**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**ý**                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended June 30, 2004**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from           to**

**Commissionfile number  001-32164**

**INFRASOURCE SERVICES, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     | **03-0523754**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

**100 West Sixth Street, Suite300, Media, PA**

(Address of principalexecutive offices)

**19063**

(Zip Code)

**(610) 480-8000**

(Registrant’s telephonenumber, including area code)

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý   No o

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes o  No ý

At August 11,2004, there were 39,167,157 shares of InfraSource Services, Inc. CommonStock,  par value of $.001, outstanding.

 

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**For the QuarterEnded June 30, 2004FORM 10-QINFRASOURCE SERVICES, INC. AND SUBSIDIARIESTable of Contents**
| Part I—FINANCIAL  INFORMATION |                                                                                                                                                                                                                                                                                    |
|-----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                                 | Financial  Statements (Unaudited)                                                                                                                                                                                                                                                       |   |
|                                    | Condensed  Consolidated Balance Sheets at June 30, 2004 and December 31, 2003                                                                                                                                                                                                 | 2 |
|                                    | Condensed  Consolidated Statements of Operations for the periods March 22, 2003 to  June 20, 2003 and January 1, 2003 to June 20, 2003  (predecessor entity—InfraSource  Incorporated and Subsidiaries) and the three and six months ended  June 30, 2004 | 3 |
|                                    | Condensed  Consolidated Statements of Cash Flows for the period January 1, 2003 to  June 20, 2003 (predecessor entity—InfraSource Incorporated and  Subsidiaries) and  six months ended June 30, 2004                                                               | 4 |
|                                    | Notes to  Condensed Consolidated Financial Statements                                                                                                                                                                                                                                   | 5 |
| Item  2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                             | 19 |
| Item  3.                                | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                             | 39 |
| Item 4.                                 | Controls and Procedures                                                                                                                                                                                                                                                                 | 39 |
| PART II—OTHER  INFORMATION    |                                                                                                                                                                                                                                                                                    |
| Item  1.                                | Legal Proceedings                                                                                                                                                                                                                                                                       | 40 |
| Item  2.                                | Changes  in Securities and Use of Proceeds                                                                                                                                                                                                                                              | 40 |
| Item 3.                                 | Defaults Upon  Senior Securities                                                                                                                                                                                                                                                        | 41 |
| Item  4.                                | Submission  of Matters to a Vote of Security Holders                                                                                                                                                                                                                                    | 41 |
| Item 5.                                 | Other Information                                                                                                                                                                                                                                                                       | 41 |
| Item 6.                                 | Exhibits  and Reports on Form 8-K                                                                                                                                                                                                                                                  | 42 |
| SIGNATURES                              | 43                                                                                                                                                                                                                                                                                      |

 

1

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**PART I—FINANCIALINFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**INFRASOURCE SERVICES, INC.AND SUBSIDIARIES**Condensed Consolidated Balance Sheets(unaudited)(In thousands, except share data)
| ** **                                                                                                                              | ** ** | **December 31,  2003** | ** ** | **June 30,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| ASSETS                                                                                                                                  |       |                        |       |                    |       |   |   |
| Current assets:                                                                                                                         |       |                        |       |                    |       |   |   |
| Cash and cash equivalents                                                                                                               |       |                        | $          | 12,080                  |       |   | $ | 19,348 |   |
| Contract receivables (less allowances for doubtful  accounts of $4,938 and $3,636, respectively)                                        |       |                        | 70,905     |                    |       | 80,649 |   |
| Contract receivables due from related parties                                                                                           |       |                        | 14,617     |                    |       | — |   |
| Costs and estimated earnings in excess of billings                                                                                      |       |                        | 34,003     |                    |       | 56,360 |   |
| Inventories                                                                                                                             |       |                        | 8,473      |                    |       | 9,940 |   |
| Deferred income taxes                                                                                                                   |       |                        | 685        |                    |       | 2,240 |   |
| Other current assets                                                                                                                    |       |                        | 4,822      |                    |       | 23,461 |   |
| Due from related parties, net                                                                                                           |       |                        | 10,907     |                    |       | — |   |
| Current assets—discontinued operations                                                                                             |       |                        | 4,262      |                    |       | 3,877 |   |
| Total current assets                                                                                                                    |       |                        | 160,754    |                    |       | 195,875 |   |
| Property and equipment (less accumulated depreciation  of $5,299 and $17,584, respectively)                                             |       |                        | 116,566    |                    |       | 125,000 |   |
| Property and equipment—related parties                                                                                             |       |                        | 7,218      |                    |       | — |   |
| Goodwill                                                                                                                                |       |                        | 68,877     |                    |       | 129,038 |   |
| Intangible assets (less accumulated amortization of  $2,600 and $11,169, respectively)                                                  |       |                        | 5,400      |                    |       | 8,331 |   |
| Deferred charges and other assets, net                                                                                                  |       |                        | 7,309      |                    |       | 9,088 |   |
| Deferred income taxes                                                                                                                   |       |                        | 1,058      |                    |       | 2,262 |   |
| Noncurrent assets—discontinued operations                                                                                          |       |                        | 395        |                    |       | 355 |   |
| Total assets                                                                                                                            |       |                        | $          | 367,577                 |       |   | $ | 469,949 |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                              |       |                        |       |                    |       |   |   |
| Current liabilities:                                                                                                                    |       |                        |       |                    |       |   |   |
| Current portion of long-term debt and capital lease  obligations                                                                        |       |                        | $          | 1,500                   |       |   | $ | 934 |   |
| Accounts payable                                                                                                                        |       |                        | 13,244     |                    |       | 17,330 |   |
| Other current and accrued liabilities                                                                                                   |       |                        | 42,701     |                    |       | 39,132 |   |
| Accrued insurance reserves                                                                                                              |       |                        | 19,773     |                    |       | 22,357 |   |
| Billings in excess of costs and estimated earnings                                                                                      |       |                        | 8,019      |                    |       | 6,164 |   |
| Deferred revenues                                                                                                                       |       |                        | 3,393      |                    |       | 3,743 |   |
| Other liabilities—related parties                                                                                                  |       |                        | 7,218      |                    |       | — |   |
| Current liabilities—discontinued operations                                                                                        |       |                        | —     |                    |       | 521 |   |
| Total current liabilities                                                                                                               |       |                        | 95,848     |                    |       | 90,181 |   |
| Long-term debt and capital lease obligations                                                                                            |       |                        | 162,963    |                    |       | 84,322 |   |
| Long-term debt—related party                                                                                                       |       |                        | —     |                    |       | 1,000 |   |
| Deferred revenues                                                                                                                       |       |                        | 12,750     |                    |       | 17,907 |   |
| Other long-term liabilities                                                                                                             |       |                        | 3,167      |                    |       | 5,217 |   |
| Total liabilities                                                                                                                       |       |                        | 274,728    |                    |       | 198,627 |   |
| Commitments and  contingencies                                                                                                          |       |                        |       |                    |       |   |   |
| Shareholders’  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 and outstanding—19,914,840 and 38,677,610, respectively) |       |                        | 20         |                    |       | 39 |   |
| Additional paid-in capital                                                                                                              |       |                        | 91,480     |                    |       | 270,490 |   |
| Retained earnings                                                                                                                       |       |                        | 1,335      |                    |       | 380 |   |
| Accumulated other comprehensive income                                                                                                  |       |                        | 14         |                    |       | 413 |   |
| Total shareholders’ equity                                                                                                         |       |                        | 92,849     |                    |       | 271,322 |   |
| Total liabilities  and shareholders’ equity                                                                                        |       |                        | $          | 367,577                 |       |   | $ | 469,949 |   |

 

See accompanying notes to condensed consolidated financial statements.

2

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**INFRASOURCESERVICES, INC. AND SUBSIDIARIES**Condensed Consolidated Statements of Operations(Unaudited)(In thousands, except per share data)
| ** **                                                    | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| Contract revenues                                             |       |                                                                                                                                                                               | $          | 119,746    |                                                  |       |                                                                                                                                                                                |       | $          | 148,227                                             |       |   |   | $ | 216,669 |   |   |   |   | $ | 296,848 |   |   |
| Contract revenues—related parties                        |       |                                                                                                                                                                               | 17,199     |       |                                                  |       |                                                                                                                                                                                | —     |       |                                                |       | 30,878 |   |   |   |   | — |   |   |
| Total contract revenues                                       |       |                                                                                                                                                                               | 136,945    |       |                                                  |       |                                                                                                                                                                                | 148,227    |       |                                                |       | 247,547 |   |   |   |   | 296,848 |   |   |
| Cost of revenues                                              |       |                                                                                                                                                                               | 118,316    |       |                                                  |       |                                                                                                                                                                                | 123,670    |       |                                                |       | 215,499 |   |   |   |   | 247,014 |   |   |
| Gross profit                                                  |       |                                                                                                                                                                               | 18,629     |       |                                                  |       |                                                                                                                                                                                | 24,557     |       |                                                |       | 32,048 |   |   |   |   | 49,834 |   |   |
| Selling, general and administrative expenses                  |       |                                                                                                                                                                               | 11,498     |       |                                                  |       |                                                                                                                                                                                | 15,694     |       |                                                |       | 23,688 |   |   |   |   | 31,107 |   |   |
| Merger related costs                                          |       |                                                                                                                                                                               | 1,816      |       |                                                  |       |                                                                                                                                                                                | —     |       |                                                |       | 1,931 |   |   |   |   | — |   |   |
| Provision (recoveries) of uncollectible accounts              |       |                                                                                                                                                                               | 43         |       |                                                  |       |                                                                                                                                                                                | (464       | )          |                                                |       | 43 |   |   |   |   | (471 | ) |   |
| Amortization of intangible assets                             |       |                                                                                                                                                                               | —     |       |                                                  |       |                                                                                                                                                                                | 4,022      |       |                                                |       | — |   |   |   |   | 8,569 |   |   |
| Income from operations                                        |       |                                                                                                                                                                               | 5,272      |       |                                                  |       |                                                                                                                                                                                | 5,305      |       |                                                |       | 6,386 |   |   |   |   | 10,629 |   |   |
| Interest income                                               |       |                                                                                                                                                                               | 487        |       |                                                  |       |                                                                                                                                                                                | 66         |       |                                                |       | 961 |   |   |   |   | 120 |   |   |
| Interest expense and amortization of debt discount            |       |                                                                                                                                                                               | (1         | )          |                                                  |       |                                                                                                                                                                                | (2,829     | )          |                                                |       | (3 | ) |   |   |   | (6,200 | ) |   |
| Loss on early extinguishment of debt                          |       |                                                                                                                                                                               | —     |       |                                                  |       |                                                                                                                                                                                | (5,682     | )          |                                                |       | — |   |   |   |   | (5,682 | ) |   |
| Other expenses                                                |       |                                                                                                                                                                               | (193       | )          |                                                  |       |                                                                                                                                                                                | (228       | )          |                                                |       | (130 | ) |   |   |   | (421 | ) |   |
| Income (loss) before income taxes                             |       |                                                                                                                                                                               | 5,565      |       |                                                  |       |                                                                                                                                                                                | (3,368     | )          |                                                |       | 7,214 |   |   |   |   | (1,554 | ) |   |
| Income tax expense (benefit)                                  |       |                                                                                                                                                                               | 2,312      |       |                                                  |       |                                                                                                                                                                                | (1,414     | )          |                                                |       | 2,958 |   |   |   |   | (670 | ) |   |
| Income (loss) from continuing operations                      |       |                                                                                                                                                                               | 3,253      |       |                                                  |       |                                                                                                                                                                                | (1,954     | )          |                                                |       | 4,256 |   |   |   |   | (884 | ) |   |
| Discontinued  operations:                                     |       |                                                                                                                                                                               |       |       |                                                  |       |                                                                                                                                                                                |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Loss from operations of discontinued business                 |       |                                                                                                                                                                               | (7,532     | )          |                                                  |       |                                                                                                                                                                                | (127       | )          |                                                |       | (8,705 | ) |   |   |   | (125 | ) |   |
| Income tax benefit                                            |       |                                                                                                                                                                               | (2,686     | )          |                                                  |       |                                                                                                                                                                                | (55        | )          |                                                |       | (3,158 | ) |   |   |   | (54 | ) |   |
| Loss from discontinued operations                             |       |                                                                                                                                                                               | (4,846     | )          |                                                  |       |                                                                                                                                                                                | (72        | )          |                                                |       | (5,547 | ) |   |   |   | (71 | ) |   |
| Net loss                                                      |       |                                                                                                                                                                               | $          | (1,593     | )                                                     |       |                                                                                                                                                                                |       | $          | (2,026                                              | )          |   |   | $ | (1,291 | ) |   |   |   | $ | (955 | ) |   |
| Income (loss) per share—basic and diluted                |       |                                                                                                                                                                               |       |       |                                                  |       |                                                                                                                                                                                |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Income (loss) from continuing operations                      |       |                                                                                                                                                                               | $          | 0.07       |                                                  |       |                                                                                                                                                                                |       | $          | (0.06                                               | )          |   |   | $ | 0.09 |   |   |   |   | $ | (0.03 | ) |   |
| Loss from discontinued operations                             |       |                                                                                                                                                                               | (0.10      | )          |                                                  |       |                                                                                                                                                                                | —     |       |                                                |       | (0.12 | ) |   |   |   | — |   |   |
| Net loss                                                      |       |                                                                                                                                                                               | $          | (0.03      | )                                                     |       |                                                                                                                                                                                |       | $          | (0.06                                               | )          |   |   | $ | (0.03 | ) |   |   |   | $ | (0.03 | ) |   |
| Weighted average basic  and diluted common shares outstanding |       |                                                                                                                                                                               | 47,877     |       |                                                  |       |                                                                                                                                                                                | 34,755     |       |                                                |       | 47,890 |   |   |   |   | 31,453 |   |   |

 

See accompanying notes to condensed consolidated financial statements.

3

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**INFRASOURCE SERVICES, INC. AND SUBSIDIARIES**Condensed Consolidated Statements of Cash Flows(Unaudited)(In thousands)
| ** **                                                                                                              | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries)  (Note 1)** | ** ** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| Cash flows from operating  activities:                                                                                  |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Income (loss) from  continuing operations                                                                               |       |                                                                                                                                                                            | $          | 4,256      |                                                |       |   |   | $ | (884 | ) |   |
| Adjustments to  reconcile income (loss) from continuing operations to cash provided by (used  in) operating activities: |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Depreciation                                                                                                            |       |                                                                                                                                                                            | 13,668     |       |                                                |       |   | 11,363 |   |   |
| Amortization of  intangibles                                                                                            |       |                                                                                                                                                                            | —     |       |                                                |       |   | 8,569 |   |   |
| Deferred income  taxes                                                                                                  |       |                                                                                                                                                                            | —     |       |                                                |       |   | (7,517 | ) |   |
| Loss on early  extinguishment of debt                                                                                   |       |                                                                                                                                                                            | —     |       |                                                |       |   | 5,682 |   |   |
| Other                                                                                                                   |       |                                                                                                                                                                            | (159       | )          |                                                |       |   | (369 | ) |   |
| Changes in  operating assets and liabilities, net of effects of acquisitions:                                           |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Contract  receivables, net                                                                                              |       |                                                                                                                                                                            | 16,201     |       |                                                |       |   | 11,516 |   |   |
| Contract  receivables due from related parties, net                                                                     |       |                                                                                                                                                                            | (12,640    | )          |                                                |       |   | — |   |   |
| Costs and  estimated earnings in excess of billings, net                                                                |       |                                                                                                                                                                            | (12,816    | )          |                                                |       |   | (17,776 | ) |   |
| Inventories                                                                                                             |       |                                                                                                                                                                            | 248        |       |                                                |       |   | (1,466 | ) |   |
| Due from  affiliates                                                                                                    |       |                                                                                                                                                                            | 9,325      |       |                                                |       |   | — |   |   |
| Other current  assets                                                                                                   |       |                                                                                                                                                                            | (762       | )          |                                                |       |   | (1,473 | ) |   |
| Deferred charges  and other assets                                                                                      |       |                                                                                                                                                                            | 275        |       |                                                |       |   | (999 | ) |   |
| Accounts payable                                                                                                        |       |                                                                                                                                                                            | (5,265     | )          |                                                |       |   | (5,541 | ) |   |
| Accrued taxes due  to related parties                                                                                   |       |                                                                                                                                                                            | 257        |       |                                                |       |   | — |   |   |
| Other current and  accrued liabilities                                                                                  |       |                                                                                                                                                                            | (4,414     | )          |                                                |       |   | (17,284 | ) |   |
| Accrued insurance  reserves                                                                                             |       |                                                                                                                                                                            | 1,116      |       |                                                |       |   | 2,584 |   |   |
| Deferred revenue                                                                                                        |       |                                                                                                                                                                            | 3,709      |       |                                                |       |   | 3,049 |   |   |
| Other long-term  liabilities                                                                                            |       |                                                                                                                                                                            | 226        |       |                                                |       |   | 2,258 |   |   |
| Net cash flows  provided by (used in) operating activities from continuing operations                                   |       |                                                                                                                                                                            | 13,225     |       |                                                |       |   | (8,288 | ) |   |
| Net cash flows  used in operating activities from discontinued operations                                               |       |                                                                                                                                                                            | (4,452     | )          |                                                |       |   | (14 | ) |   |
| Net cash flows  provided by (used in) operating activities                                                              |       |                                                                                                                                                                            | 8,773      |       |                                                |       |   | (8,302 | ) |   |
| Cash flows from investing  activities:                                                                                  |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Acquisitions of  businesses, net of cash acquired                                                                       |       |                                                                                                                                                                            | —     |       |                                                |       |   | (20,101 | ) |   |
| Proceeds from  sales of equipment                                                                                       |       |                                                                                                                                                                            | 1,923      |       |                                                |       |   | 2,024 |   |   |
| Additions to  property, plant and equipment                                                                             |       |                                                                                                                                                                            | (9,531     | )          |                                                |       |   | (12,091 | ) |   |
| Net cash flows  used in investing activities from continuing operations                                                 |       |                                                                                                                                                                            | (7,608     | )          |                                                |       |   | (30,168 | ) |   |
| Net cash flows  provided by (used in) investing activities from discontinued operations                                 |       |                                                                                                                                                                            | 3,187      |       |                                                |       |   | (475 | ) |   |
| Net cash flows  used in investing activities                                                                            |       |                                                                                                                                                                            | (4,421     | )          |                                                |       |   | (30,643 | ) |   |
| Cash flows from financing  activities:                                                                                  |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Repayments of  long-term debt and capital lease obligations                                                             |       |                                                                                                                                                                            | (88        | )          |                                                |       |   | (84,619 | ) |   |
| Purchase of  treasury stock                                                                                             |       |                                                                                                                                                                            | (383       | )          |                                                |       |   | — |   |   |
| Proceeds from sale  of common stock                                                                                     |       |                                                                                                                                                                            | —     |       |                                                |       |   | 130,343 |   |   |
| Net cash flows (used  in) provided by financing activities from continuing operations                                   |       |                                                                                                                                                                            | (471       | )          |                                                |       |   | 45,724 |   |   |
| Net cash flows  used in financing activities from discontinued operations                                               |       |                                                                                                                                                                            | (405       | )          |                                                |       |   | — |   |   |
| Net cash flows  (used in) provided by financing activities                                                              |       |                                                                                                                                                                            | (876       | )          |                                                |       |   | 45,724 |   |   |
| Cash and cash  equivalents:                                                                                             |       |                                                                                                                                                                            |       |       |                                                |       |   |   |   |   |
| Net increase in  cash and cash equivalents                                                                              |       |                                                                                                                                                                            | 3,476      |       |                                                |       |   | 6,779 |   |   |
| Cash and cash  equivalents transferred to discontinued operations                                                       |       |                                                                                                                                                                            | 1,670      |       |                                                |       |   | 489 |   |   |
| Cash and cash  equivalents—beginning of period                                                                     |       |                                                                                                                                                                            | 20,784     |       |                                                |       |   | 12,080 |   |   |
| Cash and cash  equivalents—end of period                                                                           |       |                                                                                                                                                                            | $          | 25,930     |                                                |       |   |   | $ | 19,348 |   |   |

