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 1934

For the Quarterly Period Ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Integrated Electrical Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware		76-0542208
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

(Address of principal executive offices and ZIP code)

Registrant’s telephone number, including area code: (713) 860-1500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

The number of shares outstanding as of May 15, 2009 of the issuer’s common stock was 14,602,204.

 

 

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008			5
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2009 and 2008			6
Condensed Consolidated Statements of Operations for the Six Months Ended March 31, 2009 and 2008			7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2009 and 2008			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Item 4. Controls and Procedures			37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			39
Item 4. Submission of Matters to a Vote of Security Holders			40
Item 5. Other Information			40
Item 6. Exhibits			41
Signatures			42
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

DEFINITIONS

In this quarterly report on Form 10-Q, the words “IES”, the “Company”, “we”, “our”, “ours”, and “us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. These statements involve risks and uncertainties that could cause our actual results to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

	•		fluctuations in operating activity due to downturns in levels of construction, seasonality and differing regional economic conditions;
	•		competition in the construction industry, both from third parties and former employees, which could result in the loss of one or more customers or lead to lower margins on new contracts;
	•		our ability to successfully manage construction projects;
	•		errors in estimating revenue and progress to date on percentage-of-completion contracts;
	•		failure to recognize revenue from work that is yet to be performed on uncompleted contracts and/or from work that has been contracted but not started due to changes in contractual commitments;
	•		inaccurate estimates used when entering into fixed-priced contracts;
	•		challenges integrating new types of work or new processes into our divisions;
	•		the cost and availability of qualified labor, especially electricians and construction supervisors;
	•		accidents resulting from the physical hazards related to our work and potential for liabilities associated with vehicle accidents;
	•		success in transferring, renewing and obtaining electrical and construction licenses after the recent consolidation of our divisions;
	•		the possibility that our restructuring program will not be successfully executed;
	•		our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel and certain plastics;
	•		potential supply chain disruptions due to credit or liquidity problems faced by our suppliers;
	•		loss of key personnel and effective transition of new management;
	•		warranty losses or other latent defect claims in excess of our existing reserves and accruals;
	•		warranty losses or other unexpected liabilities stemming from former divisions that we have sold or closed;
	•		growth in latent defect litigation in states where we provide residential electrical work for home builders not otherwise covered by insurance;
	•		limitations on the availability of sufficient credit or cash flow to fund our working capital needs;

	•		difficulty in fulfilling the covenant terms of our credit facilities;
	•		increased cost of surety bonds affecting margins on work and the potential for our surety providers to refuse bonding at their discretion;
	•		increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;
	•		credit and capital market conditions, including changes in interest rates that affect the cost and availability of construction financing and mortgages, and our customers to retain existing financing which could lead to project cancellations;
	•		changes in the assumptions made regarding future events used to value our stock options and performance-based stock awards;
	•		uncertainties inherent in estimating future operating results, including revenues, operating income and cash flow;
	•		disagreements with taxing authorities with regard to tax positions we have adopted;
	•		complications associated with the incorporation of new accounting, control and operating procedures;
	•		the financial impact of new or proposed accounting regulations;
	•		our ability to fully utilize our new operating, accounting and financial systems;
	•		the ability of our controlling shareholder to take action not aligned with our other shareholders;
	•		the sale or disposition of the shares of our common stock held by our majority shareholder, which, under certain circumstances, might trigger change of control provisions in contracts such as employment agreements, supply agreements, and financing and surety arrangements;
	•		the possibility that certain of our tax net operating losses may be restricted or reduced in a change of control;
	•		our ability to retain our financing agreements and surety arrangements under a change in control; and
	•		the possiblity that investments we have made in other companies will become impaired due to performance or liquidity problems.

You should understand that the foregoing, as well as other risk factors discussed in our annual report on Form 10-K for the year ended September 30, 2008, could cause future outcomes to differ materially from those experienced previously or from those expressed in this quarterly report and our aforementioned annual report on Form 10-K. We undertake no obligation to publicly update or revise information concerning our restructuring efforts, borrowing availability, cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this quarterly report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties, and risks described herein.

General information about us can be found at www.ies-co.com under “Investor Relations.” Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission. You may also contact our Investor Relations department at 713-860-1500, and they will provide you with copies of our public reports.

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

		March 31,				September 30,
		2009				2008
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	51,569			$	64,709
Accounts receivable:
Trade, net of allowance of $2,641 and $3,556, respectively			127,089				132,273
Retainage			30,114				30,833
Inventories			10,623				12,856
Costs and estimated earnings in excess of billings on uncompleted contracts			15,259				14,743
Prepaid expenses and other current assets			7,752				6,711
Assets from discontinued operations			392				2,034
Total current assets			242,798				264,159
LONG-TERM RECEIVABLE, net of allowance of $278			3,730				—
PROPERTY AND EQUIPMENT, net			24,780				25,742
GOODWILL			4,373				4,395
OTHER NON-CURRENT ASSETS, net			20,366				25,480
Total assets		$	296,047			$	319,776
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt		$	2,503			$	2,905
Accounts payable and accrued expenses			75,816				98,046
Billings in excess of costs and estimated earnings on uncompleted contracts			36,487				33,711
Liabilities from discontinued operations			319				504
Total current liabilities			115,125				135,166
LONG-TERM DEBT, net of current maturities			26,385				26,739
OTHER NON-CURRENT LIABILITIES			11,852				10,765
Total liabilities			153,362				172,670
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding			—				—
Common stock, $0.01 par value, 100,000,000 shares authorized; 15,407,802 and 15,407,802 shares issued and 14,612,239 and 14,753,779 outstanding, respectively			154				154
Treasury stock, at cost, 795,563 and 654,023 shares, respectively			(14,227	)			(11,591	)
Additional paid-in capital			169,563				170,023
Retained deficit			(12,805	)			(11,480	)
Total stockholders’ equity			142,685				147,106
Total liabilities and stockholders’ equity		$	296,047			$	319,776

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
		(Unaudited)				(Unaudited)
Revenues		$	167,305			$	195,659
Cost of services			137,517				164,822
Gross profit			29,788				30,837
Selling, general and administrative expenses			29,147				27,486
Gain on sale of assets			(75	)			(7	)
Restructuring charges			1,908				2,098
Income (loss) from operations			(1,192	)			1,260
Interest and other (income) expense:
Interest expense			1,105				1,918
Interest income			(113	)			(441	)
Other (income) expense, net			(67	)			(896	)
Interest and other expense, net			925				581
Income (loss) from continuing operations before income taxes			(2,117	)			679
Provision (benefit) for income taxes			(926	)			453
Income (loss) from continuing operations			(1,191	)			226
Discontinued operations (Note 2)
Loss from discontinued operations			(73	)			(366	)
Benefit for income taxes			(30	)			(179	)
Net loss from discontinued operations			(43	)			(187	)
Net loss		$	(1,234	)		$	39
Basic earnings (loss) per share:
Continuing operations		$	(0.08	)		$	0.02
Discontinued operations		$	(0.01	)		$	(0.02	)
Total		$	(0.09	)		$	0.00
Diluted earnings (loss) per share:
Continuing operations		$	(0.08	)		$	0.02
Discontinued operations		$	(0.01	)		$	(0.02	)
Total		$	(0.09	)		$	0.00
Shares used in the computation of earnings (loss) per share (Note 4):
Basic			14,322,439				15,015,717
Diluted			14,322,439				15,021,520

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

		Six Months Ended				Six Months Ended
		March 31, 2009				March 31, 2008
		(Unaudited)				(Unaudited)
Revenues		$	340,675			$	392,779
Cost of services			281,227				328,907
Gross profit			59,448				63,872
Selling, general and administrative expenses			57,546				57,889
Gain on sale of assets			(178	)			(24	)
Restructuring charges			2,702				3,393
Income (loss) from operations			(622	)			2,614
Interest and other (income) expense:
Interest expense			2,090				6,151
Interest income			(273	)			(1,545	)
Other (income) expense, net			(217	)			(1,323	)
Interest and other expense, net			1,600				3,283
Loss from continuing operations before income taxes			(2,222	)			(669	)
Provision (benefit) for income taxes			(955	)			25
Net loss from continuing operations			(1,267	)			(694	)
Discontinued operations (Note 2)
Loss from discontinued operations			(102	)			(114	)
Benefit for income taxes			(44	)			(50	)
Net loss from discontinued operations			(58	)			(64	)
Net loss		$	(1,325	)		$	(758	)
Basic earnings (loss) per share:
Continuing operations		$	(0.09	)		$	(0.05	)
Discontinued operations		$	(0.00	)		$	(0.00	)
Total		$	(0.09	)		$	(0.05	)
Diluted earnings (loss) per share:
Continuing operations		$	(0.09	)		$	(0.05	)
Discontinued operations		$	(0.00	)		$	(0.00	)
Total		$	(0.09	)		$	(0.05	)
Shares used in the computation of earnings (loss) per share (Note 4):
Basic			14,320,588				15,054,431
Diluted			14,320,588				15,054,431

