##### 

c

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 001-32164
 INFRASOURCE SERVICES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    03-0523754(I.R.S. Employer
Identification No.)
 100 West Sixth Street, Suite 300, Media, PA  (Address of principal executive offices)  19063  (Zip Code)  (610) 480-8000  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




---



##### 



For the Quarter Ended March 31, 2006
FORM 10-Q
INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Table of Contents
 Page #Part IFINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets at December 31, 2005 and March 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the three months ended March
31, 2005 and 2006
    
    
    4Condensed Consolidated Statement of Shareholders Equity for the three months ended
March 31, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
2005 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    31PART IIOTHER INFORMATION
    
    
    31Item 1.
    
    Legal Proceedings
    
    
    31Item 1A.
    
    Risk Factors
    
    
    32Item 6.
    
    Exhibits
    
    
    33SIGNATURES
    
    
    34
 2




---



##### 



PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
 December 31,
    
    
    March 31,2005
    
    
    2006(Unaudited)(In thousands, except share data)Current assets:Cash and cash equivalents
    
    $
    24,287
    
    
    $
    11,891Contract receivables (less allowances for doubtful accounts
of $3,184 and $2,561, respectively)
    
    
    137,762
    
    
    
    141,864Costs and estimated earnings in excess of billings
    
    
    84,360
    
    
    
    86,175Inventories
    
    
    9,183
    
    
    
    12,322Deferred income taxes
    
    
    4,732
    
    
    
    5,193Other current assets
    
    
    7,074
    
    
    
    6,121Receivables due from related party
    
    
    
    
    
    
    268Total current assets
    
    
    267,398
    
    
    
    263,834Property and equipment (less accumulated depreciation
of $55,919 and $62,741, respectively)
    
    
    144,200
    
    
    
    146,290Goodwill
    
    
    138,054
    
    
    
    138,610Intangible assets (less accumulated amortization of $19,861 and $20,118, respectively)
    
    
    1,884
    
    
    
    1,627Deferred charges and other assets, net
    
    
    10,501
    
    
    
    9,667Total assets
    
    $
    562,037
    
    
    $
    560,028Current liabilities:Current portion of long-term debt
    
    $
    889
    
    
    $
    888Other liabilities  related parties
    
    
    11,299
    
    
    
    7,880Accounts payable
    
    
    44,939
    
    
    
    40,057Accrued compensation and benefits
    
    
    20,454
    
    
    
    19,049Other current and accrued liabilities
    
    
    20,515
    
    
    
    19,068Accrued insurance reserves
    
    
    30,550
    
    
    
    33,766Billings in excess of costs and estimated earnings
    
    
    15,012
    
    
    
    16,143Deferred revenues
    
    
    6,590
    
    
    
    6,573Total current liabilities
    
    
    150,248
    
    
    
    143,424Long-term debt, net of current portion
    
    
    83,019
    
    
    
    82,797Deferred revenues
    
    
    17,826
    
    
    
    17,815Other long-term liabilities  related party
    
    
    420
    
    
    
    420Deferred income taxes
    
    
    3,370
    
    
    
    3,805Other long-term liabilities
    
    
    5,298
    
    
    
    4,837Total liabilities
    
    
    260,181
    
    
    
    253,098Commitments and contingenciesShareholders equity:Preferred stock, $.001 par value (authorized - 12,000,000 shares;
0 shares issued and outstanding)
    
    
    
    
    
    
    Common stock $.001 par value (authorized - 120,000,000 shares;
issued and outstanding - 39,396,694 and 39,673,004, respectively)
    
    
    39
    
    
    
    40Treasury stock at cost (29,870 and 29,870, respectively)
    
    
    (137
    )
    
    
    (137
    )Additional paid-in capital
    
    
    276,746
    
    
    
    279,368Retained earnings
    
    
    24,640
    
    
    
    27,106Accumulated other comprehensive income
    
    
    568
    
    
    
    553Total shareholders equity
    
    
    301,856
    
    
    
    306,930Total liabilities and shareholders equity
    
    $
    562,037
    
    
    $
    560,028
  3




---



##### 



INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2006(Unaudited)(In thousands, except per share data)Contract revenues
    
    $
    180,630
    
    
    $
    217,240Cost of revenues
    
    
    160,366
    
    
    
    188,044Gross profit
    
    
    20,264
    
    
    
