##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission file number
    001-32164
  INFRASOURCE SERVICES,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Delaware


03-0523754(State or other jurisdiction
    of


(I.R.S. Employerincorporation or
    organization)


Identification No.
)   100 West Sixth Street, Suite 300, Media, PA
 (Address of principal executive
    offices)
 19063
 (Zip Code)
 (610) 480-8000
 (Registrants telephone
    number, including area code)
   þ o
  Rule 12b-2
   o þ o
  Rule 12b-2 o þ




---



##### 



For the
    Quarter Ended September 30, 2006
  FORM 10-Q
  INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Table of
    Contents
  Page #Part I 
    FINANCIAL INFORMATION


3Item 1.


Financial
    Statements (Unaudited)


3Condensed
    Consolidated Balance Sheets at December 31, 2005 and
    September 30, 2006


3Condensed
    Consolidated Statements of Operations for the three and nine
    months ended September 30, 2005 and 2006


4Condensed
    Consolidated Statement of Shareholders Equity for the nine
    months ended September 30, 2006


5Condensed
    Consolidated Statements of Cash Flows for the nine months ended
    September 30, 2005 and 2006


6Notes to Condensed
    Consolidated Financial Statements


7Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


23Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


36Item 4.


Controls and
    Procedures


37PART II 
    OTHER INFORMATION


37Item 1.


Legal
    Proceedings


37Item 1A.


Risk
    Factors


38Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds


38Item 3.


Defaults Upon
    Senior Securities


38Item 4.


Submission of
    Matters to a Vote of Security Holders


38Item 5.


Other
    Information


38Item 6.


Exhibits


38SIGNATURES


39Management Agreement, by and between Peter WalierAmendment to the Management Agreement, Walter G. MacFarlandRule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive OfficerRule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial OfficerCertification pursuant to Section 1350 of Chapter 63 of Title 18   2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Condensed Consolidated Balance Sheets
  December 31,


September 30,2005


2006(Unaudited)(In thousands,except share data)Current assets:Cash and cash equivalents

$
24,287


$
15,834Contract receivables (less
    allowances for doubtful accounts of $3,184 and $2,369,
    respectively)


136,610



164,988Costs and estimated earnings in
    excess of billings


84,360



89,970Inventories


6,747



6,769Deferred income taxes


4,683



6,152Other current assets


7,678



5,338Current assets 
    discontinued operations


3,033



2,033Total current assets


267,398



291,084Property and equipment (less
    accumulated depreciation of $55,701 and $73,822, respectively)


143,881



147,323Goodwill


138,054



138,857Intangible assets (less accumulated
    amortization of $19,861 and $20,609, respectively)


1,884



1,136Deferred charges and other assets,
    net


10,501



6,619Assets held for sale






1,245Noncurrent assets 
    discontinued operations


319



1,749Total assets

$
562,037


$
588,013Current liabilities:Current portion of long-term debt

$
889


$
46Other liabilities 
    related parties


11,299



1,227Accounts payable


43,570



47,980Accrued compensation and benefits


20,402



32,830Other current and accrued
    liabilities


20,435



26,106Accrued insurance reserves


30,550



34,907Billings in excess of costs and
    estimated earnings


15,012



15,683Deferred revenues


6,590



6,300Current liabilities 
    discontinued operations


1,501



Total current liabilities


150,248



165,079Long-term debt, net of current
    portion


83,019



70,019Deferred revenues


17,826



17,116Other long-term
    liabilities  related party


420



Deferred income taxes


3,320



3,683Other long-term liabilities


5,298



5,055Non-current liabilities 
    discontinued operations


50



Total liabilities


260,181



260,952Commitments and contingenciesShareholders equity:Preferred stock, $.001 par
    value (authorized  12,000,000 shares;
    0 shares issued and outstanding)






Common stock $.001 par value
    (authorized  120,000,000 shares; issued
    39,396,694 and 39,911,185 shares, respectively, and
    outstanding  39,366,824 and 39,881,315, respectively)


39



40Treasury stock at cost
    (29,870 shares)


(137
)


(137
)Additional paid-in capital


278,387



283,459Deferred compensation


(1,641
)


Retained earnings


24,640



43,231Accumulated other comprehensive
    income


568



468Total shareholders equity


301,856



327,061Total liabilities and
    shareholders equity

$
562,037


$
588,013    3




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Condensed Consolidated Statements of
    Operations
  Three Months Ended


Three Months Ended


Nine Months Ended


Nine Months EndedSeptember 30,


September 30,


September 30,


September 30,2005


2006


2005


2006(Unaudited)(In thousands, except per share data)Contract revenues

$
226,575


$
275,880


$
632,645


$
744,416Cost of revenues


194,857



230,832



562,230



634,642Gross profit


31,718



45,048



70,415



109,774Selling, general and administrative
    expenses


20,017



25,910



53,851



71,214Merger related costs


66







218



Provision for uncollectible accounts


61



5



145



36Amortization of intangible assets


1,001



254



4,311



748Income from operations


10,573



18,879



11,890



37,776Interest income


122



229



328



638Interest expense


(2,170
)


(1,404
)


(5,872
)


