Description Of Business And Basis Of Presentation

6 Months Ended

Jun. 30, 2011

Description Of Business and Basis Of Presentation

Description Of Business And Basis Of Presentation

1. Description of Business and Basis of Presentation

Description of Business

PowerSecure International, Inc., headquartered in Wake Forest, North Carolina, is a leading provider of Energy and Smart Grid Solutions to electric utilities, their commercial, institutional and industrial customers. 

Our core business is our Energy and Smart Grid Solutions segment, operated through our largest wholly-owned subsidiary PowerSecure, Inc., which we refer to as "our PowerSecure subsidiary".  This segment includes our three core strategic business areas:  Interactive Distributed Generation, Utility Infrastructure and Energy Efficiency.  These three areas are focused on providing utilities and their commercial, institutional and industrial customers with products and services to help them generate, deliver, and utilize electricity more efficiently and are intended to deliver strong returns on investment.  They share common or complementary utility relationships and customer types, common sales and overhead resources, and facilities.  However, each business area in this segment possesses distinct technical disciplines and specific capabilities that are designed to provide a competitive advantage in the marketplace for its specific products and services, including personnel, technology, engineering, and intellectual capital.  This segment operates primarily out of our Wake Forest, North Carolina headquarters office, and its operations also include several satellite offices and manufacturing facilities, the largest of which are in Raleigh, North Carolina, Randleman, North Carolina, McDonough, Georgia, and Anderson, South Carolina.  The locations of our sales organization for this segment are generally in close proximity to the utilities and commercial, industrial, and institutional customers they serve.

Until recently, our Energy Services segment operated through our two other principal operating subsidiaries, Southern Flow Companies, Inc., which we refer to as "Southern Flow", and WaterSecure Holdings, Inc., which we refer to as "WaterSecure".  WaterSecure holds a significant noncontrolling minority portion of the equity interests in an unconsolidated business, Marcum Midstream 1995-2 Business Trust, a Delaware statutory trust, which we refer to as "MM 1995-2" or as our "WaterSecure operations".  Our WaterSecure operations provided water processing, recycling, and disposal services for oil and natural gas producers in northeastern Colorado utilizing environmentally responsible technologies and processes.   In June 2011, substantially all of the assets and business of MM 1995-2 were sold.  Accordingly, our WaterSecure subsidiary no longer has any on-going operating activity.  See Note 5 for more information regarding the sale of MM 1995-2.  Our Southern Flow business, which was sold in January 2011 pursuant to a purchase agreement executed in December 2010, provided oil and natural gas measurement services to customers involved in oil and natural gas production, transportation, and processing, with a focus on the natural gas market.  Due to its sale, Southern Flow's operations are now reflected as discontinued operations in the accompanying consolidated financial statements.  See Note 4 for more information regarding the sale of Southern Flow.  The sales of our WaterSecure and Southern Flow operations were the fulfillment of our strategy to monetize our non-core assets to focus on the businesses in our Energy and Smart Grid Solutions business segment.  As a result of these sales, our Energy Services segment ceased business activities in June 2011 and we will no longer report ongoing operations in the Energy Services segment in financial periods after June 30, 2011.

See Note 12 for more information concerning our reportable segments.

Basis of Presentation

            Organization – The accompanying consolidated financial statements include the accounts of PowerSecure International, Inc. and its subsidiaries, primarily, PowerSecure, Inc. ("our PowerSecure subsidiary") (and its majority-owned and wholly-owned subsidiaries, UtilityEngineering, Inc., PowerServices, Inc., EnergyLite, Inc., EfficientLights, LLC, Innovative Electronic Solutions Lighting, LLC ("IES"), Reid's Trailer, Inc. and PowerPackages, LLC), Southern Flow Companies, Inc. ("Southern Flow"), WaterSecure Holdings, Inc. ("WaterSecure"), and Marcum Gas Metering, Inc. (fka Metretek International, Inc. and Metretek, Incorporated) ("Metretek Florida"), collectively referred to as the "Company" or "we" or "us" or "our".

These consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

In management's opinion, all adjustments (all of which are normal and recurring) have been made which are necessary for a fair presentation of the consolidated financial position of us and our subsidiaries as of June 30, 2011 and the consolidated results of our operations and cash flows for the three and six months ended June 30, 2011 and June 30, 2010.

Principles of Consolidation – The consolidated financial statements include the accounts of PowerSecure International, Inc. and its subsidiaries after elimination of intercompany accounts and transactions.  We use the equity method to account for our investment in our unconsolidated affiliate.

Noncontrolling Interest – The noncontrolling ownership interests in the income or losses of our majority-owned subsidiaries is included in our consolidated statements of operations as a reduction or addition to net income to derive income attributable to PowerSecure International stockholders.  Similarly, the noncontrolling ownership interest in the undistributed equity of our majority-owned subsidiaries is shown as a separate component of stockholders' equity in our consolidated balance sheet. 

Until April 30, 2010, our PowerSecure subsidiary held a 67% controlling ownership interest in EfficientLights.  On April 30, 2010, we acquired the 33% noncontrolling ownership interest in EfficientLights at which time EfficientLights became a wholly-owned subsidiary of our PowerSecure subsidiary.   Also, on April 1, 2010, our PowerSecure subsidiary acquired a 67% controlling ownership interest in IES which is consolidated in our financial statements.  Accordingly, the noncontrolling interest for the three and six months ended June 30, 2011, consists solely of the noncontrolling shareholders' interest in the results of IES.  Similarly, the noncontrolling interest for the three and six months ended June 30, 2010 consists of the noncontrolling shareholders' interest in the results of EfficientLights through April 30, 2010 and the noncontrolling shareholders' interest in the results of IES commencing April 1, 2010.  As a result, period-to-period comparisons of the aggregate amount of noncontrolling interests are not necessarily comparable.  

The following is a reconciliation of the amounts attributable to the noncontrolling interest for the six months ended June 30, 2011:

		Noncontrolling Interest
		EfficientLights	IES	Total
Balance, December 31, 2010		$                     -	$        1,755	$           1,755
	Income (loss)	-	(343)	(343)
	Distributions	-	-	-
				-
Balance, June 30, 2011		$                     -	$        1,412	$           1,412

The following is a reconciliation of the amounts attributable to the noncontrolling interest for the six months ended June 30, 2010:

		Noncontrolling Interest
		EfficientLights	IES	Total
Balance, December 31, 2009		$            1,107	$                 -	$           1,107
	Capital contributions	-	2,188	2,188
	Income (loss)	280	(133)	147
	Distributions	(877)	-	(877)
	Acquisition of noncontrolling interest	(510)	-	(510)
				-
Balance, June 30, 2010		$                     -	$        2,055	$           2,055

Use of Estimates – The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires that our management 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Significant estimates include percentage-of-completion estimates for revenue and cost of sales recognition, incentive compensation and commissions, allowance for doubtful accounts receivable, inventory valuation reserves, warranty reserves and our deferred tax valuation allowance.

Reclassifications – During the fourth quarter of 2010, our board of directors approved a plan to sell our Southern Flow business (see Note 4).  The operations of Southern Flow have been reclassified to discontinued operations for all periods presented in the accompanying consolidated financial statements.  In addition, certain 2010 amounts have been reclassified to conform to current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.