 
| **Supplemental  Disclosure of Non-Cash Investing and Financing Activities:**                                                                                                                                        |   |   |   |   |   |   |   |    |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Distribution of  property and equipment owed to a related party.                                                                                                                                                    |   |   |   |   |   |   |   | $       | 7,218  |   |   |
| Loss on early  extinguishment of the note payable to Exelon                                                                                                                                                         |   |   |   |   |   |   |   | 5,682   |   |   |
| The Company  acquired all of the voting interests of Maslonka & Associates for  $77,476 in January,  2004. In conjunction with this acquisition, assets acquired and liabilities  assumed were as follows: |   |   |   |   |   |   |   |    |   |   |
| Fair value of  assets acquired                                                                                                                                                                                      |   |   |   |   |   |   |   | $       | 41,093 |   |   |
| Goodwill                                                                                                                                                                                                            |   |   |   |   |   |   |   | 59,549  |   |   |
| Liability to  sellers for time deposit refund, taxes, and cash holdback                                                                                                                                             |   |   |   |   |   |   |   | (6,704  | )      |   |
| Liabilities  assumed                                                                                                                                                                                                |   |   |   |   |   |   |   | (23,166 | )      |   |
| Equity issued to  sellers                                                                                                                                                                                           |   |   |   |   |   |   |   | (50,671 | )      |   |
| Cash paid for  acquisition, net of cash acquired                                                                                                                                                                    |   |   |   |   |   |   |   | (20,101 | )      |   |

 

See accompanying notes to condensed consolidated financial statements.

4

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**INFRASOURCESERVICES, INC. AND SUBSIDARIES**Notes to Condensed Consolidated Financial Statements(Unaudited)(In thousands, except share data)

**1.   Organization and Basis of Presentation**

InfraSource Services, Inc. (“InfraSource”),formerly known as Dearborn Holdings Corporation, was organized on May 30,2003 as a Delaware Corporation. In June 2003, OCM/GFI Power OpportunitiesFund, L.P. and OCM Principal Opportunities Fund, L.P. (collectively, the “PrincipalStockholders”), both Delaware limited partnerships, each acquired fifty sharesof the common stock of InfraSource at a nominal purchase price. On September 24,2003, pursuant to an Agreement and Plan of Merger dated June 17, 2003 (the“Merger”), InfraSource acquired InfraSource Incorporated and certain of itswholly owned subsidiaries (collectively, the “InfraSource Group” or “thePredecessor”). Immediately prior to the Merger, certain other subsidiaries ofInfraSource Incorporated not acquired by InfraSource in the Merger (the “Non-AcquiredGroup”) were distributed to InfraSource Incorporated’s parent, ExelonEnterprises Company LLC, a wholly owned subsidiary of Exelon Corporation (“Exelon”).InfraSource and its wholly owned subsidiaries are referred to herein as “theCompany.”  For a more detailed descriptionof the Merger, see Note 3 to these financial statements. On May 12, 2004,the Company completed its initial public offering (“IPO”) of 8,500,000 sharesof common stock (see Note 6).

The Company operatesin one reportable segment as a specialty contractor serving the utilitytransmission and distribution infrastructure in the United States. The Company’sbroad range of services include the design, engineering, procurement,construction, testing, maintenance, and leasing of utility infrastructure. TheCompany’s customers primarily include electric power utilities, natural gasutilities, government entities and heavy industrial companies, such as petrochemical,processing and refining businesses. Each of these services is provided byvarious Company subsidiaries all of which have been aggregated into onereportable segment due to their similar economic characteristics, customerbases, products and production and distribution methods. The Company operatesin multiple service territories throughout the United States and does not havesignificant assets or operations outside of the United States.

The accompanyingunaudited condensed consolidated financial statements reflect the financialposition of the Company as of June 30, 2004 and December 31, 2003;the Company’s results of operations for the three and six months ended June 30,2004; and the Company’s cash flows for the six months ended June 30, 2004.They also include the results of operations of the Predecessor for the periods March 22to June 20, 2003 and January 1, 2003 to June 20, 2003, and thePredecessor’s cash flows for the period January 1, 2003 to June 20,2003. The Company had no operating activity prior to acquiring the InfraSourceGroup in the Merger. Subsidiaries of the Predecessor not acquired in the Mergerare reflected as discontinued operations in the accompanying financialstatements of the Predecessor. During 2003, in order to meet the reportingdeadlines of Exelon, each of the Predecessor’s first three fiscal quartersended on March 21, June 20, and September 23, respectively. Beginningin 2004, each of the Company’s quarters will end on the last days of March,June, September and December. Accordingly, as a result of the change inquarter end, the six months ended June 30, 2004 contains ten additionaldays as compared to the prior-year period January 1, 2003 to June 20,2003. The additional ten days would not have had a material effect on thePredecessor’s 2003 six-month period results. The Company has not adjusted thePredecessor six-month period results to reflect the effect of the additionalten days because it is impracticable to do so.

The accompanying condensed consolidated financial statements areunaudited and have been prepared in accordance with the rules andregulations of the U.S. Securities and Exchange Commission 

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(“SEC”). These financial statements includeall adjustments that we consider necessary for a fair presentation of financialposition, results of operations and cash flows for the interim periodspresented. Such adjustments consisted only of normal recurring items. The December 31,2003 condensed consolidated balance sheet data were derived from auditedfinancial statements, but do not include all disclosures required by accountingprinciples generally accepted in the United States of America. The results forinterim periods are not necessarily indicative of results to be expected for afull year or future interim periods. These financial statements should be readin conjunction with the Company’s financial statements and related notesincluded in its Prospectus filed pursuant to Rule 424B1 (SEC File Number333-112375) and contained in the related registration statement declaredeffective on May 6, 2004 (the “IPO Prospectus”)*.*

**2.   RecentlyIssued Accounting Pronouncements**

In March 2004, the FASB’s Emerging Issues Task Force (EITF)reached consensus on Issue 03-6 EITF Issue No. 03-6, “ParticipatingSecurities and the Two-Class Method Under FASB Statement No. 128,Earnings Per Share”. This Issue is intended to clarify what is a participatingsecurity for purposes of applying SFAS 128, Earnings Per Share. The Issue also providesfurther guidance on how to apply the two-class method of computing earnings pershare (EPS) once it is determined that a security is participating, includinghow to allocate undistributed earnings to such a security. The guidance in thisIssue was effective for reporting periods beginning after March 31, 2004and requires the restatement of previously reported EPS. Management hasdetermined that options to purchase the Company’s stock do not constituteparticipating securities as defined by this Issue. We have adopted this Issuein the second quarter of 2004. The initial adoption of this Issue had no impacton the Company’s basic and diluted earnings per share for the three months andsix months ended June 30, 2004 and Predecessor periods March 22, 2003to June 20, 2003 and January 1, 2003 to June 20, 2003.

**3.**   Merger and Acquisitions

***Merger:****  *On September 24, 2003, theCompany acquired the InfraSource Group pursuant to an Agreement and Plan ofMerger dated June 17, 2003. In connection with the Merger, the Companyacquired all of the voting interests of InfraSource Incorporated for a totalpurchase price consideration of $228,614. Pursuant to the Merger, the Companyentered into a new term loan and revolving credit facility providing for a termloan of $140,000 and a revolving credit facility of up to $40,000, withavailability for letters of credit of $25,000. In addition, the Company issueda long-term subordinated note payable to Exelon, the former majority owner ofInfraSource Incorporated, for $29,000. The proceeds of the term loans and thesubordinated note, together with the issuance of 19,912,664 shares of Company’scommon stock for cash of $91,500, were used to finance the redemption of allthen-outstanding shares of InfraSource Incorporated common stock and to fundcertain expenses related to the Merger. The value assigned to the common stockresulted from the negotiated transaction for the purchase of the InfraSourceGroup.

As a result of the Merger, the Company incurred $8,096in related expenses on a pretax basis, including $6,344 of debt issuance costswhich will be amortized over the lives of the respective debt instruments, and$1,752 in professional fees and filing costs. Preliminary goodwill of $68,584recorded in connection with the Merger is subject to future adjustment basedupon the outcome of certain estimates and contingencies including the valuationof certain specialty equipment acquired and the finalization of purchase pricecontingencies related to a working capital adjustment provision. The Companyexpects the valuation of the specialty equipment to be completed during thethird quarter of 2004. Any adjustments resulting from the appraisals couldresult in an adjustment to goodwill, which amounts could be material. Intangibleassets related to contracted volumes of work have been valued at $8,000. Boththe goodwill and the intangible assets are deductible for tax purposes over15 years. For the period January 1 through 

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September 23, 2003,the InfraSource Group incurred $16,242 of expenses related to the Merger,including $10,553 of employee retention, severance and incentive costs, and$5,689 of advisory fees, legal, accounting and other professional costs. Theamount of Merger expenses in the Predecessor periods March 22, 2003 to June 20,2003 and January 1, 2003 to June 20, 2003 were $1,816 and $1,931,respectively.

Also in connection with the Merger, the Companyentered into a volume agreement with Exelon, pursuant to which the Company isassured a continuing level of business from Exelon through 2006, atapproximately the same levels as in 2003.

In accordance with the terms of the Merger, thepurchase price is subject to adjustment based upon the determination ofadjusted working capital as of September 23, 2003. The contingent purchaseprice adjustment could ultimately result in additional amounts due either tothe Company or to Exelon. The Company has included in its calculation ofpurchase price as goodwill an adjustment reflecting a payment to the Company ofapproximately $10,458. Exelon has informed the Company that Exelon believes theadjustment should result in a payment to Exelon in an amount of approximately$10,900. The Company and Exelon are in discussions to resolve the difference,and if unsuccessful will enter into a dispute resolution process. Anydifference from the recorded amount will result in an adjustment to goodwillwhich could be material. The Company expects final resolution of this disputeto occur in the 3rd quarter of 2004.

**Acquisitionof Maslonka:****  **On January 27,2004, the Company acquired all of the voting interests of Maslonka &Associates (“Maslonka”), a complementary infrastructure services business, fortotal purchase price consideration of $77,476, which included the issuance of4,330,820 shares of the Company’s common stock. The final allocation of thepurchase price is subject to a final working capital adjustment and finalsettlement of the holdback adjustments to the purchase price in accordance withthe terms of the acquisition agreement. The Company expects the working capitaladjustments to be finalized during the third quarter of 2004 and expects theholdback amount less any amounts retained by the Company will be released tothe sellers in 2005 and 2006. Any adjustments resulting from the workingcapital adjustments and holdback adjustments could result in an adjustment togoodwill, which amounts could be material. The value of the shares issued toMaslonka stockholders was determined to be approximately $50,671. Under theterms of the holdback provision, the Company withheld $6,600 in cash payable atclosing and 957,549 shares of common stock. Of the cash holdback amount, $5,500is contingent upon Maslonka’s achievement of certain performance targets aswell as satisfaction of any indemnification obligations owed to us, which maybe set-off against all other portions of the holdback. The results of Maslonkaare included in the Company’s consolidated results beginning January 27,2004.

Additionally,at the time ofthe acquisition, Maslonka had an outstanding letter of credit collateralizedwith a $5,000 time deposit account provided by the Maslonka stockholders, whichthe Company acquired in the acquisition. The Company is required to reimbursethe Maslonka stockholders an aggregate of approximately $5,000 within sixmonths of the closing date. After giving effect to the holdback and thereimbursement of the time deposit account, the amount paid at closing was$26,700 in cash and 3,373,271 shares of the Company’s common stock. The Companyfinanced the cash portion of the Maslonka acquisition with cash on hand and theissuance of 5,931,950 shares of the Company’s common stock to the PrincipalShareholders and certain members of the Company’s management for cash of$27,522 (see Note 6).

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Thepreliminary aggregate purchase price for the Maslonka acquisition is asfollows:
| Cash paid to  sellers, net of cash acquired                               |   | $      | 9,187  |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|
| Transaction costs                                                         |   | 600    |   |
| Repayment of debt  and capital leases                                     |   | 10,314 |   |
| Equity issued to  sellers                                                 |   | 50,671 |   |
| Liability to sellers  for time deposit refund and prior income taxes paid |   | 5,604  |   |
| Liability to  sellers for cash holdback for purchase price                |   | 1,100  |   |
| Total purchase  price consideration                                       |   | $      | 77,476 |   |

 

Thepreliminary purchase price has been initially allocated to the assets acquiredand liabilities assumed as follows:
| Contract  receivables                               |   | $       | 6,172  |   |
|-----------------------------------------------------|--------|---------|--------|--------|
| Costs and  estimated earnings in excess of billings |   | 6,437   |   |
| Deferred tax  asset                                 |   | 1,542   |   |
| Other current  assets                               |   | 562     |   |
| Property,  plant & equipment               |   | 9,561   |   |
| Goodwill                                            |   | 59,549  |   |
| Intangible assets                                   |   | 11,500  |   |
| Other non-current  assets                           |   | 5,319   |   |
| Accounts payable  and accrued expenses              |   | (15,559 | )      |
| Long-term debt                                      |   | (1,000  | )      |
| Deferred tax  liability                             |   | (6,607  | )      |
| Total net assets  acquired                          |   | $       | 77,476 |   |

 

Intangible assets consisting of construction backloghave been valued at $11,500 and will be amortized over the life of the relatedcontracts which range from one to two years. The amortization of theseintangible assets as well as the goodwill currently estimated at $59,549 willnot be deductible for tax purposes.

