InfrastruX Group, Inc.
Index to Historical
Consolidated Financial Statements

		Page
Report of Independent Registered Public Accounting Firm			3
Consolidated Balance Sheets as of March 31, 2010 and 2009 (unaudited) and as of December 31, 2009 and 2008			4
Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited) and the years ended December 31, 2009, 2008 and 2007			5
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the three months ended March 31, 2010 (unaudited) and the years ended December 31, 2009, 2008 and 2007			6
Consolidated Statements of Cash of Flows for the three months ended March 31, 2010 and 2009 (unaudited) and the years ended December 31, 2009, 2008 and 2007			7
Notes to Consolidated Financial Statements for the three months ended March 31, 2010 and 2009 (unaudited) and the years ended December 31, 2009, 2008 and 2007			8

Willbros Group, Inc.
Index to Unaudited Pro Forma
Condensed Financial Statements

		Page
Unaudited Pro Forma Condensed Financial Statements — Introductory Information			38
Unaudited Pro Forma Condensed Consolidated Statements of Income for the quarter ended March 31, 2010			40
Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 2009			41
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2010			42
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

InfrastruX Group, Inc.

 

 

The Board of Directors and Shareholders

InfrastruX Group, Inc.:

 

We have audited the accompanying consolidated balance sheets of InfrastruX Group, Inc. and subsidiaries (the Company) as of December 31, 2008 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InfrastruX Group, Inc. and subsidiaries as of December 31, 2008 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

 

/s/ KPMG LLP
Seattle, Washington
April 23, 2010

 

InfrastruX Group, Inc.

 

 

 

 

See accompanying notes to consolidated financial statements.

 

InfrastruX Group, Inc.

 

 

 

 

See accompanying notes to consolidated financial statements.

 

InfrastruX Group, Inc.

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

InfrastruX Group, Inc.

 

 

 

 

See accompanying notes to consolidated financial statements.

 

InfrastruX Group, Inc.

 

 

 

December 31, 2007, 2008 and 2009
and the three months ended March 31, 2009 and 2010 (unaudited)
(In thousands of dollars, except par values, per share amounts and shares)

 

(1)  The company and summary of significant accounting policies

 

InfrastruX Group, Inc. (the Company or InfrastruX) is an approximately 99.9% owned subsidiary of InfrastruX Holdings, LLC, which is an approximately 95.3% owned subsidiary of TPF InfrastruX Holdings, LLC, a wholly owned subsidiary of Tenaska Power Fund, L.P. (TPF). InfrastruX was incorporated in the state of Washington on April 28, 2006. All significant operations for the Company commenced on May 8, 2006 upon the acquisition of the Company by TPF.

 

InfrastruX provides design, construction, maintenance, engineering and other infrastructure services to the utility industry. The Company also has subsidiaries that perform work in the United Kingdom, Germany and India.

 

(a)  Consolidation and basis of presentation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

(b)  Unaudited interim financial information

 

The accompanying consolidated balance sheet as of March 31, 2010, the consolidated statements of operations and cash flows for the three months ended March 31, 2009 and 2010 and the consolidated statement of shareholders’ equity and comprehensive loss for the three months ended March 31, 2010 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations and cash flows for the three months ended March 31, 2009 and 2010. The financial data and other information disclosed in these notes to the consolidated financial statements related to the three-month periods are unaudited. The results of the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010 or for any other interim period for any other future years.

 

(c)  Immaterial adjustment

 

The Company has included an adjustment to correct the supplemental disclosure of cash paid for interest in its previously issued statement of cash flows for the year ended December 31, 2009. The Company had previously disclosed $15,500 as cash paid in interest; the correct amount is $22,370.

 

(d)  Revenue and cost recognition

 

For the majority of its revenues, the Company recognizes revenues as the services have been rendered or performed. Revenues generated from short-term projects (often with durations of less than one month) are performed under Master Service Agreements (MSA), which typically are billed on a unit price basis and, less commonly, on a time and materials basis. The Company recognizes revenues for unit-based services on an output basis as units are completed. Revenues for the services performed on a time and materials basis are recognized as labor hours are incurred and services are performed. Storm restoration work is generally billed on a time and materials basis at contract rates for customers with which the Company has MSAs and at negotiated rates for off-system (non-MSA) customers.