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

		Six Months Ended				Six Months Ended
		March 31, 2009				March 31, 2008
		(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,325	)		$	(758	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net (income) loss from discontinued operations			58				64
Bad debt expense			617				749
Deferred financing cost amortization			128				1,400
Depreciation and amortization			4,454				4,586
Gain on sale of assets			(178	)			(24	)
Non-cash restructuring write-off			—				131
Non-cash compensation expense			1,128				1,859
Paid in kind interest			678				—
Equity in (gains) losses of investment			37				(550	)
Goodwill adjustment under SOP 90-1			22				—
Changes in operating assets and liabilities, net of effect of discontinued operations:
Accounts receivable			1,708				(10,213	)
Inventories			2,234				(3,103	)
Costs and estimated earnings in excess of billings on uncompleted contracts			(516	)			647
Prepaid expenses and other current assets			(557	)			1,544
Other non-current assets			5,072				(952	)
Accounts payable and accrued expenses			(22,231	)			(8,212	)
Billings in excess of costs and estimated earnings on uncompleted contracts			2,776				2,343
Other non-current liabilities			1,088				228
Net cash used in continuing operations			(4,807	)			(10,261	)
Net cash provided by discontinued operations			1,400				2,256
Net cash used in operating activities			(3,407	)			(8,005	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(2,301	)			(6,138	)
Proceeds from sales of property and equipment			226				218
Investment in unconsolidated affiliate			(2,000	)			—
Distribution from unconsolidated affiliate			—				488
Net cash used in investing activities of continuing operations			(4,075	)			(5,432	)
Net cash provided by investing activities of discontinued operations			—				7
Net cash used in investing activities			(4,075	)			(5,425	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt			—				25,000
Repayments of debt			(1,434	)			(45,467	)
Payments for debt issuance costs			—				(500	)
Acquisition of treasury stock			(4,224	)			(3,412	)
Net cash used in financing activities			(5,658	)			(24,379	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(13,140	)			(37,809	)
CASH AND CASH EQUIVALENTS, beginning of period			64,709				69,676
CASH AND CASH EQUIVALENTS, end of period		$	51,569			$	31,867
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		$	1,382			$	1,902
Cash paid for income taxes		$	380			$	260

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

1. BUSINESS

Integrated Electrical Services, Inc., a Delaware corporation, was founded in June 1997 to create a leading national provider of electrical services, focusing primarily on the commercial, industrial, residential, low voltage and service and maintenance markets. The words “IES”, the “Company”, “we”, “our”, and “us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified herein, to our wholly-owned subsidiaries.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position as of, and the results of operations for, the periods presented. All adjustments are considered to be normal and recurring. Interim period results are not necessarily indicative of results of operations or cash flows for the full year. During interim periods, we follow the same accounting policies disclosed in our annual report on Form 10-K for the year ended September 30, 2008, with the exception of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” as described in the paragraphs that follow. Please refer to the Notes to our annual report on Form 10-K for the year ended September 30, 2008, when reviewing our interim financial results set forth herein.

On October 1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances the guidance for using fair value to measure assets and liabilities. In addition, SFAS 157 expands information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. This statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but it does not expand the use of fair value in any new circumstances. On February 12, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”) that amends SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008. We adopted SFAS 157 on October 1, 2008 for financial assets and liabilities measured on a recurring basis. See Note 7 for additional information on our adoption of SFAS 157.

Effective October 1, 2008, we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” which permits entities to elect to measure eligible items at fair value at specified dates. We did not elect the fair value option for any eligible items.

On October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109” (“FIN 48”). FIN 48 created a single model to address accounting for uncertain income tax positions and established a minimum recognition threshold a tax position must meet before being recognized in the financial statements.

The evaluation of a tax position under FIN 48 is a two-step process. The first step is the recognition process to determine if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.

As the result of the adoption of FIN 48 and recognition of the cumulative effect of the adoption of the new accounting principal, we recorded an $8.2 million decrease in contingent tax liabilities. The reduction of the contingent tax liabilities resulted in a $7.8 million decrease in goodwill as prescribed by Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) and a $0.4 million decrease in retained deficit. Upon the adoption of FIN 48, the total liability for unrecognized tax benefits was $6.2 million, excluding accrued interest and penalties, which are discussed below. The liabilities for unrecognized tax benefits are a component of “Other non-current liabilities” in our consolidated balance sheets. The reversal of the liabilities for unrecognized tax benefits would result in a $6.1 million adjustment that would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7, as these represent amounts accrued prior to our emergence from bankruptcy. The remaining $0.1 million would result in a decrease in the provision for income tax expense.

We recognize interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. Upon the adoption of FIN 48, we had approximately $0.4 million in accrued interest and penalties included in liabilities for unrecognized tax benefits. The accrued interest and penalties are a component of “Other non-current liabilities” in our consolidated balance sheets. The reversal of the accrued interest and penalties would result in a $0.2 million adjustment that would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7, as these represent amounts accrued prior to our emergence from bankruptcy. The remaining $0.2 million would result in a decrease in the provision for income tax expense.

As of March 31, 2009, we have $6.6 million of unrecognized tax benefit of which $6.1 million would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7, as these represent amounts accrued prior to our emergence from bankruptcy. The remaining $0.5 million would result in a decrease in the provision for income tax expense. We anticipate that approximately $0.1 million of unrecognized tax benefits, including accrued interest, may reverse in the next twelve months. The reversal is predominately due to the expiration of the statutes of limitation for unrecognized tax benefits and the settlement of a state audit.

We had approximately $0.5 million and $0.5 million accrued for the payment of interest and penalties at March 31, 2009 and 2008, respectively. We recognize interest and penalties related to unrecognized tax benefits as part of the provision for income taxes.

We are currently not under federal audit by the Internal Revenue Service. The tax years ended September 30, 2005, and forward are subject to audit as are tax years prior to September 30, 2005, to the extent of unutilized net operating losses generated in those years. Currently, one of our business units is under a state audit for the tax years ended September 30, 2002, 2003 and 2005.

RECLASSIFICATIONS

During the six months ended March 31, 2009, we reclassified $0.4 million of amortization expenses previously classified as selling, general and administrative charges for the three month period ended December 31, 2008, to restructuring expense. This reclassification was based on our assessment that the acceleration of this amortization expense was due to our reorganization and rebranding efforts, which is a restructuring cost. This reclassification did not affect our prior period results of operations.

LONG-TERM RECEIVABLE

In March 2009, we transferred $4.0 million of trade accounts receivable to long-term receivable because the related construction project entered bankruptcy. At the same time, we reserved $0.3 million associated with this receivable. We have liens filed against the project and currently believe that the outstanding receivable is collectible, however there are significant risks involved in bankruptcy proceedings, and we may have to record additional reserves.

ACCOUNTING ADJUSTMENT

The accompanying financial statements for the three months ended March 31, 2009, include the after-tax impact of approximately $1.1 million in non-cash charges that represent the correction of prior period accounting errors. We determined that $0.5 million of the errors related to the year ending September 30, 2008, and $0.6 million related to the first quarter of fiscal 2009. These corrections are reflected on a pretax basis in cost of sales and selling, general, and administrative expenses, which include $0.4 million and $1.6 million, respectively.

We have considered the guidance in Statement of Financial Accounting Standard No. 154 “Accounting Changes & Error Corrections” (“SFAS 154”), Accounting Principles Board No. 28 “Interim Financial Reporting” (“APB 28”), Statement of Financial Accounting Standard No. 16 “Prior Period Adjustments” (“SFAS 16”), SEC Staff Accounting Bulletin No. 99 “Materiality” (“SAB 99”) and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), in evaluating whether a restatement of prior financial statements is required as a result of the misstatement to such financial statements. SFAS 154 requires that corrections of errors be recorded by restatement of prior periods if the error is material. Based on quantitative and qualitative factors, we have concluded that a restatement of previously issued financial statements is not necessary, as we believe the identified misstatement is immaterial. This conclusion is based on current internal forecasts of fiscal 2009 operating results as well as actual fiscal 2008 operating results. Actual results for fiscal 2009 could differ from those forecasted and result in a different conclusion.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent 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. Estimates are primarily used in our revenue recognition for construction in progress. Other estimates consist of allowances for doubtful accounts receivable, inventory obsolescence reserves, fair value assumptions in analyzing goodwill and long-lived asset impairments and adjustments from fresh-start accounting, realizability of deferred tax assets, self-insured claims liabilities, and estimated forfeiture rates and projected earnings used to measure stock-based compensation awards.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our results of operations are seasonal, depending on weather trends, with higher revenues typically generated during spring and summer months, which coincide with our third and fourth fiscal quarters, and lower revenues typically generated during fall and winter months, which coincide with our first and second fiscal quarters. In addition, the construction industry has historically been highly cyclical. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS No. 141 “Business Combinations” (“SFAS 141”). SFAS 141(R) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) eliminates the step acquisition model, changes the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallows the capitalization of transaction costs, and changes when restructuring charges related to acquisitions can be recognized. Under SFAS 141 and SOP 90-7, which were in effect at the time of our financial reorganization, reductions to our income tax valuation allowance recorded prior to April 30, 2006, would reduce goodwill to the extent thereof, then reduce other intangible assets, and then reduce additional paid-in capital. Beginning October 1, 2009, under the provisions of SFAS 141(R), reductions in the valuation allowance attributable to all periods, if any should occur, will be recorded as an adjustment to our income tax expense. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008.