    29,196Selling, general and administrative expenses
    
    
    16,508
    
    
    
    23,071Merger related costs
    
    
    76
    
    
    
    Provision (recoveries) of uncollectible accounts
    
    
    80
    
    
    
    (10
    )Amortization of intangible assets
    
    
    1,612
    
    
    
    257Income from operations
    
    
    1,988
    
    
    
    5,878Interest income
    
    
    194
    
    
    
    236Interest expense and amortization of debt discount
    
    
    (1,456
    )
    
    
    (2,111
    )Other income, net
    
    
    4,380
    
    
    
    128Income from continuing operations before income taxes
    
    
    5,106
    
    
    
    4,131Income tax expense
    
    
    2,042
    
    
    
    1,665Income from continuing operations
    
    
    3,064
    
    
    
    2,466Discontinued operations:Loss from discontinued operations (net of income
tax benefit of $215 and $0, respectively)
    
    
    (322
    )
    
    
    Net income
    
    $
    2,742
    
    
    $
    2,466Basic income per share:Income from continuing operations
    
    $
    0.08
    
    
    $
    0.06Loss from discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.07
    
    
    $
    0.06Weighted average basic common shares outstanding
    
    
    38,981
    
    
    
    39,515Diluted income per share:Income from continuing operations
    
    $
    0.08
    
    
    $
    0.06Loss from discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.07
    
    
    $
    0.06Weighted average diluted common shares outstanding
    
    
    39,794
    
    
    
    40,116
  4




---



##### 



INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders Equity
 Accumulated Other ComprehensiveIncomeForeignFair Value
    
    
    CurrencyCommon Stock
    
    
    Treasury Stock
    
    
    Additional Paid-In
    
    
    Deferred
    
    
    Adjustment on
    
    
    Translation
    
    
    RetainedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Derivatives
    
    
    Adjustment
    
    
    Earnings
    
    
    Total(Unaudited)(in thousands, except share amounts)Balance as of December 31, 2005
    
    
    39,396,694
    
    
    $
    39
    
    
    
    (29,870
    )
    
    $
    (137
    )
    
    $
    278,387
    
    
    $
    (1,641
    )
    
    $
    480
    
    
    $
    88
    
    
    $
    24,640
    
    
    $
    301,856Vesting of early exercised
options
    
    
    119,476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    549Reclass of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,641
    )
    
    
    1,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised and
vested restricted stock
    
    
    156,834
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756Income tax benefit from options
exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    870Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,466
    
    
    
    2,466Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Balance as of March 31, 2006
    
    
    39,673,004
    
    
    $
    40
    
    
    
    (29,870
    )
    
    $
    (137
    )
    
    $
    279,368
    
    
    $
    
    
    
    $
    480
    
    
    $
    73
    
    
    $
    27,106
    
    
    $
    306,930
  5




---



##### 



INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2006(Unaudited)(In thousands)Cash flows from operating activities:Net income
    
    $
    2,742
    
    
    $
    2,466Adjustments to reconcile net income to cash
used in operating activities:Loss from discontinued operations - net of tax
    
    
    322
    
    
    
    Depreciation
    
    
    6,793
    
    
    
    6,911Amortization of intangibles
    
    
    1,612
    
    
    
    257(Gain) loss on sale of assets
    
    
    (624
    )
    
    
    71Deferred income taxes
    
    
    1,512
    
    
    
    (873
    )Reversal of litigation judgment
    
    
    (4,279
    )
    
    
    Other
    
    
    (121
    )
    
    
    1,028Changes in operating assets and liabilities, net of
effects of acquisitions:Contract receivables, net
    
    
    2,214
    
    
    
    (4,092
    )Costs and estimated earnings in excess of billings, net
    
    
    (25,546
    )
    
    
    (683
    )Inventories and other current assets
    
    
    2,893
    
    
    
    (2,182
    )Deferred charges and other assets
    
    
    (1,150
    )
    
    
    156Current liabilities
    
    
    (3,661
    )
    
    
    (3,694
    )Other liabilities  related parties
    
    
    893
    
    
    
    36Other liabilities
    
    
    (29
    )
    
    
    163Net cash flows used in operating
activities from continuing operations
    
    
    (16,429
    )
    
    
    (436
    )Net cash flows used in operating
activities from discontinued operations
    
    
    (207
    )
    