 

InfrastruX Group, Inc.

 

 

Revenues for certain larger and longer duration projects, which tend to be performed on a fixed price basis, are recognized based on percentage-of-completion accounting, using the cost-to-cost method. Under this method, revenue is recognized based on the ratio of estimated costs incurred to total estimated costs to complete the project. These costs include, but are not limited to, all direct material, labor, and subcontract costs and indirect costs related to contract performance such as indirect labor, supplies, tools, repairs and depreciation. The Company records changes in its percent complete computations in the period in which the revisions are determined. Periodically, the Company performs work outside the specific requirements of a contract at the request of a customer. Generally, the revenue associated with such work is not recognized until a change order reflecting the scope and price for such work is executed. Occasionally we recognize costs of contract performance in the period in which they are incurred and contract revenue up to the amount of the costs incurred in the absence of an executed change order if we determine it is probable that the revenue is realizable and collectible. Provisions for the total estimated losses on uncompleted projects are recorded in the period in which such losses are determined to be probable and can be reasonably estimated. If actual results significantly differ from estimates used for revenue recognition, the Company’s financial condition and results of operations could be materially impacted.

 

The Company also generates some revenues from providing certain services that do not result in the construction of a tangible asset and are accounted for as service transactions. These revenues are recognized as the services are performed and amounts are earned. The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectibility is reasonably assured.

 

Unbilled revenues represent amounts earned and recognized in the period for which billings are issued in a subsequent period and are included in unbilled receivables. Unearned revenues represent amounts billed in excess of costs and estimated earnings and are included in other liabilities.

 

(e)  Accounts receivable and allowance for doubtful accounts

 

The Company records accounts receivable for all amounts billed and not collected. Also included in accounts receivable are unbilled revenues discussed in note 1(d). The balances billed but not paid by customers pursuant to retainage provisions in construction contracts are due upon completion of the contracts and acceptance by the customer. The retention balances are generally due within one year of the initial billing.

 

The Company provides an allowance for doubtful accounts when collection of an account receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. The Company reviews the adequacy of the reserves on a regular basis. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s willingness or ability to pay, the customer’s access to capital, general economic conditions and the ongoing relationship with the customer.

 

(f)  Concentration of risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk include accounts receivable. The Company maintains accounts receivable balances, in the normal course of business, from companies primarily in the utility industry or supporting the energy industry. The

 

InfrastruX Group, Inc.

 

 

percentage of accounts receivables from customers representing more than 5% of consolidated accounts receivable consisted of the following:

 

 

The percentage of revenues earned from customers representing more than 5% of consolidated revenues consisted of the following:

 

 

The Company also maintains a cash collateral and receivable balance for its comprehensive insurance coverage with a major insurer to support its obligations under its deductibles. As of December 31, 2008 and 2009, and March 31, 2010 (unaudited), cash collateral and receivables due from the insurance company of $28,461, $32,137 and $35,207, respectively, are recorded in prepaid expense and other current assets, net and other assets on the consolidated balance sheets.

 

As of March 31, 2010 (unaudited), approximately 17.5% of the Company’s hourly employees were represented by various unions and collective bargaining agreements. The Company does not directly negotiate with unions, but instead is represented by assorted contractor associations. Current collective bargaining agreements have varying terms depending on the union and have been renewed as necessary.

 

(g)  Cash equivalents

 

The Company considers all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. As of December 31, 2008 and 2009, and March 31, 2010 (unaudited), the Company had cash equivalents of $11,863, $16,144 and $1,402, respectively. Cash equivalents represent money market funds and certificates of deposit. At times, bank balances may exceed federally insured limits.

 

(h)  Inventories

 

Inventories are stated at the lower of cost, determined on the moving average basis, or replacement cost. Inventories primarily consist of pipe, small tools and other construction-related materials that are charged to a contract upon delivery and installation at the construction site. Other inventory items

 

InfrastruX Group, Inc.

 

 

include maintenance parts, spare component parts, and parts related to the Company’s cable restoration line of service. The Company evaluates inventory regularly and writes down obsolete inventory based on a detailed review of inventory quantities, aging, and expected usage.