(5,197
)Write-off of deferred financing
    costs














(4,296
)Other income, net


735



882



5,749



2,445Income from continuing operations
    before income taxes


9,260



18,586



12,095



31,366Income tax expense


3,994



7,604



5,188



12,770Income from continuing operations


5,266



10,982



6,907



18,596Discontinued operations:Income (loss) from discontinued
    operations (net of income tax provision (benefit) of $(330),
    $(110), $(557) and $9, respectively)


(490
)


(151
)


(799
)


28Gain (loss) on disposition of
    discontinued operation (net of income tax provision (benefit) of
    $1,432, $(22), $1,432 and $(22), respectively)


1,790



(33
)


1,790



(33
)Net income

$
6,566


$
10,798


$
7,898


$
18,591Basic income (loss) per share:Income from continuing operations

$
0.14


$
0.28


$
0.18


$
0.47Income (loss) from discontinued
    operations


(0.01
)


(0.01
)


(0.02
)


Gain on disposition of discontinued
    operation


0.04







0.04



Net income

$
0.17


$
0.27


$
0.20


$
0.47Weighted average basic common
    shares outstanding


39,139



39,778



39,059



39,657Diluted income (loss) per share:Income from continuing operations

$
0.13


$
0.27


$
0.17


$
0.46Income (loss) from discontinued
    operations


(0.01
)






(0.01
)


Gain on disposition of discontinued
    operation


0.04







0.04



Net income

$
0.16


$
0.27


$
0.20


$
0.46Weighted average diluted common
    shares outstanding


40,090



40,308



40,008



40,249    4




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Condensed Consolidated Statements of
    Shareholders Equity
   Accumulated Other Comprehensive IncomeForeignAdditional





Fair Value


CurrencyCommon Stock


Treasury Stock


Paid-In


Deferred


Adjustment on


Translation


RetainedShares


Amount


Shares


Amount


Capital


Compensation


Derivatives


Adjustment


Earnings


Total(Unaudited)(In thousands, except share amounts)Balance as of December 31, 2005


39,396,694


$
39



(29,870
)

$
(137
)

$
278,387


$
(1,641
)

$
480


$
88


$
24,640


$
301,856Vesting of early exercised options


191,673















881



















881Reclass of deferred compensation


















(1,641
)


1,641















Stock options exercised and vested
    restricted stock


248,317



1











1,521



















1,522Income tax benefit from options
    exercised


















839



















839Issuance of shares under employee
    stock purchase plan


74,501















698



















698Stock compensation expense


















2,774



















2,774Net income


































18,591



18,591Other comprehensive income (loss)


























(480
)


380







(100
)Balance as of September 30,
    2006


39,911,185


$
40



(29,870
)

$
(137
)

$
283,459


$



$



$
468


$
43,231


$
327,061     5




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Condensed Consolidated Statements of Cash
    Flows
  Nine Months Ended


Nine Months EndedSeptember 30,


September 30,2005


2006(Unaudited)(In thousands)Cash flows from operating
    activities:Net income

$
7,898


$
18,591Adjustments to reconcile net income
    to cash provided by (used in) operating activities:Discontinued operations 
    net of taxes


(991
)


5Depreciation


20,624



20,538Amortization of intangibles


4,311



748Gain on sale of assets


(1,837
)


(2,237
)Deferred income taxes


5,145



(1,727
)Write-off of deferred financing
    costs






4,296Reversal of litigation judgment


(4,279
)


Other


(3,184
)


3,453Changes in operating assets and
    liabilities, net of effects of acquisitions:Contract receivables, net


(33,458
)


(28,414
)Costs and estimated earnings in
    excess of billings, net


(45,336
)


(4,938
)Inventories and other current assets


2,893



1,590Deferred charges and other assets


311



616Current liabilities


11,176



25,928Other liabilities 
    related parties


(2,988
)


36Other liabilities


(281
)


301Net cash flows provided by (used
    in) operating activities from continuing operations


(39,996
)


38,786Net cash flows used in operating
    activities from discontinued operations


(328
)


(168
)Net cash flows provided by (used
    in) operating activities


(40,324
)


38,618Cash flows from investing
    activities:Acquisitions of businesses, net of
    cash acquired


(38
)


(10,621
)Proceeds from restricted cash


5,000



Proceeds from purchase price
    settlement






324Proceeds from sales of discontinued
    operations


7,117



265Proceeds from sales of equipment


4,091



3,974Additions to property and equipment


(22,565
)


(28,859
)Net cash flows used in investing
    activities from continuing operations


(6,395
)


(34,917
)Net cash flows provided by (used
    in) investing activities from discontinued operations


(231
)


168Net cash flows used in investing
    activities


(6,626
)


(34,749
)Cash flows from financing
    activities:Increase in revolving credit
    facility borrowings


27,000



Borrowings of long-term debt






75,000Repayments of long-term debt and
    capital lease obligations


(679
)


(88,843
)Debt issuance costs






(1,356
)Excess tax benefits from
    stock-based compensation






654Proceeds from exercise of stock
    options and employee stock purchase plan


1,368



2,218Net cash flows provided by (used
    in) financing activities


27,689



(12,327
)Cash and cash equivalents:Net decrease in cash and cash
    equivalents


(19,261
)


(8,458
)Cash and cash equivalents
    transferred to discontinued operations


559



Cash and cash
    equivalents  beginning of period


21,222



24,287Effect of exchange rates on cash






5Cash and cash
    equivalents  end of period

$
2,520


$
15,834Supplemental Disclosure of
    Non-Cash Investing and Financing Activities:Accounts payable balance related to
    purchases of property and equipment

