financial statements and related disclosures for the nine months ended September 30, 1997 and 1998, have not been audited by independent accountants. However, the financial statements for all interim periods have been prepared in conformity with the accounting principles stated in the audited financial statements for the year ended December 31, 1997, and include all adjustments (which were of a normal, recurring nature) which, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of operations and cash flows for each of the periods presented. The operating results for the interim periods presented are not necessarily indicative of results for the full year. CASH The Company records as cash and cash equivalents all cash and short-term investments with original maturities of three months or less. 44 47 CONCENTRATION OF CREDIT RISK The Company's sales are highly concentrated in a single customer. This customer accounted for approximately 46% of sales in the year ended December 31, 1997, and 43% and 51% of sales for the nine months ended September 30, 1997 and 1998 (unaudited), respectively. The associated accounts receivable from this customer represented approximately 34% and 13% of total accounts receivable at December 31, 1997, and September 30, 1998 (unaudited), respectively. Sales to two other major customers accounted for approximately 28% of sales in the year ended December 31, 1997, and 29% and 21% of sales for the nine months ended September 30, 1997 and 1998 (unaudited), respectively. The associated accounts receivable for these customers represented approximately 40% and 41% of total accounts receivable at December 31, 1997, and September 30, 1998 (unaudited), respectively. The loss of a significant customer could have a material impact on the Company's future earnings results. These sales are primarily derived from sales of Electrical Centers and Power Centers to a limited number of retail chains for new store construction and remodeling. The Company has recorded an allowance for doubtful accounts of approximately $7,000 and $27,800 as of December 31, 1997, and September 30, 1998 (unaudited), respectively. Management believes that these allowances are adequate. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory costs include raw materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. On September 15, 1997, PCX sold their then existing land and building for $688,492 resulting in a gain of $60,058 and relocated to a leased facility. The building was depreciated over 20 years. Machinery and equipment and furniture and fixtures are depreciated between three and five years. Leasehold improvements are depreciated between five and 10 years. At December 31, 1997, and September 30, 1998, property and equipment consisted of: DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------ (unaudited) Furniture and fixtures $ 499,361 $ 620,512 Machinery and equipment 433,123 463,636 Leasehold improvements 343,336 357,415 ----------- ----------- 1,275,820 1,441,563 Less - Accumulated depreciation (285,838) (459,102) ----------- ----------- Property and equipment, net $ 989,982 $ 982,461 =========== =========== 45 48 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable and accounts payable. Estimates of the fair value of these instruments are based on interest rates available to the Company. At December 31, 1997, and September 30, 1998, the carrying value of the Company's financial instruments approximated the fair value. 3. INVENTORIES: At December 31, 1997, and September 30, 1998, inventories consisted of the following: DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (unaudited) Finished goods $ 117,653 $ 0 Work in process 389,588 830,624 Raw materials 724,028 328,609 ---------- ---------- $1,231,269 $1,159,233 ========== ========== 4. LINE OF CREDIT: During 1997, the Company renegotiated its line-of-credit facility (LOC) with Wachovia Bank. Advances on the LOC are limited to 70% of eligible accounts receivable as defined and 50% of raw and finished inventory. As of September 30, 1998, the maximum amount available under the LOC is approximately $1,000,000 with interest due at prime (8.25% at September 30, 1998), plus .375%. As of September 30, 1998, a total of $164,000 was outstanding. This line of credit, which expires March 15, 1999, is collateralized by the Company's accounts receivable, inventory and equipment. 5. LEASE COMMITMENTS: FACILITY LEASE On February 3, 1997, the Company entered into a facility lease. During the initial lease term of 10 years, the annual commitment is $236,750, to be escalated by 2.5% annually. The Company began paying rent under this lease in September 1997. Total rental expense under this lease was approximately $53,000 for the year ended December 31, 1997, and $14,500 and $178,000 for the nine months ended September 30, 1997 and 1998 (unaudited), respectively. 