    
    Net cash flows used in operating activities
    
    
    (16,636
    )
    
    
    (436
    )Cash flows from investing activities:Acquisitions of businesses, net of cash acquired
    
    
    (38
    )
    
    
    (3,476
    )Proceeds from restricted cash
    
    
    5,000
    
    
    
    Proceeds from sales of equipment
    
    
    1,345
    
    
    
    186Additions to property and equipment
    
    
    (8,540
    )
    
    
    (9,557
    )Net cash flows used in investing
activities from continuing operations
    
    
    (2,233
    )
    
    
    (12,847
    )Net cash flows used in investing
activities from discontinued operations
    
    
    (138
    )
    
    
    Net cash flows used in investing activities
    
    
    (2,371
    )
    
    
    (12,847
    )Cash flows from financing activities:Increase in revolving credit facility borrowings
    
    
    6,000
    
    
    
    Repayments of long-term debt and capital lease obligations
    
    
    (231
    )
    
    
    (223
    )Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    356Proceeds from exercise of stock options
    
    
    270
    
    
    
    755Net cash flows provided by financing activities
    
    
    6,039
    
    
    
    888Cash and cash equivalents:Net decrease in cash and cash equivalents
    
    
    (12,968
    )
    
    
    (12,395
    )Cash and cash equivalents transferred to discontinued operations
    
    
    345
    
    
    
    Cash and cash equivalents  beginning of period
    
    
    21,222
    
    
    
    24,287Effect of exchange rates on cash
    
    
    
    
    
    
    (1
    )Cash and cash equivalents  end of period
    
    $
    8,599
    
    
    $
    11,891Supplemental cash flow information:Accounts payable balance related to purchases of property and equipment
    
    $
    2,217
    
    
    $
    954
  6




---



##### 



INFRASOURCE SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. Organization and Basis of Presentation
      7




---



##### 



2. Summary of Significant Accounting Policies
 Share-based compensation
      8




---



##### 



Three Months EndedMarch 31, 2005(in thousands, exceptper share amounts)Net income as reported
    
    $
    2,742Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of relative tax effects
    
    
    (157
    )Add: Total stock-based employee compensation expense,
net of related tax effects included in the
determination of net income as reported
    
    
    16Pro forma net income
    
    $
    2,601Basic and diluted income per share:Basic net income per share  as reported
    
    $
    0.07Basic net income per share  pro forma
    
    
    0.07Diluted net income per share  as reported
    
    
    0.07Diluted net income per share  pro forma
    
    
    0.07
  3. Discontinued Operations
  9




---



##### 



For The ThreeMonths EndedMarch 31, 2005(in thousands)Contract revenues
    
    $
    4,878Pre-tax loss
    
    
    (536
    )
 4. Costs And Estimated Earnings In Excess Of Billings
   5. Goodwill and Intangible Assets
  December 31, 2005
    
    
    March 31, 2006(in thousands)Goodwill
    
    $
    138,054
    
    
    $
    138,610Intangible assets:Construction backlog
    
    $
    17,184
    
    
    $
    17,184Volume agreements
    
    
    4,561
    
    
    
    4,561Total intangible assets
    
    
    21,745
    
    
    
    21,745Accumulated amortization:Construction backlog
    
    
    (16,690
    )
    
    
    (16,814
    )Volume agreements
    
    
    (3,171
    )
    
    
    (3,304
    )Total accumulated amortization
    
    
    (19,861
    )
    
    
    (20,118
    )Intangible assets, net
    
    $
    1,884
    
    
    $
    1,627
  10




---



##### 



For the year ended December, 31,
    
    (in thousands)2006 (excludes the three months ended
March 31, 2006)
    
    $
    8052007
    
    
    4362008
    
    
    2272009
    
    
    1592010
    
    
    Total
    
    $
    1,627
 6. Debt
  11




---



##### 



7. Computation of Per Share Earnings
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2006(in thousands)Income from continuing
operations (numerator)
    
    $
    3,064
    
    
    $
    2,466Loss from discontinued
operations, net of tax
benefit of $(215) and $0,
respectively
    
    
    (322
    )
    
    
    Net income
    
    $
    2,742
    
    
    $
    2,466Weighted average basic common
shares outstanding
(denominator)
    
    
    38,981
    
    
    
    39,515Potential common stock arising
from stock options
    
    
    813
    
    
    