$
734


$
1,907    6




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements
 (Unaudited)
  1.
    Organization
    and Basis of Presentation  point-to-point
      Form 10-K
    2.
    Summary
    of Significant Accounting Policies  Share-based
    compensation
   7




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
          Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2006(In thousands, except per share data)Income from continuing operations
    before income taxes

$
914


$
2,490Income from continuing operations


540



1,494Net income


540



1,494Basic net income per share

$
0.02


$
0.04Diluted net income per share


0.01



0.04    8




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
      Three Months Ended


Nine Months EndedSeptember 30, 2005


September 30, 2005(In thousands)Net income as reported

$
6,566


$
7,898Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(328
)


(478
)Add: Total stock-based employee
    compensation expense, net of related tax effects included in the
    determination of net income as reported


155



175Pro forma net income

$
6,393


$
7,595Basic and diluted income per
    share:Basic net income per
    share  as reported

$
0.17


$
0.20Basic net income per
    share  pro forma


0.16



0.19Diluted net income per
    share  as reported


0.16



0.20Diluted net income per
    share  pro forma


0.16



0.19   3.
    Recently
    Issued Accounting Pronouncements     9




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##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
      4.
    Discontinued
    Operations and Assets Held For Sale          December 31,


September 30,2005


2006(In thousands)Contract receivables, net

$
1,152


$
Other current assets


1,881



1,948Deferred income taxes






85Total current assets


3,033



2,033Property and equipment, net


319



1,749Total assets


3,352



3,782Accounts payable and other
    liabilities


1,501



Total current liabilities


1,501



Deferred income taxes 
    long term


50



Net assets

$
1,801


$
3,782   held-for-sale
 10




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
    Three Months Ended


Three Months Ended


Nine Months Ended


Nine Months EndedSeptember 30,


September 30,


September 30,


September 30,2005


2006


2005


2006(In thousands)Contract revenues

$
4,741


$
199


$
22,305


$
6,930Pre-tax income (loss)


(820
)


(261
)


(1,356
)


37     5.
    Costs and
    Estimated Earnings in Excess of Billings and Contract
    Losses      6.
    Goodwill
    and Intangible Assets    December 31, 2005


September 30, 2006(In thousands)Goodwill

$
138,054


$
138,857Intangible assets:Construction backlog

$
17,184


$
17,184Volume agreements


4,561



4,561Total intangible assets


21,745



21,745Accumulated amortization:Construction backlog


(16,690
)


(17,060
)Volume agreements


(3,171
)


(3,549
)Total accumulated amortization


(19,861
)


(20,609
)Intangible assets, net

$
1,884


$
1,136  11




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
          For the year ended December 31,

(In thousands)2006 (excludes the nine months
    ended September 30, 2006)

$
2672007


4832008


2272009


1592010


Total

$
1,136   7.
    Debt       12




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
      8.
    Computation
    of Per Share Earnings    Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2005


2006


2005


2006(In thousands)Income from continuing operations

$
5,266


$
10,982


$
6,907


$
18,596Income (loss) from discontinued
    operations, net of income tax provision (benefit) of $(330),
    $(110), $(557) and $9, respectively


(490
)


(151
)


(799
)


28Gain (loss) on disposition of
    discontinued operations, net of income tax provision (benefit)
    of $1,432, $(22), $1,432 and $(22), respectively


1,790



(33
)


1,790



(33
)Net income

$
6,566


$
10,798


$
7,898


$
18,591Weighted average basic common
    shares outstanding


39,139



39,778



39,059



39,657Potential common stock arising
    from stock options and employee stock purchase plan


951



530



949



592Weighted average diluted common
    shares outstanding


40,090



40,308



40,008



40,249Basic net income per share

$
0.17


$
0.27


$
0.20


$
0.47Diluted net income per share


0.16



0.27



0.20



0.46    13




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
  9.
    Stock
    Compensation Plans    Three Months


Nine MonthsEnded


EndedSeptember 30, 2006


September 30, 2006(In thousands)Stock option expense

$
705


$
2,006Restricted stock expense


21



239Employee stock purchase plan
    expense


223



529Total stock based compensation
    expense

$
949


$
2,774   Stock
    Options
           14




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
    Nine Months


Three Months


Nine MonthsEnded


Ended


EndedSeptember 30,


September 30,


September 30,2005


2006


2006Weighted Average Assumptions:Expected volatility


58
%


42
%


43
%Dividend yield


0
%


0
%


0
%Risk-free interest rate


3.81
%


4.82
%


4.87
%Annual forfeiture rate


0
%


7
%


7
%Expected holding period (in years)


6.00



6.25



6.25       WeightedWeighted


AverageAverage


RemainingExercise Price


Contractual


AggregateOptions


per share


Life


Intrinsic Value(In thousands)Balance, December 31, 2004


2,212,701


$
7.53Granted


701,563



11.48Exercised


(176,997
)


5.02Cancelled


(331,526
)


7.84Balance, December 31, 2005


2,405,741



8.81Granted


276,039



17.65Exercised


(206,430
)


7.37Cancelled


(191,919
)