46 49 Future minimum rental payments under the facility lease, are as follows: YEARS ENDING ------------------------------------------------- DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (unaudited) 1998 $ 237,736 1999 243,680 247,724 2000 249,772 253,917 2001 256,016 260,265 2002 262,417 266,772 2003 268,977 273,441 Thereafter 1,094,344 1,214,366 ---------- ---------- $2,612,942 $2,516,485 ========== ========== 6. INCOME TAXES: The Company has adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109). The primary objective of SFAS No. 109 is to recognize deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting basis of assets and liabilities, and of net operating loss and tax credit carryforwards for tax purposes. Deferred tax assets and liabilities arise from net operating loss carryforwards and temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. The Company's primary differences relate to the reporting of certain reserves and expenses that are capitalized for income tax purposes. 47 50 Under SFAS No. 109, a deferred tax asset is established for the complete amount of tax benefits available in future periods from the assumed realization of tax net operating loss carryforwards. In addition, a deferred tax asset or liability is established for the complete amount of tax benefits or liabilities from the assumed effect of temporary differences. A valuation allowance is established to adjust the deferred asset to its estimated net realizable value. The components of the net deferred tax assets and liabilities as of December 31, 1997, and September 30, 1998, were as follows: DECEMBER 31, 1997 ----------- Deferred tax assets- Net operating loss carryforwards $50,000 Temporary differences 18,000 ------- 68,000 Less - Valuation allowance (24,260) ------- $43,740 ======= Deferred tax liabilities related to temporary differences $(8,000) ======= The Company's 1998 income tax provision differs from the amount computed by applying the federal statutory rate to income before income taxes, due primarily to the impact of permanent differences between book and taxable income and the impact of state income taxes. As of December 31, 1997, the Company had available approximately $50,000 of net operating loss carryforwards for federal income tax reporting purposes which will expire in 2010. Due to the change in ownership occurring upon the issuance of convertible preferred stock in July 1994, the Company's ability to utilize such loss carryforwards in any one year generated prior to the change in ownership is limited. This annual limitation is equal to the value of the Company prior to the redemption multiplied by an interest rate determined by the Internal Revenue Service. To the extent that the Company is unable to utilize any of the net operating loss prior to the change in ownership, in a given year due to insufficient taxable income, that year's annual limitation may be carried forward to increase the subsequent year's limitation. Under SFAS No. 109, the criteria for recording a deferred tax asset is "more likely than not" that such an asset will be realized. Since there are certain limitations on the utilization of the above net operating loss carryforwards in future years, management provided a valuation allowance for the above deferred tax asset generated by the net operating loss carryforward. 48 51 7. SERIES A CONVERTIBLE PREFERRED STOCK: The Company has authorized 1,256,481 shares of Series A convertible preferred stock. In 1994, the Company changed its preferred stock from no par to $.001 par value per share along with various other rights. The terms of the Series A convertible preferred stock (Series A shares) include, among other things, the following, as defined in the Series A preferred stock purchase agreement: - The Series A shares are entitled to cumulative dividends, when and if declared by the Board of Directors from and after July 8, 1995. Dividends when and if declared will be calculated at an annual rate of approximately $.08 per share. As of December 31, 1997, the Company had accrued $257,000 of cumulative dividends due to preferred stockholders. In September 1998, the Company paid in full all accrued dividends due to preferred stockholders in the amount of approximately $333,000. - The Series A shares are entitled to a liquidation preference, as defined by the certificate of incorporation. This amount is payable prior to and in preference of any distribution on common stock. The liquidation preference was approximately $3,003,000 at September 30, 1998. - Each Series A share issued and outstanding has the right to vote, as defined. The number of votes correspond to the number of shares of common stock into which the shares would be convertible. - Each share is convertible into one share of common stock at any time at the option of its holder or automatically upon the closing of the sale of the Company's common stock