STOCK-BASED COMPENSATION

Stock-based compensation consists of expenses related to employee stock option awards, restricted stock grants and performance-based restricted stock grants (see Note 6). We recognize stock-based compensation expense in a pro-rata manner based on the value of stock-based payment awards that are expected to vest, reduced for estimated forfeitures. SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”) requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

SFAS 123(R) does not require a specific valuation model to measure the value of stock options, and either a binomial or the Black-Scholes model may be used. We used a binomial option pricing model to measure the fair value of stock options awarded in our 2008 and 2009 fiscal years. We believe the binomial pricing model is a more precise measure of the value of our stock options; however, the difference in the values between the two methods was not material for the options that we granted.

The assumptions used in the binomial pricing model calculation for the six months ended March 31, 2009 and 2008 are as follows:

		Six Months Ended
		March 31,
		2009				2008
Weighted average value per option granted during the period (1)		$	8.56			$	8.49
Assumptions:
Stock price volatility			86.4	%			51.6	%
Risk free rate of return			1.3	%			3.3	%
Future forfeiture rate (2)			0.0	%			0.0	%
Expected term		6.0 years				6.0 years

2. STRATEGIC ACTIONS

The 2007 Restructuring Plan

During our 2008 fiscal year, we completed our restructuring of operations from our previous geographic structure into three major lines of business: Commercial, Industrial and Residential. This operational restructuring (the “2007 Restructuring Plan”) was part of our long-term strategic plan to reduce our cost structure, reposition our business to better serve our customers, strengthen our financial controls and, as a result, position us to implement a market-based growth strategy. The 2007 Restructuring Plan consolidated certain leadership roles, administrative support functions and eliminated redundant functions that were previously performed at 27 division locations. Since we began the 2007 Restructuring Plan in June 2007, we recorded a total of $5.6 million of restructuring charges.

As part of the restructuring charges, we recognized $0.5 million, $2.2 million and $0.2 million in severance costs at our Industrial, Commercial and Residential segments, respectively. In addition to the severance costs described above, we incurred other charges of approximately $2.6 million predominately for consulting services associated with the 2007 Restructuring Plan. We wrote off $0.1 million of leasehold improvements at an operating location that we closed. We are also accelerating our trade name amortization during 2009 fiscal year totaling $1.6 million. These charges have been identified within the “Restructuring Charges” caption in our consolidated statements of operations.

The 2009 Restructuring Plan

In the first quarter of our 2009 fiscal year, we began a new restructuring program (the “2009 Restructuring Plan”) that is designed to consolidate operations within our three segments. The 2009 Restructuring Plan is the next level of our business optimization strategy. Our plan is to streamline our local project and support operations, which will be managed through regional operating centers, and to capitalize on the investments we made over the past year to further leverage our resources. Under the 2009 Restructuring Plan, we expect to incur pre-tax restructuring charges, including severance benefits and facility consolidations and closings, of approximately $3.0 million to $5.0 million, which will be implemented over approximately 12 months. During the six months ended March 31, 2009, we incurred $2.7 million associated with the 2009 Restructuring Plan, of which $0.2 million, $0.9 million, $1.4 million, and $0.2 million was charged to our Industrial, Commercial, Residential segments and Corporate office, respectively.

The following table summarizes the activities related to our restructuring activities by component (in thousands):

		Severance				Consulting /
		Charges				Other Charges				Total
Restructuring liability at September 30, 2008		$	638			$	53			$	691
Restructuring charges incurred during the six months ended March 31, 2009			1,673				1,029				2,702
Less — cash payments during the six months ended March 31, 2009			(1,098	)			(53	)			(1,151	)
Less — non-cash amortization expense			—				(804	)			(804	)
Restructuring liability at March 31, 2009		$	1,213			$	225			$	1,438

Exit or Disposal Activities

On March 28, 2006, based on the recommendation of the Board of Directors, we committed to an exit plan with respect to five underperforming subsidiaries in our Commercial and Industrial segments. The exit plan committed to a shut-down or consolidation of the operations of these subsidiaries or, alternatively, the sale or other disposition of the subsidiaries, whichever came sooner. The exit plan is complete for the five subsidiaries that we selected to exit in March 2006, and the operations of these subsidiaries substantially ceased as of September 30, 2006. In June 2007, we shut down our Mid-States Electric division, located in Jackson, Tennessee. Mid-States was part of our Commercial segment prior to being classified as discontinued. In August 2008, we shut down our Haymaker division, located in Birmingham, Alabama. Haymaker was part of our Industrial segment prior to being classified as discontinued.

The assets, liabilities and operating results for each of these shut-down entities have been reclassified to discontinued operations for both current and prior periods. Remaining net working capital related to these subsidiaries was $0.1 million and $1.5 million at March 31, 2009, and September 30, 2008, respectively. As a result of inherent uncertainty in the exit plan and the monetization of these subsidiaries’ working capital, we could experience additional losses of working capital. At March 31, 2009, we believe we have recorded adequate reserves to reflect the net realizable value of the working capital; however, subsequent events may impact our ability to collect.

We have included the results of operations related to these business units in discontinued operations for the three months and six months ended March 31, 2009 and 2008.

Summarized financial data for all discontinued operations are outlined below (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Revenues		$	—			$	878
Gross profit (loss)		$	8			$	(112	)
Pre-tax loss		$	(73	)		$	(366	)

		Six Months Ended
		March 31,
		2009				2008
Revenues		$	21			$	2,626
Gross profit		$	27			$	292
Pre-tax loss		$	(102	)		$	(114	)

		March 31,				September 30,
		2009				2008
Accounts receivable, net		$	390			$	1,967
Property and equipment, net			2				67
Total assets		$	392			$	2,034
Accounts payable and accrued liabilities		$	319			$	481
Billings in excess of costs and estimated earnings on uncompleted contracts			—				23
Total liabilities			319				504
Net assets		$	73			$	1,530

3. DEBT AND LIQUIDITY

Debt consists of the following (in thousands):

		March 31,				September 30,
		2009				2008
Term Loan, due May 15, 2013, bearing interest at 11.0%		$	25,678			$	25,000
Camden Note Payable, due July 1, 2010, bearing interest at 4.59%			3,046				4,419
Capital lease and other			164				225
Total debt			28,888				29,644
Less — Short-term debt and current maturities of long-term debt			(2,503	)			(2,905	)
Total long-term debt		$	26,385			$	26,739

Future payments on debt at March 31, 2009 are as follows (in thousands):

2009		$	1,526
2010			1,684
2011			—
2012			—
2013			25,678
Thereafter			—
Total		$	28,888

For the three months ended March 31, 2009 and 2008, we incurred interest expense of $1.1 million and $1.9 million, respectively. Interest expense includes amortization of deferred financing charges of $0.1 million and $0.7 million for the three months ended March 31, 2009 and 2008, respectively. For the six months ended March 31, 2009 and 2008, we incurred interest expense of $2.1 million and $6.2 million, respectively. Interest expense includes amortization of deferred financing charges of $0.1 million and $1.4 million for the six months ended March 31, 2009 and 2008, respectively, and prepayment penalties of $2.1 million incurred during December 2007.

The Tontine Capital Partners Term Loan

On December 12, 2007, we entered into a $25.0 million senior subordinated loan agreement (the “Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party. The proceeds of the Tontine Term Loan, together with cash on hand, were used to fund the repayment of the Eton Park Term Loan (defined below). The Tontine Term Loan bears interest at 11.0% per annum and is due on May 15, 2013. Interest is payable quarterly in cash or in-kind at our option. Any interest paid in-kind will bear interest at 11.0% in addition to the loan principal. On March 31, 2009, we temporarily capitalized $0.7 million of interest as additional loan principal as part of our ongoing process to manage liquidity, according to this paid in-kind option, which has since been repaid. We may repay the Tontine Term Loan at any time prior to the maturity date at par, plus accrued interest without penalty. The Tontine Term Loan is subordinated to our existing Revolving Credit Facility (defined below) with Bank of America, N.A. The Tontine Term Loan is an unsecured obligation of the Company and its subsidiary borrowers. The Tontine Term Loan contains no financial covenants or restrictions on dividends or distributions to stockholders.

Camden Note Payable

On August 1, 2008, we financed an insurance policy with a $4.6 million note payable from Camden Premium Finance, Inc. (the “Camden Note Payable”), bearing interest at 4.59%, through July 1, 2010. Under the terms of the Camden Note Payable, we are to make thirteen equal payments of $243,525 (including principal and interest) beginning September 1, 2008 until October 1, 2009, followed by ten equal payments of $167,589 (including principal and interest). The Camden Note Payable is collateralized by the gross unearned premiums on the policy and any payments on account of loss under the policy. As of March 31, 2009, we have a remaining liability of $3.0 million under the Camden Note Payable which reflects future principal payments.