10.21Balance, September 30, 2006


2,283,431


$
9.89Options fully vested and expected
    to vest as of September 30, 2006


2,136,525


$
9.67



8.0


$
16,922Options exercisable as of
    September 30, 2006


820,563


$
7.19



7.3


$
8,504   in-the-money
   15




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
  Restricted
    Stock
    Weighted-AverageGrant-Date FairShares


ValueNonvested shares at
    December 31, 2005


167,556


$
13.13Shares issued


28,601



18.01Shares forfeited


(34,510
)


13.13Shares vested


(41,889
)


13.13Nonvested shares at
    September 30, 2006


119,758


$
14.30     Employee
    Stock Purchase Plan
    10.
    Concentration
    of Credit Risk      11.
    Other
    Income, Net   16




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
  12.
    Comprehensive
    Income    Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2005


2006


2005


2006(In thousands)Net income

$
6,566


$
10,798


$
7,898


$
18,591Foreign currency translation
    adjustment






268







380Fair value adjustments on
    derivatives


18







105



(480
)Comprehensive income

$
6,584


$
11,066


$
8,003


$
18,491     13.
    Segment
    Information  point-to-point
   17




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
    For the Three Months Ended September 30, 2005InfrastructureConstruction


Telecommunication


Corporate andServices


Services


Eliminations


Total(In thousands)Revenues

$
216,156


$
9,884


$
535


$
226,575Income from operations as adjusted


10,270



4,065



(2,761
)


11,574Depreciation


6,142



892



52



7,086Amortization


1,001











1,001Total assets


382,772



82,162



99,117



564,051Capital expenditures


2,922



3,649



32



6,603reconciliation:Income from operations as adjusted

$
10,270


$
4,065


$
(2,761
)

$
11,574Less: Amortization


1,001











1,001Income from operations


9,269



4,065



(2,761
)


10,573Interest income


78







44



122Interest expense


(1,844
)


(69
)


(257
)


(2,170
)Other income (expense), net


678



(8
)


65



735Income from continuing operations
    before income taxes

$
8,181


$
3,988


$
(2,909
)

$
9,260   For the Three Months Ended September 30, 2006InfrastructureConstruction


Telecommunication


Corporate andServices


Services


Eliminations


Total(In thousands)Revenues

$
264,949


$
10,400


$
531


$
275,880Income from operations as adjusted


18,509



4,971



(3,399
)


20,081Depreciation


5,722



1,130



82



6,934Amortization and share-based
    compensation


735



82



385



1,202Total assets


422,004



95,443



70,566



588,013Capital expenditures


4,012



4,724



1,231



9,967reconciliation:Income from operations as adjusted

$
18,509


$
4,971


$
(3,399
)

$
20,081Less: Amortization and share-based
    compensation


735



82



385



1,202Income from operations


17,774



4,889



(3,784
)


18,879Interest income


1,286



394



(1,451
)


229Interest expense


(1,023
)


(189
)


(192
)


(1,404
)Other income, net


879



3







882Income from continuing operations
    before income taxes

$
18,916


$
5,097


$
(5,427
)

$
18,586  18




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
  For the Nine Months Ended September 30, 2005InfrastructureConstruction


Telecommunication


Corporate andServices


Services


Eliminations


Total(In thousands)Revenues

$
600,459


$
29,968


$
2,218


$
632,645Income from operations as adjusted


14,063



12,117



(9,979
)


16,201Depreciation


17,904



2,573



147



20,624Amortization


4,311











4,311Total assets


382,772



82,162



99,117



564,051Capital expenditures


10,227



11,238



1,100



22,565reconciliation:Income from operations as adjusted

$
14,063


$
12,117


$
(9,979
)

$
16,201Less: Amortization


4,311











4,311Income from operations


9,752



12,117



(9,979
)


11,890Interest income


158







170



328Interest expense


(5,048
)


(181
)


(643
)


(5,872
)Other income (expense), net


1,911



(11
)


3,849



5,749Income from continuing operations
    before income taxes

$
6,773


$
11,925


$
(6,603
)

$
12,095   For the Nine Months Ended September 30, 2006InfrastructureConstruction


Telecommunication


Corporate andServices


Services


Eliminations


Total(In thousands)Revenues

$
708,770


$
29,976


$
5,670


$
744,416Income from operations as adjusted


39,379



14,193



(12,275
)


41,297Depreciation


17,218



3,124



196



20,538Amortization and share-based
    compensation


2,365



141



1,015



3,521Total assets


422,004



95,443



70,566



588,013Capital expenditures


13,072



14,421



1,366



28,859reconciliation:Income from operations as adjusted

$
39,379


$
14,193


$
(12,275
)

$
41,297Less: Amortization and share-based
    compensation


2,365



141



1,015



3,521Income from operations


37,014



14,052



(13,290
)


37,776Interest income


2,275



1,427



(3,064
)


638Interest expense


(4,404
)


(831
)


38



(5,197
)Write-off of deferred financing
    costs


(3,535
)


(677
)


(84
)


(4,296
)Other income, net


2,314



5



126



2,445Income from continuing operations
    before income taxes

$
33,664


$
13,976


$
(16,274
)

$
31,366  19




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
    Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2005