in a firm commitment or underwritten public offering of the Company's securities resulting in net proceeds of not less than $7,000,000 (see Note 10). The conversion ratio is subject to adjustment, as defined. - Holders of the shares have the right of first participation to purchase up to its pro rata share, as defined, of all new securities which the Company proposes to sell and issue. - At any time after June 15, 1999, each preferred stockholder shall have the option to put all or any portion of its Series A shares to the Company, and the Company shall thereby be obligated to purchase said shares. The purchase price for the shares of preferred stock is based pro rata upon the higher of a multiple of earnings or the appraised value of the Company as defined. Due to the volatility of the Company's operations since its inception, the Company was not able to reasonably estimate the put price of such Series A preferred stock. 49 52 8. COMMON STOCK AND STOCK PLAN: In 1994, the Company adopted a stock option plan (the Plan) which authorizes the issuance of options to purchase shares of common stock. The Company applies APB Opinion No. 25 and related interpretations in accounting for the Plan. The fair value of options granted in 1997 was equal to the exercise price at the date of grant. Accordingly, no compensation cost has been recorded. Had compensation cost for the Plan been determined based on the fair value of options at the grant dates consistent with the method of SFAS No. 123, the effect on net income in 1997 would not be material. Options issued under the Plan vest over a five-year period and may be exercised within 10 years of the grant date. In 1996, the Board of Directors authorized an additional 70,000 shares available for grant under the Plan. As of December 31, 1997, all but 70,000 available shares had been granted. The following table summarizes the activity under the Plan: OPTIONS EXERCISE OUTSTANDING PRICE RANGE ----------- ----------- Balances, December 31, 1997 639,000 $.12 - .20 Granted (unaudited) 50,000 .20 Exercised (unaudited) (689,000) .12 - .20 Forfeited (unaudited) 0 .20 --------- ----------- Balances, September 30, 1998 (unaudited) 0 $.12 - $.20 ========= =========== In 1997, 606,000 options were exercised. In lieu of cash proceeds, a promissory note of $75,600 was issued to the Company and netted against common stock and additional paid in capital at December 31, 1997. The promissory note was paid in 1998 and the equity accounts were adjusted accordingly to reflect the net proceeds related to the options exercised. In 1998, the Company accelerated the vesting of all outstanding options, including those granted in the current year. All outstanding options were exercised prior to September 30, 1998, resulting in net proceeds of $93,400. The Company has reserved common stock in connection with the following: DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- Conversion of preferred stock 1,256,481 1,256,481 Employee stock option plan 639,000 0 --------- --------- 1,895,481 1,256,481 ========= ========= 50 53 9. BENEFIT PLANS: On January 1, 1996, the Company established a defined contribution 401(k) plan that covers all eligible employees. The plan provides for the Company to match voluntary employee contributions at a rate of 50%. The maximum employee contribution the Company will match is 4% which equates to a maximum of 2% of annual compensation. Such matching rate can be changed at the Company's discretion. All contributions by the Company are funded currently and vest over four years. All employee contributions are immediately vested. Company matching contributions to the plan were $29,319 for the year ended December 31, 1997, and $20,762 and $25,248 for the nine months ended September 30, 1997 and 1998, respectively (unaudited). 10. SUBSEQUENT EVENT: On January 29, 1999, the Company completed the sale of all of its outstanding common stock to Integrated Electrical Services (IES). Concurrent with the sale transaction, all outstanding Series A preferred stock was converted into common stock consistent with the terms of the Series A preferred stock purchase agreement (Note 7). The sale proceeds were distributed to stockholders in accordance with the aforementioned agreement. 