The Revolving Credit Facility

On May 12, 2006, we entered into an agreement, as amended (the “Loan and Security Agreement”), for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America, N.A. and certain other lenders. On May 9, 2008, we renegotiated the terms of our Revolving Credit Facility and entered into an amended agreement with the same financial institutions. The Revolving Credit Facility provides access to revolving borrowings in the aggregate amount of up to $60.0 million. At March 31, 2009, we had $34.0 million in letters of credit issued against the Revolving Credit Facility and $3.0 million available under the Revolving Credit Facility.

The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of our and our subsidiaries’ existing and future acquired assets, exclusive of collateral provided to our surety providers. The Revolving Credit Facility contains customary affirmative, negative and financial covenants that were modified in conjunction with its renewal and amendment on May 9, 2008. The financial covenants are described below in the section titled “Financial Covenants”. The Revolving Credit Facility also restricts us from paying cash dividends and places limitations on our ability to repurchase our common stock. The maturity date of the Revolving Credit Facility is May 12, 2010.

Under the renegotiated terms of our Revolving Credit Facility interest was calculated at LIBOR plus 3.0%, or the lender’s prime rate (the “Base Rate”) plus 1.0% through September 30, 2008. Thereafter, interest is based on our total liquidity, which is calculated as cash on hand plus availability under the Revolving Credit Facility, as shown in the following table.

Total Liquidity		Interest Rate
Greater than $60 million		LIBOR plus 2.75% or Base Rate plus 0.75%
From $40 million to $60 million		LIBOR plus 3.00% or Base Rate plus 1.00%
Less than $40 million		LIBOR plus 3.25% or Base Rate plus 1.25%

At March 31, 2009, our total liquidity was $54.6 million. For the three months ended March 31, 2009, our weighted average interest rate under the Revolving Credit Facility was 4.0%. The letter of credit fee under the revised agreement was 3.25% through September 30, 2008, after which the letter of credit fee is based on the same factor as loans outstanding.

In addition, we are charged monthly in arrears (1) an unused line fee of either 0.5% or 0.375%, depending on the utilization of the credit line, and (2) certain other fees and charges as specified in the Loan and Security Agreement. Finally, the Revolving Credit Facility is subject to a prepayment fee of 0.5% until May 2009 and 0.25% until May 2010. We incurred a $275,000 charge from Bank of America as a result of the amendment, of which $200,000 is classified as a prepaid expense and is being amortized over 12 months and $75,000 is classified as a deferred financing fee and is being amortized over 24 months.

Through May 9, 2008, loans under the Revolving Credit Facility bore interest at LIBOR plus 3.5% or the base rate plus 1.5% on the terms set in the Loan and Security Agreement. In addition, we were charged monthly in arrears (1) an unused line fee of either 0.5% or 0.375%, depending on the utilization of the credit line, (2) a letter of credit fee equal to the applicable per annum LIBOR margin times the amount of all outstanding letters of credit, and (3) certain other fees and charges as specified in the Loan and Security Agreement.

Financial Covenants

The financial covenants for the Revolving Credit Facility as in effect on March 31, 2009, are described in the table that follows. As of March 31, 2009, we are in compliance with each of the following amended financial covenants under the Revolving Credit Facility:

Covenant		Requirement		Actual
Shutdown Subsidiaries Earnings Before Interest and Taxes		Cumulative loss not to exceed $2.0 million		Cumulative loss of $1.0 million
Fixed Charge Coverage Ratio		Minimum of 1.25:1.00		N/A (1)
Leverage Ratio		Maximum of 3.50:1.00		N/A (1)

As of September 30, 2008, we were also in compliance with all of our financial covenants under the Revolving Credit Facility.

The Eton Park / Flagg Street Term Loan

On May 12, 2006, we entered into a $53.0 million senior secured term loan (the “Eton Park Term Loan”) with Eton Park Fund L.P. and certain of its affiliates and Flagg Street Partners L.P. and certain of its affiliates to refinance $51.9 million in senior convertible notes then outstanding. On December 12, 2007, we terminated the Eton Park Term Loan by prepaying in full all outstanding principal and accrued interest on the loan. On the same day, we entered into the $25 million Tontine Term Loan, as described above. Along with a prepayment penalty of $2.1 million that was included in interest expense and accrued interest of $1.0 million, the payoff amount under the Eton Park Term Loan was $48.7 million. We wrote off previously unamortized debt issuance costs of $0.3 million on the Eton Park Term Loan. Our weighted average interest rate under the Eton Park Term Loan was 10.75% for the period from October 1, 2007 to December 12, 2007.

4. EARNINGS PER SHARE

Our restricted shares granted under the 2006 Equity Incentive Plan participate in any dividends declared on our common stock. Accordingly, the restricted shares are considered participating securities under the two-class method as required by Emerging Issues Task Force Issue No. 03-6, “Participating Securities and the Two-class method under FASB Statement No. 128.” The two-class method is an earnings allocation formula that determines earnings for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Under the two-class method, net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amounts of dividends that must be paid for the current period. The remaining earnings are then allocated to common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Diluted earnings per share is calculated using the treasury stock and “if converted” methods for potential common stock. Basic earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common shares outstanding during the period. If the effect is dilutive, participating securities are included in the computation of basic earnings per share. Our participating securities do not have a contractual obligation to share in the losses in any given period. As a result, these participating securities will not be allocated any losses in the periods of net losses, but will be allocated income in the periods of net income using the two-class method.

The tables that follow reconcile the components of the basic and diluted earnings per share for the three months and six months ended March 31, 2009 and 2008 (in thousands, except per share and per share data):

		Three Months Ended
		March 31,
		2009				2008
Numerator:
Net income (loss) from continuing operations attributable to common shareholders		$	(1,191	)		$	223
Net income (loss) from continuing operations attributable to restricted shareholders			—				3
Net income (loss) from continuing operations		$	(1,191	)		$	226
Net loss from discontinued operations attributable to common shareholders		$	(43	)		$	(187	)
Net loss from discontinued operations attributable to restricted shareholders			—				—
Net loss from discontinued operations		$	(43	)		$	(187	)
Net income (loss) attributable to common shareholders		$	(1,234	)		$	38
Net income (loss) attributable to restricted shareholders			—				1
Net income (loss)		$	(1,234	)		$	39
Denominator:
Weighted average common shares outstanding — basic			14,322,439				15,015,717
Effect of dilutive stock options and non-vested restricted stock			—				5,803
Weighted average common and common equivalent shares outstanding — diluted		$	14,322,439				15,021,520
Basic income per share:
Basic earnings (loss) per share from continuing operations		$	(0.08	)		$	0.02
Basic loss per share from discontinued operations		$	(0.01	)		$	(0.02	)
Basic earnings (loss) per share		$	(0.09	)		$	0.00
Diluted income per share:
Diluted earnings (loss) per share from continuing operations		$	(0.08	)		$	0.02
Diluted loss per share from discontinued operations		$	(0.01	)		$	(0.02	)
Diluted earnings (loss) per share		$	(0.09	)		$	0.00

		Six Months Ended
		March 31,
		2009				2008
Numerator:
Net loss from continuing operations attributable to common shareholders		$	(1,267	)		$	(694	)
Net loss from continuing operations attributable to restricted shareholders			—				—
Net loss from continuing operations		$	(1,267	)		$	(694	)
Net loss from discontinued operations attributable to common shareholders		$	(58	)		$	(64	)
Net loss from discontinued operations attributable to restricted shareholders			—				—
Net loss from discontinued operations		$	(58	)		$	(64	)
Net loss attributable to common shareholders		$	(1,325	)		$	(758	)
Net loss attributable to restricted shareholders			—				—
Net loss		$	(1,325	)		$	(758	)
Denominator:
Weighted average common shares outstanding — basic			14,320,588				15,054,431
Effect of dilutive stock options and non-vested restricted stock			—				—
Weighted average common and common equivalent shares outstanding — diluted		$	14,320,588			$	15,054,431
Basic income per share:
Basic loss per share from continuing operations		$	(0.09	)		$	(0.05	)
Basic loss per share from discontinued operations		$	(0.00	)		$	(0.00	)
Basic loss per share		$	(0.09	)		$	(0.05	)
Diluted income per share:
Diluted loss per share from continuing operations		$	(0.09	)		$	(0.05	)
Diluted loss per share from discontinued operations		$	(0.00	)		$	(0.00	)
Diluted loss per share		$	(0.09	)		$	(0.05	)

5. OPERATING SEGMENTS

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance.