    601Weighted average diluted
common
shares outstanding
(denominator)
    
    
    39,794
    
    
    
    40,116Basic net income per share
    
    $
    0.07
    
    
    $
    0.06Diluted net income per share
    
    
    0.07
    
    
    
    0.06
  8. Stock Compensation Plans
 Stock Options
   12




---



##### 



Three months endedMarch 31, 2006Weighted Average Assumptions:Expected volatility
    
    
    45
    %Dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    4.57
    %Annual forfeiture rate
    
    
    7
    %Expected holding period (in years)
    
    
    6.25
 13




---



##### 



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise Price
    
    
    Contractual
    
    
    Intrinsic ValueOptions
    
    
    per share
    
    
    Life
    
    
    (in thousands)Balance, December 31,
2004
    
    
    2,212,701
    
    
    $
    7.53Granted
    
    
    701,563
    
    
    
    11.48Exercised  Vested
    
    
    (176,997
    )
    
    
    5.02Cancelled
    
    
    (331,526
    )
    
    
    7.84Balance, December 31,
2005
    
    
    2,405,741
    
    
    $
    8.81Granted
    
    
    19,913
    
    
    
    16.01Exercised  Vested
    
    
    (114,947
    )
    
    
    6.57Cancelled
    
    
    (23,358
    )
    
    
    7.48Balance, March 31, 2006
    
    
    2,287,349
    
    
    $
    9.00Options
fully vested and expected to vest as of
March 31, 2006
    
    
    2,064,455
    
    
    $
    8.63
    
    
    
    8.2
    
    
    $
    17,706Options exercisable as
of March 31, 2006
    
    
    495,683
    
    
    $
    6.72
    
    
    
    7.7
    
    
    $
    5,201
   14




---



##### 



Restricted Stock
   Weighted-AverageGrant-Date FairShares
    
    
    ValueNonvested shares at December 31, 2005
    
    
    167,556
    
    
    $
    13.13Vested
    
    
    (41,889
    )
    
    
    13.13Nonvested shares at March 31, 2006
    
    
    125,667
    
    
    $
    13.13
  Employee Stock Purchase Plan
  9. Concentration of Credit Risk
   15




---



##### 



10. Other Income, Net
  11. Comprehensive Income
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2006(In thousands)Net income
    
    $
    2,742
    
    
    $
    2,466Foreign currency translation adjustment
    
    
    
    
    
    
    (15
    )Fair value adjustments on derivatives
    
    
    231
    
    
    
    Comprehensive income
    
    $
    2,973
    
    
    $
    2,451
  12. Segment Information
   16




---



##### 



InfrastructureFor the Three Months
    
    Construction
    
    
    Telecommunication
    
    
    Corporate andEnded March 31, 2005
    
    Services
    
    
    Services
    
    
    Eliminations
    
    
    Total(in thousands)Revenues
    
    $
    169,341
    
    
    $
    10,514
    
    
    $
    775
    
    
    $
    180,630Income (loss) from
operations as
adjusted
    
    
    3,295
    
    
    
    4,193
    
    
    
    (3,888
    )
    
    
    3,600Depreciation
    
    
    5,911
    
    
    
    836
    
    
    
    46
    
    
    
    6,793Amortization
    
    
    1,612
    
    
    
    
    
    
    
    
    
    
    
    1,612Total assets
    
    
    376,291
    
    
    
    78,790
    
    
    
    68,533
    
    
    
    523,614Capital expenditures
    
    
    3,774
    
    
    
    4,460
    
    
    
    306
    
    
    
    8,540reconciliation:Income (loss) from
operations as adjusted
    
    $
    3,295
    
    
    $
    4,193
    
    
    $
    (3,888
    )
    
    $
    3,600Less: Amortization
    
    
    1,612
    
    
    
    
    
    
    
    
    
    
    
    1,612Income (loss) from
operations
    
    
    1,683
    
    
    
    4,193
    
    
    
    (3,888
    )
    
    
    1,988Interest income
    
    
    87
    
    
    
    
    
    
    
    107
    
    
    
    194Interest expense and
amortization of debt
discount
    
    
    (1,353
    )
    
    
    (24
    )
    
    
    (79
    )
    
    
    (1,456
    )Other income, net
    
    
    594
    
    
    
    1
    
    
    
    3,785
    
    
    