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**Pro Forma FinancialInformation:****  **Thefollowing table provides pro forma unaudited consolidated statements ofoperations data for the Predecessor periods March 22, 2003 to June 20,2003 and January 1, 2003 to June 20, 2003 as if the Merger and theacquisition of Maslonka had occurred as of January 1, 2003. It alsoprovides a pro forma unaudited consolidated statement of operations data forthe six months ended June 30, 2004 as if the acquisition of Maslonka hadoccurred as of January 1, 2004:
| ** **                                                    | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| Contract revenues                                             |       |                                                                                                                                                                               | $          | 142,060                                                                                                                                                                             |       |       |                                                | $          | 259,414 |   |   |   |   | $ | 311,102 |   |   |
| Income before  income taxes                                   |       |                                                                                                                                                                               | 2,562      |                                                                                                                                                                                |       |       | 339                                                 |       |   |   |   | (30,313 | ) |   |
| Income (loss) from  continuing operations                     |       |                                                                                                                                                                               | 1,499      |                                                                                                                                                                                |       |       | 260                                                 |       |   |   |   | (17,885 | ) |   |
| Loss from discontinued operations                             |       |                                                                                                                                                                               | (4,846     | )                                                                                                                                                                                   |       |       | (5,549                                              | )          |   |   |   | (71 | ) |   |
| Net loss                                                      |       |                                                                                                                                                                               | (3,347     | )                                                                                                                                                                                   |       |       | (5,287                                              | )          |   |   |   | (17,956 | ) |   |
| Basic and diluted loss per common share:                      |       |                                                                                                                                                                               |       |                                                                                                                                                                                |       |       |                                                |       |   |   |   |   |   |   |
| Weighted average basic and diluted common shares  outstanding |       |                                                                                                                                                                               | 47,877     |                                                                                                                                                                                |       |       | 47,890                                              |       |   |   |   | 31,453 |   |   |
| Basic and diluted loss  per share                             |       |                                                                                                                                                                               | $          | (0.07                                                                                                                                                                               | )          |       |                                                | $          | (0.11 | ) |   |   |   | $ | (0.57 | ) |   |

 

The Predecessor’s historical results of operations forthe periods March 22, 2003 to June 20, 2003 and January 1, 2003to June 20, 2003 have been adjusted to reflect the pro forma effects ofthe Merger. The principal adjustments include (1) the effects ondepreciation expense (which is included in cost of revenues and selling,general and administrative expenses) resulting from changes in lives and bookbasis of certain fixed assets; (2) additional amortization of intangiblesresulting from the Merger; and (3) related income tax effects of thepreviously mentioned adjustments. Additionally, the pro forma results ofoperations for all periods presented above have been adjusted to reflectMaslonka’s historical operating results prior to its acquisition on January 27,2004 after giving effect to adjustments directly attributable to thetransaction that are expected to have a continuing effect. Such adjustmentsinclude (1) amortization of intangible assets acquired in the acquisitionand recorded in accordance with the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 141, “Business Combinations,” andrelated income tax effects; (2) the elimination of interest expenseresulting from the repayment of Maslonka debt and additional interest expenseassociated with a note issued to the seller and related income tax effects; and(3) the issuance of shares of the Company’s common stock to the sellers inthe Maslonka acquisition and to the Principal Stockholders and certain executiveofficers to finance a portion of the purchase price.

The pro-forma results for thesix month period ended June 30, 2004 include charges of $31,320 fordeferred compensation expense and $1,473 for transaction related expensesrelated to the acquisition of Maslonka. The pro-forma results for thepredecessor period January 1, 2003 to June 20, 2003 include a chargeof $1,931 for expenses related to the Merger.

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**4.   IntangibleAssets**

TheCompany’s intangible assets comprise the following:
| ** **                | ** ** | **December 31,  2003** | ** ** | **June 30,  2004** | ** ** |
|---------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Goodwill                  |       |                        | $          | 68,877                  |       |   | $ | 129,038 |   |
| Intangible Assets:        |       |                        |       |                    |       |   |   |
| Construction backlog      |       |                        | $          | 5,500                   |       |   | $ | 17,000 |   |
| Accumulated amortization. |       |                        | (2,100     | )                       |       | (10,366 | ) |
|                      |       |                        | 3,400      |                    |       | 6,634 |   |
| Volume agreement          |       |                        | 2,500      |                    |       | 2,500 |   |
| Accumulated amortization. |       |                        | (500       | )                       |       | (803 | ) |
|                      |       |                        | 2,000      |                    |       | 1,697 |   |
| Intangible  assets, net   |       |                        | $          | 5,400                   |       |   | $ | 8,331 |   |

 

The increase in intangible assets during the sixmonths ended June 30, 2004 reflects the preliminary purchase priceallocation of the Maslonka acquisition. Amortization expense of the Company’sintangible assets was $4,022 and $8,569 during the three and six months ended June 30,2004, respectively. There was no amortization expense recorded in the Predecessor’sresults of operations. Our expected aggregate amortization expense ofintangible assets for the next five fiscal years is as follows: 2004 - $14,000;2005 - $2,100; 2006 - $800; 2007 - $0; and 2008 - $0.

Under SFAS No. 142, “Goodwilland Intangible Assets,” goodwill is subject to an assessment for impairmentusing a two-step fair value-based test, the first step of which will beperformed at least annually, or more frequently if events or circumstances existwhich indicate that goodwill may be impaired. The first step compares the fairvalue of a reporting unit to its carrying amount, including goodwill. If thecarrying amount of the reporting unit exceeds its fair value, the second stepis then performed. The second step compares the carrying amount of thereporting unit’s goodwill to the fair value of the goodwill. If the fair valueof the goodwill is less than the carrying amount, an impairment loss would berecorded as a reduction to goodwill and a corresponding charge to operatingexpense. No provisions for goodwill impairments were recorded during the threeor six months ended June 30, 2004 or the Predecessor periods March 22,2003 to June 20, 2003 and January 1, 2003 to June 20, 2003.

**5.   Debt**

On September 24, 2003, the Company entered into asenior credit facility consisting of a $140,000 term loan, which matures in2010, and a $40,000 revolving credit facility, which matures in 2009. On January 22,2004, the Company amended its senior credit facility to permit the acquisitionof Maslonka and to obtain additional liquidity and operating flexibility,including expanding the Company’s capacity for making capital expenditures. Asa result of the amendment, the commitment of the banks under the revolving creditfacility was increased by $10,000 to $50,000, and the amount available forletters of credit was increased by $10,000 to $35,000.

Concurrent with the IPO, in order to provide foradditional borrowing flexibility and to reduce its borrowing rates to reflectits improved financial position, the Company entered into an amended andrestated credit agreement to, among other things, provide for a revolvingcredit facility in the original amount of $40,000 that may be increased to$85,000 and to provide a term loan facility in the initial amount of $85,310which represented the amount of term loans outstanding under the senior creditfacility at May 12, 2004 after giving effect to the mandatory prepaymentof $50,200 of such loans in conjunction with the IPO (see Note 6). A portion ofthe revolving credit facility not in excess of 80% of the amount thereof may beused for the issuance of letters of credit. Term loans and revolving loansunder the 

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amended and restatedcredit agreement initially bear interest, at the Company’s option, at the bank’sprime interest rate plus a spread of 2.00% or LIBOR plus a spread of 3.00%. Beginningin 2005, such interest rate spreads will be dependent upon the Company’sConsolidated Leverage Ratio, as defined in the amended and restated creditagreement, and range from 1.50% to 3.50% for revolving loans and 1.75% to 3.00%for term loans. At June 30, 2004, the Company had no borrowings under the revolvingcredit facility and outstanding letters of credit in the amount of $27,745. Asof July 31, 2004, the Company had commitments under its revolving creditfacility totaling $85,000.

The Company’s amended and restated credit agreementcontains certain restrictive covenants, including minimum levels of net worth,interest coverage, fixed charge coverage and leverage ratios, among otherrestrictions. As of June 30, 2004, the Company was in compliance with allterms and conditions of the amended and restated credit agreement.

Concurrent with theclosing of the IPO, the Company was required to repay its $30,000 subordinatednote with Exelon. Because the carrying amount of the Exelon note was recordedat a discount to reflect the fair value based upon applicable market rates forsimilar securities, the Company recorded a loss on the early extinguishment ofthis debt in the amount of $5,682 which is reflected in the Company’s resultsof operations for the three and six months ending June 30, 2004.

**6.   InitialPublic Offering and Shareholders’ Equity**

On May 12, 2004, the Company completed its IPO of8,500,000 shares of common stock at a price to the public of $13 per share. Thenet proceeds of the offering to the Company of approximately $100,800, afterdeducting underwriters’ discounts and estimated offering expenses, were used bythe Company as follows:  (1) $50,200was used to repay a portion of term loans outstanding under our senior creditfacility; (2)  $30,000 was used to repay the principal amount of oursubordinated note with Exelon; and (3) the remaining proceeds ofapproximately $20,600 were retained for general corporate purposes.

At inception, the Board of Directors of InfraSource Incorporatedauthorized 150,000,000 shares of InfraSource Incorporated’s common stock with apar value of $.0001 per share. Common shares outstanding as of September 23,2003 were redeemed in connection with the Merger. At inception of the Company,the Board of Directors of the Company authorized 2,500,000 shares of commonstock with a par value of $.001 per share. On March 24, 2004, the Board ofDirectors authorized an approximate 21.7625-to-one stock split and anincrease in the authorized common stock from 2,500,000 shares to 120,000,000shares. Par value of the common stock remained at $.001 per share. The effectof the stock split has been retroactively reflected in the Company’saccompanying financial statements, and all applicable references as to thenumber of common shares and per share information have been restated.

At inception, the Board of Directors of InfraSource Incorporatedauthorized 20,000,000 shares of InfraSource Incorporated’s preferred stock witha par value of $.0001 per share. On September 23, 2003 in anticipation ofthe Merger, InfraSource Incorporated issued one share of preferred stock toExelon for $4,100. In connection with the Merger, on September 24, 2003,Exelon exchanged this share of preferred stock, along with other considerationincluded in the Merger Agreement including certain indemnifications provided byExelon and a volume agreement, for a $29,000 subordinated note issued by theCompany. At inception of the Company, the Company had no authorized shares ofpreferred stock. On March 24, 2004, the Board of Directors of the Company authorizedan increase in the authorized preferred stock from 0 shares to 12,000,000shares with a par value of $0.001 per share.

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Thefollowing table presents Shareholders’ equity activity for the six months endedJune 30, 2004:
| ** **                                                | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Retained  Earnings** | ** ** | ** **    | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**                           | ** ** | **Income/(Loss)**      | ** ** | **(Deficit)** | ** ** | **Total** | ** ** |
| Balance as of December 31, 2003                      |       | 19,914,840            |       |                    | $          | 20                                    |       |                   | $          | 91,480        |       |   | $ | 14 |   |   |   | $ | 1,335 |   |   | $ | 92,849 |   |
| Common Stock  issued:                                     |       |                  |       |                    |       |                                  |       |                   |       |          |       |   |   |   |   |   |   |   |   |
| Acquisition of Maslonka                                   |       | 4,330,820             |       |                    | 4          |                                  |       | 50,667                 |       |          |       |   |   |   |   |   |   | 50,671 |   |
| Company management                                        |       | 37,367                |       |                    |       |                                  |       | 437                    |       |          |       |   |   |   |   |   |   | 437 |   |
| Principal shareholders                                    |       | 5,894,583             |       |                    | 6          |                                  |       | 27,079                 |       |          |       |   |   |   |   |   |   | 27,085 |   |
| Initial public offering                                   |       | 8,500,000             |       |                    | 9          |                                  |       | 100,827                |       |          |       |   |   |   |   |   |   | 100,836 |   |
| Fair market value adjustments on derivatives, net of  tax |       |                  |       |                    |       |                                  |       |                   |       |          | 399        |   |   |   |   |   |   | 399 |   |
| Net loss                                                  |       |                  |       |                    |       |                                  |       |                   |       |          |       |   |   |   | (955 | ) |   | (955 | ) |
| Balance as of  June 30, 2004                         |       | 38,677,610            |       |                    | $          | 39                                    |       |                   | $          | 270,490       |       |   | $ | 413 |   |   |   | $ | 380 |   |   | $ | 271,322 |   |

 

In connection with the funding of the acquisition ofMaslonka in January 2004, the Company offered to sell 5,931,950 shares ofcommon stock to all of the then-existing shareholders at a price of $4.60 percommon share. Shares issued pursuant to this offer are reflected in the tableabove under the captions Company management and Principal Stockholders. As aresult of the issuance of these shares to Company management,  the Company recorded pre-tax compensationexpense of $265 representing the difference between the fair value and the purchaseprice on the date of sale, which amount is reflected in selling, general andadministrative expenses in the condensed consolidated statement of operationsfor the six months ended June 30, 2004.

During the three monthsended March 31, 2004, certain members of the Company’s management andBoard of Directors consummated early exercises of unvested stock option awardsrepresenting a total of 489,547 shares of common stock. Pursuant to the termsof the related stock option agreements, the Company has the option torepurchase these shares prior to the date they vest at the original strikeprice of the option grant. In accordance with the provisions of Emerging IssuesTask Force No. 00-23, “Issues Related to the Accounting for StockCompensation under APB Opinion No. 25 and FASB Interpretation No. 44,”these shares are not considered outstanding for accounting purposes and are notincluded in the calculation of basic earnings per share until shares issuedpursuant to these option grants vest. Until such shares vest in accordance withthe terms of the option grant, the net proceeds from the early exercise ofthese option grants, which totaled $2,251 at June 30, 2004, are includedin other long-term liabilities in the condensed consolidated balance sheet.

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**7.   Computationof Per Share Earnings**

Thefollowing table is a reconciliation of the numerators and denominators of thebasic and diluted earnings (loss) per share computation. Common shares used inthe Predecessor earnings per share computation represent shares of InfraSourceIncorporated outstanding during the periods March 22 to June 20, 2003 and January 1, 2003to June 20, 2003. Such shares outstanding as of September 23,2003 were redeemed in conjunction with the Merger.
| ** **                                                                  | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Income (loss) from  continuing operations (numerator)                       |       |                                                                                                                                                                               | $          | 3,253                                                 |       |                                                                                                                                                                                |       | $                                                   | (1,954     | ) |   |   | $ | 4,256 |   |   |   | $ | (884 | ) |   |
| Loss from discontinued operations                                           |       |                                                                                                                                                                               | (4,846     | )                                                     |       |                                                                                                                                                                                | (72        | )                                                   |       |   | (5,547 | ) |   |   | (71 | ) |   |
| Net loss                                                                    |       |                                                                                                                                                                               | $          | (1,593                                                | )          |                                                                                                                                                                                |       | $                                                   | (2,026     | ) |   |   | $ | (1,291 | ) |   |   | $ | (955 | ) |   |
| Weighted average  basic and diluted common shares outstanding (denominator) |       |                                                                                                                                                                               | 47,877,000 |                                                  |       |                                                                                                                                                                                | 34,755,000 |                                                |       |   | 47,890,000 |   |   |   | 31,453,000 |   |   |

 

For each of the Predecessor periods presented abovethere were 1,042,200 shares under option grants excluded from the calculationsof diluted earnings per share as the effect of these options would have beenanti-dilutive.

For the three-and-sixmonths ended June 30, 2004, 1,067,000 and 1,041,000 shares under optiongrants were excluded from the calculations of diluted earnings per share as theeffect of these options would have been anti-dilutive.

**8.   Stock-BasedCompensation**

The Company has a stock-based employee compensationplan and, prior to the Merger, the Predecessor had a stock-based employeecompensation plan. In anticipation of the Merger, as of September 18,2003, all of the Predecessor’s outstanding common stock options were canceledfor nominal consideration. As permitted by SFAS No. 123, “Accounting forStock-Based Compensation,” the Company and the Predecessor account forstock-based compensation in accordance with Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations (“APB 25”). Under APB 25, the Company recognizes nocompensation expense related to employee stock options unless options aregranted at a price below the market price on the day of the grant.

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Hadthe Company and the Predecessor applied the fair value recognition provisionsof SFAS No. 123 to stock-based employee compensation, net loss and basicand diluted loss per share would have been as follows:
| ** **                                                                                                                                    | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net loss, as reported                                                                                                                         |       |                                                                                                                                                                               | $          | (1,593                                                | )          |                                                                                                                                                                                |       | $                                                   | (2,026     | ) |   |   | $ | (1,291 | ) |   |   | $ | (955 | ) |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |       |                                                                                                                                                                               | (117       | )                                                     |       |                                                                                                                                                                                | (171       | )                                                   |       |   | (235 | ) |   |   | (386 | ) |   |
| Add: Total stock-based employee compensation expense,  net of related tax effects included in the determination of net income as  reported    |       |                                                                                                                                                                               | —     |                                                  |       |                                                                                                                                                                                | 18         |                                                |       |   | — |   |   |   | 178 |   |   |
| Pro forma loss                                                                                                                                |       |                                                                                                                                                                               | $          | (1,710                                                | )          |                                                                                                                                                                                |       | $                                                   | (2,179     | ) |   |   | $ | (1,526 | ) |   |   | $ | (1,163 | ) |   |
| *Basic  and diluted loss per share:*                                                                                                          |       |                                                                                                                                                                               |       |                                                  |       |                                                                                                                                                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic loss per share—as reported                                                                                                         |       |                                                                                                                                                                               | $          | (0.03                                                 | )          |                                                                                                                                                                                |       | $                                                   | (0.06      | ) |   |   | $ | (0.03 | ) |   |   | $ | (0.03 | ) |   |
| Basic loss per share—pro forma                                                                                                           |       |                                                                                                                                                                               | (0.04      | )                                                     |       |                                                                                                                                                                                | (0.06      | )                                                   |       |   | (0.03 | ) |   |   | (0.04 | ) |   |
| Diluted loss per share—as reported                                                                                                       |       |                                                                                                                                                                               | (0.03      | )                                                     |       |                                                                                                                                                                                | (0.06      | )                                                   |       |   | (0.03 | ) |   |   | (0.03 | ) |   |
| Diluted loss per  share—pro forma                                                                                                        |       |                                                                                                                                                                               | (0.04      | )                                                     |       |                                                                                                                                                                                | (0.06      | )                                                   |       |   | (0.03 | ) |   |   | (0.04 | ) |   |

 

**9.   Concentrationof Credit Risk**

We derive asignificant portion of our revenues from a small group of customers. Our topten customers accounted for approximately 53% and 54% of our consolidatedrevenues for the three and six months ended June 30, 2004, respectively. Ourtop ten customers accounted for approximately 45% and 48% of our consolidatedrevenues for the Predecessor periods March 22 to June 20, 2003 and January 1to June 20, 2003, respectively. Our top two customers in 2004, Exelon andWestern Area Power Administration (“WAPA”), accounted for approximately 20% and13% of our consolidated revenues for the three months ended June 30, 2004,and 20% and 17% for the six months ended June 30, 2004, respectively. Forthe Predecessor periods March 22, 2003 to June 20, 2003 and January 1,2003 to June 20, 2003, the only customer that provided more than 10% ofour consolidated revenues, Exelon, represented approximately 13% ofconsolidated revenues in each period.