We manage and measure performance of our business in three distinct operating segments: Commercial, Industrial, and Residential. We also have a Corporate office that provides general and administrative services to our three operating segments. As a result of the 2007 Restructuring Plan several administrative services were consolidated into the Corporate office. The Commercial segment provides electrical and communications design, installation, renovation, engineering and maintenance and replacement services in facilities such as office buildings, high-rise apartments and condominiums, theaters, restaurants, hotels, hospitals and critical-care facilities, school districts, light manufacturing and processing facilities, military installations, airports, outside plant, network enterprises and switch network customers. The Industrial segment provides electrical design, installation, renovation and engineering and maintenance and replacement services in facilities such as manufacturing and distribution centers, water treatment facilities, refineries, petrochemical and power plants, and alternative energy facilities. In addition to these services, our Industrial segment also designs and assembles modular power distribution centers. The Residential segment consists of electrical installation, replacement and renovation services in single-family, condominium, townhouse and low-rise multifamily housing units. The Corporate office includes expenses associated with providing support services to our operating segments.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies, see Note 2 to our Consolidated Financial Statements included in our annual report on Form 10-K for the year ended September 30, 2008. We evaluate performance based on income from operations of the respective business units prior to Corporate office expenses. Management allocates some costs between segments for selling, general and administrative expenses, goodwill impairment, depreciation expense, capital expenditures and total assets.

Segment information for continuing operations for the three months and six months ended March 31, 2009 and 2008 is as follows (in thousands):

		Three Months Ended March 31, 2009 (Unaudited)
		Commercial				Industrial				Residential				Corporate				Total
Revenues		$	115,092			$	18,332			$	33,881			$	—			$	167,305
Cost of services			95,958				15,398				26,161				—				137,517
Gross profit			19,134				2,934				7,720				—				29,788
Selling, general and administrative			7,530				2,118				7,095				12,404				29,147
Loss (gain) on sale of assets			(66	)			(9	)			—				—				(75	)
Restructuring charge			169				114				888				737				1,908
Income (loss) from operations		$	11,502			$	711			$	(264	)		$	(13,141	)		$	(1,192	)
Other data:
Depreciation and amortization expense		$	166			$	159			$	175			$	2,117			$	2,617
Capital expenditures		$	279			$	31			$	249			$	1,094			$	1,653
Total assets		$	138,411			$	20,887			$	38,166			$	98,191			$	295,655

		Three Months Ended March 31, 2008 (Unaudited)
		Commercial				Industrial				Residential				Corporate				Total
Revenues		$	111,491			$	33,848			$	50,320			$	—			$	195,659
Cost of services			95,542				29,025				40,255				—				164,822
Gross profit			15,949				4,823				10,065				—				30,837
Selling, general and administrative			9,646				1,715				8,183				7,942				27,486
Loss (gain) on sale of assets			(103	)			—				61				35				(7	)
Restructuring charge			1,873				136				89				—				2,098
Income (loss) from operations		$	4,533			$	2,972			$	1,732			$	(7,977	)		$	1,260
Other data:
Depreciation and amortization expense		$	796			$	314			$	645			$	605			$	2,360
Capital expenditures		$	106			$	474			$	212			$	637			$	1,429
Total assets		$	131,382			$	32,599			$	64,094			$	86,272			$	314,347

		Six Months March 31, 2009 (Unaudited)
		Commercial				Industrial				Residential				Corporate				Total
Revenues		$	217,062			$	44,366			$	79,247			$	—			$	340,675
Cost of services			182,083				37,919				61,225				—				281,227
Gross profit			34,979				6,447				18,022				—				59,448
Selling, general and administrative			15,788				3,893				15,266				22,599				57,546
Loss (gain) on sale of assets			(169	)			(23	)			14				—				(178	)
Restructuring charges			420				194				1,355				732				2,702
Income (loss) from operations		$	18,940			$	2,382			$	1,387			$	(23,331	)		$	(622	)
Other data:
Depreciation and amortization expense		$	358			$	483			$	1,453			$	2,160			$	4,454
Capital expenditures		$	321			$	75			$	265			$	1,640			$	2,301

		Six Months March 31, 2008 (Unaudited)
		Commercial				Industrial				Residential				Corporate				Total
Revenues		$	221,172			$	65,993				105,614			$	—			$	392,779
Cost of services			188,965				55,296				84,646				—				328,907
Gross profit			32,207				10,697				20,968				—				63,872
Selling, general and administrative			20,597				4,191				16,712				16,389				57,889
Loss (gain) on sale of assets			(120	)			—				61				35				(24	)
Restructuring charges			3,025				227				141				—				3,393
Income (loss) from operations		$	8,705			$	6,279			$	4,054			$	(16,424	)		$	2,614
Other data:
Depreciation and amortization expense		$	1,359			$	598			$	1,333			$	1,279			$	4,569
Capital expenditures		$	170			$	534			$	284			$	3,506			$	4,494

Depreciation and amortization including discontinued operations for the six months ended March 31, 2008, is as follows: Commercial $1,359; Industrial $615; Residential $1,333 and Corporate $1,279 for a total of $4,586.

We have no operations or long-lived assets in countries outside of the United States.

Total assets as of March 31, 2009 and 2008 exclude assets from discontinued operations of $0.4 million and $3.5 million, respectively.

6. STOCKHOLDERS’ EQUITY

On May 12, 2008, 10,555 shares of outstanding common stock that were reserved for issuance upon exchange of previously issued shares pursuant to our plan of reorganization were cancelled.

The 2006 Equity Incentive Plan (as amended, the “2006 Plan”) became effective on May 12, 2006. The 2006 Plan provides for grants of both stock options and common stock, including restricted stock and performance-based restricted stock. We have approximately 1.1 million shares of common stock authorized for issuance under the 2006 Plan.

Treasury Stock

On December 12, 2007, we entered into an amendment to our Loan and Security Agreement. The amendment permitted us to pay off a senior secured term loan and enter into a new subordinated note agreement for a reduced principal amount. Further, the amendment allowed us to implement a stock repurchase program for up to one million shares of our common stock over the following 24 months. On December 12, 2007, our Board of Directors authorized the repurchase of up to one million shares of our common stock. This share repurchase plan is authorized through December 2009, and as of March 31, 2009, we have repurchased 886,360 shares at an average cost of $16.24 per share. During the six months ended March 31, 2009, we repurchased 301,418 shares of common stock under the share repurchase program, we repurchased 22,602 shares of common stock from our employees to satisfy tax withholding requirements upon the vesting of restricted stock issued under the 2006 Plan, we issued 182,600 shares of treasury stock under our share-based compensation programs, and 120 unvested shares of restricted stock were forfeited by a former employee and returned to treasury stock.

Restricted Stock

We granted 180,100 shares of restricted stock to our employees during the first six months of our 2009 fiscal year. These restricted shares were granted at prices ranging from $8.44 to $12.31 per share with a weighted average price of $8.60 per share under various vesting terms.

We granted 101,650 shares of restricted stock to our employees during the first six months of our 2008 fiscal year of which 5,300 shares have been forfeited as of March 31, 2009. These restricted shares were granted at prices ranging from $13.38 to $19.98 per share with weighted average price of $19.17 per share under various vesting terms.

During the three months ended March 31, 2009 and 2008, we recognized $0.4 million and $0.7 million, respectively, in compensation expense related to these awards. During the six months ended March 31, 2009 and 2008, we recognized $0.8 million and $1.4 million, respectively, in compensation expense related to these awards. As of March 31, 2009, the unamortized compensation cost related to outstanding unvested restricted stock was $2.3 million. We expect to recognize $0.6 million related to these awards during the remaining six months of our 2009 fiscal year, and $1.7 million thereafter.

All the restricted shares granted under the 2006 Plan (vested or unvested) participate in dividends, if any, issued to common shareholders.

Performance-Based Restricted Stock

During the year ended September 30, 2008, we granted 15 members of our senior management team performance-based phantom stock units (“PSUs”). Each PSU is convertible into shares of restricted common stock that will cliff vest on September 30, 2010, subject to the terms of the award. The aggregate size of the award is based on the Company achieving cumulative fully diluted earnings per share of $2.30 over the course of our 2008 and 2009 fiscal years. At the time the award was made, the potential aggregate range of the award was between zero and 188,300 shares of restricted stock, depending on the actual cumulative earnings per share for this period. Due to one PSU forfeiture during fiscal year 2008, the current potential aggregate maximum award is 177,700 shares.

At the time the PSU awards were granted, we forecasted that we would ultimately issue 94,150 restricted shares under the program, based on our achieving cumulative fully diluted earnings per share of $2.30 over the course of our 2008 and 2009 fiscal years. Under SFAS 123(R), the estimated fair value of these PSUs on the date of grant was $1.5 million. The awards vest over three years and are to be amortized on a straight-line basis throughout that period. We expensed $0.3 million through the end of the nine month period ended June 30, 2008, based on this projection. During the fourth quarter of our 2008 fiscal year, we revised our 2009 projected earnings per share in conjunction with our year-end budget analysis. This revision resulted in the reversal of all amounts previously expensed as we did not believe we would achieve the minimum cumulative earnings per share threshold of $1.73 to issue any restricted shares under the program. We will not accrue any compensation expense under this award during our 2009 or 2010 fiscal years. However, any deviation in the cumulative fully diluted earnings per share that we achieve through the end of our 2009 fiscal year will result in a change in the actual amount of stock-based compensation that we recognize over the vesting period.

Stock Options

During the six months ended March 31, 2009, we granted 7,500 stock options at an exercise price of $12.31 per share. These options vested on January 31, 2009, and expire ten years from the grant date if they are not exercised. We granted 21,000 stock options at a weighted average exercise price of $16.21 per share during the six months ended March 31, 2008. These options vest over a three year period at a rate of one-third on the annual anniversary date of the grant and expire ten years from the grant date if they are not exercised.

