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: August 17, 2004
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)
1800 West Loop South
Suite 500
Houston, Texas 77027
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (713) 860-1500
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C) Exhibits
Exhibit No. Description
----------- -----------
10.1 Agreement and Amendment to Credit Agreement dated as of
June 30, 2004 among the financial institutions party to
the Credit Agreement, as such term is hereinafter
defined; Integrated Electrical Services, Inc., the
Borrower; and Bank One, NA, as administrative agent.
99.1 Press Release dated August 13, 2004
99.2 Press Release dated August 17, 2004
ITEM 9. REGULATION FD DISCLOSURE
On August 13, 2004 Integrated Electrical Services, Inc. obtained an amendment,
with an effective date of June 30, 2004, to the $125.0 million revolving credit
facility and $50.0 million term loan led by Bank One, NA (the Amendment). The
Amendment is attached as an exhibit hereto.
On August 13, 2004 Integrated Electrical Services, Inc. issued a press release
announcing a delay in filing its Form 10-Q for the fiscal third quarter ended
June 30, 2004 among other items. The press release is attached as an exhibit
hereto.
On August 17, 2004 Integrated Electrical Services, Inc. issued a press release
announcing a conference call scheduled for August 18, 2004 to discuss recent
events. The press release is attached as an exhibit hereto.
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/ Jeffrey A. Pugh
------------------------------------
Jeffrey A. Pugh
Senior Vice President and
Chief Financial Officer
Dated: August 17, 2004
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Agreement and Amendment to Credit Agreement dated as of
June 30, 2004 among the financial institutions party to
the Credit Agreement, as such term is hereinafter
defined; Integrated Electrical Services, Inc., the
Borrower; and Bank One, NA, as administrative agent.
99.1 Press Release dated August 13, 2004
99.2 Press Release dated August 17, 2004
EXHIBIT 10.1
AGREEMENT AND AMENDMENT TO
CREDIT AGREEMENT
This Agreement and Amendment to Credit Agreement (this "Amendment") dated
as of June 30, 2004 among the financial institutions (collectively, the "Banks")
party to the Credit Agreement (as such term is hereinafter defined); INTEGRATED
ELECTRICAL SERVICES, INC. (the "Borrower"), and BANK ONE, NA, with its main
office in Chicago, Illinois, as administrative agent (in such capacity, the
"Administrative Agent") for the Banks;
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Administrative Agent executed and
delivered that certain Credit Agreement (as heretofore amended and supplemented,
the "Credit Agreement") dated as of February 27, 2004; and
WHEREAS, the Borrower, the Banks and the Administrative Agent now desire to
amend the Credit Agreement to modify certain of the financial covenants and
limitations on certain Restricted Payments;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and warranties herein set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties hereby agree as follows:
Section 5.5(b)(ii) of the Credit Agreement is hereby amended to read in its
entirety as follows:
(ii) Maximum Total Debt to EBITDA Ratio. As of the last day of the
fiscal quarter ending on each date set forth below, the Borrower shall not
permit the ratio of (A) the consolidated Total Debt of the Borrower as of
such date to (B) the consolidated EBITDA of the Borrower for the four
fiscal quarters then ending, to be greater than the corresponding ratio set
forth below:
------------------------------------------------------------
Maximum Total
Date Debt to EBITDA Ratio
------------------------------------------------------------
June 30, 2004 4.50 to 1
------------------------------------------------------------
September 30, 2004 5.00 to 1
------------------------------------------------------------
December 31, 2004 5.50 to 1
------------------------------------------------------------
March 31, 2005 5.65 to 1
------------------------------------------------------------
June 30, 2005 4.75 to 1
------------------------------------------------------------
September 30, 2005 4.50 to 1
------------------------------------------------------------
December 31, 2005 4.00 to 1
------------------------------------------------------------
March 31, 2006
and thereafter 3.85 to 1
------------------------------------------------------------
Section 5.5(c) of the Credit Agreement is hereby amended to read in its
entirety as follows:
(c) Minimum Fixed Charge Coverage Ratio. As of the last day of each
fiscal quarter (beginning with the quarter ending June 30, 2004), the
Borrower shall not permit the ratio of (i) the consolidated Net EBITDA of
the Borrower for the preceding four fiscal quarters then ended to (ii) the
consolidated Fixed Charges of the Borrower for the preceding four fiscal
quarters then ended to be less than (A) 1.20 to 1 for the quarters ending
June 30, September 30 and December 31, 2004; (B) 1.25 to 1 for the quarter
ending March 31, 2005, and (C) 1.35 to 1 for each quarter thereafter.
Compliance with this paragraph (c) shall be determined in the applicable
Compliance Certificate based upon the adjusted financial reports contained
in Schedule B of such Compliance Certificate.