    4,380Income (loss) before
income taxes
    
    $
    1,011
    
    
    $
    4,170
    
    
    $
    (75
    )
    
    $
    5,106
 17




---



##### 



InfrastructureFor the Three Months
    
    Construction
    
    
    Telecommunication
    
    
    Corporate andEnded March 31, 2006
    
    Services
    
    
    Services
    
    
    Eliminations
    
    
    Total(in thousands)Revenues
    
    $
    209,601
    
    
    $
    10,073
    
    
    $
    (2,434
    )
    
    $
    217,240Income (loss) from
operations as
adjusted
    
    
    7,853
    
    
    
    4,458
    
    
    
    (6,176
    )
    
    
    6,135Depreciation
    
    
    5,870
    
    
    
    986
    
    
    
    55
    
    
    
    6,911Amortization
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    257Total assets
    
    
    381,231
    
    
    
    95,344
    
    
    
    83,453
    
    
    
    560,028Capital expenditures
    
    
    5,354
    
    
    
    4,170
    
    
    
    33
    
    
    
    9,557reconciliation:Income (loss) from
operations as adjusted
    
    $
    7,853
    
    
    $
    4,458
    
    
    $
    (6,176
    )
    
    $
    6,135Less: Amortization
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    257Income (loss) from
operations
    
    
    7,596
    
    
    
    4,458
    
    
    
    (6,176
    )
    
    
    5,878Interest income
    
    
    1
    
    
    
    
    
    
    
    235
    
    
    
    236Interest expense and
amortization of debt
discount
    
    
    (1,274
    )
    
    
    155
    
    
    
    (992
    )
    
    
    (2,111
    )Other income (expense),
net
    
    
    (47
    )
    
    
    (3
    )
    
    
    178
    
    
    
    128Income (loss) before
income taxes
    
    $
    6,276
    
    
    $
    4,610
    
    
    $
    (6,755
    )
    
    $
    4,131
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2006(in thousands)Electric Transmission
    
    $
    39,485
    
    
    $
    57,760Electric Substation
    
    
    32,636
    
    
    
    38,749Utility Distribution and Industrial Electric
    
    
    41,781
    
    
    
    37,343Total Electric
    
    
    113,902
    
    
    
    133,852Natural Gas
    
    
    43,141
    
    
    
    53,926Telecommunications
    
    
    19,381
    
    
    
    24,312Other
    
    
    4,206
    
    
    
    5,150$
    180,630
    
    
    $
    217,240
  13. Related Party Transactions
   18




---



##### 



14. Commitments and Contingencies
    19




---



##### 



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 Forward-Looking and Cautionary Statements
   Introduction
  Overview
  20




---



##### 




    
    Our gross profit increased $8.9 million, as compared to the first quarter of 2005, and
our gross profit margin increased from 11.2% in 2005 to 13.4% in 2006. The increase was
due primarily to an increase in volume and productivity in
our natural gas and electric transmission work due to unusually mild weather during the first quarter of 2006, an increase in the volume of higher margin electric
substation and electric transmission work, an increase
in volume of dark fiber lease revenue and the exiting of certain unprofitable natural
gas contracts. This increase was partially offset by a decrease in the volume of utility distribution and industrial electric work.
    
    Claim amounts of $5.8 million, related to a delay in the anticipated start date of one
of our electric transmission projects, were fully recovered during the three months ended
March 31, 2006. These claim settlements also generated a pre-tax profit of $0.3 million.
    
    We recorded $0.9 million of share-based compensation
expense upon the adoption of Statement of Financial Accounting
Standards (SFAS) No. 123R Share-Based
Payment.
  Three Months Ended
    
    Three Months EndedEnd Market
    
    March 31, 2005
    
    March 31, 2006Electric Transmission
    
    
    22
    %
    
    
    27
    %Electric Substation
    
    
    18
    %
    
    
    18
    %Utility Distribution and Industrial Electric
    
    
    23
    %
    
    
    17
    %Total Electric
    
    
    63
    %
    
    
    62
    %Natural Gas
    
    
    24
    %
    
    
    25
    %Telecommunications
    
    
    11
    %
    
    
    11
    %Other
    
    
    2
    %
    
    
    2
    %
  21




---



##### 



Backlog as of
    
    
    Increase/
    
    
    Increase/March 31,
    
    
    March 31,
    
    
    (Decrease)
    