 

(i)  Derivative instruments and hedging activities

 

The Company’s two interest rate swaps agreements that matured in 2009 were accounted for as either assets or liabilities on the consolidated balance sheets at their respective fair values. Changes in fair value were recorded to interest expense in the consolidated statements of operations.

 

In April 2009, the Company entered into an interest rate swap, which was designated as an effective cash flow hedge at inception. The gain or loss on the interest rate swap was reported as a component of other comprehensive income (loss) on the consolidated statements of shareholders’ equity and comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. This cash flow hedge was evaluated for hedge effectiveness on a quarterly basis. In connection with the amendment to the InfrastruX Credit Facility in October 2009 (note 9), the Company dedesignated this interest rate swap. All subsequent changes in fair value of the interest rate swap were recorded to interest expense in the consolidated statements of operations. As of December 31, 2009, amounts recorded in other comprehensive income on the consolidated statements of shareholders’ equity and comprehensive income (loss) are the result of cash flow hedge treatment of this interest rate swap from April 2009 to September 2009.

 

(j)  Property and equipment

 

Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:

 

 

Equipment under capital leases is stated at the lower of the present value of minimum lease payments or fair value and is depreciated on a straight-line basis over the estimated useful life of the asset or the lease term. Expenditures for refurbishment and improvements that extend the useful life of an asset are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and the related gains and losses are included in other, net in the consolidated statements of operations.

 

(k)  Goodwill

 

Goodwill represents the excess of cost over net tangible and identifiable intangible assets of the business acquired. Goodwill is reviewed and tested for impairment annually during the fourth quarter of each year. For goodwill, the Company performs a two-step impairment test. In the first step, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step is then performed. The second step

 

InfrastruX Group, Inc.

 

 

compares the carrying amount of the reporting unit’s goodwill to the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying amount, an impairment loss would be recorded in operating income or loss in the consolidated statements of operations. The Company’s goodwill is included in three reporting units for goodwill valuation and impairment testing purposes. The three reporting units for which goodwill impairment is assessed are as follows: West/Midwest/National region, Eastern region and Texas/Southwest/South Central region.

 

(l)  Long-lived assets and amortizable intangible assets

 

The Company reviews its long-lived assets, including intangible assets with finite useful lives, for impairment if events or changes in circumstances indicate that the carrying value of such asset or asset groups may not be recoverable. The Company assesses these assets for impairment based on estimated future cash flows from these assets. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset or asset groups are compared to its carrying amount to determine if impairment in value has occurred. In 2008, the Company recorded an impairment charge of $7,620 related to certain customer relationship intangible assets.

 

In addition, the Company consolidated the asset groups that roll up into the Eastern reporting unit into a single asset group for the April 2009 evaluation. This change in estimate was incorporated into the April 2009 valuation in response to operational changes the Company made in its efforts to streamline operations and recognize available synergies within the region.

 

The Company estimates the useful life and fair value of purchased intangible assets at the time of acquisition and periodically reviews these estimates to determine whether these lives are appropriate. The Company’s intangible assets, which primarily consist of customer relationships, trade names, and developed technology, are amortized over their estimated useful lives using the straight-line method.

 

In addition, the Company’s cable remediation operating unit has patents and trademarks that have been issued and patents and trademarks that are pending. The Company capitalizes these costs, as they are considered probable of being issued, until such time as the patent or trademark is issued, and then amortizes those costs over its estimated useful life. The Company capitalized $274, $140, $285 and $49 of patents and trademarks pending as of December 31, 2007, 2008 and 2009, and March 31, 2010 (unaudited), respectively.

 

(m)  Other assets

 

Other current assets and other assets consist primarily of prepaid insurance costs and deferred financing costs.

 

(n)  Income taxes

 

The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

 

InfrastruX Group, Inc.

 

 

(o)  Insurance

 

The Company is insured for workers’ compensation, employer’s liability and general liability claims, subject to a deductible of $750 per occurrence. The Company is also insured for auto liability claims, subject to a deductible of $500 per occurrence. Additionally, the Company’s nonunion employee-related healthcare benefit plan is subject to a deductible of $250 per claimant per year.