During the three months ended March 31, 2009 and 2008, we recognized $0.2 million and $0.1 million, respectively, in compensation expense related to these awards. During the six months ended March 31, 2009 and 2008, we recognized $0.3 million and $0.2 million, respectively, in compensation expense related to these awards. As of March 31, 2009, the unamortized compensation cost related to outstanding unvested stock options was $0.4 million. We expect to recognize $0.2 million of equity based compensation expense related to these awards during the remaining six months of our 2009 fiscal year, and $0.2 million thereafter.

The following table summarizes activity regarding our stock option and incentive compensation plans.

						Weighted Average
		Shares				Exercise Price
Outstanding, September 30, 2008			161,000			$	19.87
Options granted			7,500				12.31
Exercised			—				—
Expired			—				—
Forfeited			—				—
Outstanding, March 31, 2009		$	168,500			$	19.53
Exercisable, March 31, 2009		$	83,668			$	18.98

The following table summarizes all options outstanding and exercisable at March 31, 2009:

						Remaining
						Contractual Life				Weighted-Average								Weighted-Average
Range of Exercise Prices		Outstanding				in Years				Exercise Price				Exercisable				Exercise Price
$12.31 – $18.79			123,500				7.6			$	17.02				70,334			$	17.43
$20.75 – $33.55			45,000				8.2				26.44				13,334				27.15
			168,500				7.8			$	19.53				83,668			$	18.98

Upon exercise of stock options, it is our policy first to issue shares from treasury stock, then to issue new shares. Unexercised options expire between July 2016 and January 2018.

7. FAIR VALUE MEASUREMENTS

Investment in EPV Solar

On December 24, 2008, we invested $2.0 million in the form of a convertible note receivable and warrants to purchase common stock from EPV Solar, Inc. (“EPV”), formerly Energy Photovoltaics, a privately-held company in which we continue to hold a minority interest. As issued, the EPV convertible note receivable has a $2.7 million face value, an 8% interest rate under which interest is payable semi-annually on June 15 and December 15, and is due on June 15, 2010. The stock warrants allow us to purchase up to 533,333 common shares of EPV at a strike price of $1.25 per share. These warrants expire on December 31, 2013. Under the terms of SFAS 115, “Accounting for Certain Investment in Debt and Equity Securities,” we allocated the $2.0 million investment on a pro-rata basis based on the fair value of the note receivable and the warrants at the time we completed the purchase agreement. Accordingly, we recorded the note receivable at $1,755,551 as of December 24, 2008, and we will accrete its value to $2.7 million through the term date. We recorded the warrants at $244,449 as of December 24, 2008. Collectively, this investment is included in our consolidated balance sheet as an Other Non-Current Asset. EPV is currently undergoing fundraising efforts to restructure its debt and improve its liquidity. If fundraising efforts are successful, we do not expect any material impairment to our investment. If however EPV is not successful, they may seek protection in bankruptcy which could render some or all of our investment worthless.

Fair Value Measurement Accounting

We adopted SFAS 157 on October 1, 2008, for financial assets and liabilities measured on a recurring basis. SFAS 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. There was no impact upon adoption of Statement 157 to our consolidated financial statements.

Under SFAS 157, fair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date. Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange.

SFAS 157 establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2009, are summarized in the following table by the type of inputs applicable to the fair value measurements (in thousands):

										Significant				Significant
										Other Observable				Unobservable
		Total				Quoted Prices				Inputs				Inputs
		Fair Value				(Level 1)				(Level 2)				(Level 3)
Investments in equity securities		$	297			$	53			$	—			$	244
Total		$	297			$	53			$	—			$	244

Below is a description of the inputs used to value the assets summarized in the preceding table.

Level 1 — Inputs represent unadjusted quoted prices for identical assets exchanged in active markets.

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for identical assets exchanged in inactive markets; and other inputs that are considered in fair value determinations of the assets.

Level 3 — Inputs include unobservable inputs used in the measurement of assets. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or related observable inputs that can be corroborated at the measurement date. In order to estimate the fair value of our warrant position, our management utilizes the financial information of the company, along with a valuation model that includes the following inputs: risk-free interest rate, credit risk, volatility, and recent equity offerings of the company.

The following table sets forth a reconciliation of assets measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from October 1, 2008 to March 31, 2009 (in thousands):

		Investments in
		equity securities
Balance at October 1, 2008		$	—
Purchases		$	244
Balance at March 31, 2009		$	244

8. COMMITMENTS AND CONTINGENCIES

Legal Matters

In the construction business there are frequently claims and litigation. There are inherent claims and litigation risks associated with the number of people that work on construction sites and the fleet of vehicles on the road everyday. Additionally, latent defect litigation is normal for residential home builders in some parts of the country, and latent defect litigation is increasing in certain states where we perform work. We proactively manage such claims and litigation risks through safety programs, insurance programs, litigation management at the corporate and local levels, and a network of attorneys and law firms throughout the country. Nevertheless, claims are sometimes made and lawsuits filed for amounts in excess of their value or in excess of the amounts for which they are eventually resolved.

Claims and litigation normally follow a predictable course of time to resolution. However, there may be periods of time in which a disproportionate amount of our claims and litigation are concluded in the same quarter or year. If multiple matters are resolved during a given period, then the cumulative effect of these matters may be higher than the ordinary level in any one reporting period. We believe that all such claims and litigation are either adequately covered by insurance or, if not so covered, should not ultimately result in any liability which would have a material adverse effect on our financial position, liquidity or results of operations. We expense routine legal costs related to proceedings as they are incurred.

Clark Construction v. IES Commercial, Inc. f/k/a J.W. Gray

In September 2008, Clark Construction (“Clark”) filed suit against us in the U.S. District Court for the District of Maryland (Southern Division) to recover the expenses incurred by Clark and its sub-guard surety to complete a project after Clark terminated J.W. Gray (“Gray”), one of our former divisions, from the project. During the five-month period ended September 30, 2006, Gray received approximately $4.9 million in backcharges from Clark, which we disputed. We recorded $0.4 million as a loss reserve, included in current liabilities, specifically related to these backcharges. The remaining claim associated with the backcharges is approximately $4.5 million. We have not recorded any liability with respect to this amount. In 2006, we reversed previously recognized revenues related to this project of $0.5 million and wrote off $0.4 million of receivables and $0.1 million in underbillings. Clark alleges the expenses were the result of delays caused by Gray’s insufficient staffing of the project. We contend that delays were the result of Clark’s failure to properly manage the project, delays of other subcontractors and issues not in the control of Gray. Clark claims that the cost to complete the project and other damages total $4.5 million. We have filed an answer and a counterclaim seeking payment of the $0.3 million due for work completed and an additional amount in excess of $0.8 million for delay and productivity impact on our costs. While we believe Clark’s charges may potentially be without merit, there can be no assurances that we will ultimately prevail in this dispute.

Ward Transformer Site

One of our subsidiaries has been identified as one of more than 200 potentially responsible parties (PRP’s) with respect to the clean up of an electric transformer resale and reconditioning facility, known as the Ward Transformer Site, located in Raleigh, North Carolina. The facility built, repaired, sold and reconditioned electric transformers from approximately 1964 to 2005. We did not own or operate the facility but a subsidiary that we acquired in July, 1999 is believed to have sent transformers to the facility during the 1990’s. During the course of its operation, the facility was contaminated by Polychlorinated Biphenyls (PCBs), which also have been found to have migrated off the site.

Four PRP’s have commenced clean up of on site contaminated soils under an Emergency Removal Action pursuant to a settlement agreement and Administrative Order on Consent entered into between the four PRP’s and the EPA in September 2005. We are not a party to that settlement agreement or Order on Consent. The clean up of on site contaminated soils is presently estimated to cost approximately $55.0 million. These four PRP’s have initiated litigation against some of the other PRP’s to contribute to the cost of the clean up and have threatened to include more as defendants. We are not a defendant in that lawsuit, but anticipate being named. In addition to the on site clean up, the EPA has selected approximately 50 PRP’s to which it sent a Special Notice Letter in late 2008 to organize the clean up of soils off site and address contamination of groundwater and other miscellaneous off site issues. We were not a recipient of that letter. A group has been formed among the letter recipients to facilitate communication with the EPA and coordination of the remaining clean up.

Based on our investigation to date, there is evidence to support a defense that our subsidiary contributed no PCB contamination to the site. In addition, we have tendered a demand for indemnification to former owners of our subsidiary that may have transacted business with the facility and are exploring the existence and applicability of insurance policies that would mitigate potential exposure. As of March 31, 2009, we have not recorded a reserve for this matter as we believe the likelihood of our responsibility for damages is not probable and a potential range of exposure is not estimable.