2006


2005


2006Electric Transmission

$
35,054


$
75,889


$
112,642


$
193,096Electric Substation


33,265



60,228



106,261



157,079Utility Distribution and
    Industrial Electric


42,303



35,286



127,225



104,888Total Electric


110,622



171,403



346,128



455,063Natural Gas


83,310



76,267



202,315



202,496Telecommunications


27,476



26,271



72,265



80,325Other


5,167



1,939



11,937



6,532$
226,575


$
275,880


$
632,645


$
744,416     14.
    Related
    Party Transactions  Form S-3
       20




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
              15.
    Commitments
    and Contingencies       21




---



##### Table of Contents



INFRASOURCE
    SERVICES, INC. AND SUBSIDIARIES
  Notes to Condensed Consolidated Financial
    Statements  (Continued)
 (Unaudited)
    16.
    Subsequent
    Event   22




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    and Cautionary Statements
    Form 10-Q
  percentage-of-completion
  Form 10-Q Form 10-K.
 23




---



##### Table of Contents



Overview
    Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,End Market

2005


2006


2005


2006Electric Transmission


15
%


27
%


18
%


26
%Electric Substation


15
%


22
%


17
%


21
%Utility Distribution and
    Industrial Electric


19
%


13
%


20
%


14
%Total Electric


49
%


62
%


55
%


61
%Natural Gas


37
%


28
%


32
%


27
%Telecommunications


12
%


9
%


11
%


11
%Other


2
%


1
%


2
%


1
%       two-to-three
 24




---



##### Table of Contents



period-to-period
  Backlog as of


Increase/


Increase/September 30,


September 30,


(Decrease)


(Decrease)2005


2006


($)


(%)(In millions)Electric Transmission

$
157


$
153


$
(4
)


(3
)%Electric Substation


121



132



11



9
%Utility Distribution and
    Industrial Electric


41



67



26



63
%Total Electric


319



352



33



10
%Natural Gas


304



180



(124
)


(41
)%Telecommunications


184



246



62



34
%Other


3



24



21



700
%Total

$
810


$
802


$
(8
)


(1
)%   Backlog as of


Increase/


Increase/June 30,


September 30,


(Decrease)


(Decrease)2006


2006


($)


(%)(In millions)Electric Transmission

$
215


$
153


$
(62
)


(29
)%Electric Substation


137



132



(5
)


(4
)%Utility Distribution and
    Industrial Electric


88



67



(21
)


(24
)%Total Electric


440



352



(88
)


(20
)%Natural Gas


247



180



(67
)


(27
)%Telecommunications


221



246



25



11
%Other


8



24



16



200
%Total

$
916


$
802


$
(114
)


(12
)%     period-to-period
  Backlog as of


Increase/


Increase/September 30,


September 30,


Decrease


Decrease2005


2006


($)


(%)(In millions)ICS

$
697


$
670


$
(27
)


(4
)%TS


113



132



19



17
%Total

$
810


$
802


$
(8
)


(1
)%   Backlog as of


Increase/


Increase/June 30,


September 30,


Decrease


Decrease2006


2006


($)


(%)(In millions)ICS

$
782


$
670


$
(112
)


(14
)%TS


134



132



(2
)


(1
)%Total

$
916


$
802


$
(114
)


(12
)%  25




---



##### Table of Contents



Results
    of Operations
  Seasonality
    and Cyclicality
      point-to-point
  Segments
  point-to-point Form 10-Q.
 26




---



##### Table of Contents



Three
    months ended September 30, 2006 compared to the three
    months ended September 30, 2005
  Consolidated
  Three Months Ended


% of


Three Months Ended


% ofSeptember 30, 2005


Revenue


September 30, 2006


Revenue(In thousands)Contract revenues

$
226,575



100.0
%

$
275,880



100.0
%Gross profit


31,718



14.0
%


45,048



16.3
%Selling, general and
    administrative expenses


20,017



8.8
%


25,910



9.4
%Merger related costs


66



0.0
%






0.0
%Provision for uncollectible
    accounts


61



0.0
%


5



0.0
%Amortization of intangible assets


1,001



0.4
%


254



0.1
%Income from operations


10,573



4.7
%


18,879



6.8
%Interest income


122



0.1
%


229



0.1
%Interest expense


(2,170
)


(1.0
)%


(1,404
)


(0.5
)%Other income, net


735



0.3
%


882



0.3
%Income from continuing operations
    before income taxes


9,260



4.1
%


18,586



6.7
%Income tax expense


3,994



1.8
%


7,604



2.8
%Income from continuing operations

$
5,266



2.3
%

$
10,982



4.0
%   Revenues:
  Gross profit:
  Selling, general and administrative
    expenses:
  Amortization of intangible assets:
  Interest income:
  Interest expense:
  Provision for income taxes:
 27




---



##### Table of Contents



Discontinued operations, net of tax:




Three
    months ended September 30, 2006 compared to the three
    months ended September 30, 2005