 

Losses with respect to claims, including deductibles, are accrued based upon the Company’s estimates of the ultimate liability for claims incurred (including an estimate of claims incurred but not reported), using actuarially calculated claims liability data based on the Company’s claims experience. For these claims, to the extent the Company has insurance coverage above the deductible amounts, the Company has recorded a receivable reflected in other current assets and other assets on the consolidated balance sheets. These insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of the Company’s liability in proportion to other parties and the number of incidents not reported. The accruals are estimated based upon known facts and historical trends.

 

(p)  Retirement plans

 

The Company has defined contribution plans qualifying under Section 401(k) of the Internal Revenue Code benefiting eligible full-time nonunionized employees who elect to participate. Subject to the applicable plan and its respective design, the plans allow eligible employees to make pretax compensation contributions and each plan provides matching Company contributions for which employees vest in accordance with the applicable plan’s vesting schedule. The Company’s contribution expense consisted of the following:

 

 

In connection with its collective bargaining agreements with various unions, InfrastruX participates with other companies in the unions’ multi-employer pension and other postretirement benefit plans. These plans cover all of InfrastruX’s employees who are members of such unions. The Employee Retirement Income Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multi-employer plan in the event of the employer’s withdrawal from, or upon termination of, such plan. InfrastruX has no intention to withdraw from these plans. The plans do not maintain information on the net assets and actuarial present value of the plans’ unfunded vested benefits allocable to InfrastruX, and the amounts, if any, for which InfrastruX may be contingently liable, are not ascertainable at this time. Contributions to all union multi-employer pension and other postretirement plans by InfrastruX consisted of the following:

 

 

InfrastruX Group, Inc.

 

 

(q)  Segment reporting

 

The Company’s chief operating decision makers are the Chief Executive Officer and other senior executive officers of the Company. The chief operating decision makers manage the business primarily on a geographic basis, as the Company’s subsidiaries are generally grouped within discrete regions of the country and all offer similar maintenance and construction services to the electric power and natural gas transmission and distribution infrastructure markets. Based on information available to the chief operating decision makers and the manner in which they review operating results and allocate resources, the Company has determined that it has three operating segments based on these geographic areas. Due to the similarities in economic characteristics, service offerings, types of customers, methods of distribution and regulatory environments in which they operate in these geographic areas, management believes that the financial information is properly aggregated into one reportable segment.

 

(r)  Foreign currency translation

 

The Company’s foreign subsidiaries’ assets and liabilities are denominated in the local currency (British pounds, euros and rupees), and these currencies represent the functional currency of the respective subsidiaries. As such, the Company’s foreign subsidiaries’ assets and liabilities are translated at current exchange rates at the end of each reporting period, while income and expense are translated at average rates for the period. Translation gains and losses are reported as a component of accumulated other comprehensive income (loss).

 

(s)  Warranty costs

 

The Company does not have a general warranty program for the majority of its work. For certain contracts, the Company warrants labor for new installations and construction and servicing of existing infrastructure. The anticipated costs are not considered significant, and no reserve has been provided. One of the subsidiary companies maintains a warranty program, which specifically covers its cable remediation services. A warranty reserve of $1,897, $2,040 and $2,078 for cable remediation services is recorded in other long-term liabilities on the consolidated balance sheets as of December 31, 2008 and 2009, and March 31, 2010 (unaudited), respectively. Warranty activity for this service consisted of the following:

 

 

(t)  Deferred financing costs

 

The current portion of deferred financing costs is included in prepaid expenses and other current assets, net, and the long-term portion of the deferred financing costs is included in other assets on the

 

InfrastruX Group, Inc.

 

 

consolidated balance sheets. Deferred financing costs are amortized in other, net, in the consolidated statements of operations and consisted of the following:

 

 

(u)  Fair value of financial instruments

 

Fair value measurements

The Company follows a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. The fair value hierarchy describes three levels of inputs:

 

Level 1:  Quoted market prices in active markets for identical assets or liabilities.

 

Level 2:  Observable market based inputs or unobservable inputs that are corroborated by market data or quoted prices for similar instruments in active markets.

 

Level 3:  Significant inputs to the valuation model are unobservable.

 

Financial liabilities measured at fair value on a recurring basis

The following table presents information about the Company’s financial liabilities that are measured at fair value on a recurring basis and indicates the level in the fair value hierarchy of the valuation techniques utilized to determine such fair value:

 

 

The valuation techniques used to measure the fair value of the Company’s Level 2 liabilities include quoted prices for similar liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the liabilities. All data is observable in the market or can be derived principally from, or corroborated by, observable market data for which the Company typically receives external valuation information.