51 54 INTEGRATED ELECTRICAL SERVICES, INC. UNAUDITED PRO FORMA FINANCIAL STATEMENTS BASIS OF PRESENTATION The following unaudited pro forma financial statements give effect to (i) the acquisitions by Integrated Electrical Services, Inc. ("IES"), of 16 companies and related entities engaged in all facets of electrical contracting and maintenance services on January 30, 1998 (together, the "Founding Companies"), and related transactions, (ii) the acquisitions of 32 additional electrical contracting and maintenance businesses from April 1998 through January 31, 1999 (the "Acquired Companies") and (iii) the issuance in January 1999, of Senior Subordinated Notes due 2009 (the "Notes") and the application of the net proceeds therefrom. The unaudited pro forma balance sheet reflects the acquisition of 11 of the Acquired Companies which were acquired subsequent to September 30, 1998 (the "Fiscal 1999 Acquisitions"), and the issuance of the Notes and the application of the net proceeds therefrom as if they had occurred on September 30, 1998. The unaudited pro forma combined statements of operations present the statement of operations data from the consolidated financial statements of IES for the fiscal year ended September 30, 1998, combined with the pre-acquisition results of operations for the Founding Companies and the Acquired Companies and give effect to the pro forma adjustments related to these transactions as if they had occurred on October 1, 1997. IES has analyzed the savings that it expects to realize from reductions in salaries, bonuses and certain benefits to the owners. To the extent the owners of the Founding Companies and the Acquired Companies have contractually agreed to changes in salary, bonuses, benefits and lease payments, these changes have been reflected in the unaudited pro forma combined statement of operations. Certain pro forma adjustments are based on preliminary estimates, available information and certain assumptions that Company management deems appropriate and may be revised as additional information becomes available. The pro forma financial data do not purport to represent what IES's financial position or results of operations would actually have been if such transactions in fact had occurred on those dates and are not necessarily representative of IES's financial position or results of operations for any future period. Since the acquired entities were not under common control or management prior to their acquisition by IES, historical combined results may not be comparable to, or indicative of, future performance. The unaudited pro forma financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto included in IES's Annual Report on Form 10-K for the fiscal year ended September 30, 1998. 52 55 INTEGRATED ELECTRICAL SERVICES, INC. UNAUDITED PRO FORMA BALANCE SHEET SEPTEMBER 30, 1998 (IN THOUSANDS)
IES AND FISCAL 1999 PRO FORMA OFFERING PRO FORMA SUBSIDIARIES ACQUISITIONS ADJUSTMENTS ADJUSTMENT AS ADJUSTED ------------ ------------ ----------- ---------- ---------- ASSETS CURRENT ASSETS: Cash .......................................... $ 14,583 $ 5,865 $ (34,521) $ 54,300 $ 40,227 Receivables, net .............................. 146,327 17,334 (414) -- 163,247 Inventories, net .............................. 6,440 1,796 (10) -- 8,226 Cost and estimated earnings in excess of billings on uncompleted contracts ......... 12,502 3,223 -- -- 15,725 Prepaid expenses and other current assets ..... 3,198 1,855 -- -- 5,053 ---------- ---------- ---------- ---------- ---------- Total current assets ...................... 183,050 30,073 (34,945) 54,300 232,478 RECEIVABLES FROM RELATED PARTIES ................. 142 -- -- -- 142 GOODWILL, NET .................................... 293,066 -- 46,494 -- 339,560 PROPERTY AND EQUIPMENT, NET ...................... 23,436 4,893 -- -- 28,329 OTHER NONCURRENT ASSETS .......................... 2,774 295 -- 5,000 8,069 ---------- ---------- ---------- ---------- ---------- Total assets .............................. $ 502,468 $ 35,261 $ 11,549 $ 59,300 $ 608,578 ========== ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt and current maturities of long-term debt .............. $ 3,823 $ 2,365 $ (2,365) $ -- $ 3,823 Accounts payable and accrued expense .......... 69,225 7,987 1,233 -- 78,445 Billings in excess of costs and estimated earnings on uncompleted contracts ......... 27,807 3,639 -- -- 31,446 Income taxes payable .......................... 6,686 3,015 -- -- 9,701 Other current liabilities ..................... 489 874 -- -- 1,363 ---------- ---------- ---------- ---------- ---------- Total current liabilities .................. 108,030 17,880 (1,132) -- 124,778 ---------- ---------- ---------- ---------- ---------- LONG-TERM BANK DEBT .............................. 89,500 -- -- (89,500) -- OTHER LONG-TERM DEBT, NET ........................ 854 886 (886) -- 854 SENIOR SUBORDINATED NOTES, net of $1,200 discount ........................ -- -- -- 148,800 148,800 OTHER NON-CURRENT LIABILITIES .................... 1,380 -- -- -- 1,380 ---------- ---------- ---------- ---------- ---------- Total liabilities .......................... 199,764 18,766 (2,018) 59,300 275,812 STOCKHOLDERS' EQUITY: Preferred stock ............................... -- 1,099 (1,099) -- -- Common stock .................................. 281 926 (926) -- 281 Restricted common stock ....................... 27 -- -- -- 27 Additional paid-in capital .................... 291,650 205 29,857 -- 321,712 Retained earnings ............................. 10,746 14,265 (14,265) -- 10,746 ---------- ---------- ---------- ---------- ---------- Total stockholders' equity ................. 302,704 16,495 13,567 -- 332,766 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity .... $ 502,468 $ 35,261 $ 11,549 $ 59,300 $ 608,578 ========== ========== ========== ========== ==========