Section 5.10 of the Credit Agreement is hereby amended to read in its
entirety as follows:
5.10 Distributions. The Borrower shall not
(a) declare or pay any dividends;
(b) purchase, redeem, retire, or otherwise acquire for value any of
its capital stock now or hereafter outstanding;
(c) make any distribution of assets to its stockholders as such,
whether in cash, assets, or in obligations of it;
(d) allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement
of, any shares of its capital stock; or
(e) make any other distribution by reduction of capital or otherwise
in respect of any shares of its capital stock, except that the Borrower may
make payments of dividends on Qualified Preferred Stock; provided, however,
that the Borrower may
(i) declare or pay dividends if (x) no Default has then occurred and
is continuing and (y) assuming such dividend had been paid on the last day
of the immediately preceding fiscal quarter, (1) the Total Debt to EBITDA
ratio, as measured in accordance with Section 5.5(b)(ii), would have been
no greater than 2.50 to 1 and (2) no Default (including but not limited to
any Default under Section 5.5) would have occurred as of the last day of
such quarter;
(ii) purchase, redeem, retire or otherwise acquire for value any of
its capital stock if (x) no Default has then occurred and is continuing and
(y) assuming such transaction had been consummated on the last day of the
immediately preceding fiscal quarter, (1) the Total Debt to EBITDA ratio,
as measured in accordance with Section 5.5(b)(ii), would have been no
greater than 3.50 to 1 and (2) no Default (including but not limited to any
Default under Section 5.5) would have occurred as of the last day of such
quarter, and
(iii) purchase, redeem, retire or otherwise acquire for value its
capital stock pursuant to employee stock purchase programs if (x) no
Default has then occurred and is continuing and (y) assuming such capital
stock had been purchased, redeemed, retired or otherwise acquired for value
on the last day of the immediately preceding fiscal quarter, no Default
(including but not limited to any Default under Section 5.5) would have
occurred as of the last day of such quarter.
Conditions. This Amendment shall not become effective until (a) it has been
executed and delivered by the Borrower and the Majority Banks; (b) the Borrower
shall have paid to the Administrative Agent, for the account of each Bank
executing and delivering this Amendment before 5:00 p.m., Houston time, on
August 12, 2004, an amendment fee at the rate (which shall be the same for all
such Banks) heretofore established by the Administrative Agent and the Borrower,
and (c) the Administrative Agent shall have received such other documents and
instruments as it may reasonably request; provided, however, that if all of such
conditions are not satisfied by 5:00 p.m., Houston time, on August 12, 2004,
then this Amendment shall be of no force or effect.
Representations True; No Default. The Borrower represents and warrants that
the representations and warranties contained in the Credit Documents are true
and correct in all material respects on and as of the date hereof as though made
on and as of such date. The Borrower hereby certifies that no event has occurred
and is continuing which constitutes a Default or an Event of Default.
Ratification. Except as expressly amended hereby, the Loan Documents shall
remain in full force and effect. The Credit Agreement, as hereby amended, and
all rights and powers created thereby or thereunder and under the other Credit
Documents are in all respects ratified and confirmed and remain in full force
and effect.
Definitions and References. Any term used herein that is defined in the
Credit Agreement shall have the meaning therein ascribed to it. The terms
"Agreement" and "Credit Agreement" as used in the Credit Documents or any other
instrument, document or writing furnished to the Administrative Agent or any
Bank by the Borrower and referring to the Credit Agreement, shall mean the
Credit Agreement as hereby amended.
Miscellaneous. This Amendment (a) shall be binding upon and inure to the
benefit of the Borrower, the Banks, the Administrative Agent and their
respective successors, assigns, receivers and trustees (but the Borrower shall
not assign its rights hereunder without the express prior written consent of the
Required Lenders); (b) may be modified or amended only by a writing signed by
the party against whom the same is to be enforced; (c) may be executed in
several counterparts, and by the parties hereto on separate counterparts, and
each counterpart, when so executed and delivered, shall constitute an original
agreement, and all such separate counterparts shall constitute but one and the
same agreement, and (e) together with the other Credit Documents, embodies the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements, consents and
understandings relating to such subject matter.
THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
INTEGRATED ELECTRICAL SERVICES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANKS:
BANK ONE, NA
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF SCOTLAND
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LaSALLE BANK NATIONAL ASSOCIATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
WELLS FARGO BANK, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SOUTHWEST BANK OF TEXAS, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
FIRST AMERICAN BANK, SSB HOUSTON
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ALLIED IRISH BANK, P.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AIB DEBT MANAGEMENT LIMITED
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
REGIONS BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
FIRST BANK & TRUST
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
HIBERNIA NATIONAL BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
RZB FINANCE LLC
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EXHIBIT 99.1
[IES LOGO] [NEWS RELEASE]
INTEGRATED ELECTRICAL SERVICES DELAYS
Q3 EARNINGS RELEASE
HOUSTON -- AUGUST 13, 2004 -- Integrated Electrical Services, Inc. (NYSE:IES)
today announced the following:
o As a result of the continuing evaluation of certain large and
complex projects in one of its regions, the company will not be
able to file its fiscal 2004 Third Quarter Report on Form 10-Q on a
timely basis;
o The delay in filing the Quarterly Report may result in a default
under the terms of the debt and could affect IES' ability to secure
surety bonds;
o The independent auditors of IES have advised the company of two
material weaknesses on internal controls described below;
o Because of uncertainty relating to the company's expected fourth
quarter earnings, IES is withdrawing its previously announced
earnings estimate for the fourth quarter of fiscal 2004, however
the company does expect to be profitable for the fourth quarter and
full fiscal year ended September 30, 2004; and
o The earnings conference call scheduled for Monday, August 16, 2004
has been cancelled.
DELAYED FILING OF QUARTERLY REPORT ON FORM 10-Q
As announced on August 2, 2004, IES has been conducting an on-going
evaluation of the reported results relating to certain large and complex
projects at one of its subsidiaries. In addition to the internal investigation,
the company's Audit Committee engaged special counsel to conduct an
investigation of those matters. The special investigation has been concluded and
based upon a report to the Audit Committee, the company believes that the issues
regarding reported results are isolated to two subsidiaries in one of its
operating regions. The issues at one subsidiary relate to (i) a series of large
contracts accounted for on a percentage of completion basis in which actual
costs projected to be incurred exceed the original projected costs, but
appropriate adjustments were not reflected, (ii) general and administrative
costs in respect to a particular contract that did not relate to that contract
and (iii) the recognition of revenue related to the recording
of incorrect margin on a particular contract. The issues at the other subsidiary
relate to incorrectly recorded revenues attributable to a large project that
were not identified as part of the company's normal closing process. The
aggregate amount of the issues at these two subsidiaries is $5.7 million of
which the amount of the error relating to prior periods is currently estimated
at $1.4 million.
As a result of the above matters, the independent auditors of IES have
advised the company that they will not be able to complete their procedures in
accordance with AU 722, "Interim Financial Information," on the company's third
quarter results. They advised IES that until the audit of its fiscal year 2004
financial statements is completed, they will be unable to complete their
procedures in accordance with AU 722 on third quarter results. The reasons for
the delay are the two material weaknesses identified by the independent auditors
as described below and concerns that the size of the adjustments taken for the
items identified above, coupled with any other adjustments that may be
identified in the course of the audit, could result in a requirement to restate
prior periods.
To address the issues described above, IES' management has determined
to make the policy, training, controls and organizational changes described
below:
POLICY: Clarified and improved policies will be made regarding revenue
recognition, ethics compliance and contract documentation
TRAINING: Significantly expanded and new training programs will be
required for all individuals involved in financial reporting
CONTROLS: There will be a change in reporting relationships so that the
regional controllers will directly report to the chief accounting
officer
ORGANIZATIONAL: The number of reporting regions will be reduced and a
new "rapid response" team will be created to step in and assist
subsidiaries experiencing difficulties to accelerate corrective
measures.
THE DELAYED FILING MAY RESULT IN A DEFAULT UNDER IES' OUTSTANDING DEBT AND COULD
AFFECT ITS ABILITY TO SECURE SURETY BONDS
The delay in filing the Quarterly Report on Form 10-Q for the third
quarter may result in a default under the indenture relating to its senior
subordinated debt ($172.9 million outstanding as of August 13, 2004). Under that
indenture, an event of default will occur if the company fails to cure the
default within 30 days. During the continuance of such event of default, the
trustee or the holders of 25% of the outstanding senior subordinated debt could
give the company notice of acceleration. In addition, an event of default under
that indenture will result in a cross-default under its $125.0 million senior
secured revolving credit facility and $50.0 million term loan ($72.9 million
outstanding at August 13, 2004). Upon the occurrence of a default under that
credit facility,
IES will be unable to draw any additional amounts thereunder. IES is currently
seeking a waiver from the participating banks. Unless the company is able to
obtain such a waiver, it will have to seek funding from alternative sources. As
of August 13, 2004, the company had $29.3 million in cash.
Surety or performance bonds are often required in connection with large
or complex contracts to assure the customer of contract performance. If IES were
unable to secure additional surety bonds, the company would be unable to enter
into new, large complex contracts that require such bonds. IES currently
provides collateral to the underwriter of its surety bonds in the form of
letters of credit. Although IES is currently engaged in discussions with its
surety underwriter regarding the continued availability of such bonds, the
company does not have an agreement for them to continue furnishing the bonds. It
is possible that the surety underwriter could elect to terminate the company's
surety authorization or require it to post as collateral additional letters of
credit for the bonds.