 

Other financial instruments

 

The Company’s other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses, and certain short-term and long-term borrowings. The Company believes that the fair value of these financial instruments approximates their carrying amounts based on current

 

InfrastruX Group, Inc.

 

 

market indicators, such as prevailing interest rates and market pricing models, with the exception of its term loan. The estimated fair value of the term loan, based on the quoted offer price is as follows:

 

 

(v)  Share-based compensation expense

 

The Company’s share-based compensation expense is recognized over the period the recipient is required to perform the services in exchange for the award (the vesting period). The Company values awards with graded vesting as single awards and recognizes the related compensation expense using a straight-line attribution method. Excess tax benefits are reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows in the consolidated statements of cash flows.

 

(w)  Common shares

 

During 2008, the Board of Directors approved a 45,748:1 stock split, which was retroactively applied to all shares in the consolidated financial statements and the notes to the consolidated financial statements. The stock split was effected to increase the number of shares available for grant under the InfrastruX 2007 Equity Incentive Plan.

 

(x)  Net loss per share

 

Basic net loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding during the period and potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalent would be antidilutive. As the Company is in a loss position, basic and diluted net loss per share are the same. The amounts and shares used to compute basic and diluted net loss per shares are as follows:

 

 

Potential common stock equivalents that have been issued by the Company are stock appreciation rights, restricted stock units, and Senior Redeemable Convertible Cumulative Preferred Stock plus accrued dividends. Using the treasury stock method, potential common stock shares for outstanding stock appreciation rights and restricted stock units to purchase approximately 4,370,660, 4,381,740,

 

InfrastruX Group, Inc.

 

 

4,320,660 and 4,100,600 shares of common stock were excluded from the calculation of diluted net loss per share for the years ended December 31, 2008 and 2009, and the three months ended March 31, 2009 (unaudited) and 2010 (unaudited), respectively, because they were antidilutive. The Company had no outstanding stock appreciation rights or restricted stock units prior to January 2008. Using the if-converted method for the Senior Redeemable Convertible Cumulative Preferred Stock issued in 2009, the potential common stock shares for the outstanding Senior Redeemable Convertible Cumulative Preferred Stock and accrued dividends to purchase approximately 4,048,582 and 4,180,162 shares of common stock were excluded from the calculation of diluted net loss per share for the year ended December 31, 2009 and the three months ended March 31, 2010 (unaudited), respectively, because they were antidilutive.

 

(y)  Accounting pronouncements issued not yet adopted

 

New accounting standards on “Revenue Arrangements with Multiple Deliverables” were issued in September 2009 and updated the current guidance pertaining to multiple-elements revenue arrangements. This new guidance will be effective for our annual reporting period beginning January 1, 2011. We are currently evaluating the impact of this new standard on our financial position, results of operations, cash flows, and disclosures.

 

(2)  Use of estimates in the preparation of financial statements

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Material estimates that are particularly susceptible to significant change include percentage complete and estimated earnings or losses on construction projects, the allocation of the purchase price of acquired companies, the allowance for doubtful accounts, the fair value of goodwill, asset impairments, the fair value of derivatives, the net realizable value of inventories, the useful lives of long-lived assets, the valuation of deferred tax assets, warranty reserves related to restoration service and insurance reserves. Actual results could differ from those estimates.

 

During 2008, the Company entered into a new agreement with a significant customer to provide certain transmission and distribution maintenance and construction services over a 10.5-year term that became effective on August 1, 2008 and superseded all previous contracts with this customer. The arrangement provides for certain volume-based thresholds, which correspond with volume-based and other customer incentives. Additionally, the contract requires the Company to maintain certain service levels which, if not achieved, could result in payments to the customer by the Company. The Company’s revenue recognition includes estimates for the volume-based customer incentives based on current and projected performance relative to the thresholds, and includes estimated payments that could result to the customer if service levels are not achieved based on actual and projected performance relative to the service levels. Future changes in these estimates, or divergence in actual incentives or payments from these estimates, could have a material impact on revenue recognized in future periods.