53 56 INTEGRATED ELECTRICAL SERVICES, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IES AND FISCAL 1998 FISCAL 1999 PRO FORMA OFFERING PRO FORMA SUBSIDIARIES ACQUISITIONS ACQUISITIONS ADJUSTMENTS ADJUSTMENTS AS ADJUSTED ------------ ------------ ------------ ------------ ------------ ------------ REVENUES ..................... $ 386,721 $ 363,728 $ 105,651 $ -- $ -- $ 856,100 COST OF SERVICES ............. 306,052 295,349 82,286 (564) -- 683,123 ------------ ------------ ------------ ------------ ------------ ------------ GROSS PROFIT .............. 80,669 68,379 23,365 564 -- 172,977 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ... 47,390 62,621 16,039 (35,819) -- 90,231 NON-CASH, NON-RECURRING COMPENSATION CHARGE ....... 17,036 -- -- (17,036) -- -- GOODWILL AMORTIZATION ........ 3,212 -- -- 5,357 -- 8,569 ------------ ------------ ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS .... 13,031 5,758 7,326 48,062 -- 74,177 OTHER INCOME (EXPENSE): Interest expense .......... (1,161) -- (141) (2,951) (11,237) (15,490) Interest income ........... 433 730 268 (1,133) -- 298 Other, net ................ 335 404 (34) (462) -- 243 ------------ ------------ ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE), NET .. (393) 1,134 93 (4,546) (11,237) (14,949) INCOME BEFORE INCOME TAXES ... 12,638 6,892 7,419 43,516 (11,237) 59,228 PROVISION FOR INCOME TAXES ... 12,690 5,473 1,871 10,030 (4,326) 25,738 ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) ............ $ (52) $ 1,419 $ 5,548 $ 33,486 $ (6,911) $ 33,490 ============ ============ ============ ============ ============ ============ EARNING (LOSS) PER SHARE - BASIC - $ -- $ 1.03 ============ ============ DILUTED - $ -- $ 1.01 ============ ============ SHARES USED IN THE COMPUTATION OF EARNINGS (LOSS) PER SHARE BASIC - 19,753,060 32,630,538 ============ ============ DILUTED - 19,753,060 33,030,371 ============ ============
54 57 INTEGRATED ELECTRICAL SERVICES, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1. UNAUDITED PRO FORMA BALANCE SHEET: The Pro Forma Adjustments reflects the acquisition of 11 of the Fiscal 1999 Acquisitions which were acquired subsequent to September 30, 1998, and the application of the cash proceeds from the issuance of the Notes, net of estimated offering costs of $5.0 million, to reduce amounts outstanding under the Credit Facility. 2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS: The Unaudited Pro Forma Statement of Operations for the year ended September 30, 1998 for IES and Subsidiaries reflects the historical results of Houston-Stafford Electric, Inc. ("Houston-Stafford") as the accounting acquirer (restated for the effect of an acquisition accounted for as a pooling-of-interest combined) the other Founding Companies beginning February 1, 1998, and the Acquired Companies beginning on their respective dates of acquisition. The Fiscal 1998 Acquisitions reflects the historical results of the Founding Companies other than Houston-Stafford for the period prior to February 1, 1998, and the Acquired Companies through their date of acquisition. The Fiscal 1999 Acquisitions reflects the historical results of operations for 1998 of the 12 Acquired Companies which were acquired subsequent to September 30, 1998. The following table summarizes the Pro Forma Adjustments (in thousands):
ADJUSTMENTS -------------------------------------------------- PRO FORMA (a) (b) (c) (d) ADJUSTMENTS -------- -------- -------- -------- ----------- Cost of services ............................... $ (564) $ -- $ -- $ -- $ (564) Selling, general and administrative expenses ... (35,819) -- -- -- (35,819) Non-cash, non-recurring compensation charge .... (17,036) -- -- -- (17,036) Goodwill amortization .......................... -- 5,357 -- -- 5,357 -------- -------- -------- -------- -------- Income (loss) from operations ............... 53,419 (5,357) -- -- 48,062 Other income (expense): Interest expense ............................ -- -- (2,951) -- (2,951) Interest income ............................. -- -- (1,133) -- (1,133) Other, net .................................. -- 316 (778) -- (462) -------- -------- -------- -------- -------- Other income (expense), net ................. -- 316 (4,862) -- (4,546) -------- -------- -------- -------- -------- Income (loss) before income taxes ........... 53,419 (5,041) (4,862) -- 43,516 Provision for income taxes ..................... -- -- -- 10,030 10,030 -------- -------- -------- -------- -------- Net income (loss) .............................. $ 53,419 $ (5,041) $ (4,862) $(10,030) $ 33,486 ======== ======== ======== ======== ========