At June 30, 2004, accounts receivable due from Exelon and WAPAtotaled $23,858 and $11,538, or 28% and 14%, respectively, of our totalaccounts receivable balance outstanding. At December 31, 2003, accountsreceivable due from Exelon totaled $14,617, or approximately 16% of totalaccounts receivable, and additionally one other customer represented $9,563 or11% of accounts receivable.

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**10.   ComprehensiveLoss**

The following table presents the components ofcomprehensive loss for the periods presented:
| ** **                        | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| Net loss                          |       |                                                                                                                                                                               | $          | (1,593     | )                                                     |       |                                                                                                                                                                                |       | $          | (2,026                                              | )          |   |   | $ | (1,291 | ) |   |   |   | $ | (955 | ) |   |
| Other comprehensive (loss) income |       |                                                                                                                                                                               | —     |       |                                                  |       |                                                                                                                                                                                | 835        |       |                                                |       | (75 | ) |   |   |   | 399 |   |   |
| Comprehensive loss                |       |                                                                                                                                                                               | $          | (1,593     | )                                                     |       |                                                                                                                                                                                |       | $          | (1,191                                              | )          |   |   | $ | (1,366 | ) |   |   |   | $ | (556 | ) |   |

 

During the period January 1, 2003 to June 20, 2003, thePredecessor recognized other comprehensive loss of $75 associated with aforeign currency translation adjustment recorded prior to 2001, due tonon-recoverability from foreign operations. Other comprehensive income duringthe three and six months ended June 30, 2004 comprises changes in the fairvalue of interest rate cap and swap agreements designated and qualifying ascash flow hedges under the provisions of SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS No. 133”), asamended by SFAS Nos. 137, 138 and 149, net of reclassifications to net income.

**11.   RelatedParty Transactions**

On October 6, 1999, the InfraSource Group enteredinto a services agreement (“Services Agreement”) with Exelon for Exelon to providecertain services, including contracting for employees, financial and accountingservices, payroll services, office and equipment leases and otheradministrative and support services. The scope of these services was reducedeach year of the agreement. This agreement was effective for a period of 12months commencing in October of each year and was renewable at bothparties’ discretion. The InfraSource Group, through InfraSource CorporateServices, Inc., was charged $355 and $899 for these services for thePredecessor periods March 22, 2003 to June 20, 2003 and January 1,2003 to June 20, 2003, respectively. Pursuant to the Merger, this ServicesAgreement was terminated.

The InfraSource Group has several service contractswith Exelon and performs work of various services including utilityconstruction and maintenance, telecommunications and infrastructure services onan outsourced basis to business and residential customers. Certain operatingassets and liabilities of the Non-Acquired Group, including certain operatingagreements (the “Operating Agreements”) with Exelon, were transferred to theInfraSource Group as of January 1, 2003, with operating results related tothe operating agreements reflected in the accompanying consolidated statementof operations beginning with the date of transfer. Under the OperatingAgreements, the Company performs infrastructure services on an outsourced basisto business and residential customers. Each operating agreement has an annualterm ending on December 31 which automatically renews each year unlessformally terminated by Exelon. The services are earned from Exelon at a ratethat is intended to approximate market value. Revenues charged to Exelon underthese contracts for the Predecessor periods March 22, 2003 to June 20,2003 and January 1, 2003 to June 20, 2003 were $7,509 and $14,106,respectively. These Operating Agreements remained in place following theMerger. On January 29, 2004, Exelon relinquished its sole seat on theCompany’s Board of Directors and ceased to be a related party at that time. Revenuesfrom Exelon for the period January 1 through January 29, 2004 (thedate it ceased to be a related party) were $7,569.

In addition to the Operating Agreements, revenues forthe Predecessor periods March 22, 2003 to June 20, 2003 and January 1,2003 to June 20, 2003 related to contracts with Exelon were $10,490 and 

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$17,572, respectively.Accounts receivable related to all revenues due from Exelon were $14,617 at December 31,2003.

In March 2004, after receiving approval from therequired parties, the Company distributed $7,218 of property and equipment thatpursuant to the original terms of a purchase agreement with Blair Park Services, Inc.(“Blair Park”), an infrastructure services business acquired in 2001, were owedto three officers of Blair Park. The corresponding liability related to theseassets is reflected in other liabilities—related parties in the December 31,2003 condensed consolidated balance sheet.

In connection with the Maslonka acquisition, ourPrincipal Stockholders secured the issuance of $10,000 worth of letters ofcredit. These letters of credit were provided as credit support to enableMaslonka to secure a performance bond on a new project award. Afterconsummation of the Maslonka acquisition, we caused the letters of credit to beterminated. We paid an aggregate fee of $200 to the Principal Stockholders forproviding this security.

We lease our Maslonka headquarters in Mesa, Arizonaand our Maslonka Texas field office in San Angelo, Texas from EC Source, LLC,which is wholly owned by Martin Maslonka, one of our shareholders. Our leasesfor these two properties will run through February 2009, subject to afive-year renewal option. Pursuant to these leases, we will incur total annuallease payments of $168.

Maslonka is the issuer ofa $1,000 installment promissory note in favor of Martin Maslonka. Thepromissory note bears interest at an annual rate of 8.5%, and interest ispayable in equal monthly payments of $7. The promissory note matures on June 30,2006.

**12.   Commitmentsand Contingencies**

On February 7, 2003, Rahsanne Bickmann filed suitin the Travis County District Court in Texas State Court against Maslonka andone employee alleging, among other things, gross negligence and seekingapproximately $24,000 in actual and compensatory damages arising out of thedeath of her son. On October 27, 2003, the father of the deceased, KevinSam, Sr., filed suit in Taylor County Texas District Court seekingunspecified damages. The claims arose out of an automobile accident that tookplace on December 1, 2002 on an interstate highway in Texas and resultedin death. In February 2004, Rahsanne Bickman’s claims were resolvedthrough an out of court settlement fully funded by insurance proceeds (less a$10 deductible). The dismissal order was entered on March 25, 2004. Theclaims of Kevin Sam, Sr. have been docketed for trial on December 13,2004.

In January 2004, a judgment was entered againstInfraSource in Superior Court of Fulton County, Georgia in the amount of $3,785,including $3,190 in punitive damages. The jury verdict upheld allegations bythe plaintiff that in 1999 InfraSource Incorporated (formerly known as ExelonInfrastructure Services, Inc.) had fraudulently induced the plaintiff toincur expenses in connection with a proposed business acquisition that wasnever consummated. We filed a notice of appeal on February 19, 2004, andthe plaintiff filed a notice of cross-appeal on March 2, 2004. Pursuant tothe appellate court’s May 28, 2004 Notice of Docketing, we filed a briefsupporting our appeal on June 17, 2004. All briefings were completed on July 22,2004, with oral arguments scheduled for October 13, 2004.

In addition, pursuant to our service contracts, wealso generally indemnify our customers for the services we provide thereunder.Furthermore, because our services are integral to the operation and performanceof the electric power transmission and distribution infrastructure, we maybecome subject to lawsuits or claims for any failure of the systems that wework on, even if our services are not the cause for such failures, and we couldbe subject to civil and criminal liabilities to the extent that our servicescontributed to any property damage or blackout. The outcome of theseproceedings could result in significant costs and diversion of management’sattention to our business. Payments of significant amounts, even if reserved,could adversely affect our reputation and liquidity position.

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From time to time, we area party to various other lawsuits, claims and other legal proceedings thatarise in the ordinary course of our business. These actions typically seek,among other things, compensation for alleged personal injury, breach ofcontract, property damage, punitive damages, civil penalties or other losses,or injunctive or declaratory relief. With respect to such lawsuits, claims andproceedings, we accrue reserves when it is probable a liability has beenincurred and the amount of loss can be reasonably estimated. We do not believeany of these proceedings currently pending, individually or in the aggregate,would be expected to have a material adverse effect on our results ofoperations, or our cash flows, or on our financial condition.

**13.   DiscontinuedOperations**

Subsidiaries of thePredecessor not acquired in the Merger are reflected as discontinued operationsin the accompanying Predecessor’s statements of operations and cash flows.During 2003, subsequent to the Merger, the Company committed to a plan to sellsubstantially all of the assets of OSP Consultants, Inc. and subsidiaries(“OSP”). In accordance with SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” the financial position, results ofoperations and cash flows of OSP are reflected as discontinued operations inthe Company’s accompanying financial statements for the three and six monthperiods ended June 30, 2004 but are not included in discontinuedoperations for the Predecessor periods March 22, 2003 to June 20,2003 and January 1, 2003 to June 20, 2003.

On August 3,2004, the Company entered into an asset purchase agreement to sell the assetsof RJE Telecom, Inc. (“RJE”), a wholly owned subsidiary of OSP, for $6.5million. RJE holds substantially all the operating assets of OSP.

The following tablepresents the balance sheet and statement of operations information for the previouslymentioned discontinued operations:

Balancesheet information:
| ** **                             | ** ** | **December 31,  2003** | ** ** | **June 30,  2004** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Contract  receivables, net             |       |                        | $          | 2,656                   |       |   | $ | 3,745 |   |
| Property and  equipment, net           |       |                        | 355        |                    |       | 355 |   |
| Other, net                             |       |                        | 1,646      |                    |       | 132 |   |
| Total assets                           |       |                        | $          | 4,657                   |       |   | $ | 4,232 |   |
| Accounts payable and other liabilities |       |                        | $          | —                  |       |   | $ | 521 |   |
| Total liabilities                      |       |                        | —     |                    |       | 521 |   |
| Net assets                             |       |                        | $          | 4,657                   |       |   | $ | 3,711 |   |

 

Incomestatement information:
| ** **        | ** ** | **For the Period  March 22 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  January 1 to  June 20, 2003  (Predecessor entity—  InfraSource  Incorporated and  Subsidiaries) (Note 1)** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Contract revenues |       |                                                                                                                                                                               | $          | 47,710                                                |       |                                                                                                                                                                                |       | $                                                   | 7,267      |   |   |   | $ | 105,977 |   |   |   | $ | 12,329 |   |   |
| Pre-tax loss      |       |                                                                                                                                                                               | $          | (7,532                                                | )          |                                                                                                                                                                                |       | $                                                   | (127       | ) |   |   | $ | (8,705 | ) |   |   | $ | (125 | ) |   |

 

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**14.   SubsequentEvents**

*EnStructureAcquisition*

On July 30, 2004, the Company entered into an asset purchaseagreement with SEMCO ENERGY, Inc. to acquire substantially all of theassets and certain liabilities of EnStructure, SEMCO ENERGY’s constructionservices business, for a cash purchase price of $20.8 million, subject tocertain purchase price adjustments. EnStructure, headquartered in Michigan,provides construction services within the utilities and oil and gas marketsthroughout the Midwestern, Southern and Southeastern regions of the UnitedStates. In 2003, EnStructure had annual revenues of approximately $75 million. Thisacquisition is expected to close during the third quarter of 2004, and theCompany expects to fund the acquisition with available cash and, if necessary,additional borrowings under its senior credit facility.

*Utili-Trax Acquisition*

On August 4, 2004, the Company entered into an asset purchaseagreement with Connexus Energy to acquire its construction business,Utili-Trax, for a cash purchase price of $5.3 million, subject to certainpurchase price adjustments. Utili-Trax, headquartered in Minnesota, providesunderground and overhead construction services for electric cooperatives andmunicipal utilities throughout the upper Midwest. In 2003, Utili-Trax hadannual revenues of approximately $10 million. This acquisition is expected toclose during the third quarter of 2004, and the Company expects to fund theacquisition with available cash and, if necessary, additional borrowings under itssenior credit facility.

*Disposition of RJE*

On August 3, 2004, the Company entered into an asset purchaseagreement to sell the assets of RJE for a cash purchase price of approximately $6.5million, subject to certain purchase price adjustments. RJE is a wholly ownedsubsidiary of OSP Consultants, Inc., which is reflected in theaccompanying financial statements as discontinued operations as of December 2003.This transaction is expected to close during the third quarter of 2004.

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**Item 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**Forward-Looking and Cautionary Statements**

In this Management’s Discussion and Analysis, andelsewhere in this Quarterly Report on Form 10-Q, we have madeforward-looking statements. Generally, these forward-looking statements can beidentified by words like “may,” “will,” “should,” “expect,” “intend,” “anticipate,”“believe,” “estimate,” “predict,” “potential,” or “continue” or the negative ofthose words and other comparable words. These forward-looking statementsgenerally relate to our plans, objectives and expectations for futureoperations and are based upon our current estimates and projections of futureresults or trends. Although we believe that our plans and objectives reflectedin or suggested by these forward-looking statements are reasonable, we may notachieve these plans or objectives. These statements are subject to known andunknown risks, uncertainties and other factors that could cause the actual resultsto differ materially from those contemplated by the statements. Thesestatements only reflect our predictions. Except as required by law, we will notupdate forward-looking statements even though our situation may change in thefuture. With respect to forward-looking statements, we claim the protection ofthe safe harbor for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995.

The factors that couldaffect future results and could cause those results to differ materially fromthose expressed in the forward-looking statements include, but are not limitedto those described below under “Risks Relating to Our Business and Industry”and other risks outlined in our periodic filings with the Securities andExchange Commission.

**Introduction**

The following discussionshould be read in conjunction with the unaudited condensed consolidatedfinancial statements and notes of InfraSource Services, Inc. and its wholly owned subsidiariesincluded elsewhere in this Quarterly Report on Form 10-Q and withthe audited financial statements and notes included in its IPO Prospectus (SEC File Number 333-112375) andcontained in the related registration statement declared effective on May 6,2004.

**General**

We operate in one reportable segment and we are one ofthe largest specialty contractors serving the utility transmission anddistribution infrastructure in the United States based on market share. Ourbroad range of services includes the design, engineering, procurement,construction, testing, maintenance, and leasing of utility infrastructure. Ourcustomers primarily include electric power utilities, natural gas utilities,government entities and heavy industrial companies, such as petrochemical,processing and refining businesses. Each of these services is provided byvarious Company subsidiaries, which provide management with monthly financialstatements. All of our subsidiaries have been aggregated into one reportablesegment due to their similar economic characteristics, customer bases, productsand production methods, and distribution methods. During the three months endedJune 30, 2004, we had revenues of $148.2 million of which we estimate 56%was attributable to electric power customers, 29% to natural gas customers, 9%was attributable to telecommunications customers, and 6% for ancillary services.Our top ten customers accounted for approximately 54% of our consolidatedrevenues for the six months ended June 30, 2004 while our top twocustomers,  Exelon and Western Area PowerAdministration, accounted for 20% and 17%, respectively, of such consolidatedrevenues.

We operate in multipleservice territories throughout the United States and do not have significantoperations or assets in countries outside of the United States.

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**Overview of Operations**

Our historicalperformance is affected by the capital spending of our customers. In the lastseveral years, our business has been impacted by several important trendsaffecting our end markets.

·       Electricutilities are key customers and provide us with a diversified variety ofprojects, including aerial transmission work, substations, in-plantengineering, maintenance and upgrades. In recent years, our business from thesecustomers has been relatively stable despite financial pressures on someutilities. Although some utilities have restrained their overall capitalspending, the effects on third-party contractors have been partially offset byan increase in the proportion of work that these customers outsource.

·       Thederegulation of the electric utility industry in the 1990s createdopportunities for independent power producers, or IPPs, which constructed oracquired substantial generating capacity resulting in an increased demand forour services, particularly in providing “turnkey” substations, switching yardsand interconnections. In these projects, we would typically engineer, procurematerials for, and construct the entire project. These turnkey projects have asubstantial impact on our revenues because, when we procure materials for ourcustomers in addition to providing services, the value of those materialsresults in higher revenues than in a services-only contract. As a number oflarge IPPs have been under significant financial stress, IPP spending declinedsignificantly in 2003, with a substantially reduced contribution to our 2003 financialperformance. This trend has continued into the first half of 2004 although weare experiencing a recent increase in bidding activity and awards.

·       Weprovide a variety of electrical design, engineering and construction servicesto heavy industrial customers, including petrochemical, processing and refiningbusinesses. Higher oil prices have enhanced the financial performance of manyof our refinery customers, which has contributed to increased spending andconsequently greater demand for our services. By contrast, high natural gasprices have negatively impacted the financial performance of some of ourpetrochemical customers, leading to decreases in their capital spending andconsequently reduced demand for our services.

·       Duringthe late 1990s, service contractors like us benefited from rapidly expandingdemand for telecommunications infrastructure, as telecommunications providersinstalled new long-haul optical fiber networks nationwide. This demand peakedin 2000 and declined significantly through 2003 as many of these customers haveexperienced bankruptcies and have been unable to access capital. We continue tosee low levels of activity in this sector.

·       Thedecline in telecommunications spending on fiber-optic network construction ledto an overcapacity of contractors serving this market. In response, many ofthese contractors began competing for opportunities in other industries, suchas natural gas distribution infrastructure. This led to increased competitionfor projects from natural gas utilities, and pricing pressure, resulting inlower gross margins for us, particularly in 2002 and the first half of 2003. Webelieve some of these new market entrants have begun to exit the natural gasdistribution market. In addition, there has been continued strength in thehousing construction market. As a result of these factors, we experiencedimproved bidding conditions and profit margins in the latter half of 2003 andinto 2004.