 

(3)  Acquisitions

 

InfrastruX

 

On May 8, 2006, through InfrastruX Holdings, LLC, TPF acquired 100.0% of the outstanding shares of the former company. The total consideration, net of cash acquired, paid for by InfrastruX Holdings, LLC was $269,976. Included in the consideration was $7 purchase price adjustment to goodwill during 2007.

 

InfrastruX Group, Inc.

 

 

As part of the acquisition of InfrastruX, the Company entered into employment agreements with certain members of senior management that call for future issuances of share-based instruments, the terms of which were finalized in 2008 (note 13).

 

Hawkeye

 

On November 3, 2006, the Company acquired 100.0% of Hawkeye, LLC and its affiliates, Bemis, Halpin and Premier (Hawkeye Acquisition). The results of Hawkeye’s operations have been included in the consolidated financial statements since the date of acquisition. Hawkeye is an electrical and gas contractor servicing the utility industry primarily in the Eastern United States. Hawkeye, through its affiliates, also provides telecommunications/fiber-optic installation, utility locating and mapping services, and an array of general contracting services, including civil/structural, electrical, and mechanical projects.

 

The total consideration, net of cash acquired of $4,249, paid for Hawkeye and its affiliates was $139,296. The total cash consideration paid by the Company, net of cash acquired was $90,774 in 2006 and $99 in 2007. The Company paid an additional cash amount of $7,000 in equal installments every six months through May 2008, with interest accruing at the three-month LIBOR fixed as of November 3, 2006 (5.4%). TPF, through InfrastruX Holdings, LLC, paid for a portion of the acquisition on the Company’s behalf in the form of $41,423 in cash and equity interest in InfrastruX Holdings, LLC, plus the Company issued 3,202,360 common shares to InfrastruX Holdings, LLC for consideration of the transfer of interest in Hawkeye and one of its affiliates. In connection with the Hawkeye Acquisition, the Company issued notes payable in the amount of $309,000 (note 9).

 

The purchase agreement contained a provision allowing the sellers to realize additional consideration in 2008 based on certain earnings performance measures of the acquired Hawkeye companies in 2007 and 2008. The provision required the seller to maintain employment through December 31, 2008 in order to be eligible to receive the full amount of any potential payout. No amounts were earned under this agreement in 2007 and amounts earned in 2008 of $17,500 were expensed in 2008 and are included in selling, general and administrative expenses in the consolidated statements of operations. The outstanding accrued payable as of December 31, 2008 for the earned payout was $17,500, which was paid in full in May 2009.

 

The allocation of the purchase price was subject to refinement as of December 31, 2006 as the Company was waiting for certain information related to the determination of fair values. Specifically, additional equipment appraisal information and revisions to inventory valuation, taxes, cash, contracts acquired, union related accruals, certain lease values and customer relationship values were not finalized until 2007.

 

InfrastruX Group, Inc.

 

 

The following table summarizes the estimated fair value of the assets acquired, excluding cash acquired of $4,249, and liabilities assumed at the date of the acquisition of Hawkeye and upon final allocation of the purchase price:

 

 

The acquired intangible assets, all of which are being amortized, consist of customer relationships and have a weighted average useful life of approximately 13.0 years as of the acquisition date of November 3, 2006. At the date of acquisition, tax deductible goodwill acquired was $48,281.

 

CableWISE

 

On January 29, 2007, the Company acquired the operating assets and other rights related to the CableWISE operations. The results of CableWISE’s operations have been included in the consolidated financial statements since that date. CableWISE utilizes an online, passive technique that utilizes radio frequency pulses emitted by a cable system while it is in service, to assess the remaining life of the cable, splices, terminations and other electrical equipment connected to the circuit. The aggregate purchase price of $100 was paid in cash.

 

The purchase agreement contains a provision requiring future payments, which are contingent upon the amount of testing performed using the CableWISE technology, not to exceed $2,000. The Company charged amounts due under this provision as royalty expense beginning in 2007.

 

The estimated fair value of assets acquired was $50, which consisted of vehicles and testing equipment; no liabilities were assumed. The $50 of goodwill is fully deductible for tax purposes.

 

RTS Construction Company

 

On August 10, 2007, the Company acquired the operating assets and other rights related to RTS’s operations. The results of RTS have been included in the consolidated financial statements since that date. The aggregate purchase price of $2,470 was paid in cash.