Self-insurance

We are subject to large deductibles on our property and casualty insurance policies. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At March 31, 2009, we had $9.3 million accrued for self-insurance liabilities, including $2.1 million for general liability coverage losses. We are also subject to construction defect liabilities, primarily within our Residential segment. We believe the likely range of our potential liability for construction defects is from $0.5 million to $1.0 million. As of March 31, 2009, we had reserved $0.5 million for these claims, in accordance with SFAS 5, “Accounting for Contingencies.” Finally, for those legal proceedings not expected to be covered by insurance, we had accrued $5,000 at March 31, 2009.

Surety

Many of our customers require us to post performance and payment bonds issued by a surety. Those bonds guarantee the customer that we will perform under the terms of a contract and that we will pay our subcontractors and vendors. In the event that we fail to perform under a contract or pay subcontractors and vendors, the customer may demand the surety to pay or perform under our bond. Our relationship with our sureties is such that we will indemnify the sureties for any expenses they incur in connection with any of the bonds they issue on our behalf. We have not incurred any expenses to date to indemnify our sureties for expenses they incurred on our behalf. As of March 31, 2009, our cost to complete on projects covered by surety bonds was $113.6 million. As of March 31, 2009, we utilized a combination of cash and letters of credit totaling $27.6 million, which was comprised of $21.0 million in letters of credit and $6.6 million of cash and accumulated interest (as is included in Other Non-Current Assets), to collateralize our bonding programs.

On October 27, 2008, we entered into a Co-Surety Arrangement with two of our independent surety providers that increased our aggregate bonding capacity to $325.0 million and reduced our bond premium to an average of $11.25 per thousand dollars of contract costs for projects less than 24 months in duration. As is common in the surety industry, there is no commitment from these providers to guarantee our ability to issue bonds for projects as they are required. We believe that our relationships with these providers will allow us to provide surety bonds if and when they are required; however, we cannot guarantee that such bonds will be available. If surety bonds are not provided, there are situations in which claims or damages may result. Those situations occur when surety bonds are required for jobs that have been awarded, contracts are signed, work has begun or bonds may be required in the future by the customer according to terms of the contracts. If our subsidiaries are in one of those situations and not able to obtain a surety bond, then the result can be a claim for damages by the customer for the costs of replacing the subsidiary with another contractor. Customers are often reluctant to replace an existing contractor and may be willing to waive the contractual right or through negotiation be willing to continue the work on different payment terms. We evaluate our bonding requirements on a regular basis, including the terms and coverage offered by each provider. We believe we presently have adequate surety coverage.

Surety bond companies may also provide surety bonds at a cost including (1) payment of a premium, plus (2) posting cash or letters of credit as collateral. The cost of cash collateral or letters of credit in addition to the selling, general and administrative costs and the industry practice of the customer retaining a percentage of the contract (5% – 10%) amount as retention until the end of the job, could make certain bonded projects uneconomical to perform.

Other Commitments and Contingencies

Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At March 31, 2009, $13.0 million of our outstanding letters of credit were utilized to collateralize our insurance program.

Between October 2004 and September 2005, we sold all or substantially all of the assets of certain of our wholly owned subsidiaries. These sales were made to facilitate the business needs and purposes of the organization as a whole. Since we were a consolidator of electrical contracting businesses, often the best candidate to purchase these assets was a previous owner of the assets who usually was still associated with the subsidiary, often as an officer of that subsidiary, or otherwise. To facilitate the desired timing, the sales were made with more than ordinary reliance on the representations of the purchaser who was, in those cases, often the person most familiar with the business sold. There is the potential from selling assets net of liabilities, but retaining the entities from which they were sold, that if the purchaser is unwilling or unable to perform the transferred liabilities, we may be forced to fulfill obligations that were assigned or sold to others. If this were to occur, we would seek reimbursement from the purchasers. These potential liabilities will continue to diminish over time. To date, we have not been required to perform any projects sold under this divestiture program.

From time to time, we may enter into firm purchase commitments for materials such as copper wire and aluminum wire among others which we expect to use in the ordinary course of business. These commitments are typically for terms less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of March 31, 2009, we had no open purchase commitments.

We have committed to invest up to $5.0 million in EnerTech Capital Partners II L.P. (“EnerTech”). EnerTech is a private equity firm specializing in investment opportunities emerging from the deregulation and resulting convergence of the energy, utility and telecommunications industries. Through March 31, 2009, we had invested $4.9 million under our commitment to EnerTech.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements, the related Notes, and management’s discussion and analysis included in our annual report on Form 10-K for the year ended September 30, 2008. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to the risk factors discussed in the “Risk Factors” section of our annual report on Form 10-K for the year ended September 30, 2008, and in the “Disclosures Regarding Forward-Looking Statements,” and elsewhere in this quarterly report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operation are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

We have identified the accounting principles that we believe are most critical to our reported financial status by considering accounting policies that involve the most complex or subjective decisions or assessments. We identified our most critical accounting policies to be those related to revenue recognition, the assessment of goodwill impairment, our allowance for doubtful accounts receivable, the recording of our self-insurance liabilities and our estimation of the valuation allowance for deferred tax assets. These accounting policies, as well as others, are described in Note 2 of “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended September 30, 2008.

During the first six months of our 2009 fiscal year, there has been only one change to our critical accounting policies and estimates from those described in our annual report on Form 10-K for the year ended September 30, 2008. On October 1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances the guidance for using fair value to measure assets and liabilities. In addition, SFAS 157 expands information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. For additional analysis of our adoption of SFAS 157, see Item 1. Condensed Consolidated Financial Statements — Note 1, “Business” of this report.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

We discuss recently adopted and issued accounting standards in Item 1. Condensed Consolidated Financial Statements — Note 1, “Business” of this report, which is incorporated herein by reference.

RESTRUCTURING PROGRAMS

The 2007 Restructuring Plan

During our 2008 fiscal year, we completed our restructuring of operations from our previous geographic structure into three major lines of business: Commercial, Industrial and Residential. This operational restructuring (the “2007 Restructuring Plan”) was part of our long-term strategic plan to reduce our cost structure, reposition our business to better serve our customers, strengthen our financial controls and, as a result, position us to implement a market-based growth strategy. The 2007 Restructuring Plan consolidated certain leadership roles, administrative support functions and eliminated redundant functions that were previously performed at 27 division locations. Since we began the 2007 Restructuring Plan in June 2007, we recorded a total of $5.6 million of restructuring charges. Details regarding the components of the restructuring charges were previously described.

The 2009 Restructuring Plan

On October 1, 2008, we began a new restructuring program (the “2009 Restructuring Plan”) that is designed to consolidate operations within our three segments. The 2009 Restructuring Plan is the next level of our business optimization strategy. Our plan is to streamline our local project and support operations, which will be managed through regional operating centers, and to capitalize on the investments we made over the past year to further leverage our resources. Under the 2009 Restructuring Plan, we expect to incur pre-tax restructuring charges, including severance benefits and facility consolidations and closings, of approximately $3.0 million to $5.0 million, which will be implemented over approximately 12 months. During the six months ended March 31, 2009, we incurred $2.7 million associated with the 2009 Restructuring Plan, of which $0.2 million, $0.9 million, $1.4 million, and $0.2 million was charged to our Industrial, Commercial, Residential and Corporate offices, respectively.

EXIT OR DISPOSAL ACTIVITIES

On March 28, 2006, based on the recommendation of the Board of Directors, we committed to an exit plan with respect to five underperforming subsidiaries in our Commercial and Industrial segments. The exit plan committed to a shut-down or consolidation of the operations of these subsidiaries or, alternatively, the sale or other disposition of the subsidiaries, whichever came sooner. The exit plan is complete for the five subsidiaries that we selected to exit in March 2006, and the operations of these subsidiaries substantially ceased as of September 30, 2006. In June 2007, we shut down our Mid-States Electric division, located in Jackson, Tennessee. Mid-States was part of our Commercial segment prior to being classified as discontinued. In August 2008, we shut down our Haymaker division, located in Birmingham, Alabama. Haymaker was part of our Industrial segment prior to being classified as discontinued.

The assets, liabilities and operating results for each of these shut-down entities have been reclassified to discontinued operations for both current and prior periods. Remaining net working capital related to these subsidiaries was $0.1 million and $1.5 million at March 31, 2009, and September 30, 2008, respectively. As a result of inherent uncertainty in the exit plan and the monetization of these subsidiaries’ working capital, we could experience additional losses of working capital. At March 31, 2009, we believe we have recorded adequate reserves to reflect the net realizable value of the working capital; however, subsequent events may impact our ability to collect.

We have included the results of operations related to these business units in discontinued operations for the three months and six months ended March 31, 2009 and 2008.

FINANCING

The Tontine Capital Partners Term Loan

On December 12, 2007, we entered into a $25.0 million senior subordinated loan agreement (the “Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party. The Tontine Term Loan bears interest at 11.0% per annum and is due on May 15, 2013. Interest is payable quarterly in cash or in-kind at our option. Any interest paid in-kind will bear interest at the same rate (11.0%) in addition to the loan principal. On March 31, 2009, we temporarily capitalized $0.7 million of interest as additional loan principal as part of our ongoing process to manage liquidity according to this paid in-kind option, which has since been repaid. We may repay the Tontine Term Loan at any time prior to the maturity date at par plus accrued interest without penalty. The Tontine Term Loan is subordinated to our Revolving Credit Facility (as defined below). The Tontine Term Loan is an unsecured obligation of the Company and its subsidiary borrowers. The Tontine Term Loan contains no financial covenants or restrictions on dividends or distributions to stockholders.