Segments




|                                         |  |                    |         |  |                    |   |         |        |  |   |        |   |  |  |    |   
|---------------------------------------- |  | ------------------ | ------- |  | ------------------ | - | ------- | ------ |  | - | ------ | - |  |  | -- | --
|                                         |  | Three Months Ended |         |  | Three Months Ended |   |         | Change | 
|                                         |  | September 30, 2005 |         |  | September 30, 2006 |   |         | $      |  |   | %      |  
|                                         |  | (In thousands)     |         |  |                    |  
|                                        
|Revenue:                                 |  |                    |         |  |                    |   |         |        |  |   |        |   |  |  |    |   
|Infrastructure Construction
    Services |  | $                  | 216,156 |  |                    | $ | 264,949 |        |  | $ | 48,793 |   |  |  | 23 | % 
|Telecommunication Services               |  |                    | 9,884   |  |                    |   | 10,400  |        |  |   | 516    |   |  |  | 5  | % 
|                                         |  |                    |         |  |                    |   |         |        |  |   |        |   |  |  |    |   
|Total segment revenues                   |  |                    | 226,040 |  |                    |   | 275,349 |        |  |   | 49,309 |   |  |  | 22 | % 
|Corporate and eliminations               |  |                    | 535     |  |                    |   | 531     |        |  |   | (4     | ) |  |  | (1 | )%
|                                         |  |                    |         |  |                    |   |         |        |  |   |        |   |  |  |    |   
|Total revenue                            |  | $                  | 226,575 |  |                    | $ | 275,880 |        |  | $ | 49,305 |   |  |  | 22 | % 
|                                         |  |                    |         |  |                    |   |         |        |  |   |        |   |  |  |    |   





|                                                     |  |                    |        |   |                    |   |        |        |  |   |       |   |  |  |     |   
|---------------------------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------ | ------ |  | - | ----- | - |  |  | --- | --
|                                                     |  | Three Months Ended |        |   | Three Months Ended |   |        | Change | 
|                                                     |  | September 30, 2005 |        |   | September 30, 2006 |   |        | $      |  |   | %     |  
|                                                     |  | (In thousands)     |        |   |                    |  
|                                                    
|Income from operations as adjusted:                  |  |                    |        |   |                    |   |        |        |  |   |       |   |  |  |     |   
|Infrastructure Construction
    Services             |  | $                  | 10,270 |   |                    | $ | 18,509 |        |  | $ | 8,239 |   |  |  | 80  | % 
|Telecommunication Services                           |  |                    | 4,065  |   |                    |   | 4,971  |        |  |   | 906   |   |  |  | 22  | % 
|                                                     |  |                    |        |   |                    |   |        |        |  |   |       |   |  |  |     |   
|Total segment income from
    operations as adjusted |  |                    | 14,335 |   |                    |   | 23,480 |        |  |   | 9,145 |   |  |  | 64  | % 
|Corporate and eliminations                           |  |                    | (2,761 | ) |                    |   | (3,399 | )      |  |   | (638  | ) |  |  | (23 | )%
|                                                     |  |                    |        |   |                    |   |        |        |  |   |       |   |  |  |     |   
|Total income from operations as
    adjusted         |  | $                  | 11,574 |   |                    | $ | 20,081 |        |  | $ | 8,507 |   |  |  | 74  | % 
|                                                     |  |                    |        |   |                    |   |        |        |  |   |       |   |  |  |     |   





ICS




Revenues:




Income from operations as adjusted:


28



---



##### Table of Contents







TS




Revenues:




Income from operations as adjusted:




Corporate








Nine
    months ended September 30, 2006 compared to the nine months
    ended September 30, 2005




Consolidated




|                                                          |  |                    |         |   |         |  |       |                    |  |   |         |   |  |  |       |   
|--------------------------------------------------------- |  | ------------------ | ------- | - | ------- |  | ----- | ------------------ |  | - | ------- | - |  |  | ----- | --
|                                                          |  | Nine Months Ended  |         |   | % of    |  |       | Nine Months Ended  |  |   | % of    |  
|                                                          |  | September 30, 2005 |         |   | Revenue |  |       | September 30, 2006 |  |   | Revenue |  
|                                                          |  | (In thousands)     |        
|                                                         
|Contract revenues                                         |  | $                  | 632,645 |   |         |  | 100.0 | %                  |  | $ | 744,416 |   |  |  | 100.0 | % 
|Gross profit                                              |  |                    | 70,415  |   |         |  | 11.1  | %                  |  |   | 109,774 |   |  |  | 14.7  | % 
|Selling, general and
    administrative expenses          |  |                    | 53,851  |   |         |  | 8.5   | %                  |  |   | 71,214  |   |  |  | 9.6   | % 
|Merger related costs                                      |  |                    | 218     |   |         |  | 0.0   | %                  |  |   |        |   |  |  | 0.0   | % 
|Provision for uncollectible
    accounts                  |  |                    | 145     |   |         |  | 0.0   | %                  |  |   | 36      |   |  |  | 0.0   | % 
|Amortization of intangible assets                         |  |                    | 4,311   |   |         |  | 0.7   | %                  |  |   | 748     |   |  |  | 0.1   | % 
|                                                          |  |                    |         |   |         |  |       |                    |  |   |         |   |  |  |       |   
|Income from operations                                    |  |                    | 11,890  |   |         |  | 1.9   | %                  |  |   | 37,776  |   |  |  | 5.1   | % 
|Interest income                                           |  |                    | 328     |   |         |  | 0.1   | %                  |  |   | 638     |   |  |  | 0.1   | % 
|Interest expense                                          |  |                    | (5,872  | ) |         |  | (0.9  | )%                 |  |   | (5,197  | ) |  |  | (0.7  | )%
|Write-off of deferred financing
    costs                 |  |                    |        |   |         |  | 0.0   | %                  |  |   | (4,296  | ) |  |  | (0.6  | )%
|Other income, net                                         |  |                    | 5,749   |   |         |  | 0.9   | %                  |  |   | 2,445   |   |  |  | 0.3   | % 
|                                                          |  |                    |         |   |         |  |       |                    |  |   |         |   |  |  |       |   
|Income from continuing operations
    before income taxes |  |                    | 12,095  |   |         |  | 1.9   | %                  |  |   | 31,366  |   |  |  | 4.2   | % 
|Income tax expense                                        |  |                    | 5,188   |   |         |  | 0.8   | %                  |  |   | 12,770  |   |  |  | 1.7   | % 
|                                                          |  |                    |         |   |         |  |       |                    |  |   |         |   |  |  |       |   
|Income from continuing operations                         |  | $                  | 6,907   |   |         |  | 1.1   | %                  |  | $ | 18,596  |   |  |  | 2.5   | % 
|                                                          |  |                    |         |   |         |  |       |                    |  |   |         |   |  |  |       |   