    
    (Decrease)2005
    
    
    2006
    
    
    ($)
    
    
    (%)(in millions)Electric Transmission
    
    $
    152
    
    
    $
    176
    
    
    $
    24
    
    
    
    16
    %Electric Substation
    
    
    102
    
    
    
    136
    
    
    
    34
    
    
    
    33
    %Utility Distribution and Industrial Electric
    
    
    69
    
    
    
    73
    
    
    
    4
    
    
    
    6
    %Total Electric
    
    
    323
    
    
    
    385
    
    
    
    62
    
    
    
    19
    %Natural Gas
    
    
    388
    
    
    
    294
    
    
    
    (94
    )
    
    
    (24
    )%Telecommunications
    
    
    186
    
    
    
    234
    
    
    
    48
    
    
    
    26
    %Other
    
    
    25
    
    
    
    19
    
    
    
    (6
    )
    
    
    (24
    )%Total
    
    $
    922
    
    
    $
    932
    
    
    $
    10
    
    
    
    1
    %
 Backlog as of
    
    
    Increase/
    
    
    Increase/December
    
    
    March 31,
    
    
    (Decrease)
    
    
    (Decrease)31, 2005
    
    
    2006
    
    
    ($)
    
    
    (%)(in millions)Electric Transmission
    
    $
    184
    
    
    $
    176
    
    
    $
    (8
    )
    
    
    (4
    )%Electric Substation
    
    
    124
    
    
    
    136
    
    
    
    12
    
    
    
    10
    %Utility Distribution and Industrial Electric
    
    
    45
    
    
    
    73
    
    
    
    28
    
    
    
    62
    %Total Electric
    
    
    353
    
    
    
    385
    
    
    
    32
    
    
    
    9
    %Natural Gas
    
    
    284
    
    
    
    294
    
    
    
    10
    
    
    
    3
    %Telecommunications
    
    
    233
    
    
    
    234
    
    
    
    1
    
    
    
    0
    %Other
    
    
    24
    
    
    
    19
    
    
    
    (5
    )
    
    
    (21
    )%Total
    
    $
    894
    
    
    $
    932
    
    
    $
    38
    
    
    
    4
    %
  Backlog as of
    
    
    Increase/
    
    
    Increase/March 31,
    
    
    March 31,
    
    
    (Decrease)
    
    
    (Decrease)2005
    
    
    2006
    
    
    ($)
    
    
    (%)(in millions)Infrastructure Construction Services
    
    $
    816
    
    
    $
    797
    
    
    $
    (19
    )
    
    
    (2
    )%Telecommunication Services
    
    
    106
    
    
    
    135
    
    
    
    29
    
    
    
    27
    %Total
    
    $
    922
    
    
    $
    932
    
    
    $
    10
    
    
    
    1
    %
 Backlog as of
    
    
    Increase/
    
    
    Increase/December 31,
    
    
    March 31,
    
    
    (Decrease)
    
    
    (Decrease)2005
    
    
    2006
    
    
    ($)
    
    
    (%)(in millions)Infrastructure Construction Services
    
    $
    773
    
    
    $
    797
    
    
    $
    24
    
    
    
    3
    %Telecommunication Services
    
    
    121
    
    
    
    135
    
    
    
    14
    
    
    
    12
    %Total
    
    $
    894
    
    
    $
    932
    
    
    $
    38
    
    
    
    4
    %
 22




---



##### 



Critical Accounting Policies and Estimates
  Share-Based
Compensation
     Results of Operations
 Seasonality and Cyclicality
     23




---



##### 



Consolidated Results
 Three months ended March 31, 2006 compared to the three months ended March 31, 2005
 Three Months
    
    
    
    
    
    
    Three MonthsEnded March
    
    
    % of
    
    
    Ended March
    
    
    % of31, 2005
    
    
    Revenue
    
    
    31, 2006
    
    
    Revenue(in thousands)Contract revenues
    
    $
    180,630
    
    
    
    100.0
    %
    
    $
    217,240
    
    
    
    100.0
    %Gross profit
    
    
    20,264
    
    
    
    11.2
    %
    
    
    29,196
    
    
    
    13.4
    %Selling, general and administrative expenses
    
    
    16,508
    
    
    
    9.1
    %
    
    
    23,071
    
    
    
    10.6
    %Merger related costs
    
    
    76
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Provision (recoveries) of uncollectible
accounts
    