(a) Reflects the reduction in salaries, bonuses and benefits and lease payments to the owners of the Founding Companies and the Acquired Companies. These reductions in salaries, bonuses and benefits and lease payments have been agreed to in accordance with the terms of employment agreements executed as part of the acquisitions. Such employment agreements are primarily for five years, contain restrictions related to competition and provide severance for termination of employment in certain circumstances. Also, includes the reversal of the $17.0 million non-cash, non-recurring compensation charge in connection with the acquisition of the Founding Companies. 55 58 INTEGRATED ELECTRICAL SERVICES, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (b) Reflects the amortization of goodwill recorded as a result of these acquisitions over a 40-year estimated life, as well as a reduction in historical minority interest expense attributable to minority interests that were acquired as part of the related acquisitions. (c) Reflects additional interest expense on borrowings to fund the cash portion of the consideration paid, net of reduction of interest expense attributable to historical debt repaid using proceeds from the Company's initial public offering or transferred to the owners of the Founding Companies. The additional interest expense was calculated utilizing an assumed annual effective interest rate of approximately 7.5%. Also, reflects elimination of interest income recognized by the Founding Companies and the Acquired Companies. (d) Reflects the incremental provision for federal and state income taxes at a 38.5% overall tax rate, before non-deductible goodwill and other permanent items, related to the other statements of operations adjustments and for income taxes on the pretax income of acquired companies that have historically elected S Corporation tax status. The Offering Adjustments reflect the incremental interest expense of $10.3 million using an interest rate of 9.375%, amortization of deferred financing cost and amortization of the note discount of $0.5 million and $0.1 million, respectively, incurred as a result of the issuance of the notes and incremental amortization of deferred financing cost of $0.3 million related to the Credit Facility. Additionally, reflects the incremental provision for federal and state income taxes at an assumed effective tax rate of 38.5% for the offering adjustments. 56 59 ITEM 7. EXHIBITS. (c) Exhibits. 23.1 Consent of Hertzbach & Company P.A. 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of Peck & Kopacek, P.C. 23.4 Consent of Arthur Andersen LLP 60 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTEGRATED ELECTRICAL SERVICES, INC. By: /s/ JOHN F. WOMBWELL JOHN F. WOMBWELL SENIOR VICE PRESIDENT AND GENERAL COUNSEL Dated: February 4, 1999 61 EXHIBIT INDEX Exhibit Description ------- ----------- 23.1 Consent of Hertzbach & Company P.A. 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of Peck & Kopacek, P.C. 23.4 Consent of Arthur Andersen LLP EX-23.1 2 CONSENT OF HERTZBACH & COMPANY P.A. 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated July 14, 1998, on the financial statements of Primo Electric Company included in this Form 8-K, into Integrated Electrical Services, Inc.'s previously filed Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and 333-45449). HERTZBACH & COMPANY, P.A. Owings Mills, Maryland January 29, 1999 EX-23.2 3 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Kayton Electric, Inc. As independent public accountants, we hereby consent to the incorporation of our report dated January 28, 1998 (November 19, 1998 as to note 8) on the financial statements of Kayton Electric, Inc. included in this Form 8-K, into Integrated Electrical Services, Inc.'s previously filed Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and 333-45449). KPMG Peat Marwick LLP Lincoln, Nebraska February 2, 1999 EX-23.3 4 CONSENT OF PECK & KOPACEK, P.C. 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated January 25, 1999, on the financial statements of Bachofner Electric, Inc. included in this Form 8-K, into Integrated Electrical Services, Inc.'s previously filed Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and 333-45449). Peck & Kopacek, P.C. Beaverton, Oregon February 3, 1999 EX-23.4 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated March 17, 1998, on the balance sheet of PCX Corporation as of December 31, 1997, and the related statements of operations, stockholders' equity and cash flows for the year then ended included in this Form 8-K, into Integrated Electrical Services, Inc.'s previously filed Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and 333-45449). ARTHUR ANDERSEN LLP Raleigh, North Carolina February 4, 1999 -----END PRIVACY-ENHANCED MESSAGE-----