Revenues:




Gross profit:


29



---



##### Table of Contents



Selling, general and administrative
    expenses:




Amortization of intangible assets:




Interest income:




Interest expense:




Write-off of deferred financing costs:




Other income, net:




Provision for income taxes:




Discontinued operations, net of tax:




Nine
    months ended September 30, 2006 compared to the nine months
    ended September 30, 2005




Segments




|                                         |  |                    |         |  |                    |   |         |        |  |   |         |  |  |  |     |  
|---------------------------------------- |  | ------------------ | ------- |  | ------------------ | - | ------- | ------ |  | - | ------- |  |  |  | --- | -
|                                         |  | Nine Months Ended  |         |  | Nine Months Ended  |   |         | Change | 
|                                         |  | September 30, 2005 |         |  | September 30, 2006 |   |         | $      |  |   | %       | 
|                                         |  | (In thousands)     |         |  |                    |  
|                                        
|Revenue:                                 |  |                    |         |  |                    |   |         |        |  |   |         |  |  |  |     |  
|Infrastructure Construction
    Services |  | $                  | 600,459 |  |                    | $ | 708,770 |        |  | $ | 108,311 |  |  |  | 18  | %
|Telecommunication Services               |  |                    | 29,968  |  |                    |   | 29,976  |        |  |   | 8       |  |  |  | 0   | %
|                                         |  |                    |         |  |                    |   |         |        |  |   |         |  |  |  |     |  
|Total segment revenues                   |  |                    | 630,427 |  |                    |   | 738,746 |        |  |   | 108,319 |  |  |  | 17  | %
|Corporate and eliminations               |  |                    | 2,218   |  |                    |   | 5,670   |        |  |   | 3,452   |  |  |  | 156 | %
|                                         |  |                    |         |  |                    |   |         |        |  |   |         |  |  |  |     |  
|Total revenue                            |  | $                  | 632,645 |  |                    | $ | 744,416 |        |  | $ | 111,771 |  |  |  | 18  | %
|                                         |  |                    |         |  |                    |   |         |        |  |   |         |  |  |  |     |  





30



---



##### Table of Contents



Nine Months Ended


Nine Months Ended


ChangeSeptember 30, 2005


September 30, 2006


$


%(In thousands)Income from operations as adjusted:Infrastructure Construction
    Services

$
14,063


$
39,379


$
25,316



180
%Telecommunication Services


12,117



14,193



2,076



17
%Total segment income from
    operations as adjusted


26,180



53,572



27,392



105
%Corporate and eliminations


(9,979
)


(12,275
)


(2,296
)


23
%Total income from operations as
    adjusted

$
16,201


$
41,297


$
25,096



155
%   ICS
  Revenues:
  Income from operations as adjusted:
  TS
  Revenues:
  Income from operations as adjusted:
  Corporate
   31




---



##### Table of Contents



Liquidity
    and Capital Resources
  Cash,
    Working Capital Requirements and Capital
    Expenditures
      Sources
    and Uses of Cash
    Cash from operating activities from continuing
    operations.
  Cash from investing activities from continuing
    operations.
 32




---



##### Table of Contents



Cash from financing activities from continuing
    operations.
    Contractual
    Obligations and Other Commitments
    Payments Due by PeriodLess








Morethan


1-3


4-5


thanContractual Obligations(1)

Total


1 Year


Years


Years


5 YearsLong-term debt obligations

$
70,065


$
46


$
19


$



$
70,000Operating lease obligations


55,987



15,746



32,004



3,015



5,222Projected interest payments on
    long term debt(2)


26,649



4,402



17,790



4,457



Contingent earnout payments(3)


600



600











Other long-term liabilities:Non-vested options exercised


46



23



23







Other(4)


5,054



43



4,801



14



196Total

$
158,401


$
20,860


$
54,637


$
7,486


$
75,418     (1)
    
    Trade accounts payable are not included in Contractual
    Obligations.(2)
    
    The total projected interest payments on long-term debt are
    based upon borrowings and interest rates as of
    September 30, 2006. The interest rate on variable rate debt
    is subject to changes beyond our control and may result in
    actual interest expense and payments differing from the amounts
    above.(3)
    
    See discussion below in Contingent Earnout Payments.(4)
    