    
    80
    
    
    
    0.0
    %
    
    
    (10
    )
    
    
    0.0
    %Amortization of intangible
assets
    
    
    1,612
    
    
    
    0.9
    %
    
    
    257
    
    
    
    0.1
    %Income from operations
    
    
    1,988
    
    
    
    1.1
    %
    
    
    5,878
    
    
    
    2.7
    %Interest income
    
    
    194
    
    
    
    0.1
    %
    
    
    236
    
    
    
    0.1
    %Interest expense and amortization of debt
discount
    
    
    (1,456
    )
    
    
    -0.8
    %
    
    
    (2,111
    )
    
    
    -1.0
    %Other income
    
    
    4,380
    
    
    
    2.4
    %
    
    
    128
    
    
    
    0.1
    %Income from continuing operations before
income taxes
    
    
    5,106
    
    
    
    2.8
    %
    
    
    4,131
    
    
    
    1.9
    %Income tax expense
    
    
    2,042
    
    
    
    1.1
    %
    
    
    1,665
    
    
    
    0.8
    %Income from continuing operations
    
    $
    3,064
    
    
    
    1.7
    %
    
    $
    2,466
    
    
    
    1.1
    %
 Revenues:
 Gross profit:
 Selling, general and administrative expenses:
 24




---



##### 



Amortization of intangible assets:
 Interest expense and amortization of debt discount:
 Other income, net:
 Provision for income taxes:
 Discontinued operations, net of tax:
 Segment Results
   Three months ended March 31, 2006 compared to the three months ended March 31, 2005
 Three Months
    
    
    Three MonthsEnded March 31,
    
    
    Ended March2005
    
    
    31, 2006
    
    
    Change$
    
    
    %(in thousands)Revenue:Infrastructure Construction Services
    
    $
    169,341
    
    
    $
    209,601
    
    
    $
    40,260
    
    
    
    24
    %Telecommunication Services
    
    
    10,514
    
    
    
    10,073
    
    
    
    (441
    )
    
    
    -4
    %Total segment revenues
    
    
    179,855
    
    
    
    219,674
    
    
    
    39,819
    
    
    
    22
    %Corporate and eliminations
    
    
    775
    
    
    
    (2,434
    )
    
    
    (3,209
    )
    
    
    -414
    %Total revenue
    
    $
    180,630
    
    
    $
    217,240
    
    
    $
    36,610
    
    
    
    20
    %
 25




---



##### 



Three Months
    
    
    Three MonthsEnded March 31,
    
    
    Ended March 31,2005
    
    
    2006
    
    
    Change$
    
    
    %(in thousands)Income from operations as adjusted:Infrastructure Construction Services
    
    $
    3,295
    
    
    $
    7,853
    
    
    $
    4,558
    
    
    
    138
    %Telecommunication Services
    
    
    4,193
    
    
    
    4,458
    
    
    
    265
    
    
    
    6
    %Total segment income from operations as adjusted
    
    
    7,488
    
    
    
    12,311
    
    
    
    4,823
    
    
    
    64
    %Corporate and eliminations
    
    
    (3,888
    )
    
    
    (6,176
    )
    
    
    (2,288
    )
    
    
    59
    %Total income from operations as adjusted
    
    $
    3,600
    
    
    $
    6,135
    
    
    $
    2,535
    
    
    
    70
    %
 ICS
 Revenues:
 Income from operations as adjusted:
 TS
 Revenues:
 Income from operations as adjusted:
 Corporate
  26




---



##### 



Liquidity and Capital Resources
 Cash, Working Capital Requirements and Capital Expenditures
   Sources and Uses of Cash
   27




---



##### 



Cash from operating activities from continuing operations.
 Cash from investing activities from continuing operations.
 Cash from financing activities from continuing operations.
  28




---



##### 



Contractual Obligations and Other Commitments
  Payments due by periodLess
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1-3
    
    
    4-5
    
    
    than 5Contractual Obligations (1)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsLong-term debt obligations
    
    
    83,685
    
    
    
    674
    
    
    
    2,606
    
    
    
    80,405
    
    
    
    Operating lease obligations
    
    
    38,908
    
    
    
    14,486
    
    
    
    23,917
    
    
    
    424
    
    
    
    81Projected interest payments
on long term debt (2)
    