The Revolving Credit Facility

On May 12, 2006, we entered into an agreement (the “Loan and Security Agreement”) for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America and certain other lenders. On May 9, 2008, we entered into an amended agreement governing the Revolving Credit Facility with the same financial institutions. The terms of the amended agreement are described in Item 1. Condensed Consolidated Financial Statements — Note 3, “Debt and Liquidity” of this report, which is incorporated herein by reference. The Revolving Credit Facility provides access to revolving borrowings in the aggregate amount of up to $60.0 million. At March 31, 2009, we had $3.0 million available under the Revolving Credit Facility and $34.0 million in letters of credit issued against the Revolving Credit Facility. The maturity date of the Revolving Credit Facility is May 12, 2010.

On April 17, 2009, one of our surety providers released $10.0 million of letters of credit under the Revolving Credit Facility that they were holding as collateral.

Camden Note Payable

On August 1, 2008, we financed an insurance policy with a $4.6 million note payable from Camden Premium Finance, Inc. (the “Camden Note Payable”), bearing interest at 4.59%, through July 1, 2010. Under the terms of the Camden Note Payable, we are to make thirteen equal payments of $243,525 (including principal and interest) beginning September 1, 2008 until October 1, 2009, followed by ten equal payments of $167,589 (including principal and interest). The Camden Note Payable is collateralized by the gross unearned premiums on the policy and any payments on account of loss under the policy. As of March 31, 2009, we have a remaining liability of $3.0 million under the Camden Note Payable which reflects future principal payments.

The Eton Park / Flagg Street Term Loan

On May 12, 2006, we entered into a $53.0 million senior secured term loan (the “Eton Park Term Loan”) with Eton Park Fund L.P. and certain of its affiliates and Flagg Street Partners L.P. and certain of its affiliates to refinance $51.9 million in senior convertible notes then outstanding. On December 12, 2007, we terminated the Eton Park Term Loan by prepaying in full all outstanding principal and accrued interest on the loan. On the same day, we entered into the $25 million Tontine Term Loan, as described above. Along with a prepayment penalty of $2.1 million that was included in interest expense and accrued interest of $1.0 million, the payoff amount under the Eton Park Term Loan was $48.7 million. We wrote off previously unamortized debt issuance costs of $0.3 million on the Eton Park Term Loan. Our weighted average interest rate under the Eton Park Term Loan was 10.75% for the period from October 1, 2007 to December 12, 2007.

SURETY

Surety

Many of our customers require us to post performance and payment bonds issued by a surety. Those bonds guarantee the customer that we will perform under the terms of a contract and that we will pay our subcontractors and vendors. In the event that we fail to perform under a contract or pay subcontractors and vendors, the customer may demand the surety to pay or perform under our bond. Our relationship with our sureties is such that we will indemnify the sureties for any expenses they incur in connection with any of the bonds they issue on our behalf. We have not incurred any expenses to date to indemnify our sureties for expenses they incurred on our behalf. As of March 31, 2009, our cost to complete on projects covered by surety bonds was $113.6 million. As of March 31, 2009, we utilized a combination of cash and letters of credit totaling $27.6 million, which was comprised of $21.0 million in letters of credit and $6.6 million of cash and accumulated interest (as is included in Other Non-Current Assets), to collateralize our bonding programs.

On October 27, 2008, we entered into a Co-Surety Arrangement with two of our independent surety providers that increased our aggregate bonding capacity to $325.0 million and reduced our bond premium to an average of $11.25 per thousand dollars of contract costs for projects less than 24 months in duration. As is common in the surety industry, there is no commitment from these providers to guarantee our ability to issue bonds for projects as they are required. We believe that our relationships with these providers will allow us to provide surety bonds if and when they are required; however, we cannot guarantee that such bonds will be available. If surety bonds are not provided, there are situations in which claims or damages may result. Those situations occur when surety bonds are required for jobs that have been awarded, contracts are signed, work has begun or bonds may be required in the future by the customer according to terms of the contracts. If our subsidiaries are in one of those situations and not able to obtain a surety bond, then the result can be a claim for damages by the customer for the costs of replacing the subsidiary with another contractor. Customers are often reluctant to replace an existing contractor and may be willing to waive the contractual right or through negotiation be willing to continue the work on different payment terms. We evaluate our bonding requirements on a regular basis, including the terms and coverage offered by each provider. We believe we presently have adequate surety coverage. As of March 31, 2009, our cost to complete on projects covered by surety bonds was $113.6 million.

Surety bond companies may also provide surety bonds at a cost including (1) payment of a premium, plus (2) posting cash or letters of credit as collateral. The cost of cash collateral or letters of credit in addition to the selling, general and administrative costs and the industry practice of the customer retaining a percentage of the contract (5% – 10%) amount as retention until the end of the job, could make certain bonded projects uneconomical to perform.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2008

The following tables present selected historical results of operations of IES and its subsidiaries with dollar amounts in millions. Percentages are expressed as a percent of revenues.

		Three Months Ended								Three Months Ended
		March 31, 2009								March 31, 2008
		$				%				$				%
		(Dollars in millions. Percentage of revenues.)
Revenues		$	167.3				100.0	%			195.7				100.0	%
Cost of services (including depreciation)			137.5				82.2	%			164.9				84.2	%
Gross profit			29.8				17.8	%			30.8				15.8	%
Selling, general & administrative expenses			29.2				17.4	%			27.5				14.0	%
Gain on sale of assets			(0.1	)			(0.0	)%			(0.0	)			(0.0	)%
Restructuring charges			1.9				1.1	%			2.1				1.1	%
Income (loss) from operations			(1.2	)			(0.7	)%			1.3				0.6	%
Interest and other expense, net			0.9				0.6	%			0.6				0.3	%
Income (loss) before income taxes			(2.1	)			(1.3	)%			0.7				0.3	%
Provision (benefit) for income taxes			(0.9	)			0.6	%			0.5				0.2	%
Loss from continuing operations			(1.2	)			(0.7	)%			0.2				0.1	%
Income (loss) from discontinued operations			(0.1	)			(0.0	)%			(0.2	)			(0.1	)%
Net loss		$	(1.3	)			(0.7	)%		$	0.0				0.0	%

Revenues

		Three Months Ended								Three Months Ended
		March 31, 2009								March 31, 2008
		$				%				$				%
		(Dollars in millions. Percentage of revenues.)
Commercial		$	115.1				68.8	%		$	111.5				57.0	%
Industrial			18.3				10.9	%			33.9				17.3	%
Residential			33.9				20.3	%			50.3				25.7	%
Total Consolidated		$	167.3				100.0	%		$	195.7				100.0	%

Consolidated revenues for the quarter ended March 31, 2009, were $28.4 million less than the quarter ended March 31, 2008, a reduction of 14.5%. Consolidated revenues decreased due to declines in construction activity at our Industrial and Residential business segments, offset by an increase in revenues at our Commercial business segment. The net decrease in revenues was consistent with the nationwide decline in construction activity.

Revenues in our Commercial segment increased $3.6 million, or 3.2%, during the quarter ended March 31, 2009, compared to the quarter ended March 31, 2008. Despite national trends to the contrary, many of our Commercial business units experienced revenue increases, notably in the north eastern and north central regions of the country. We attribute these increases in part to our progress in business development strategy in these regions and our strong financial position which enables us the ability to obtain surety bonding.

Our Industrial segment posted a $15.6 million decrease in revenues during the quarter ended March 31, 2009, a decline of 46.0%, compared to the quarter ended March 31, 2008. During the quarter ended March 31, 2009, our Industrial segment experienced decreased demand for transmission and distribution service projects and decreased construction at electrical substations, refineries, ethanol plants, and pulp and paper mills. Industrial segment market conditions continue to be difficult in light of the current national economic credit crisis, which has resulted in many projects being deferred as they await financing or cancelled altogether.

Residential revenues decreased $16.4 million during the quarter ended March 31, 2009, a decrease of 32.6%, compared to the quarter ended March 31, 2008, due to the slowdown in both single-family and multi-family housing construction. The ongoing nationwide decline in demand for single-family homes has affected our Residential line of business, particularly in markets such as Southern California, Arizona, Georgia, Nevada and Texas. We attribute the majority of this decrease to reductions in building activity throughout all the markets we serve, while the remaining portion of the decrease was attributable to the effect of lower prices in response to the competitive market conditions and falling input prices which affect the prices that we may pass along to our customers.

Gross Profit

		Three Months Ended								Three Months Ended
		March 31, 2009								March 31, 2008
		$				%								%
		(Dollars in millions. Percentage of revenues.)
Commercial		$	19.1				16.6	%		$	15.9				14.3	%
Industrial			2.9				16.0	%			4.8				14.3	%
Residential			7.8				22.8	%			10.1				20.0	%
Total Consolidated		$	29.8				17.8	%		$	30.8				15.8	%