 

InfrastruX Group, Inc.

 

 

The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition:

 

 

(4)  Goodwill and intangible assets

 

Goodwill

 

The Company completed its annual evaluations for impairment of goodwill as of April 30, 2007 and 2008 and performed an additional evaluation for impairment of goodwill as of December 31, 2008 due to a triggering event that indicated additional impairment may have occurred in one of its regions. To estimate the fair value of each reporting unit for the 2007 and 2008 goodwill impairment evaluations, the Company utilized the “income” valuation approach based on Level 3 inputs in the fair value hierarchy. Under the “income approach”, the Company estimated the fair value of the reporting units using the invested capital method, which discounts projected cash flows using a calculated weighted average cost of capital. The Company considered the following assumptions, among others, in performing this analysis: forecasted revenues, expense ratios and profit margins, working capital cash flow, attrition/retention rates, tax rates, and long-term discount rates. All of these assumptions require significant judgments by the Company.

 

The 2007 impairment analysis indicated impairment in two of the Company’s reporting units of $35,484, which is recognized as operating expense presented as goodwill impairment in the consolidated statements of operations for the year ended December 31, 2007. The primary factor contributing to the impairment charge was the reduction in current and forecasted future performance levels for the Eastern reporting unit, and for the Midwest/National reporting unit as of April 30, 2007, the testing date. The 2008 impairment analyses indicated goodwill impairment of $26,484 in the Company’s Eastern reporting unit. The primary factor contributing to the impairment charge was the reduction in current and forecasted performance levels for that reporting unit. In the fourth quarter of 2008, there was an additional change in current and forecasted future performance levels for the Company’s Eastern reporting unit and the departure of a key executive and former owner of one of the Company’s smaller subsidiaries in the Eastern reporting unit that indicated additional impairment may have occurred. As a result, the Company performed an additional impairment test, which considered the elimination of that subsidiary and current and forecasted future performance levels under then-existing economic conditions and resulted in an additional $18,784 in goodwill impairment in the Eastern reporting unit. Accordingly, the Company recognized total goodwill impairment of $45,268 in 2008.

 

For the year ended December 31, 2009, the Company performed an evaluation of impairment of goodwill at April 30, 2009. For the April 30, 2009 evaluation, the Company used a combination of “income” and “market” approaches to determine fair value. These valuation approaches were weighted 10% and 90% for the “income” and “market” approaches, respectively. Under the “market” approach, the Company estimated the fair value of each reporting unit based on earnings multiples of comparable

 

InfrastruX Group, Inc.

 

 

public companies as well as indicators from interested acquirers based on Level 2 inputs in the fair value hierarchy. Under the “income” approach, the Company used the same valuation method as used in its 2008 impairment test. No impairment charges were required as a result of this evaluation. In May 2009, the Company changed its annual test date to November 30 to better align impairment testing with year-end procedures. Thus, another evaluation of impairment of goodwill was performed as of November 30, 2009. At the November 30, 2009 evaluation date, the Company used a combination of “income” and “market” approaches that were weighted 20% and 80%, respectively.

 

A summary of changes in the Company’s goodwill consisted of the following:

 

 

Intangible assets

 

Intangible assets consisted of the following:

 

 

As a result of the departure of a key executive and former owner of one of the Company’s smaller subsidiaries, deterioration of business, and the sale of the tangible assets of that subsidiary, an impairment charge to customer relationship intangibles in the amount of $7,620 was recognized in 2008. The impairment charge was calculated using an income approach based on Level 3 inputs in the fair value hierarchy. The impairment charge is reflected as intangible asset impairment in the consolidated statements of operations and consolidated statements of cash flows.

 

InfrastruX Group, Inc.

 

 

Intangible assets are amortized straight-line over the periods noted above. Amortization expense, including developed technology intangible amortization recorded in cost of revenues, for amortizing intangible assets consisted of the following:

 

 

The remaining weighted average amortization period for all intangible assets as of March 31, 2010 is 9.9 years. Estimated amortization charges for the next five years, 2010—2014, from intangible assets as of December 31, 2009 are $8,554 per year.

 

(5)  Accounts receivable, net

 

Accounts receivable, net, consisted of the following: