Unresolved Staff Comments
Properties
Legal Proceedings
Removed and Reserved
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
| ITEM 10. |
Directors, Executive Officers and Corporate Governance
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21 |
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| ITEM 11. |
Executive Compensation
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27 |
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Directors, Executive Officers and Corporate Governance
Executive Compensation
| ITEM 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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32 |
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| ITEM 13. |
Certain Relationships and Related Transactions, and Director Independence
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34 |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
ITEM 1.
Business
Forward Looking Statements
This Annual Report contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, and other loans, real estate values, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing products and services.
Overview
On September 6, 2006, we completed our initial public offering of 8,600,000 units. Each unit consisted of one share of our common stock and two warrants, each to purchase one share of our common stock at an exercise price of $5.00 per share. On September 28, 2011, we completed an exchange offer pursuant to which we exchanged 8 ½ warrants for one share of common stock. Following the completion of the exchange offer any warrants which were not exchanged expired on October 12, 2011. On November 14, 2011, we delisted from the NYSE AMEX the warrants and units. Following the completion of the exchange offer and expiration of the warrants that were not tendered, we had 14,446,836 shares of common stock issued and outstanding and no warrants or units outstanding.
Until August 15, 2008, we operated as a blank check company. On August 15, 2008, we completed our acquisitions of ST Pipeline, Inc. and C.J. Hughes Construction Company, Inc. Each of ST Pipeline and C.J. Hughes are held as separate subsidiaries of Energy Services.
Energy Services of America (ESA) is a provider of contracting services to America’s energy providers, primarily the gas and electricity providers. The Company’s services include:
The installation, replacement and repairs of pipelines for the oil and natural gas industries.
General electrical services for both power companies and various other industrial applications.
The installation of water and sewer lines for various governmental agencies.
Various other ancillary services related to the other services.
Our Consolidated Revenues for the year ended September 30, 2011 were approximately $143 million, of which 74% was attributable to gas work, 18% to electrical services, and 8% to water and sewer installations and other ancillary services. Our consolidated revenues for the year ended September 30, 2010 were $218 million, of which 74% was attributable to gas work, 20% to electrical services, and 6% to water and sewer installations and other ancillary services
ESA operates primarily in the Mid-Atlantic region of the country though our projects can be nationwide. The work includes a combination of both interstate and intrastate pipelines that move natural gas from the producing regions to consumption regions. The Company also offers other services indicated above. The Company does not own or is not directly involved in the exploration, transportation or refinement of oil and natural gas nor any of the facilities used for transporting electricity. The Company has established relationships with numerous customers which include many of the leading companies in the industries we serve.
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Representative Customer list:
Spectra Energy
Dominion Resources
Columbia Gas Transmission
Columbia Gas of Ohio and Pennsylvania
Nisource
Marathon Ashland Petroleum LLC
American Electric Power
Toyota
Hitachi
Kentucky American Water
Equitable Resources
Markwest Energy
Range Resources
Various State, County and municipal public service districts.
Energy Services’ sales force consists of industry professionals with significant relevant sales experience who utilize industry contacts and available public data to determine how to most appropriately market ESA’s line of products. We rely on direct contact between our sales force and our customers’ engineering and contracting departments in order to obtain new business. Due to the occurrence of inclement weather during the winter months, certain parts of the Company business, i.e., the construction of pipelines, is somewhat seasonal in that most of the work is performed during the non-winter months.
Backlog/New Business
Our Company’s backlog represents contracts for services that have been entered into but which have not yet been processed. At September 30, 2011, Energy Services had a backlog of $128.5 million on work to be completed on existing contracts. At September 30, 2010, the Company had a backlog of $47.8 million. Due to the timing of ESA’s construction contracts and the long-term nature of some of our projects, portions of our backlog may not be completed in the current fiscal year. Most of the Company’s projects can be completed in a short period of time, typically two to five months. Larger projects usually take seven to eighteen months to be completed. As a general rule, work starts shortly after the signing of the contract. During the past fiscal year adverse weather conditions have resulted in significant delays in the start and completion of contracts. These delays resulted in higher costs to the Company adversely affecting our net results from operations.
Types of Contracts
Energy Services’ contracts are usually awarded on a competitive and negotiated basis. While contracts may be of a lump sum for a project or one that is based upon time and materials, most of the work is bid based upon unit prices for various portions of the work with a total agreed-upon price based on estimated units. The actual revenues produced from the project will be dependent upon how accurate the customer estimates are as to the units of the various items.
Raw Materials and Suppliers
The principal raw materials that the Company uses are metal plate, structural steel, pipe, wire, fittings and selected engineering equipment such as pumps, valves and compressors. For the most part, the largest portion of these materials are supplied by the customer. The materials that ESA purchases would predominately be those of a consumable nature on the job, such as small tools and environmental supplies. We anticipate being able to obtain these materials for the foreseeable future.
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Industry Factors
Energy Services’ revenues, cash flows and earnings are substantially dependent upon, and affected by, the level of natural gas exploration development activity and the levels of work on existing pipelines as well as the level of demand for our electrical services. Such activity and the resulting level of demand for pipeline construction and related services and electrical services are directly influenced by many factors over which the Company has no control. Such factors include the market prices of natural gas and electricity, market expectations about future prices, the volatility of such prices, the cost of producing and delivering natural gas and electricity, government regulations and trade restrictions, local and international political and economic conditions, the development of alternate energy sources, changes in the tax code that affect the energy industry, and the long-term effects of worldwide energy conservation measures. Substantial uncertainty exists as to the future level of natural gas exploration and development activity as well as the demand for our electrical services.
Energy Services cannot predict the future level of demand for its construction services, future conditions in the pipeline or electrical construction industry or future pipeline and electrical construction rates.
Energy Services maintains banking relationships with four financial institutions and has lines of credit and borrowing facilities with these institutions. While there is no reason to believe that such lines will not be available, any delays getting the lines funded could create difficulties for the Company. The Company’s facilities have been sufficient to provide the working capital necessary to complete their ongoing projects. One of the keys to maintaining the Company’s growth will be the establishment and maintenance of sufficient lines of credit to provide cash flow to fund the Company’s projects.