    Approximately $3.5 million of this balance relates to
    insurance claims that are expected to be paid by our insurance
    carrier. A corresponding receivable is recorded in deferred
    charges and other assets on our condensed consolidated balance
    sheet.  Contingent
    Earnout Payments
   33




---



##### Table of Contents



Related
    Party Transactions
  Form S-3
                  Critical
    Accounting Policies and Estimates
   34




---



##### Table of Contents



Form 10-K
  Share-Based
    Compensation
          New
    Accounting Pronouncements
   35




---



##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      Interest Rates.
  Currency Risk.
  Gasoline and Diesel Fuel.
 36




---



##### Table of Contents



Item 4.
    Controls
    And Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Internal
    Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings.       37




---



##### Table of Contents



|         |                  
|-------- | -----------------
|Item 1A. | Risk
    Factors.







|        |                                                                 
|------- | ----------------------------------------------------------------
|Item 2. | Unregistered
    Sales of Equity Securities and Use of Proceeds.







|        |                                     
|------- | ------------------------------------
|Item 3. | Defaults
    Upon Senior Securities.







|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission
    of Matters to a Vote of Security Holders.







|        |                       
|------- | ----------------------
|Item 5. | Other
    Information.







|        |          
|------- | ---------
|Item 6. | Exhibits.



| |    |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1   |  | Restated Certificate of
    Incorporation of InfraSource Services, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                 
| | 3  | .1.1 |  | Certificate of Amendment to the
    Restated Certificate of Incorporation of InfraSource Services,
    Inc.(1)                                                                                                                                                                                                                                                                                                                                             
| | 3  | .2   |  | Amended and Restated Bylaws of
    InfraSource Services, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                           
| | 3  | .3   |  | Specimen of Common Stock
    certificate of InfraSource Services Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                   
| | 4  | .1   |  | Stockholders Agreement, dated as
    of September 24, 2003, by and among InfraSource Services,
    Inc. (f/k/a the Dearborn Holdings Corporation) and its Security
    Holders party thereto.(2)                                                                                                                                                                                                                                                           
| | 4  | .2   |  | Registration Rights Agreement,
    dated as of April 20, 2004, by and among InfraSource
    Services, Inc. OCM Principal Opportunities Fund II, L.P.,
    OCM/GFI Power Opportunities Funds, L.P., Martin Maslonka, Thomas
    B. Tilford, Mark C. Maslonka, Justin Campbell, Joseph Gabbard,
    Sidney Strauss, Jon Maslonka, David R. Helwig, Terence R.
    Montgomery and Paul M. Daily.(1)                                                           
| | 4  | .2.1 |  | Amendment to Registration Rights
    Agreement, dated as of December 7, 2005, by and among
    InfraSource Services, Inc. and OCM Principal Opportunities
    Fund II, L.P., OCM/GFI Power Opportunities Funds, L.P.,
    Tontine Capital Partners, L.P., Martin Maslonka, Thomas B.
    Tilford, Mark C. Maslonka, Justin Campbell, Joseph Gabbard,
    Sidney Strauss, Jon Maslonka, David R. Helwig, Terence R.
    Montgomery and Paul M. Daily.(3)    
| | 4  | .2.2 |  | Second Amendment to Registration
    Rights Agreement, dated as of June 28, 2006, by and among
    InfraSource Services, Inc., OCM Principal Opportunities
    Fund II, L.P., OCM/GFI Power Opportunities Funds, L.P.,
    Tontine Capital Partners, L.P., Martin Maslonka, Thomas B.
    Tilford, Mark C. Maslonka, Justin Campbell, Joseph Gabbard,
    Sidney N. Strauss, Jon Maslonka, David R. Helwig, Terence R.
    Montgomery and Paul M. Daily.(4)
| | 10 | .1   |  | Management Agreement, dated
    August 28, 2006, by and between Peter Walier and
    InfraSource Services, Inc.*                                                                                                                                                                                                                                                                                                                                           
| | 10 | .2   |  | Amendment, dated
    September 21, 2006, to the Management Agreement, dated
    June 27, 2005, by and between Walter G. MacFarland and
    InfraSource Services, Inc.*                                                                                                                                                                                                                                                                                     
| | 31 | .1   |  | Rule 13a-14(a)/Rule 15d-14(a)
    Certification of Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                                                               
| | 31 | .2   |  | Rule 13a-14(a)/Rule 15d-14(a)
    Certification of Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                                                               
| | 32 | .1   |  | Certification pursuant to
    Section 1350 of Chapter 63 of Title 18 of the
    United States Code.*                                                                                                                                                                                                                                                                                                                                                       







|    |  |                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   |  | Filed herewith                                                                                                                                                             
|   
|(1) |  | Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-8
    (Registration
    No. 333-115648)
    filed with the Commission on May 19, 2004.    
|   
|(2) |  | Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1
    (Registration
    No. 333-112375)
    filed with the Commission on January 30, 2004.
|   
|(3) |  | Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.                                                           
|   
|(4) |  | Filed as an exhibit to the Registrants Annual Report on
    Form 8-K
    dated June 28, 2006.                                                                             

38



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##### Table of Contents

SIGNATURES












| |     |                               
| | --- | ------------------------------
| | By: | /s/  TERENCE
    R. MONTGOMERY







Senior Vice President and Chief Financial Officer






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