IDENTIFIED MATERIAL WEAKNESSES
In response to the recording issues identified above, IES' independent
auditors have advised the company that they have identified two material
weaknesses in its internal controls:
o First, failure to correct identified error of incorrect recording
of costs on one long-term contract at one subsidiary and the
recognition of revenue related to recording of incorrect margin on
the same long-term construction contract; and
o Second, a weakness in reasonably adjusting estimates to the
expected costs of performing long-term construction contracts.
WITHDRAWAL OF 2004 FOURTH QUARTER ESTIMATE
On August 2, 2004, IES announced an estimate of expected earnings for
the 2004 fiscal fourth quarter and full 2004 fiscal year. As a result of the
matters described above, IES is unable to estimate results for the fourth
quarter and has withdrawn both the estimate for the 2004 fourth quarter and full
year. IES expects, however, 2004 fourth quarter and 2004 full year will be
profitable.
CANCELLATION OF THIRD QUARTER CONFERENCE CALL
As a result of the delay in releasing the third quarter report on Form
10-Q IES has cancelled the conference call previously scheduled for Monday,
August 16, 2004.
This press release includes certain statements, including statements relating to
the Company's expectations of its future operating results, that may be deemed
to be "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on the Company's
expectations and involve risks and uncertainties that could cause the Company's
actual results to differ materially from those set forth in the statements. Such
risks and uncertainties include, but are not limited to, the inherent
uncertainties relating to estimating future results, potential consequences of
late filing of the Company's quarterly report on Form 10-Q and associated
defaults under the Company's debt, potential difficulty in addressing material
weaknesses in the Company's accounting that have been identified the Company by
its independent auditors, the possible need for a restatement of prior year
periods if amounts are determined to be material, litigation risks and
uncertainties, fluctuations in operating results because of downturns in levels
of construction, incorrect estimates used in entering into and executing
contracts, difficulty in managing the operation of existing entities, the high
level of competition in the construction industry, changes in interest rates,
general level of the economy, increases in the level of competition from other
major electrical contractors, increases in cost of labor, steel, copper and
gasoline, availability and costs of obtaining surety bonds required for certain
projects, loss of key personnel, difficulty in integrating new types of work
into existing subsidiaries, errors in estimating revenues and percentage of
completion on contracts, and weather and seasonality. The foregoing and other
factors are discussed and should be reviewed in the Company's filings with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the year ended September 30, 2003.
Contacts: Jeffrey Pugh, CFO
Integrated Electrical Services, Inc.
713-860-1500
FOR IMMEDIATE RELEASE Ken Dennard / ksdennard@drg-e.com
Karen Roan / kcroan@drg-e.com
DRG&E / 713-529-6600
# # #
EXHIBIT 99.2
[IES LOGO] [NEWS RELEASE]
INTEGRATED ELECTRICAL SERVICES SCHEDULES CONFERENCE CALL
TO DISCUSS RECENT EVENTS
HOUSTON, Aug 17, 2004 /PRNewswire-FirstCall via COMTEX/ -- Integrated Electrical
Services, Inc. (NYSE: IES) today announced that it has scheduled a conference
call for Wednesday, August 18, 2004 at 9:00 a.m. eastern time to discuss recent
events. Roddy Allen, President and Chief Executive Officer, and Jeff Pugh, Chief
Financial Officer, will conduct the call.
To participate in the conference call, dial 303-262-2142 at least ten minutes
before the call begins and ask for the Integrated Electrical Services conference
call. A replay of the call will be available approximately two hours after the
live broadcast ends and will be accessible until August 25, 2004. To access the
replay, dial (303) 590-3000 and use the pass code of 11006530.
Investors, analysts and the general public will also have the opportunity to
listen to the conference call by visiting the company's web site at
http://www.ies-co.com. To listen to the live call on the web, please visit the
web site at least fifteen minutes early to register, download and install any
necessary audio software. For those who cannot listen to the live web cast, an
archive will be available on the web site shortly after the call. For more
information, please contact Donna Washburn at DRG&E at (713) 529-6600 or email
her at: dmw@drg-e.com.
Integrated Electrical Services, Inc. is the leading national provider of
electrical solutions to the commercial and industrial, residential and service
markets. The company offers electrical system design and installation, contract
maintenance and service to large and small customers, including general
contractors, developers and corporations of all sizes.
Contacts: Jeffrey Pugh, CFO
Integrated Electrical Services, Inc.
713-860-1500
FOR IMMEDIATE RELEASE Ken Dennard / ksdennard@drg-e.com
Karen Roan / kcroan@drg-e.com
DRG&E / 713-529-6600
# # #