In addition to industrytrends described above, during 2002 we completed a review of our existingnatural gas distribution contracts. As a result of this review, we exited orrenegotiated a number of underperforming contracts. This strategy reduced ournatural gas revenues during 2002 and 2003. Additionally, the effects of extremeadverse weather and losses on certain contracts completed in 2003 contributedto lower gross margins in the first half of the year. As has been common in ourindustry, we also experienced increases in workers’ compensation and insuranceexpenses in recent years.

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**Acquisitions and Dispositions**

*MaslonkaAcquisition*

On January 27, 2004, we acquired Maslonka &Associates, Inc. The total consideration for the Maslonka acquisition was$77.5 million, consisting of $38.3 million in cash and 4,330,820shares of our common stock, which are both subject to a final working capitaladjustment and a holdback provision, and the assumption of certain liabilities.Please refer to Note 3 to our condensed consolidated financial statements foradditional information regarding the breakdown of the total consideration. Weaccounted for the acquisition as a purchase in accordance with SFAS No. 141,“Business Combinations.” Under purchase accounting, the value of the shares ofcommon stock issued to the Maslonka stockholders was determined to be$50.7 million. Under the terms of the holdback provision, we withheld$6.6 million in cash payable at closing and 957,549 shares of our commonstock issued to the sellers from the consideration payable at closing. We willbe able to retain amounts from the holdback to satisfy any indemnificationobligations to us. In addition, if Maslonka fails to achieve specifiedfinancial targets, we will be entitled to retain a portion of the holdbackamount. We expect that the holdback amount, less any amounts retained by us,will be released to the sellers in part in 2005 and the remainder in 2006.Additionally, at the time of the acquisition, Maslonka had an outstandingletter of credit collateralized with a $5.0 million time deposit accountprovided by the Maslonka stockholders, which we acquired in the acquisition. Weare required to reimburse these stockholders an aggregate of approximately$5.0 million within six months after the closing date. After giving effectto the holdback and the reimbursement for the time deposit account, the amountpaid at closing was $26.7 million in cash and 3,373,271 shares of our commonstock. The results of operations of Maslonka are included in the condensedconsolidated results of operations from the date of acquisition.

We financed the cashportion of the Maslonka acquisition consideration with available cash and theissuance of an aggregate 5,931,950 shares of our common stock to our principalstockholders and certain of our executive officers for cash of approximately$27.5 million.

*EnStructureAcquisition*

On July 30, 2004, weentered into an asset purchase agreement with SEMCO ENERGY, Inc. toacquire substantially all of the assets and certain liabilities of EnStructure,SEMCO ENERGY’s construction services business, for a cash purchase price of$20.8 million, subject to certain purchase price adjustments. EnStructure,headquartered in Michigan, provides construction services within the utilitiesand oil and gas markets throughout the Midwestern, Southern and Southeasternregions of the United States. In 2003, EnStructure had annual revenues ofapproximately $75 million. This acquisition is expected to close during thethird quarter of 2004, and we expect to fund the acquisition with availablecash and, if necessary, additional borrowings under our senior credit facility.

*Utili-TraxAcquisition*

On August 4, 2004, weentered into an asset purchase agreement with Connexus Energy to acquire itsconstruction business, Utili-Trax, for a cash purchase price of $5.3 million,subject to certain purchase price adjustments. Utili-Trax, headquartered inMinnesota, provides underground and overhead construction services for electriccooperatives and municipal utilities throughout the upper Midwest. In 2003,Utili-Trax had annual revenues of approximately $10 million. This acquisitionis expected to close during the third quarter of 2004, and we expect to fundthe acquisition with available cash and, if necessary, additional borrowings under our senior credit facility.

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*Disposition of RJE*

On August 3, 2004, weentered into an asset purchase agreement to sell the assets of RJE for a cashpurchase price of approximately $6.5 million, subject to certain purchase priceadjustments. RJE is a wholly owned subsidiary of OSP Consultants, Inc.,which is reflected in the accompanying financial statements as discontinuedoperations as of December 2003. This transaction is expected to closeduring the third quarter of 2004.

**Initial Public Offering**

On May 12, 2004, wecompleted our IPO of 8,500,000 shares of common stock at a price to the publicof $13 per share. The net proceeds of the offering to us of approximately $100.8million, after deducting underwriters’ discounts and estimated offering expenses,were used by us as follows:  (1) $50.2million was used to repay a portion of term loans outstanding under our seniorcredit facility; (2)  $30 million was used to repay the principal amountof our subordinated note with Exelon; and (3) the remaining proceeds ofapproximately $20.6 million were retained for general corporate purposes. Becausethe carrying amount of the Exelon note was recorded at a discount to reflectthe fair value based upon applicable market rates for similar securities, theCompany recorded a loss on the early extinguishment of this debt in the amountof $5.7 million which is reflected in the Company’s results of operations forthe three and six months ended June 30, 2004.

**Results of Operations**

The following analysis compares our results ofoperations for (1) the three months ended June 30, 2004 (“2004three-month period”) with the Predecessor’s historical results of operationsfor the period March 22, 2003 to June 20, 2003 as adjusted to reflectthe pro forma effects of the Merger (“Predecessor pro forma 2003 three-monthperiod”);  (2) the six months ended June 30,2004 (“2004 six-month period”) with the Predecessor’s historical results ofoperations for the period January 1, 2003 to June 20, 2003 asadjusted to reflect the pro forma effects of the Merger (“Predecessor pro forma2003 six-month period”). The following analysis also includes a comparison ofthe results of our operations for the three and six months ended June 30,2004 with the Predecessor’s actual results for the periods March 22, 2003to June 20, 2003 (“Predecessor 2003 three-month period”) and January 1,2003 to June 20, 2003 (“Predecessor 2003 six-month period”).

The principal adjustments associated with thePredecessor pro forma 2003 three- and six-month periods include (1) theelimination of Merger-related costs and expenses; (2) the effects ondepreciation expense (which is included in cost of revenues and selling,general and administrative expenses) resulting from changes in lives and bookbasis of certain fixed assets; (3) additional amortization of intangibleassets resulting from the Merger; and (4) related income tax effects ofthe previously mentioned adjustments.

The comparisons of the Company’s 2004 three- andsix-month results, as applicable, with the Predecessor’s 2003 actual and proforma results, as applicable, is affected by (1) the Maslonka acquisitionon January 27, 2004 and (2) the additional ten days included in the2004 six-month period resulting from the change in quarter end. As disclosed inNote 1 to the condensed consolidated financial statements, the 2004 six-monthperiod reflects results from January 1, 2004 to June 30, 2004. Thecorresponding 2003 Predecessor period reflects the Predecessor’s results forthe period January 1, 2003 to June 20, 2003. Although the change inquarter end wouldnot have had a material effect on the Predecessor’s actual or pro forma 2003 six-monthperiod results, it does affect the comparison of the 2004 six-monthresults with the Predecessor’s actual and pro forma 2003 six-month results.

Ourresults of operations can be subject to seasonal variations. During the wintermonths, demand for new projects and new maintenance service arrangements may belower due to reduced construction activity. We generally experience lower grossoperating margins during the winter months due to lower 

22

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demand for our services and more difficult operatingconditions. However, demand for repair and maintenance services attributable todamage caused by inclement weather during the winter months may partiallyoffset the loss of revenues from lower demand for new projects and newmaintenance service arrangements. Work is also hindered during other inclementweather events. In addition, during periods of peak electricity demand,utilities generally are unable to remove their electric power transmission anddistribution equipment from service, decreasing the demand for our servicesduring this period. Accordingly, operating results in any particular quartermay not be indicative of the results that can be expected for any other quarteror for the entire year.

**2004 Three-MonthPeriod Compared to the Predecessor Pro Forma 2003 Three-Month Period.**
| **(Thousands of dollars) **                | ** ** | ** ** | ** ** | **Predecessor  Pro Forma  Three  Months Ended  June 20, 2003 (a) ** | ** ** | **% of  Revenue ** | ** ** | **Three  Months Ended  June 30, 2004 ** | ** ** | **% of  Revenue ** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|---------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------------------------------------------|------------|------------------------------|------------|
| Revenues                                                  |       |       | $          | 136,945                                                                                           |       |                         |       | 100.0                                                       | %          |                         |       | $ | 148,227 |   |   |   | 100.0 | % |   |
| Gross profit                                              |       |       | 20,472     |                                                                                              |       |                         | 14.9       | %                                                           |       |                         | 24,557     |   |   |   | 16.6 | % |   |
| Selling, general  and administrative expenses             |       |       | 11,498     |                                                                                              |       |                         | 8.4        | %                                                           |       |                         | 15,694     |   |   |   | 10.6 | % |   |
| Provision  (recoveries) of uncollectible accounts         |       |       | 43         |                                                                                              |       |                         | 0.0        | %                                                           |       |                         | (464       | ) |   |   | -0.3 | % |   |
| Amortization of  intangible assets                        |       |       | 500        |                                                                                              |       |                         | 0.4        | %                                                           |       |                         | 4,022      |   |   |   | 2.7 | % |   |
| Income from  operations                                   |       |       | 8,431      |                                                                                              |       |                         | 6.2        | %                                                           |       |                         | 5,305      |   |   |   | 3.6 | % |   |
| Interest income                                           |       |       | 487        |                                                                                              |       |                         | 0.4        | %                                                           |       |                         | 66         |   |   |   | 0.0 | % |   |
| Interest expense  and amortization of debt discount  |       |       | (3,113     | )                                                                                                 |       |                         | -2.3       | %                                                           |       |                         | (2,829     | ) |   |   | -1.9 | % |   |
| Loss on early  extinguishment of debt                     |       |       | —     |                                                                                              |       |                         | 0.0        | %                                                           |       |                         | (5,682     | ) |   |   | -3.8 | % |   |
| Other expense                                             |       |       | (193       | )                                                                                                 |       |                         | -0.1       | %                                                           |       |                         | (228       | ) |   |   | -0.2 | % |   |
| Income (loss)  before income taxes                        |       |       | 5,612      |                                                                                              |       |                         | 4.1        | %                                                           |       |                         | (3,368     | ) |   |   | -2.3 | % |   |
| Income tax  expense (benefit)                             |       |       | 2,331      |                                                                                              |       |                         | 1.7        | %                                                           |       |                         | (1,414     | ) |   |   | -1.0 | % |   |
| Income (loss) from  continuing operations                 |       |       | $          | 3,281                                                                                             |       |                         |       | 2.4                                                         | %          |                         |       | $ | (1,954 | ) |   |   | -1.3 | % |   |

----

(a)    Pro forma for the effects of the Merger which amountsexclude merger-related costs  of $1.8 million.

Revenues: Revenues increased $11.3 million, or 8%, to $148.2 million for the 2004three-month period compared to the Predecessor pro forma 2003 three-monthperiod due primarily to a $24.2 million increase in aerial electrictransmission revenues, including the work performed by Maslonka which wasacquired on January 27, 2004, and increases of $5.9 million fromunderground natural gas work and $2.0 million from telecommunications relatedwork. The 2004 three-month period included $2.7 million of revenues fromUtility Locating and Mapping Services, Inc. (“ULMS”) which was acquired inDecember, 2003. Partially offsetting these increases in revenues were declinesin revenues of $15.1 million from other electric work, primarily fromindependent power producers, and $4.9 million from underground electrictransmission work. Absent in the 2004 three-month period are revenues from OSPas compared to revenues of $6.0 million in the Predecessor pro forma 2003three-month period. Revenues of OSP, primarily consisting of revenues fromtelecommunications work, were included in continuing operations of thePredecessor during 2003; however, as a result of the Company’s late-2003 decisionto sell OSP, the results of OSP in the 2004 three-month period are included indiscontinued operations. As of June 30, 2004, our revenue backlog was $871million, 10% higher than our backlog of $790 million as of March 31, 2004and 36% higher than our backlog of $640 million as of June 30, 2003.

Gross profit: Gross profit increased $4.1 million, or20%, to $24.6 million in the 2004 three-month period compared to thePredecessor pro forma 2003 three-month period due primarily to an increase ingross profit of $5.7 million from aerial electric transmission work includinggross profit from work 

23

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performed by Maslonka, andto a lesser extent higher gross profit from our natural gas andtelecommunications businesses. These increases in gross profit were partiallyoffset by declines in other electric power and underground electrictransmission gross margins, and the absense of gross margins from OSP, which isreflected in discontinued operations for the six month period endedJune 30, 2004.

Selling, general and administrative expenses:  Selling, general and administrative expensesincreased in the 2004 three-month period compared to the Predecessor pro forma2003 three-month period $4.2 million, or 37%, to $15.7 million. This increaseis primarily due to an additional $1.8 million in incremental expenses as aresult of our acquisitions of Maslonka and ULMS, $0.8 million of expensesassociated with the IPO which closed on May 12, 2004, and increases insalaries and related personnel costs, recruiting, and professional fees. Theseincreases were offset, in part, by a reduction of $0.8 million of expensesrelated to OSP which is included in discontinued operations in 2004.

Provision (recoveries) of uncollectible accounts:During the 2004 three-month period, the Company recorded recoveries of $0.5 millionrelated to settlements with customers whose balances had previously beenprovided for with an allowance.

Amortization of intangible assets: Amortization ofintangible assets increased $3.5 million to $4.0 million in the 2004three-month period compared to the Predecessor pro-forma three-month period dueto amortization of the intangible assets acquired in the Maslonka acquisitionpartially offset by lower amortization of intangible assets related to theMerger.

Interest expense and amortization of debt discount: Weincurred $2.8 million of interest expense in the 2004 three-month period, adecrease of $0.3 million from the Predecessor pro forma 2003 three-month periodprincipally reflecting lower interest expense due to the early extinguishmentof the note payable to Exelon during the quarter.

Loss on earlyextinguishment of debt:  During the 2004three-month period, the company recorded a charge of $5.7 million relatedto the early extinguishment of the note payable to Exelon.

**2004 Three-MonthPeriod Compared to the Predecessor 2003 Three-Month Period**

Revenues: Revenues increased $11.3 million, or 8%, to $148.2 million for the 2004three-month period compared to the Predecessor 2003 three-month period dueprimarily to a $24.2 million increase in aerial electric transmission revenues,including the work performed by Maslonka which was acquired on January 27,2004, and increases of $5.9 million from underground natural gas work and $2.0million from telecommunications related work. The 2004 three-month periodincluded $2.7 million of revenues from ULMS which was acquired in December,2003. Partially offsetting these increases in revenues were declines inrevenues of $15.1 million from other electric work, primarily from independentpower producers, and $4.9 million from underground electric transmission work. Absentin the 2004 three-month period are revenues from OSP as compared to revenues of$6.0 million in the Predecessor 2003 three-month period. Revenues of OSP,primarily consisting of revenues from telecommunications work, were included incontinuing operations of the Predecessor during 2003, however, as a result ofthe Company’s late-2003 decision to sell OSP, the results of OSP in the 2004three-month period are included in discontinued operations. As of June 30,2004, our revenue backlog was $871 million, 10% higher than our backlog of $790million as of March 31, 2004 and 36% higher than our backlog of $640million as of June 30, 2003.

Gross profit: Gross profit increased $5.9 million, or32%, to $24.6 million in the 2004 three-month period as compared to thePredecessor 2003 three-month period due primarily to an increase in grossprofit of $5.7 million from aerial electric transmission work, including grossprofit from work performed by Maslonka, and to a lesser extent higher grossprofit from our natural gas and telecommunications businesses (including theimpact of lower depreciation expense resulting from changes in estimated lives 

24

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and bases of certain fixedassets resulting from the merger). These increases in gross profit werepartially offset by declines in other electric power and underground electrictransmission gross margin.

Selling, general and administrative expenses: Selling,general and administrative expenses increased in the 2004 three-month periodcompared to the Predecessor 2003 three-month period $4.2 million, or 37%, to$15.7 million. This increase is primarily due to an additional $1.8 million inincremental expenses as a result of our acquisitions of Maslonka and ULMS, $0.8million of expenses associated with the IPO which closed on May 12, 2004,and increases in salaries and related personnel costs, recruiting, andprofessional fees. These increases were offset, in part, by a reduction of $0.8million of expenses related to OSP which is included in discontinued operationsin 2004 and the absense of gross margins from OSP, which is reflected indiscontinued operations for the six month period ended June 30, 2004.

Provision (recoveries) of uncollectible accounts:During the 2004 three-month period, the Company recorded recoveries of $0.5 millionrelated to settlements with customers whose balances had previously beenprovided for with an allowance.

Amortization of intangible assets: Amortization ofintangible assets was $4.0 million in the 2004 three-month period compared withno such amortization expense in the Predecessor 2003 three-month period as aresult of the amortization of intangible assets acquired in the Maslonkaacquisition and the Merger.

Interest expense and amortization of debt discount: Weincurred $2.8 million of interest expense in the 2004 three-month periodreflecting interest on debt resulting from the Merger.

Loss on earlyextinguishment of debt:  During the 2004three-month period, the company recorded a charge of $5.7 million relatedto the early extinguishment of the note payable to Exelon.

**2004 Six-Month Period Compared to the Predecessor ProForma 2003 Six-Month Period.**
| **(Thousands of dollars)**                      | ** ** | ** ** | ** ** | **Predecessor  Pro Forma  Six  Months Ended  June 20, 2003 (a)** | ** ** | **% of  Revenue** | ** ** | **Six  Months Ended  June 30, 2004** | ** ** | **% of  Revenue** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------|------------|------------------------|------------|
| Revenues                                                  |       |       | $          | 247,547                                                                                   |       |                   |       | 100.0                                               | %          |                   |       | $ | 296,848 |   |   |   | 100.0 | % |   |
| Gross profit                                              |       |       | 35,734     |                                                                                      |       |                   | 14.4       | %                                                   |       |                   | 49,834     |   |   |   | 16.8 | % |   |
| Selling, general  and administrative expenses             |       |       | 23,688     |                                                                                      |       |                   | 9.6        | %                                                   |       |                   | 31,107     |   |   |   | 10.5 | % |   |
| Provision  (recoveries) of uncollectible accounts         |       |       | 43         |                                                                                      |       |                   | 0.0        | %                                                   |       |                   | (471       | ) |   |   | -0.2 | % |   |
| Amortization of  intangible assets                        |       |       | 3,100      |                                                                                      |       |                   | 1.3        | %                                                   |       |                   | 8,569      |   |   |   | 2.9 | % |   |
| Income (loss)  from operations                            |       |       | 8,903      |                                                                                      |       |                   | 3.6        | %                                                   |       |                   | 10,629     |   |   |   | 3.6 | % |   |
| Interest income                                           |       |       | 961        |                                                                                      |       |                   | 0.4        | %                                                   |       |                   | 120        |   |   |   | 0.0 | % |   |
| Interest expense  and amortization of debt discount  |       |       | (6,079     | )                                                                                         |       |                   | -2.5       | %                                                   |       |                   | (6,200     | ) |   |   | -2.1 | % |   |
| Loss on early  extinguishment of debt                     |       |       | —     |                                                                                      |       |                   | 0.0        | %                                                   |       |                   | (5,682     | ) |   |   | -1.9 | % |   |
| Other expense                                             |       |       | (130       | )                                                                                         |       |                   | -0.1       | %                                                   |       |                   | (421       | ) |   |   | -0.1 | % |   |
| Income (loss)  before income taxes                        |       |       | 3,655      |                                                                                      |       |                   | 1.5        | %                                                   |       |                   | (1,554     | ) |   |   | -0.5 | % |   |
| Income tax  expense (benefit)                             |       |       | 1,499      |                                                                                      |       |                   | 0.6        | %                                                   |       |                   | (670       | ) |   |   | -0.2 | % |   |
| Income (loss) from  continuing operations                 |       |       | $          | 2,156                                                                                     |       |                   |       | 0.9                                                 | %          |                   |       | $ | (884 | ) |   |   | -0.3 | % |   |

----

(a)    Pro forma for the effects of the Merger which amountsexclude merger-related costs of $1.9 million.

Revenues: Revenues increased $49.3 million, or 20%, to $296.8 million for the 2004six-month period compared to the Predecessor pro forma 2003 six-month perioddue primarily to a $62.1 million increase in aerial electric transmissionrevenues, including the work performed by Maslonka which was acquired on January 27,2004, $11.7 million of revenue attributable to the 10 additional days in the2004 six-month 

25

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period as compared to thePredecessor pro forma 2003 six-month period, and a $6.3 million increase inrevenues from underground natural gas work. The 2004 six-month period includes$4.4 million of revenues from ULMS which was acquired in December of 2003.Partially offsetting these increases were declines in revenues of $15.0 millionfrom other electric work, primarily from independent power producers, and $13.4million from underground electric transmission work. Absent in the 2004six-month period are revenues of OSP as compared to revenues of $10.1 millionincluded in the Predecessor pro forma 2003 six-month period. Revenues of OSP,primarily consisting of revenues from telecommunications work, were included incontinuing operations of the Predecessor during 2003; however, as a result ofthe Company’s late-2003 decision to sell OSP, the results of OSP in the2004 six-month period are included in discontinued operations. As of June 30,2004, our revenue backlog was $871 million, 10% higher than our backlog of $791million as of December 31, 2003 and 36% higher than our backlog of $640million as of June 30, 2003.

Gross profit: Gross profit increased $14.1 million, or39%, to $49.8 million in the 2004 six-month period compared to the Predecessorpro forma 2003 six-month period due primarily to an increase in gross profit of$16.8 million from aerial electric transmission work, including grossprofit from work performed by Maslonka, and to a lesser extent higher grossprofit from our natural gas and telecommunications businesses and the effect ofthe ten additional days in the 2004 six-month period. These increases in grossprofit were partially offset by declines in other electric power andunderground electric transmission gross margins, and the absence of grossmargins from OSP, which is reflected in discontinued operations for thesix-month period ended June 30, 2004.

Selling, general and administrative expenses: Selling,general and administrative expenses increased in the 2004 six-month periodcompared to the Predecessor pro forma 2003 six-month period $7.4 million, or31%, to $31.1 million. This increase is primarily due to $3.3 million inincremental expenses as a result of our acquisitions of Maslonka and ULMS, $2.4million of expenses associated with the IPO, which closed on May 12, 2004,and increases in salaries and related personnel costs, recruiting, and professionalfees.

Provision (recoveries) of uncollectible accounts:During the 2004 six-month period, the Company recorded recoveries of $0.5 millionrelated to settlements with customers whose balances had been provided for withan allowance.

Amortization of intangible assets:  Amortization of intangible assets increased$5.5, or 176%, to $8.6 million in the 2004 six-month period compared to $3.1million in the Predecessor pro forma 2003 six-month period. This increase isdue to amortization of intangible assets acquired in the Maslonka acquisition,partially offset by lower amortization of Merger-related intangible assets inthe 2004 six-month period.

Interest expense and amortization of debt discount: Weincurred $6.2 million of interest expense in the 2004 six-month period, anincrease of $0.1 million from the Predecessor pro forma 2003 six-month period,principally reflecting the effects of the additional ten days in the 2004six-month period.

Losson early extinguishment of debt:  Duringthe 2004 six-month period, the company recorded a charge of $5.7 millionrelated to the early extinguishment of the note payable to Exelon.

26

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**2004 Six-MonthPeriod Compared to the Predecessor 2003 Six-Month Period.**

Revenues increased $49.3 million, or 20%, to $296.8 millionfor the 2004 six-month period as compared to the Predecessor 2003 six-monthperiod due primarily to a $62.1 million increase in aerial electrictransmission revenues including the work performed by Maslonka which wasacquired on January 27, 2004; $11.7 million of revenue attributable to the10 additional days in the 2004 six-month period as compared to the Predecessor 2003six-month period; and a $6.3 million increase in revenues from undergroundnatural gas work. The 2004 six-month period includes $4.4 million of revenuesfrom ULMS which was acquired in December of 2003. Partially offsettingthese increases were declines in revenues of $15.0 million from other electricwork, primarily from independent power producers, and $13.4 million fromunderground electric transmission work. Absent in the 2004 six-month period arerevenues of OSP as compared to revenues of $10.1 million included in thePredecessor 2003 six-month period. Revenues of OSP, primarily consisting ofrevenues from telecommunications work, were included in continuing operationsof the predecessor during 2003, however, as a result of the Company’s late-2003decision to sell OSP, the results of OSP in the 2004 six-month period are includedin discontinued operations. As of June 30, 2004, our revenue backlog was$871 million, 10% higher than our backlog of $791 million as of December 31,2003 and 36% higher than our backlog of $640 million as of June 30, 2003.

Gross profit: Gross profit increased $17.8 million, or56%, to $49.8 million in the 2004 six-month period compared to the Predecessor 2003six-month period due primarily to an increase in gross profit of $16.8 millionfrom aerial electric transmission work, including gross profit from workperformed by Maslonka, and to a lesser extent higher gross profit from ournatural gas and telecommunications businesses (including the impact of lowerdepreciation expense resulting from changes in estimated lives and bases ofcertain fixed assets resulting from the merger) and the effect of the tenadditional days in the 2004 six-month period. These increases in gross profitwere partially offset by declines in other electric power and undergroundelectric transmission gross margins, and the absence of gross margins from OSP,which is reflected in discontinued operations for the six-month period endedJune 30, 2004.

Selling, general and administrative expenses: Selling,general and administrative expenses increased in the 2004 six-month periodcompared to the Predecessor 2003 six-month period $7.4 million, or 31%, to$31.1 million. This increase is primarily due to $3.3 million in incrementalexpenses as a result of our acquisitions of Maslonka and ULMS, $2.5 million ofexpenses associated with the IPO, which closed on May 12, 2004, andincreases in salaries and related personnel costs, recruiting, and professionalfees.

Provision (recoveries) of uncollectible accounts:During the 2004 six-month period, the Company recorded recoveries of $0.5 millionrelated to settlements with customers whose balances had been provided for withan allowance.

Amortization of intangible assets:  Amortization of intangible assets was $8.6million in the 2004 six-month period compared with no such amortization in thePredecessor 2003 six-month period as a result of the amortization of intangibleassets acquired in the Maslonka acquisition and the Merger.

Interest expense and amortization of debtdiscount:  We incurred $6.2 million ofinterest expense in the 2004 six-month period reflecting interest on debtresulting from the Merger.

Loss on earlyextinguishment of debt:  During the 2004 six-monthperiod, the Company recorded a charge of $5.7 million related to the earlyextinguishment of the note payable to Exelon.

**Liquidity and Capital Resources**

As of June 30, 2004, we had cash and cashequivalents of $19.3 million, working capital of $105.7 million andlong-term debt of $85.3 million principally consisting of term loans underour amended and restated credit agreement. As of June 30, 2004, we had noborrowings under our revolving credit 

27

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facility and$27.7 million in letters of credit outstanding thereunder, leaving $32.3 millionas of that date available for additional borrowings.

On January 22, 2004, we amended our then-existingsenior credit facility to permit the acquisition of Maslonka and to obtainadditional liquidity and operating flexibility, including expanding ourcapacity for making capital expenditures. As a result of the amendment, thecommitment of the banks under the revolving credit facility was increased by$10 million to $50 million, and the amount available for letters of credit wasincreased by $10 million to $35 million. Concurrent with the IPO, in order toprovide for additional borrowing flexibility and to reduce our borrowing ratesto reflect our improved financial position, we entered into an amended andrestated credit agreement to, among other things, provide for a revolvingcredit facility in the original amount of $40 million that could be increasedto $85 million and to provide for a term loan facility in the initial amount of$85.3 million, which represented the amount of term loans outstanding under thesenior credit facility at May 12, 2004 after giving effect to themandatory prepayment of $50.2 million of such loans required in connection withthe IPO. A portion of the revolving credit facility not in excess of 80% of theamount thereof may be used for issuances of letters of credit. Term loans andrevolving loans under the amended and restated credit agreement initially bearinterest, at our option, at the bank’s prime interest rate plus a spread of2.00% or LIBOR plus a spread of 3.00%. Beginning in 2005, such interest ratespreads will be dependent upon our Consolidated Leverage Ratio, as defined inthe amended and restated credit agreement, and range from 1.50% to 3.50% forrevolving loans and 1.75% to 3.00% for term loans. As of August 4, 2004,we had commitments under our revolving credit facility totaling $85.0 million.

The Company’s amended and restated credit agreementcontains certain restrictive covenants, including minimum levels of net worth,interest coverage, fixed charge coverage and leverage ratios, among otherrestrictions. As of June 30, 2004, the Company was in compliance with allterms and conditions of the amended and restated credit agreement. 

Our working capital needs are influenced by theseasonality of our business. We experience a need for additional workingcapital during the spring when we increase our level of outdoor construction inweather-affected regions of the country. Conversely, we convert working capitalassets to cash during the winter months.

We expect capital expenditures to range from$9.0 million to $11.0 million during the remainder of 2004, whichcould vary depending on the expected award and timing of commencement ofseveral large electric power transmission projects. We intend to fund thoseexpenditures primarily from operating cash flow. We have reduced our capitalexpenditures over the past two years in order to increase the utilization ratesof our equipment.

On July 30, 2004, we entered into an asset purchaseagreement to acquire substantially all of the assets and certain liabilities ofEnStructure for a cash purchase price of $20.8 million, subject to certainpurchase price adjustments.  Additionally,on August 4, 2004, we entered into an asset purchase agreement to acquiresubstantially all of the assets and certain liabilities of Utili-Trax for acash purchase price of $5.3 million, subject to certain purchase priceadjustments. We expect these acquisitions to close during the third quarter of2004, and to fund these acquisitions with available cash and, if necessary,additional borrowings under our senior credit facility. 

On August 3, 2004, we entered into an asset purchaseagreement to sell the assets of RJE for a cash purchase price of $6.5 million,subject to certain purchase price adjustments. We expect this transaction toclose during the third quarter of 2004, and expect to use the proceeds forworking capital.

We anticipate that our cash flow from operations, cashon hand (including the remaining net proceeds from our IPO), and our amendedand restated credit facility will provide sufficient cash to enable us to meetour working capital needs, debt service requirements and planned capitalexpenditures for property 

28

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and equipment over thenext twelve to eighteen months. However, deterioration in the markets we serve,material changes in our customers’ revenues or cash flows or adverse weatherconditions could negatively impact our revenues and cash flows. These factors,coupled with restrictive covenants under our amended and restated creditagreement, may negatively impact our ability to meet these needs.

*Cashfrom operating activities from continuing operations.**  *During the 2004 six-month period,net cash used by operating activities from continuing operations was $8.3 millioncompared to net cash provided by operating activities from continuingoperations of $13.2 million for the Predecessor 2003 six-month period. Theprincipal sources of operating cash during the 2004 six-month period werepayments received from customers for contract services performed. The principaluses of operating cash during the 2004 six-month period were payments for laborand materials related to performance of services and selling, general andadministrative expenses. Changes in operating assets and liabilities during the2004 six-month period used $25.1 million of operating cash flow from continuingoperations compared with $4.5 million in the Predecessor 2003 six-month period.The greater use of cash from changes in operating assets and liabilities fromcontinuing operations for the 2004 six-month period is primarily due to a $17.3million use in other current and accrued liabilities for payments of incometaxes and employee bonus and severance payments as compared to the Predecessor2003 six-month period use of $4.4 million, and a reduction in the Predecessor2003 six-month period in due from affiliates as a result of payments receivedin the prior year of $9.3 million. The use of cash from changes in operatingassets and liabilities from continuing operations is offset, in part, by a netdecrease in contract receivables, net, contract receivables due from relatedparties, net and costs and estimated earnings in excess of billings, net of$3.0 million in the 2004 six-month period compared to the Predecessor 2003 six-monthperiod.

*Cashfrom investing activities from continuing operations.**  *During the 2004 six-month period,net cash used by investing activities from continuing operations was $30.2 millioncompared to cash used by investing activities from continuing operations of$7.6 million for the Predecessor 2003 six-month period. The primary usesof cash for the 2004 six-month period were cash payments at closing for theacquisition of Maslonka, net of cash acquired, of $20.1 million, and purchasesof equipment of $12.1, offset in part, by $2.0 million in cash proceeds fromthe sale of equipment. The principal use of cash during the Predecessor 2003six-month period consisted of purchases of equipment of $9.5 million, offset inpart by $1.9 million in cash proceeds from sales of equipment.

*Cash from financingactivities from continuing operations.**  *During the 2004 six-month period,net cash provided by financing activities from continuing operations was $45.7million compared to net cash used in financing activities from continuingoperations of $0.5 million for the Predecessor 2003 six-month period. Theprimary sources of cash from financing activities for the 2004 six-month periodwere $130.3 million consisting of $29.5 million of proceeds from the issuanceof the Company’s common stock to the Principal Shareholders and certain membersof management in conjunction with the acquisition of Maslonka and $100.8million of net cash from our initial public offering which occurred on May 12,2004. The proceeds from the issuance of the Company’s common stock were used torepay $50.2 million of the Company’s term loan, $30 million to repay theprincipal amount outstanding of our subordinated note with Exelon and theremaining $20.6 million retained for general corporate purposes. The prior yearuse of $.5 million consisted primarily of purchases of treasury stock.

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**Contractual Obligations and Other Commitments**

Thefollowing table represents contractual obligations and other commitments as ofJune 30, 2004.
| **(Thousands)**               | ** ** | **Payments due by Period** | ** ** |
|-------------------------------|------------|-------------------------------------------|------------|
| **Long-Term Debt**       | ** ** | ** **                                | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Senior credit  facility       |       | $                                         | 427        |   | $ | 853 |   | $ | 853 |   | $ | 853 |   | $ | 853 |   | $ | 81,258 |   | $ | 85,097 |   |
| Long-term  debt-related party |       | —                                    |       | — |   | 1,000 |   | — |   | — |   | — |   | 1,000 |   |
| Bank notes                    |       | 17                                        |       | 61 |   | — |   | — |   | — |   | — |   | 78 |   |
| Other                         |       | 81                                        |       |   |   |   |   |   |   |   |   |   |   | 81 |   |
| Total                         |       | $                                         | 525        |   | $ | 914 |   | $ | 1,853 |   | $ | 853 |   | $ | 853 |   | $ | 81,258 |   | $ | 86,256 |   |
|                               |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **(Thousands)**                                | ** ** | **Payments due by Period** | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|
| **Other Contractual Obligations(1)** | ** ** | ** **                                | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Other long-term  liabilities:                  |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contingent earnout                             |       | $                                         | —     |   | $ | — |   | $ | 2,662 |   | $ | — |   | $ | — |   |   | $ | — |   |   | $ | 2,662 |   |
| Non-vested options exercised                   |       |                                      |       | 562 |   | 563 |   | 562 |   | 563 |   |   |   |   |   | 2,250 |   |
| Other                                          |       |                                      |       | 305 |   |   |   |   |   |   |   |   |   |   |   | 305 |   |
| Total                                          |       | $                                         | —     |   | $ | 867 |   | $ | 3,225 |   | $ | 562 |   | $ | 563 |   |   | $ | — |   |   | $ | 5,217 |   |
|                                                |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)   Trade accounts payable are not included in ContractualObligations. 
| **(Thousands)**                            | ** ** | **Amount of Commitment Expiration Per Period** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Other Commercial Commitments** | ** ** | ** **                                                              | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Operating leases                           |       | $                                                                       | 3,083      |   | $ | 2,467 |   | $ | 1,751 |   | $ | 866 |   | $ | 417 |   |   | $ | 953 |   |   | $ | 9,537 |   |
|                                            |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of June 30,2004, future cash requirements for interest payments on our senior creditfacility are as follows:
| **Period** | ** ** | ** ** | ** ** | **In  Thousands** | ** ** |
|------------|------------|------------|------------|-------------------|------------|
| 2004       |       |       | $          | 2,196             |       |   |
| 2005       |       |       | 4,358      |              |       |
| 2006       |       |       | 4,320      |              |       |
| 2007       |       |       | 4,276      |              |       |
| 2008       |       |       | 4,232      |              |       |
| 2009       |       |       | 4,188      |              |       |
| 2010       |       |       | 3,113      |              |       |

*** ***

In accordance with the holdback provisions of theacquisition agreement to acquire Maslonka, we are holding back purchase priceconsideration in the amount of $6,600,000 from certain of  Maslonka’s former shareholders. Of thisamount, $5,500 is contingent upon Maslonka’s achievement of certain performancetargets as well as the satisfaction of any indemnification obligations owed tous, which may also be set-off against all other portions of the holdback. Weexpect that the holdback amount, less any amounts retained by us, will bereleased to the sellers in part in 2005 and the remainder in 2006.

 

**Related Party Transactions**

On October 6, 1999, the InfraSource Group enteredinto a services agreement (“Services Agreement”) with Exelon for Exelon toprovide certain services, including contracting for employees, financial andaccounting services, payroll services, office and equipment leases and otheradministrative and support services. The scope of these services was reducedeach year of the agreement. This agreement 

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was effective for a periodof 12 months commencing in October of each year and was renewable at bothparties’ discretion. The InfraSource Group, through InfraSource CorporateServices, Inc., was charged $355,000 and $899,000 for these services forthe Predecessor 2003 three- and six-month periods, respectively. Pursuant tothe Merger, this Services Agreement was terminated.

The InfraSource Group has several service contractswith Exelon and performs work for various services including utility constructionand maintenance, telecommunications and infrastructure services on anoutsourced basis to business and residential customers. Certain operatingassets and liabilities of the Non-Acquired Group, including certain operatingagreements (the “Operating Agreements”) with Exelon, were transferred to theInfraSource Group as of January 1, 2003, with operating results related tothe operating agreements reflected in the accompanying consolidated statementof operations beginning with the date of transfer. Under the OperatingAgreements, the Company performs infrastructure services on an outsourced basisto business and residential customers. Each operating agreement has an annualterm ending on December 31 which automatically renews each year unlessformally terminated by Exelon. The services are charged to Exelon at a ratethat is intended to approximate market value. Revenues charged to Exelon underthese contracts for the Predecessor 2003 three- and six-month periods were $7.5million and $14.1 million, respectively. These Operating Agreements remained inplace following the Merger. On January 29, 2004, Exelon relinquished itssole seat on the Company’s Board of Directors and ceased to be a related partyat that time. Revenues from Exelon for the period January 1 through January 29,2004 (the date it ceased to be a related party) were $7.6 million.

In addition to the Operating Agreements, revenues forthe Predecessor 2003 three- and six-month periods related to contracts withExelon were $10.5 and $17.6, respectively. Accounts receivable related to allrevenues due from Exelon were $14.6 million at December 31, 2003.

In March 2004, after receiving approval from therequired parties, the Company distributed $7.2 million of property andequipment that pursuant to the original terms of a purchase agreement withBlair Park Services, Inc. (“Blair Park”), an infrastructure servicesbusiness acquired in 2001, were owed to three officers of Blair Park. Thecorresponding liability related to these assets is reflected in otherliabilities—related parties in the December 31, 2003 condensedconsolidated balance sheet.

In connection with the Maslonka acquisition, ourPrincipal Stockholders secured the issuance of $10.0 million worth of lettersof credit. These letters of credit were provided as credit support to enableMaslonka to secure a performance bond on a new project award. Afterconsummation of the Maslonka acquisition, we caused the letters of credit to beterminated. We paid an aggregate fee of $200,000 to the Principal Stockholdersfor providing this security.

We lease our Maslonka headquarters in Mesa, Arizonaand our Maslonka Texas field office in San Angelo, Texas from EC Source, LLC,which is wholly-owned by Martin Maslonka. Our leases for these two propertieswill run through February 2009, subject to a five-year renewal option.Pursuant to these leases, we will incur total annual lease payments of$168,000.

Maslonka is the issuer ofa $1 million installment promissory note in favor of Martin Maslonka. The promissorynote bears interest at an annual rate of 8.5%, and interest is payable in equalmonthly payments of $7,083. The promissory note matures on June 30, 2006.

**Recently Issued Accounting Pronouncements**

In March 2004,the FASB’s Emerging Issues Task Force (EITF) reached consensus on Issue 03-6EITF Issue No. 03-6, “Participating Securities and the Two-Class MethodUnder FASB Statement No. 128, Earnings Per Share”. This Issue is intendedto clarify what is a participating security for purposes of applying SFAS 128,Earnings Per Share. The Issue also provides further guidance on how to applythe two-class method of computing earnings per share (EPS) once it isdetermined that a security is 

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participating, includinghow to allocate undistributed earnings to such a security. The guidance in thisIssue was effective for reporting periods beginning after March 31, 2004and requires the restatement of previously reported EPS. Management hasdetermined that options to purchase the Company’s stock do not constituteparticipating securities as defined by this Issue. We have adopted this Issuein the second quarter of 2004. The initial adoption of this Issue had no impacton the Company’s basic and diluted earnings per share for the three months andsix months ended June 30, 2004 and Predecessor periods March 22, 2003to June 20, 2003 and January 1, 2003 to June 20, 2003.

**Risks Relating to Our Business and Industry**

**Demand for ourservices is cyclical and vulnerable to downturns in the industries we serve,which may result in extended periods of low demand for our services.**

The demand forinfrastructure services in the industries we serve has been, and will likelycontinue to be, cyclical in nature and vulnerable to general downturns in theU.S. economy. A number of other factors, including financial conditions in theindustries we serve, could adversely affect our customers and their ability orwillingness to fund capital expenditures in the future. For example, we haveexperienced reductions in our revenues from independent power producers in 2003and through the first half of 2004, which reflects the significant decline inconstruction activity and new construction awards for power generationprojects. The demand for our services to natural gas distribution customers isaffected by the level of new housing construction. In addition, ourpetrochemical customers’ demand has recently been restrained by the impact ofhigh natural gas prices. We are also dependent on the amount of infrastructureservices that our customers outsource. During downturns in the economy, ourcustomers may determine to outsource fewer projects resulting in decreaseddemand for our services. In addition, the historical trend toward outsourcingof infrastructure services may not continue as we expect. As a result, demandfor our services could substantially decline for extended periods, particularlyduring economic downturns.

**The award of newcontracts and the timing of these awards may result in unpredictablefluctuations in our cash flow and profitability.**

A substantial portion of our revenues is derived fromproject-based work. It is generally very difficult to predict whether and whenwe will be awarded contracts for these projects, resulting in unpredictabilityin our cash flow and profitability. We expect to have a higher percentage ofrevenues from large-scale projects going forward, further exacerbating theunpredictability of our operating results. For example, Maslonka’s transmissionline portion of the Path 15 contract is an approximately $88 millioncontract that will be performed primarily in 2004. There can be no assurancethat we will be awarded contracts for other projects to replace the revenuesgenerated from the Path 15 contract.

In addition, some of ourcontracts are subject to financing and other contingencies that may delay orresult in termination of projects. In certain circumstances, customers mayrequire us to provide credit enhancements, including surety bonds, letters ofcredit and, in rare instances, cash collateral, which we may be unable tosatisfactorily obtain or provide, placing us at a competitive disadvantagecompared to providers with more liquidity. The uncertainty of our contractaward timing can also present difficulties in matching workforce size withcontract needs. In some cases, we maintain and bear the cost of a readyworkforce that is larger than necessary in anticipation of future workforceneeds for expected contract awards. If an expected contract award is delayed ornot received, we could incur costs that could be substantial without receipt ofany corresponding revenues.

**We derive asignificant portion of our revenue from a small group of customers. The loss ofone or more of these customers could negatively impact our revenues.**

Our top ten customers accounted for approximately 48%and 54% of our revenues during 2003 and the six month period endedJune 30, 2004, respectively, which includes work performed for those 

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customers as asubcontractor through others. Sales to Exelon accounted for 16.0% of our revenuesduring 2003. In September 2003, we entered into a volume agreement withExelon, pursuant to which we are assured a continuing level of business fromExelon through 2006 at approximately the same levels as in 2003, subject toearlier termination under limited circumstances. Revenue under the contract mayvary significantly from period-to-period and may be concentrated later in thecontract period. We may be unable to sustain our volume of business with Exelonafter expiration of the contract.

In May 2003, Maslonkawas awarded an approximately $88 million transmission line contract,relating to the Path 15 upgrade project, scheduled to be substantiallycompleted in 2004. We expect that the Western Area Power Authority, whichmanages the Path 15 project, will be a key customer in 2004. We may not be ableto replace this contract after its completion.

**The anticipatedinvestment in electric infrastructure may not be as large as expected, whichcould reduce demand for our services or slow our growth.**

Our business strategy isdependent, in part, upon the expected increased investment in the electricpower grid, which may not materialize. This expected increase is based, inpart, upon prospects for passage of certain Federal energy legislation andincentive-based ratemaking initiatives being considered by FERC. There isconsiderable uncertainty as to when or whether the United States Congress willpass comprehensive Federal energy legislation as proposed in 2003, or whetherit will enact any other form of energy legislation that would improve theprospects for increased investment in energy infrastructure. Even if Federalenergy legislation is passed, the provisions may not incentivize increasedinvestments in electric power transmission infrastructure in a manner that willincrease demand for our services. In addition, it is uncertain whether FERCwill establish incentive-based ratemaking for all interstate transmission underthe control of regional transmission operators. Continued uncertainty mayresult in decreased demand or slower growth in demand for our services.

**Seasonal and othervariations may cause significant fluctuations in our cash flows andprofitability, which may cause the market price of our common stock to fall incertain periods.**

Due to the fact that asignificant portion of our business is performed outdoors, our results ofoperations are subject to seasonal variations. Less work is performed by us inthe winter months and work is hindered during other inclement weather events.Our profitability often decreases during the winter months and during severeweather conditions because work performed during these periods is more costlyto complete. For example, in the first half of 2003, severe cold and wetconditions increased the cost and reduced the profitability of many of oursubsurface construction projects. Similar wet conditions were experiencedduring the second quarter of 2004. In addition, during periods of peakelectricity demand, utilities generally are unable to remove their electricpower transmission and distribution equipment from service, decreasing thedemand for our maintenance services during this period. If our operatingresults fall below the public’s or analysts’ expectations in some future periodor periods, the market price of our common stock will likely fall in suchperiod or periods.

**Our dependence uponfixed-price contracts could result in reduced profitability or losses onprojects.**

We currently generate, andexpect to continue to generate, the majority of our revenues under fixed-pricecontracts. Under fixed-price contracts, we agree to perform the entire projectfor a fixed price on an agreed upon schedule. We may be unable to recover anycost overruns to the approved contract price. We have experienced delays andadditional costs that we have been unable to recover resulting from severeweather conditions and the required replacement of defective materials from athird party that we installed. As a result, our actual revenue and grossprofits for a project may differ from those we originally estimated and couldresult in reduced profitability or losses on projects. Depending on the size ofa particular project, variations from the estimated contract costs can have asignificant impact on our 

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operatingresults for any fiscal quarter or year. We expect that industry trends and ouracquisition of Maslonka will result in an increase in the proportion of ourfixed-price contracts, as most of Maslonka’s business is on a fixed-pricebasis.

**Our customers oftenhave no obligation to assign work to us and many of our contracts may beterminated on short notice. As a result, we are at risk of losing significantbusiness on short notice.**

Certain of our customersassign work to us under master service agreements. Under these arrangements,our customers generally have no obligation to assign work to us. Most of ourcontracts, including our master service agreements, may be terminated by ourcustomers on short notice, typically 30 to 90 days, sometimes less.Moreover, our reported backlog includes estimated work to be performed underthese agreements, and our reported backlog may not be realized as revenues ifthese contracts are cancelled. In addition, many of our contracts, includingour master service agreements, are open to competitive bidding at theexpiration of their terms. As a result, we have been displaced on thesecontracts by competitors from time to time. Our revenues could materiallydecline if our customers do not assign work to us or if they cancel a significantnumber of contracts and we cannot replace them with similar projects.

**Project delays orcancellations may result in additional costs to us, reductions in revenues orthe payment of liquidated damages.**

In certain circumstances, we guarantee project completionby a scheduled acceptance date or achievement of certain acceptance andperformance testing levels. Failure to meet any of these schedules orperformance requirements could result in additional costs or penalties,including liquidated damages, and these amounts could exceed expected projectprofit margins. Many of our projects involve challenging engineering,procurement and construction phases that may occur over extended time periods,sometimes up to two years. We may encounter difficulties in engineering,equipment and supply delivery, schedule changes, weather-related delaysand other factors, some of which are beyond our control, that impact ourability to complete the project in accordance with the original deliveryschedule. In addition, we occasionally contract with third-party subcontractorsto assist us with the completion of contracts. Any delay by suppliers or bysubcontractors in the completion of their portion of the project, or anyfailure by a subcontractor to satisfactorily complete its portion of theproject may result in delays in the overall progress of the project or maycause us to incur additional costs, or both. We also may encounter projectdelays due to local public opposition against the siting of transmission linesor other facilities, which may include injunctive actions as well as publicprotests. For example, the construction of the PowerUp Wisconsin transmissionline project was delayed for several years due to such factors.

Delays and additional costs may be substantial, and,in some cases we may be required to compensate the project customer for thesedelays. We may not be able to recover all of these costs. In extreme cases, theabove-mentioned factors could cause project cancellations, and we may not beable to replace such projects with similar projects or at all.

In addition, our projectcontracts may require that our customers or other parties provide us withdesign or engineering information or with equipment or materials to be used ona project. In some cases, we may be provided with deficient design orengineering information or equipment or provided with information or equipmentlater than required by the project schedule. Our customers may also determine,after commencement of the project, to change various elements of the project.Under these circumstances, we generally negotiate with the customer withrespect to the amount of additional time required and the compensation to bepaid to us. We are subject to the risk that we are unable to obtain, throughnegotiation, arbitration, litigation or otherwise, adequate amounts tocompensate us for the additional work or expenses incurred by us due tocustomer-requested change orders or failure by the customer to timely provideitems required to be provided by the customer. A failure to obtain adequatecompensation 

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forthese matters could require us to record a negative adjustment to amounts ofrevenue and gross profit that were recognized in prior periods under thepercentage of completion accounting method. Any such adjustments could besubstantial.

**Skilled laborshortages and increased labor costs could negatively affect our ability tooperate efficiently and implement our growth strategy.**

We have from time-to-timeexperienced shortages of certain types of qualified personnel. For example,there is currently a shortage of linemen capable of working on and supervisingthe construction of high-voltage lines, and linemen are frequently recruitedacross geographic regions to satisfy demand. The supply of experienced linemenand supervisors may not be sufficient to meet current or expected demand.Further, we may not be able to allocate or hire sufficient project managers fornew electric power transmission projects. As a result, we may not be able topursue certain projects and we may not be able to maintain an adequate skilledlabor force necessary to operate efficiently and support our growth strategy.

**Our use ofpercentage-of-completion accounting could result in a reduction or eliminationof previously reported profits.**

A significant portion ofour revenues is recognized on a percentage-of-completion method of accounting,using the cost-to-cost method. This method is used because management considersexpended costs to be the best available measure of progress on these contracts.This accounting method is standard for fixed-price contracts. Thepercentage-of-completion accounting practice we use results in our recognizingcontract revenues and earnings ratably over the contract term in proportion toour incurrence of contract costs. The earnings or losses recognized onindividual contracts are based on estimates of contract revenues, costs andprofitability. Contract losses are recognized in full when determined, andcontract profit estimates are adjusted based on ongoing reviews of contractprofitability. Further, a substantial portion of our contracts contain variouscost and performance incentives. Penalties are recorded when known orfinalized, which is generally during the latter stages of the contract. Inaddition, we record cost recovery claims when we believe recovery is probableand the amounts can be reasonably estimated. Actual collection of claims coulddiffer from estimated amounts and could result in a reduction or elimination ofpreviously recognized earnings. In certain circumstances, it is possible thatsuch adjustments could be significant.

**Provisions of ourcredit facility restrict our business operations and may restrict our access tosufficient funding, including letters of credit, in the future to finance desiredgrowth.**

Wehave an amended and restated credit facility with a group of financialinstitutions secured by substantially all of our assets. The terms of theamended and restated credit facility contain customary events of default andcovenants that limit us from taking certain actions without obtaining theconsent of the lenders. In addition, our amended and restated credit facilityrequires us to achieve certain financial ratios. These restrictions andcovenants may limit our ability to respond to changing business and economicconditions and we may be prevented from engaging in transactions that mightotherwise be considered beneficial to us, including strategic acquisitions.Covenants in our amended and restated credit facility also restrict our abilityto incur indebtedness, subject to certain exceptions, including domesticintercompany indebtedness, guarantee obligations incurred in the ordinarycourse of business, up to $20.0 million of secured indebtedness incurred toacquire fixed or capital assets, indebtedness in respect of performance bonds,letters of credit and similar obligations incurred in the ordinary course ofbusiness, and up to $20.0 million of additional indebtedness. We also had $32.3million of availability under our securedrevolving credit facility as of June 30, 2004 (after giving effect to$27.7 million of outstanding letters of credit at that date).