    
    29,637
    
    
    
    5,688
    
    
    
    19,248
    
    
    
    4,701
    
    
    
    Contingent earnout payments
(3)
    
    
    7,673
    
    
    
    7,073
    
    
    
    600
    
    
    
    
    
    
    
    Other long-term liabilities:Non-vested options exercised
    
    
    375
    
    
    
    355
    
    
    
    20
    
    
    
    
    
    
    
    Other
    
    
    4,282
    
    
    
    33
    
    
    
    4,052
    
    
    
    13
    
    
    
    184Total
    
    $
    164,560
    
    
    $
    28,309
    
    
    $
    50,443
    
    
    $
    85,543
    
    
    $
    265
 
 (1)
    
    Trade accounts payable are not included in Contractual Obligations.(2)
    
    The total projected interest payments on long-term debt are based upon borrowings and
interest rates as of March 31, 2006. The interest rate on variable rate debt is subject to
changes beyond our control and may result in actual interest expense and payments differing
from the amounts above.(3)
    
    See discussion below in Contingent Earnout Payments Contingent Earnout Payments
   Related Party Transactions
    29




---



##### 



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest Rates.
  30




---



##### 



Currency Risk.
 Gasoline and Diesel Fuel.
 Item 4.
CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
  PART II  OTHER INFORMATION
 Item 1. LEGAL PROCEEDINGS.
   31




---



##### 



Item 1A. RISK FACTORS.
  32




---



##### 



Item 6. EXHIBITS.
 3.1
    
    Restated Certificate of Incorporation of InfraSource Services, Inc.(1)3.1.1
    
    Certificate of Amendment to the Restated Certificate of Incorporation
of InfraSource Services, Inc.(1)3.2
    
    Amended and Restated Bylaws of InfraSource Services, Inc.(1)3.3
    
    Specimen of Common Stock certificate of InfraSource Services Inc.(1)4.1
    
    Stockholders Agreement, dated as of September 24, 2003, by and among
InfraSource Services, Inc. (f/k/a the Dearborn Holdings Corporation)
and its Security Holders party thereto.(2)4.2
    
    Registration Rights Agreement, dated as of April 20, 2004, by and among
InfraSource Services, Inc. OCM Principal Opportunities Fund II, L.P.,
OCM/GFI Power Opportunities Funds, L.P., Martin Maslonka, Thomas B.
Tilford, Mark C. Maslonka, Justin Campbell, Joseph Gabbard, Sidney
Strauss, Jon Maslonka, David R. Helwig, Terence R. Montgomery and Paul
M. Daily.(1)4.2.1
    
    Amendment to Registration Rights Agreement, dated as of December 7,
2005, by and among InfraSource Services, Inc. and OCM Principal
Opportunities Fund II, L.P., OCM/GFI Power Opportunities Funds, L.P.,
Tontine Capital Partners, L.P., Martin Maslonka, Thomas B. Tilford,
Mark C. Maslonka, Justin Campbell, Joseph Gabbard, Sidney Strauss, Jon
Maslonka, David R. Helwig, Terence R. Montgomery and Paul M. Daily.(3)10.1
    
    Fourth Amendment, dated as of March 15, 2006, to the Amended and
Restated Credit Agreement, dated as of May 12, 2004, by and among
InfraSource Services, Inc., InfraSource Incorporated, LaSalle Bank
National Association, as syndication agent, Barclays Bank Plc, as
administrative agent, and the several banks and other financial
institutions or entities from time to time parties thereto.(4)31.1
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.*31.2
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.*32.1
    
    Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code.*
 
 *
    
    Filed herewith(1)
    
    Filed as an exhibit to the Registrants Registration Statement on Form S-8
(Registration No. 333-115648) filed with the Commission on May 19, 2004.(2)
    
    Filed as an exhibit to the Registrants Registration Statement on Form S-1
(Registration No. 333-112375) filed with the Commission on January 30, 2004.(3)
    
    Filed as an exhibit to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2005.(4)
    
    Filed as an exhibit to the Registrants Current Report on Form 8-K dated March 15,
2006. 33




---



##### 



SIGNATURES
  INFRASOURCE SERVICES, INC.(Registrant)Date: May 3, 2006
    
    By:
    
    /s/ TERENCE R. MONTGOMERY

Terence R. MontgomerySenior Vice President and Chief Financial Officer
 34