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Our business also frequently requires us to postletters of credit, which reduces availability under our revolving creditfacility. If we are required to post letters of credit in excess of the $48million sublimit to be in effect as of June 30, 2004 under our amended andrestated credit facility, we would be required either to increase this sublimitor cash collateralize the letters of credit. We cannot assure you that we wouldbe able to increase the sublimit under our credit facility or that we would havesufficient cash to obtain the required letters of credit.

A breach of our amendedand restated credit agreement, including our inability to comply with therequired financial ratios, could result in a default under our amended andrestated credit facility. In the event of any default under our amended andrestated credit facility, the lenders thereunder would be entitled toaccelerate the repayment of amounts outstanding, plus accrued and unpaidinterest. Moreover, these lenders would have the option to terminate anyobligation to make further extensions of credit under our credit facility. Inthe event of a default under any of our secured indebtedness, including ourcredit facility which is secured by substantially all of our assets, thelenders thereunder could proceed to foreclose against the assets securing suchobligations. In the event of a foreclosure on all or substantially all of ourassets, we may not be able to continue to operate as a going concern.

**If we are unsuccessful at integrating companies thatwe acquire or have acquired, we may not achieve the expected benefits and ourprofitability could suffer.**

One of our businessstrategies is to pursue highly strategic acquisitions. We have completedseveral acquisitions and plan to continue to consider strategic acquisitionsnow and in the future. Integrating acquisitions is often costly, and delays orother operational or financial problems may result that interfere with ouroperations. In addition, our operating subsidiaries have generally maintainedtheir own procedures and operating systems, which makes it more difficult forus to evaluate and integrate their systems and controls on a reliablecompany-wide basis. We have, however, imposed or are imposing specificcompany-wide requirements on our operating subsidiaries in a number of areas aswe continue the process of integrating our acquired businesses, but theserequirements may not be effective. We plan to introduce a company-wide internalaudit function to replace the Exelon corporate internal audit function and toenhance our controls and procedures, including those necessary for a publiccompany. We may experience difficulties implementing these new company-widesystems. If we fail to implement proper overall business controls, including asrequired to support our growth, inconsistent operating and financial practicesat companies we acquire or have acquired could result.

**A significant portion of our business depends on ourability to provide surety bonds. We may be unable to compete for or work oncertain projects if we are not able to obtain the necessary surety bonds.**

Surety market conditionsare currently difficult as a result of significant losses incurred by manysureties in recent periods, both in the construction industry as well as in certainlarger corporate bankruptcies. As a result, less bonding capacity is availablein the market and terms have become more expensive and restrictive. After theExelon Transaction, we were required to post letters of credit to support a newsurety bond program. Further, under standard terms in the surety market,sureties issue bonds on a project-by-project basis and can decline to issuebonds at any time. Historically, approximately 10% to 20% of our annual volumeof business, including a number of our fixed-price contracts, has requiredbonds. These percentages may increase depending on our mix of contracts.Current or future market conditions, as well as changes in our surety’sassessment of our operating and financial risk, could cause our surety providersto decline to issue, or substantially reduce the amount of, bonds for our workand could increase our bonding costs. These actions can be taken on shortnotice. If our surety providers were to limit or eliminate our access tobonding, our alternatives include seeking bonding capacity from other sureties,finding more business that does not require bonds and posting other forms ofcollateral for project performance, such as letters of credit or cash. We maybe unable to secure these alternatives in a 

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timely manner, onacceptable terms or at all. Accordingly, if we were to experience aninterruption or reduction in the availability of bonding capacity, we may beunable to compete for or work on certain projects.

**We are subject to the risks associated with being agovernment contractor.**

We are a providerof services to government agencies, primarily the U.S. Department of Energy’sFederal power marketing agencies, such as the Western Area Power Authority andthe Bonneville Power Administration, and therefore are exposed to the risksassociated with government contracting. For example, a reduction in spending bythese government agencies could limit the continued funding of existingcontracts with these agencies and could limit our ability to obtain additionalcontracts, which could result in lower revenues from these customers. The risksof government contracting also include the risk of civil and criminal fines andpenalties for violations of applicable regulations and statutes and the risk ofpublic scrutiny of our performance on high profile sites. In addition, ourfailure to comply with the terms of one or more of our government contracts,other government agreements, or government regulations and statutes couldresult in our being suspended or barred from future government contractprojects for a significant period of time.

In addition,government customers typically can terminate or modify any of their contractswith us at their convenience, and some of these government contracts aresubject to renewal or extension annually. If a government customer terminates acontract or fails to renew or extend a contract, our backlog or revenue may bereduced or we may incur a loss, either of which could impair our financialcondition and operating results. A termination due to our unsatisfactoryperformance could expose us to liability and adversely affect our ability tocompete for future contracts and orders. In cases where we might be asubcontractor, the prime contract under which we would be a subcontractor couldbe terminated, regardless of the quality of our services as a subcontractor orour relationship with the relevant government agency. Our government customerscan also reduce the value of existing contracts, issue modifications to acontract, and control and potentially prohibit the export of our services andassociated materials.

**Our projects are subject to numerous hazards. If we donot maintain an adequate safety record, we may be ineligible to bid on certainprojects, could be terminated from existing projects and could have difficultyprocuring adequate insurance.**

Hazards related to ouractivities include electrocutions, fires, natural gas explosions, mechanicalfailure, transportation accidents and damage to equipment we work on. Thesehazards can cause personal injury and loss of life, severe damage to ordestruction of property and equipment and other consequential damages,including blackouts, and may result in suspension of operations, large damageclaims, and, in extreme cases, criminal liability. At any given time, we aresubject to multiple workers’ compensation and personal injury claims. Wemaintain substantial loss accruals for workers’ compensation claims, and ourworkers’ compensation and insurance costs have been rising for several years notwithstandingour emphasis on safety. Our insurance does not cover all types or amounts ofliabilities. Our third-party insurance is subject to large deductibles forwhich we establish reserves and, accordingly, we effectively self-insure formuch of our exposures. In addition, for a variety of reasons such as increasesin claims, a weak economy, projected significant increases in medical costs andwages, lost compensation, and reductions in coverage, insurance carriers may beunwilling to provide the current levels of coverage without a significantincrease in collateral requirements to cover our deductible obligations. We maynot be able to maintain adequate insurance at reasonable rates or meetcollateral requirements. Further, regulatory changes implemented by OSHA couldimpose additional costs on us. Our safety record is an important considerationfor our customers. If serious accidents or fatalities occur or our safetyrecord were to deteriorate, we may be ineligible to bid on certain projects andcould be terminated from existing projects. In addition, our reputation and ourprospects for future projects could be negatively affected. The OSHA Recordablerate of certain of our subsidiaries has historically been higher than theindustry 

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average. If we cannotimprove on these subsidiaries’ safety records, we may not be able to bidsuccessfully on future projects.

**Our unionized workforce could cause interruptions inour provision of services. In addition, we contribute to multiemployer plansthat could result in liabilities to us if these plans are terminated or wewithdraw.**

A significantpercentage of our workforce is covered by collective bargaining agreements.Strikes or work stoppages could occur that would adversely impact ourrelationships with our customers and our ability to conduct our business.

In addition, we contributeto several multiemployer pension plans for employees covered by collectivebargaining agreements. These plans are not administered by us, andcontributions are determined in accordance with provisions of negotiated laborcontracts. The Employee Retirement Income Security Act of 1974 (“ERISA”), asamended by the Multiemployer Pension Plan Amendments Act of 1980, imposescertain liabilities upon employers who are contributors to a multiemployer planin the event of the employer’s withdrawal from, or upon termination of, suchplan. We do not have information on the net assets and actuarial present valueof the multiemployer pension plans’ unfunded vested benefits allocable to us,if any, or the amounts, if any, for which we may be contingently liable if wewere to withdraw from any of these plans.

**If the FCC changes or terminates regulations thatprovide subsidies for leasing dark fiber, demand for certain of ourtelecommunications services could decrease substantially. In addition,additional regulation of our telecommunications services could reduce theprofitability of those services.**

Many of ourtelecommunications customers are schools that benefit from the UniversalService “E-rate” program, a program set up by the federal governmentunder the oversight of the Federal Communications Commission (“FCC”). To remaineligible for this program in any state, we must maintain our telecommunicationsauthorizations in that state. Under the E-rate program, schools and librariesmay receive subsidies for certain approved telecommunications services,Internet access and internal connections. However, the FCC recently soughtcomment from the industry and the public on whether it should provide fundingfor dark fiber. The organization that administers the E-rate subsidies issued astatement that, pending an FCC determination regarding the regulatoryclassification of dark fiber, it may not be eligible for E-rate fundingbeginning July 1, 2004. If this funding for leasing dark fiber is nolonger available, it could result in a decrease in the demand for ourtelecommunications infrastructure services by certain school districtcustomers.

If funding forleasing dark fiber is no longer available, we may provide lit fiber to thesecustomers. We have taken the position to date that, except for those dark fiberfacilities offered by us where such facilities physically cross state lines,our other telecommunications-related services are not subject to regulation bythe FCC as interstate telecommunications services. We currently believe thatany such lit fiber leasing to school districts would not be subject to FCCregulation. It is possible that the FCC may take the position, as a result ofan interpretation of existing regulations and/or a change to such regulations,that some or all of our other telecommunications services are subject to FCCregulation as interstate telecommunications services. In addition, we mayexpand our service offerings to include activities that are subject to FCCregulation as interstate telecommunications services. To the extent that we aresubject to FCC regulation for interstate telecommunications services, we wouldbe required to comply with a number of FCC regulations, including filing orcontribution requirements related to the federal universal services fund, whichcould reduce the profitability of our telecommunications business. We couldalso be subject to fines if it were determined that any of our activities violatedFCC regulations.

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**Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk**

Our exposure to market risks results primarily fromadverse changes in interest rates. We have not historically used derivativeinstruments for trading purposes or to speculate on changes in interest ratesor commodity prices.

In October 2003, weentered into an interest rate swap agreement and an interest rate cap agreementwith terms of three years, both of which qualify and have been designated ascash flow hedges to reduce market interest rate risk associated with $70million notional amount of our variable rate term loan. After considering theeffect of these agreements, a portion of our long-term debt obligations remainsubject to interest rate risk. The annual detrimental net income effect of a 50basis point increase in interest rates on these long-term obligations, afterconsidering the $50.2 million reduction in our term loan concurrent with theIPO, would be less than $0.1 million.

**Item 4. Controls and Procedures**

(a)           Evaluationof Disclosure Controls and Procedures

The Company’s management,with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”)) as of the end of the period covered by this report. Based onthat evaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures as of the end of theperiod covered by this report were designed and functioning effectively toprovide reasonable assurance that the information required to be disclosed bythe Company in reports filed under the Exchange Act, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms. The Company believes that a controls system, no matter how well designedand operated, cannot provide absolute assurance that the objectives of thecontrols system are met, and no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within acompany have been detected.

(b)          Changein Internal Control over Financial Reporting

No change in the Company’sinternal control over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the Company’s mostrecent fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

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**PART II OTHER INFORMATION**

**Item 1. Legal Proceedings**

On February 7, 2003, Rahsanne Bickmann filed suitin the Travis County District Court in Texas State Court against Maslonka andone employee alleging, among other things, gross negligence and seeking approximately$24 million in actual and compensatory damages arising out of the death of herson. On October 27, 2003, the father of the deceased, Kevin Sam, Sr.,filed suit in Taylor County Texas District Court seeking unspecified damages.The claims arose out of an automobile accident that took place on December 1,2002 on an interstate highway in Texas and resulted in death. In February 2004,Rahsanne Bickman’s claims were resolved through an out of court settlementfully funded by insurance proceeds (less a $10,000 deductible). The dismissalorder was entered on March 25, 2004. The claims of Kevin Sam, Sr.have been docketed for trial on December 13, 2004.

In January 2004, a judgment was entered againstInfraSource in Superior Court of Fulton County, Georgia in the amount of $3.8million, including $3.2 million in punitive damages. The jury verdict upheldallegations by the plaintiff that in 1999 InfraSource Incorporated (formerlyknown as Exelon Infrastructure Services, Inc.) had fraudulently inducedthe plaintiff to incur expenses in connection with a proposed businessacquisition that was never consummated. We filed a notice of appeal on February 19,2004, and the plaintiff filed a notice of cross-appeal on March 2, 2004. Pursuantto the appellate court’s May 28, 2004 Notice of Docketing, we filed abrief supporting our appeal on June 17, 2004. All briefings were completedon July 22, 2004, with oral arguments scheduled for October 13, 2004.

In addition, pursuant to our service contracts, wealso generally indemnify our customers for the services we provide thereunder.Furthermore, because our services are integral to the operation and performanceof the electric power transmission and distribution infrastructure, we maybecome subject to lawsuits or claims for any failure of the systems that wework on, even if our services are not the cause for such failures, and we couldbe subject to civil and criminal liabilities to the extent that our servicescontributed to any property damage or blackout. The outcome of theseproceedings could result in significant costs and diversion of management’sattention to our business. Payments of significant amounts, even if reserved,could adversely affect our reputation and liquidity position.

From time to time, we area party to various other lawsuits, claims and other legal proceedings thatarise in the ordinary course of our business. These actions typically seek,among other things, compensation for alleged personal injury, breach ofcontract, property damage, punitive damages, civil penalties or other losses,or injunctive or declaratory relief. With respect to such lawsuits, claims andproceedings, we accrue reserves when it is probable a liability has beenincurred and the amount of loss can be reasonably estimated. We do not believeany of these proceedings, individually or in the aggregate, would be expectedto have a material adverse effect on our results of operations, or of cashflows, or on our financial condition.

**Item 2.**Changes in Securities and Use ofProceeds.

The Securities and Exchange Commission (“SEC”)declared our first registration statement, which we filed on Form S-1(File No. 333-112375) in connection with the initial public offering ofour common stock, effective on May 6, 2004. Under this registrationstatement, we registered an aggregate offering price of $128.6 million of ourcommon stock, or 9,890,000 shares of common stock, including the shares subjectto the underwriters’ over-allotment option. We registered 8,500,000 of theseshares on our behalf and 1,390,000 shares on behalf of certain sellingstockholders. The selling stockholders sold 100,000 shares of common stock andgranted the underwriters an over-allotment option to purchase an additional1,290,000 shares of common stock, which option was not exercised.

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The underwriting syndicate was managed by LehmanBrothers Inc. and Goldman, Sachs & Co. This offering terminated uponthe closing of our initial public offering.

The initial publicoffering was completed on May 12, 2004, at a price to the public of $13.00per share, with an aggregate offering price of $111.8 million. The sale ofshares of common stock by us resulted in gross proceeds to us of $110.5million, $7.3 million of which we applied to underwriting discounts and commissionsand approximately $2.4 millionof which we applied to offering expenses. As a result, we received net proceedsof approximately $100.8 million. The net proceeds of the offering were used byus as follows:  (1) $50.2 millionwas used to repay a portion of term loans outstanding under our senior creditfacility; (2)  $30 million was used to repay the principal amount of oursubordinated note with Exelon; and (3) the remaining proceeds ofapproximately $20.6 million were retained for general corporate purposes.

**Item 3.**Defaults Upon Senior Securities.

None.

**Item 4.**Submission of Matters to a Vote ofSecurity Holders.

Prior to thecompletion of our IPO in May 2004, the following matters were approved bya written consent of a majority of the stockholders of the Company in lieu ofannual meeting, dated April 29, 2004:

(1)   Election of the following directors:

David R. HelwigJohn R. MarshallJohn A. BraymanChristopher S. BrothersMichael P. HarmonIan A. SchapiroRichard S. Siudek

(2)   The Company’s2004 Omnibus Stock Incentive Plan and 2004 Employee Stock Purchase Plan;

(3)   An increasein the number of shares of common stock available for issuance under theCompany’s 2003 Omnibus Stock Incentive Plan;

(4)   Anamendment and restatement of the Company’s certificate of incorporation, toeffectuate an approximate 21.7625-for-one stock split of the then outstandingcommon stock of the Company, and to increase the total authorized from 120,000,000shares of common stock to 132,000,000, of which 120,000,000 shares weredesignated as common stock and 12,000,000 shares were designated as preferredstock; and

(5)   The form of indemnification agreement, providing for an indemnityarrangement between the Company and its executive officers and directors.

**Item 5. Other Information.**

None.

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**Item 6.**Exhibits and Reports on Form 8-K.

(a)          Exhibits
| 31.1 | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) under the Securities  Exchange Act of 1934                                                                  |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934                                                                  |
| 32.1 | Certification of  Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

(b)   During the quarter ended June 30, 2004,the Company filed on June 2, 2004, a Current Report on Form 8-K, forthe purpose of reporting, under Item 12, the Company’s results of operationsfor the first quarter ended March 31, 2004.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                             | INFRASOURCE SERVICES, INC. |
|-----------------------------|----------------------------|
|                        | (Registrant)               |
| Date: August 13,  2004 | By:                        | /s/ Terence R.  Montgomery |
|                        |                       | Terence R. Montgomery |
|                        |                       | Chief Financial Officer and Senior Vice President |

 

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**EXHIBIT INDEX**
| 31.1 | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) under the Securities Exchange Act of 1934                                                                  |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934                                                                 |
| 32.1 | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

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